Agriculture Sector Program (Loan 1340-VIE[SF])

7/31/2019 Agriculture Sector Program (Loan 1340-VIE[SF])

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ASIAN DEVELOPMENT BANK PPA:VIE 25325

PROGRAM PERFORMANCE AUDIT REPORT

ON THE

AGRICULTURE SECTOR PROGRAM(Loan 1340-VIE[SF])

IN THE

SOCIALIST REPUBLIC OF VIET NAM

September 2002


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CURRENCY EQUIVALENTS

Currency Unit Dong (D)

At Appraisal At Project Completion At Operations Evaluation(31 October 1994) (1 August 2000) (4 March 2002)

D1.00 = $0.0000910 $0.0000714 $0.0000667$1.00 = D10,995 D14,000 D15,000

ABBREVIATIONS

ADB Asian Development BankASP Agriculture Sector ProgramCLT certificate of land titleFAO Food and Agriculture OrganizationIFPRI International Food Policy Research Institute

IA Implementing AgencyGDLA General Department of Land AdministrationMAFI Ministry of Agriculture and Food IndustriesMARD Ministry of Agriculture and Rural DevelopmentMINFOR Ministry of ForestryMOF Ministry of FinanceMOT Ministry of TradeOEM Operations Evaluation MissionPCF peoples credit fundPCR program completion reportPPAR program performance audit reportRRP report and recommendation of the President

SBV State Bank of Viet NamSOE state-owned enterpriseTA technical assistanceVBARD Viet Nam Bank for Agriculture and Rural Development

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December.(ii) In this report, $ refers to US dollars.

Operations Evaluation Department, PE-602


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CONTENTSPage

BASIC DATA iiEXECUTIVE SUMMARY iii

I. BACKGROUND 1A. Rationale 1B. Formulation 1C. Objectives and Scope 2D. Financing Arrangements 3E. Implementing Arrangements 4F. Program Completion Reports 4G. Operations Evaluation 4

II. IMPLEMENTATION PERFORMANCE 5A. Effectiveness of Design 5B. Policy Reform Measures 7C. Program Management 11

III. PROGRAM RESULTS 14A. Performance Indicators 14B. Impact of Policies 14C. Environmental Protection 16

IV. KEY ISSUES FOR THE FUTURE 16A. Involvement of the Private Sector 16B. Strengthening the Land Information System and Land Management 17C.

Financial Intermediation 17

V. CONCLUSIONS 17

A. Overall Assessment 17B. Key Lessons Learned 19C. Follow-Up Actions 20

APPENDIXES

1. A Timeline of Major Reforms in Viet Nam 222. Key Indicators 273. Summary Status of Agriculture Sector Program Measures 33

4. Subcriteria for Performance Rating 465. Case Studies 496. Summary of Compliance with Loan Covenants 51

SUPPLEMENTARY APPENDIX (available upon request)

Assessment of Implementation of Agriculture Sector Program Measures 53


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BASIC DATAAgriculture Sector Program (Loan 1340-VIE)

Program Preparation/Institutional Building

TA No. TA Name TypeNo. of

Person-MonthsAmount($000)

ApprovalDate

2224 Rice Market Monitoring andPolicy Options Study

ADTA 22.0 832.0 8 Dec 1994

2225 Land Information System andAgricultural Taxation Study

ADTA 25.0 646.0 8 Dec 1994

2540 Agricultural Policy and ProgramSupport

ADTA 3.5 100.0 8 Mar 1996

Key Program Data ($ million)As per ADB

Loan Documents ActualTotal Program Cost1 78.9 78.9ADB Loan Amount/Utilization 78.9 78.9

Key Dates Expected ActualFirst Country Consultation 921 Nov 1992Second Country Consultation 9 Mar3 Apr 1993Fact-Finding 27 Mar16 Apr 1994Appraisal 728 Jul 1994Loan Negotiations 911 Nov 1994Board Approval 8 Dec 1994Loan Agreement 19 Jan 1995Loan Effectiveness 17 Apr 1995 17 Apr 1995First Disbursement 19 May 1995Loan Closing 30 Jun 1998 30 Jun 1998Program Completion 30 Jun 1997 30 Jun 1998

Months (effectiveness to completion) 26 38

Borrower Socialist Republic of Viet Nam

Executing Agencies Ministry of Finance

Type of Mission No. of Missions No. of Person-DaysCountry Consultation 2 165Fact-Finding 1 84Appraisal 1 154Program Administration

Inception 1 9

Review 4 23Consultation 3 18Program Completion 1 6

Operations Evaluation2 1 28

ADTA = advisory technical assistance, TA = technical assistance.1

Equivalent to SDR54 million.2

The Operations Evaluation Mission comprised R. Keith Leonard, Evaluation Specialist (Mission Leader),John V. Graham (International Consultant), and Pham Lan Huong (Local Consultant).


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EXECUTIVE SUMMARY

Economic policy in Viet Nam underwent a fundamental change in direction during thesecond half of the 1980s. In 1986, the Sixth Party Congress approved a reform program knownas doi moi (renovation). A comprehensive process of reform was initiated. The response wasdramatic. For example, average economic growth over the period 1992 to 1997 was double that

of the 1980s.

Agriculture is a key sector of Viet Nams economy. In 1994, agriculture (includingfisheries and forestry) accounted for 27% of Viet Nams gross domestic product while 70% ofthe labor force was employed in the sector. Given the importance of agriculture, many of thereforms adopted by the Government focused on the sector. Two of the key measures were torecognize the household as the main unit of agricultural production and to grant extended landuse rights to households. These, along with other measures, produced an immediateimprovement. Prior to the reforms, Viet Nam imported around 1 million tons of rice a year. In1989, it became a net exporter of rice. Currently, it is the second largest exporter of rice in theworld.

The Asian Development Bank (ADB) and the Government formulated the AgricultureSector Program (ASP) within this context of rapid and comprehensive reform. Two technicalassistance (TA) grants attached to the ASP supported policy development in key areas. Duringimplementation, ADB approved another TA to facilitate dialogue between the Government andADB over second tranche release conditions.

ADB staff formulated the ASP over a period of about 2 years. The ASP was classified asan economic growth loan with the overall goal of establishing a policy environment supportive ofa dynamic, market-oriented, and diversified agriculture sector. This goal was to be achieved bysustaining agriculture sector growth, improving efficiency in production and agroprocessing, andstrengthening rural equity.

The ASPs goal and objectives were to be achieved through the implementation of45 time-bound policy measures covering three main areasmarket orientation and efficiency,rural financial intermediation, and land tenure. Eighteen conditions were directed at improvingmarket orientation and efficiency in four subcategoriesliberalizing markets and trade for riceand fertilizer, supporting commercial enterprises, stabilizing rice markets and prices, andreforming cooperatives. Twelve conditions supported improved rural financial intermediation infour subcategoriesimproving the efficiency and profitability of the Viet Nam Bank forAgriculture and Rural Development (VBARD) (formerly Viet Nam Bank for Agriculture),maintaining a nondistortionary interest rate structure, developing savings and loan cooperatives,and promoting medium-term lending. A further 15 conditions supported reforms to land tenureand related areas under 4 subcategoriesimproving the legal and regulatory framework,distributing land more equitably, introducing a regulatory framework for forestland, and

reforming agricultural taxation.

Given the ASPs breadth, there were eight government agencies involved inimplementationthe Ministry of Finance as the Executing Agency, State Planning Committee(now Ministry of Planning and Investment), Ministry of Agriculture and Rural Development(MARD, formerly Ministry of Agriculture and Food Industries), Ministry of Trade (MOT), StateBank of Viet Nam, VBARD, General Department of Land Administration (GDLA), Ministry ofForestry (MINFORlater merged into MARD), and the Government Price Department. Of these,MARD, MOT, VBARD, and GDLA were the principal implementing agencies.


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The first tranche of $40 million was released in May 1995 when the loan becameeffective. The second tranche, scheduled for release in December 1996, was delayed by6 months pending agreement on modifications to two of the eight second tranche releaseconditions. All other conditions were largely or completely fulfilled. The loan was closed asscheduled on 30 June 1998.

Agriculture sector growth was sustained throughout the ASP period and beyond. Riceproduction increased from 25 million tons in 1995 to 33 million tons in 2000. Strong growth wasalso achieved in the production and export of other major crops. The strong growth inagricultural production and exports helped dramatically improve living standards for ruralhouseholds. The poverty level fell in rural areas from 66% in 1993 to 45% in 1998 (using theWorld Bank poverty line based on minimum calorie intake). Most of the policies that drove theturnaround in agriculture production and much of the improved sector performance predate theASP. Therefore, it would be wrong to attribute this outcome exclusively to the ASP.Nonetheless, it contributed to improved marketing arrangements for rice and fertilizer, supportedthe distribution of land use rights with improved gender equity (an important result), andenhanced the financial performance of VBARD. It also provided a vote of confidence in thereform program, thereby contributing to maintaining its momentum. On the other hand, the

scope of the ASP was too broad with a degree of insufficiency in the conditions such that someimportant objectives were not achievedincluding greater private sector involvement in riceexport and fertilizer import, a functioning land information system, and profitable operation ofVBARD according to international accounting standards.

