Report No. 1718-VN                                                                 f       
The Socialist Republic of Viet Nam
An Introductory Economic Report
August 12, 1977
East Asia & Pacific Regional Otfice
FOR OFFICIAL USE ONLY
Document of the World Bank
This document has a restricted distribution and may be used by recipients
only in the performance of their otfictal duttes Its contents may not
otherwise be disclosed without Worild Bank authorization



CURRENCY EQUIVALENTS
Currency Unit - Vietnamese Dong
(There are separate currencies for the northern
and southern regions.)
Exchange rates prevailing in early 1977:
northern Dong (ND) = US$0.40 (US$0.25 with premium)
southern Dong (SD) = US$0.54 (US$0.43 with premium)
US$1 = ND 2.65 (ND 3.98 with premium)
US$1 = SD 1.85 (SD 2.31 with premium)
A premium of 25% applies to certain transactions
for the southern Dong and a premium of 50% to the
northern Dong.
Viet Nam has agreed with the IMIF to a rate of
SDR 0.469292 to SD 1. For official transactions
between the regions ND I = SD 0.80.
Trade transactions with the USSR, Bulgaria,
Czechoslovakia, German Democratic Republic, Hungary,
Mongolia, Poland, Romania, Albania and the People's
Republic of China are settled at the rate of
ruble 1 = ND 3.27. Agreed exchange rates are used
for nontrade transactions.
FISCAL YEAR
January 1 - December 31
Note: The use of the $ sign refers to the US dollar.
Capital letters are used for the "North" and the
"South" when the reference is to the situation
before the reunification of Viet Nam in July 1976.
Lower case letters refer to the northern and
southern parts of the country after that date.



FOR OFFICIAL USE ONLY
This report is based on the findings of a mission which visited
Viet Nam in January-February 1977. The mission consisted of: Edward K. Hawkins
(Chief of Mission), Edwin R. Lim (Economist/Deputy Chief of Mission),
Hans H. Thias (Economist), Andre Delon (Agricultural Economist, FAO); and
Paul C. Moulin (Economist/Research Assistant). During its stay in Viet Nam,
the mission traveled extensively, visiting the three principal cities of Hanoi,
Hg Chi Minh City and Haiphong, the Mekong and Red River Deltas, and parts of
the coastal areas and of the central highlands. Discussions were also held
with the following ministries and government agencies: the State Bank and its
associated banks, State Planning Commission, Ministries of Finance, Agriculture,
Water Conservancy, Forestry, Marine Products, Electricity and Coal, Communica-
tion and Transportation, Light Industry, Foreign Trade, and Higher Education
and Vocational Middle Schools.
A draft of this report was discussed with the Government during a
second mission in July 1977.
This document has a res.ricted distribution and may be used by recipients only in the performan.
of their official duties. Its contents may not otherwise be disclosed without, World Bank authorizto.






T'HE SOCIALIST REPUBtAG OF VuEl vi iw
AN INTRODUCTORY ECONOMIC REPORT
TABLE OF CONTENTS
Page No.
COUNTRY DATA
IMAP - IBRD No. 13006
SUMMARY AND CONCLUSIONS  . . . .i-ix
1.  INTRODUCTION   . . . . . . . . . . . . . . . . . . . . .              I
Historical Background.. .I. . . ...                             1
PhysicalSetting ......... ...    2
Population Distribution and Growth  . . . . . . . .             3
2.  THE CURRENT SITUATION  . . . . . . . . . . . . . . . . .             5
Income and Consumption  . . . . . . . . . . . . . .             5
PRODUCTIVE SECTORS ................ . . .                            7
Agriculture ... .. ..... ......                                 7
New Economic Zones ... . .13
Forestry   .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  14
Fisheries ...  .  .     .  .  .  .  .  .  .    ......  .  .   .  15
Industry   .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  16
Transport  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  1.9
Power   .    .    .    .  .    .    .    .  .    .    .  .    .  .    .    .  .  .  .    .    .    .  .  22
SERVICE SECTORS  . . . . . . . . . . . . . . . . . . . .            24
Education and Human Resources . . . . . . . . . . .           24
Health and Family Planning  . . . . . . . . . . . .           26
3.  ECONOMIC PLANNING AND MANAGEMENT . . . . . . . . . . . .            30
Management and Administrative Framework . . . . . .           30
Economic Organization and Planning  . . . . . . . .           31
Planning and Management Reforms . . . . . . . . . .           35
4.  FINANCIAL MANAGEMENT AND EXTERNAL TRADE  . . . . . . . .           39
Budgetary Process . . . . . . . . . . . . . . . . .           39
Sources of Revenue  . . . . . . .  . . . . . . . . .         40
Expenditure . . . . . . . . . . . . . . . . . . . .          43
Money and Banking . . . . . . . . . . . . . . . . .           43
Foreign Trade and Exchange  . . . . . . . . . . . .          45
Foreign Investment  . . . . . . . . . . . . . . . .          46



Page No.
5.  MEDIUYM-TERM PROBLEMS AND PROSPECTS   .  * . * e  . . . .          48
Consequences of War and Partition . .   . . .   . .           48
Second Five-Year Development Plan  (1976-80)  . . .           50
Planning and Kanagerent.  . ..........           ..,           56
Investment and Resource Requirements  . . 2   * . .          58
6.  THE BALANCE OF PAYMENTS AND EXTERNAL CAPITAL INFLOWS . .           61
Import Requirenents.s .......,.....                          61.
Expoxt ProsRects   .. .. .X.  . X X   A * *   .               63
ANN EXE S
1. Preliminary Estimates of Viet Nave's Exports and Impacts, 1976-80
2. Population Characteristics
Population Mlap - IBRD No. 12909



Page 1 of 2 pages
COUNTRY DATA - VIET NAM
AREA               POPULATION                                      DENSITY
332,000 sq km      47.2 million (February enumeration 1976)    142 per sq km
Rate of growth 3.0% (UN estimate for 1977)  420 per sq km of
arable 'Land
POPULATION CHARACTERISTICS
Crude birth rate (per 1,000)  31.6 (1974 estimate for the north)
41.0 (1975 estimate for the south)
Crude death rate (per 1,000)   6.3 (1974 estimate for the north)
11.0 (1975 estimate for the south)
Infant mortality rate           26.4 (1975 estimate for the north)
(per 1,000 live births)       11.0 (for the south)
HEALTH
Population per physician       3,802 (estimates are for the north for 1975)
Population per hospital bed    230                     "
EDUCATION
Adult literacy rate 87% (1975)
Primary school enrollment; about 100% (1976 estimate for the north)
GNP PER CAPITA
1977 estimate; US$150
STATE BUDGET
1976 actual:              D Million        % of GNP /1
Total revenue              8,975            48
of which:
Domestic revenue           6,002            32
External grants &
credits                  2,652            14
Others                       320             2
/1 Vietnamese methodology, which excludes incomes generated in service sectors.



Page 2 of 2 pages
BALANCE OF PAYMENTS
1976 (US$ million)       1977 plan
Exports                                  288                   446
Imports                                  794                1,045
Trade balance                           -506                 -599
Capital Inflows:
Socialist countries                    350                  200 /1
Rest of the world /2                   156                  399
RATE OF EXCHANGE
US$ 1.00 = northern Dong (ND) 2.65 (NS 3.98 with premium)
US$-1.00 = southern Dong (SD) 1.85 (SD 2.31 with premium)
/1  World Bank staff estimates.
/2 Including international organizations.



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SUMMARY AND CONCLUSIONS
1.        The Socialist Republic of Viet Nam was created in July 1976 by the
union of the Democratic Republic of Viet Nam with the Republic of South Viet
Nam. The two parts of the country, roughly of equal size, form what is, in
terms of population, the fourth largest country in eastern Asia. The
reunification also brings together all the Vietnamese people under a single
independent government for the first time in this century. The country's
location places it within easy transport and communication reach of all the
other larger countries in the region. Its size and shape, combined with its
varied topography, give Viet Nam a wide range of climatic conditions, and the
long coastline provides excellent natural harbors and access to extensive
marine resources. There are also substantial natural resources especiLally
cultivable land, good soils, minerals, including coal and possibly oil and
gas. Viet Nam also has hydroelectric potential and good timber resources.
These natural assets combined with a literate and well organized popuLation
give the country a considerable development potential.
2.        In the short run, however, the country has to cope with the after-
math of 30 years of almost continuous warfare. There is a need to reconcile
the two parts of the country, which, although complementary in terms of
natural resources and to some extent economic structure, have been moving in
different directions both economically and politically for the last two
decades. The northern part of the country consists of a centrally planned
socialist economy, with collective ownership accounting for 90% of the means
of production. Direct state ownership in the south currently affects only a
relatively small part of the economy, mainly the industrial sector wbere it
covers 70% of total industrial output, leaving the greater part of agriculture,
trade and transport still in private hands. It is the stated intention of
the Government to extend full socialization to the south following the
oattern already established in the north; however, the differences between
the two regions make it impossible to integrate the two economies immediately,
and this is reflected in the continued existence of two separate currencies.
The current situation and medium-term prospects for Viet Nam have to be
assessed against the background of these continued differences in economic
structure. The intention of the authorities is to integrate the two economies
gradually over the period of the current five-year plan (1976-80). This plan
covers the whole country and takes account of the differing situations, the
comparative advantages, and natural and human resources of the different
regions.
3.        It is difficult to give a comprehensive picture of the economy and
of the changes that are now under way because statistics are scarce and
in many cases unobtainable. In addition, many of the usual quantitative
indicators of economic performance cannot be applied to a situation where the
two halves of the economy are still operating with different economic
structures. For this reason, it is hazardous to compare figures for Viet Nam
with those of other countries. However, the available information clearly



