Collection of Papers

Contributed by Foreign Participants

List of Papers

Growth and Reforms in the Process of Fighting against the Crisis By Chi Fulin 1

Opening Speech at the Conference By Thomas Helfen 7

Economic Reforms and Development in Vietnam: Outcomes in

2008 and Prospects for 2009

By Dinh Van An 11

Cooperation among Asian Countries in Light of the Financial

Crisis

By Klaus Regling 24

Global Economic Crisis and Response: Elements of a Pro Poor

Policy Framework

By Biplove Choudhary 30

The Credit Crisis: the Morning After By El Namaki 43

Some Fundamental Issues And Solutions for Agriculture, Farmer,

and Rural Development inVietnam

By Chu Tien Quang 44

Impact of Gloval Financial Crisis on India’s Micro Finance Sector By Maini Navin Kumar 70

Financial Crisis and Vietnam’s Current Economy By Nguyen Dinh Cung 75

Social Impacts of the high Inflation and Economic Slowdown in

Vietnam and Government Responses

By Nguyen Thi Tue Anh 73

Reforms and Growth against the Financial Crisis By Bulat TOKSOBAEV 96

Asian Developing Markets Economic Trends against Occurring

World Crisis - Possible Continuation of World Crisis and a

Consequence

By Azamat

DIKAMBAEV

100

Rural Governance Reform and Land Property Rights in Nepal:An

Overview in the Context of International Financial Crisis

By Nirmal Raj Kafle 103

Introduction:

Growth and Reforms in the Process of Fighting against the Crisis

By Chi Fulin28 March 2009

The present international forum is themed “growth and reforms”. China, as a large country under

economic transition and system transformation, growth and reform has remained a mainstream in

past 30 years or so. At present, while the international financial crisis is still deepening its impacts,

the theme of “growth and reform” for this international forum is designed to discuss how to

change the crisis into opportunities through reforms. The crisis is a disaster and has brought along

worldwide economic recession. On the other hand it is also a historic opportunity for Asian

emerging economies including China to reflect upon loopholes of conventional development

models, to explore through reforms and innovation and to speed up the transformation of

development models. In another word, the crisis is not absolutely a bad thing, it is, as always be,

an important opportunity to advance reforms. While implementing economic stimulus policy

package to fight the crisis, it is necessary to proactively plan reforms in the next step in order to

follow a road along which both the short-run and long-run objectives will be taken into

consideration, and both the cause and effect of the problem will be tackled.

1. The effectiveness of the economic stimulate package depends to a large extent on

breakthroughs in reforms

To stress the inner link between growth and reform is to stress the “two hands” are needed to fight

the crisis. Once hand is readjustment of policies to pursue active fiscal and looser monetary

policies to increase investment, and the other is the system reform via which to stimulate market

viability and unleash endogenous growth potentials of the economy. Worryingly, the present reality

is that many people are enthusiastic about the “first hand” with many measures, while they are not

really interested in the “second hand” and consequently they have very few applicable measures.

Here the questions need to be answered include: does the effectiveness of the economic stimulus

package in some way depend on reforms and how large is the dependence?

As far as the objective of maintaining economic growth, the active fiscal policy is designed to

“lever a ton of weight with four ounces of force”, that is, to bring the role of the lever into full

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play in attracting social and private capital. In the past few years, in the more than a dozen of

trillions Yuan’s worth of total fixed assets investment, fiscal investment has only taken around 4%.

To maintain the economic growth rate at the level of 8% in this year and the next requires the total

fixed assets investment to be as large as 45 trillion Yuan, of which the 4 trillion Yuan planned by

the government accounts for only 8.9%. That is to say, if we only rely on the investment by the

government without attracting social and private investment through market-oriented reforms,

there would be simply no hope to achieve the goal of maintaining economic growth. Therefore, in

fighting the crisis, effective maintenance of economic growth needs to advance required reforms.

In the first place, the reform of monopolistic sectors should be speeded up to expand social

investment, the second is to give priority to projects that are most likely to attract social investment

in making fiscal investment by bringing into full play the leverage role of fiscal funding in pulling

in social investment. Particularly, we should avoid crowding-out effect of fiscal investment and

prevent the phenomenon of expansion of the state-owned sector at the expenses of the private

sector.

Ensuring employment is confronted with the structural contradiction between the policy and

the system. Take migrant rural workers as an example. Fundamental resolution of the problem

with the employment of migrant rural workers needs not only a nationally unified policy but also

the docking of the urban basic public service institutions with those for rural ones. So successful

fight against the crisis requires comprehensively solve the problem with the provision of basic

public services for migrant rural workers in the next one year or two. First, migrant rural workers

should be incorporated into the urban basic public service system as soon as possible. Secondly,

the institution for distributing coupons for compulsory education of schooling children of migrant

rural workers should be established. And thirdly, measures for the administration of basic social

insurance accounts that allow the transfer of them across regions and between urban and rural

areas should be put in place.

In short, effectiveness of the economic stimulus package could not be guaranteed without new

breakthroughs in reforms in important areas and key links.

2. Transforming the development model requires a reform package

China is now confronted with double challenges; one is the international financial crisis and the

other the transformation of its own development model. On the one hand, the international

financial crisis has unprecedented impacts on its economic growth, while on the other hand; all the

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problems of its economic growth model have been exposed, which shows that the existing

economic growth model cannot continue any longer.

On the whole China has entered into a developmental stage from a subsistence stage as a result of

the 30 years reform and opening-up. The periodic change in development has exerted great

pressure on the transformation of its economic growth model. For this reason, on the basis of the

already promulgated the 4 trillion-Yuan stimulus package and the Plan for Readjustment and

Revitalization of 10 Key Industries, it is necessary to initiate and implement a reform package as

soon as possible to resolve deep-rooted system-related contradictions in the face of China’s

economic and social development, to establish and develop systems and mechanisms in line of the

requirements of the developmental stage, and to change the investment driven economic growth

into economic growth mainly driven by consumption.

Strengthening sustainability of economic growth by way of market-oriented reforms in

fighting the crisis China’s macroeconomic policy takes maintenance of economic growth as an

important goal. Nevertheless, we should fully understand that maintaining economic growth is not

to restore the past extensive growth model but rather to achieve continuously steady growth on the

basis of economic restructuring and domestic demand expansion. This requires extending market-

oriented reform into resources, production factors and monopolistic sectors in order bring the

massive role of the private sector and ensure all investments as really needed. This requires

establishing incentive and constraining mechanisms to squeeze out economic growth at the cost of

high energy consumption, high pollution and high discharge of pollutants. It also requires speeding

up fiscal, taxation and financial reforms to consummate macroeconomic regulation and control.

All these reforms are important measures to promote the transformation of the conventional

economic growth model. Either in the short run or in the long run, sustainable economic growth

depends, to a larger extent, on the advancement of market-oriented reforms, or on the increasingly

important basic role of the market in allocating resources.

Promoting active social reforms to relieve the economic pressure The present pressure of

economic growth has profound social causes. In recent years, the Chinese central government has

pursued a series of social policies and important progress has been made in social development.

Nevertheless, there still exist an irrational income distribution pattern and poor delivery of basic

public services. These are important causes of “inadequate domestic consumption and relative

overcapacity”. Moreover, the structural problem of unbalanced economic and social development

constrains large risks. Therefore, reducing the economic pressure requires not only readjustment of

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economic policies but also social reforms. In the short run, active social policies should be pursued

to stabilize the market, expand employment and strengthen aid and relief to vulnerable social

groups to prevent mutual impact of economic and social crisis. In the medium and long run, there

is a need to deepen reforms of the social system, strengthen the construction of public service

systems, promote equalization of basic public services and readjust the income distribution pattern

to balance different interests in order to formulate a growth model based on domestic demand.

From the perspective of the changes in public needs, a more effective measure, among the series of

social reforms measures aiming at increasing urban and rural resident’s consumption propensity, is

the establishment of basic public service systems. In the short run, this system can help shore up

confidence and build up important institutional guarantees for increasing consumption and

expanding domestic demand. In the medium run, it will overcome largely overcome the difficulties

in transforming the economic growth model, in upgrading public needs of the society and in

transforming the government. And this system will be the point for combining economic reform,

social reform and administrative reform to form reform consensus and cultivate driving forces for

reforms.

Implementing even more proactive opening-up strategies the international financial crisis has

enormous impacts on China’s opening-up towards the outside world. At the same time, it has also

brought along historic opportunities. The Key to the success in fighting the crisis lies in taking

these opportunities to expand opening-up. In view of the changing trends of the international

financial crisis, strategic breakthroughs can be made in four dimensions. The first is to strengthen

international economic and trade cooperation to fight protectionism, the second is to actively

participate the reconstruction of the international economic order in order to protect the national

interests, the third is to take advantage of the international industrial readjustment to help Chinese

enterprises to go global, and the fourth is to actively create favorable conditions for the

internationalization of the RMB.

In fighting the crisis, China needs to strengthen economic and trade cooperation with other

emerging economies in Asia and to jointly overcome the difficulties. On the one hand, the

expansion of China’s domestic demand will further absorb the exports of other Asian emerging

economies, while on the other hand, China can, by participating the construction of the

infrastructures of other Asian emerging economies and providing equipment for them, make new

contributions to the economic growth of the whole Asia.

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3. Either the short-run objective of maintaining economic growth and employment or the

medium and long-term goal of transforming the development model depends on the

effectiveness of the role of the government

The effectiveness of the role of the government in fighting the international financial crisis has

become more prominent. This is because: first, the increase of uncertainties in economic and social

development has posed a challenge for the predicting and forward-looking capacity of the

government; second, the crisis is also a challenge for the government’s emergency handling,

decision making and executing capacity; and thirdly, the huge investment planned by the

government poses serious challenges for public governance. So, in the reform package against the

crisis, the key is the self-construction and reform of the government for the purpose of bringing the

important role of the government in fighting the crisis.

The effectiveness of the government’s intervention depends of correctly handling the

relationship between the government and the market. The objective of government

interventions during the crisis is to pull in social and private investment by expanding the

government’s investment. It is necessary for the government to intervene the market during the

crisis remedy “market failures”. However, this does not mean that the role of the market should be

denied and the government should replace the market in all cases. For this reason, it is particularly

important to be on guard against and prevent irrelevant interventions. The conventional

development model cannot be changed despite of a variety of efforts in the long past simply

because the government still possess greater power in allocating resources, which has made it

difficult for the market to play the basic role in allocating resources. If the government’s

interventions only aim at preventing the slowdown of economic growth rather exploring for new

growth mechanisms, even though the economy may recover high growth in the short run, it is most

likely that there will accumulation of new economic and social contradictions to hinder the

medium and long-term development.

The effectiveness of the government’s intervention needs to be built on the constraining of its

own interests. It should not be forgot that the massive investment of the government in

infrastructure during the Asian Financial Crisis produced some Jerry-build projects. The

investment of the government in fighting the current crisis is even larger. In the plan for

readjustment and revitalization of key industries are seen comprehensive measures including

industrial subsidies, tax breaks/exceptions and credit rationing. All these may create opportunities

for rent-seeking and corruption. So it is necessary to strengthen anti-corruption efforts by strictly

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defining the scope and instruments of the government’s interventions and to institutionally prevent

abuses of power.

The effectiveness of the government’s interventions relies on the transformation of the

government. Transformation of the government, with building up a public service oriented

government as the goal, is an important objective of the reform of the government in the new

period. Does the current emphasis of the role of the government in fighting the crisis mean that the

transformation of the government should be stopped? In my opinion, fighting the crisis needs the

transformation of the government even more. This is because the effectiveness of the role of the

government in fighting the crisis is closely related to the transformation of the government. First,

the government’s structural tax reduction will enable enterprises to be more profitable, store

Wealth in the People and help recover market confidence. Secondly, the government increases

spending on education, public health and medical care, and social security will create better

expectations about the future, which is conducive to expanding domestic demand. Thirdly, the

government's advocate of frugality, reduction of administrative costs, prohibition of image projects

and formalism and improvement of its executing capacity will shore up the confidence of the

whole society in fighting the crisis. Fourthly, the government’s efforts to establish mechanisms for

the participation of the whole society in formulating important policies against the crisis will win

wider and wider social support for its policies and markedly improve the effectiveness of the fight

against the crisis.

It is the very first year after the 30 years’ reform and opening-up and the beginning of the next 30

years. It can be seen from the past years that reforms with breakthroughs mostly have been

initiated by crises. The rural reform 30 years ago was initiated because people then did not have

enough to eat. The Asian financial crisis 10 years ago accelerated some reforms. It has proved that

crisis itself is not at all fearful. As long as we can take seize the chance to firmly advance reforms,

we are sure to regain the initiative, get out of the difficulty and promote our development.

6

“Reforms and Growth in the Context of the International

Financial Crisis”

Economic and Social Reform Policy Dialogue among

Emerging Economies in Asia

28-29 March 2009

Haikou, Hainan Province, PR China

Dr. Thomas Helfen

Counsellor

Head, Department of Economic Cooperation and Development

Embassy of the Federal Republic of Germany

Opening Speech

Thank you Mr. Chairman, Prof. Chi Fulin,

Esteemed Leaders,

Distinguished Colleagues,

Ladies and Gentlemen,

On behalf of the German Federal Ministry of Economic Cooperation and Development it is an

honour to welcome you to the 6th Economic and Social Reform Policy Dialogue for Emerging

Economies in Asia Given the international relevance of this conference’s agenda, allow me to

especially welcome the numerous participants from other Asian countries (Vietnam, Laos,

Mongolia, India, Uzbekistan, Kyrgyzstan and Kazakhstan) as well as the delegates from

international organisations.

It is a great pleasure for me to attend this important conference for the 2 nd time and I am happy to

be back in Haikou.

This Forum was started 5 years ago in Hanoi with the support of UNDP as a Sino – Vietnamese

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Economic Policy Dialogue. It was later extended to an Economic Policy Dialogue with Asian

Countries in Transition, co-organized by CIRD, CIEM Vietnam and the German Technical

Cooperation. I appreciate that UNDP is again joining this extremely important event to share with

us their experience regarding Regional Economic Integration and Cooperation in Asia. And, in

particular, to share their views on how to address the implications of the Global Financial and

Economic Crisis .

Today, CIRD and the German Technical Cooperation/GTZ, commissioned by the Federal Ministry

for Economic Cooperation and Development (BMZ) can look back on more than 15 years of

cooperation in the field of government reform and sustainable development. During this period,

the partners have witnessed an era of unprecedented economic growth and modernisation in China.

They were also able to address the interrelated need for reform policies and further challenges in

various sectors in the framework of international cooperation activities. The establishment of

international forums like this Policy Dialogue provided fertile ground for the analysis of best

practise examples from China (as well as other countries and regions). The German side - my

Ministry as well as the GTZ - is very proud to work with such an important and reliable partner

over such a long period of time. This successful cooperation has been propelled to a large degree

by Dr. Jürgen Steiger. He and his Sino-German team at the GTZ have done a marvelous job in

helping their partners at CIRD to identify ground-breaking and cutting-edge questions and topics;

and to to bring key international experts to China.

Through CIRD we have a forum for building bridges and for convening the right people at the

right time. In the wake of the global economic crisis spreading at an extraordinary speed since

September, these features have become even more important. This crisis ignited in one part of the

world and has critically affected all countries irrespective of their stages of development or social

systems. Governments are struggling hard to address the global economic downturn.

Especially Asian countries have suffered gravely. In addition to enormous losses at the stock

market and weakened currencies, Asian countries have registered a massive decrease in exports

due to the dwindling demand from their Western trading partners. As a result, numerous companies

went out of business. The subsequent layoffs now pose a serious threat to the nations’ social

systems as large numbers of migrant workers return to their homes unemployed. Since rural

household incomes depend to a large degree on migrant workers' transfer payment, they are

particularly affected by the economic downturn. Therefore, especially rural areas should be in the

focus of any growth or social plan. .

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In the wake of this international crisis, it is vital for Asian countries to safeguard their economic

future and to implement mechanisms to prevent potential new economic turmoil. One of remedies

at hand is intensifying regional economic integration and cooperation. Stimulating domestic

demand, promoting regional trade and investment as well as supporting regional financial markets

can improve the resilience to global economic downturns. Such a strategy may especially suit

current conditions in China, where household savings are high and the economy depends largely

on exports.

It would benefit regional Asian economies if intra-regional trade was based more on finished

goods for the consumer market rather than parts for production elsewhere.

Although there already are a vast number of bilateral free-trade arrangements among the ASEAN

member states along with China, Japan, and South Korea, multilateral regional agreements are still

exceptions although they are having a much stronger impact on trade flows and bear various

untapped investment opportunities.

The Asia-Europe Meeting in Beijing in October 2008 has cleared the way for the ASEAN Plus

Three Emergency Fund - an Asian version of the International Monetary Fund. Nevertheless, this

only represents a first step in the joint Asian approach to counter an economic meltdown.

There are indications of emerging protectionism and worrying signs of “de-globalisation” in the

wake of this crisis. As we all know this will weaken all of our economies as we loose the gains

from trade, such as economies of scale, output possibilities and optimization . Instead, we need

strong leadership with intensified international cooperation on a transcontinental scale between

Asia and Europe, between Asia and the US markets and we need intensified cooperation within the

Asian region.

The German Development Cooperation has been supporting this ongoing international cooperation

for years by working closely with the governments of emerging economies in Asia. Learning from

each other’s experiences in dealing with the crisis bears important lessons for all stakeholders

regarding policy instruments, economic and social reforms as well as cooperation mechanisms in

the light of current global challenges.

Together with its Chinese partners, the GTZ-managed Sino – German Economic & Structural

Reform Programme, is already operating in the field of Regional Economic Integration facilitating

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international dialogue among the riparian countries of the Pan Beibu Gulf Region.

In the context of the current need for the state to perform tasks that markets are unable to deliver,

Germany is more than pleased to share its experiences with the Social and Ecological Market

Economy Model . We strongly believe that the state has an indispensable role by safeguarding

fundamental rights and by ensuring “inclusive growth”. Liberty and Justice have to be balanced to

guarantee social stability and cohesion. Economic growth as such is not a rightful and adequate

goal in itself. It must be the result of a responsible political and legal setting that is geared

towards production of welfare, progress, inclusion of disadvantaged members of society, equitable

wealth and income distribution. And – most importantly – growth must be ecologically sustainable

at the same time.

Therefore this conference considers needs and strategies for reform, especially in rural areas.

Ladies and Gentlemen,

So far, there is no universal solution to the challenges our countries are currently facing. And given

the variety of problems, the crisis is creating in different regions, there will be no “one-size-fits-

all” solution. But we can collect and share experiences, examine strategies and build alliances to

join forces.

In this spirit, I hope that this event will allow unbiased analysis as well as vivid discussions among

the various countries and institutions present here

I wish the 6th Economic and Social Reform Policy Dialogue all success!.

Thank you very much!

10

Economic reforms and development in Vietnam: Outcomes in 2008 and prospects for 2009

Dinh Van An1

The year 2008 witnessed numerous dramatic developments in Vietnam’s economy. After the

economic successes in 2007, Vietnam came into 2008 with lots of hopes and optimism. The

macroeconomic situation, however, soon exhibited signs of instability. A comprehensive policy

package has been adopted to stabilize the macro-economic condition, reflecting the willingness

of Government and the people to temporarily give up rapid growth and dampen inflationary

pressures. Toward the end of 2008, facing the risk of economic slowdown due to impacts of the

global financial crisis and economic recession, the country quickly shifted to stimulate economic

activities. As such, Vietnam’s economic developments in 2008 had several turning points, in

both outcomes and policy responses. In 2009, the prospects of the global economy in general

and of Vietnam in particular still embody uncertainty in various aspects. Economic recession

may continue, and analysis of its full impacts may prove impossible until late 2009, or early

2010.

This paper attempts to look into Vietnam’s economy in 2008, from the perspective of reform

and development, so as to identify policy directions for 2009. The paper consists of two

sections. Section I briefly reviews Vietnam’s economic developments in 2008. Within the

limited scope of this paper, the Section focuses on aspects of the real economy, macroeconomic

stability, labour-employment and social security, as well as improvement in the business

environment. For richer information content, the improvement of Vietnam’s business

environment will be discussed in a longer time span, i.e the period 2007-08 after Vietnam

became member of the World Trade Organization (WTO). Section II then describes several

economic prospects in 2009, with policy recommendations, for Vietnam.

I. Vietnam’s economic developments in 2008

I.1. Growth, trade, and investment

Due to the unfavorable impacts of the global financial crisis and economic recession, in 2008,

Vietnam’s economic growth experienced a significant slowdown, to just about 6.2 percent,

notwithstanding the pace of 6.5 percent in the first 9 months. Such a growth rate is very much

1 PhD in Economics. President of the Central Institute for Economic Management.

11

smaller than those in preceding years, particularly the expected level before the WTO accession.

Notably, the policy formulation in the fourth quarter of 2008 already took into account the

possibility of economic recession. Nevertheless, the reduction in economic activities seemed to

be of greater magnitude than expected.

Economic growth rests heavily on that of the industry - construction sector, despite its declining

share in GDP, from 41.6 percent in 2006 to about 39.9 percent in 2008 (Table 1). The share of the

manufacturing industries appears to change remarkably in line with that of the industry -

construction sector as a whole. Meanwhile, the construction sector saw its contribution to GDP

decrease significantly due to its almost-zero-percent growth rate in 2008. The share of agriculture -

forestry - fishery in GDP, at the same time, went up from 20.3-20.4 percent in 2006-07 to 22

percent in 2008, in spite of various adverse supply shocks. Several service sub-sectors also

experienced impressive growth, though their contributions to GDP are hardly significant in relative

terms. Overall, the services sector still maintains a stable share in GDP of roughly 38.1 percent.

Table 1: Several real economic indicators of Vietnam, 2006-2008

Unit 2006 2007 2008

GDP growth % 8.2 8.5 6.2

Share in GDP (Current prices) % 100.0 100.0 100.0

Agriculture - Forestry - Fishery % 20.4 20.3 22.0

Industry - Construction % 41.6 41.6 39.9

- Manufacturing % 21.3 21.4 21.2

Services % 38.0 38.1 38.1

Registered FDI Million USD 12,004 21,300 64,000

Implemented FDI Million USD 3,956 8,050 11,500

(Export+Import)/GDP % 137.5 156.0 161.0

Source: General Statistics Office (GSO) and author’s calculations.

Exports in 2008 reached USD 62.9 billion, reflecting a growth rate of about 29.5 percent. Such a

growth rate is relatively fast, and even faster than the figure of 21.9 percent in 2007. This resulted

largely from the increase in international prices for Vietnam’s key export products. Since the

fourth quarter of 2008, however, the situation of Vietnam’s exports worsened rapidly, as importing

countries reduced their imports in the aftermath of the global financial crisis and economic

recession. Export structure continued to exhibit positive changes, towards smaller share of raw

products (crude oil, coal, rice) and larger share of processed products with higher technology and

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intellectual contents (textiles and garment, wooden products, plastic products), while the role of

agriculture, and mining and quarrying has declined (Table 2). This reflects Vietnam’s initial

realization of her dynamic comparative advantage, apart from further utilization of its static

comparative advantage. The export products have been gradually diversified, thereby partially

mitigating negative impacts of international price shocks (particularly for key export products) on

Vietnam’s economy. Notably, the export share of textiles and garment products in 2008 returned

to roughly 14.5 percent, after a transitory increase to 16.1 percent in 2007 (Table 2).