Key issues for the future are (i) the need to further extend the process of marketliberalization and increase the involvement of the private sector through progressive withdrawalof state involvement, (ii) strengthening the land information system and land managementcapability, and (iii) continuing the process of extending the availability of credit in rural areas.

The ASP is rated successful, on the threshold of the highly successful category. It washighly relevant, particularly in terms of its fit with government strategy at the time and now. It

was somewhat less relevant in terms of its design, which covered too broad a scope with aconsequent lack of coherence and sufficiency. The ASP was efficacious. Most policy conditionswere fulfilled within the program period, but the objectives are yet to be fully achieved. The ASPwas efficient, particularly in terms of program management, although the use of the localcurrency proceeds to fund development of the sugar industry was not an efficient use ofresources, nor was it consistent with the ASP objectives or the Governments developmentpolicy letter. Sustainability is most likely. The Government has shown a strong long-termcommitment to the reform direction. There were significant institutional development and otherimpacts. The performance of ADB and the executing and implementing agencies wassatisfactory. The two TAs to support policy development were successful while the third TA wasinnovative and highly successful.

The ASP was successful primarily because of genuine commitment and support for itsprinciples by those in the Government with power and influence to make it happen. The ASPwas also successful because it did not include any significant departures from existinggovernment policy. This was appropriate given that the Governments reform program wassound and the pace of reform rapid. In other circumstances, policy programs may need toinvolve a greater degree of additionality in order to promote more rapid adoption of reformpolicies.


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ADBs flexibility in providing the additional TA and modifying two of the policy conditionsalso contributed to ASP success. This TA and the relatively frequent dialogue ensured thatproblems were rapidly resolved and did not become entrenched. Viet Nams steady approach togreater private sector involvement has been successful at avoiding undesirable outcomes.However, it has limited innovation and efficiency, which are required to sustain agriculturesector growth and create off-farm employment through value-added activity. Achieving this will

require a vibrant private sector operating at all levels. The experience to date shows that bothformal and informal barriers need to be removed for this to occur. While the process of removingformal barriers has largely been completed (some being removed as a result of the ASP), anumber of informal barriers remain. Chief among these is the presence of dominant state-owned enterprises that retain competitive advantages. Progressive withdrawal of stateinvolvement in commercial activities needs to occur if sector growth is to continue.

For future program loans, the local currency proceeds should be used for purposes thatare consistent with, and contribute to, the reform program. While fungibility is an issue, thegovernments should be encouraged to provide incremental funding for certain activities or meetclearly identified restructuring costs, both of which can be tracked through a review of budgetaryallocations.

The evaluation of the ASP confirms the conclusion of a recent special evaluation study,namely, that ADB needs to adopt a more strategic and flexible approach in its policy-basedlending. Turning a recognized need for greater flexibility into practice may require changes inthe management of program lending such that the focus shifts from policy actions to policyoutcomes. Greater flexibility will require more effective monitoring and evaluation systems toprovide the information on which decisions can be made, and dialogue must be frequent and in-depth. Given the short duration of most policy-based loans, monitoring and evaluation systemsfor program loans and the required skills and resources should be in place by loaneffectiveness.


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I. BACKGROUND

A. Rationale

1. Economic policy in Viet Nam underwent a fundamental change in direction during thesecond half of the 1980s. It had become increasingly apparent that centralized planning and

collectivized farming had resulted in low incomes and food shortages with consequentwidespread poverty. At a macro level, there were large trade and fiscal deficits as well ashyperinflation. In 1986, the Sixth Party Congress approved a reform program known as doi moi(renovation). Many reform measures followed (Appendix 1). The response was dramatic. Forexample, average economic growth over the period 1992 to 1997 was double that of the 1980s.

2. Agriculture was, and is, a key sector of the Viet Nam economy. It was and still is criticallyimportant in terms of poverty reduction, given its dominant role as a source of employment. In1994, agriculture (including fisheries and forestry) accounted for 27% of Viet Nams grossdomestic product (GDP) in current market prices while 70% of the labor force was employed inthe sector (Appendix 2).

3. Given the importance of agriculture, many of the key reforms adopted by theGovernment focused on the sector. Critical among these was Resolution No. 10 of 1988 (All-sided Economic Renovation of Economic Management in Agriculture) and the Land Law of1993. The most important aspects of these two measures were to recognize the household asthe main unit of agricultural production and to grant extended land use rights to households.These, and other measures, produced an immediate response. Prior to the reforms, Viet Namimported around 1 million tons of rice a year. In 1989, it became a net exporter of rice.Currently, it is the second largest exporter of rice in the world.

4. The Agriculture Sector Program (ASP)1 was formulated and approved by the AsianDevelopment Bank (ADB) within this context of rapid and comprehensive reform. The rationaleof the ASP given in the report and recommendation of the President (RRP) was to ensure

continuity and stability of the reform process[and to] complement, at the sectoral level theGovernments macroeconomic stabilization and adjustment reforms, which are supported by theWorld Bank and International Monetary Fund (IMF).

B. Formulation

5. ADB staff formulated the ASP over a period of about 2 years without preparatorytechnical assistance (TA). Approximately 4 person-months of ADB staff field time wereprovided. The RRP indicated that three sector studies provided input to the ASP formulation.2

6. The process of formulation was thorough but a number of difficulties were encountered.First, as this was the first program loan made to Viet Nam, the authorities had difficulty

understanding the concept of a policy loan for a specific sector, compared to the logic ofstructural adjustment lending by IMF and the World Bank. For example, it was hard to generateenthusiasm in the then Ministry of Agriculture and Food Industries (MAFI) in the absence ofadditional financial resources going into the agriculture sector. Second, the Government was

1Loan 1340-VIE(SF): Agriculture Sector Program, for $80 million, approved on 8 December 1994.

2Namely (i) Food and Agriculture Organization of the United Nations (FAO). 1989.Viet Nam: Agricultural and FoodProduction Sector Review. Hanoi; (ii) a 1990 agriculture sector review by ADB, which could not be located; and(iii) FAO. 1993. An Agriculture-led Strategy for the Economic Transformation of Viet Nam: Policy and ProjectPriorities(Executive Summary). Hanoi.


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implementing reform measures faster than ADB could formulate the ASP. This gave rise toconsiderable discussion within ADB regarding the additionality of the ASP. On the one hand,ADB officers saw merit in keeping in step with the Governments own process and priorities withADB not being prescriptive. On the other hand, they did not see it as sufficient to simply endorsewhat had already taken place or was ongoing. On balance, they saw the ASP more as aconsolidation of past reforms rather than a significant extension of these or a departure into new

areas. Third, the scope of the ASP was envisaged to cover five main areas. The view withinADB was that this was too broad. At appraisal, the scope was narrowed to three areas (para. 8),although this was largely achieved through regrouping measures rather than dropping any ofthem.

C. Objectives and Scope

7. The ASP was classified as an economic growth program. The RRP included a detailedprogram framework. This stated that the overall objective or goal of the ASP was to establish apolicy environment supportive of a dynamic, market-oriented, and diversified agriculture sector.This goal was to be achieved through attainment of the immediate objective (purpose) ofsustaining agriculture sector growth, improving efficiency in production and agroprocessing, and

strengthening rural equity. In turn, a number of outputs were included to achieve the immediateobjective. However, the logic (cause and effect relationship) from outputs to purpose to goal inthe program framework was not clear in all cases.3

8. ASP outputs were to be produced through the implementation of 45 time-bound policymeasures (Appendix 3). These were grouped into three areasmarket orientation andefficiency, rural financial intermediation, and land tenure. Eighteen conditions were directed atimproving market orientation and efficiency in four subcategoriesliberalizing markets andtrade for rice and fertilizer, supporting commercial enterprises, stabilizing rice markets andprices, and reforming cooperatives. Twelve conditions supported improved rural financialintermediation in four subcategoriesimprovement of the efficiency and profitability of the VietNam Bank for Rural Development (VBARD, formerly Viet Nam Bank for Agriculture),

maintenance of a nondistortionary interest rate structure, development of savings and loancooperatives, and portfolio diversification through promotion of medium-term lending. A further15 conditions supported reforms to land tenure and related areas under 4 subcategoriesimproved legal and regulatory framework, more equitable distribution of land, regulatoryframework for forestland, and agricultural taxation reform.