- ii -
indicates that Viet Nam starts its postwar development from a very low
level of income. The State Planning Commission estimates that the country's
national income amounted to D 16 billion in 1975, and increased in 1976 to
about D 19 billion, or D 400 per capita. However, the Vietnamese figures
exclude incomes generated by such sectors as transport, public administration,
defense, etc., which are normally included in the national accounts prepared
along the lines recommended by the United Nations. Converting to the United
Nations methodology would increase this estimate by about 20%, giving a
national per capita income of about D 500 in 1976. At the official exchange
rate,/l adjusted for the premium added in most transactions, the equivalent
per capita income would be in the range of $150. It is also clear that the
level of per capita income has not changed significantly during the past
15 years: official estimates for the national income per capita in northern
Viest Nam in the early 1970s was about the same as the 1960 level, and the GDP
per capita in southern Viet Nam is also believed to have remained roughly
static since 1960. It would appear that at the time of reunification in 1976
the per capita income in the two halves of the economy was approximately
the same.
4.        The effects of almost 30 years of warfare and its aftermath are
su-fficient explanation of both the low levels of per capita incomes and their
faiLlure to grow over the last two decades. These measures of poverty should
not: be taken to indicate, however, that there has been widespread deprivation
in Viet Nam. Although real incomes are low, and supplies of some commodities -
including foodstuffs - scarce, the Government has been able to arrange distri-
bution of the limited supplies to avoid starvation and widespread malnutrition.
The difficulties were acute in some areas immediately following the end of
the war in the south, which had become heavily dependent upon imported
foodstuffs. Further difficulties arose from bad weather affecting harvests
in both 1976 and 1977; nevertheless, it has been possible for the Government
to arrange for the minimum needs of the population - food, housing, education,
medical services - to be met, although at a level that is not considered
satisfactory.
5.        The northern and southern halves of the economy emerged from the
war with different sets of problems. In the north, the impact of the war was
considerable in terms of widespread physical destruction and damage, the
full effects of which are still being evaluated. There was a substantial
burden of reconstruction and rehabilitation to be undertaken immediately
before longer term development objectives could be considered. The
/1 The rate used here and throughout the report is that for the northern
Dong, unless otherwise stated.



effects of the war on the south were different in that there was much less
physical destruction of assets and infrastructure. In many respects the
urban infrastructure and the transport network developed possibly at a faster
rate than might otherwise have been the case. The major damage in the south
was to the agricultural sector. Not only were the means of production des-
troyed, but the large-scale involuntary movements of population resulted in
the abandonment of cultivated land, falling production, and a rapid rise in
the population of major cities.  As a result, the economy became increasingly
dependent upon imports financed with a very high level of aid. In addition a
significant proportion of economic activity was supported by expenditures of
foreign troops located in Viet Nam; after their departure there continued to
be a large inflow of aid for military purposes. The inflow of capital ceased
abruptly at the end of the war, and there is now an urgent need to increase
domestic production, notably in the agricultural sector, _o substitute for
these imported supplies. At the same time, the population must be redeployed
away from the urban areas where it is not possible to provide sufficient
employment opportunities. The short-term problem in the south, therefore., is
to increase output and employment and restore agricultural production on ithose
lands affected by the war.
6.        The distribution of the population is largely determined by
geographical factors and the existence of natural resources, the greater p
being concentrated in the two larger deltas of the Red River and the Mekong.
In the former there is an agricultural system based on the irrigated produc-
tion of rice, which has been developed over many centuries and now supports a
dense population. The Mekong Delta area (which is twice as large) had not
become so densely settled before development was interrupted by the long
period of warfare which began in 1946. The Mekong Delta thus remains
the chief area of agricultural potential in a country where the amount of
cultivated land per capita is amongst the lowest in the world. Outside the
delta and the three principal cities, Hanoi, Haiphong and Ho Chi Minh City,
the population is thinly dispersed especially in the mountainous areas; these
are mostly occupied by ethnic minorities, who account for about 10% of the
total population. These higher lands have considerable forestry resources
and could also be used to produce a wide range of commercial and food crops.
7.        Agriculture - particularly the production of rice - is the most:
important economic activity in Viet Nam. The supply of rice, the basic food,
is the Government's foremost concern. The north was traditionally a food
deficit area, despite its well developed water control systems, the prevalence
of double cropping and high yields. The south, which became a net importer
during the war, has considerable potential to expand output, yields and
productivity and resume its former role as a rice exporting region. The food
situation reTnains a major preoccupation of the authorities, with bad weather
continuing to hamper efforts to expand output in both 1976 and early 1977.
Top priority is now being given to increasing rice output, with the intention
of achieving self-sufficiency by 1980, raising production from 14 million
tons in 1976 to over 20 million tons in 1980. Although per capita consumnption
should rise to improve nutritional standards and the growth in populationi, at
a rate of 2.5-3.0%, also increases the amount required over time, this self-
sufficiency, though ambitious, is not impossible.



- iv -
8.        Apart from rice, the agricultural sector also produces a wide range
of subsidiary food and commercial crops, such as corn, rubber, tea, coffee
and jute. Rubber, previously an important export, suffered badly during the
war and requires extensive rehabilitation and replanting. The same applies
to the fisheries of Viet Nam which supply the second most important item of
the diet and also contribute to exports. In the important forestry industry
output was also much reduced by wartime disruption and damage, and it is
difficult to expand quickly because of the shortages of equipment and
transport facilities. Domestic demand is high for reconstruction purposes,
thus competing with exports and industrial demand.
9.        The Government's second major concern in the current situation is
the need to create employment opportunities. The end of the war left 3 million
people unemployed in the south; the number had been reduced to 1-1/2 million
by early 1977. There is full employment in the north but additional jobs are
required to permit demobilization of the armed forces. An additional consider-
ation is the need to create jobs for the growth in the labor force, estimated
at one million people a year.
10.     The major effort to deal with the employment problem consists of the
creation of New Economic Zones - agricultural settlements that are intended
to effect the large-scale population redistribution. The majority of the
settlers will come from the overcrowded cities in the south, reversing
the artificial, rapid growth of Ho Chi Minh City that occurred during the
war, but others will be resettled from the overpopulated areas of the Red
River Delta in the north. New Economic Zones are fundamental to the country's
development strategy in that they are intended both to solve the employment
problem and increase agricultural output. In the south the New Economic
Zones will create new state-owned and cooperative forms of agricultural
enterprise and are an important step towards socializing the agricultural
sector, in line with the evolution of the cooperatives that have become the
predominant form of agricultural enterprise in the north.
11.       Industrial development in Viet Nam has proceeded in different
directions in the two regions. In the north the emphasis has been on heavy
industry and mining, corresponding to the natural resource base and the
priority given to heavy industry by the Government. In the south there was
considerable industrialization, beginning at the lighter end of the scale in
such areas as food processing, textiles and other consumer goods, much of it
based on imported raw materials and financed by private investment from
abroad. Since reunification the industrial sector in the south has been
operating well below capacity because of the shortage of spare parts and raw
materials from abroad. The complementary characteristics of industry in the
north and south can be turned to advantage as the integration of the two
economies proceeds. In the exploitation of minerals Viet Nam possesses
valuable coal deposits, the output of which can be expanded to satisfy a
growing home and export demand. The prospects for oil and gas discoveries
are also promising, although the development of offshore fields will require
the assistance of foreign capital, expertise and technology.



v
12.       The transport, power and communications networks suffered badly
during the war in the north. Apart from the reconstruction needs the various
systems need expanding and modernizing to serve the rapid rate of growFth
projected for the economy over the plan period. In the south the road
transport system and ports emerged from the war with relatively little damage
and an increased capacity. Railways were less fortunate and the electric
power transmission network was also disrupted, and the generating capatcity
run down.  The Government's immediate postwar efforts included repairing
wartime damage to the power and transport networks, and reopening the main
rail link between north and south.
13.       Currently the social sectors in Viet Nam - notably health and
education - are in transition. In both cases the northern systems are being
extended to the south, where the state of both health and education is
inferior to that of the north. The level of literacy is already high in the
north and there is a large supply of trained manpower which is the product of
an already well developed education system.
14.       In the health field the emphasis has been placed on disease preven-
tion, and the provision of minimal health care to all the populationO Epidemic
diseases which had been endemic - malaria, tuberculosis, leprosy and trachoma -
have been much reduced. Significant indicators of health conditions, notably
infant mortality rates, are now lower in northern Viet Nam than in many other
developing countries at comparable levels of per capita income. This correlates
with significant features of the health sector. For example, the ratios of
population per hospital bed and per physician are amongst the lowest in Asia.
15.       One of the features of social sector policy in Viet Nam is the pro-
vision of the minimum basic needs of the population. Food, clothing, housing,
medical services and education are allocated, or made available at low cost,
to the population. Where supplies are scarce rationing is used, as for
grains and textiles. Pricing policies are also employed to bring essential
goods and services within reach of the whole population and to restrict non-
essential consumption.
16.       The management of an economy with two diverse parts, such as now
exists in Viet Nam, presents special problems, so economic management has
been a major concern of Government in recent years. The highly centralized
direct planning employed in the wartime economy in the north is being modified
to incorporate the following features: decentralization of planning and
implementation, with plans based on contracts between independent economic
entities rather than orders from bigher to lower level authorities;  greater
flexibility for state enterprises and managers, who will be accountable for
their performance; and increased use of economic policies and levers to
promote growth and efficiency.
17.       In the field of foreign economic relations, which is a state
prerogative, the Government plans to widen the range of participation. Trade
links are being established with countries outside the Socialist Bloc and a
foreign investment code has been drawn up which will permit foreign investment
in Viet Nam under well defined circumstances.