Table 2: Export shares of several products, 2005-2008 (%)2005 2006 2007 2008

Crude oil 22.9 21.0 17.5 16.6

Textiles and garment 14.9 14.6 16.1 14.5

Footwear 9.3 9.0 8.2 7.5

Fishery products 8.5 8.5 7.8 7.3

Wooden products 4.7 4.8 4.9 4.4

Electronic and computer peripherals 4.5 4.5 4.5 4.3

Coffee 2.2 2.8 3.8 3.2

Rice 4.3 3.3 3.0 4.6

Rubber 2.4 3.2 2.9 2.5

Coal 2.0 2.3 2.1 2.3

Electric wires and cables 1.6 1.8 1.8 1.6

Plastic products 1.1 1.2 1.5 1.5

Cashew nuts 1.5 1.3 1.3 1.5

Handbags, wallets, purses, suitcases, umbrella 1.4 1.2 1.3 1.3

Source: GSO and author’s calculations.

In 2008, imports continued to rise to USD 80.4 billion. The pace of import growth (about 28.3

percent) was slower, nevertheless, mainly due to the impacts of economic recession and policy

measures to restrict trade deficit. By import source, the majority of Vietnam’s imports of raw

materials, intermediate inputs, and machinery are from China, South Korea, Taiwan, Singapore,

and Thailand due to smaller transport costs, lower prices, and suitability. In particular, ASEAN and

China are still the largest suppliers for Vietnam, with the total share in Vietnam’s imports rising

from approximately 30 percent in 2005 to nearly 48 percent in 2007 (the share of China rose from

5.2 percent in the years 1996 – 2000 to 13.4 percent in 2001 – 2005 and almost 20.2 percent in

2007) (Multilateral Trade Assistance Project (MUTRAP) II, 2008).

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Investment (as percentage of GDP) in 2008 went down to 41.7 percent, mainly due to the

Government’s attempts to tighten public investment and credit (following the policy package since

April, 2008) in order to curb inflation. Public investment still accounts for a large share in total

investment, though such a share kept going down from 46.8 percent in 2005 to 41.3 percent in

2008. Meanwhile, the year 2008 also witnessed record levels of registered and implemented FDI.

The huge surge in FDI inflows in the years 2006-08 in general and in 2008 in particular reflects

the confidence of foreign investors in the Doi Moi (Renovation) process, as well as the prospects

and potential for economic development in Vietnam prior to and after the WTO accession, even in

the context of unfavorable external and internal economic conditions. In 2008, registered FDI was

estimated at USD 64 billion, and implemented FDI reached USD 11.5 billion, which were

dramatically higher than those in 2007 (USD 21.3 billion, and USD 8 billion) (Table 1).

Accordingly, the share of FDI in total investment went up rapidly, from 15.9 percent in 2006 to

29.7 percent in 2008. However, the ratio of implemented FDI/registered FDI remained relatively

low, at approximately 18 percent in 2008, and very much smaller than the average level in the

years 1988-2007 (52.7 percent).

I.2. Macroeconomic stability

CPI-based inflation exhibited complication movements in 2008. Following the momentum since

September 2007, inflation rate tends to increase rapidly in the first 8 months of 2008. In particular,

the year-on-year CPI inflation reached a peak level of 28.3 percent in August, 2008, and remained

high at 16.5 percent even after eliminating the prices of food and foodstuff (with the weight of 43

percent in representative consumer basket). The administrative decisions to raise retail prices of oil

and petroleum products are among the cause of accelerating inflation. In July 2008, the

Government raised retail prices of oil and petroleum products by 31 percent to reduce the burden

on the Central Budget. Subsequently, the Government allowed for rapid changes in line with the

world prices since August, 2008. Since September 2008, CPI inflation (on a month-to-month

basis) went down dramatically, to just about -0.19 percent, -0.76 percent, and -0.68 percent in

October, November, and December, respectively. Accordingly, inflation for the year 2008 as a

whole was reduced to 19.9 percent.

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Figure 3: Year-on-year CPI inflation (January, 2006 – December, 2008)

0

5

10

15

20

25

30

35

40

45

50

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

2005 2006 2007 2008

CPI Food and foodstuff Non-food Housing and construction materials

Source: General Statistics Office.

The above developments of inflation rate can be explained by several reasons. First of all, the

expansionary macroeconomic policy adopted in many years, whilst helping promote high

economic growth, has exerted accumulated pressures on consumer prices. This problem became

more serious in the context of rising international prices, while the stabilization policy in Vietnam

still embodies a number of trade-offs. On the demand side, total investment, including FDI

inflows, and final consumption, are significantly higher than those in previous years. Investment

and consumption demand are supported by overly high expansion of credit and wealth effect of

increasing asset prices. The perplexion and problems in policy formulation is another reason for

those developments of inflation rates. The surge in (direct and indirect) foreign capital inflows into

Vietnam, especially since the first half of 2007, has not been anticipated. This emerged as a major

problem when macroeconomic fundamentals (such as the relationship between exchange rate

regime, capital flows, and money supply control) failed to be fully and properly acknowledged.

Apart from “luck” (lower prices of rice and energy), these measures contributed to lower inflation

in late 2008. Nevertheless, fiscal policy is yet to be effectively coordinated with monetary policy,

and remains passive to a certain extent.

In the years 2007-08, the current account remained in sizeable deficit, of roughly USD 7 billion

(almost 9.9 percent of GDP) in 2007, and USD 12.3 billion (13.6 percent of GDP) in 2008. These

changes, relative to the current account deficit of only USD 0.16 billion (or 0.27 percent of GDP)

in 2006, has been rather rapid. The current account deficit resulted largely from deficit of

merchandise trade, of nearly USD 10.4 billion (14.6 percent of GDP) in 2007 and USD 14.4

billion (15.9 percent of GDP) in 2008. Thanks to the positive net inflows of transfer (particularly

15

private ones), of USD 6.43 billion (USD 6.18 billion) or 9.06 percent of GDP (8.7 percent of

GDP) in 2007, and USD 6.22 billion (USD 6.00 billion) or 6.86 percent of GDP (6.64 percent of

GDP) in 2008, the current account deficit was of smaller magnitude than the trade deficit. The

capital account continues to be in big surplus, of USD 18.77 billion (or 26.44 percent of GDP) in

2007, and nearly USD 13.4 billion (14.82 percent of GDP in 2008). Relative to 2006, the capital

account surplus rose considerably. This development was due largely to higher disbursement of

FDI by foreign investors (via balance of payments), ODA, and indirect investment. However, the

balance of payments was in surplus, even huge surplus in 2007. Notably, the movements of

balance of payments exhibited some signs of unsustainability, as the overall balance (after

adjustment for errors) reached only USD 0.5 billion in 2008.

The surge in inflation and trade deficit, particularly in the first half of 2008, exerted a lot of

pressures on the Vietnam dong to depreciate. However, since August 2008, the stabilization policy

package began to take effect, thereby improving trade deficit and curbing inflation, and reducing

the pressures on the Vietnam dong. The movements of exchange rate currently embody huge

uncertainty. This depends largely on inflationary expectations, trade deficit, actual inflation

movements, and difficulty in mobilizing foreign capital, particularly in the context of serious

“dollarization” and “goldization” in Vietnam. Besides, the fact that Vietnam loosens its

macroeconomic policies to stimulate economic activities should also be taken into account.

Total budget revenue rose continuously, from VND 280 trillion in 2006 to VND 315 trillion in

2007 and nearly VND 400 trillion in 2008 (Table 3). These resulted largely from the rapid

increases in domestic revenues and revenues from trade activities. Domestic revenues varied in

line with the level of aggregate economic activities. Notably, although Vietnam reduced its tariff

following its WTO accession in 2007, tariff revenues from trade activities continued to go up,

from below VND 43 trillion in 2006 to over VND 60 trillion in 2007 and approximately VND 83

trillion in 2008. Higher tariff revenues from trade activities are still consistent with the tariff cuts

within WTO commitments, as the tariff base gets significantly larger. In other words, the increase

in tariff revenues was largely induced by the rise in Vietnam’s imports. However, the ratio of

budget revenue over GDP went down continuously, from 28.7 percent in 2006 to just about 27.6

percent in 2007, and 26.8 percent in 2008. Relying rather heavily on revenues from trade activities

and from crude oil - which are highly volatile sources, total budget revenues will continue to

exhibit uncertainty.

16

Table 3: Budget Revenue, 2006-2008

2006 2007 2008

Billion

VND

% of Total Billion

VND

% of Total Billion

VND

% of Total

Total Budget

Revenue

279,500 100.0 315,900 100.0 399,000 100.0

Domestic revenues 145,400 52.0 174,300 55.2 205,000 51.4

Revenues from

crude oil

83,300 29.8 77,000 24.4 106,000 26.6

Revenues from

trade

42,800 15.3 60,400 19.1 83,000 20.8

Source: Compilations from annual reports in 2006, 2007, and 2008 of the Ministry of Finance.

The fiscal policy in 2008 was not significantly tightened. The ratio of budget deficit over GDP

remained stable at 5 percent in the years 2006 and 2007, before declining slightly to approximately

4.95 percent in 2008. Apart from the falls in revenues from trade and economic activities as

consequences of the global financial crisis and economic recession, Vietnam’s demand-stimulus

policy via reducing taxes and increasing expenditures also hardens the pressures on budget deficit,

especially in the short-term.

I.3. Labor and social issues

Total labor force in 2008 was estimated at 48.3 million, or 2.3 percent higher than that in 2007. Of

which, male labors accounted for 50.7 percent, or 0.1 percentage point higher than that in 2007.

The number of labors in urban areas rose considerably in 2008, by over 6.5 percent, though they

still made up only a modest share in total labor force (of roughly 26.3 percent in 2008). By

economic activity, labors continued to move away from agriculture - forestry - fishery to industry -

construction, and services. Accordingly, the share of labors in agriculture - forestry - fishery went

down from 53.9 percent in 2007 to only 52.5 percent in 2008, while that in industry - construction

increased slightly from 20 percent to 20.8 percent, and that in the service sector rose from 26.1

percent to 26.7 percent. In another aspect, the share of labors in the State sector was 9 percent,

showing no change from that in 2007, while that of the non-State sector remained large, at

approximately 86.9 percent, albeit declining by 0.6 percentage points; the FDI sector, meanwhile,

only employed a small share of labours, though the share did go up from 3.5 percent in 2007 to 4.1

percent in 2008. Unemployment in urban areas exhibits no improvement, staying at 4.65 percent,

17

or 0.01 percentage point higher than that in 2007. Notably, the unemployment rate of young labors

continued to rise to 9.3 percent in 2008, while that among labors of over 50 years old remained

stable, at 1.76 percent in 2008.

Table 4: Average wage in enterprise (Thousand VND, %)

2006 2007 First 6 months of 2008

Average

wage

% change Average

wage

% change Average

wage

% change

State-owned

enterprises

2,633 23.0 3,050 15.8 3,530 15.7

Domestic private

enterprises

1,488 14.2 1,660 11.6 1,860 12.0

FDI enterprises 2,175 11.8 2,450 12.6 2,750 12.2

Overall 1,969 15.0 2,235 13.5 2,525 13.0

Wage increase >>

Inflation (6.3%)

Wage increase >

Inflation (12.6%)

Wage increase <<

Inflation (18.4%)

Source: Nguyen Hai Huu (2008).

In the years 2006-07, real income of wage earners was generally improved, before declining

sharply as a consequence of high inflation in 2008. The impacts on different labor groups were

diverse. In fact, income of labors in services sub-sectors with large value added increased faster

than that in labor-intensive industries; as such, the former group experienced less socially negative

impacts. Besides, slower economic growth in 2008, particularly the fourth quarter, led to sizeable

job loss and reduction of income.

The poverty rate in Vietnam went down from 15.5 percent in 2006 to 14.7 percent in 2007 and

13.1 percent in 2008. However, separating the impacts of WTO on poverty incidence is a hardly

easy task. Generally speaking, the direct impact may be negligible, as poor people still lack

capacity and skills to work in export and/or skill-demanding industries. The main focus, as such, is

on indirect impacts via supply of personal and community services, food and foodstuffs to those

with improved income. Higher budget revenues, to a certain extent, also allows for more

expenditure on the poor and social safety nets. Several issues still need investigation. The impact

of increasing food prices on the life of farmer remains ambiguous, depending on whether they are

net buyers or net sellers of rice. Besides, the use of poverty line in 2005 may not be adequate, as

inflation and, accordingly, purchasing power of the peoples have changed considerably. After

18

accounting for purchasing power parity, the actual poverty rate should have been 15-16 percent in

late 2008. Taking no account of these issues will surely lead to inaccurate assessment of social

risks, whilst undermining the effectiveness of social support programs.

I.4 Major changes in business environment after two years of WTO membership

The implementation of the Enterprise Law and Investment Law in 2005 (hereafter referred to as

the Enterprise Law and Investment Law), as well as of numerous Government’s Decrees

instructing their implementation, induced significant improvements in Vietnam’s business

environment. Specifically, the legal framework for enterprises and investment has been amended

to facilitate a more equal and equitable, non-discriminatory business environment for all

enterprises and investors, regardless of their economic ownership. Besides, the Enterprise Law

consistently defines enterprises by their type of business organization, irrespective of their

ownership forms and economic sectors, whilst enhancing the right to choose the type of enterprise

for business activities. The Enterprise Law and Investment Law allows for greater autonomy for

foreign investors, as well as for foreign-invested enterprises. The administrative reforms in market

entry, investment, and business continued to be accelerated. A number of contents related to

corporate governance have also been legalized.

Separating the impacts of the Investment Law and Enterprise Law in the years 2007-08 from other

(favorable and unfavorable) factors seems almost impossible. However, experiences from the past

couple of years indicated some improvements in business environment of Vietnam.2 The number

of enterprises and registered capital rose rapidly. In the years 2007 and 2008, the number of

newly-registered enterprises went up by 26 percent and 27 percent, respectively, while total

registered capital increased by over 100 percent and nearly 30 percent, respectively. Domestic

private investment and FDI kept rising, thereby significantly altering the investment structure by

economic sector in recent years. The respective shares of domestic private investment and FDI

went up from 25 percent to 36 percent, and from 14 percent to 29 percent in the period 2000-08.

The numbers of employees in domestic private enterprises and FDI enterprises increased

continuously, and altogether accounted for more than two-thirds of employees in the business

sector. Domestic private enterprises and FDI enterprises are also producing greater values of

industrial products. To date, the former sector accounts for 25 percent, while the latter accounts for

39 percent, of Vietnam’s total industrial products. In another aspect, they are making greater

contribution to GDP and budget revenues. The respective share of domestic private enterprises and

2 The statistics in this Section are extracted from the report by Task Force for Implementation of Laws on Investment and Enterprise (2008).

19

FDI enterprises went up from 7.3 percent to 10.1 percent, and from 13.3 percent to 17.7 percent in

the years 2000-07.

However, the experience of business development in Vietnam also posed some noteworthy issues.

First, the average scale of firm remains rather small. In terms of capital, nearly 78 percent of

enterprises have capital of fewer than VND 5 billion. In terms of employee, the average size of

firms keeps decreasing, from 84 employees/firm to only 51 employees/firm in 2006. Second, the

enterprises are mainly located in the Red River Delta and the South East (about 70 percent). Third,

despite relatively comprehensive decentralization, the lack of good programming and/or their

ineffective implementation have given rise to several issues in public administration of investment.

For instance, the number and scale of approved investment project exceed the capacity to

undertake compensation, site clearance, investment in capital infrastructure, etc. Finally,

Vietnam’s enterprises are still weak in terms of absorptive capacity of capital and competitiveness.

Apart from the issue of small scale, this problem also results from the fact that Vietnam’s

enterprises remains relatively “closed” to external investment, while their weak capacity of

corporate governance, investor protection prevents mobilization of sufficient capital for investment

in technology and improvement of competitiveness.

Even the implementation of Enterprise Law, Investment Law in particular and improvement of

business environment in general is not without challenge. First of all, there are overlaps,

differences and incompatibilities in some contents of related laws. Some contents of the Enterprise

Law and Investment Law remain ambiguous and lack details, while the instructing documents fail

to capture all contents that need instructions. Besides, the administrative procedures for

construction investment are still complicated, burdensome, and costly. The files and administrative

procedures for registration, investigation for granting investment licences are yet to be complete;

for example, some files still have no consistent forms, some contents in investment projects fail to

be sufficiently clarified in terms of nature, legal implications, etc. The regulations on business

requirements under the Enterprise Law are yet to be simplified, or detailized. In another aspect, the

mechanism and methods for enacting State ownership rights are yet to be modified in line with the

regulations of the Enterprise Law. Finally, some international commitments fail to achieve

universal understandings and can not be implemented due to the lack of instructing documents.

However, the improvement of business environment will be further promoted, particularly after

the Central Party Committee (term X) approved the Resolution on Further improvement of

socialist-oriented market institutions in its sixth Meeting in January 2008. Accordingly, the

20

awareness of a socialist-oriented market economy has been consolidated. The Resolution also

reflects the determination to improve institutions of ownership, to develop economic sectors,

enterprises of all types and business organizations, and institutions guaranteeing synchronous

development of market participants as well as markets of all types. Besides, the Resolution states

the viewpoint to improve institutions to attach economic growth and social progress and equity in

each step, each policy to protect and develop the environment. This is an important foundation for

building and strengthening institutions to further improve the business environment, thereby

enhancing the effectiveness of production - business activities and contributing better to the

growth quality of the economy.3

II. Vietnam’s economic prospects in 2009

Vietnam’s economy is predicted to encounter numerous difficulties in 2009. The global economy

is worsening. Global economic growth is slowing down rapidly, and even attains a negative level

in many developed countries. Unemployed peoples are rising in number. The financial system,

giving start to the crisis in 2007-08, still contains many risks, though it seems to get past its worst

point. Uncertainty in the macroeconomic environment remains, as reflected by the ambiguities in

impacts of economic “aid”, stimulation packages in various countries and regions, or in the point

of recovery for the economy (for example, the third quarter of 2009 or 2010). Even the forecasts of

global economic prospects differ markedly, reflecting the differences in information sources and

forecasting basis of forecasting agencies. In East Asia, economic movements appear to be harder

than expected. The role of East Asia as a region is now greater, yet cooperation in formulating and

implementing policy responses remains relatively weak. Some ASEAN countries (such as

Thailand, Malaysia, Indonesia, etc.) are currently facing many domestic issues, which hinders

intra-regional cooperation, particularly in the context of global economic recession.

As a relatively open economy, Vietnam will be affected in various aspects by the global economic

recession in general and economic recession in developed countries (major trade and investment

partners) in particular. Economic growth is predicted to decrease sharply. Forecasts (by IMF,

ANZ, Citigroup, etc.) mainly indicate that Vietnam’s economic growth in 2009 will be

approximately 5-5.5 percent. In particular, both exports and imports are predicted to contract

rapidly, with negative growth rates in 2009. Even so, in its monthly report for January 2009,

Citigroup projects sharp falls in exports and imports of Vietnam, by approximately 22.4 percent

and 28.3 percent, respectively. Slower growth may be even more serious since it leads to many

3 For further details, see Central Party Committee term X (2008).

21

other social issues. Most importantly, the loss and lack of jobs for workers in industrial zones

necessitate rapid policy measures, if Vietnam is to sustain and strengthen its safety nets. The

economy is projected to reach its lowest point in the first 6 months of 2009, or the third quarter of

2009 at the latest. During this period, the economic hardships, and bad debts will emerge in full,

after which the economy begins to recover.

Inflation is projected to decrease in 2009. However, inflation forecasts of different agencies are

highly differential, ranging from 1.2 percent (EIU 2009) to almost 10 percent (IMF 2009).

Meanwhile, current account deficit will be narrowed, mainly due to imports contracting faster than

exports. Nevertheless, macroeconomic developments still embody significant risks, as the sizes of

current account deficit and budget deficit are still large (in absolute terms). Notably, budget deficit

tends to widen, especially in the short-term, when the economic-stimulation policy is

implemented.

Movements of the USD/VND exchange rate will also be complicated, though the direction is VND

depreciates (nominally) against the USD. The USD/VND exchange rate at the end of 2009 is

projected to be between 18,100 -18,500. However, the non-deliverable forward (NDF) rate is

rather high, between 19,000-20,000. Corresponding to this exchange rate, the basic interest rate for

2009 is expected to be between 5 - 7 percent.

With such uncertainties in macroeconomic prospects, Vietnam’s economic policy in 2009 should

focus on four objectives. First, implemented policies should aim at promoting growth, especially

one that is attached with job creation. In this way, the impacts of job losses, including associated

social impacts, can be minimized. Second, policies should be implemented and coordinated

effectively, so as to strengthen macroeconomic stability. The signs of macroeconomic instability

should be tracked and analysed on a timely basis, to allow for proper policy responses. Third,

Vietnam should carry out some measures to support vulnerable social groups, or minority groups

which are disadvantaged in macroeconomic stabilization process. Forms of support to these

groups, particularly poor groups, should also be taken into account. Monetary subsidy may not

achieve desirable effectiveness; instead, Vietnam can provide vouchers, following the experience

of some developed countries. Fourth, to implement longer-term socio-economic development

strategy, Vietnam needs to pursue further reforms. The current difficult economic context provides

a very good opportunity to “exert pressures” for reforms. However, the focal points of such

reforms should be clearly identified. Vietnam should continue to accelerate administrative reform

and strengthen its legal framework related to markets of production factors (capital, financial, land,

22

labor), while carrying out demand-stimulus policy package and developing economic

infrastructure.

Getting involved more deeply in international economic integration, Vietnam is more constrained

in its policy choices, whilst being more vulnerable to external shocks. This complicates the

resolution of issues related to macroeconomic management and other social pressures. Policy

formulation, without close monitoring of actual economic progress, may bring back significant

risks. The roles of collecting, processing, sharing, and effectively analysing information should

also be emphasized. Whether adjustment policy is effective relies heavily on the mechanism to

communicate information to the people, since transparency and accountability of policymakers are

key ingredients to achieve people’s confidence and consensus. Difficulties notwithstanding, the

tasks for policymakers are mainly based on collecting information and building institutions to have

better policy choices, as well as the “art” of implementing those policies./.

References

1. ANZ (2009), “Emerging Asia Economics: Monthly – February 2009”.2. Central Party Committee term X (2008), “Resolution of the sixth Meeting on Further

Improvement of Institutions for Socialist-Oriented Market Economy” [“Nghị quyết Hội nghị lần thứ sáu về tiếp tục hoàn thiện thể chế kinh tế thị trường định hướng xã hội chủ nghĩa”], January. In Vietnamese.