9. At the time of loan approval, ADB approved two TA grants to support policy developmentin key areas.4 During the course of implementation, and at the request of the Government, ADBapproved a small-scale TA to facilitate dialogue both with ADB over second tranche release

3Rather than a goal of creating a conducive policy environment supportive of a dynamic, market-oriented, anddiversified agriculture sector (as stated in the RRP), the goal of the ASP would have been better defined asincreased production, productivity, and diversification of agricultural production. The purpose of the programcould have been more accurately stated as liberalized and deregulated agricultural trade and creation of marketincentives for farmers. The outputs in the program framework needed to reflect actual program deliverables. Forexample, a key output could have been defined as formal constraints on private sector involvement in rice exportor fertilizer import removed.

4TA 2224-VIE: Rice Market Monitoring and Policy Options Study, for $832,000, approved on 8 December 1994, andcompleted in December 1996; and TA 2225-VIE: Land Information System and Agricultural Taxation Study, for$646,000, approved on 8 December 1994, and completed in June 1998.


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conditions (two of which were proving difficult to meet) and among the agencies involved, as theExecuting Agency (EA) was finding it difficult to coordinate them.5

D. Financing Arrangements

10. The approved amount of the ASP was SDR54 million ($80 million equivalent) from

ADBs concessional lending window, the Asian Development Fund. The foreign exchangeproceeds were to be used by the Government to finance imports specified in a list of eligibleitems. Included among these were cereals, fertilizers, other agricultural chemicals (with anegative list of certain products considered hazardous), and a range of other items that could beused as inputs to agricultural production and agroprocessing (including fuels, vehicles, plasticand rubber articles, hand tools, and pumps).

11. The use of the local currency proceeds of the loan (counterpart funds) receivedconsiderable attention during processing. Up to and including loan fact-finding, memoranda ofunderstanding included details for earmarking counterpart funds to specific areas of incrementalexpenditure.6 However, at appraisal, the idea of specifying in detail how counterpart fundsshould be expended was dropped. Rather, the appraisal report stated that these would

supplement the general resources of the Government although they would be used to supportthe reform measures included under the ASP. This was reflected in the RRP and the LoanAgreement. In its development policy letter, the Government stated that a major part of thecounterpart funds would be made available to VBARD to expand medium-term credit, inparticular for the purchase of farm equipment and the establishment of rural industries. Althoughnot specifically linked to the use of counterpart funds, the Government undertook to settleVBARDs bad debts and provide adequate funding to enable the General Department of LandAdministration (GDLA) to meet the targets set in the policy matrix. In the event, the Governmentreported that a substantial part of the counterpart funds were used for loans to the, as yet,nonviable sugar industry.7 At best, there was a policy inconsistency between the principles ofthe ASP and government-directed lending to the sugar industry, which also contributed to thereemergence of VBARDs bad debt problem (para. 34).

12. Adjustment costs were loosely identified in the RRP$90 million for establishing amodern cadastral service (not yet established) and for issuing certificates of land title (CLTs),and $100 million for restructuring and modernizing the agricultural extension service (not part ofthe ASP and not carried out). The RRP concluded that it was difficult to accurately assess theadjustment costs related to the ASP but that these exceeded the proposed loan amount.

5TA 2540-VIE: Small-Scale TA for Agricultural Policy and Program Support, for $100,000, approved on 8 March

1996.6MAFI was keen to see counterpart funds used for a range of agriculture sector activities. Included among the sixsuggested areas was development of a sugar industry, which is where the majority of the funds was eventuallyused. While the missions up to appraisal expressed support for the principle of directing funds to the agriculturesector, they recommended support for the financial costs of reform measures. Various allocations were explored.By fact-finding the proposed allocation was 40% to VBARD for credit in support of rural food processing, 5% forVBARD staff retrenchment, 20% for issuance of land use certificates, 5% for support to Peoples Credit FundDevelopment, 5% for setting up a monitoring system for rice demand and supply and prices, and 25% for otherareas in the agriculture sector.

7Approximately 62% of the counterpart funds were lent to VBARD for directed onlending to sugar enterprises, 35%funded civil works, and the balance was used to cover the costs of tree planting at a fiberboard factory.


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E. Implementing Arrangements

13. Given the breadth of the ASP, there were eight government agencies involvedtheMinistry of Finance (MOF) as EA, State Planning Committee (now Ministry of Planning andInvestment), Ministry of Agriculture and Rural Development (MARD, formerly MAFI), Ministry ofTrade (MOT), State Bank of Viet Nam (SBV), VBARD, GDLA, Ministry of Forestry (MINFOR,

later merged with MAFI to create MARD), and the Government Price Department. Of these,MARD, MOT, VBARD, and GDLA were the principal implementing agencies (IAs) for ensuringenactment of policy reforms.

14. A steering committee of 12 members was formed to coordinate implementation. MOFindicated that the committee was a useful forum for discussion, particularly given that the ASPwas the first program loan to Viet Nam so the requirements for such loans were new to allparticipants. Notwithstanding this, MOF encountered some problems in fulfilling its mandate ofensuring that policies adopted prior to effectiveness remained in effect, and of ensuring promptadoption of all ASP conditions given its lack of control over the IAs. In this regard, the task ofMOF was made more difficult by the concurrent public sector reorganization.

F. Program Completion Reports

15. MOF prepared a program completion report (PCR) in compliance with the LoanAgreement.8 This assessed that the Government had successfully implemented the ASP.However, the PCR noted that there were too many measures, given the program period and theimplementation capacity of the Government. It also noted that some of the measures did notremain relevant given the changes taking place. In this regard, it noted that policy research,analysis, and formulation were particularly important to ensure that policy remained relevant.

16. ADB also prepared a PCR.9 It rated the ASP highly successful.10 The PCR indicated thatthe reform measures undertaken under the ASP had a significant impact on the growth andefficiency of the agriculture sector and on reducing rural poverty. However, the PCR also

recognized that attribution of these outcomes to the ASP was a problem. It took the view thatthe policy changes would have taken place without the ASP but that they would have takenlonger to be adopted. Some areas of concern were also identified. Although many restrictionson private sector participation had been removed, the level of private sector participation in riceand fertilizer trade was disappointing, due in large part to advantages enjoyed by the state-owned enterprise (SOE) sector. The PCR also agreed that there were too many policyconditions, and that the ASP lacked focus. It also identified utilization of loan proceeds as aconcern. Finally, the PCR noted that support to the sugar industry had not proved to besustainable or efficient.

G. Operations Evaluation

17. An Operations Evaluation Mission (OEM) visited Viet Nam in May 2002 to evaluate theperformance of the ASP. Discussions were held with MOF and the IAs, traders associations,farmers associations, SOE trading enterprises, joint stock companies, private sector riceexporting and fertilizer importing firms, and consultants currently working in the agriculture

8Ministry of Finance. 1999. Agriculture Sector Program Loan: Completion Report. Hanoi.

9ADB. 2000. Program Completion Report on the Agriculture Sector Program (Loan 1340-VIE[SF]) in the SocialistRepublic of Viet Nam. Manila.

10Using a four-category rating scale of highly successful, successful, partly successful, and unsuccessful.


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sector. The performance of the ASP was assessed on the basis of its (i) design effectiveness(relevance); (ii) contribution to program goal, achievement of program purpose, and productionof outputs (efficacy); (iii) efficiency; (iv) sustainability; and (v) contribution to institutionalstrengthening and other impacts (see Appendix 4 for a list of subcriteria used). The draftprogram performance audit report (PPAR) was circulated for comment inter-departmentally inADB and to the Government. Comments received were considered in finalizing the PPAR.

II. IMPLEMENTATION PERFORMANCE

A. Effectiveness of Design

1. Consistency with Government and the Asian Development Bank Strategy

18. The ASP had an excellent fit with the broad thrust of government strategy as enunciatedin doi moiand subsequent decrees and decisions. Further, the Governments commitment wasclearly demonstrated through the adoption of many fundamental reform measures (Appendix 1).As already noted (para. 6), the Government frequently moved faster than the speed at whichADB could finalize the policy matrix. This further demonstrates the consistency of the ASP with

government strategy.

19. Notwithstanding this favorable reality, the Government signaled its intent to follow apragmatic approach that would minimize the risk of adverse outcomes. This was recognized byADB during ASP processing when it was noted that:

One inherent difficulty in the formulation of the ASP lies in the prudent step-by-stepapproach adopted by the Government, very often starting with an experimental phase,subsequent adjustments and expansions but generally without an enunciation ofcommitment to a longer-term strategy of which these steps may be a part. This makespossible catering to the diverse political audiences, minimizing resistance to the reformprocess and flexibly adjusting the pace of change, where such resistance is met. It has theobvious limitations, however, in agreeing on a medium-term program of adjustments as

required under a program loan.11

20. This observation neatly sums up the reality of policy making and of policyimplementation, which often does not lend itself to a predetermined set of policy actions asrequired in a program loan. Because policy is a political process and because policiessometimes result in unexpected or even perverse outcomes, the path toward a desired outcomeis often not a straight-line process (the timeline of key policy measures in Appendix 1 clearlyillustrates this). It also helps explain why, despite the ASP having an excellent fit with broadgovernment strategy, some problems arose in fulfilling some of the conditions during theprogram period.

