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Combining economic growth with social justice to generate motivation for poverty reduction in Vietnam
18/8/2007 9:42' Send Print

According to the joint donor report, “Vietnam Development Report 2004: Poverty”, Vietnam’s considerable achievements in poverty reduction were seen as an extremely successful story in economic development. This conclusion was based on the fact that since the late 1980s, Vietnam has made important progress in quickly reducing the poverty rate in both urban and rural areas. The poverty rate was reduced from more than 70 percent in the late 1980s to under 10 percent by 2005. In effect this means that millions of Vietnamese people have dug themselves out of poverty over the last two decades or so.

In a statement released at the UN conference on Nov. 11, 2006, Vietnam declared that it would reach its Millennium Development Goals (MDGs) on poverty reduction 10 years before the scheduled 2015. In the 1993 - 2004 period, Vietnam had reduced the national poverty rate by 60 percent, provided free medical care for 88 percent of its poor, enabled primary education for all and secondary for 50 percent of people in 61 provinces and cities across the country. 400,000 new apartments were built for the poor and all temporary housing in 2,000 villages and 5 provinces had been replaced by permanent accommodation.

Vietnam’s poverty reduction efforts can be seen in the increase of income and expenditure per capita thanks to the effects of 20 years of the national renewal process (1986 - 2006). Survey findings in the 1993 - 1998 period showed that expenditure per capita had increased by 41 percent. This showed a considerable improvement in people’s living standards. It was also the result of an annual economic growth rate of 7.2 percent, much higher than the annual population growth rate of 1.6 percent, which led to an annual increase of income per capita of about 5.6 percent. In current terms, annual GDP per capita in Vietnam had rapidly increased from US$ 98 in 1990 to US$ 729 in 2006, or over 7 times higher. The question is how could Vietnam reduce poverty levels so quickly and in such a short period of time?

This outcome can be attributed to the following four reasons. Firstly, poverty reduction was and is defined as the number one priority in Vietnam’s national development strategies, policies and plans. Secondly, efforts to reduce poverty have been realised through the integration method. Thirdly, during the renewal and market-economy building process, Vietnam had broadened the scope of its trading activities by raising the degree of marketisation, commercialisation and diversification. Lastly, poverty reduction came about through the input of a diverse number of stakeholders. These four factors are seen as being the reasons behind Vietnam’s success in reducing poverty levels.

1 – Poverty reduction - first priority in every national development strategy, policy and plan.

A special feature in Vietnam’s policy is that the important role of poverty reduction is identified in all its national development strategies, policies and plans. Since the start of its national renewal process, through 5-year development plans, Vietnam worked out its national development strategies and policies, including the socio-economic development master plan for the 1990 – 2000 period; the comprehensive strategy on economic growth and poverty reduction in 2001; and the industrialisation strategy since 2001. First priority is given to poverty reduction in all these national development strategies, policies and plans. It is because Vietnam is determined to develop a socialist-oriented market economy and create policies that result in high economic growth rates and develop a fair society, or in other words, combining economic growth with social justice. While carrying out these policies, Vietnam used its high economic growth rate as a tool to assist the poor to increase their incomes, develop education and healthcare services, and accelerate the development of agriculture and rural areas where most of the poor live. In such a poor and developing country as Vietnam, poverty reduction is seen as the most important way of realising social justice.

Poverty is a major problem and a burden to the economy as well as society. However, it is also a major potential for development if we consider that the poor would constitute a major consumer market after their incomes have increased, or a major labour force when cheap labour is utilised for development purposes. Vietnam has, to some extent, reached these goals, namely reducing the burden on the budget and developing potential productive factors. So, the major objectives of poverty reduction programmes are not simply to assist the poor through food aid or humanitarian relief in emergency cases as the causes of poverty are diverse. Analysis of research and survey findings in Vietnam showed the following major causes:

- At a national level, poverty is the result of basic issues such as the low socio-economic development level and unfair distribution of income and property.