3. Citigroup (2009), “Economic and Market Analysis: Asia Pacific – Prospect for Financial Markets”.

4. Multilateral Trade Assistance Project (MUTRAP) II (2008), “Research Report HOR-9”, Final Report, Hanoi, May.

5. Nguyen Hai Huu (2008), “Social safety net in the current macroeconomic situation”, Paper presented at the Forum “Macroeconomic Stabilization: Challenges and Policy Options” organized by the CIEM and GTZ, Hanoi, 2 October.

6. Economist Intelligence Unit (EIU) (2009), “Vietnam: Country Report 01/2009”.7. Task Force for Implementation of Laws on Investment and Enterprise (2008), “Evaluation

Report of Two-Year Implementation of Enterprise Law and Investment Law” [“Báo cáo đánh giá hai năm thi hành Luật Doanh nghiệp và Luật Đầu tư”], December. In Vietnamese.

8. Viện NCQLKTTW (2008), “Impacts of Integration on Vietnam’s Economy After 1.5 Years of WTO Membership” [“Tác động hội nhập đối với nền kinh tế sau 1,5 năm Việt Nam gia nhập WTO”], Report of the Party’s Personnel Committees and the Government for the Politburo and Secretary Committee in accordance with the conclusions of Deputy Prime Minister Nguyen Sinh Hung at the Government’s monthly meeting in May 2008. In Vietnamese.

23

Cooperation among Asian Countries in Light of the Financial Crisis

Statement by Klaus ReglingFellow at the Lee Kuan Yew School of Public Policy, Singapore and

former Director General for Economic and Financial Affairs, European Commission 4

Haikou/Hainan, 28 March 2009

The world economy is in the most serious recession since the end of the second world war. World

output will shrink this year for the first time in 60 years. All countries around the world will grow

– or shrink – about 5-7 percentage points below their respective trend growth. Why is this crisis so

deep?

There are two main reasons:

The world economy is adjusting to imbalances and excesses accumulated in the

previous decade: global trade imbalances, over-consumption in the US and some other countries,

over-savings in Asia and oil producing countries,

The global financial system is adjusting to excess liquidity, bubbles and too much

leverage and risk accumulated in financial markets during the last decade.

This recession is different from previous recessions for three reasons:

1st, this is not a “normal” cyclical downturn but the world economy is faced with a number of

structural adjustment problems in the real economy and in the financial system.

2nd, we experience negative feed-back loops between the real economy and financial markets and

these feed-back loops are mutually reinforcing.

3rd, it is a worldwide, synchronised downturn.

4 This is a personal statement which does not necessarily reflect the view of the Lee Kuan Yew School or of the European Commission.

24

World trade and industrial production are currently around 1/5th below pre-crisis levels. Recent

declines may have been exaggerated by sharp inventory adjustments and we may well see a

technical correction. But it is hard to say when the real turning point will come. World output may

not return to its pre-crisis level quickly (as the world economy operated above capacity in 2005-

07) and there could be several years of below trend growth, particularly in US where consumption

and household savings must continue to adjust.

Against this background, most countries around the world, advanced economies as well as

emerging and developing countries, have taken measures to combat the downturn in the real

economy and to help the financial system to tackle its problems:

Monetary policy has been eased aggressively which became possible as inflation came

down rapidly after it peaked about a year ago. Interest rates are now at all-time lows in most

countries and central banks are pumping liquidity into the markets via unconventional means.

Fiscal policy has become very expansionary around the world. Deficits are increasing

dramatically as a result of automatic stabilisers and discretionary fiscal action.

Countries have adopted emergency measures to stabilise the banking system through

capital injections, guarantees and nationalisation of banks. This has been widespread in the United

States and Europe, but less so in Asia because banking systems are in better shape here.

All these actions have been necessary but not sufficient so far to get out of this crisis. More needs

to be done to tackle the problem of “toxic” assets which clog the banking system.

Experience teaches us that coordinated action can bring better results than individual,

uncoordinated measures. This is true for financial market crisis management and for stimulating

the economy.

A few examples: guaranteeing bank deposits in one country but not in the neighbouring countries

can have the unintended consequence that deposits are switched to the country with the guarantee.

This can lead to a lack of capital in the other countries and to exchange rate fluctuations.

Attempts to stimulate the economy through fiscal spending can result in substantial “leakages”, i.e.

higher imports. Other countries would benefit from the additional fiscal spending unless they

implement similar measures. With coordinated action, on the other hand, fiscal stimulus in a region

25

can have positive multiplier effects, even for small open economies and the result can be mutually

reinforcing.

This is what is happening in the European Union where the 27 member countries agreed last

December to fiscal stimulus amounting to almost 4% of GDP during 2009-10 for the EU as a

whole. Fiscal measures are now implemented at the national level.

The Lee Kuan Yew School of Public Policy in Singapore published a Task Force Report on “Asia

and the Global Economic Crisis” two weeks ago. You can find the report on the website of the

LKYS.5

In this report, general recommendations are formulated against protectionism; in favour of social

protection and development assistance; and on the reform of the international financial

architecture. Two specific recommendations are addressed to Asian policy makers: to rebalance

demand in their economies and to strengthen regional cooperation.

On the last point, the Report from the LKYS argues that closer regional cooperation “would bring

significant benefits to all”.

What are the benefits of regional integration?

1) The first point is the one I already mentioned. When there are economic problems, crisis

management can be more successful if the measures are well coordinated in the region.

2) In general, regional integration stimulates trade, investment and capital flows within the

region. This will lead to more growth and make the region less dependent on the outside world.

The region will become more resilient. Financial market integration would be particularly

important to avoid that savings from the region are invested in Western financial centers and then

lend back to borrowers in the region. To change that, better developed regional bond markets and

more intra-regional intermediation of savings would be very useful. Another benefit of more long-

term coordination is that all participants will find it easier to do the necessary coordination during

a crisis if they established well-functioning internal cooperation mechanisms during normal times.

3) Another important reason for more coordination is to “shape globalisation”. Globalisation

will continue, even though we experience a temporary set-back at the moment. Asia will want to

5 www.spp.nus.edu.sg

26

have a say in how globalisation evolves. Asia should shape globalisation – just like the EU sees

one of its main objectives these days in shaping globalisation. The population wants to have a say

and not be subject to global forces determined somewhere else. “Having a say” will only happen if

countries work together on the international scene. This is true for Europe and, I think, it is also the

case for Asia. This is particularly evident in the G20 process. The G20 is quickly becoming the

“steering group” for the world economy, replacing the G-7. Asia is represented with 5 countries in

the G-20. But Asia will only be heard if these 5 countries coordinate their positions among

themselves. And they will play an even bigger role if they go to these meetings with the support of

other Asian countries that are not directly represented.

The benefits of regional cooperation seem obvious. Is it happening in Asia?

Some, not much, would be my tentative answer.

One problem with regional economic integration in Asia is that the institutional basis for regional

integration is not clear.

Will it be ASEAN, the ten-member Association of Southeast Asian Nations? ASEAN is

clearly a leading candidate because of its 40-year history and because ASEAN has a functioning

Secretariat. But the economic competences of the Secretariat are not very developed so far. More

importantly, ASEAN’s membership does not include the biggest and most powerful Asian

countries.

“Alternative options are ASEAN + 3 (Japan, China, and South Korea) and the East Asian

Summit (EAS), which includes ASEAN + 3 + India, Australia and New Zealand. Either ASEAN

+ 3 or EAS could become the appropriate institutional framework for regional cooperation. EAS

might be the most potentially weighty coalition, including six G20 members.

Whichever configuration is used, the most important outcome is for Asia to have an institutional

mechanism that could make timely and credible decisions and actions in the following areas:

economic surveillance, crisis management, and the development of an effective Asian voice in the

G20 and other international fora.” (Quote from the Task Force Report of the LKYS, page 16)

Most recently, there have been some encouraging attempts for enhanced regional cooperation.

—China, Japan and Korea met on the sidelines of the G20 summit in Washington in November.

27

They stressed their commitment to stronger policy dialogue, agreed to increase currency swap

arrangements among themselves and to work on building a regional surveillance mechanism to

monitor regional economic and financial health.

—At the end of February 2009, the ASEAN + 3 countries agreed to expand the Chiang Mai

Initiative of swap arrangements by 50% to US$ 120 billion and to multilateralise its activation

process.

—Thailand, as the current chair of ASEAN has been invited to attend the G20 summit in London

on 2 April. This will be the first time for ASEAN to be represented as a group in a key

international forum at the top level. ASEAN Finance Ministers will meet before the G20 summit to

provide input to the ASEAN delegation.

These are encouraging signs. But is it enough?

Will ASEAN countries, will Asian countries be able to deliver substantial contributions to the G20

process? Asian countries asked to have a stronger voice in international fora – and rightly so given

the importance Asia has gained in the world economy. Now is the moment to develop the capacity

in Asia to contribute to shaping the new international financial and economic order.

This will require political leadership and new or stronger regional institutions.

Our experience in Europe is clear. Regional cooperation and integration cannot proceed very far

without independent supra-national institutions with a competent staff.

I am not recommending to copy the European approach in Asia. It seems Asian countries are not

prepared to pool sovereignty to such an extent.

However, peer review, multilateral surveillance, coordinated crisis management, organising one

Asian voice in international fora, all that will be easier to achieve with an independent regional

institution that can provide credible, neutral input.

Take the Chiang Mai Initiative, which was created after the Asian crisis to protect participating

countries against another currency crisis. Why has this initiative not been used during the current

crisis? Probably because there is no institutional framework for effective multilateral surveillance

and peer pressure within ASEAN + 3. Potential lenders do not feel comfortable about potential

28

borrowers and would not be able to impose conditions for “better policies”. That’s why potential

lenders prefer to get the IMF involved, as a neutral and independent institution, for the activation

of Chiang Mai; but potential borrowers refuse to do that.

A crisis can often help to overcome obstacles. We have seen that repeatedly in Europe. I hope

cooperation among Asian countries will continue to move ahead to build a stronger and more

resilient Asia and to give Asia the voice in the world that it deserves.

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42

The Credit Crisis: the Morning After

Prof Dr m s s el namaki

President, Drucker Society for Gulf States, Dubai, UAE

Retired Dean, Maastricht School of Management (MSM) Netherlands

dr_el_namaki@drucker-gulf.org, www.drucker-gulf.org

Box 122097, Dubai, UAE, Phone 00 971 50 5087490

Abstract: The credit crisis is upon us. And, with it, a dramatic economic decline un-witnessed for

decades. Myriad of reasons are given for the crisis and the ensuing dramatic economic drama.

Practices within the investment banking industry, lax government regulation, creative finance,

wrong monetary policies and irresponsible executives were all given as a trigger. Culture,

ideology and the sheer desire to amass wealth were also added. And greed was finally pointed at

as the underlying common denominator and the force that transcended functions, structures and

people.

The question that is in everybody’s mind today is how long will it all last and what will emerge

from a virulent force of this nature. The following paper is an attempt at providing a cautious,

possibly mildly speculative yet studied, view of this possible outcome.

The paper starts with a brief anatomy of the crisis. Emphasis is placed on the three building

blocks: instruments, institutions and strategies... This is followed by a projection of the course of

key economic variables of the United States, the EU, Japan and China over the 2010 to 2012

period. World Bank, IMF and OECD forecasts are the prime source here. A judgmental view of

the impact of those events on key structural elements of the economies of those countries takes the

analysis one step further and tries to draw the contours of a possible emerging picture. This

judgmental view focuses on the future of four clusters of possible change: The fundamentals of

capitalist thought, the structure of the conventional and shadow banking industry, the international

institutions and, finally, China’s emerging profile.

43

SOME FUNDAMENTAL ISSUES AND SOLUTIONS FOR AGRICULTURE6, FARMER7, AND RURAL DEVELOP MENT IN

VIETNAM

Dr. Chu Tien Quang - CIEMHanoi 3/2009

I. Main achievements of agriculture and rural economy in Vietnam from 2000 to 2008

Agricultural and rural economy in Vietnam has seen dramatically changed that the centrally-

planned economy was replaced by the socialist-oriented market economy. Vietnam has made

remarkable achievements that are shown in the main points below.

1.1. Agricultural, forestry, and fishery growth

a. GDP of agriculture, forestry, and fishing has been increased since 2008. LIts structure also has

been changed which is shown in Table 1 below.

Table 1. Gross domestic product of agriculture, forestry, and fishery at current prices

Unit : Billion VND

Year 2000 2003 2005 2006 2007

Value % Value % Value % Value % Value %

Total 108.536 100

138.28

5100 175.984 100 198,797 100

232,188 100

1. Agriculture87.537 80,7

106.38

576,9 132.985 75,6 149,660 75.3

174,076 74.9

2. Forestry 5.913 5,6 7.775 5,6 10.052 5,7 10,802 5.4 12,067 5.2

3. Fishery 14.906 13,7 24.125 17,4 32.947 18,7 38,335 19.3 46,045 19.8

Source: GSO, Statistical Yearbook of Vietnam 2007, Statistical Publishing House, Hanoi, 2008.

From Table 1, it is clear that GDP of agriculture, forestry, and fishery increased by 114%, from

VND 108.5 to VND 232.2 billion, of which GDP of agriculture raised by 98.9%, from VND 87.5

to VND 174.1 thousand billion; GDP of forestry increased by 105.1%, from VND 5.9 to VND

12.1 thousand billion; GDP of fishery raised by 209.4%, from VND 14.9 to VND 46.1 thousand

6 It includes cultivation, livestock, forestry, and fishing sectors.7 They are working on cultivation, livestock, forestry, fishing, and salt

44

billion.

b. Agricultural, forestry, and fishery growth: Agricultural, forestry, and fishery growth reached a

record high level compared to other countries (Table 2).

Table 2: GDP growth rate of agriculture, forestry, and fishery and

contribution to GDP in some countries

Unit: % per year

Year 2002 2003 2004 2005 2006 % of agriculture’s GDP

Vietnam 4.2 3.6 4.4 4.0 3.4 19.6

China 2.9 2.5 6.3 5.2 5.0 11.1

Korea -3.5 -5.3 9.2 -0.1 -1.9 3.9

Thailand 0.7 12.7 -2.4 -3.2 4.4 8.9

Malaysia 2.8 5.5 5.0 2.5 6.4 7.7

India -7.2 10.0 0.0 6.0 2.7 22.9

Source: Agro@info; Report Vietnam’s Agriculture in 2007 and Prospects for 2008 (page 109)

Table 2 shows GDP growth rate of agricultural, forestry, and fishery in Vietnam was average and

stable compared to other countries. However, it was a decreased tendency from 2002 to 2006.

1.2. The role of the agricultural, forestry, and fishery sector from 2000 to 2007

Although an absolute value of the agricultural, forestry, and fishery sectors has been increased, the

proportion of these sectors in GDP has been decreased, while GDP growth rate of other sectors

has been raised. This is a good trend in economic development.

Table 3. GDP proportion of agriculture, forestry, and fishery

Unit: %

Year 2000 2003 2005 2006 2007

Whole country, of which 100 100 100 100 100

Agriculture, forestry, and fishery 24.51 22.06 20.99 20.40 20.29

1. Agriculture 19.82 17.34 15.86 15.36 15.22

2. Forest 1.34 1.27 1.20 1.11 1.05

3. Fishery 3.37 3.93 3.93 3.93 4.02

Source: GSO, Statistical Yearbook of Vietnam 2007, Statistical Publishing House, Hanoi, 2008.

Table 3 shows GDP proportion of agriculture, forestry, and fishery decreased from 24.5% to 20.1%

during 8 years period. In particular, GDP proportion of agriculture decreased by 5%, from 19.82%

to 15.22%; GDP proportion of forestry decreased by 0.29%, from 1.34% to 1.05%; GDP

45

proportion of fishery slightly increased by 0.05%, from 3.37% to 4.02%. It presents an advantage

of fishery sector in the world markets and Vietnamese potentialities to develop this sector.

1.2. Export of agricultural, forestry, and fishery products

Statistic data show export value of agricultural, forestry, and fishery products was highly

increased and its structure varied from 2000 to 2006 (Table 4).

Table 4 : Export of agricultural, forestry, and fishery products from 2000 to 2006

Unit : Mil. USD, %

Year 2000 2003 2005 2006 2007

Volume % Volume % Volume % Volume % Volume %

Total 4.197,5 100 5,067.9 100 7,452.4 100 8,990.0 100 10,967.4 100

1. Agricultural

products 2,563.3 61.1 2,672.0

52.

74,467.4

59.

45,352.4 59.5

7,200 65.62. Forestry

products155.7 3.7 196.3 3.9 252.5 3.9 297.6 3.3

3. Fishery

products1,478.5 35.2 2,199.6

43.

42,732.5

36.

73,358.0 37.4 3,767.4 34.4

Source: GSO Vietnam 2008.

From Table 4, it is clear that export turnover of agricultural, forestry, and fishery products raised

by 2.14 times during the last 6 years, reached approximately USD 9 billion in 2006. It shows

integrated economy of this sector has been expended. Structure of agricultural, forestry, and

fishery products has significantly changed. The proportion of agricultural products decreased from

61.1% in 2000 to 59.5% in 2006; the rate of forestry products also decreased from 3.7% to 3.3%,

while the proportion of fishery products increased from 35.2% to 37.4%.

An attention point is that there were many products which reached export turnover over USD 1

billion, such as fishery (USD 4.6 billion), rice (USD 2.9 billion), forestry products (USD 2.8

billion), rubber (USD 1.6 billion) in 2008. Therefore, Vietnamese export turnover of agriculture,

forestry, and fishery reached USD 12.9 billion, equivalent to 20.4% total export turnover as whole

economy.

1.4. Diversification of rural economy

46

The renovation process has been encouraged to develop diversified non-farm activities in rural

areas. It leads the rural economy has diversified, the structure of the rural economy development

has changed. The proportion of agriculture in GDP has decreased, while other sectors (industry,

contruction, services) have increased. Some rural areas which locate close to urban and industrial

areas have rapidly shifted to industrial and service activities. These are shown by decreased

agricultural households and the structure shift of rural labours in Table 5 below.

Table 5: Household shift in rural areas by economic sectors from 2000 to 2006

2001 2006 Increase/decrease

Volume

(household)

Structure

(%)

Volume

(household)

Structure

(%)

Volume

(household)

Increased

proportion

(%)

Number of rural

households, of which13,065,756 100.00 13,775,674 100.00 +709,918 +5.43

1. Agricultural, forestry,

and fishery households10,573,597 80.9 9,776,090 71.0 -797,507 -9.9

2. Industry and

construction households 752,204 5.8 1,374,174 10.0 +621,970 +4.2

3. Service households 1,381,251 10.6 2,040,973 14.8 +659,722 +4.2

4. Others 358,704 2.7 584,437 4.2 +225,733 +1.5

Source: GSO, Results of the rural, agricultural and fishery census in 2001 and 2006.

Table 5 presents the changes of household volumes and structure by kinds of economic activity

from 2001 to 2006. During this period, total rural households increased by about 709.9 thousand

households (5.43%), or over 1% per year, of which the number of agricultural, forestry, and

fishery households decreased by 797.5 households (equivalent 10%), or 2% per year; the number

of industry and construction households rose by about 622 thousand households (equivalent 4.2%),

or 0.9% per year; the number of service households increased by 659.7 thousand households

(equivalent 4.2%), or 0.9% per year; other households in rural areas raised 225.7 thousand

households (equivalent 1.5%), or 0.3% per year).

Thus, in 2006, the number of agricultural, forestry, and fishery households in rural areas remained

its high contribution of 71%; the non-farm households accounted for 29%, of which 10% in the

industry and construction sector, and 14.8% in the sevice sector. These indecated the service sector

has an ability to attract more labours than others.

It is a good trend because of pushing the labour shift from agricultural sector to others (Table 6).

However, it remains slowly and has not obtains the state’s orientation.

47

Table 6: Labour shift in rural areas

Unit: %

2001 2006 Increase/decrease

Total 100.00 100.00 -

1. Agriculture 75.9 65.54 -10.39

2. Forestry 0.24 0.30 0.06

3. Fishery 3.45 4.56 1.11

4. Industry 5.86 9.21 3.35

5. Construction 1.50 3.24 1.75

6. Trade 6.06 8.88 2.82

7. Transport 1.01 1.39 0.38

8. Other services 4.44 5.67 1.24

9. Non working 1.53 1.20 -0.33

Source: GSO, Results of the rural, agricultural and fishery census in 2001 and 2006.

The structure of agricultural and rural labours by 9 sectors has shifted slowly by the following

trend: decreased by 10.4% in agriculture, increased by 0.6%, 1.15%, 3.4%, 1.8%, 2.8%, 0.4%,

1.3% in forestry, fishery, industry, construction, trade, transportation, and other services

respectively. The number of unemployment labours decreased by 0.3%.

In rural areas, although 1,857,381 labours (equivalent 6.13% total labours in working age) were

non-working age, they were still working in 2006. Their labour productivities were much lower

than labours in working age. They also met difficulties in new technologies as well as following

the signal of markets. This hinders the agricultural production of commodities requiring high

technologies.

Averagre income of rural households has increased by 3 times since 1996. In 2006, it reached

VND 27 million per household at current price. Average saving per household increased by 2.1

times, from VND 3.2 million in 2001 to VND 6.7 million in 2006. It helps households actively

invest in their production along with borrowed funds.

In addition to good changed above, there are some urgent issues occuring in agricultural, farmer,

and rural areas. They are hindering further development process. Hence, this paper generalises

these issues and suggests orient solutions.

48

II. Urgent issues for agriculture, farmer, and rural areas in Vietnam

2.1. In agricultural, forest, and fishery production

2.1.1. Role and position of agricultural, forest, and fishery sector do not unify

There are two opposite arguments:

a. Some people argue that the agricultura sector develops well now. It do not securely food for

whole country, but also export a large amount of products. The proportion of agricultural, forest

and fishery sectors in GDP has decreased quickly. It reached 21.3% in 2007, and about 22% in

2008, of which the agriculture sector contributed over 15%. Investment efficiency of this sector is

low, therefore there is unnecessary to invest on it; other sectors should be invested to obtain higher

economic growth rate. The industrialisation process also would reaches faster and it leads to pull

labours quicker on the agricultural sector.

b. In contrast, others argue that the role and position of the agriculture do not reduce, although the

proportion of the agricultural, forest, and fishery sectors on GDP witnessed a decrease of over

20%; and the proportion export of these sectors decreased from 28.9% in 2000 to 22.6% in 2006.

Because of this, a competitive ability of algricultural, forest, and fishery products in Vietnam is

still low; ineffective producion. Especially the number of agricultural, forest, and fishery labours

remains 54.9% total labours in the country, of which agricultutal labours accounted for over 50%

(GSO, 2008), and over 70% total rural labours. Therefore, it is necessary to develop the

agricultutal sector.

The opposite arguments above cause problems in making plans and implementing policies of

agriculture, forest, and fishery recently.