21. At the sector level, the ASP had a good fit with ADBs interim strategy of enhancing rural

employment, productivity, production, and thereby incomes, with a consequent reduction in ruralpoverty. Specific actions in the interim strategy were to effect improvements in the policyenvironment, support development of rural savings and credit, and support diversification andintensification of production.

11ADB. 1994. Loan Fact-Finding Mission: Back-to-Office Report. Internal memorandum. Loan 1340-VIE:AgricultureSector Program.


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22. The ASP remains relevant in light of current government and ADB strategy. Subsequentsections provide evidence of ongoing government actions to extend the reforms initiated underthe ASP. ADB and the Government are currently formulating a second agriculture sector policy-based loan.

2. Adequacy of Agriculture Sector Program Preparation

23. The sector analysis upon which the ASP was based, and the analytical approach, didnot lead to a coherent and focused policy program. Two of the three studies on which the ASPwas based (footnote 2) were very dated (4 and 5 years old). This limited their relevance,particularly in view of the rapid changes taking place in the sector. Also, sector studies tend tofocus on technical aspects with limited analysis of the drivers of sector performance and theyare usually prepared on the basis of subsector studies carried out by different people, which canresult in a lack of coherence and prioritization. The 1989 FAO study illustrates this.12 The 1993FAO study, which provided a strategic overview of project and policy priorities, had the potentialto offer a more useful basis for the formulation of the ASP than a technical sector study.However, the strategy must be sound and in this case, some of the policy priorities it identifiedcan be questioned.13

24. The discussion within ADB during ASP processing revealed a tendency on the part ofsome staff to micro-manage the reform agenda. This is reflected in a focus on individual policyactions rather than desired policy outcomes. A lot of time was spent discussing issues that, withthe benefit of hindsight at least, turned out to be of little importance. Individual actions taken bythe Government, which appeared not to be consistent with intended outcomes, were seen bysome ADB staff as possible evidence of backsliding by the Government and cause for concern.This may suggest a lack of understanding of the political reality of policy making and policyimplementation.

3. Coherence, Logic, and Sufficiency of the Program

25. To an extent, there was a lack of coherence in the ASP, and the cause and effectrelationship between policy measures and expected outcomes was not clearly demonstrated.14

12Its end-point was the identification of priorities for investment and technology transfer, although in fact these werenot prioritized, scheduled, or linked. What was missing was an understanding of the policy and externalenvironment drivers of sector performance. As such, at best the study provided a menu for making investmentdecisions but it did not provide a guide for deciding on policy priorities.

13In terms of policies, at the macro level the study argued that market liberalization needed to be extended toincrease competitiveness. At the sector level, it strongly promoted the need to maintain agricultural taxation to fundmuch-needed rural infrastructure. At the institutional level, it identified three urgent policy priorities: (i) policyanalysis regarding the extent to which conferral of land use rights was resulting in a willingness by farmers to investin land improvements, with consequent policy measures in light of the analysis; (ii) policy actions to improve priceincentives to encourage farmers to produce more, particularly with respect to ricethis was seen as requiringsubstantial investment in rural infrastructure, improved institutions to facilitate competitive markets, and competition

in credit provision; and (iii) promotion of farmer organizations for service provision. The OEM believes that thestrategies on agricultural taxation, the importance of rural infrastructure, and promotion of farmer organizationswere not priorities.

14The lack of coherence of some of the measures under the ASP is most clearly demonstrated by the inclusion offour policy conditions aimed at promoting sustainable management of forest resources. While worthwhile inthemselves, these bore little if any relationship to the purpose of the ASP. They may have been included as ameans of broadening the scope in order to justify a larger loan. While the four policy conditions on the formation offarmer organizations and the two conditions on agricultural taxation had a general link to the ASP purpose, they didnot form part of a coherent program. Their inclusion appears to be a result of the decision to reduce the number ofthematic areas from five to three, hence these measures were included under the category of market liberalization.More broadly, there is little evidence of an interrelationship among the three main areas of the ASPmarket


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Further, the policy conditions were mostly necessary but not sufficient to achieve the ASPobjectives. The ASP went for breadth rather than depth. In fact, each of the three areas of focus(market orientation and efficiency, financial intermediation, and land tenure) could have formedthe basis for a policy program on its own.

26. There is general agreement between Governments and ADBs PCRs and PPAR that

there were too many policy conditions. Four reasons probably account for this: (i) the analyticalapproach adopted (para. 23); (ii) the relatively slow and extended period of ASP formulation inrelation to the speed of reforms taking place (para. 6); (iii) the need to justify the loan size andscope of the program;15 and (iv) a tendency to focus on policy actions rather than policyoutcomes.

4. Identification of Assumptions and Risks

27. Four risks were identified in the RRP: (i) certain aspects may take longer to implementthan envisaged (this occurred but was dealt with); (ii) trade liberalization may induce priceinstability (this did not occur); (iii) a socially undesirable accumulation of land use rights mayoccur (there is no evidence that this has happened but there is no effective land information

system to track this); and (iv) institutional capacity to implement the ASP may be inadequate(the TAs provided, including the small-scale TA approved during implementation, effectivelymitigated this risk, except in the area of monitoring and evaluation [para. 51]). The majorassumption was that the Government would remain committed to a reform process. Thisassumption held true. One unidentified risk was inefficient use of counterpart funds, whichreduces the returns available for loan repayment.

B. Policy Reform Measures16

1. Preapproval Conditions

28. Two policy measures were to be implemented before ADB Board approval. These were

(i) 1.2 million households to be issued with CLTs17

and (ii) MINFOR to establish eligibility criteriafor issuance to households of CLTs for forestland.

2. Market Orientation and Efficiency (18 Conditions)

29. Five conditionsthe cornerstone of ASP objectivesaimed to promote growth andinvestment in the agriculture sector by deregulating domestic markets, liberalizing foreign trade,and promoting competition. All conditions were implemented by close of the ASP, despite theextreme political sensitivities surrounding liberalization of trade in rice and fertilizer.Subsequently, the trade reform process has continued, with all quantitative restrictions on suchtradeboth domestic and externalnow lifted. Rice export taxes have been abolished. Importsof mixed fertilizers are subject to a 3% tariff; other fertilizer imports are free of duty.

orientation and efficiency, financial intermediation, and land tenure. It can be argued that the granting of land userights was necessary to provide the basis for collateral for lending to farmers but in fact collateral is not required byVBARD for loans under D10 million (76% of VBARDs loans to farmers in 2001). Even where collateral is taken,VBARD has never foreclosed any loan.

15As stipulated in ADB. 1989. Operations Manual. Section 6: Program Lending. Manila. This was the applicablepolicy on program lending at the time of ASP approval. Other factors to be considered in determining the size ofthe loan were the importance of the sector and other sector-specific considerations.

16Appendix 3 contains the policy matrix with a summary of status at the progress report, PCR, and PPAR stages.

17The term CLT is commonly used for what is described in the Land Law as a certificate of land use right.


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30. Another five conditions were designed to strengthen the legal framework for theestablishment and operation of commercial enterprises, and to minimize the trading advantagesenjoyed by SOEs. Growth in private enterprise was expected to result. Fulfilling the requirementfor equal participation of all enterprises in rice exporting and removing licenses for fertilizerimports proved difficult for the Government, leading to a delay of about 6 months in the releaseof the second tranche.18 Other conditions were fulfilled as scheduled.19 The Commercial Code,

approved in 1997, and the Enterprise Law, introduced in 1999, set guidelines for the operationand establishment of private enterprises. These measures have together led to a large increasein the number of registered enterprises. The ASP required the Government to place allagricultural SOEs under the financial oversight of the Department of Enterprise Financing (DEF)of MOF. Although this condition was fulfilled, the intent was not achieved, as SOEs are notsubject to strict financial discipline and corporate governance standards. Consequently, theirperformance is poor and they crowd out the potentially more efficient private sector.

31. Private sector participation, both in terms of numbers of enterprises and volume of trade,remains disappointing. Although official figures could not be obtained, the OEM was informed bynongovernment sources that only one private sector firm was importing fertilizer while two wereexporting rice, accounting for about 2% of total exports. MARD on the other hand, stated that

there were around 6070 private firms currently involved in either fertilizer import or rice export.It was not clear if this figure included entities of mixed public/private ownership. While no formalbarriers remain on private sector involvement in rice export and fertilizer import, there areseveral reasons why participation is low. Traders frequently lack the working capital, or find itdifficult to borrow, to fund shipments of a financially viable size. Many lack the industry contacts(both in international markets and at the domestic wholesale level) and a wholesale/retailnetwork that SOEs have been able to establish over many years in the business. Furthermore,SOEs enjoy an unfair competitive advantage in the form of an implicit government guaranteewhile at the same time they are not required to pay a dividend and meet the full cost of capital.Small businesses may decide that it is too risky and nonviable to attempt to enter the marketunder these conditions (see Appendix 5 for two case studies of successful private sectortraders).