- At household level, poverty can be attributed to (1) Shortage of resources and skills (land, labour, capital and training); (2) Lack of education; (3) Negative influences such as gambling, drug addiction and idleness; (4) Having many children or dependents; (5) Lack of capacity to apply new production technologies; (6) Poor health, diseases, old age or disabilities; (7) Epidemics and diseases such as malaria, HIV/AIDS and others; (8) Negative impacts of policy or policy changes which lead to losses (for example high inflation rates, financial-monetary crisis due to liberalisation policies, and “prioritised prices” which are beneficial to some, but harm others; (9) Natural disasters which lead to crop losses or destruction of natural resources; and (10) Gender inequality.

In order to overcome these hurdles, the best and most important method is to help the poor to help themselves and enable them to escape poverty through their own efforts. This is Vietnam’s experience.

2 – The integration method

Recently, other developing countries have implemented poverty reduction target programs. These programs are often not combined with others, while in reality, they are intrinsically linked, and require integration. In Vietnam, the integration method has become the most effective way of reducing poverty levels.

By using this method, Vietnam integrated poverty reduction programs into other socio-economic development programs and policies. They include policies on political and economic stabilisation, particularly reducing the inflation rate from 800 percent to single figures within a decade from 1980 to 1990 and continuing to maintain this rate. Also put into action were the land reform policy (in the 1960s and 1990s); job generation, enhancing the educational system, population and family planning; a fairer distribution of income; programs on the advancement of women, healthcare, disease prevention and control (HIV/AIDS and others); environmental protection; improving the management capacity of poverty reduction programmes, equality between ethnic groups; infrastructure development; combining agricultural and rural development and providing micro credits.

Vietnam’s economic development policy has been actuated by a comprehensive strategy for economic growth and poverty reduction, which has effectively combined economic growth with social justice. On this foundation, Vietnam has made full use of its high annual economic growth rate of between 7 - 8 percent during the renewal process. The increase in national revenue has also been used as an effective tool, providing the poor with public services by extending them credit, increasing funds for education and healthcare, afforestation programs, and the building of roads, schools, safe sources of water and other infrastructure. In the 1993-1998 period, every percent of GDP growth rate per capita helped reduce the poverty rate by 1.3 percent, and in the 1998 - 2002 period, by 1.2 percent. When compared with other countries, the rate in Vietnam tends to be higher.

Most noteworthy is that Vietnam has broadened the scope of its education system, and over the last few years, the poor have paid only one seventh of any educational costs. The enrolment rate in primary schools is very high, accounting for more than 90 percent of the total number of children of school-age, except for some ethnic minorities or extremely poor people in remote and inaccessible areas. The enrolment rate in lower secondary schools has also increased over the last decade. Education has further been socialised over the last few years. As people’s incomes have increased, more contributions have been made to the education service, while at the same time, the State has also allocated more money to the education sector.

The medical and healthcare sector has also obtained major achievements thanks to the high economic growth. The provision of the health insurance card, which enables the poor to access healthcare services at lower costs and improvement of the distribution system through the fund for healthcare of the poor, has had very positive results. The recent establishment of the Vietnam Bank for Social Policies has also given the poor more access to credit. With these moves, disease has more or less been kept under control and the average live expectancy has increased from 50 in the 1960s to 70 in recent years. This shows that Vietnam’s medical and healthcare sector has operated more effectively than in other developing countries, which are at the same level of development but where people’s living conditions are poorer and the life expectancy is lower.

3 – Raising the degree of marketisation, commercialisation and diversification

The diversification of products, crops and occupations has become an important factor in helping farmers to increase their incomes and get out of poverty. Through the renewal policy, Vietnam’s market economy has developed and households have changed or adapted their production and business activities. The proportion of products sold out of the total output of each household increased from 40 percent in 1993 to 70 percent in 2002. With these increases in production, the way households now do business contributed to improving food security and better nutrition for the people.

In general, the diversification and commercialisation of farm produce had helped increase people’s incomes, gradually withdrawing their names from the poverty list and reducing the risks from “market shocks”.