2.1.2. Plans of resources allocation (land, water...) to develop agriculture are ineffective; do not

enhance competive abillity of farm products. These are shown by the following major points.

a. According to current legal documents, the plan and plan management of land belong to the

Ministry of Natural Resources and Environment and Department of Natural Resources and

Environment at provincial levels, while implementing plans on agricultural development which is

related to agricultural land use belong to Ministry of Agricultutal and Rural Development as well

as Department of Agricultutal and Rural Development at provincial levels. These cause conflicts

and unreason of state management in land allocation and management to develop agricultural,

49

forest, and fishery sectors, following natural conditions, ecological conditions, and market

demands. In fact, land and water plans of production on rice, annual industrial crops, perennial

industrial crops, livestock, and fishery... have not cleared and managed closely by requirements of

each plant and animal. Agricultural, forestry, and fishery plans are broken interminably, but not

solved absolutely and on time. These cause troblous productions, farmer investment waste, and

therefore they face difficulties in their lives.

b. There are some unclear and inadequate issues in the land plan, which are required by economic

industrialisation, and agricultural and rural industrialisation, such as the land plan to produce

agriculture, forestry, and fishery; shifting land to make rural infrastructure; creating spaces to

develop industry, service, trade activities in rural areas.

c. Producing too much similar crops and animals in an area due to unclear plans or poor

management cause many conflicts and disputes in land and natural resources which are used to

produce different plants and animals. These hinder an increase of output volume, and limit

competitive abiliy of similar agricultural products which are produced in other countries with the

same natural conditions of Vietnam.

2.1.3. Social and state investment on agriculture, forest, and fishery have not met demand of

current agricultural production yet

a. The proportion of social investment on agriculture, forest, and fishery in total investment

decreased quickly

Data of the General Statistics Office show social investment at current prices increased from VND

151.2 thousand billion in 2000 to VND 521.7 thousand billion in 2007, reaching 45.6% of GDP in

whole economy (equivalent VND 1,144,015 billion). The social investment on agriculture, forest,

and fishery increased VND 20.9 thousand billion in 2000 to 33.9 thousand billion in 2007.

However, its proportion decreased from 13.84% to 6.49% (Table 7).

Table 7: Total investment and agricultural investment from 2000 to 2007 at current price

Unit: Bil. VND; %

Year 2000 2003 2004 2005 2006 2007

Total

Of which151,183 239,246 290,927 343,135 404,712 521,700

20,933 20,220 22,963 25,749 30,087 33,900

50

Agriculture, forestry, and fishery

Proportion13,84 8.45 7.89 7.50 7.43 6.49

Source: GSO, Statistical Yearbook of Vietnam 2007, Statistical Publishing House, Hanoi, 2008 (page 95).

It is supposed that social investment is unchanged, but its proportion remains at 13.84% as in

2000, this sector would obtain higher investment annual year (Table 8).

Table 8: Value of agricultural, forestry, and fishery investment and

comparison with its proportion in 2000

Unit: Bil. VND

Year 2000 2003 2004 2005 2006 2007

1. Agricultural, forestry, and

fishery investment

20,933

13.84

20,220

8.45

22,963

7.89

25,749

7.50

30,087

7.43

33,900

6.49

2. Value of agricultural,

forestry, and fishery

investment by its proportion

in 2000

20,933 33,111.6 40,264.3 47,489.9 56,012.2 72,203.3

3. Differences between (2)

and (1)0.0 12,891.6 17,301.3 21,740.9 25,925.2 38,303.3

Source: Author’s calculation.

It can be seen that if the proportion of agricultural, forestry, and fishery investment remained

13.84% since 2001, these sectors could obtain a larger amount investment, which some issues in

the agriculture sector therefore could improve better than current situation.

b. The proportion of state investments in agriculture, forestry, and fishery decreased rapidly

Table 9: State investment on the agricultural, forestry, and fishery sector at current prices

Unit: Bil. VND; %

2000 2003 2004 2005 2006 2007

1. Total state investment 89,417 126,558 139,831 161,635 185,102 208,100

2. Of which, in

agriculture, forestry, and

fishery

10,925 10,958 9,814 11,586 12,629 13,845

3. Proportion 12.22 8.66 7.01 7.17 6.82 6.65

Source: GSO, Statistical Yearbook of Vietnam 2007, Statistical Publishing House, Hanoi, 2008 (page 101).

51

Table 8 shows state investments in the agriculture, forestry, and fishery increased slightly, from

VND 10.9 thousand billion to over VND 12.8 thousand billion. However, its proportion in total

investment was very small and decreased from 12% to 6.7% during 6 years period.

The state investment in total social investment on the agriculture, forestry, and fishery accounted

for over 52.2%, but decreased over 40.8% in 2007. It shows two issues: firstly, the state investment

accounted mainly in total social investment on the agriculture, forestry, and fishery; and secondly,

the proportion of the state investment decreased quickly, causing the reduction of the social

investment on this sector, which indicates unreasonable investment policies of the government on

economic sectors.

In this case, the agriculture, forestry, and fishery have faced many difficulties on investment which

is required by commodity productions. This is a fundamental reason causing backward

infrastructure of the agriculture, forestry, and fishery. This has not meet requirements of

industrialisation, modernisation, and the structure shift of the agricultural, forestry, and fishery

productions.

Essencial infrastructures in Vietnam have not invested adequately due to a decreased and small

proportion of state and social investment (reduced by about 50% from 2000 to 2007). These are

required by a modern agriculture having high linkages from productions to processings and

consumptions. There are lack of main infrastructures for agricultural production, such as

transports, irrigrations, orchard works, concentrated livestock, post harvest infrastructures (drying,

processing, preservation, and transport), and communication infrastructures on technical

progression, new production knowledge...

2.1.4. Protective policies and supports of agricultural production are being adjusted on the

committable route of the world economic integration, increasing difficulties for many products

a. Implementing reduction of import taxes of farm commodities

The Ministry of Finance issued the Decision No. 110/2003/QD-BTC on MFN tariffs in July 22,

2003. This Table has 10,721 rows, of which 3,097 rows on import tariffs of agriculture, forestry,

and fishery. The average tariff that is applying for agricultural products is 22.7%, of which 263

rows applying tariffs from 0% to 10%8; 205 rows are applied from 15% to 30% ; 211 rows are

8 The tax rate from 0 to 10% applies mainly to: seedlings, agricultural products in Vietnam are highly competitive;

52

applied over 40%...

b. Export taxes of farm products: applying from 0% to 20% for 9 different tax levels of products,

such as: rubber, tea, coffee, wood, rice ...

c. Special consumption tariffs are applied to agricultural products which are not good to human

health such as tobacco from 25% to 65%, wine and beer from 50% to 75%).

d. Implementation foreign exchange management: Following regulations, economic organizations

have to sell at least 50% of foreign currency earnings from current revenue for banks within 15

days when foreign currency is transferred to the account of the organization, which is opened at

that bank.

e. Increased measures to manage, and control of plants and animals, and process thoroughly to the

outbreak of animal measures in burning and burying.

f. Increased natural resource management, environmental measures with limited use of waste land,

water and pollution.

Policies above are pushing agricultural producers into more difficult and poorer conditions;

production costs increase and do not compete with agricultural products of countries with the

better production.

Reality is setting a big challenge for agricultural production in Vietnam. This is to change the old

method of production in compliance with the rules of the agreements of agricultural bilateral and

multilateral that Vietnam has signed. These rules are very diverse and rigorous. Agricultural

products made not just to meet the requirements and tastes of customers, but also to fully satisfy

the requirements of law for international agricultural trade, such as: the product must have made in

the production origin, the product does not contain toxins prohibited use, not produced by child

labours, not the product under the list of the protection (animals and plants are banned to exploit).

2.1.5. Dispersion of agricultural, forestry, and fishery productions

the tax rate from 15% to 30% applied to all kinds of fresh vegetables, such products or raw processing, cereal products; the tax rate on the 40% applies to all kinds of products processing, beverages, tobacco and sugar.

53

a. In the development of agricultural goods by the market, Vietnam has established the concentrate

production areas such as: an area of about 4 million hectares of rice in the Mekong Delta, Red

River Delta, Central Coast...; sugar in Central Coast, Central Highlands, South East with nearly

300 thousand hectares; coffee in Central Highlands with an area of almost 450 thousand ha; tea in

North East and North West with almost 100 thousand hectares; rubber in South East with over 300

thousand hectares; cashewnut in South East with 350 thousand hectares, and the area of

aquaculture in the Mekong Delta and Central Coast provinces, with over 800 thousand hectares.

However, infrastructure of all kinds in these areas as planned plants, animals that have been

approved by the state has not developed enough to serve the commodity production with the

efficiency and quality. Many issues such as roads, information, infrastructure, post-harvest,

processing facilities, preserving stores of agricultural products ... should be resolved.

b. Cultivation, animal husbandry activities are mainly taken by farmers with the large number of

households (9,776,090 households, accounting for 71.0% proportion of rural households).

However, land scale of households is small (average agricultural land per household is only 0.63

ha, including the area of annual and perennial plants), lack of knowledge in business agriculture

(97.6% of agricultural labours have not trained in their field works). These cause many problems

to sort households in the form of organizing production in cooperation with the appropriate model

(cooperatives, groups, clubs and hobbies ...) in order to attach to the processing, consumption.

Then the production will be sustainable.

c. The co-operatives and economic cooperation of farmers has been established nearly 50 years,

which were converted activities by the Cooperative Law in 1997. They are self- control economic

units, act as a types of enterprises, have the right doing business in all areas where the law does not

prohibit. However, cooperatives are not strong, has not shown the support role, helping the

household economy expand production and in market accession.

d. State enterprises in the agriculture, forestry, fisheries amount to nearly 2000 units, but poor

operation, low efficiency. They appropriate a large amount of capital and land. However, they do

not resolve the many jobs, do not create stable income for labours in rural areas.

e. The enterprises of the private sector have not developed in many fields of agriculture and

agricultural production services, accounting for only 10% of the total enterprises. Therefore, these

enterprises have not become the supporters for production of household economy in rural areas.

54

f. The linkage amongst the production, processing and consumption in each sector of agricultural

products is still limited, although the government has policies to encourage consumption of

agricultural products under the contract by the link 4 establishments (Resolution No. 80/2002/QD-

TTg by the Prime Minister). However, in fact, the link among 4 objects that are farmers,

enterprises, banks and scientists to produce agricultural business effectively in each product is

weak.

2.1.6. Natural disasters, plants and animals diseases raised along with increasing production

scale, creating more risks to agricultural production.

a. Storms, floods, droughts, and damaging cold have occurred quicker, stronger, more frequent,

creating a lot of risk for agricultural production in all regions.

b. The new types of diseases and the occurrence of unusual biological cycles in plants and animals

have occurred more frequent, more complex, causing bad effects to the sustainability of

production, and agricultural loss on a large scale and prolongation.

2.2. Farmer issues

Problems of farmers in Vietnam today include economic and social issues.

2.2.1. Economic issues

a. Scale land and water production of farmers are too small, limiting ability to increase output of

products and labour efficiency (Table 10).

Table 10: Household structure by scale of agricultural land

Scale 1994 2001 2006

Landless 1,15 4,14 4,05

Under 0.5ha 70,91 64,34 61,02

0.5 - 1ha 16,23 16,42 17,14

>=1ha 11,71 15,08 17,80

Source: GSO, Results of the rural, agricultural and fishery census in 2006.

Statistics show that the scale land of farmers which are smaller than 0.5 hectares occupied mostly

(61%). This group can not have high labour productivity, even using the maximum ability of land.

Households that have over 1 ha increased, but also very modest (accounting for only 17.8% in

55

2006).

b. High proportion of pure farmer households

Some reaches conclude that (i). pure farmer households decreased by 1.8% per year, forestry

households and fishery households saw an increase of 5.1% and 6.1% per year respectively.

However, the proportion of pure farmer households accounted mainly for 93% ; forestry and

fishery households attained only 7% of total agricultutal, forestry, and fishery households9.

Meanwhile, the potential of forestry and land-water aquaculture is also very large and broad

markets, great product values.

c. Group of households that is able to organize production of goods is very small.

-Group of large-scale production is 113,699 farms, accounting for approximately 1.1% of total

agriculture, forestry and fisheries households (about 10.5 million households). The average farm

has an area of 4.5 ha, capital of 239.4 million, average turnover of 174 million.

-The remaining households are small production scale, average only 0.63 ha per agricultural

households, with 0.66 ha of aquacultural households. Households do not tend to use new

seedlings; afraid to change production processes; therefore their products are poor qualities.

d. Most farmers lack the long-term capital to expand production scale, or switching to high values

crops and livestock’s, or shifting to a new career.

-Approximately 90% of households have a loan needs to expand their production scale, and

investment in depth, changing a new method of cultivation. Capital credit of commercial banks

reached mainly to rich and average households; loan rates are usually lower than the loan needs to

invest; and it is short-term loans.

-Many farmers do not have enough conditions to mortgage loans from commercial banks. The

State has adjusted the policy credit for the economy, increasing the level for non-mortgage loans

from VND 5 million to VND 10 million per household, but it still do not meet the actual needs of

farmers. Transaction costs to get loans are high.

9 GSO, Results of the rural, agricultural and fishery census in 2006, Statistical Publishing House, Hanoi, 2007 (page 41).

56

-Long ttime to review the loan causes to lost business opportunities of farmers.

-Structure loans are mainly short-term capital, while households need medium-term and long term

capital.

e. Farmers have not received effective supports of the state, enterprises and economic

organizations having relationships with them.

-In areas of commodity agriculture such as rice, tea, rubber, coffee, cashew, fisheries ... a network

of product consumption is not clearly established by the sustainable linkages between the factories

of the agricultural processing and agricultural households. Their products must shift across

multiple intermediaries to the consumers. It leads increase costs and less attractive for the markets.

-Farmers lack knowledge to manage their product quality, loss large post-harvest, leading to the

production efficiency is very low and uncertain.

f. Difficulties in access to new technology and methods of production.

-The production scale is mainly small, meanwhile rural conditions have not established adequate

systems to provide information technology and introduce the new cultivation methods, which are

appropriate for production conditions of households.

-When a change of production, such as appearing new varieties, requiring to change cultivation

plants and animals, the farmers are very embarrassed and dynamic, and difficult to find the

appropriate assistance.

2.2.2. Social issues

a. Some farmers are very poor and no saving.

The pproportion of poor household has decreased, but it was still high (Table 12).

Table 12: The proportion of poor households in 2000 and 2006

2004 2006 Decrease rate per year (%)

Whole country 18,1 15,5 -7,46

57

Urban 8,6 7,7 -5,38

Rural 21,2 17 -10,45

Red River Delta 12,9 10,1 -11,52

North East 23,2 22,2 -2,18

North 46,1 39,4 -7,55

North Central Coast 29,4 26,6 -4,88

South Central Coast 21,3 17,2 -10,14

Central Highlands 29,2 24 -9,34

South East 6,1 4,6 -13,16

Mekong River Delta 15,3 13 -7,82

Source: Results of VHLSS 2006, General Statistics Office, 2006.

In rural areas, the poverty rate has decreased from 21.2% in 2004 to 7% in 2006, but still 2.2 times

higher than the rate of urban areas. The gap of the poverty rate among regions is very large and an

increase tend. In 2006, the difference of the poverty rate in the highest region (North West) was

8.56 times higher than the lowest region (South East).

It is said that more than 90% of the poverty of the country are currently living in difficult rural

areas, lack of opportunities to develop business and market, in which many subjects are poor

farmers and ethnic minorities, living in remote areas, and lacking the knowledge to produce goods.

b. Farmers lack employments resulted in low income

-The proportion of time used by farmers now reached 65% compared to the number of days

needed to work per year of a labour; unstable employment and low incomes.

-Labours move to urban areas for work, but no organization, guidance, lack of conditions for

social security, having more risk of legal, work policy and treated by employers in urban areas.

-Some young farmers do not like working in the agriculture sector at the local, but not trained

vocations to move to other economic fields.

-Status of older agriculture labours, health labours and low labour productivity, low incomes, limit

their participation in other works.

c. Low quality of rural labours

58

-The rate of rural labour training only reaches 11%, the system of vocational training in many

districts is poor, which does not afford vocational training for farmers at the requirements of the

production of the commodity agriculture.

-Farmers are not familiar with the manufacturing industry, requiring high discipline workers, poor

awareness of commodity production.

d. High contribution, difficult to access public services

-According to the recent assessments, an average rural household is contributing to 28 different

accounts as stipulated in commune governances and social organizations with values from VND

250 to VND 800 thousand per year. It does not include the fees and charges as stipulated by the

ordinance on fees and charges by the State. This is a social burden and bad impact for poor

households in their psychology and secure life.

-Accessing to social services is difficult and the quality of services is low, which is not meeting the

requirements of improved life. Poor farmers can not afford to cover the cost of basic social

services, must waive these benefit services.

2.3. Rural issues

2.3.1. Plan of rural development do not absolutely complete on the socio-economic and

environment; not detailed, lack of transparency and non-effective implementation

a. Most plans have done. However, they do not have enough details about the rural long-term

development, and not present self-government and people in the planned areas.

b. Planning is not widely published, lack of sanctions to monitor its implementation. The

violations are not solved seriously, causing ineffective planning.

c. A rural picture is very intricate because of the self development, dispersed by the benefits, the

decision by many local individuals and organizations who are responsible in rural areas. It lacks

necessary orders of a new social situation. It raises commonly land and resources disputes,

creating a difficult which is not easy to solve.

59

2.3.2. Rural areas are lacking laws and policies of socio-economic and environment to develop

harmonious and sustainable areas

a. Current law systems relating to economic activities, social and environment in rural areas are

dispersed, incomplete, causing the shortage of management. In some cases, the policy of the state

lacks a legal basis, thus it should not be able to solve fully the issues arising in reality, which is the

major and urgent problems, such as extension, applying new technology, developing sustainable

agriculture, green agriculture; the agricultural consumption, monitoring cross price elasticity of

agriculture and non-agriculture, agricultural insurance, risk management of markets, natural

disasters, plant and animal diseases, quality management of agricultural products, environmental

pollution of soil, water, climate, remission of irrigation fee, tax of agricultural land use.

b. Many important contents related to the production, processing and consumption of agricultural

products stop at the documents, not apply to life.

3.3.3. Problems of the state management for rural areas

a. In fact, the assigned functions and responsibilities are not clearly among the government of

provinces, districts and communes, and lack of conditions and sanctions to implement. The central

and provincial systems are too large, while at the district levels where implement directly the state

management of socio-economic and rural environment are poor, lack of mechanisms to operate

and enforce the policies of the state for agriculture, rural areas.

b. There are no criteria to evaluate the efficiency and performance of the provincial, district and

commune state with the development of socio-economic areas. The bureaucracy status and the

administrative work in state management at the rural level are lumbering; the state management on

economy is unclear.

3.3.4. Cultural activities, the spirit of the rural are poor; the farmers have not oriented to the

construction of traditional rural life, civilization, and progress.

a. The current rural models are monotonous, the economic issue as well as the culture and spiritual

life of the country have not developed together. Cultural activities and healthy communities are

poor in many rural areas.

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b. State management of the districts and communes for cultural activities are poor, not actively

develop new models of rural, combining all 3 elements of civilization, modern and tradition.

3.3.5. Status of environmental pollution, degradation of rural resources are taking place rapidly,

affecting rural sustainable development

a. Rapid iindustrialization, modernization, and urbanization have created many solid, liquid and

gas waste, including toxic waste in rural, making an increased pollution of rural environment,

especially some places are polluted seriously.

b. Development of commodity agriculture, using more chemical fertilizers, toxic pesticides made

water and air pollution. Plant and animal diseases appear broadly with great frequencies, affecting

the health of rural people.

c. Rapid development of processing agricultural products, non-agricultural activities while

methods and conditions of waste treatment have not prepared, causing water and air pollution

seriously, and negative impact to people.

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3.3.6. Poor and lack rural infrastructure

a. Rural roads, especially remote and mountainous areas do not ensure through traffic, particularly

in the rainy season which causes strong divisions.

b. The irrigation is a serious degradation. Many works of the people do not have capital to

maintain and upgrade, hence threats of unsafe lakes and dams are very large.

c. Schools and clinics in some places are unsettled. A system of communal and village culture is

poor.

3.3.7. Business environment in rural areas has not attracted enough

Although the regulation of business and investment business is opener, with many incentives of

industries and investment locals, especially invest in remote areas and difficult condition areas,

domestic and foreign investors do not seem to invest in these regions due to the profit rate in

agriculture is low, transportation cost and material conditions are not guaranteed

3.3.8. Policies for staff, civil servants in rural areas are not adequate

a. Policies on wages, social insurance for officials of local governments are not satisfactory

compared to the works that they have to perform.

b. Attractive policies to qualified and technical people, who have been trained to work in rural,

remote areas are inadequate, therefore these areas have not attract talents.

III. Some solutions

3.1. For agriculture, forestry, and fishery

3.1.1. Identifying a long term planning of agricultural, forestry, and fishery sectors, which is

appropriate for markets, and create stable production fields

a. Cultivation, processing and selling

-Checking, improving land use plan for development of cultivated crops with the highest value

62

which is appropriate for markets, for soil characteristic and other conditions (such as water,

temperature, light,...)

-Applying the new cultivation and post-harvest technologies, making good use of favorable natural

conditions of each agriculture products, including: natural dry by solar energy, enlargment of

refinning, longer preservation, bigger scale.

-Re-organizing the network of agricultural products’ collection based on the principle of

association, which is to focus on coordinating with farmers and etablishment voluntary

organisations ; building institutions related to production of farmers to processing enterprises and

commercial enterprises, with the active participation of local authorities.

-Concentrating on upgrading infrastructure network that serves production with large scale, such

as  irrigation, electricity, road, premises used for production, processing and information.

-A part from state budget, it should attract maximum capital from enterprises, business, farms to

invest in development of necessary infratructures.

b. Breeding, slaughter, processing and selling

-Applying for both administrative and economic solutions for regulation from dispersed breeding

methods, small scale, free breeding without epidemic diseases control to breeding farms using

territory plan, anti – diseases solutions and waste treatment.

-Re-organising the activities of slaughter in order to guarantee sanitary and safety foodstuffs and

relating to consumption market with mode of industrial production.

-Developing production, supplying a good quality of cattle-feed, reducing imported cattle-feed10

by intensifying the capacity to produce fish paste, maize, unnecessary products from food

processing industry.

-Propagating the consumption of animals which apply for industrial slaughter, gradually limiting

to method of slaughter in farming marker as happening.

10 In 2007, Vietnam had to import over USD 1.124 million of livestock foods, which increased 57% comparison with in 2006, causing difficulties for the national breeding.