32. Four conditions aimed at stabilizing rice markets and prices with the objective ofcushioning farmers and consumers against price and supply shocks and at maintaining foodsecurity. Implementation of these measures further strengthened moves toward a market-basedsolution to price and supply stability rather than relying on government intervention for thispurpose. Overall, the objective of allowing prices, producers, and traders to respondappropriately to ensure secure supplies in all areas of the country has been successful, with nosignificant rice supply shortages reported in recent years. MARD has not continued on a regularbasis with the market modeling introduced under TA 2224-VIE (footnote 4), neither has thecomprehensive system of data collection also initiated under the TA been fully maintained.

18 The two conditions stated that (i) the Prime Minister of the Borrower, by 31 March 1996, shall have issued aninstruction permitting all enterprises, regardless of form of economic organization, to participate equally and directlyin the export of rice; and (ii) MOT, by 31 December 1996, shall have abolished import licenses for the import offertilizer. In the event, ADB accepted the Governments argument that a too rapid adoption of these measurescould lead to instability in the market. In their place the Government removed all restrictions on the domestic tradeand movement of rice, and gave provincial governments the responsibility for selecting qualified enterprises(regardless of form of economic organization) to export rice and import fertilizer according to provincial quotasassigned by the Government.

19In subsequent liberalization moves, Decree 44/2001/ND-CP of 2 August 2001, permitted all legal entities(companies and individuals) to export most goods without having to acquire a special license, by revising theimplementing decree of the Commercial Code.


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33. Reform of cooperatives and farmer organizations was to be achieved through four policyconditions. These aimed to shift the focus from state control to voluntary participation and tofurther strengthen the shift in focus to the individual farm household as the basic unit ofproduction. The Law on Cooperatives became effective on 1 January 1997. A model charter foran agricultural cooperative was prepared. However, some important regulations are still not inplace. Since 1997, 8,764 cooperatives (including 5,764 of the 10,280 cooperatives in existence

at the time) have registered under the provisions of the new law.

3. Rural Financial Intermediation (12 Conditions)

34. Eight policy conditions had the broad objective of ensuring that VBARD, as the majorplayer in the rural finance market, became an efficient, profitable, and sustainable organization.All conditions were met, albeit with some qualifications, but VBARD is yet to achieve profitabilitybased on international accounting standards. Overdue loans are now classified and pretaxprovisioning made, but only in accordance with Vietnamese accounting standards. VBARDcontinues to use external auditors with a contract for the 2001 audit signed early in 2002. Asinternational accounting standards are not followed in full, particularly with respect to thetreatment of accrued interest and loan loss provisioning, all audit statements have been

qualified. International accounting standards for treatment of accrued interest have beenadopted since 2001. The OEM was told that VBARD expected to meet international accountingstandards in full from June 2002 with the adoption of international provisioning standards.However, it is now reported that full international accounting standards will not be implementeduntil the end of 2003. This is a matter of concern. While SBV agreed to write off thenonperforming debt inherited by VBARD at establishment, the fundamental cause of theproblemdirected lendingwas not completely addressed. As a result, VBARD currently hasan off-balance sheet item of about $522 million in nonperforming loans arising from directedlending.

35. Two conditions required VBARD to review its transaction costs by product type, and setdifferential interest rates, within SBV ceilings, which would reflect the relative costs of its various

loan products. The overall objective of these conditions was to encourage savings. Followingimplementation of these conditions, savings have now risen to the point where in 2001 theyrepresented 86% of VBARDs funding resources compared to the early 1990s when SBVfinanced about 80% of the requirement. Further moves toward interest rate liberalizationoccurred in 2002 when SBV ruled that from June 2002, interest rate ceilings would be removed,with financial intermediaries being free to set interest rates in accordance with marketconditions.

36. A further policy condition required SBV to complete an evaluation of peoples creditfunds (PCFs).20 These had earlier been introduced on a pilot basis by SBV within the provisionsof the Banking Law and the Law on Cooperatives, with the aim of increasing credit flowsthrough voluntary mass organizations at commune level. The evaluation of the pilot program

was completed in November 1999 with a conference held at that time to consider results. Ingeneral, the evaluation confirmed that there was a useful role for PCFs in the overall rural creditstructure. About 800,000 households took loans from PCFs in 2000 with the total capitalresources of the network reaching about $186 million. There is a need to institute a compulsoryexternal audit requirement to improve financial transparency of the PCF system and to supportsupervision.

20The RRP did not specify any subsequent action that Government should take following completion of theevaluation. Given this, the rationale for including the measure is unclear.


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37. A single policy condition required SBV to permit VBARD to adopt an interest ratestructure where medium-term lending rates would exceed the lending rates for short-term loans,so encouraging the growth of medium-term lending and deposits. In 1997, medium- and long-term loans accounted for about 24% of VBARDs current portfolio; this had risen to about 47%by the end of 2001 following reform in this area. Subsequently, SBV has removed all restrictionson the ability of financial intermediaries to determine interest rates.

4. Land Tenure (15 Conditions)

38. Four conditions sought to establish a legal and regulatory framework for the efficient useof agricultural land and forestland, and to encourage long-term investment in land development.These measures were implemented as agreed with the exception that mandatory ceilings on thearea of perennial cropland that can be held by an individual household have not been removed.GDLA is proceeding with the reissue of CLTs in joint names (an important move toward genderequity) and all new CLTs are issued on this basis. While new administrative procedures havebeen introduced for dispute settlement, they are complex and frequently disregarded in favor ofinformal settlement at local level. Establishing procedures for compensation where land iscompulsorily acquired by the Government has provided an equitable basis for acquisition.

Disputes over acquisition have decreased since the measures became effective. However, itremains an emotive issue and the Government is in the process of revising Decree 22 oncompensation and resettlement to provide clearer guidelines for land acquisition and faircompensation. Use rights for land allocated prior to 1993 have now been given the same statusas those issued under the provisions of the 1993 law.

39. Little quantitative research is available on which to base an assessment of the long-termbenefit of these measures. There is no recent information available about capital formation inagriculture, for example, which would allow a judgment to be made about the relationship ofsecurity of tenure to investment.

40. Five conditions aimed to promote equity in land distribution and to improve the livelihood

of poor families. Access to credit was to be facilitated through the ability of farm households touse CLTs as loan collateral. Distribution of CLTs was completed ahead of the requiredschedule. At the time of the OEM, nearly 92% of all households farming agricultural land hadbeen issued with CLTs, for about 8.6 million hectares, with the objective of reaching over 95%of all households by the end of 2003. For forestry land, about 450,000 CLTs had been issuedfor about 2.1 million hectares. In addition, all temporary CLTs that had been issued in the early1990s had been replaced. As required, the average proportion of reserve land held bycommunes was reduced to below 5% of the total agricultural land in the commune.

41. To the extent that most farm households now hold CLTs, the equity objectives of theabove measures have in part been satisfied. The issue of CLTs has made an importantcontribution by facilitating the transfer of land between occupiers while provisions of the Land

Law of 1993 were also critical in this regard. Sample surveys carried out during the ASP foundthat over 30% of the parcels covered by CLTs had been transferred. Anecdotal evidence,however, suggests that many informal transfers are taking placehouseholds are reluctant toregister transactions either because of the cost, the inconvenience, or because their holdingsmight now exceed approved limits. To further facilitate transfers, GDLA is gradually replacingexisting CLTs, which cover all the parcels used by a household, with CLTs for individual parcels


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as transfers take place.21 In addition, transfer charges have been eliminated for the mostdisadvantaged communes and villages to assist with the restructuring of holdings in theseareas. An important policy remaining for the Government is how to achieve consolidation ofholdings in order to reduce farming costs while at the same time retaining equity ideals andensuring that households end up with a similar land quality mix to that which they have atpresent.

42. A group of four conditions aimed to achieve sustainable use of forest resources.Following the issue of two decrees, a series of directives, guidelines, and circulars werereleased, which were subsequently merged into an operational manual published in November1995. Included in the manual were model contracts for households in representative forestmanagement systems, including improved management of buffer zones surrounding protectedforests. As a second tranche condition, MINFOR was to prepare an action plan to determine theextent of encroached forestland in all provinces, and in consultation with GDLA, to prepareguidelines for the future use of such land. This requirement was considered to have beensatisfied with the issue of a decree outlining a plan of action to protect the biodiversity of VietNam and to identify measures to deal with encroachment. Much remains to be done in this area.Concentrating the efforts of the ASP on the allocation of land held under use contracts by state

forest enterprises (SFEs) to landless households and supporting a program of SFE restructuringmay have been a more productive approach. Having said this, no clear rationale can beidentified for inclusion of measures on forestland in the ASP.