- vi -
18.       The framework for economic policy is set out in the five-year
development plan adopted at the end of 1976 which covers the period 1976-80.
It sets out the main objectives, in terms of a series of tasks, while the
annual plan specifies the ray in which these objectives are to be achieved
in the short term. The thrust of the plan can be summarized in two general
aims: to build the economic and social infrastructure for sustained and
rapid long-term grDwth and to imnrove the material and cultural life of the
working population. Some key quantitative targets are specified for the
five-year period, but the plan does not spell out a detailed macroeconomic
framework. Much of the plan is taken up with qualitative rather than quantita-
tive questions. The changes in management and planning methods mentioned
above, increasing the efficiency of government machinery, reorganizing
production and redeploying the labor force are viewed as the major means to
achieve the plan's objectives. The national income is projected to increase
at the rate of 13-14% per year with state investment expenditures totaling
D 30 billion, divided roughly equally between industry, agriculture and
services. Agriculture is given a clear priority in the plan, with the
resettlement of population in the New Economic Zones the most important
program. Industrial development will be geared to serve agriculture, but
will also be laying the foundation for the further expansion of heavy industry.
19.       The investment program set out is ambitious and will require a major
effort to mobilize both domestic and external resources. In 1976 and 1977
state investment is estimated to be 19% of national income (using UN methodo-
logy). Foreign inflows are expected to finance about 45% of these investment
expenditures. To achieve the total investment envisaged in the plan, the
ann^al investment expenditures will need to average D 7.4 billion over the
next three years, at a rate of growth of 19% over the years 1977-80.  If the
national income grows at the rate projected in the plan the share of investment
will 2r1aa to 27%. A significant proportion of this investment will need to
be financed through external assistance, but the saving rate will still need
to increase from its present level of 9% of the national income to about 16%,
implying a marginal saving .rate of about 26%.
20.       The achievement of the plan's targets will depend significantly on
the ability of the Government to mobilize domestic resources.  This is largely
a function of the public finances, which, after a period of transition, are
now being developed to provi'de a unified system covering both north and south.
The budget is the financial expression of the plan and the main instrument
for implementing the distribution of the national production between consump-
tion and investment and the shares going to private and public consumption.
Total revenues depend largely on taxation which is linked directly
.  the form of enterprise and these are also changing in Viet Nam.  In agricul-
tu e cooperatives are the predominant form, almost universal in the north
buL still to be introduced i.n the south where private ownership is still
the rule, although state farms and "mutual aid teams" (the first stage of
cooperatives) are being introduced. In the north industry is organized in
state enterprises while southern Viet Nam has a mixed pattern comprising five
different kinds of enterprises: (a) state owned, (b) state-private partnership,
with state management, (c) cooperatives, (d) private companies or partnerships,
se) individually owned enterprises.



- vii -
22.       Contributions from state enterprises are by far the largest source
of revenues accounting for 80% of projected domestic revenues in 1977. These
contributions are based on a complex process closely linked to the pricing
and distribution system. This process allows the state to set different rates
of taxes on the final prices of different goods and services, while giving an
incentive to managers of state enterpises to keep costs of production down and
fulfill the plan targets assigned to them. Taxes on agriculture are a. much
less important source of domestic revenues, although there are also requirements
to deliver quotas of output to the state at fixed prices. The other important
source of budget revenues is foreign aid and credits, which accounted for 30%
of the total in 1976 but are expected to decline in relative importance to
20% in 1977.
23.       On the expenditure side about 40% of the total went for investment
in 1976 and the balance for recurrent expenditures. In 1977 total state
investment is expected to increase by 17%, but the portion financed through
the state budget will fall to 34% of total expenditures. This arises
from the transfer of responsibility for financing about 30% of state invest-
ments to the banking system; previously its role was limited largely to the
financing of working capital requirements.
24.      The banking system of Viet Nam was reorganized in June 1977, so
that it will now consist of the State Bank, which exercises all monetary
functions, and a group of specialized banks under its supervision. These
are banks for Foreign Trade, Agriculture, Industry, and Internal Trade, and a
Socialist Savings Fund to mobilize private savings. The new responsibility
for financing state investments will be carried out by the appropriat:e
institution in the group. The State Bank, through the Foreign Trade Bank, is
also responsible for all foreign borrowing and manages the country's foreign
exchange reserves.
25.       While the Government has been successful in mobilizing domestic
resources in the past it will need to continue to develop new sources of
revenue if the plan investment targets are to be achieved. With a revenue
system tied directly to the level of output, maintaining the rate of growth
of the output of goods and services is thus of paramount importance. This
will also require resources from abroad, however, so the question of the
availability of external finance is quite crucial. Imports are needed to
expand output, because the present structure of the economy is such that
certain essential inputs - fuels, raw materials, capital goods and spare
parts - cannot be produced locally. Also, in the immediate future t:he same
applies to cereals (to supplement domestic output) and possibly other consumer
goods as well. The imports required certainly cannot be financed by export
earnings in the immediate future; capital inflows from abroad will thus be
needed to finance the deficit and would, at the same time, cover the balance
of the investment program of the plan not covered by domestic revenles.
26.       The plan does not set out a projection for the balance of payments
situation up to 1980. It lays great stress on achieving a greater degree of
self-reliance and gives high priority to expanding exports and economizing on
imports. The present situation starts from a severe shortage of foreign



- viii -
exchange, in which, in 1976, exports covered only 40% of the value of imports.
The plan sets as a target that exports should cover 80% of the value of
imports by 1980. This implies a substantial reduction in the deficit on
current account and, if achieved, would mean a fall in the net transfer
of resources from abroad.
27.       The availability of imports is likely to be the key factor in the
achievement of the targets for investment and the rate of growth of national
income. A larger net transfer of resources from abroad, equal to the deficit
on current account, will make it easier to maintain the level of imports, pro-
vided that the deficit can be financed on terms that the country can afford.
If such finance is available, with a significant proportion on concessionary
terms, the economy may be able to move more quickly to a level and structure
of output which can be maintained with smaller net inflows from abroad in
the future.
28.       The plan does not set out detailed targets for imports and exports.
For illustrative purposes here a possible pattern of exports and imports has
been worked out. It has been derived from estimates of the possible rate of
growth of exports and of the country's import requirements. It is intended
only to show the possible orders of magnitude likely to be involved in the
remaining three years of the plan, in circumstances where there would be a
relatively large net transfer of resources from abroad.
29.       In this illustrative projection imports, which were $794 million
in 1976, would increase to about $1 billion in 1977 and reach $1.8 billion
by 1980. Exports) which were about $300 million in 1976, would grow to
$750 million by 1980. The deficit on current account would then be $1 billion
in 1980, or about double the 1976 figure.
30.       It is difficult to predict how such deficits might be financed.
Little is known about the intentions of the socialist countries with regard
to aid or credits to Viet Nam over the next three years. Meanwhile it is
still too early to quantify the prospects of capital inflows from the rest of
the world. Viet Nam is still working out such arrangements with the principal
countries concerned, and there are many questions still to be resolved. The
pattern for 1976 and expected for 1977 is that the estimated $1.1 billion
deficit for the two years will be financed about equally by capital inflows
from the socialist countries and from the rest of the world.
31.       Much of this assistance will need to be on concessional terms.
Viet Namn's capacity to borrow on commercial terms will be limited, and while
it has few debts, its foreign exchange reserves are largely depleted, and it
has little leeway to curb imports without drastic effects upon output and
incomes. Substantial assistance from the outside world will be required, both
from the socialist countries, from other parts of the world, and the multi-
lateral agencies. Concessional aid from the latter is likely to be limited
by total size of the funds available. While Viet Nam could hope to receive a
share of such funds appropriate to its size of population and low levels of
per capita income, the need for assistance is such that bilateral aid from



- ix -
nonsocialist countries will become increasingly important. The country can
also hope to make prudent use of commercial borrowings as its external
relationships develop in a broader international context.
32.       The form in which assistance is made available will also be
important. The amount of external resources required exceeds the probable
need for imports of capital goods. Consideration should be given, therefore,
to the financing of supplies of intermediate goods, raw materials, spare
parts and food in ways that will provide quick disbursing assistance. On the
Government's part there will be a need to review import priorities carefully,
to ensure that adequate supplies of imports are available to maintain the
rate of growth of output, especially production for export. This means
giving a lower priority to projects with a lengthy construction period and
with little contribution to output in the short run.
33.       Viet Nam has demonstrated a capacity to organize its limited
resources for investment, despite the low level of per capita income - at
around $150 per head. Its medium-term prospects depend upon the continuation
of that ability to make the best use of its resources. The prospects for
rapid economic growth look good. Although cultivable land per capita is
limited, half of it is still unexploited and offers the prospect of increased
agricultural production. Climatic conditions in the country allow the
successful cultivation of a wide range of industrial and food crops, and the
long coastline provides an excellent opportunity for fishery development
for both domestic consumption and export. Reserves of coal and other minerals
are already proven in the north and the possibilities of oil and gas reserves,
both onshore and offshore, are good. Most important, the country possesses a
literate, organized and disciplined labor force with a significant proportion
of skilled manpower.
34.       The realization of these prospects will depend mainly on two main
factors. One is the successful evolution of an efficient management and
planning system to promote rapid economic growth and also to facilitate the
integration of the two halves of the economy. The second factor is the
availability of financial and technical support from abroad. The first
factor is within the control of the Vietnamese people to achieve; the second
requires the assistance of the international community.






1. INTRODUCTION
Historical Background
1.01      This report gives some account of the present economic situation of
the Socialist Republic of Viet Nam which was established in July 1976 When the
former Democratic Republic of Viet Nam merged with the Republic of South Viet
Nam.  Hanoi became the capital of the reunited country.
1.02      The Vietnamese are a people with a long history who have occupied
their present land for over 4,000 years. An independent Vietnamese state was
established in 939 A.D. and apart from a brief interlude in the fifteenth
century, it remained an independent, though not always united state, until the
late nineteenth century when the country came under French rule.
1.03      The modern history of Viet Nam begins after the second world. war,
when the independence of the Democratic Republic of Viet Nam was declared on
September 2, 1945. A period of warfare with the French followed until. 1954,
when an international conference held in Geneva provided for a temporary
division of Viet Nam into two parts, while recognizing its independence and
unity. Elections were to be held in July 1956, to decide the country"s final
status, but they did not take place. Instead a de facto division of Vliet Nam
into two states occurred, with the establishment of the Republic of Viet Nam
in the southern part of the country in 1956.
1.04      During the two decades of war that followed the two economies
evolved in quite different directions. In the north a centrally planned
socialist state was created, while in the south the economy developed along
capitalist lines. Since both states were preoccupied with war activities
neither was able to give full attention to economic development; both had to
rely on aid and assistance from abroad to conduct the war, though allowing for
wartime destruction, there was probably little or no net capital formation.
1.05      The economic situation in the south became critical after the collapse
of the Republic of Viet Nam in April 1975. The economy had been receiving a
very high level of foreign economic support, estimated at around 17-20% of
GDP, and this ceased abruptly at a time when many economic activities were
interrupted and there was a substantial outflow of refugees from the country.
In addition, economic activity was also maintained at a high level because
of large expenditures arising from the presence of foreign troops. After
their departure, there continued to be a large inflow of aid for military
purposes. In the second half of 1975 and throughout 1976 the worst possi-
bilities of famine and hardship were avoided despite the bad harvest because
of supplies from the north and outside assistance, including that from the
United Nations.