Marketisation of the national economy is closely connected to international trade development, which is a tool to bridge the gap between skilled and unskilled labour, and specialise commodity production on the foundation of existing advantages, particularly in labour-intensive products. The development of light industries and integration into the world economy have hightened the need for unskilled workers. As a result, it has helped increase people’s incomes, particularly unskilled female workers, who have benefited mainly from opportunities in the garment and footwear industries.

The impressive economic growth has helped Vietnam to maintain its flexible exchange rate and a low inflation rate of about 5- 7 percent a year. Its modest budget deficit, stable foreign debts and progress made in international trade liberalisation have helped make Vietnam’s economy more competitive in its deep and broad integration into the world economy. A major indicator which shows Vietnam’s open economy is that its export turnover against GDP has increased rapidly in the last 20 years of the renewal process, from 10 percent of GDP in the 1980s to more than 140 percent of GDP in 2005 and 2006. Vietnam became an ASEAN member in 1995, signed a bilateral trade agreement (BTA) with the US in 2001, and actively participated in APEC, particularly in organising the 14th APEC Summit in Hanoi in Nov. 2006, with the aim of turning Asia-Pacific into a dynamic community for sustainable development and prosperity. Most recently, Vietnam became an official member of WTO in Jan. 2007 after 11 years of negotiation. All these events have helped to broaden Vietnam’s trade activities.

In addition to this, the flow of foreign investment into Vietnam has increased since the issuance of the Law on Foreign Direction Investment in 1987, from nothing in 1987 to more than US$ 10 billion in 2006, except for a drop in 1997 - 1998 due to the impact of the Asian financial and monetary crisis. Trade development and foreign direct investment (FDI) has made a big contribution to job and income generation, particularly in commercial agricultural and labour-intensive industries, which leads to poverty reduction.

Vietnam has been successful in commercialising certain goods having high-comparative advantages, particularly products relating to agriculture, labour-intensive industries and high natural resources content. Worthy of note is that in foreign trade development Vietnam has increased its total import-export turnover and diversified and increased the quantity of key export products. In the early 1980s, not one product could obtain an annual turnover of US$ one billion. In 2006, nine products obtained an export turnover of more than US$ one billion. They included crude oil (US$ 8.3 billion), textiles and garments ($ 5.8 billion), footwear ($ 3.6 billion), aqua-products ($ 3.4 billion), timber products ($ 1.9 billion), electronic products and computers ($ 1.8 billion), rice ($ 1.3 billion), rubber ($ 1.3 billion) and coffee ($ 1.1 billion). These key export goods have made an important contribution to the nation’s high export growth rate of about 20 percent a year, and have eabled economic growth, job generation and poverty reduction.

The revenues from Vietnamese guest workers in other countries and overseas Vietnamese sending money to their families or investing in the country have made a direct contribution to household incomes and poverty reduction.

4 - The participation of diverse stakeholders

The socialisation of certain activities such as education and healthcare has been warmly welcomed. This means a range of support and assistance resources have been put into effect including the State, the private sector, social organisations, donors and stakeholders to shoulder some of the responsibilities of the nation and society. Poverty reduction is a major issue in development, which requires the participation and contribution of all social sectors and classes, from national level to the grassroots.

The administrative reform program has established a network to improve service distribution to the poor. The “one-stop shop” model which has been applied in two thirds of the 61 provinces and cities in the country (now 64), and the de-centralisation process have led to improvement of the institution and transparency in settling issues for the poor. The Vietnamese Government is committed to implementing a strategy on fairness, social integration and economic growth.

The recent use of the preferential budget by poorer provinces and the establishment of provincial healthcare funds for the poor are important steps in the poverty reduction process, as giving preferential investment to richer provinces and localities would bring about more economic than social benefits.