43. Two conditions relating to agricultural taxation were implemented in full. Recently, theGovernment has examined the amount of tax collected, the costs of collection, and the ability offarmers to pay and has exempted them from land tax for the period 20032010, except largecommercial farms. Therefore, ASP reforms in this area have not remained relevant.

C. Program Management

1. Disbursement and Procurement

44. The first tranche release of $40 million was made on 17 May 1995 on loaneffectiveness.22 The second tranche was scheduled for release in December 1996. In the event,agreement had to be reached to modify the terms of two of the second tranche releaseconditions, which caused a delay of 6 months. The balance of $37.5 million was disbursed on25 June 1997. The SDR amount was disbursed in full with an equivalent amount of $78.9million.23 The loan was closed as scheduled on 30 June 1998. Procurement was carried out inaccordance with ADBs Guidelines for Procurement. The positive list was used to define theimports allowed under the ASP. There was no single contract/item that cost more than $5million. No significant problems were encountered during liquidation of claims, imprest accounts,and disbursements.

21This is a huge task as surveys carried out during the ASP showed that the average number of plots per householdsranged from between 1.5 and 2.5 in the Northeast South and Mekong Delta regions to 11 in the Northern Midlandsand Mountain regions.

22A further disbursement of $1.4 million was made on 10 January 1996, being the amount required to utilize the firsttranche ceiling of SDR26.9 million.

23The difference to $80 million was attributable to a depreciation of the special drawing rights against the US dollar.


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2. Performance of the Asian Development Bank and the Executing Agency

45. The performance of ADB was satisfactory. ADB conducted eight missions in support ofASP implementation. Such missions generally took place every 4 to 5 months and totaled50 staff-days. In terms of the frequency of contact and the amount of staff time dedicated, ADBsupport was adequate. The mission leader for ASP preparation led the Inception Mission.

Thereafter, the same officer was involved until the final review in May 1998.24 Therefore, therewas good continuity in ADBs support. ADB demonstrated flexibility by modifying the wording oftwo of the second tranche release conditions (para. 30). ADB also approved a small-scale TA toprovide additional assistance to MOF (footnote 5 and para. 50).

46. The performance of MOF and the IAs was also satisfactory, particularly given that thiswas then first experience with an ADB program loan, and given the rapid pace of change at thetime. MOF experienced some problems coordinating the relatively large number of IAs andensuring that all second tranche release conditions were met. On recognizing these problems,MOF requested TA support, which provided an effective resolution. There were seven loancovenants, all of which were complied with (Appendix 6). The Government demonstrated anexcellent ability to manage the policy process, with the need to cater to multiple agendas and

minimize risk. Following some initial problems, MOF and the IAs provided adequate support toTA consultants.

3. Effectiveness of Technical Assistance

a. TA 2224-VIE: Rice Market Monitoring and Policy Options Study

47. TA 2224-VIE25 is rated successful. It could be rated highly successful had it made amore lasting contribution to developing a policy analysis and formulation capability in MARD.The TA consultants were recruited from the International Food Policy Research Institute(IFPRI). The quality of analysis and the extent of communication (19 seminars and workshopswere organized) were excellent. In this regard, the TA provided a model for policy work in

support of program lending. The consultants collected both primary and secondary data andundertook rigorous analysis to provide a much clearer understanding of how rice marketsfunctioned in Viet Nam. They also developed a spatial equilibrium model to explore policyscenarios. This provided confidence to decision makers that liberalizing rice trade would nothave negative impacts on regional disparities and food security. Rather, the analysis showedthat farm-gate prices would increase with a consequent positive impact on poverty reduction.

48. IFPRI commissioned an independent evaluation of the impact of its policy research.26This estimated that the input by IFPRI advanced the adoption of reforms by 12 years. Thespatial equilibrium model was used to value this reduction in the time taken to implement thepolicies aimed at market orientation and efficiency. The computation showed that in 1995present value terms, $45$31 million was gained from the IFPRI policy research.

24Several of the missions were carried out by other staff members to address particular issues or as part of othermission work.

25The objectives of the TA were to: (i) develop a database on key rice market indicators to increase markettransparency and support public policy formulation; (ii) undertake an in-depth investigation of rice marketing;(iii) analyze the structure of incentives, including the impact of existing public interventions; (iv) analyze the impactof key reform measures on rice farmers, processors, traders, exporters, and consumers; (v) prepare a set ofmedium-term rice policy options; and (vi) provide training to staff of concerned government agencies in statisticalsampling survey design, methods, data processing, and economic policy analysis.

26Ryan, J.G. 1999. Assessing the Impact of Rice Policy Changes in Viet Nam and the Contribution of PolicyResearch. Washington: International Food Policy Research Institute.


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b. TA 2225-VIE: Land Information System and Agricultural TaxationStudy

49. TA 2225-VIE is also rated successful. It had two components: (i) improvements to theland information and registration system, and (ii) a review of the existing agricultural landtaxation system.27 Field surveys and spot sampling of documents along the registration trail

identified problems with data collection and reporting, and confirmed that many transactionsundertaken since land allocation had not been recorded in commune registers. A need for newpolicies to facilitate the consolidation of fragmented holdings was identified. Recommendationsto enhance the integrity of the allocation, registration, and transfer process were made. Many ofthese have since been implemented by GDLA. While a comprehensive set of recommendationsto enhance the agricultural land taxation system was prepared, MOF has decided to exempt allbut large commercial farmers from this tax for the period 20032010, reflecting the poorcompliance rate, general tax burden on rural people, and high administrative costs.

c. TA 2540-VIE: Small-Scale TA for Agricultural Policy and ProgramSupport

50. TA 2540-VIE is rated highly successful. It provided the services of a single consultant for3.5 person-months in four inputs.28 The result of the TA was that negotiations were successfullyconcluded to reword two of the second tranche release conditions and thereby enable trancherelease. The decision to relax the conditions slightly has been vindicated by the subsequentevents; the measures have now been fully implemented as originally envisaged.

4. Program Monitoring and Evaluation

51. The need for effective monitoring and evaluation and the development of a policyresearch capability was recognized early in the process of ASP preparation. However, it waswrongly assessed, that MOF was capable of undertaking monitoring without consultant support.Beyond monitoring, the ability to evaluate the impact of the ASP and to formulate policy was

lacking in MOF and the IAs. The TAs that were provided in support of the ASP were notdesigned to institutionalize this capability. The findings of the OEM are very much in line withprevious experiencemore than lip service has to be paid to program monitoring andevaluation if it is to take place and to a standard that produces useful information fordetermining results and lessons. Program formulation must ensure that the skills and resourcesare available.

27The objectives of the TA were to (i) monitor the progress of allocating land use rights and reserved land held bycommunes, (ii) monitor trends in land transactions and the accumulation of land use rights and their implications forsocioeconomic equity, and (iii) review the existing agricultural taxation system.

28The scope of the TA was to assist MOF to (i) assess the current state of compliance and progress in readyingcompliance with future policy conditions, especially those related to the second tranche of the program loan;(ii) suggest to MOF a course of action to be followed in ensuring compliance by other agencies and ministries;(iii) provide advice to agencies and ministries in considering, assessing, and formulating crucial and critical policymeasures; (iv) review the continuing progress of policy formulation and reform; and (v) report to MOF and ADB,providing analysis and suggestions regarding the realistic expectations of compliance for each outstanding policymeasure.


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III. PROGRAM RESULTS

A. Performance Indicators

52. Performance indicators to capture ASP impacts were broadly specified in the programframework and in some cases quantified.29 As the policy reforms were to contribute to the

ongoing transition from a centrally planned to a market-based economy, it was difficult toquantify outcomes with certainty. The wide range of policy reforms being implementedthroughout the economy as a whole, and uncertainty as to how these reforms might impact onthe agriculture sector, added to this difficulty.

B. Impact of Policies

1. Achievement of Agriculture Sector Program Purpose

53. Agricultural GDP growth was sustained throughout the ASP (Table 1 and Appendix 2).Similar levels of growth have been sustained subsequently, although at a slower rate in 2001,largely resulting from a fall in rice production and lower international commodity prices,

particularly for rice and coffee. Agricultures share in overall GDP fell from 25% in 1996 to 22%in 2001, reflecting the slowdown in agricultural growth and increased growth in the industry andservices sectors.