-2-
1.06      In the second half of 1976, a national assembly was elected by
both parts of the country. The National Assembly met towards the end of
1976, as did the fourth congress of the ruling Workers' Party (now renamed
the Vietnamese Communist Party) and approved a five-year development plan
for the whole country. This plan establishes a framework for the recon-
struction and longer term development of the reunited economy.
Physical Setting
1.07      The Socialist Republic of Viet Nam has a surface area of 332,000
square kilometers and stretches in the shape of the letter S for more than
1,600 kilometers, between latitudes 80 and 230 north, forming the eastern
edge of the Southeast Asian peninsula.  It is bounded on the north by China
and on the west by Laos and Campuchea.  In the east and the south, Viet Nam
has a coastline on the South China Sea and the Gulf of Thailand which is
more than 3,000 kilometers in length.  The country is divided into three
distinctive geographic areas: the plains, the highlands, and the seacoast.
1.08      A string of plains extends through the length of Viet Nam.  The
dominant plain in the north is the Red River Delta, stretching for more
than 200 kilometers from the Gulf of Tonkin northwestwards to the mountain
ranges. The delta is fertile and is intensively cultivated and is the
center of agricultural and economic activities in the northern part of Viet
Nam. It has an average population density of about 600 persons per square
kilometer. South of the Gulf of Tonkin the delta merges with the coastal
plain, which is segmented where the Annamitic Cordillera reach the sea.
The soil is very fertile here, and this is the main rice growing area of
central Viet Nam.
1L.09     South of the Annamitic Cordillera the highlands gradually descend
into the enormous system of deltas formed by the Mekong River and the smaller
Vam Co, Sai Gon and Dong Nai Rivers. The Mekong Delta is the most important
area for agricultural production in Viet Nam. The Vietnamese part of the delta
is over 65,000 square kilometers in area and nowhere more than 3-1/2 meters
above sea level.
1.10        The highlands of northern and northwestern Viet Nam are the SOtU!.*r,-
end of the high plateaux of eastern Tibet and Yunnan Province in China. MoEt
of the country's considerable mineral wealth (iron, zinc, tin, wolfram, mangan-
ese and apatite ores) lies in these northern mountains. The immense deposits
of anthracite that extend to the coast add to this wealth, though the high
limestone content of the mountains makes them subject to erosion by the sea.



-3 -
1.11      In northwestern Viet Nam the mountain ranges continue southwards as
the Annamitic Cordillera and gradually become very narrow and rugged as they
reach central Viet Nam, making communications between the northern and the
southern parts of the country very difficult. Further south they widen into a
high plain covering an area of more than 50,000 square kilometers; irL these
sparsely populated highlands, coffee, tea and rubber flourish, benefiting from
its rich red soil. Further south again the highlands start sloping gently
into the low plains area of the Mekong Delta.
1.12      The seacoast is impressive in its length in proportion to t:he
narrowness of the country and adds another dimension to the diversity of the
country. The sea, very rich in fish, furnishes an important part of the
daily diet, as well as one of its basic ingredients, "nuoc mam" or fLsh
sauce, which is used for food seasoning. At Halong Bay, in the northwestern
corner of the Gulf of Tonkin, the erosion of the coast unfolds an imnense
panorama of reefs, rocks and outcrops which are carved into grottos and
inlets, making it a unique and impressive coastline. South of Halong Bay the
coast becomes an almost uninterrupted chain of sandy beaches and elaborate
systems of lagoons with many excellent natural harbors.
1.13      The climate in Viet Nam is varied:  in the north the winds of
central Asia and the Yellow Sea sweep across the country, while in the south
the monsoons from the Pacific and Indian Oceans dictate the climate. In the
north the climate is similar to that of southern China, being characterized
by extreme differences between summer and winter temperatures and by sudden
changes in temperature. There are two seasons: winter, which lasts from
November to April, with the average temperature around 160 Celsius and frequent
light drizzle from February onwards; and summer, from May to October, a
season of great heat, heavy rain and typhoons.
1.14      In the south, the climate is a regular monsoon type, characterized
by constant temperatures (between 25 and 30 Celsius), distinct monsoons and a
regular rainy season. The year has three seasons: the first corresponds to
the summer monsoon (May to October) and is very wet; the second corresponds
to the beginning of the winter monsoon (November to February), a dry and
relatively cool period; and the third, covering the end of the winter
monsoon (February to April) is a dry, hot and unpleasant period, when the
close atmosphere rarely breaks into cooling rain. The climate of central
Viet Nam is a transition between those of the northern and the southern
parts of the country: in general it is cooler than in the southern part and
the dry and rainy seasons are not as pronounced.
Population Distribution and Growth
1.15      In February 1976, the Government carried out a general enumeration of
the population to prepare for national elections.  The count revealed a population
of 47.2 million, a somewhat higher figure than had been expected in the light of
previous separate censuses and surveys for the northern and southern parts of the
country. L/
/1 For more details, see Annex 2.



- 4 -
1.16      The southern provinces have a population of 24.2 million, and
the northern provinces, of almost 23.0 million. About 10% of the population
belongs to some 60 non-Viet ethnic groups, their main areas of settlement
being the more remote mountainous regions.
1.17      The determinants of population growth can only be given as approxi-
mations, owing to the absence of reliable data for the southern part of the
country. In the northern provinces the crude birth rate was estimated at
31.6 per 1,000 in 1974, and the crude death rate at 6.3 per 1,000, resulting
in an annual population growth of slightly more than 2.5%, down from the
intercensus (1960-74) average of 2.9%. In the southern provinces, the apparent
crude birth rate was 41 per 1,000 and the crude death rate, 11 per 1,000 (as
estimated in 1975), giving an annual population growth of 3.0%. However, these
estimates were based largely on urban records, which were likely to be mis-
representative because of the influx of rural refugees.
1.18      The immediate prospects are for a high rate of population growth,
of between 2.5 and 3.0% p.a. The Government's expectation is that there
will be a reduction in the rate of growth to slightly over 2% p.a. by 1980, at
the end of the five-year plan.  This is an optimistic goal, the attainment of
which depends to a large extent upon a reduction in the high fertility in the
southern provinces.
1.19      The United Nations /1 have produced a short-term projection for
Viet Nam which assumes that the rate of population growth will be 3.0% in
1977, falling to 2.7% in 1980 and 2.4% in 1982. This would give a total
population of 48.6 million in 1977 rising to 52.8 million in 1980. The high
rate of growth in the earlier years is predicated on the possibility that
fertility will rise temporarily as a result of a postwar "baby boom." While
this is a distinct possibility, the economic dislocation in the south, the
prospects of substantial population redistribution and the increased support
for family planning programs nationwide could have a countervailing effect
upon fertility. Given the short period involved the likely impact upon the
total population by 1980 will be small. A fall of 1% per year in the annual
growth rate from an assumed level of 2.8% in 1977 would still result in a
population of slightly more than 52 million in 1980.
'l UN Population Division Document S0322 Viet Nam, November 17, 1976.



- 5 -
2. THE CURRENT SITUATION
2.01      At a time when considerable changes are under way in Viet Nam it is
difficult to give a comprehensive picture of the structure of the economy.
Statistics are scarce and statistical services limited and in the process of
being reorganized. In addition, it is difficult to reconcile and combine data
from the north and the south collected on different bases, and structural
changes being implemented in the south are not yet adequately reflected in
statistics. There are few macroeconomic figures and differences between
methodology and concepts used in Viet Nam and those used in other countries
make it difficult to interpret Vietnamese data.  The socialist pricing system
also makes difficult the use of conventional quantitative analytical teclniques.
For example, the low prices of agricultural products relative to the rest of
the economy result in the agricultural sector accounting for only 40% of
national income while employing more than 70% of the labor force; comparison
of quantitative indices such as investment ratio and capital/output ratio with
other developing countries is also not possible because of differences in the
pricing of investment goods. Reflecting the lack of quantitative information,
the following picture of the situation in the main sectors of the economy is
incomplete in some important respects, but does provide a descriptive framework
that is believed to be broadly correct.
Income and Consumption
2.02      While reliable estimates of per capita income and consumption are
not possible, available evidence clearly indicates a low level of income in
the country. The State Planning Commission estimates that the country's
national income amounted to only D 16,000 million/l in 1975 but increased by
18% in 1976, amounting then to about D 19,000 million, or an equivalent of D
400 per capita. These estimates are based on Vietnamese methodology, whlich
excludes income generated by service sectors such as passenger transport,
public administration, defense, and health and education, which are included
in the standard United Nations' national accounting methodology. Converting
to the UN methodology will probably increase these estimates by about 20%,
resulting in an estimated national income of D 23,000 million, or about D 500
per capita in 1976. At the official exchange rate of D 2.69/1 per dollar this
is equivalent to about $180; including the 50% premium added to the official
exchange rate in most transactions, the equivalent per capita income would be
about $120. The most realistic estimate is likely to be within this range,
at about $150 per capita. It must be emphasized, however, that because
foreign trade and exchange are severely restricted in Viet Nam, conversion of
income estimates to foreign currency is even less meaningful for Viet Nam
than for most other countries.
2.03       There seems little doubt, however, that the level of per capiLta
income in Viet Nam has remained constant during the past 15 years; official
estimates indicate that national income per capita in northern Viet Nam in
the early 1970s was only about the level attained in 1960, while GDP per
/1 The reference here and throughout the report is to the northern Dong,
unless otherwise stated.



