Description

The Agriculture Sector Program (ASP) was approved in 1995 and completed as scheduled in 1998. The project amounted to $80 million, and covered three major areas of policy reform: (i) market orientation and efficiency, (ii) rural financial intermediation, and (iii) land tenure.

  Summary of findings

• The ASP was highly relevant in terms of its fit with the government strategy as enunciated in doi moi and subsequent decrees and decisions.

• At sector level, the ASP had a good fit with ADB's interim strategy of promoting rural development to consequently reduce rural poverty.

• It was effective, as most policy conditions were fulfilled within the program period.

• It was efficient, particularly in terms of program management, given that this was the first experience of the Ministry of Finance and the Implementing Agency with an ADB program loan and given the rapid pace of change at the time.

• Sustainability is most likely, due to the government's strong long-term commitment to the reform direction.

• However, the ASP was somewhat less relevant in terms of its design, which covered too broad a scope with a consequent lack of coherence.

• There was an inefficient use of the local currency proceeds, which was inconsistent with the program objectives.

  Lessons identified

• The main reason for the ASP's success is that those in Government with power and influence showed genuine commitment and support for the principles it embodied.

• It did not include any significant departures from existing policy.

• The innovation and efficiency required to sustain agriculture sector growth and create off-farm employment will require a vibrant private sector operating at all levels. However, private sector is unlikely to grow while state-owned-enterprises (SOEs) retain competitive advantages.

• Local currency proceeds (counterpart funds) should be used for purposes that are consistent with and contribute to reform.

• Restructuring of bad debt of a lending institution must be accompanied by policy changes to ensure the problem does not reemerge.

• Technical assistance (TA) support to improve institutional capability is likely to require a reallocation of recurrent expenditure if new developments such as rice market model and land information system are to be sustained.

• A greater focus on policy outcomes rather than policy actions may be more appropriate.

  Recommendations

• Involvement of Private Sector. The private sector is growing in Viet Nam, but informal barriers remain. The key issue is to identify and implement steps to foster greater private sector involvement, such as speeding up process of phased divestment as this resolves the problem of "crowding out" by SOEs.

• Strengthening the Land and Information System and Land Management. The challenge is to further develop and extend the land information system to facilitate and unify the land registration process and to provide information on land transfers for further policy development. There is need to rationalize land holdings to create more contiguous plots and economically sized units. However, greater market orientation and efficiency will not be obtained until farmers are free to decide what crops to grow based on their own assessments.

• Financial Intermediation. There is a need to (i) restructure nonperforming debt in the Viet Nam Bank for Agriculture and Rural Development's financial statements; (ii) fully adopt international accounting standards with respect to loss provisioning; (iii) establish full flexibility in setting interest rates to reflect the costs of operation and risk.