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3.1.2. Supported policies to develop agriculture, forestry, and fishery

a. Promoting the changes in structure of prodution appropriate for plan and comparative advantage

of ecological condition, creating zones where produce goods with high economic value, suitable

internal and external markets.

b. Supporting policies on stable cultivated surface, on breeding scale appropriate for approved

plan, guarateeing consumption demand on the local, especially in national food security by

stablising rice surface and rice yield (when Vietnamese population obtains maximum around 130

million), as well as exporting an amount of rice.

c. Policy on investment in irrigation must be regulated towards focusing on irrigational works in

crops areas, fruit trees, industrial trees, breeding and acquaculture. Study on improving investment

rate in planting and protecting forest.

d. Supporting agriculture in enlarging consumption market of agricultural products at international

level. Shifting onto exported-agricultural products with higher quality, processing in order to

strengthen competition in the world and regional economy.

e. Promoting study on Agriculture Law appropriate with the current situation of Vietnamese

agriculture, replacing some old legislations on agriculture, in order to manage and develop

agriculture sector.

3.2. Developing non-farm activies in rural areas

Continuing to develop non – farm sectors in Vietnamese rural areas which follows two main

models :

3.2.1. Developning industial zones in rural areas

Continuing to develop industrial clusters in local district, along with establishing non – farm

enterprises in rural areas. At present, there are more than 130 industrial zones managed by the

goverment and hundred small industrial zones managed by provinces. It should promote those

clusters to develop multi-sectors related to intensive rural labour use.

3.2.2. Developing traditional villages and new villages in rural communes

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At present, there are more than 2000 trade villages in national wide. It should consolidate the

activities of those villages and enlarge other new villages in rural communes, so that ‘each village,

each product’.

3.3. Solution for farmers

3.3.1. Enhancing farmers abilities to economic development

a. Implementation ‘drilling in farmers’ through continuing the remission policy of agricutural land

use tax. At first, the State need to exempt farmers from land use tax in case out of allocated

limitation.

b. Exempting producers from revenue tax in trade villages, reducing fees and charges magaged by

districts and communes.

c. Enlarging exemption of VAT and revenue tax for agriculture – forest and aquiculture processing

industry

d. More study on supporting policies for farmers, especially for poor households in order to help

them apply for modern technology to cultivation, premilinary treatment and preservation of

agricultural products at homes.

e. Simplifying the procedure for getting loans by farmers, fishers and farmsteads. Renovating

borrowing method and borrowing schedule appropriate with agricultural production demand.

f. Focusign on, supporting farmers through new co-operatives system, complying co-operative law,

particularly through revenue tax incentives for services which is supplied to member of a co-

operative by co-operatives ; through short and mid-term financial incentives and training leaders of

co-operatives ; consulting co-operatives about building technical material facilities and

strenghthen management marchinery suitable for the role and function of co-operatives.

g. Realising the policies on supporting farmers following approved regulations. Encouraging other

farmers to pariticipate in farming, especially farmers with big land scale.

h. Promoting investment in building and upgrading material facilities serving agricultural

65

production through state budget and ODA for concentrated – production zones with a greate amout

of output, high value.

3.3.2. Solutions for overcoming social impact on farmers

a. Focusing on investment in schools, vocational centres in districts and communes for farmers.

Supplymenting budget for training activities for new farmers, for elderly farmers, for improving

the capacity of management of the head of co-operative, technical workers.

b. Study on establishment and implementation of policies on supporting employment and social

security for farmers who were confiscated their land to develop industrial zones, to build social-

economic infrastructures, to urbanise in order to help them maintain stable life and minimise

negative social impact.

c. Continuing to implement poverty reduction projects through state budget. The central agencies

must coordinate wih non – govermental organisations to implement projects on supporting poor

people in rural areas, especially in remote areas and ethnic areas.

3.4. Solutions for the rural development

3.4.1. In terms of economic, the development of agricultural, industrial and service industries

should base on advantages and geogramancy of each rural area

a. It is necessary to consider the diversity of rural areas. Rural development may base mainly on

agriculture or not only agriculture but also multi- industries, multi- products; the connection of

processing industry with export markets.

b. Linking rural with agriculture and farmers is the basis for the comprehensive economic

development of rural, industry, service, tourism and rural stablization.

c. In some rural areas, agricutrual, forestry, fishery may account for high proportion and in some

others, they may significant reduce. Therefore, together with designing rural development plan,

plan for the long-term land using for other objectives should be designed soon and developed

consistently.

66

d. Rural comprehensive plan should define clearly location and functions of each area based on

natural advantages, in terms of land, geogramancy and other natural resources. The socio-

economic development plan should be connected with the rural infrastructure investment plan.

3.4.2. In terms of rural civilization model, economic structure should be consistent with labour

structure, stable rural society; rural inhabitants’s income and living standard have been improved

continuously.

a. Encouraging all types of enterprises in rural areas to create more new works; attracting more

labourers from agriculture in order to increase their income and change the rural labour structure,

improving farmers’ living standard firmly.

b. More considering to areas where produce agricutural products for exporting; to agricultural

product processing industries; to agricuture supporting industries such as electricity, mechanic,

agricutural, forestry, and fishery processing industries, system of experiment research stations and

transfering high technology for farmers

3.4.3. Policies for the rural development should focus on:

a. Stimulating the rapid and sustainable changes of a part of agricultural labour into other

industries under the economic structure changes in each rural area, increasing income for rural

labours by creating more works based on advantages of each area.

b. More investing in the rural socio-economic infrastructure, in which, it is necessary to use a

rational proportion for training farmers, including new training, re-training, fostering knowledge

and experiences of high value agricultural production, knowledge of non-agricultural industry

development, such as industry, crafts and services in the rural. Giving high priority for improving

profession for poor households. Considering investment and training for farmers as investment in

soft infrastructure in the rural.

c. In terms of hard infrastructure investment, it is necessary to give high priority for investment in

concentrated material production areas, industrial villages areas, rural industrial areas and clusters.

Capital and technicants should be prior for traditional industrial villages, especially for

agricultural, forestry and fishery processing in the rural.

d. Re-increasing the proportion of direct investment of the state budget into rural infrastructure

develoment. Direct investment of the state budget focus on building infrastructure of electricity,

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irrigation (1st and 2nd level chanel systems), transportation, scientific, experiment research stations

and after-harvest constructions.

3.4.4 Concentrating on solutions for rural ecological environment protection

a. Re-organizing agricultural production process, enclosing with the preparation of effective

measures to limit the insect arising and contagiousness, especially epidemics can be contagious in

wide range.

b. Limiting the maximum use of chemical fertilizers, the type of pesticides, herbicides, growth

dopes with high toxins, focusing on measures of green and high quality products. The fields should

be maitained to avoid toxic chemicals and other types of waste pollution ...

c. Encouraging farmers, farms, cooperatives, agricultural enterprises to apply new science and

techonology, especially to apply bio-technology in cultivation, breeding for high productivity,

quality and improving competitiveness in both domestic and world markets

d. For non-agricultural industries in rural, industrial villages, industrial clusters should be located

out of inhabitant living areas. Plans for development of industrial village, industrial clusters and

waste (solid and water) settlement system development within industrial villages and industrial

clusters should be improved and publicized to protect and maintain rural ecological environment in

general and industrial villages and industrial clusters in particular.

e. Local government (i.e. districts and communes’ people committe) should develop following

measures: training and re-training on rural environment maintainance and proctection for

commune’s cadres; providing knowledge of transfering methods and monitoring farm owners,

households, enterprise directors, cooperative directors, production team leaders in the area and

labourers in each commune, district to implement environment proctection measures.

f. Closedly monitoring the implementation of plant and animal changing plan and during

expanding the traditional industrial villages, new industrial villages in the rural. The plant and

animal changing plan must under the plan and accompany with the preparations of land, water and

production infrastructure. They are not allowed the spontaneous changes, fragmentation, out of

general plan of production areas.

3.4.5. Strengthening the state management in the rural areas

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a. Reforming awareness to unite the steering ideas of leaders in all levels, from central to

provincial, district and commune on the rural developmemt.

b. Supplementing and improving regulations on the state management on agricultural business and

production and the development of social activities in the rural. Steering the implementation of

policies, regulations, laws on agriculture, farmers and rural.

b. Improving the state management bodies for agriculture, rural, especially functions, duties and

rights of district’s and commune’s people committees in order to strengthen their effectiveness.

Improving capacity and profession of cadres at distric and commune level by training, re-training,

fostering knowledge and experience in economic management, agricultural finance under the

market mechanism./.

References

1. Draft of agricultural, farmer, and rural development plan, compiler group, 19/02/2008.

2. The Resolution of the 7th Congress by the Session X Central Executive committee on

agriculture, farmers and rural areas.

3. Chu Tien Quang, Some pressing issues and solutions for agriculture, farmer, and rural areas,

Vietnam Economic Management Review, No. 20- 2008. 

4. GSO, Results of the rural, agricultural and fishery census in 2001 and 2006.

5. GSO, Statistical Yearbook of Vietnam 2007, Statistical Publishing House, Hanoi, 2008.

69

IMPACT OF GLOBAL FINANCIAL CRISIS ONINDIA’s MICRO FINANCE SECTOR

By Maini Navin Kumar

During the last three decades, micro finance, all over the world, has evolved as an economic

development approach intended to benefit low-income clients, including the self-employed. It has

proved to be an “important instrument in the fight against poverty” as it enables the poor to

increase their income levels, build assets and reduce their vulnerability to external shocks.

INDIAN ECONOMY – BACKGROUND AND CURRENT STATE

With around 1.2 billion population, India has, during the last decade, emerged as one of the most

vibrant and fast-developing economies in the world. The country has, during the last several years,

been making rapid progress on various fronts with unprecedented growth in many sectors. The

annual GDP growth of around 9 per cent during the last few years made it one of the fastest

growing economies in the world. Despite the progress, the country faces several challenges.

Around 30 per cent of the population still lives below the poverty line.

The initial experiments with poverty alleviation and financial inclusion programmes in India began

immediately after independence with the launch of several government programmes and

initiatives. The nationalization of banks in late 1960s helped to create an extensive banking

network in India with the prime objective of reaching financial services to the vast majority of the

population that resides in rural areas. This was complemented with the introduction of several

subsidized and directed lending programmes.

The reforms introduced by the Government, post-liberalisation, have aimed at putting the Indian

financial system including the banking sector at par with international standards while at the same

addressing its prime objective of poverty alleviation. As a cumulative result of all these initiatives,

the flow of credit to the lower-end and weaker sections of the population has improved.

Nevertheless, the cumulative outreach of the entire banking system to the poor still remains

somewhat limited.

INDIAN MICRO FINANCE – DEMAND AND SUPPLY

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Demand for Micro Finance Services

As per a recent study done in 2007, the annual credit demand from low-income segment of the

population has been estimated at around INR 770 bn. (USD 15.5 bn.)1 In addition, to this, there is

immense demand for micro insurance services, savings and micro pension.

Supply of Micro Finance Services

The total size of micro finance sector in India, in March 2008, was around INR 220 bn. serving

33.55 million clients. That equals about 23.6% of low-income families in India, which is still a low

outreach. At least 2 out of 3 poor Indians are still financially excluded, which speaks of the

immense potential for expansion of micro finance services across the country.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA – Expanding the horizons of

micro finance sector

Small Industries Development Bank of India (SIDBI) is an apex Financial Institution in India for

financing, promotion and development of Micro, Small and Medium Enterprises (MSMEs).

Beginning with a pilot micro finance programme in 1994, SIDBI revamped and launched its micro

finance programme in 1999 with the mission to “create a national network of strong, viable and

sustainable Micro finance Institutions from the informal and formal financial sector to provide

micro finance services to the poor, especially women.”. In order to give focussed attention to

upscaling its micro finance business, SIDBI set up a specialised department called ‘SIDBI

Foundation for Micro Credit (SFMC)’ as an institutional answer to the huge unmet demand for

micro finance. SFMC was created to serve as an apex wholesaler for micro finance in India

providing a complete range of financial and non-financial services to the MFIs so as to facilitate

their development into financially sustainable entities, besides developing a network of service

providers and advocating for appropriate policy framework for the sector.

IMPACT OF GLOBAL FINANCIAL CRISIS ON MICRO FINANCE SECTOR

With the current financial crisis taking its toll on some of the largest global financial institutions

and banks, there has been considerable discussion regarding the impact of the crisis on the micro

finance sector, worldwide. Of late, some research papers and publications have been released that

1 Assuming annual average loan size per person of INR 4000 to INR 10000.

71

attempt to analyse and measure the magnitude of the impact on the micro finance sector, though

empirical evidence from the field is still limited.

All these research papers, despite differences in their method of analysis, have concluded that the

micro finance sector cannot remain unaffected by the current crisis, simply due to the fact that the

sector, in almost all developing countries, is by now well integrated with global financial markets.

However, all of these papers have opined that with the right strategies of expansion, resource mix,

consolidation and internal strengthening, MFIs can emerge least scathed and affected by the crisis.

The micro finance sector in almost all developing nations is closely linked to the global markets.

MFIs, in most countries, have raised funds from international funding institutions and investors

both by way of debt and equity. This can be judged from the fact that an estimated USD 5 bn. of

foreign investment had flowed from developed countries into MFIs around the world, by the end

of 2007. The international micro finance market is, therefore, not immune to the current meltdown

in the global markets, though it is much more resilient compared to the formal financial sector.

MFIs, across the world, are facing constraints in the form of credit crunch, foreign exchange risk

due to currency devaluations, job losses and in some cases, falling demand etc. However, an

analysis of factors causing these problems shows that parameters such as the country of the MFI,

the liabilities profile / mix of the MFI, the current financial state / life cycle of the MFI, economic

profile of their clients etc. are the major determinants of the degree of impact of the crisis.

IMPACT OF CRISIS ON INDIAN MICRO FINANCE SECTOR

The Indian micro finance sector witnessed exponential growth during the period 2005 to 2008. The

fiscal year 2007-2008 saw an unprecedented growth with the micro finance sector growing more

than 4 times the rate of the national economy (measured by Client Outreach and GDP,

respectively)2. The last few years have also seen substantial inflow of foreign funds, largely by

way of equity. Though some of the top-end MFIs have attracted equity investment, the Indian

micro finance sector remains largely dependent on debt funds, which are available from national

and international banks in the country in addition to donor funds. MFIs in India are currently not

allowed to raise public deposits or even thrifts from their members except for those registered as

Co-operative Societies. Thus, the funding mix of Indian MFIs show a higher proportion of debt

funds followed by equity.

2 Sa-dhan Quick Report 2008

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With the deepening of the financial crisis, the inflow of foreign equity has slowed down slightly,

though, the top-end and well-performing MFIs continue to raise equity, albeit at a lower valuation

than what they were commanding, say, six months back.

The impact of the crisis is felt more in terms of credit crunch with most of the private and

international banks slowing down their disbursements to the MFIs. In addition, the interest rate

hikes during the middle of the current fiscal year further compounded the problem by raising the

cost of funds for the MFIs. The result is that most MFIs, especially the mid-sized MFIs, are not

only feeling the liquidity pinch, more severely but are also facing a squeeze on their Net Interest

Margins. However, public sector banks, which have remained more resilient compared to their

private counterparts, have come forward to support the micro finance sector by way of loan funds.

SIDBI, being an apex financial institution for the promotion of MSME sector, has been a leader in

the micro finance sector. It has been the bulk funder to most MFIs in the country. Realising that

any slow down in the availability of on-lending fund of MFIs would adversely affect their

programmes and repayments from their ultimate clients, SIDBI has not only continued to fund the

sector, but has infact stepped up its average loan size per MFI. The micro finance loan portfolio of

the Bank is estimated to grow by more than 100% during the current fiscal, reflecting its

confidence in the financial health of the sector.

Following the crisis, the Government of India has announced a series of monetary policies and

fiscal measures with the objective of boosting credit flow to the MSMEs that are worst affected by

the meltdown. Among these measures, the Reserve Bank of India has extended a refinance facility

of approx. USD 1.4 bn. to SIDBI with a view to providing liquidity to the MSME sector. The

facility is also available to finance MFI-NBFCs so as to ease their liquidity position. It is expected

that the liquidity cushion would improve among Indian MFIs during the second half of next FY.

As regards equity flows, it is expected that foreign equity in Indian MFIs would continue to flow,

given the sound performance and the immense growth potential of the sector. However, the

valuations would be much more realistic and not simply based on the euphoria which micro

finance programmes have generated in the recent past.

LESSONS FOR MFIs

The Indian micro finance sector has outperformed all major sectors in the economy, resulting in a

beeline of banks, financial institutions and equity investors willing to fund and take shareholder

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positions in these institutions. The high return on investment / equity posted by some of the top-

end fast-growing institutions further made the sector more attractive.

While the current financial crisis has, to some extent, impacted the sector in terms of availability

of funds, it has also compelled the stakeholders and practitioners to sit up and introspect on their

growth strategies. There are lessons to be learned by MFIs from the current meltdown. With

limited availability of credit and even more limited funds by way of equity, MFIs, perhaps, need to

revisit their business plans by moderating their growth targets, which would enable them to grow

on a more sound footing rather than supply-led growth. MFIs need to focus on building sound

policies, practices and systems within their organisations, ensuring fair and transparent practices,

adequate disclosures so as to protect their clients from overindebtedness etc. The MFIs, at this

juncture, need to put in place a robust system for managing risks arising out of their operations.

Managing asset liability maturity mismatches is emerging as the major challenge for MFIs calling

for more prudent financial management on their part.

FUTURE OUTLOOK

The Indian micro finance sector has, so far, had a healthy growth. Though the current global

meltdown has had some adverse impact on the sector, it appears to be mainly on resource raising

front. There are numerous lessons to be learnt for the MFIs. By responding proactively to the

crisis, consolidating their operations, reviewing their organisational and growth strategy and by

introducing cost-effective risk management strategies, MFIs can emerge minimally affected from

the turmoil.

We hope that the MFIs in India would be able to come back on their growth path by the second

half of next FY. The challenges in the post-crisis phase would be to find ways to expand the reach

to more and more marginalized poor. It would require the MFIs and intermediaries to innovate in

product design so as to offer value-added services to the clients and to make a difference in the

communities by helping to move them towards prosperity.

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Financial crisis and Vietnam’s current economy

By Nguyen Dinh Cung

Head of the research Department on Macro-economic Policies

Central institute for economic management

Hanoi-Vietnam

I. The real situation of Vietnam economy and the impacts of the international financial

crisis

1. In 2008, Vietnam economy was affected double by inflation, anti-inflation and global financial

crisis. During three first quarters in 2008, inflation and anti-inflation solutions has brought

negative effects on enterprises’ operating. Material cost, labor cost and capital cost rises; capital

source is being cut down and getting too scarce for many enterprises to approach. As the result, the

profit from the enterprise sector decreases, even many enterprises are getting lost 3, projects which

were ready to work are stopped, manufacturing is shrunk or halted. Stock market continued to

plunge, lost about 70% of its values in comparison with the end of 2007. Real estate market is

frozen. Tens of thousands of investors (person and organization) completely lost, which

significantly diminished revenue and expenditure of economy.

2. While the difficulties and the consequences of inflation and anti-inflation have not been solved

yet, new difficulties with larger scale and higher degree are coming. From July-2008, global crisis

and economic recession started in USA, then spread quickly and widely to all countries and the

continents around the world. In fact, the global economic recession negatively and significantly

impacted on many aspects of Vietnam economy.

3. First of all, exports decreases due to the decline of demand and price of commodity and

services in international market. Export volume of Vietnam keeps falling from the end of 2008;

export volume in 11/2008 is USD 4.3 billion (in which gold export value is USD 900 million),

3 According to the result of enterprises investigation annual survey ò General Statistics Office, (i) about 30% of capital lending companies holds 50% total asset value in which 13% such companies lends more than 70% total their capital. Therefore, at least 13% these companies is extremely affected by interest rate and tight monetary policy, (ii) there is 16% construction and electricity supply enterprises, which are suffered from under-capitalization and investment cutting of government. It is reportedly estimated that 20% of these enterprises will be halted to manufacture or went to bankruptcy.

75

increasing 13% in comparison with 1/2009. Compared by the same period last year, export volume

of two first months fell about 5%.

Table 1: Vietnam’s Export volume in 2009

Export of

January.09,

Export of

February.09 Total

Growth

rate(% of

previous

period)

Total export(mill. US$) 3719 4300 8019 94.9

Domestic economic sector 1751 2500 4251 120.6

Foreign owned sector 1969 1800 3769 76.6

Crude oil 458 500 958 57.6

Other products 1511 1300 2811 86.2

Total import 3329 4400 7729 56.9

Domestic sector 2114 2800 4914 51.3

Foreign owned sector 1215 1600 2815 70.2

Balance 390 -100 290  

However, if excluding gold export value, export volume of February is only USD 3.5billion, down

8% compared to that of January. Export volume of two first months this year is only USD

7.2billion, deceasing by 14% compared with the same period last year. Export volume is predicted

to be possible to decrease 20-30% comparison to last year 2008.

4. Industrial output in 2008 increases only 14.6% in comparison with 2007, in which state-owned

economy increases only 4%, non-state economy increases 18.8%, and foreign invested sector

increases 18.6% (all of those are the lowest increase since 2000). Manufacturing in January

decreased by 8.6% in comparison with 12/2008, and 4.4% compared to 1/2009; in which, state-

owned sector declines over 11% compared to 12/2008 and 8.5% compared to the same period of

2008, FDI sector declines by 9.4% and 3.2%. and non-state sector fell by 5.9% and 2.8%

respectively. Gross output of industry of two first months increases only 2.5% in comparison with

the same period of 2008, in which, state-owned enterprises decrease by 4.4%, non-state enterprises

increase 6.6% and foreign investment enterprises increase 3.3%.

76

Table 2: Gross Output of Industry by types of ownerships in 2009

  value(bill. VND) growth rate(% of previous period)

Total industrial output of the first 2

months/2009 106067 102,5

State enterprises 24540 95,6

- centrally managed 19005 95,8

- Domestically managed 5535 95,0

Domestic private enterprises 37524 106,6

FDI enterprises 44003 103,3

- Oil and gas 4275 114,8

- Other industries 39728 102,2

5. The difficult situation would be continuously prolonged for whole year 2009 and probably

spread through 2010, and strongly affects on manufacturing sector. It is evidenced by the

following result of VNeconomy’s survey.

How are the prospects of your Company in 2009?

There are many chances to continuously develop well 197 (13%)

Can keep growing but at lower rate compared to last year 259 (17%)

Facing with more difficulties but will overcome 470 (31%)

Possibly stopping manufacturing for a short time 147 (10%)

At the risk of bankruptcy 421 (29%)

According to this survey, nearly 40% enterprises is possible to be bankrupted and halted to

77

manufacture, 31% of the others meets more difficulties but will overcome, 17% are still developed

but with lower profit compared to 2008, and only 13% of asked enterprises has many opportunities

to still well develop. This result predicts that our economy in 2009 will be in more serious

recession.

6. GDP growth rate in 2008 reached 6.23% only, which is the lowest rate since 2001. The

government has set the target for this year’s growth rate at 6-6.5%; however, it is predicted that it

is difficult to get this target.