-6-
capita in southern Viet Nam has also remained at about $140 since 1960.
The latter estimate would indicate further that, at the time of reunification
in 1976, per capita income in the separate halves of the economy was probably
roughly the same.
2.04      Income in northern Viet Nam is apparently fairly evenly distributed.
In the state sector, which accounts for about half of GNP, monthly wages and
salaries range from D 50 to over D 200; unskilled manual workers in factories
or mines receive D 60-70 while skilled workers receive about D 100, and highly
qualified engineers could receive as much as D 200. Most families have more
than one income earner and the monthly income for an average family appears
to be of the order of D 150.
2.05      Apart from wages, prices and rationing are used to influence the
level and structure of personal consumption. Education, medicines and health
services are generally free. Housing, albeit at a very low standard of about
18 sq meters (excluding kitchen and bathroom) per average family, is provided
to all workers in the state sector at a cost of 1% of salary. Transport to
and from work is provided free. Food rationing in early 1977 included 16 kg
of rice (more for manual workers) per adult per month at D 0.40 per kg, 0.5 to
1.0 kg of sugar at D 2 per kg, and 1.0 kg of meat at D 4.5 per kg. An average
family of, say, two adult earners and four children, with a total monthly
income of D 150 will therefore spend only about D 50 per month in meeting
their basic needs of health, education, housing and a minimum diet, leaving
D) 100 for discretionary consumption or saving.
2.06      Discretionary consumption is, however, very much restricted, since
the high price and scarcity of consumer goods outside the ration system
effectively reduce the already low level of personal consumption implied by
the wage scale. Food items on the free market, when available, cost two to
three times the ration prices. Industrial consumer goods are particularly
scarce; for example, the annual cloth ration currently amounts to only 5 meters
per adult.
2.07      The bulk of the population outside the state sector are in coopera-
tives, mostly agricultural cooperatives. Although their personal income
could vary more than in the state sector, a floor income does exist, with the
Government providing assistance in times of natural disaster. A ceiling is
fixed, to some extent, by the agricultural tax system and the requirement to
sell a large proportion of production to the Government at a predetermined
price. There is usually a lag, however, between increased production and an
increase in taxes and sales to Government, so that cooperatives enjoying
increased production would, at least temporarily, retain most of the incremental
income. Average personal income in the cooperatives probably varies signifi-
cantly among the different geographical areas. Cooperatives close to Hanoi
apparently enjoy a considerably higher standard of living than urban workers;
average family incomes seem to be about D 200 per month, housing standards are
significantly better, and personal consumption is supplemented by the family's
private agricultural activities.
2.08      Before the end of the war in 1975, the population in the South
enjoyed a relatively high level of consumption. Incomes were supported by a
large foreign assistance program and military expenditures. Now that the



-7-
major source of foreign capital inflow has disappeared, personal consumption
on the whole must have fallen significantly. However, there is no visible
evidence of widespread hunger or hardship in southern Viet Nam; indeed the
general impression is that normal economic activities in both rural and urban
areas are continuing, and personal consumption appears higher than in the
north, although this may reflect more past consumption levels and the using up
of assets and inventories than present incomes.
2.09      Immediately following the end of the war in 1975, pay discriminations
in the south between the sexes were eliminated and important modifications to
the government employees' pay scale introduced. By early 1977, revision of the
state sector wage scale in the south was largely completed, the major change
being to introduce the existing scales from the north; ranges were reduced and
the relative wages of technical and manual workers increased. In the course of
the year, the Government expects to complete the reorganization of thet state
sector in the south so that conditions of employment will be roughly the same
as in the north.
PRODUCTIVE SECTORS
Agriculture
2.10      Agriculture is by far the most important economic sector in Viet
Nam; it is estimated that about 70% of the total population earns its income
from agriculture, which contributes about 40% to the national income. /1  In
addition, it is the main source of raw materials for the processing industries,
and a major contributor to exports.  Three decades of almost continuous
warfare seriously damaged the agricultural sector through the destruction and
neglect of irrigation and drainage infrastructure, the loss of draft animals,
destruction of equipment, defoliation of vast areas of forests, and above all,
by the displacement of population and the abandonment of agricultural land.
2.11      While the country's geography and natural conditions favor agricul-
ture, there are many constraints to the expansion of production. Potential
arable land amounts to 9-10 million ha, but only 5.6 million ha are cultivated
at present; with double cropping the total cropped area is about 7.2 million ha
or only 0.15 ha per capita, which is among the lowest in the world.
2.12      The main agricultural areas are the two large deltas:  the Red
River Delta in the north (1.5 million ha), and the Mekong River Delta in
the south (about 6.5 million ha). Of lesser importance are the coastal regions,
including a series of separate plains, where the major crop is rice. In the
midlands and some parts of the mountainous areas, a few soils of volcanic
origin are suitable for industrial crops.
2.13      The agricultural pattern and selection of crops are primarily
influenced by the climate, which is itself determined by the monsoons. Regional
variations conditioned by latitude and the Annamite mountain range permit the
/1 However, these figures are subject to the caveat given in para. 2.01.



- 8 -
cultivation of a variety of tropical and even temperate crops. For planning
purposes, the country has been divided into seven zones corresponding to the
natural conditions, the comparative advantages in growing particular crops
and the economic potentialities of each zone.
2.14      Rice is by far the most important crop, grown on about 5.3 million
ha, of which about 4.0 million ha are cropped during the rainy season and
1.3 million ha during the dry season. The total area under rice represents
about 75% of total cropped land. Total production in 1976 was estimated at
12.6 million tons of paddy, and its value accounted for about 60% of total
agricultural output. The total area planted to other food crops (maize,
sweet potatoes, cassava, etc.) was estimated at 0.9 million ha in 1976 and
its production at 1.7 million tons paddy equivalent.]jL
Distribution of Cropped Area
(Million ha)
1976         1977
(Actual)    (Planned)
Cultivable area                            5.60          5.80
Cropped area                               7.20          8.20
of which:
Paddy                                    5.40          5.80
Subsidiary food crDps                    0.90          1.20
Animal feed crops                        0.15          0.23
Vegetables                               0.16          0.19
Fruit trees                              0.13          0.16
Industrial crops                         0.46          0.66
Source: 1977 State Plan and State Bank.
2.15      Up until 1970 traditional agriculture in northern Viet Nam consisted
mainly of the growing of two rice crops: a rainy season crop (or tenth lunar
month rice crop) grown from July to November, and a dry season crop (or fifth
lunar month rice crop) grown from December to June. Following the introduction
of new rice varieties with a shorter growing period, a new cropping pattern
is gradually being developed that includes one rainy season crop and two
distinct dry season crops, i.e. the spring crop and the winter crop. The
rainy season crop occupies the major part of the planting area (from 1.3 to
1.5 million ha, of which over 1 million ha is in the Red River Delta). Under
/1 Food crop production is calculated on the basis of 1 kg paddy for
0.7 kg of maize, or 2.3 kg of potatoes, or 2.3 kg of cassava roots,
or 0.5 kg of beans.



- 9 -
normal climatic conditions the yield is about 3 ton/ha of paddy; however,
because of uneven rainfall distribution and frequent typhoons causing flooding
and waterlogging, the average yield is estimated at only 2.5 ton/ha.
2.16      The dry season crop begins with the spring rice, which is grown
from mid-February to June on almost all fertile soils with a controlled water
supply, whereas fifth month rice is now planted only in acid and alumincus
low-lying fields. It is estimated that spring rice is grown on about 80% of
the area under rice during the dry season and produces about 85% of rice
output. The following table compares dry season production of spring rice and
fifth month rice.
Area                            Production
Fifth month      Spring rice      Fifth month        Spring rice
--    …-                -)                (% of total)…
1970               81               19               74               26
1971               42               58               30                70
1972               35               65               28                72
1976 /a            20               80               15               85
/a Ministry of Agriculture estimates.
Source: Vietnamese Studies - Agronomical data, Volume 38.
2.17      The increasing use of varieties with a shorter growth period during
the rainy season, together with the substitution of spring rice (3-4 months'
growth) for fifth month rice (5-6 months' growth) allows for the cultivation
of winter crops from December to February. These winter crops include maize,
beans, potatoes, vegetables (cauliflower, cabbage, onions, etc.), and a green
manure, azolla.
2.18      The total area under rice in the south is estimated to be 2.7 mil-
lion ha, of which 2.1 million are in the Mekong Delta, considered to be
the rice granary of Viet Nam, and 0.6 million ha are in the coastal plains.
As in the north, the rainy season crop is the most important (2.4 million ha)
and its production is dependent on rainfall distribution and flooding.
However, with the development of small low-lift pumps and varieties with a
short growth period, yields are becoming more stable and average 2.5 ton/ha.
Double cropping is practiced on about 300,000 ha, of which 250,000 ha are in
the Mekong Delta. The further expansion of double cropping is limited by
salinity problems in the coastal areas of the Mekong Delta and a lack of
irrigation facilities.
2.19      Paddy production in 1976 was estimated at 12.6 million tons.  As
drying and storage facilities are generally inadequate (especially in the
south), it is estimated that about 10% of the total paddy production iS



- 10 -
accounted for by losses, industrial purposes (alcohol) and seed requirements,
thus reducing the amount available fo, human consumption to about 11.3 million
tons. Assuming a low milling yield of 60% (due to obsolete equipment and
great number of paddy varieties) this would correspond to about 6.8 million
tons of milled rice or 134 kg per capita. With average consumption estimated
at 160-180 kg per capita and total rice demand at 7-8 million tons, the deficit
Ln 1976 amounted to 1-2 million tons. Part of the deficit was covered by sub-
sidiary food crops and the rest by imports, which were estimated at 1 million
tons in 1976. Because of adverse weather conditions, rice production in many
parts of the country in 1977 has fallen short of the plan target, and food grain
imports of this order of magnitude may again be necessary.
2.20      With a population growth rate of almost 3% p.a., about 1.3 million
additional people will have to be fed every year; this means an additional
requirement of about 210,000-230,000 tons of rice or, after adding corresponding
amounts for losses, seed requirements, industrial usage and low milling yield,
about 380,000-430,000 tons of paddy. By 1980 this additional need will amount
to about 1.6 million tons of paddy and require an increase of about 13% over
the present production level, without any allowance for the need to increase
per capita consumption.
2.21      Agriculture in Viet Nam is still fundamentally labor intensive and
is likely to remain so for the immediate future. However, increases in
production, especially for rice and other food crops, will be dependent as
much upon the use of specialized inputs as upon deploying the large increases
in the labor force that will come with the expected growth in population.
Ihe most important inputs are seeds, notably the improved varieties of rice,
fertilizers and machinery.
2.22      High-yielding varieties of rice were introduced in 1968 in the North
and in the South. They now account for about 40% of the planted area in the
north and alout 30% in the south. Further expansion has been limited by
problems connected with maintaining the quality of seed./l
2.23      Fertilizers are widely used but total consumption is not known.
There are large deposits of apatite in Viet Nam which are used to manufacture
phosphate, but there is a shortage of nitrogen fertilizer. There are plans to
construct a nitrogenous fertilizer plant with 240,000 tons per year capacity
at Ha Bac with Chinese assistance   The Lam Thao superphosphate plant (built
with Russian assistance) is being   panded to a capacity of 100,000 tons per
year. Some small plants in the south should produce about 300,000 tons per
year.
/1 Viet Nam has requested FAO assistance to establish a pilit unit for seed
control and processing.