With Government support, poor households in Vietnam have accessed diverse credit resources, including formal and informal credit, including those provided by the Vietnam Social Policy Bank and the Bank for Agricultural and Rural Development. Some lending and savings mechanisms have been established with the assistance of local non-governmental organisations (NGOs). The Vietnam Women’s Union, the Vietnam Farmers’ Association, the Vietnam Youth Association, and provincial and district People’s Committees have participated in micro credit programs at grassroots level, through the development of and granting certificates to credit organisations. The Women’s Union organisation at grassroots level has carried out some credit and saving activities and recently, about 60 NGOs have been involved in micro credit activities in Vietnam. Formal and informal credit resources have increased in number and diversified their forms. As a result, about three quarters of households have received micro credits in this way and the number of low-income households who had received loans was up to 61 percent in 2001. Most households who run short of funds are able to receive micro credits to have the opportunity to become medium-income earners.

Most of the Vietnamese population are of working age and the labour market rate has reached the highest level in the world. Currently, the formal private sector have generated about three million jobs. The informal private sector have also generated a large number of jobs. Over the last four years, the rate of farm workers has reduced from two thirds to half of the total workforce and shows a rapid increase in paid jobs from 19 percent to more than 30 percent over the last few years.

In addition to the determination and positive efforts of the Vietnamese Government and people, foreign donors, including foreign NGOs and companies, have made positive contributions to Vietnam’s poverty reduction programs. Many ODA, FDI and NGOs poverty reduction projects have been signed.

5 – More effort is needed

Although Vietnam has been rather successful in its efforts to reduce poverty, the gap between rich and poor remains a major problem. Statistics show that in the 1996 – 2003 period, the gap between rich and poor had increased from 7.3 times to 8.7 times. Inequality trends to increase in the quintile of richer and poorer groups. The expenditure rate of 80 percent of the poorest in the population has reduced slightly over time, while that of the richest group has seen a tendency to rise. The polarisation of the rich and the poor is most clearly seen between the urban and rural areas. 80 percent of Vietnam’s population still live in rural areas, while 20 percent of the richest in the population live in the cities.

In addition to achievements, at least four groups of population have been and may suffer losses from Vietnam’s current economic reform and international integration process. Firstly, trade liberalisation could lead to a reduction of jobs in previously protected industries which would affect the lives of workers in subsidiary sectors, including those in rural industries. Secondly, the restructuring of State-owned enterprises (SoEs), such as commercialising farm produce like coffee, might lead to a change in the contracts signed with coffee farmers who are the current suppliers. These contracts are currently ensured thanks to price stabilisation even in bad events. Bridging the gap between domestic and international prices might be effective but also has a negative impact on the lives of rural households. Thirdly, the restructuring of SoEs will ultimately result in redundancies in the workforce. Fourthly, changes in world prices, reduction of subsidies, restriction of foreign companies’ investment in certain sectors, the imposition of unfair anti-dumping activities by the US, EU and other countries might lead to increasing unemployment in the textile, garments, footwear, services, aqua-culture, coffee and other industries.

Basing on the poverty standard of US$ 1 per capita a day, the poverty rate in Vietnam fell by four fifths in the 1990 – 2004 period, or to under 10 percent. However, according to the standard of US$ 2 per capita a day, the poverty rate in Vietnam was still high, at 21.8 percent in 2005. The fact is that although most Vietnamese people are no longer in need of the minimum level of food, clothing and housing, they remain relative poor and their basic needs, such as education and primary healthcare are not yet fully met.

The issues mentioned earlier show that even after Vietnam had obtained considerable achievements in poverty reduction, further efforts are still needed to reduce and abolish hunger and poverty in order to realise the committed goals and build a rich, strong, fair, democratic and civilised society.

With these efforts, the introducing of new policies might help Vietnam as well as other developing countries to further develop agricultural production and combine them with poverty reduction. It means to establish an agricultural business complex by combining the three links in the “chain of values” of agricultural development, including production, manufacture and market.

The development of an agricultural business complex is a second green revolution in agriculture. If this solution is successively realised, it will surely make a further positive contribution to reducing poverty in Vietnam as well as in other developing countries.

Do Duc Dinh