Table 3: Vietnam economic growth indexes forecasts

GDP

growth(%) Inflation (%)

Growth of

export and

import(%)

BOP

deficit(% of

GDP

Budget

deficit(% of

GDP)

Targets set by VN. Government 6.5 less 15 Ex 13, Im:12 -10.1 -4.82

IMF forecast(1/2009) 5 5 … … …

ADB forecast(1/2009) 5.5 1.2 … -10.7 -9.8

EIU forecast(1/2009) 3 7.5

E:-1.7

I:-0.8 -8.6 -7.3

City Group(31/1/2009) 5.2 4.7

Ex:-22.4;

Imp:-28.3 -5 …..

Dutch Bank(5/12/2008) 4 8.6 -21.5 -8.5

7. Many worrying social problems have been caused by negative economic impacts, which are the

continuously increasing unemployment. Until the end of 2008, about 350 thousand employees lost

their works, this amount will be increased by tens of thousands of the unemployed in the coming

year. If the ratio of the unemployed who moved from rural area to industry park in Vietnam is

approximate to those of China (about 15%), the number of the unemployed in Vietnam due to

global economy recession may reach 1 million. One important point to note is that because the

ratio export volume/GDP of Vietnam is about 70%, much higher than those of China, (about 38%)

Vietnam’s export goods production might be influenced much more significantly than in China.

Large number of the unemployed and the decrease of employees’ real income (caused by inflation

and lack of jobs) make the life of millions of people becoming more difficult, even extremely

miserable.

78

8. There is a sign of inflation coming back. Inflation in 2008 hit record level over the past 10

years. The average consumer price index (CPI) this year is close to 23%, and CPI in 12-2008 is

20% higher than those of the same period last year.

79

Table 4: Consumer price index (CPI) by commodity group in 2008

December-08/ December 07

Annualized base

growth rate

CPI (%) 119.89 122.97

food and foodstuffs 131.86 136.57

Food 143.25 149

Foodstuffs 126.53 132

Tabaco and beverage 113.10 110.75

garment, shoes 112,90 110.33

housing and construction materials 108.46 120.51

equipment and appliances 112.68 109.06

health care and pharmacies 109.43 108.87

transportation and telecomunication 106.56 116

Education 106,87 104

culture, entertainment and sport 110.33 105.87

Others 112.97 113.17

After 3 months successive decrease, until 1-2009 CPI began to increase, reached at 0.29%, and

CPI in February rapidly went up, at 1.7% in comparison with January.

Chart 1: Monthly CPI in 2008-2009

II. Some solutions against global financial crisis

80

2.38

3.562.99

2.2

3.91

2.14

1.131.56

0.18-0.19

-0.76 -0.68

0.29

1.17

-1

0

1

2

3

4

5

1 2 3 4 5 6 7 8 9 10 11 12 1_2009 2_2009

Month

%

As mentioned above, financial crisis has affected many aspects of Vietnam economy; particularly

exporting, industry and services declined remarkably, a large number of enterprises stopped

manufacturing temporary, restricted manufacturing scale, or even went bankrupt or dissolved;

hundreds of thousand of labors lost their jobs; it is hard to reach economic development indexes,

including GDP growth rate tarter in 2009. In order to cope with these negative impacts of the

crisis, Vietnam government has adjusted policies, and promulgated and implemented many

particular solutions. Until the middle of the fourth quarter 2008, government has adjusted goals in

which the top priorities are to stabilize macro-economy, to maintain proper growth, and to ensure

social security. From the beginning of 12-2008, Government has promulgated the demand stimulus

package, including four solution sets of more than 60 particular policy solutions. A lot of solutions

are carried out immediately, that is:

Government has provided financial assistance package and forced state-owned food

companies to purchase all rice and agricultural product for farmers.

Restructuring state investment and restarting the important infrastructure projects which were

halted from the beginning of 2008

Relocating and providing more investment capital for developing rural infrastructure

Reducing 30% income tax rate for all companies from fourth quarter 2008 to the end of 2009

Refunding immediately 90% VAT on exports.

Implementing the loosen monetary policy, reducing the basic interest rate and mandatory

reserve rate, namely in 20-10-2008 interest rate was cut from 14% to 13%, and to 12% in 3-11, to

11% in 21-11, then to 10% on 5-12, to 8.5% in 22-12, and most recently was only 7% in 29-1-

2009.

81

Chart 2: Changes of bas interest rate in 2008-2009

In short, after only more than three months, the basic interest rate has been adjusted 6 times, from

14% to 7%, as the result the ceiling lending interest rate was decreased as well, from 21% to

10.5%.

Spending USD1billion as 4% interest rate subsidy for small and medium enterprises, export

production enterprises in order to employ more labor. Therefore, according to this interest rate

subsidy policy, such enterprises will have to pay 6.5% lending interest rate for commercial banks.

This interest rate subsidy policy of Government is supported by commercial banks who is

estimated that there is over VND 400.000 billion capital in hand available for the Government’s

interest rate subsidy program.

In terms of social security, the most priority in the demand stimulus at that time is to maintain

and create more jobs, to help poor people who will be most affected by the crisis. Therefore, along

with assisting enterprises using many labor, and stimulating domestic consumption, the

Government also:

Supports enterprises in paying salary,

Requires large companies to give a part of their contracts for small companies in order to

maintain producing and not lay off more labors,

82

1413

1211

108.5

7

02468

10121416

befor

e20/1

0

20/10

/08

3/11/2

008

21/11

/08

5/12/2

008

22/12

/08

29/1/

09

Asks state-owned enterprises not fire labor during this difficult period.

In addition, every member of poor family is received directly VND200.000 (USD12) from

Government, but not exceeding VND 1million for a family.

For improving business environment, the government has given priority to resolve difficulties

in investing, first and foremost FDI capital disbursement, and administrative reformation. More

than 1300 administrative formalities (amongst over 6500) are considered to abolish in the next few

months.

In conclusion, Vietnam economy is immensely suffered in global financial crisis. Like other

countries and areas, Vietnamese government has urgently and punctually proposed to prevent

economic recession, to ensure social security, and to help our economy to overcome crisis.

However, because of the resource limitation, extreme dependence on international market,

economic recovery of Vietnam is contingent upon the possibility of economic recovery of our

major trading partner countries.

Hanoi, February - 2009

83

Social Impacts of the high Inflation and Economic Slowdown in Vietnam and Government Responses

Nguyen Thi Tue Anh

Macroeconomic turbulences, especially the high inflation in 2008, have really stormed the

Vietnam economy and resulted in certain social risks. As of the end of December 2008, although

the macroeconomic situation was significantly improved, such risks as jobless and reduced income

seemed to increase due to the lag and dual impacts of high inflation and economic slowdown,

which directly influenced the daily life of workers.

1. Impacts of high inflation and economic decline over income and employment

The high inflation in 2008 reduced the real income of all people, and the most affected people

were those who had low and/or unsecured income and lacked economic capacity to secure the

minimum living standard for themselves and their family. Based on this criterion, (in 2008 the

overall rate of poor households was 13.5%4), millions of people who have relied on social

allowance and/or had low pension5 saw their real income plummeted, which meant their lives

becoming more difficult.

In the public administration sector, although the minimum monthly salary level of VND 540,000

applicable in 2008 was a 20% increase compared with the previous level, it was not sufficient to

maintain the real wage, as the inflation rate was 22.97% this year.

Even workers in the business sector also saw their real wage decreased significantly, although their

minimum wage level increased in 2008. Reduced wage more badly affected workers in foreign-

invested and non-state business sectors, due to the impact of high inflation since 2007 ().

In addition to income reduction, high inflation in parallel with economic decline also led to

increased jobless workers in 2008. While 0.53 million people were unemployed as of July 2008,

millions of others had their wage payment delayed or income reduced due to decreased number of

working days, or work suspension, or even jobless when their enterprises were unable to maintain

4 According to socio – economic statistics in 2008 – http://irv.moi.gov.vn. However if the new poverty line is applicable, the poverty rate in 2008 would be between 16.5% and 17.5%, i.e. about 3.2-3.4 million poor households. 5 In 2008 there were nearly 60,000 pensioners as per the figure in http://nhandan.com.vn on 26/12/2008.

83

production activity. It was estimated that at least another 50,000 people6 already lost jobs but have

not been classified as unemployment in the last three months of 2008.

Figure 1: Growth rates of nominal wage in the business sector by ownership and inflation rates (CPI) between 2006 and 2008

0

5

10

15

20

25

2006 2007 June 2008

%

0

5

10

15

20

25

%

State-owned Enterprises Non-state enterprises

Foreign invested enterprises Total

CPI

Source: Figures by Nguyen Hai Huu (2008)7 and GSO.

In general, the impacts of high inflation cum economic decline over income and

employment had certain lag and started materialize in the fourth quarter, as until the middle of

2008 a number of enterprises still conducted business contracts signed in the previous period. The

timing and level of influence were also mismatched depending on types of industries and

consumption markets. Enterprises using domestic materials and serving the domestic market were

firstly impacted, owing to rapid increase in input costs (especially cost of capital borrowing)

resulted from high inflation and the shrunken domestic demand. Besides high inflation, enterprises

manufacturing export products also experienced the reduction or loss of export markets due to the

global financial crisis and economic decline.

Box 1: Job loss and income reduction of workers in several big cities

6 According to the official release of the General Statistic Office, the unemployment rate of people at working age in the urban area in 2008 was 4.65%, or about 528,798 people. However this is the statistic figure as of July 2008. Based on reports of eleven provinces and cities under central authority to the Vietnam Trade Union as of the end of 2008 at least another 50,000 people lost their jobs. Consequently the actual number of unemployed people was higher than the unemployment rate ( http://vietnamnet.vn on 30/01/2009).7 Social Security policies in the context of macroeconomic stabilization. Paper presented at the economic forum in 2008 on Macroeconomic Stabilization in Vietnam, Hanoi September 2008.

84

Hanoi Capital

Most of enterprises in the sectors of textile and garment, footwear, wood processing, aquatic

processing, electronics and tourism had to shrink their production, cut jobs and reduce investment.

Enterprises manufacturing export products in nine industrial parks have been badly influenced by

the global financial crisis. In the Thang Long Industrial Park, Nissei Electronic cut 300 jobs;

Canon Vietnam Ltd cut up to 1,200 jobs. Non-state SMEs who attracted over 50% of municipal

workers have been experiencing difficulties due to plummeted export and shrunken domestic

demand.

A number of enterprises in nine industrial parks had to let their workers stop working or have

leave with 70% basic wage due to the lack or reduction of business contracts or increased

inventories. The Precision Mechanics Company No. 1 and the Co Loa Mechanics Company have

let 150 employees get leave of 2-3 days every week since October 2008. Consequently their

workers’ income reduced by 20-40% and was lower than that in 2007. The bankruptcy of the

Orion-Hanel Television Tube Company made thousands of workers become redundant and loses

income.

Ho Chi Minh City

According to the report of the HCM Trade Union, as of 7/1/2009 over 40 enterprises had to stop

operation or shrink production, which made at least 30,000 workers redundant.

Da nang and Hai Phong

In Da nang, as of the end of December 2008, it was estimated that nearly 900 workers in foreign

invested enterprises manufacturing export products lost their jobs, since counterpart importers

cancelled business contracts and the enterprises were unable to find alternative importers.

In Hai Phong, only Van Loi Steel JSC made 1,000 workers redundant, as it was unable to sell

products in the domestic market. The enterprise only managed to pay 50% of basic salary, i.e.

lower than the current stipulated salary level.

Source: Labour Newspaper Issue No. 8 on 10/01/2009 at http://www.laodong.com.vn and http://vietnamnet.vn on

29/12/2008.

Although the inflation has been gradually controlled since the fourth quarter 2008, most of SMEs 8

still are in difficult situation due to continuing suffering from domestic and global demand

8 An SME is capitalized at less than VND 10 billion and has less than 300 employees. At present 95% of Vietnamese enterprises fall under the SME category.

85

shrinkage. According to the Vietnamese SME Association estimation, about 200,000 enterprises or

60% of the total number of enterprises nationwide faced with difficulties, in which nearly 1/3 had

to reduce or close down their production, i.e. cutting off working hours, or making their employees

temporarily or officially redundant. Meanwhile, under current regulations, enterprises are the key

person in charge for their employees. Consequently a number of enterprises had to delay or owe

salary payment, or were even unable to pay jobless allowance for employees9. For viable

enterprises, the allowance amount was also very low, unable to secure for employees, especially

when the consumer price index increased sharply.

2. Current social security policies in Vietnam

In such context the social security has been much concerned by the Government, which was

demonstrated by the eight measures implemented since the second quarter 2008 and the Resolution

30/2008/NQ-CP issued on 11/12/2008 regarding “Urgent measures to curb economic decline, to

maintain economic growth and to secure social safety”. The policy package to secure social safety

in the latter was quite comprehensive, i.e. supporting production activity so as to maintain

economic growth, to create jobs and to generate income for workers. At the same time some

specific measures provided immediate help for low income and poor people who risked jobless

and income reduction. As a result this policy package was supplemental to the current social

security policies to tackle bad impacts of high inflation and economic decline over a part of

residents and workers.

However, the impacts of this policy package have not been assessed, since the Resolution No. 30

was issued in December 2008, while its implementation plan was only issued on 19/01/2009 via

Decision 12/2009/QD-TTg of the Prime Minister10. The following section will review the social

security policies in Vietnam, including regular and irregular policies and measures taken in 2008.

2.1. Regular social security policies

Alongside the economic transformation started in 1986, especially the formation and development

of the non-state sector, social security policies have experienced comprehensive and thorough

reforms. To date Vietnam has built up a three-tier social protection policy system, applicable to

9 As stipulated, if an enterprise makes employees redundant, it has to pay them 70% of basic salary every month. In case the redundancy is not the fault of the employee, the enterprise has to pay the jobless allowance which is calculated as 0.5 basic monthly salary for every working year and paid from the employment fund formed by the enterprise.10 For details of Resolution No. 30 and Decision 12/2009/QD-TTg on 19/01/2009 regarding the Implementation Plan of Resolution 30, see the information webpages of the Government and ministries.

86

three different groups of people, depending on social risks they are facing with during their

working life and aftermath.

Social insurance is the upper tier of the social security policy system which aims at ensuring social

security for workers from the risks of sickness, accidents and unemployment during their

employment and from income loss during their retirement. Currently, the Vietnamese social

insurance has been classified into two sub-systems. The first one consists of compulsory pension,

health and unemployment schemes whereby the latter scheme has been implemented since 2009.

Whereas the two first schemes are applicable to wage employees having labor contracts of three

months and above, the unemployment insurance scheme is compulsory adopted only to wage

employees having labor contracts of one year and over. This scheme is also limited to enterprises

employing at least 10 workers. The sources of funding include contributions from employees,

employers and the State.

The voluntary sub-system includes heath and pension schemes, whereby the latter has been

introduced since 2008. These schemes are applicable to those employees who are not subjects to

the compulsory sub-system. As a result, the sources of funding come mainly from contributions of

scheme participants with support of the State. Nevertheless, among above-mentioned schemes,

unemployment and voluntary pension insurance are very new and have no effects on social

security in short-term.

Currently, policy discrimination to employees in non-State sector with those in the State sector

does still exist in the long-term scheme such as pension insurance. Although the Social Insurance

Law effective in 2007 is gradually removed such problems, it took certain time to do so. In

addition, due to low policy enforcement, a number of workers in the non-state sector still are not

involved or only partly insured. Consequently they are more vulnerable to social risks than those

in the State sector, since they are not given or fully given their stipulated entitlements. In some

typical cases, employers avoid to pay social contribution for their employees. In other cases, they

owe social insurance premium or use unfavorable wage level to calculate the social insurance

premium, etc.

The second tier of the social security system is policies for the vulnerable, including low income

people, poor students and mainly poor people. Most of the poor live on agricultural production or

unstable wages in the informal sector where the compliance to labor regulations is very poor.

Consequently they easily lose jobs or get reduced or lost income due to general economic

fluctuations.

87

Supporting measures vary depending on objectives and target groups as well as are mainly funded

by the State Budget, usually in the form of concessional credit under Government programs. Since

1992, this policy has been implemented under national target programs, starting by the

establishment of the Employment Support Fund and the Bank for the Poor11.

The last tier of the system is social allowance policies, applicable to those who are unable to

secure a minimum living standard in the long or immediate period and the State has to provide

them with minimum supply. Allowances take various forms, either in cash or in kind, depending

on specific circumstances of beneficiaries, and are borne by the State Budget12.

2.2. Irregular social security policies

In addition to regular policies, irregular ones are flexibly utilized to ensure social security for some

most difficult groups in certain periods of time. This policy category includes direct or indirect

social allowances either in cash or in kind.

The first group consists of allowances in cash or in kind, including salary allowance for state

employees as well as pension subsidies due to economic fluctuations (for example, high inflation)

which reduce their real income and for those who lose their immediate income due to natural

disasters or crop losses. Important allowances in kind in Vietnam include food rescue which is

totally funded by the State Budget.

The second group comprises exemptions from fees, charges and contributions, for example the

exemption from irrigation fee for farmers in accordance with Decree 154/2007/ND-CP, which was

estimated worth of VND 1,000 billion13 in 2008.

Generally since 1995 social safety policies have been supplemented and improved to fit the

economic transformation process, and had the following three points:

Firstly, social security policies have been enlarged in terms of coverage and content. A number of

policies which did not exist before have been supplemented, for example voluntary pension

insurance, unemployment insurance, etc.

11 In 1995, the Bank for the Poor was established and started its operation in 1996, now called as the Bank for Social Policy. 12 According to Decree 67/2007/ND-CP, nine groups are entitled to social allowances funded by the State Budget.13 Source: Irrigation fee exemption, one year looking back at http://www.agro.gov.vn on 29/12/2008

88

Secondly, the uniform implementation of social safety policies has helped reduce the

discrimination between workers in the State sector and those in the non-State Sector, between

workers in the formal sector and those in the informal sector.

Thirdly, beneficiaries of social safety net policies have been categorized into various groups

depending on social risks, which help further improve the policies. On the one hand it is

impossible to secure massive subsidies due to limited state budget. On the other hand, the clear

categorization of target groups helps increase implementation transparency and better concentrates

resources on the most vulnerable.

In addition to regular and irregular policies, in 2008 the Government actively took some urgent

social security measures to curb inflation and prevent economic decline. Among eight measures to

curb inflation, social security ones mainly aimed at increasing the real income of the poor and the

low income people. Accordingly from 1/10/2008 a cash allowance funded by the State Budget was

granted to government officers and staff who have the maximum salary norm of 3.0, social

allowance beneficiaries and pensioners14. Therefore in addition to the increased minimum salary

level as per the general regulation, a part of government officers and staff as well as commune

pensioners were entitled to additional allowance.

However, the allowance is limited to those in the State sector, which may cause policy inequality.

Moreover with an allowance of VND 90,000 per month (about 5 USD) for government officers,

their real income was only partly increased for those who were really in problem. From another

angle, the single criterion of “salary norm”, without considering other possible sources of income

and family context, may lead to wrongly-targeted support.

Different from the eight social security measures during the high inflation period, Resolution No.

30 had a more comprehensive and synchronous approach to social security. Decision No. 12

stipulates 20 “urgent” measures to support various groups, ranging from general workers, poor

people, poor districts, social allowance beneficiaries, to pensioners. It is expected that in 2009 the

new inflation-adjusted poverty standard will be used, which will increase the number of

beneficiaries of these measures. According to Decision No. 12, some long- term measures have

become urgent ones since 2009 such as the housing policy for social target groups, vocational

training for rural working people and the poor, and the implementation of voluntary pension

insurance. Types of support are not new, mainly either in cash or in kind, concessional credit grant

and increased minimum salary level.

14Decision 127/2008/QD-TTg on 15/9/2008 regarding difficulty allowance for government officers and staff.

89

However, some measures will not have impacts over social safety in 2009, for example the

voluntary pension insurance or housing for social target groups. Some measures are indeed the

preparation for coming years, for example the increased minimum salary level in 2010 or the

allowance for loss of working ability, and will not hold effect in 2009.

2.3. Some policy results

Since 1996 the number of participants and beneficiaries of social security policies have been on

the increase. Nevertheless as of the end of 2008 the coverage was still low ().

Figure 2: Major target groups and coverage of social security policies

0

5

10

15

20

Coverage of PensionInsurance (Mill. person)

Social allowance andsubsidies (Mill. Person)

poor and near-poor (mill.Person)

Retirees having pensionsubsidies (mill. person)

Source: Ministry of Labor, Invalids and Social Affairs; www.nhandan.com.vn on 26/12/2008.

90

Coverage rates of Pension Insurance and Health Insurance

In 1995, the participation rate of compulsory pension Insurance was just nearly 10% of the total

labor force, which were mainly employees in the State sector. As of 2008, a number of participants

were nearly 8.515 million, or 20% of the total labor force. As a result the remaining 80% have not

participated in the compulsory social insurance scheme.

Since 1/7/2008 the voluntary social insurance has taken effect16. Nevertheless as of October 2008

there were only 100,000 participants who were mainly located in big cities like Ho Chi Minh City,

Hanoi and Nghe An where this model was piloted. However, both compulsory and voluntary

insurance schemes provide long term allowance in the form of pension for retirees who have paid

insurance premium for at least 20 years. Hence this social insurance category does not have social

security impact for those who lose jobs, lack jobs or get income reduced during their working

period in 2008 and 2009.

The coverage of health insurance was larger thanks to the early implementation of voluntary health

insurance and health insurance for the poor. In 1993, only 3.7 million people in the State sector

participated in health insurance scheme, while in 2008, this figure was estimated at 40.35 million.

However it was quite common that enterprises avoided paying social insurance and health

insurance premiums, which made employees unable to benefit from this policy. For instance in

industrial parks in Bac Ninh province the rate of beneficiaries from social insurance and health

insurance schemes in 2008 were just 50.75% (Nguyen Chi Dao17, 2008).

Meanwhile the unemployment insurance only took effect in January 2009. Consequently those

who lost jobs in 2008 would not only be entitled to jobless allowance or free vocational training,

etc as stipulated, but also have to pay for their health treatment in case of sickness.

Social support policies

The rates of access to and entitlement of supporting policies have significantly increased,

especially the access to concessional credits for job creation, poverty reduction, and poor students.

In 2006, the rate of poor households receiving credit under these schemes was 53.9%, mainly

funded by the Bank for Social Policy. The number of poor households benefited from Programs

15 Manh Long, Le Hoa. Increasing social insurance and health insurance for the national social safety net. www.nhandan.com.vn on 26/12/2008. 16 According to Decree 190/2007/ND-CP the voluntary social insurance would have been implemented in 01/01/2008. 17 http://www.khucongnghiep.com.vn on 8/7/2008.

91

135 and 143 was around 90.2%. In 2008, the total outstanding loans of the Bank for Social

Policies were VND 42.2 trillion and nearly 6 million households have been debtors18.

Moreover the Government also implemented social policies for ethnic minorities and some others

such as credits for house construction, business activity, etc. Although these policies were under

approved long-term programs, they have to some extent provided social security for these groups

from economic fluctuations like high inflation or economic decline.