- 11 -
2.24      Mechanization will be increasingly important in the future but so
far has only focused on irrigation schemes and the limited use of tractors.
The extension of pumping capacity for the primary irrigation canals together
with drainage infrastructure will be largely dependent upon the further
development of the electric power network in rural areas. The use of smaller
pumps for secondary and tertiary canals where labor is now employed for water
control could be an important way to expand rice production in areas where it
is possible to increase the number of crops per year.
2.25      The tractor fleet, including hand tractors, is estimated at 29,000
vehicles, of which 8,000 are in the north and 21,000 in the south; however,
one third of the total are idle for lack of spare parts and fuel. The total
area ploughed by tractors is estimated at 800,000 ha (11% of total cropped
area); 350,000 ha are in the north, where the Government operates tractor and
machine stations that rent equipment to cooperatives. In the south tractors
are mainly run by private operators. The greater part of the ploughing is,
however, still done by water buffaloes which number about 2.2 million. In
some regions, particularly in the south, there is still a shortage of draft
animals, which, together with the shortage of tractors, limits the creation of
New Economic Zones (see para. 2.34) and agricultural expansion in areas of low
population density.
2.26      Viet Nam's climatic and soil conditions are suitable for the growing
of many industrial crops among which rubber, tea, coffee, fruit trees, sugarcane,
tobacco and jute are the most important. The war seriously affected Viet Nam's
rubber industry, once the major source of foreign exchange. Many planatations,
all concentrated in the south of the country, were destroyed (about 40,000 ha)
and processing plants damaged while others were abandoned, and for many years
replanting efforts were almost paralyzed. Following the return of peace and
the nationalization of foreign estates in 1975, the Government initiated a
rehabilitation program; rubber production recovered rapidly and 1976 output was
estimated at 30,000 tons. In addition, replanting of the areas which had been
uprooted on each side of the roads during the war has been undertaken. With
the gradual reorganization of the rubber industry, a better supply of inputs
and the resettlement of displaced persons in the rubber estates, rubber produc-
tion can expand rapidly during the next few years.
2.27      The total area under tea is about 40,000 ha, and (according to the
Ministry of Agriculture) annual production is about 15,000 tons (dried tea).
Due to leaf rust (Hemileia) and stem borer, arabica coffee was almost abandoned
and has been replaced by robusta coffee and chari coffee which are resistant
to both parasites. Production is of the order of 5,000-6,000 tons per
year.
2.28      The area planted to fruit trees is increasing steadily.  In 197  it
was estimated at 130,000 ha, of which 55,000 ha are planted to bananas and
25,000 ha to pineapples, but citrus fruits are also important. Fruit is mainly
grown for export for which the prospects are promising.
2.29      Sugarcane is grown on about 25,000 ha with an annual production at
about 75,000 tons; 35,000 tons come from seven large or medium-sized sugar fac-
tories, now working at about 50% capacity, and 40,000 tons from some 1,300 small
village plants. Due to the lack of foreign exchange, imports were limited to



- 12 -
70,300-100,000 tons in 1976, so that sugar consumption is now only 3.7 kg per
capita per year. Production needs to be increased to meet the population's
requirements, estimated at 7-8 kg per capita p.a., or twice the present
supply. Large areas in the country are suitable for sugarcane cultivation
once irrigation facilities are developed.
2.30      The area under jute is estimated at 15,000 ha and annual output at
about 40,000 tons. There is only one factory, with a capacity of 3,000 tons
p.a., producing jute bags, the balance being produced by small village
shops. Because of heavy parasite attacks, cotton production hae nt been
su[ccessful so far. There are plans to expand production under irrigated
conditions.
2.31      Estimates of the animal population of Viet Nam are given in the
table below. Most farmers and cooperatives raise buffaloes as draft animals
for ploughing and cattle are used for farm transportation. Many buffaloes and
cattle were killed during the war and shortages of draft power are reported
in some districts of the country. Most farmers have 1 or 2 pigs and a dozen
or so poultry. In addition, a few state farms aDd some cooperatives are
involved in pig breeding and fattening operations<
Animal Population
(Millions)
1976          1977
(Actual)    (Planned)
Pigs                              9.3          10.8
Buffaloes                         2.23          2.34
Cattle                            1.52          1.61
Poultry                          88.50        104.40
Sources: 1977 State Plan and State Bank.
2_32      Taking into account the existing animal stocks and on the basis of
a conservative estimate of cull rates and average carcass weights, meat
production is tentatively estimated at 310,000 tons, or an average meat con-
sumption of about 6 kg per capita p.a.



- 13 -
Estimates of Meat Production
lumber          Cull rate      Unit weight       Production
(million head)         (X)         (carcass kg)         (tons)
Cattle                 1.5                 10             100             1.5,000
Buffaloes              2.2                  8             150             26,400
Pigs                   9.3                 60              40            223,200
Poultry               88.5                100             0.5             44,250
Total                                                                   308,850
2.33      Animal feed availability is one of the main constraints on livestock
development. Cattle and buffaloes normally graze on common land. including
road sides and field dykes in rice growing areas. They are also fed stems
after the harvest and rice straw at the end of the dry season. Hogs and
poultry are mainly fed on rice bran and, to a lesser extent, maize. Another
constraint is the veterinary services available; a number of diseaseL are
still causing substantial losses and calf and piglet mortality is repc--ed
to be high.
New Economic Zones
2.34      The most important development concerning the agricultural sector
is the Government's decision to create "New Economic Zones" (NEZs). These are
settlement schemes whose main objectives are to resettle and provide work for
some of the 7-8 million persons displaced during the war, and to rest:ore and
develop the agricultural production of the regions devastated by the war. The
majority of the settlers are to come from Ho Chi Minh City where the population
had increased to more than 4 million by 1975. The living conditions of the
displaced persons were precarious since neither the urban structures nor the
employment opportunities were such as to make it possible to absorb that
number in the city itself. In 1975, the number of unemployed in the south
was estimated at 3 million, half of whom were in Ho Chi Minh City.
2.35      Resettlement committees set up in Ho Chi Minh City and other main
towns are responsible for providing information and compiling lists of those
interested in moving to the zones. The General Department for NEZs, includ-
ing among others representatives of the Ministries of Agriculture and of
Water Conservancy, is responsible for the selection and demarcation of the
areas, on the basis of detailed soil maps and of hydrological studies. The
zones are large enough (about 5,000 ha) to permit the establishment of viable
economic units which in future will use irrigation and mechanization. The
zones will be one of the means to develop collective farming in the south,
through the establishment of state farms (especially for tree crops) and of
mutual aid groups and cooperatives for food crops.



- 14 -
2.36      According to the Government's plan, each zone will consist of several
villages, usually built along the roads, each for about 1,000 families, or
5,000 persons. Before the arrival of the settlers, clearing of the land, con-
struction of access roads, demarcation of plots, digging of wells and construc-
tion on each lot of a temporary simple thatched house, will be undertaken by
teams of volunteers, skilled workers and soldiers.
2.37      While the greater part of the land will be cultivated on a communal
basis, each family will receive one lot of 1,000 sq m, comprising 250 sq m for
the house and living space, 250 sq m for a vegetable garden and 500 sq m for
an orchard and planting food crops. In addition, a number of hand tools,
medicines and free food (a ration of about 16 kg per person per month) will
be provided to each family. The free distribution of food is planned in
principle for six months, or until the first crop is harvested. During the
initial period, the settlers will complete the construction of the family
house and participate in the construction of community buildings, including a
dispensary, a school, a storehouse with rice supplies for one month, a market
place and bus station. At the zone's center additional social infrastructure,
such as a hospital, is planned.
2.38      Administrative services for the settlers will be provided by a
village committee consisting of five persons, appointed by the Government,
responsible for resettlement and day-to-day administration until the settlers
are able to take over. Technical support will be provided by the Ministry of
Agriculture and training courses for farmers will be organized.
2.39      In 1976, 1.4 million people were resettled, of whom 1 million
returned to their home villages and 400,000 settled on some 235,000 ha
reclaimed during the year. About 50% of the resettled persons came from
Ho Chi Minh City, the population of which is now estimated at 3.4 million. In
1977, the Government plans to resettle about 1 million persons from Ho Chi Minh
City, most of them within easy reach of the metropolitan area.
Forestry
2.40      Viet Nam's forests represent one of the country's major natural
resources with about 5 million ha being used for forestry operations at
present.  The total area under forest and bush cover is 21 million ha, of
which 10 million ha are in the south (50% of the total area) and 11 million in
the north (about 70% of its total area); about 2 million ha were destroyed
during the war. Forests are essential for soil and water conservation and are
also a source of building materials, a large number of secondary products
(lacquer, tanning, resins, etc.), and, potentially, industrial products that
so far have largely been imported (paper in particular).
2.41      Of the 5 million ha of forest land in the south, about 4.3 million
ha is deciduous dry forest, 0.12 coniferous and 0.6 mangroves. The mangrove
areas in the river estuaries are used principally for making charcoal and
tanin barks, while the hinterland mangroves can be used for piles.