Table 1: Annual GDP Growth Rates(%)

Year

GDP 1995 1996 1997 1998 1999 2000 2001

National 9.5 9.7 8.2 5.6 4.8 6.7 6.8Agricultural 4.8 4.4 4.3 3.5 5.2 4.0 2.7

Agriculture as % of total 25 24 24 24 23 22

GDP = gross domestic product.Source: General Statistical Office; Central Institute for Economic Management, 2002.

29At the goal level, deregulated agricultural commodity markets, increased private sector involvement, and anincreased share of higher value commodities in total agricultural output were identified as indicators. At thepurpose level, a quantified indicator of an agricultural sector growth rate of 3% was specified together with moregeneral efficiency indicators. Growth in rural employment was also specified but without time limits. Three groupsof indicators were identified at the output level. Those relating to the objective of a more market oriented andefficient agricultural sector were (i) export rice prices approximate world market prices; (ii) world price of rice andfertilizer reflected at farm-gate; (iii) competitive trading margins in rice and fertilizer; (iv) growth of voluntary traders'associations; (v) growth of voluntary farmers' associations; (vi) improved farmer prices for products and inputs;(vii) efficiency of extension services enhanced; (viii) transparent and standardized financial managementinformation systems in agricultural SOEs; (ix) increased efficiency of marketing, storage, and transportation of rice

and fertilizer; (x) growth in value-added production and processing of rice and fertilizer; (xi) increase in farm-gateprices relative to export prices for rice; and (xii) decline in variability of domestic wholesale prices of rice andfertilizer. Indicators at the output level relating to improved rural financial intermediation were (i) improved VBAportfolio management and debt provisioning; (ii) internationally acceptable accounting standards adopted by VBA;(iii) nondistortionary VBA interest rate structure ; (iv) diversified VBA savings and loan portfolio; and (v) increasedVBA profitability. Indicators at the output level relating to land tenure reform were (i) increased investment inagricultural land; (ii) increased adoption of high-yielding rice technologies and rice yields; (iii) increased use ofagricultural land as collateral to access formal credit; (iv) agricultural land use rights conferred on rural householdswithout discrimination by gender or marital status; (v) share of total agricultural land of communes held as reservesreduced to a maximum of 5%; (vi) improved conservation of degraded forest lands; and (vii) economicallyproductive use of degraded forest lands.


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54. In 1985, Viet Nam produced about 16 million tons of paddy and was a net rice importer.Since then, production has grown from 25 million tons in 1995 to 33 million tons in 2000. Riceexports grew from 2.1 million tons in 1995 to 3.5 million tons in 2000. In 2001, for the first time ina decade, rice production fell by about 600,000 tons.30 This was accompanied by a 2.4%reduction of the area under rice cultivation with farmers shifting lower-yield areas from rice intoaquaculture and other crops. This outcome was not a surprising response given the declines in

rice prices that had occurred over the previous 3 years. Strong growth has been experiencedsince 1995 in the production of groundnuts, coffee, tea, rubber, cashew, pepper, sugar,vegetables, and most fruits. In addition to rice, exports of coffee, rubber, cashew, pepper, andtea have all grown over the same period (Appendix 2). Export turnover value in current termsincreased by about 15% per annum over the period 19951999. Export performance has alsobeen enhanced through an improvement in product quality, which has resulted in a narrowing ofthe price gap between Vietnamese products and world prices. In 1994, the price differentialbetween Thai and Vietnamese rice was $80$100 per ton; by 1997 the differential had fallen to$10$20 per ton. Export destinations for agricultural products have become more diversifiedwith sales to over 80 countries, with the market share in Europe, North America, and Asiaincreasing.

55. The impact of ASP measures on land tenure and related equity considerations hasoverall been positive. Land allocation and the distribution of CLTs proceeded rapidly during theASP and more than 90% of households with agricultural land are now covered. Progress withthe allocation of forestland has been slower and the extent to which SFEs still control largeareas of land, particularly in non-plain areas, remains a constraint to equitable access to land bypoor households. TA 2225-VIE assisted GDLA with the development of its registrationprocedures and with policy formulation. Access to credit has improved since the start of theASP.31 It is not possible to specifically attribute production increases to improved land userights. However, there must be a positive association. On the other hand, it is also clear thatconferral of a formal land use right has not yet been accompanied by total freedom for farmersto determine land use. Also, a land use right has not proved to be particularly useful ascollateral for borrowing, although this has not yet appeared to constrain the rapid increase in

credit provision.

2. Achievement of Agriculture Sector Program Goal

56. As a result of the market orientation and efficiency measures implemented since thestart of the ASP, all quantitative restrictions on trade in fertilizer and rice, both domestically andinternationally, have been removed. SOEs still dominate trade in these two commodities,however, a disappointing but perhaps not surprising outcome when the benefits of SOEincumbency such as size, market contacts, length of time in the business, asset structure, andimplied government guarantee are taken into account. There is some evidence from TA 2224-VIE that domestic marketing of agricultural products has become more efficient following tradeliberalization and MOT reports a sustained reduction in the spread between international and

farm-gate prices. Passage of the Enterprise Law after the close of the ASP may, in the long run,

30World Bank. 2002. Viet Nam Economic Monitor, Spring 2002. Hanoi.

31In nominal dollar terms, VBARDs outstanding short-term loans to households (mainly rural households) grew fromabout $688 million in 1998 to $1,239 million in 2001, an 80% increase, while medium- and long-term loansoutstanding to households grew by more than 200% over the same period. In 1998, VBARD reached about4 million households; in 2001 about 7 million households including 2 million Viet Nam Bank for the Poor clienthouseholds. Changes in interest rate policies, a program condition, were successful in stimulating an increase inmedium-term deposits, which together with an overall improvement in deposit mobilization allowed VBARD tofinance about 86% of its total fund resources from deposits in 2001.


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prove to be a defining event in stimulating enterprise growth, competition, and service deliveryin the agriculture and agribusiness sectors. Mobilizing resources to meet the medium-termcapital requirements of these businesses will be a major challenge for the banking sector.

57. While agriculture has in part become more diversified, the sector is still dominated bypaddy production. Between 1990 and 2000, the structure of gross agricultural output has

changed very little, with about 80% of output coming from crops and 17% from livestock. Lettingfarmers decide what to produce, where, when, and by what methods (provided these areconsistent with sensible long-term land use objectives) should be the guiding principle if the fullimpacts of ASP reforms are to be realized. Such an approach, together with support for theagribusiness sector, will be required if the Governments 10-year strategy of agriculturalproduction growth of 4%4.5% per year is to be achieved.

58. Improved rural incomes and poverty reduction were not an explicit part of the ASP goal.However, the strong growth in agricultural production and exports helped dramatically improveliving standards for rural households. According to the Viet Nam Living Standards Surveys, realper capita expenditure by rural households increased by 30% between 1993 and 1998. Theincidence of poverty fell in every region and in both rural and urban areas. In rural areas,

poverty fell from 66% in 1993 to 45% in 1998 (using the World Bank poverty line based onminimum calorie intake).

C. Environmental Protection

59. No environmental concerns were identified in the RRP. Potential environmental impactscould have arisen from the purchase and increased use of agricultural chemicals as a result ofagricultural intensification and diversification. Foreign exchange proceeds were utilized againsta positive list of items that included fertilizers and agricultural chemicals. However, also includedwas a negative list of those chemicals classified as hazardous under the World HealthOrganizations Classification of Pesticides by Hazard and Guidelines to Classification19921993. Data on agrochemical imports are not available. Fertilizer imports rose from 2.1

million tons to 3.5 million tons over the period 19951999 while domestic production alsoincreased. A recent study recommended that, as use of fertilizer and cropping intensitiesincrease, monitoring should take place to ensure that soil capacity is being managed in asustainable manner.32 The policy conditions on forestland had the potential to deliver positiveenvironmental outcomes but the impacts of these measures are difficult to determine.Monitoring and evaluation of the ASP were deficient in general and no monitoring of possibleenvironmental impacts took place.

IV. KEY ISSUES FOR THE FUTURE

A. Involvement of the Private Sector

60. The direct involvement of the private sector in fertilizer import and rice export is stilllimited although the ASP has created many of the conditions for this to happen. The privatesector is growing in strength but informal barriers remain. Therefore, a key issue is to identifyand implement the steps required for greater private sector involvement to promote innovationand competition. One of a number of measures, which has already shown promising results, isto speed up a process of phased divestment as this resolves the problem of crowding out bySOEs. Some of the privileges currently enjoyed by SOEs can be addressed by measures such

32ANZDEC. 2000. Viet Nam Agriculture Sector Program (TA 3223-VIE): Phase I Technical Report. Hanoi.