Major limitations of social support policies included wrong targeting, low level of loans, and

mismatched credit tenure and structure. Another shortcoming was weak program impact

assessment, mainly relying on such quantitative indicators as the number of participants, the

amount of outstanding loans etc, which made it difficult to assess actual policy impacts on the

social security.

Social allowance policies

At present there have been around 2.6 million people entitling to social allowance and subsidies

paid by the State Budget, including nine groups identified by the Decree No. 67/2007/ND-CP as

unable to secure the minimum living standard. In 2008, the highest monthly allowance level was

only VND 480,000, i.e. lower than the minimum salary level for a simple job holder, while the

inflation increased significantly and the rate was over 20% in 2008. The expected allowance level

in 2009 which was 50% higher could only help partly improve the living standard of these groups.

Moreover due to the budget decentralization under the Law on State Budget, a number of

provincial authorities have to face with difficulties to secure the currently stipulated allowance

level.

In summary, the total direct allowance expenditures from the State Budget for social security

policies in 2008 were estimated at VND 42.3 trillion, a VND 37.2 trillion higher than that in 2007

and 8.92% of the total State Budget expenditure19. Besides as of the end of November 2008, the

Government supplied 40,000 tons of rice for social rescue. Although a number of people have not

benefited from such above-mentioned difficulty allowances, this amount helped ensure social

stability and economic growth in 2008.

18 The Public Security newspaper. 9.1 million households borrowed from the Bank for Social Policies. www.congan.com.vn on 7/9/2008. 19 The electronic newspaper of the Communist Party http://www.tapchicongsan.org.vn on 4/12/2008.

92

3. Some issues arising from the implementation of social security policies in 2009

The year 2009 will be a difficult year for the Vietnam’s economy and one of key urgent issues is to

ensure social safety net. It is estimated that the number of redundancies due to economic decline in

2009 will be about 150,00020. Bankrupted or non-viable industry villages (mostly business

households) may lead to the jobless of over 5 million people in 2009. Most of them have low

income, seasonal work, and short-term labor contracts, and are not covered by compulsory social

security policies like those working in the business sector21. This situation is making great pressure

on the social safety net system in terms of job creation, job search support and firstly secured

minimum living standard for employees who are at risk of jobless and income reduction.

Meanwhile long-term social security regimes have been asynchronous and mismatched with the

economic development scale22, if not saying that the social security policies have always been

implemented more slowly. As of the end of 2008 due to the lack of a supporting regime (that

unemployment insurance is one of its solutions) for employees from the risk of jobless and income

reduction, this responsibility was mostly burdened by employers and employees.

The implementation of unemployment insurance since 1/1/2009 also meant another cost burden

for enterprises23 right at the time they were facing with difficulties. This “coincident” difficulty

doubling showed that the implementation of the voluntary insurance scheme in 2009 was essential,

but not proper timing24, for both employers and employees.

Moreover the implementation of 20 social security measures under Decision No. 12 should take

into consideration the following issues:

Firstly, since 1/1/2009, the minimum monthly salary level will be adjusted and applied by region.

For domestic enterprises, the highest level is VND 0.8 million, the lowest level VND 0.65 million.

20 Ly Ha. 2009: About 150,000 workers may be made redundant. http://vneconomy.vn on 6/1/2009.21 Vu Diep. Miserable like... workers in industry villages. http://vietnamnet.vn/xahoi/2009/02/828522/ on 12/02/2009. Also according to Ministry of Agriculture and Rural Development on 11/2/2009, reports from 38 provinces and cities under central authority showed that nine industry villages went bankrupt, 124 industry villages nearly stopped operation. About 2,166 business households registered their bankruptcy.22 This emphasized the rapid development of the business sector and the labour restructuring from the agriculture sector to industry and service sectors.23 As stipulated, the employer has to pay an insurance premium equivalent to 1% of salary of the employee and the employee has to pay 1% of his/her salary to the unemployment insurance fund. 24 To remove difficulties for enterprises, the Government allows enterprises to delay the payment for unemployment insurance for employees in the first half of 2009 and to pay the arrears in the second half of 2009. However this policy may not help enterprises much, since many of them are unable to maintain or recover their production immediately.

93

For foreign invested enterprises, the highest level is VND 1.2 million and the lowest level is 0.92

million.

The increased minimum salary level is expected to secure income for employees. However this

policy will increase labor-related costs of enterprises, including wage, allowance, and

contributions to social insurance. Therefore a number of enterprises may be unable to comply with

this policy.

Secondly, policies for redundancies, especially those in enterprises unable to settle payment for

employees, are not clearly stipulated in Decision No. 12. Decision 30/2009/QD-TTg effective in

23/02/2009 is a quick reaction of the Government, stipulating three specific support measures.

Three measures include: (1) enterprises satisfying certain conditions are allowed to borrow for a

maximum of 12 months at 0% interest rate to pay salary, social insurance and jobless/voluntary

leave allowance for redundancies. (2) provincial or municipal People’s Committee will use local

budget to pay for redundancies in enterprises whose owners ran away. (3) Redundancies are

allowed to borrow money under national target programs to create jobs or learn new skills.

These measures are only applicable since 2009. This timing differentiation may cause inequality

for employers and employees who have faced with difficulties in 2008.

Thirdly, the increased minimum salary and continued allowance for those who receive salary and

subsidies from the State Budget may also cause pressure over State Budget spending. In addition if

the implementation of salary reform agenda does not go along with measures to enhance

performance in the public administration sector, like personnel rationalization and productivity

improvement, it will affect the objective of inflation control.

The implementation of new poverty standard will make the number of the poor increase, which

results in the increase in State Budget expenditures for direct allowances to this group, for example

new health insurance purchase or increased fee and contribution exemption. In addition the limited

local budget income which will be further shrunken in 2009 makes it more difficult to implement

these policies.

Fourthly, although Decision No. 12 of the Government has identified 20 essential measures, they

have not been specified for individual groups and quantified by supporting activity and supporting

level, which makes it unable to assess policy efficiency and effectiveness. Meanwhile this

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document has not also specified the implementation process, as well as the monitoring and

evaluation of progress and results.

Finally an old but unimproved issue in the past years was low policy enforcement and compliance.

Violations of insurance regulations, violations in beneficiary identification and fraudulence in

allowance disbursement and social relief seem to be continuing nationwide. These shortcomings

may mitigate the impacts of social safety net policies, especially in the current context of

economic decline.

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Asian developing markets Economic trends against occurring world crisis - possible continuation of world crisis and a consequence

Mr. Azamat DIKAMBAEV

Perspectives of present world financial and economic crisis obviously are beyond short-term

outlines. The high probability, that world economic system has entered into the long period

permanent fluctuations period, crises, conflicts. Such picture can proceed till 2020.

Here it is necessary to address to the theory of cyclic development.

First, according to the world civilization cycles development theory, the period from 1974 to 2020

is considered as a transitive phase from industrial to postindustrial development.

Second, according to the cycles theory of Kondratyev, the period from 2010 to 2020 is a transition

zone to a new technological and innovative wave.

Third, it is necessary to take into consideration investment cycles of Juglar with 8-12 year interval;

last international displays took place in 1997-2000.

Fourth, for each country there are individual cycles, and in their each individual case it is

necessary to discuss in details.

Thus, 2010-2020 will be the period with the international economic shocks and big structural

transformations.

Difficulty degree of this transition period will depend on readiness of the governments and

management institutes adequately to undertake measures on prospect.

Now it is necessary to make working definition of crisis. Crisis is a condition at which existing

means of achievement of the purposes become inadequate therefore there are unpredictable

situations and problems are occurred.

The events which are happening in the world, means, the problem is not only in absence of

activities, but mainly, in absence of well-defined representation, misunderstanding of the reasons

of present world crisis.

100

Only second half of 2008 has forced to overestimate and reconsider characteristics of current

crisis. Originally it was considered as financial and short-term. The package of offered anti-

recessionary measures based on existing economic theories and on past experiences, without the

offering of strategically new ideas

The anti-recessionary measures offered by the International institutes started with a hypothesis of

uniformity of the occurring crisis phenomena. Actually they are right in one - the crisis reason is

an essential growth of negative factors which lead to qualitative change (deterioration) of

economic institute’s properties. But distinctions in development level. Only some countries are in a

postindustrial phase, most of them are still in an industrial phase. Moreover, big differences in

economics are connected with geographic distribution of.

Out of any doubts, during such significant transformations, searching of an individual way is

senseless. For transition to new levels resources and scales are needed. In this context, it is

expedient to raise a question on a new stage regionalization importance of the countries. Therefore

regional cooperation today becomes not a political fashion, but a survival and development

condition.

The three main parts of World will be the most probable future development centers: American,

European and Chinese. Such choice is connected with ability of transition to new technological

level, market potential the most probable centers of the future development there will be three:

American, European, Chinese. Such choice is connected with ability of transition to new

technological level, potential of the demand market, and also with integration ability into the

International Economics. In particular, it will define presence of three key currency zones: dollar,

euro, yuan.

As to country and regional protectionism fears such phenomenon will take place until someone

will not offer the clear economic reforming to the world community. It will require revision of

economic theory principles of market economy, revision of ways of whole structures existence,

social classes, economy and the state policies. We need summons at least for 20 next years. More

time for this purpose is required.

At the same time, revision of the International financial and development institute’s role is

necessary to reconsider. Today, the coverage by globalization processes is so huge, that it is

irreversible. However, global economic management and regulation completely does not exist.

Certain time, there were some thoughts, that negative tendencies in International economics have

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appeared out of key global institute’s sight. Acceptance of adequate measures has been tightened,

some confusion was felt and there was no coordination between them.

How adequately global institutes and the countries can co-ordinate the economic strategy and

resources, stability of world economic development, prosperity and well-being of the countries

will depend.

As a matter of fact, today the world needs not only institutes of crediting and maintenance of the

balance of payments. The world needs formation of the uniform summons for the further

development, and presence of the uniform coordination development centre with the world

recognized status of international institute in which UN could be.

Besides, global reconsideration of monitoring systems and supervision for bank and financial

sectors is needed, which have become by vivid examples of a transnational.

On what it is necessary to pay attention in the long term.

First, safeguarding of goods, labor and capital free movement in the international markets.

Secondly, support of structural transformations, expansion of innovations role, infrastructure

development should become priority directions. It is necessary to provide technological

reequipment in the shortest terms.

Thirdly, the new approach to regionalization is necessary. It is becoming more obvious, that

regional cooperation role is growing in cost decreasing on a way of transnational commodity and

financial streams.

The region countries are united by adjacent borders, experience of centuries joint coexistence,

unity of economic, political, ecological and demographic interests, practice of natural resources

sharing. The today's aspiration to integration and association of countries efforts are caused by

requirement for the decision of universal problems facing to us.

Fourthly, in a context of current challenges, there is a question on necessity of the national

adequacy decision, regional and world control systems. Working out of new approaches and

mechanisms of an exit from crisis, will become a competitiveness basis at regional and world

level. |

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Rural Governance Reform and Land Property Rights in Nepal:An overview in the Context of International Financial Crisis25

Nirmal Raj Kafle,Counsellor at the Embassy of Nepal in Beijing

Introduction

Today, we are passing through an unexpected international financial slowdown. Among the most

affected are the export-based emerging economies of Asia. Now, we all agree that the focus of

these economies should be towards creating massive demand at local level with an increased level

of consumption. But this would be possible only if the status of rural residents is uplifted in

various terms. On the one hand, rural residents' capacity and willingness to spend have to be

enhanced. Appropriate policies and incentive package from the government's side, on the other

hand, are equally inevitable.

In this paper I will present the current scenario as well as the Government of Nepal's recent

policies and programmes in the context of the international financial crisis and Nepal's transitional

phase. Meanwhile, I express firm conviction that the outcome of the in-depth discussions and

interactions at this forum will enlighten each of us, while identifying a direction toward protecting

rural residents before the financial turmoil hold them victim. Nepal, along with the fellow Asian

economies, will definitely be benefited from the deliberations.

Rural governance reform and land reform in rural areas are much discussed topics in Nepal. For

more than six decades, decentralization of governance to local units, their capacity building and

the empowerment of rural residents drew much attention of planners and administrators. The move

towards enabling local residents, land reform and local-level governing institutions reform was

accelerated in Nepal, particularly since its democratisation in 1990.

The agenda of further strengthening local governances and reaffirming land rights to the end-users

have once again been in the limelight of Nepal's political and administrative discourses. The

25 This paper was presented by Nirmal Raj Kafle, Counsellor at the Embassy of Nepal in Beijing, at a symposium on "Reforms and Growth in the Context of International Financial Crisis" organized by the China Institute for Reform and Development in Haikou, People's Republic of China on 28-29 March 2009.

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reasons are Nepal's changed political context, the Government's priorities, and current global

financial recession.

Transitional phase of Nepal

In May last year, Nepal embarked upon a republican system of governance. The historic decision

of the Nepalese people bade farewell to the institution of Monarchy forever. Major political parties

forged an alliance agreeing on the common agenda of reinstating complete sovereignty of people

over the state, signing a comprehensive peace agreement in November 2006. The agreement

expressed solidarity to put democracy, peace, prosperity, independence and integrity at the centre.

It was also agreed to bring an end to the existing centralized and unitary state system. Democratic

restructuring of the state into an inclusive system appeared to be an inevitable state responsibility

to address the issues of the oppressed and the marginalized, including women, the untouchable,

indigenous and minority communities and backward regions, ending discriminations based on

culture, gender and regional backgrounds.

With the end of a decade-long armed insurgency and that of the institution of Monarchy, the

country is setting for a new destiny for a peaceful, prosperous and democratic Nepal. The

Government formed with the consensus of main political parties have set three priorities, namely,

drafting a new constitution, successfully ending the peace-process and achieving socioeconomic

transformation.

The Constituent Assembly formed with the people's representatives has already begun its task of

drafting a new constitution. Similarly, to bring the peace process to a logical conclusion for the

lasting political stability, all domestic stakeholders under the cooperation of international

community including the United Nations have unitedly moving ahead in that direction. Final and

foremost priority, which will have the quality impact on the lives of the people, is to uplift the

economic and social status of the people. In order to meet the people's escalating aspirations, the

government is committed to accelerating the pace of economic development and social

transformation. The pace, however, is confronting serious challenges posed by the economic

downturn, which perhaps is the most serious challenge to each economy representing here.

The Challenge

While the industrialized and rich countries will feel a direct brunt, there will be secondary but

equally painful effects also on the developing and least developed countries (See Helde 2008;

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Felsenheimer & Gisdakis 2008). The following paragraphs will discuss how Nepal's rural residents

are being affected by the slowdown.

Small industries: There are many cottage, small scale and handicraft firms producing only export

based goods. Labour-intensive industries such as carpet, garment, cashmere products and

handmade decorative items collectively account for a significant share of Nepal's export industry.

The rapid plunge in international demand for the goods produced locally is thus a shocking

setback. On top of that, foreign direct investments (FDIs) -- that have direct and indirect support in

export based small industries -- are also decreasing.

Employment: The loss of jobs at home is rampantly putting many households in difficulty. Further,

households depending on remittances send by the youth from overseas are also likely to face

difficulty as they are being laid off. In a country where 10 percent of its population is overseas in

search of job and 20 percent of the GDP comes from the remittances, the human sufferings caused

by the recession are understandable.

Tourism: With an annual arrival of half a million tourists, Nepal's small but thriving tourism sector

is contributing much in the economy. In the months to come, overseas tourist arrival will see a

decline, affecting the budding hotel, travel and several subsidiary tourism industries.

In the above background, this paper will focus on how local governing bodies can involve

themselves in lessening the crisis and how scientific land reform can be applicable at a situation

such as this.

1. Role of local governing bodies

Along with these penetrating setbacks, the crisis will also have percolate effects. One of the most

visible ones is a sudden burden on the local governing bodies. The burden will range from

agriculture sector to environment to social security. Social problems, such as dissatisfaction among

youth leading to unrests, as has already seen in some societies, may also arise. An ever weakening

state of the society caused by stagnant small industries and lost jobs will persist, unless central and

local governments act appropriately with prudent policy and actions. To address these local

problems, local governing bodies must be adept and equipped. In Nepal's case, inherent problems

lying in local governments are not well capable to withstand the situation, let alone improve it.

There is a lack of clear vision and resources with local agencies (Dahal et.al. 2001). On the part of

central government, there is an absence of scientific resource allocation and effective steering

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mechanisms with regard to its relations with the local bodies.

Legal provisions, however, are in place that provides a clear devolution of the rights and

responsibilities to local governments. A provision of the mandatory participation by women and

disadvantaged groups is also ensured. Despite these, poor human and physical resources,

responsiveness, cross-cultural matters, networks and linkages as well as lack of accountability

have amounted to local governments' weak institutional capability. The system of fiscal

decentralisation is also not so effective, while the central annual allocation is too little (ADDCN

2001). These together leave local governments with ‘unfunded mandates’, which are less likely to

produce something tangible for the use of locals.

Since local governing institutions now have less contribution in financially empowering local

residents, it is necessary to contemplate suitable policies to meet the goal in the context of the

volatility of international market. Only then can we mobilize local governing bodies to address the

issues beyond local parameters.

2. Issues of land property rights

In Nepal, land is an important determinant of prosperity of the rural population. As discussed

earlier, the current economic downturn has appeared as a hindrance to the rural population's

aspiration for a decent living. It is impeding the pace of Nepal's most coveted desire for

development. In predominantly a rural society, economic and social progress of the entire nation is

not possible without mass elevation of the rural people. Decades-long practice and studies have

indicated that a productive distribution and a scientific management of arable land can help resolve

these problems surrounding Nepal's subsistence economy.

Less than 10 percent of Nepal's territory is cultivable, which is so precious as it has to feed 28

billion population. Problems are in technical aspects of the cultivation as well as in the land

ownership and tenancy system. The cultivable land is marred by low productivity and continuous

fragmentation (Uprety et.al. 2006). Modern farming technologies, agricultural inputs are out of the

access of the farmers. They are expensive, imported and often not available when most needed.

Further, land, which is considered as ancestral property, is equally distributed among sons and

daughters after the death of the holder. This legal provision has been causing the land holdings

narrowing every next day, damaging the already low productivity and pushing family further to

subsistence category instead of making any income out of agriculture.

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Land property rights and the ascertainment and endowment of rights to the "most deserving side"

have remained a debate for a long time. In the name of land reform, previous governments made

attempts to curtain land holdings by absentee landlords, which constitute 85 percent of the total

land (Sharma 1996), while average landholding remains as small as 0.8 acre (Neupane 2008). Due

to the influence of land holders on political and bureaucratic mechanisms, previous reform

attempts were not implemented under different pretexts. The ownership of land transfers

hereditarily, a provision that has been in place for centuries. This has made possible for a landlord

to perpetually hold land ownership rights and enjoy tenancy fees in absentia from tiller tenants.

Tenancy fee is normally a half of the total yield, either in cash or in kind.

Unless local residents, who mix human toil on the soil, are freed from the burden of tenancy fees

and ensured of their long-term association with the land, their status will not uplift. They will

continue to fall prey to the effects of the meltdown in future.

Reform strategies: the way forward

The recent developments in global financial system have necessitated us to enable local residents

for a sustainable livelihood in their locality. We need to adopt prudent policies at home and

continue united efforts at the global level, until and unless the fear of further disorder disappears.

Reform of local governance bodies and policy intervention to ensuring farmers' rightful access to

arable land are inevitable. In the current socio-political scenario of Nepal, these issues have

gathered more relevance now than ever before. The following are some of the Government's

policies and priorities to address the unfolding situation.

Scientific land reform: Land as major source of livelihood in rural areas has significant role in the

rural economy. Giving property rights to the real user is one of the means to reducing disparity

between absentee landlords and tiller tenants. The rights can be in the form of permanent

ownership or as long-term lease facility with an assurance of perpetual and unhindered approach to

the land. To end the land related issues and make use of the land in the real benefit of people, the

present Government has announced a policy of scientific land reform. This policy, while retaining

private ownership, aims at maximizing the accessibility of the tillers to the available land

resources. The system of absentee landlordism will thus be ended, opening a new chapter to

provide better access of the peasants to the farmland.

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Scientific land reform well befits Nepal in several ways. For example, the owners have the

incentive to use the resources productively. Second, private ownership of property provides an

incentive for good care. Third, it provides long-term environment for a sustainable use of

resources (Neupane 2008). While contributing to a more equitable distribution of local income

among the people, the policy of scientific land reform will also help increase agricultural

productivity and promote agro-based industries.

Rural governance reform: Regarding decentralisation, the Government's main priorities are fiscal

devolution, capacity building, monitoring and evaluation, wider participation and social equity.

The legal frameworks define the jurisdiction of the central and local governments as to their

respective roles on the administration of land rights and the arrangement of land taxes. A clear

devolution of the rights and responsibilities to local governments is the basis of the Local

Governance Act, while it ensures a provision of the mandatory participation by women and

disadvantaged groups in the local bodies. In other words, the legislation outlines a detailed

framework for the effective implementation of local governance. The process of devolving

governance, however, faces many obstacles. The Government may opt to practice the principle of

subsidiarity, a widely practiced local governance system in the democratic world in which local

governments deliver best value services under the enabling support of central authorities (Norton

1991; Turner 1999).

In the realm of poverty reduction as a government's broad development goal, reform measures

include relevant policy interventions in various sectors, mostly in cooperation with Nepal's

development partners (Maskey 2000). Poverty reduction is possible only by bringing development

closer to the poor people, an outcome possible only through equitable distribution of developments

in urban and rural areas. Institutionalising democratic governance in rural governing agencies is

yet another requirement to bridge the resource and knowledge gaps. Only rural governing agencies

having sound resource base, empowerment and accountability can sustain as economically viable

entities (Maskey 2000; Dahal 2002).

Micro-saving and investments: The Government has adopted a policy of encouraging and

supporting cottage and small scale industries at the local level. Micro-credit facilities are made

available throughout the country by the means of state owned and private banking networks.

Special programmes focussing marginalized groups, such as Women Development Programme,

are in place. Since these programmes have limited access to the truly deserving section of the

target group and their effectiveness are questionable, it is needed to strengthen them with the

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Government's continued support. New projects to finance small development activities to be run

through local governments may also be studied. Foreign cooperation may be channelled in such a

way that a healing impact directly fall on the target group, not like the traditional trickle down

approach (Maskey 2000).

Similarly, micro-finance opportunities should be extended to the local residents and made the

existing ones more effective. Banking and financing facilities should reach out to the low-end in

order to mobilize local resources. That is something yet to materialize in Nepal. In some cases,

people are even unaware about the anti-poverty activities such as saving and credit programmes

being run locally. Awareness and sensitization of the Government funded and NGO-run projects

are to be made effective.

Local markets: Consumption and spending environment must be created and continuously

nurtured. Rural areas, even when they can afford, lack enough spending and consumption

environment. In a household, subsistence becomes the major priority. When there is surplus, the

tendency is towards accumulating wealth in form of land or gold, not for human development,

social activities and recreation. Social development programmes, youth development and

employment programmes through various projects such as infrastructure building, small farmer

and small industry development programmes should be prioritized. Other arrangements like

cooperative organizations, community development projects and women empowerment projects

will also help locals raise income and spend locally. As discussed earlier, the Government of Nepal

has been implementing several programmes, though fraught with shortfalls, in order to encourage

rural economic activities. Further to this, local bodies -- in view of the slowdown -- can think

about creating temporary markets or shopping places to give better access to the local products and

connecting two or more localities so as to energize economic activities as well as consumption.