- 15 -
2.42      The Ministry of Forestry estimated timber extraction at 1.6 mil-
lion cu m in 1976. In the absence of any accurate national forest inventory
it is difficult to estimate forest potential; however, logging operat:ions in
large areas of dense forest would generally yield less than 30 cu m of market-
able timber per ha. In the pine forests, timber production would be about
50 cu m per ha. In the north, wood exports are mainly in the form of handicrafts,
including furniture, and in the south, largely in the form of timber (16 mil-
lion cu m in 1974); however, in 1975/76 all output was used locally for the
reconstruction program. Building materials for the reconstruction oE houses
and the repair of infrastructure (bridges and railroads) were badly needed, at
a time when logging operations were hampered by the lack of equipment and the
shortage of spare parts and fuel.
2.43      There are few modern forest industries.  Some 300-400 brickkilns
produce charcoal in the mangrove areas and there are a number of furniture
manufacturing centers, especially in Ho Chi Minh City. A 50,000 ton p.a.
capacity pulp and paper factory is under construction in the north at Bai Bang,
with financial and technical assistance from Sweden. The factory, whose total
cost is estimated at $160 million, will use bamboos and hardwoods as raw
materials; when in operation it will help meet part of Viet Nam's paper require-
ments, estimated at 5 kg per capita p.a.
Fisheries
2.44      Fish is, after rice, the most important staple food in Viet Nam and
the estimated annual production of 800,000 tons makes a substantial contribu-
tion to the country's food economy and especially to its animal protein supply.
Sea fishing of some 50 species is carried out by about 250,000 fishermen. There
are about 90,000 fishing boats, of which 60,000 are motorized. The mechaniza-
tion of small fishing boats has gained considerable impetus, especially in the
south. Many fishermen lost their boats, nets and fishing gear during the war
and about 20,000 boats are inoperative because of lack of spare part:s and fuel.
Small wooden-hulled boats predominate but the fishing fleet include<; some
trawlers; in the north sailing junks are most commonly used, which limits
fishing to some 20-30 km offshore. Fishing trips for small boats last about
1-3 days but for bigger, motorized boats range from 5-10 days.
2.45      The total catch of sea fish amounted to about 620,000 tons in
1976. The greater potential is in the south of the country, where the South
China Sea coast, the mouth of the Mekong River and the Gulf of Thailand are
the main fishing areas. Viet Nam has few fishing ports with adequal:e shore
facilities; landing places are widely scattered and fish collection centers
are far from the two main points of consumption, Ho Chi Minh City and Hanoi.
The main fishing centers are Haiphong and Guang Ninh in the north and Thuan
Hai, Kien Giang, Minh Hai, quang Nam-Da Nang, and Phu Khanh in the south.
2.46        In the north, some fishermen are grouped into about 350 coopera-
tives, each operating about 20 boats with 100-150 fishermen; a few state
enterprises operate trawlers. In the south, individuals or small companies
own the majority of fishing boats. It is estimated that 10% of total produc-
tion is caught by the state enterprises and 90% by cooperatives and private
fisher cn. Of the total output, 40% is for direct human consumptiona, 30% for



- 16 -
processing and fishmeal, and 30% for exports, mainly frozen shrimp and fish
fillets. Freezing plants and processing facilities are limited and the total
freezing capacity is only about 250 tons a day; a number of freezing plants
are idle because of lack of spare parts, and many of them need modernization.
2.47      About 100,000 fishermen and fish farmers are engaged in inland
fisheries whose production is estimated at 170,000 tons per year.  The princi-
pal fresh and brackish water fisheries are located on the plains of the
Mekong and Bassac Rivers.  Fish farming is widely practiced, the main species
being carp, catfish (Pangasius), snakehead (Ophiocepahlus) and tilapias.  The
average yield is 2-3 tons per ha p.a.
Industry
2.48      Viet Nam has already developed a substantial industrial sector and
despite the long period of partition, industrial structures in the northern
and southern regions of the country are, to some extent, complementary, owing
to differences in resource endowment.
2.49      During the colonial period some very selective attempts were
made at industrialization, particularly in the north near Hanoi and Haiphong,
but these did not make systematic use of the country's resources. The indus-
tries concerned were: textiles and apparel (Hanoi, Nam Dinh), transportation
equipment, i.e. shipbuilding and railway repair facilities (Haiphong and
Hanoi), nonmetallic mineral products (cement, glassware, ceramics at Hanoi),
and paper (Viet Tri). Few of these installations survived the first period
of warfare (1942-54) intact.
2.50      After partition the remaining industrial establishments in the
North were transferred into state ownership and management, a process which
was essentially completed by 1960. Subsequent industrialization efforts
emphasized capital goods (or Group A) industries.
North Viet Nam: Industrial Investments, by Major Segments
1955-57 - 1969-71 (1955-57 = 100)
Total      Group A (Capital goods)    Group B (Consumer goods)
index       Index   Share in total        Index   Share in total
1955-57         100          100         66               100          34
1958-60         316          321         67               306          33
1961-64         589          700         78               378          22
1965--68        554          684         82               303          18
1969-71         689          800          76              474          24



- 17 -
North Viet Nam:  Value of Industrial Production, by Major Segments, 1955-70
(Selected Years, 1960 = 100)
Total industry         Group A        Group B
1955         21                   16            23
1960        100                  100            100
1965        189                 242            163
1970        201                  249            176
2.51      During this period, the share of modern industry rose from 20%
to almost 75%, and that of the handicraft segment dropped correspondingly.
Important new industries included an iron and steel complex at Thai Nguyen., a
chemical plant at Viet Tri, and machinery plants and textile factories in
Hanoi, which developed into the main industrial center in the North. The old
industries were also rehabilitated, expanded and diversified, making betteer
use of domestic raw materials, increasing in particular the amounts of coal,
iron, chromite, and phosphate (apatite) being mined.
2.52      A peculiar feature of industrialization was the parallel development
of "central' and "regional" industries. The first group is of national
importance and is therefore managed directly by the relevant ministries (e.g.
of Heavy Industries, Light Industries, Machinery and Metallurgy, etc.) while
regional industries are managed by the provincial governments. Regional
industries are usually smaller and more labor intensive with handicraft shops
constituting a significant share of their output.
2.53      The war slowed industrial growth from 1965-70, and its resumption
in the North in 1972 led again to a setback in industrial production. During
this period, most industries /1 were evacuated from city areas and dispersed
throughout the countryside. Expansion of industrial output resumed in 19173
and by 1975 manufacturing output exceeded the 1965 level.
2.54      Industrial development in the southern part of the country was
comparatively slow during the first decade following partition mainly because
of the uncertain political situation and the lack of minerals and energy
sources. The industries established were mainly in the branches of food
processing, pulp and paper, nonmetallic mineral products, and textiles,
although some plants were assembling motorscooters, radios, sewing machines
and batteries. Most industrial establishments were located in the Ho Chi
Minh City area, with Danang being developed as a secondary center.
/1 The exceptions were iron/steel and cement production where such relocation
was obviously impracticable, and mining, where it was -iTrpssible.



- 18 -
2.55      The next ten years 1964-75 saw a considerable expansion and diversi-
fication of the southern industrial base, with industrial activity peaking in
1971 and declining thereafter till the end of the war. Between 1967 and
mid-1973, a total of 50 major industrial projects was initiated, extending
beyond the traditional light industry branches, but it is not known to what
extent these projects have been executed or their scope and content changed.
Industry remained concentrated in the Ho Chi Minh City area, despite the
designation of new industrial locations, which accounts for the minimal war
damage sustained by factories in the southern part of the country.
2.56      At the end of the war, industries in the southern and northern
parts of the country faced different sets of difficulties: in the south,
wartime destruction had not been very extensive but the supply of imported raw
materials and spare parts for many factories was disrupted. Some industries
that could use local materials (e.g., food processing) were able to resume
operations quickly, but even they faced temporary supply problems because the
logistics of producing and delivering raw materials had not yet been solved.
T'he heterogeneity of equipment, brought about by the previous policy of
buying the most up-to-date installations from different producer countries,
complicated the task of adequate maintenance, repair and replacement. These
problems have not yet been overcome and have caused average utilization of
industrial capacities to remain low, at around 50%.
2.57      The situation in the north was somewhat different.  Following the
end of the air war in 1973, industry had undergone a period of intensive
reconstruction which was essentially completed by the end of 1975, with the
important exceptions of the Gia Lam (Hanoi) railroad workshops, the Bach Dang
(Haiphong) shipyard, the Viet Tri chemical combine, the Haiphong cement plant
and the Nam Dinh textile mill, all large, capital-intensive installations.
Nonetheless, the authorities perceived a number of serious problems, perhaps
the most serious being the unsatisfactory levels of production and a deterior-
ation in the quality of output. Underutilization of capacity was also reported,
although for somewhat different reasons than in the south. The most prominent
example was the construction industry, where on average only 50-60% of the
9,000 or so items of equipment were in use for about 40-50% of the possible
machine time (resulting in an overall use factor of less than 30%). The
reasons for this shortfall, which had serious repercussions for other branches
of the economy, were manyfold: the prevalence of old equipment meant a higher
frequency of breakdowns, a problem that was often compounded by inadequate
protection of equipment against the weather and insufficiency of maintenance
tools and materials. On a more general level, the lack of adequate standards
and guidelines on equipment use and imbalances in the input mix (e.g. manual
and mechanized steps in the production process) also militated against better
utilization of existing equipment.
2.58      On balance, however, the longer term potential of the country's
industrial sector appears to be considerable: there is a diversified resource
base, the existence of a small network of modern and efficient plants and the
availability of a large pool of competent industrial workers.



