_ M=Cw g_*_" : -r ,T A joint publication by the Development Research Group & the Poverty Reduction & Economic Management Network No. 11 June 1998 18330 For example, assuming a severe wors- Vietnam in Transition: enlg of thie Gini officien (for wich higher values indicate greatertinequalit New Evidence on Growth and Poverty fron .24 in 1984 to .34 in 1993 - its ob- served value in 1982-83 VNLSS data - the poverty rate would have fallen 22 per- V Tietnam's development over the reforms were self-financed and hence centage points from 77% to 55% during / past decade represents one of the quick and complete. the transition period. t more dramwatic tunarounds in Howv did the poor fare during the traisi- These results suggest that a large num- economic history. In the mid-80s the tion process, and vhat direct poficy ber of poor households benefited quickly country was in dire straits; with raging interventions might be coupled vath fromthe refomis and were shited out of hyperinflation and persistent economic macroeconomic growth policies to ensure poverty. But projections for the year 2000 stagnation plaguing one of the world's the most rapid progress in fwuther poverty using the same technique indicate that poorest countries, impoverished segments reduction? A new World Bank book enti- drstbutronal iSsues will be of growing of the population voted with their feiet and tled Househlold Welfare and rietnam's importance. With high growth and in- fled the country. Ten years later - after a Transition to a Market Economy ad- creasing inequality (to a Gini of .38) the radical set of reforms that initiated the dresses these questions draving on a incidence of poverty is forecasted to fall to coultry's transition from a centrally- nationaly representative household survey 34%. However, a stable distribution (at a planned to market economy - macro- carried out during 1992-93 - the first ever Gun of.34)wouldallowpovertytofan to economic stability had baen restored, in Vietnam. Careful answers to these 27% of the population, and reduced ine- amnual GDP growth surged to 9-10% and questions are critical to securing Viet- quality (to a Gini of .30), would allow the exports increased ten-fold. nam's development in the years to come. poverty rate to fall to just 22% of the While the reforms undertaken - freeing Despite its recent success, Vietnam re- populahon. of prices, reductions of public sector par- mains a country plagued by poverty; in ticipation in the economy, fiscal and 1993 fifty-five percent of the population Figure .PoverIncidenceiinVietnam monetary austerity, and opening of the were poor and per capita GNP was $200, Under Difserent Distributional economy to international markets - were ranking Vietnam among the poore Scenarios, 1984-2000 typical of IMF and World Bank strcftural countries in the world. adjustment policies, the case of Vietnam is 8- unusual because it did not receive any Vietnam, 1985 - 1993 0 financial support for these reforms during The Vietnam Living Standards Survey the adjustment period due to the opposition (VNLSS) data are isufficient in and of 60 of major shareholders. Financing from the themselves for drawing finn conclusions 50-- - - - - - - - - -____ World Bank and RMF resumed in 1993, about the evolution of poverty during the v after the counry had an established record period of transition, because the survey 40- V of macroeconomic and trade reform. data represent only one point in time. 30- -__--__--__--__--_'-- While the delay was largely caused by However estimates derived under diffent 20 I political factors, it perhaps offers a useful distributional scenarios regarding the dis- 1984 1993 2000 lesson: too much financing in the early tribution of income conclude that poverty stages of reform may delay adjustment fell dramatically from 1985 to 1993 (see The Government of Vietamrn is very con- rather than support it. In Vietnam's case, Figure 1). cemed about issues of poverty and equity, Internal Documents Unit, and is striving to set a historical example of rapid growth accompanied by inproved Box 1: Components of an efficient poverfv reducfion stratezv in Vietnam distribution. However, the study cu * Incentives to mformal sedcor - growth and poverty reduction in Vietnam depend on bons that distributional goals must not the economy's ability to absorb labor quickly, the Government must promote expan- impede contnued stellar growth perfonn- sion of this dynamic sector, rather than discourage it; ance. If improved distribution is . Simplificaton of business registration and twi code - the informal sector is cur- accompanied by slower growth-such as rently beyond the tax grip of the Government the Government is likely to get a good a decline of two percentage points - then return - in terms of tax revenue and employment generation - from coordinated the overall decline in poverty would be simplification of business registration and tax codes; reduced. . Rural infrastructure investment - improvements in basic rural infiastmcture are There is good potential in Vietam for associated with higher agricultural productivity and rural incomes; irrigation, in par- implementing programs that simultane- ticular, is likely to reduce poverty by raising agricultural productivity, particularly if ously reduce poverty and support growth. targeted to households with small land holdings; One ofthe principal finduigs of the house- . Credit programs - poor households would benefit from increased credit for both Onehof hey pincpal the hun e- farm and non-farm activities; credit services should be targeted especially to women, hold survey is that the underlying who are highly productive but under-capitalized relative to men, distribution of key assets - notably, land . Income transfers - public transfers, which are cunrently benefiting higher income and basic education - is quite equitable. families, should instead be targeted to the poorest of the poor, who are extremely risk For example, the survey data show that in averse and hence unwilling to use credit schemes even at heavily subsidized interest the case of education the proportion of rates; household heads having attained primary - Human capitl investment - resources here should be directed to secondary educa- level education varies only from 37% in tion, which suffered enrollment declines during the early period of the transition, and the poorest quintile to 33% in the richest to the public health care system which has deteriorated to the point of being virtually quintile. Similar results hold for lower unused; secondary (34% and 30%) and upper sec- * Nutrition and birth control - high malnutrition (one-half of those under age 5 are ondary (7% and 17%). This underlying senously stunted) and high birth rates require specific mterventions; economic distribution of assets, one positive legacygrowth alone will not bring about substantial improvements in these key indicators of distribution of assets, one positive legacy living conditions. from the central planning era, may go a long way in explaining Vietnam's success at achieving rapid poverty reduction estimates the effects of different interven- at reducing poverty if applied in concert. through growth. Unfortunately, Viet- tions to determine those that the Box 1 summruizes the components of this nam's results may not be widely replicable government can employ i tandem with its policy agenda. in most ofthe developing world, wihere the current growth strategy to frrther secure distribution of productive assets tends to progress in poverty reducton. The study be highly unequitable. emphasizes that there is strong positive David Dollar, Paul Glewwe and Jenmie The study provides a careful analysis of interaction between recommended inter- andk,ednam's Transitionytoa8 Horkeod Ecol household characteristics in Vieatam, and ventions, so that they will be most effective omy. The World Bank. Washington, DC. Poverty Lines is prepared by Gillette Hall with assstance from Grace Evans For information orfor a subscription, contact: LSMS Administrator (Attn: Poverty Lines) Visit our World W1ide Web sites: World Bankr MC3-568 Poverty Group Home Page: http://hco.worldbarkorg/nml/hcvp/poverty/contents.html 1818 H Street, N.W. LSMS HomePage: http:/Avw.worldbankorghtrnlIprdph4smnsmshome.htrnl Washington, D.C. 20433 E-mail address: Isms@worldbankorg Fax: (202) 522-1153