Global efforts: During the time of a crisis of the global nature, there is a more pronounced need of

understanding, accommodation and cooperation among the players of global market. Both

developing and developed countries have to act responsibly from their respective fronts. On the

part of developed countries, bail-out packages should be prepared no to harmfully impact the

countries receiving international development assistance (IDA). It would be a wise and timely step

of the industrialized countries if they complied with their pledge of contributing 0.7 percent of

their gross domestic product in IDA. Protection of local industries must be done taking due care of

even worse industries of the developing world. Loan and grant assistance, and FDIs to developing

countries, which are likely to plummet in future (Helde 2008), should not be curtailed for the cause

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of supporting domestic industries of the rich countries. There should be a holistic view to judge the

entire situation. All the economies of the world should devise sustainable and balanced

mechanisms on the financial support and protection regimes.

In this connection, the Government of Nepal has been seriously studying the crisis as to adopt a

position, which is friendly to the fellow competitors and justifiable to the local entrepreneurs.

I.1.

I.2. Concluding remarks

In the context of the ongoing uncertainty, both central and local governing agencies can keep

stirring economic activities with emphasis on consumption among the rural residents. In order to

use agriculture sector as a rescue from the crisis, real farmers are to be granted proper access to the

arable land. The population in the rural areas -- who are amongst the worst sufferer on account of

lost jobs and mass of their unsold productions -- must be placed ahead of all other stakeholders, as

long as any preferential treatment from the state is concerned. Representatives of the local

residents in the central Government, whether in parliament or any similar forum, need to engage in

deliberations to formulate effective policies. International cooperation and understanding among

developing and developed economies is yet another need of the time.

The China Institute for Reform and Development (CIRD) has taken a commendable initiative of

organizing this policy dialogue putting Asian emerging economies at centre. It has become

particularly relevant to a country like Nepal that has undergone a change in social system recently.

We face challenges internally externally, in other words, the difficulties of a transitional stage as

well as those arising from the international financial crisis. The discussions of this forum will

provide valuable inputs to the Nepalese policy making bodies. These have also updated the

Chinese think tank, development partners and friendly institutions about Nepal's status and thrusts

on these pertinent issues. I am confident the participating countries and institutions will widely

benefit from the discussions, both in intellectual and practical terms.

On behalf of the Government of Nepal and the Embassy of Nepal in Beijing, I express my

thankfulness to all the distinguished members of the organizing committee. Thank you for your

cooperation and interest.

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ANNEX

Nepal: A Profile

Nepal, landlocked between China and India, is a least developed country with a per capita income

of US$320 and an annual growth rate of 4.9 percent. Of the population of 28 million, 91 percent

live in rural areas and 38 percent live below poverty. Mountains and hills cover 15 and 68 percent

of the total area of 147,181 square kilometres respectively. Only 17 percent of the land is plain,

this being home to 46.7 percent of the population. Nepal is multi-cultural with 61 ethnicities and

82 languages. Nepal is a republic and follows the parliamentary democratic system.

In 1951, a mass uprising overthrew the century-old feudal Rana regime, establishing a democratic

monarchy and electing a government for the first time in history. Rule by elected governments

lasted for about a decade. Then King introduced the party-less Panchayat system in 1960 banning

all political parties. However, a popular movement re-established the multi-party democracy in

1990. From 2002 to 2006, however, the King ruled by himself or though the governments

appointed by him. There was a historical mass movement against the monarchy in 2006 and it

succeeded. With the formal exit of the monarchy in May 2008, the coalition Government led by

the Nepal Communist Party (Maoist) is spearheading in collaboration with the state stakeholders to

end the transition.

Structure of local government

Central Government 75 Districts 58 Municipalities and 3913 Villages

Features of the local governance legislation

Wide sectoral authority and discretion to local governments

Provision of the Decentralisation Implementation and Monitoring Commission

Creation of the Finance Commission to recommend local funding

Provision for representation of women and disadvantaged groups

Increased accountability and transparency through councils and audits

Authority to collect taxes and fees and the concept of revenue sharing

Participatory bottom-up planning

Financial sources of local governments

Taxes on roads, bridges, irrigation, herbs, stones and sands, etc.

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Service charge and licence fees

Allocations from the Central Government on land taxes and mine royalties

Loans from financial institutions

A glimpse of land reforms

The Land Reform Act of 1964 emphasized security for tenant farmers

It put a ceiling on landholdings

Loopholes in the Act continued to allow landholders to control most of the lands

The 1996 amendment of the Act gave tenants the right to 50 per cent of the land they cultivate

It only allowed claims to be made within 6 months from the date of enactment

Without "official registration" their claim for ownership would not succeed

In the same year, the Government of the day introduced Jasko jot usko pot or "the one who

tills the land owns it", but without tangible success

The present Government has announced a policy of scientific land reform

References

Association of District Development Committees of Nepal (ADDCN), Decentralisation in Nepal:

Prospects and Challenges, Kathmandu, 2001.

Chandler, J. A., Local Government Today, Third ed., Manchester, Manchester University Press,

2001.

Clingermayer, James C. & Richard C. Feiock, Institutional Constraints and Policy Choice: An

Exploration of Local Governance, Albany, State University of New York, 2001.

Dahal, Dev Raj, ‘Governance Challenges for Nepal’, Governance and Development, vol. 1, 2002.

Dahal, Dev Raj, Hari Upreti & Phanindra Subba, Good Governance and Decentralisation in

Nepal, Kathmandu, Centre for Governance and Development Studies, 2001.

Felsenheimer, Jochen & Philip Gisdakis, Credit Crises: From Tainted Loans to a Global

Economic Meltdown, Wiley VCH, 2008.

Maskay, Biswo Keshar, Development Governance, Kathmandu, Centre for Development and

Governance, 2000.

Neupane, Krishna, Scientific Land Reform: The Meaning and Need, the Rising Nepal, 27 August

2008.

Norton, Alan, ‘Western European Local Government in Comparative Perspective’ in Richard

Batley & Gerry Stroker, Local Government in Europe: Trends and Developments, London,

Macmillan Education, 1991.

Sharma, S., Land Tenure and Poverty in Nepal, Services Centre and International Development

Research, Kathmandu, 1996.

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Stoker, Gerry, The Politics of Local Government, London, Macmillan Education, 1988.

Turner, Mark, ‘Central-Local Relations: Themes and Issues’ in Mark Turner (ed.), Central-Local

Relations in Asia-Pacific: Convergence or Divergence?, Basingstoke, Macmillan, 1999.

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Governance: Approaches to Reduce Urban Poverty, Some Views From UNDP’,

http://www.undp.org/governance/local.htm, 2003.

Uprety, Laya Prasad, Indra Rai & Him Prasad Sedhain, People-Centred Advocacy for Land

Tenancy Rights in Nepal, ActionAid, Kathmandu, 2006.

Velde, Dirk Willem, The Global Financial Crisis and Developing Countries, ODI, London, 2008.

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Abstracts of Papers

Contributed by Chinese Participants

List of Abstracts

Analysis of Deep-rooted Causes of the Sub-prime Mortgage Crisis from the Perspective of Financial Collusion Structure and Implications to Asian Emerging Economies

By Bai Qinxian and Tan Qinghua

114

Urbanization with Chinese Characteristics and Problems with Rural Migrant Workers

By Xiao Jincheng 114

Difficulty in Arable Land Transfer against the Background of Quasi- Urbanization of Rural Migrant Workers

By Zhang Zhenghe 115

Reform of Rural Land System and Process of Urban-rural Integration against the Background of the International Financial Crisis

By Qiao Yide 115

Reviewing Rural Macro Policies from the Perspective of Rural Residents' Consumption in Guangdong Province

By Jianbin, Jiang Huisheng and Luo Junbo

116

Nationwide Innovative undertaking: the strategic measure to meet crisis By Wang Yuqi 116

Rural Residents-owned Enterprises and Development of New Village Economic Entities

By Wang Jingxin 117

Some Thoughts on Coping with Challenge of International Financial Crisis

By Shu Benyao 117

The International Financial Crisis Will Bring New Opportunities for China’s Reform

By Zhang Chenghui 118

Can the Internationalization of RMB Be a Prioritized Objective in Regional Cooperation?

By Sun Lijian 118

International Economic Fluctuations: Financial Storm, Trade Dependence, and China’s Choice

By Wang Sen 119

Accelerating Sub-regional Cooperation Among Asian Countries to Meet the Challenges of the International Financial Crisis

By Lu Guozheng 119

Financial Crisis and Transformation of Regional Economic Development Models---cases of four regional economic models along the coast

By Huang Jianzhong and Mao Enrong

120

Social Justice and Economic Marketization---Progresses of Latin American Reform and Their Implications to Asian Transitional Countries

By Chang Xiuze 120

Active Response to the Current New Protectionism By Song Linfe 121International Financial Crisis, Competitiveness of Provincial Economies and Regional Economic Cooperation

By Li Minrong 121

On Improving Price of Agricultural Products By Zhao Zhenhua 122From Forced Land Requisition to Indirect Land Requisition---Comments on Comprehensive Reforms to Coordinate Urban-rural Development and Grass-roots Government Reform

By Zhang Shuguang 122

Analysis of Deep-rooted Causes of the Sub-prime Mortgage Crisis from the Perspective of Financial Collusion Structure and

Implications to Asian Emerging Economies

By Bai Qinxian and Tan Qinghua

Abstract: Sub-prime mortgage crisis is just a kind phenomenon and a result but not the essence

and reason. There is actually deep-rooted cause-structure of joint financial offence of American

system. This crisis reveals the lie of America as the country owning highest credit, best financial

system and the strictest financial supervision, sharply points out three serious problems: what the

finance is, whether the finance has the boundary or not and whether the finance can be changed at

random without punishment. As the global economic financial contradiction and game is more and

more complex, it is urgent to ensure the position of subjectivity and call for the whole nation to set

up and improve the financial awareness.

Keywords: sub-prime mortgage crisis; financial virtualization; structure of joint financial offence

Urbanization with Chinese Characteristics and Problems with Rural Migrant Workers

By Xiao Jincheng

Abstract: exploring the road to urbanization with Chinese characteristics guided by the scientific

development perspectives is significant for the virtuous circle of national economy and the

balanced development of regional social economy, and for carrying out the great objectives of

building a well-off society in an all-round way. The scale of population, the relationship between

rural and urban areas, the regional differences and the huge number of peasant workers make

China choose a road to urbanization with Chinese characteristics and keep on exploring an

approach to the urbanization with Chinese characteristics according to the fundamental requests of

the road of socialism with Chinese characteristics and based on China’s basic national conditions.

The power of southeast coast of China to receive the peasant workers is weaker because of the

international financial crisis, but it’s valuable to think about whether most of peasant workers can

go back to rural areas and the rural areas can receive them again.

Key words: Chinese characteristics; urbanization; peasant workers; employment

114

Difficulty in Arable Land Transfer against the Background of Quasi- Urbanization of Rural Migrant Workers

By Zhang Zhenghe

Abstract: China’s agricultural production has a high cost-benefit, the major reason for rural

residents’ low income is scale restriction. In the long run, appropriate scale of land management is

an important way to increase rural residents’ income in China. Under the Background of Quasi-

Urbanization , the mobility of rural residents must lead to land circulation. This paper analyzes the

major mode of land circulation, rural residents’further pursuit for transferred land, it also discusses

some problem that may occur.

Keywords: rural migrant workers; quasi- urbanization; plowland circulation; difficulty

Reform of Rural Land System and Process of Urban-rural Integration against the Background of the International

Financial Crisis

By Qiao Yide

Abstract:The international financial crisis has more or less affected different sectors and people

in China’s economy. However, the financial crisis posed greater impact on rural migrant

workers.One important reason for this is the traditional urban-rural dual structure in China’s

economy. In order to find solution to this problem, experts have different ideas. From the author’s

point of view, the breakthrough point to resolve the problem with urban-rural dual structure is to

take rural land system reform.

Keywords: rural migrant workers; rural land system; urban-rural integration

115

Reviewing Rural Macro Policies from the Perspective of Rural Residents' Consumption in Guangdong Province

By Jianbin, Jiang Huisheng and Luo Junbo

Abstract:This paper analyzes the consumption situation of Guangdong farmers on the whole and

explains main rural macro-policies affecting farmers’ consumption nowadays. The conclusion

shows: farmers’ consumption ability of Guangdong Province is relatively low on the whole, the

living consumption expenditure as food and housing covers a large proportion; average

consumption shows a downward trend, farmers have low interest in the investment, and the

proportion of productive consumption expenditure decreases. The policies of the land system,

social security system, financial system and infrastructure input in rural areas are key factors

affecting farmers’ consumption in current situation.

Keywords: farmers’ consumption; consumption trend; rural macro-policies

Nationwide Innovative undertaking: the strategic measure to meet crisis

By Wang Yuqi

Abstract: Jiangxi province further to set off an upsurge of the nationwide innovation undertaking

in the context of the international financial crisis. The author thinks that, from the perspective of

strategic requirements, the nationwide innovation undertaking can not only create the chance of

employment and prevent the crowding out effect but also expand the investment and consumption.

Based on the theoretic analysis, the nationwide innovation undertaking is not only the problems on

industry transition and upgrade but also the problems on the project of people’s well-being. So

there are some measures for calling for and encouraging the nationwide innovation undertaking to

meet the challenges of the international financial crisis: 1, keep the stable growth of export; 2,

optimize the condition of innovation undertaking; 3, cultivate the culture of innovation

undertaking; 4, perfect the system of policy.

Key words: meet crisis; the nationwide innovation undertaking; strategy

116

Rural Residents-owned Enterprises and Development of New Village Economic Entities

By Wang Jingxin

Abstract: Based on reviewing the construction of China’s rural land transfer system and analyzing

the main content of China’s rural land transfer system, the author points out five suggestions for

solving the existing problems and furthering to push the construction of rural land transfer system.

The five points are as following: firstly, overcome the disturb from the non-system aim; secondly,

further to realize the aim of rural land transfer system; thirdly, prevent the land transfer from

encroaching on the rights and interests of farmers; fourthly, adjust the policy of rural labour forces

transfer; fifthly, realize the scale land management in various ways.

Key words: rural land transfer; construction of system; review; prospect

Some Thoughts on Coping with Challenge of International Financial Crisis

By Shu Benyao

Abstract: As the international financial crisis is still continuing and deepening, world economy

cannot recovered in the near future. External economic environment will be more serious with

growing unconfirmed factors. The influence on China’s industrial economy is gradually evident

while the tasks for reforms, development and stability are very heavy. Confronting with the

complex and serious economic situation of both home and abroad, China should analyze the

overall situation, seize the key contradictions and problems, balance the relationship between the

government and market, urban and rural areas and keeping growth and employment, and ensure

the rapid and stable growth of the economy.

Keywords: international financial crisis; scientific integration; macro control and regulation

The International Financial Crisis Will Bring New Opportunities for China’s Reform

By Zhang Chenghui

117

Abstract: Nowadays, since China’s financial development is lagging behind and channels for

monetary policies transmission are not smooth, it is difficult to stimulate the fagging economy

even by implementing easing monetary policies. Although there have been a large number of

money, the key is how to rapidly provide the money for industrial economy through financial

system. International financial crisis result in the urgent promotion of China’s financial reform,

monetary policies can play its role only by speeding up the financial reform and innovation.

Therefore, it is necessary to advance the building of capital market, further reduce the government

control and broaden medium and small-size enterprises’ channel for raising money, improve the

condition of financial sectors especially of small-size ones, speeding up the development of new

financial products and pay attention to prevent financial crisis.

Key words: international financial crisis; China’s Finance; development; reforms

Can the Internationalization of RMB Be a Prioritized Objective in Regional Cooperation?

By Sun Lijian

Abstract: From this financial tsunami in US we can clearly see that: A serious imbalance in the

economic development model has become increasingly unadapted to the China’s economy to grow

stronger with power. In this sense, we should realize the internationalization of the RMB currency

required by the three major functions and the six functions of the financial system into full play, to

create a perfect sound financial ecological environment step by step, which requires our whole

society to work together for forming a high degree of identity, and continuely devote to the

finance,spirit and energy, otherwise, the Chinese economy can only remain the "big country" in

trade but "small country" in finance embarrassing pattern passively wandering, and this financial

tsunami will give create a perfect sound financial ecological environment step by step, which

requires our whole society to work together for forming a high degree of identity, and continuely

devote to the finance,spirit and energy, otherwise, the Chinese economy can only remain the "big

country" in trade but "small country" in finance embarrassing pattern passively wandering, and

this financial tsunami will give t the nation who in keeping the status quo more painful to go

around.

Key Words: RMB; Asian dollar; internationalization

118

International Economic Fluctuations: Financial Storm, Trade Dependence, and China’s Choice

By Wang Sen

Abstract: With the set-up of the position as one of the most important economy in the world,

China has greatly strengthened its relation with the world economy, which will definitely result in

the rapid spread of world economic problems. Under the wave of world economic turmoil, China’s

economy cannot develop very smoothly. This paper analyzes the close relationship between USA

and China based on the trade, criticizes those opinions that this financial crisis cannot affect China

seriously according to China’s sectors’ low proportion of sub-debts, thinks that relevance

determined by trade relation will cause the influence of financial crisis on China’s Development,

and suggests that the government should pay high attention to the problems existing in its financial

evolution and resolve them to prevent the financial crisis. The countermeasures in this paper have

great significance on the prevention of financial crisis and security of economic system in current

situation.

Keywords: world economy; financial storm; trade dependence; relevance; risk control

Accelerating Sub-regional Cooperation Among Asian Countries to Meet the Challenges of the International Financial Crisis

By Lu Guozheng

Abstract: The International financial crisis has posed obvious influence on Asian and China’s

economy, but the basis of Asian Economies haven’t been destroyed. The financial crisis has

accelerated the process of entering the readjustment period in Asian countries, and provided

presious opportunities for the sustainable development of Asian countries’ economy. The mid and

small-sized enterprises should grasp the opportunities to make contributions for Asian sub-regional

economic integration and overcome the financial crisis.

Keywords: financial crisis; sub-regional cooperation; mid and small-sized enterprisis

119

Financial Crisis and Transformation of Regional Economic Development Models---cases of four regional economic models along

the coast

By Huang Jianzhong and Mao Enrong

Abstract: The global financial crisis has been seriously affecting China’s industrial economy. As

the four models of regional economic development, the economy of Suzhou, Wenzhou, Quanzhou

and Dongguan have been also attacked in different degree in the financial crisis. According to the

data before the financial crisis, the paper concludes the difference among the four models based on

the per capita economic index, principal feature of economic activity, trade modes, economic

openness, etc. as well as the changes of eight economic indices (export quota of foreign trade,

unemployment rate, etc.) based on the data in 2008 to analyze the economic stability and anti-risk

ability against the background of financial crisis and provide some recommendations on the

transformation and adjustment of regional economic development models.

Keywords: financial crisis; regional economy; development model

Social Justice and Economic Marketization---Progresses of Latin American Reform and Their Implications to Asian Transitional

Countries

By Chang Xiuze

Abstract: based on the first-hand information from Latin America and the information on the

trouble experienced by himself in Santa Cruz of Bolivia, the author analyzes the progress of

economic reform of Latin America: 1, the planed economy and “radical free market economy” are

not practicable; 2, the imbalanced interest relationship in the process of new Left Wing Social

Movement result in the social trouble; 3, seek for new way. The author also elicits four

enlightenments for Asian countries in transition: on the premise of maintaining each social system,

grasp the orientation of marketization in the economic reforms; focus on the social justness and

harmonize all kinds of the relationship of interests; focus on keeping the order in the social

changes and keep the stability of society; in the process of the economic social transition, pay

attention to prevent two kinds of tendency – dignitary and populist.

Key words: social justness, marketization, Latin America, transition, enlightenment

120

Active Response to the Current New Protectionism

By Song Linfei

Abstract: In the current context of international financial crisis, developed countries have been

firstly seeking the policy tools for protecting their trade business besides tariff barriers, some

emerging economies also imitate respectively, new trade protectionism is further deepened. By

analyzing the main expression forms of international new trade protectionism and its influence on

China, this paper provides six measures as the active response: actively preventing and avoiding

new trade barriers, advancing the progress of investment to outside, building up trade policy

management system, priority of discussion and procurement, playing the role of social and

scientific experts and strengthening the defense ability, further improving local subsidy policies,

etc.

Keywords: international financial crisis; new trade protectionism; influence; measures

International Financial Crisis, Competitiveness of Provincial Economies and Regional Economic Cooperation

By Li Minrong

Abstract:Nowadays, as world financial crisis has been influencing the world economy, all

countries have taken corresponding measures to prevent the economic recession. Whether a

country can avoid the passive influence of world financial crisis and promote the constant growth

of the economy lies in the comprehensive power and regional competition. As an important

component of China’s characteristic regional economy, provincial economy determines its

comprehensive competition takes up a very important position of China’s national competition.

Therefore, in order to overcome the world financial crisis and promote the constant growth of the

economy, China should pay high attention on and improve the competition of provincial economy.

Keywords: financial crisis; economic growth; provincial economy; comprehensive competition

121

On Improving Price of Agricultural Products

By Zhao Zhenhua

Abstract: This paper thinks that the low price of agricultural products (especially the grain) is the

main constraint to improve farmers’ income and suggest gradually improving the price of the grain

and other agricultural products by realizing the tight balance between supply and demand of the

grain so as to raise farmers’ income. In addition, the author also analyzes the effect to be brought

by the higher price of the agricultural products like grain.

Keywords: agricultural products; price; thought

From Forced Land Requisition to Indirect Land Requisition---Comments on Comprehensive Reforms to Coordinate Urban-rural

Development and Grass-roots Government Reform

By Zhang Shuguang

Abstract: Based on the in-depth research on two cases of Jiulongpo district of Chongqing

province and Huaming county of Tianjing city, the author analyze the basic means and results on

coordinated rural and urban reform of two governments. The author thinks there is a kind of

general planning for reform practice, and some reforms are in line with the current related policy

and rule of China, with some thorough and meticulous works. But judging from practice, these

tests are departing from the original aim of the coordinated rural and urban reform, and most of

basic problems need to be discussed and thought, such as the local governments carry into effect

the land compulsory expropriation in disguised form in all the coordinated rural and urban

reforms; it’s impossible that the governments of the cities can give attention to the construction of

city and the development of farmers at the same time in the context of current pattern of benefit

and system of government; the farmers’ rights to participate and develop are deprived in current

practice; “Exchanging the housing land for house” and “exchanging the land for social security”

deprive the farmers’ right on land.

Key words: forced land compulsory expropriation; land compulsory expropriation in disguised

form; local government; coordinated rural and urban reform

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