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as requiring them to pay a dividend and meet the full cost of capital. Others, such as the implicitgovernment guarantee on their borrowings, can be removed only by divestment. SOE reformscan have a big payoff for agriculture by freeing up financial resourcescurrently, 85% ofVBARDs medium-term corporate debt is held by SOEs, most of them loss incurring. More workis needed on the limitations to trade in seeds, pharmaceuticals, and other inputs for theagriculture sector, and the impact of protection in other sectors on the international

competitiveness of agriculture in Viet Nam.

B. Strengthening the Land Information System and Land Management

61. The process of distributing CLTs for agricultural use is substantially complete. Thechallenge now is to further develop and extend the land information system to (i) facilitate andunify the land registration process throughout the country, and (ii) provide information on landtransfers for further policy development. This will require some capital expenditure andadjustments in budget priorities.

62. An emerging issue in land policy and management is the need to rationalize landholdings to create more contiguous plots and, in some cases, more economically sized units.

Formal restrictions on land aggregation and difficulties with the rationalization of holdings arelikely to constrain future agriculture sector growth. While land transfers do take place, thetransaction costs can be high and administrative procedures cumbersome, particularly for theconversion of cropland to other purposes, such as livestock husbandry or agroprocessing.Anecdotal evidence indicates that farmers are not always free to determine land use. There aresometimes structural constraints, such as the nature of irrigation systems. However, there isalso evidence that farmers are often directed to grow specific crops. Decision making in thisregard appears to rest at the commune level. Greater market orientation and efficiency will notbe attained until farmers are free to decide what crops to grow based on their assessment ofprices, costs, technical suitability, risks, and markets. The Government is working on a revisedland law, which, it is believed, will further remove many of the formal constraints on land useand facilitate more market-oriented production.

C. Financial Intermediation

63. VBARD does not yet operate profitably according to international accounting standards.Three important issues are the need to (i) restructure nonperforming debt currently not recordedin VBARDs financial statements (being addressed by the Government); (ii) fully adoptinternational accounting standards with respect to loss provisioning (scheduled for the end of2003); and (iii) utilize the recently granted full flexibility in setting interest rates to reflect thecosts of operation and risk. Any future directed lending undertaken by VBARD to meet thesocial objectives of the Government should be compensated for at the time and not allowed toaccumulate as off-balance sheet bad debt.33

V. CONCLUSIONS

A. Overall Assessment

64. Using the four-category scale (footnote 10), the ASP is rated successful on the basis offive criteria discussed below (for detailed subcriteria, see Appendix 4). The PCR gave a rating ofhighly successful. Both the PCR and PPAR ratings are close to or on the successful/highly

33The Government has already issued a regulation on this matter so the issue becomes one of compliance.


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successful threshold. The differences are in the areas of (i) efficacy where the OEM gives ascore of one point less than the PCR, and (ii) sustainability where the OEM gives a score onepoint higher than the PCR. The OEM believes that successful is the appropriate rating as itprovides a balanced assessment of overall performance (see paras. 66 to 70).

65. What would have been the situation without the ASP, particularly given its high degree of

fit with government policy at the time of approval? There was a general consensus (amongthose consulted, ADBs PCR, and the IFPRI report) that the ASP provided support to reformsthat would have taken place without the ASP. However, it is also generally accepted that theASP provided support to reformers and that as a result the reforms were adopted sooner thanmight otherwise have been the case.

66. Relevance. The ASP is rated highly relevant, particularly in terms of its close fit withgovernment policy at the time of approval and now. There was strong authorship and ownershipby key decision makers. The ASP was somewhat less relevant in terms of its design as itcovered too broad a scope with too many conditions coupled with a lack of sufficiency in each ofthe three main areas targeted.

67. Efficacy. The ASP is rated efficacious. Most policy conditions were partially or fullyadopted within the program period, albeit with two of eight second tranche conditions modifiedbut subsequently achieved as originally envisaged. While the agriculture sector has performedvery well, the ASP only partially achieved its purpose or immediate objectives. For example,many of the formal constraints to private sector involvement in rice export and fertilizer importwere removed but many informal constraints remain. Thus, private sector involvement in bothactivities is modest. Similarly, land use rights have been extended but constraints remain onfarmers freedom to determine land usefor example, directives are still sometimes givenregarding what crops farmers should grow. Also, land is generally not used as collateral forcredit, which was expected to be one of the main benefits from extending CLTs. Viet Nam stilldoes not have an effective land information system, despite support provided by the ASP.Reforms to agricultural taxation did not remain relevant while the objectives for reforms on

forestland tenure were not achieved. VBARD still does not operate profitably according tointernational accounting standards. Despite these limitations, the ASP is rated efficaciousbecause it helped create the conditions for future growth. The PCR rated the ASP highlyefficacious based more on gains in overall sector performance, which was significantlyinfluenced by factors outside the scope of the ASP. The OEM places greater emphasis on theachievement of the ASPs immediate objectives, which results in a rating of efficacious.

68. Efficiency. The ASP is rated efficient. Positives were the organization and managementby MOF and the IAs, ADB support and supervision, flexibility by both ADB and the Government,timeliness in meeting tranche release conditions (a delay of 6 months is assessed asacceptable given the sensitivity of the issues involved), and the existence of supportingincentives provided by macroeconomic reforms ongoing at the time. On the other hand, the

efficiency in the utilization of local currency proceeds was low and there was no strong link toadjustment coststhis was particularly problematic in the area of land tenure where, althoughthe Government provided adequate funding for the process of issuing CLTs, there was aninadequate budgetary allocation for maintaining efficient land information and rice monitoringsystems. The efficiency of settling VBARDs bad debt was low because it did not resolve theproblem that gave rise to this in the first place, with the result that the problem reemerged.

69. Sustainability. Sustainability is rated as most likely. The Government has shown stronglong-term commitment to the reform process, notwithstanding numerous strategic changes in


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direction along the way. Reforms in most areas covered by the ASP have been extended anddeepened subsequent to completion. This is particularly the case in the areas of marketorientation and efficiency and financial intermediation but somewhat less so in the area of landtenure. The measures in agricultural taxation became irrelevant due to a change in governmentpolicy. While the measures in relation to farmers and traders organizations have beensustained, the independence of some of the organizations and their relevance can be

questioned, except where a clearly defined niche in service delivery can be identified. The OEMgives a higher rating than the PCR for sustainability because reforms have subsequently beenfurther progressed.

70. Institutional Development and Other Impacts. There were substantial institutionaldevelopment and other impacts. There was limited progress in the important area of institutionalcapacity development, notwithstanding significant TA support. Capacity building is a long-termprocess that cannot realistically be realized over the life of a program loan. On the other hand,there was outstanding progress in poverty reduction. Greater gender equity in land tenure wasalso a very significant achievement. In addition, there were positive outcomes in terms of formallaws, regulations and procedures. The ASP is unlikely to have had a significant impact on theenvironment. However, the lack of any environmental monitoring was a drawback.

B. Key Lessons Learned

1. Reasons for Success

71. The ASP was successful primarily because of genuine commitment and support for theprinciples it embodied by those in Government with power and influence to make it happen.

72. The ASP was also successful because it did not include any significant departures fromexisting policy. There is a dilemma in generalizing this lesson to other circumstancesshouldpolicy programs involve a degree of additionality and thereby risk being only partly successfulor should they have a high degree of fit with existing policy? The answer probably depends on

the context. In the case of ASP, the reform pace was rapid and it made sense to reward pastefforts and consolidate the progress made rather than attempt to further increase the pace.When the pace of reform is slow, it may be sensible to provide incentives to accelerate anddeepen the reform, even if this means the program may not fully achieve its objectives.

73. ADBs flexibility in providing the additional TA and modifying two of the policy conditionsalso contributed to ASP success. This TA and the relatively frequent dialogue by regular ADBmissions ensured that problems were rapidly resolved and did not become entrenched. Theplanned TA support also provided a good base of information for policy work, and in the case ofTA 2224-VIE, a compelling analysis of policy options and outcomes.

2. Lessons For Agriculture Sector Lending in Viet Nam

74. The slow pace of achieving greater private sector involvement in agricultural trade is aconcern. On the other hand, experience from the breakup of the former Soviet Union has shownthat a too rapid privatization creates severe problems, which are very difficult to resolve. VietNams steady approach has proven to be better although perhaps slower than necessary. Whatis clear is that the innovation and efficiency required to sustain agriculture sector growth andcreate off-farm employment through value-added activity will require a vibrant private sectoroperating at all levels. However, the private sector is unlikely to grow while a dominant SOE


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sector retains competitive advantages. Measures are required to progressively withdraw stateinvestment in commercial activities (see Appendix 5 for a case study on phased divestment).

75. In future programs, local currency proceeds (counterpart funds) should be used forpurposes that are consistent with, and contribute to reform. While fungibility is an issue, theGovernment should be encouraged to provide incremental fun

Agriculture Sector Program (Loan 1340-VIE[SF])

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Transcript of Agriculture Sector Program (Loan 1340-VIE[SF])