- 19 -
2.59      For the immediate and medium-term future, the Government's development
objectives for industry are as follows: in the north,
(a) the continued reconstruction and modernization of establishments;
(b) an accelerated exploitation of domestic raw materials;
(c) a dovetailing of industrial capacities with those in southern
Viet Nam.
For the south, the following objectives have been set:
(a) development of regional industries with a high degree of autolnomy in
the rural areas, in particular in the New Economic Zones;
(b)  substitution of domestic for foreign raw materials and the
development of a domestic capability to supply spare parts andl
accessories for the existing machinery (in the north about half of
the industrial machinery and equipment is of domestic origin);
(c) better integration of successive stages of production;
(d) reorientation of production lines towards the needs of the
production sectors, in particular agriculture, and restriction of
consumer goods production to essentials;
(e)  development of new markets for Vietnamese products in foreigr
countries.
Transport
2.60      The present transport pattern has been shaped by the country's
topography as well as by its recent history. Its narrow and elongated shape
has limited all north-south traffic to a narrow coastal corridor and the
sea-lanes.  The existence of two large deltas has, however, made it possible
for most of the population to be reached through a network of navigable inland
waterways.  Only in recent times has highway traffic become an importanat
alternative transport mode in the lowland areas.
2.61      Railroads.  The country has about 2,500 km of railroads; of these,
about 1,400 km are in the northern part of the country and 1,100 km in the south./1
The network presently consists of the following lines:
/1  i.e., the southern portion of the Trans-Viet Nam line from Hanoi to Ho
Chi Minh City. The other lines (mainly spurs such as the Dalat-Phan Rang
connection) have not yet resumed operation.



- 20 -
Hanoi - Ho Chi Minh City (1,730 km NG /1)
Hanoi - Lao Cai (300 km NG)
Hanoi - Dong Dang (170 km SG /1)
Hanoi - Thai Nguyen-Kep (170 km S)G
Hanoi - Hiaiphong (105 km NG/SG)
2.62      Owing to the high vulnerability of railroads to aerial attacks and
acts of sabotage, wartime destruction was extensive. More than 400 bridges
were destroyed, including over 50 major ones (i.e. with a length of 100 m
or more). Similarly, most stations, warehouses, railyards and other facilities
in the northern part of the country were either completely destroyed or made
inoperable, and losses in locomotives, rolling stock and equipment were also
considerable. The second effect of the war on the railroad system was indirect;
since it interrupted the normal process of maintenance and modernization, much
of the tractive and rolling stock is out of date and tracks and roadbed are
often inadequate.
2.63      The third major handicap of the railroads is the mix of standard
(1,435 mm) and narrow (1,000 mm) gauges, requiring duplication of locomotives
and rolling stock and reloading for southbound freight originating at points
beyond Hanoi.
2.64      The Government is addressing these problems through a comprehensive
program under which they are phased according to their urgency. The first
reconstruction effort reopened most of the country's railway lines and finally,
in 1976, effected repair and operation of the entire length of the Trans-Viet
Nam railroad for the first time in nearly 40 years. Since much of the repair
work, particularly on bridges, had to be done in a provisional manner, the next
stage will be the successive improvement of tracks (replacing the light 24 kg/m
rails presently in use in many places, strengthening the roadbeds, etc.) to
permit loads beyond the present level of 13 tons and higher train speeds than
the present average of 30 km/hr and thus to increase line capacity. This would
be accompanied by a modernization of tractive and rolling stock and of equipment.
Finally, in a process extending well into the 1980s, the system will gradually
be changed to standard gauge.
2.65      Over the longer run, the Government expects the railroad system to
resume its former prominent role. Its performance in 1976 - 6 million tons
(700 million ton/km) of freight and 30 million passengers (1,400 million
pass/km) - indicates its importance to long-distance transport of bulk
products (e.g. lumber, coal, minerals) and passenger traffic in the northern
part of the country. By 1985 the Government foresees a network of 3,000 km
and aL stock of over 500 locomotives, 1,200 passenger cars and 12,000 freight
cars which would imply at least a quintupling of the 1976 transport volume,
i.e. annual growth rates in the order of 20%.
2.66      Highways.  The war has brought about a major change in Viet Nam's
transportation system through the development of a sizeable network of high-
ways, which were the only viable alternative to the more vulnerable traditional
transport modes of railroads and waterways.
/1 NG = narrow gauge (1,000 mm), SG = standard gauge (1,435 mm).



- 21 -
2.7l    In the North the main emphasis was on the construction of secondary
roads, whereas in the South major arterial highways had precedence over local
roads. By the end of the war, the two networks totaled 45,000 km and 21,000 kmi,
respectively. Wlile the rpl ntive importance of the highways will diminish
with the rehabilitation and improvement of railroads and inland waterways,
they will still continue to encourage regional freight and passenger traffic,
contribute greatly to the establishment of the New Economic Zones, and play
an important role in the integration of the national economy once bottlenecks
in the central provinces have been removed.
2.68      Inland Waterways and Coastal Shippin&.  The existence of two large
deltas has historically favored waterbound traffic. The networks of inland
waterways encompass 6,000 km (Red River Delta) and 4,800 km (Mekong Delta) of
navigable rivers and canals. Since these waterways are subject to silting,
continuous maintenance work is essential. The destruction of dredging
equipment and the difficulties of carrying out adequate maintenance during
wartime led to a gradual deterioration of both systems until many segments
ceased to be navigable. Rehabilitation of the waterways is given high
priority since they carry not only an important share of the country's
traffic but also play a key role in drainage and irrigation.
2.69      Temporary silting and the destruction of vessels and port faLili-
ties are also affecting coastal and ocean shipping. The concentration sf
most shipping in the northern part of the country on one harbor (Haiphon_ is
severely overtaxing its facilities. The remaining ports of Hon Gai and Cam
Pha are mainly export stations for coal, whereas Vinh has to support local
industries and serve as the main transit port for Laos. However, Danang will
now take over some of the transit trade to Laos.
2.70      The Government gives top priority to the expansion of Haiphong harbor,
including the building of Chua Ve port and the expansion of Vat Cach port. The
use of additional lighters is also expected to help reduce turnover time at
Haiphong.
2.71      In the southern part of the country the situation is markedly better
since Ho Chi Minh City has adequate port facilities. Likewise the Dan;ng-Hue
industrial area is adequately served by the port of Danang, which following
dredging is now able to handle ships of up to 4,000 tons. Good port facilities
also exist at Cam Ranh, Nha Trang and Qui Nhon which all have direct highway
and railroad connections with Ho Chi Minh City and could serve as back-up
facilities for the city and as outlets for the central highlands provinces.
2.72      Air Traffic.  The southern provinces have a dense network of over
100 airfields, mostly former military installations, which seems far in
excess of likely future requirements. By the end of 1976 seven airports and
about 10,000 km of air corridors were in operation throughout the country and
five more airports were being prepared for regular use. The future role of
domestic air traffic would seem to be limited to a few specific tasks, e.g.
long-distance passenger traffic, mail service, or transport of products with
a high specific value.



- 22 -
2.73      The Government views the transport system as "a weak unbalanced
link in the national economy ... still unable to properly satisfy the needs
of production and construction and the people's traveling needs."/l It
emphasizes the need "to rearrange the transportation networks to suit the
needs of economic construction;"/2 specifically mentioned are the needs to
develop north-south traffic and transport between the coastal areas and
the highlands. The Government's concept of a balanced transportation system
implies the optimum utilization - through upgrading and complementary invest-
ment in facilities, vehicles and equipment - of the existing transport infra-
structure.
2.74      One major factor that could affect the eventual structure of Viet
Nam's transport system (as of its energy sector, its industry and indeed its
entire economy) is the possible discovery of oil and natural gas deposits both
on land and offshore. Major finds would certainly open up new perspectives
for the country's transport system. This would strengthen the rationale for
developing a coordinated system as the basis for present investment decisions
in the transport sector.
Power
2.75      The country has two electricity generating and distribution systems:
one covering the northern part of the country, and the other serving 14 southern
provinces and Ho Chi Minh City.13 Together they produced about 3 billion kWh
in 1976.
2.76      The two systems, separated by a gap of several hundred kilometers,
reflect the available energy potential in the two regions, and their differences
in industrial location and in function. In the northern part of the country,
ample coal deposits and hydroelectric potential in numerous locations allowed
the development of a mix of small hydroelectric schemes (more than 60 in
1964) that also serve as water conservation facilities and a few large thermal
plants near the coal fields and major cities. In 1971 a large hydroelectric
planit at Thac Ba was added to the grid. The system is able to serve rural as
well as industrial areas and in particular provides power for irrigation and
drainage.
2.77      Bombardments during the war required the dispersion of generat-
ing facilities and numerous small diesel generating units were established in
rural areas. It was thus possible to keep electricity output in 1968 at about
65% of the 1964 level, and at more than 90% in 1972 during the second phase of
the air war.
2.78      In the southern part of the country, the absence of fuels (except
for one small coal field in the Danang area and some deposits of peat of low
/1  Guidelines, tasks and goals of the 1977 State Plan.
/2 ibid.
/3 There is also a small isolated grid in the Danang-Hue area.



- 23 -
calorific value) and the.orientation of electricity consumptiou tow~ia4:i iWidij3l
trial and domestic usage led to a concentration of electricity production and
consumption in the Ho Chi Minh City area.  In 1973, 80X of the available
capacit- and almost 90% of actual generation was in the metropolitan area.
The bulk was provided by the Thu Duc steam plant which accounted for 55% of
total generation (installed capacity - 165 MW). This plant was supplemented
by another medium-sized steam plant (33 MW), four gas turbine units (62 MW)
and numerous diesel units (224 MW total). Total installed capacity in the
provinces was 130 MW but owing to the absence of an adequate transmission and
distribution system, these plants only served local needs./1
2.79      The one major exception to the concentration of capacity in Ho Chi
Minh City was the Da Nhim hydroelectric plant near Dalat, with an installed
capacity of 160 MW. However, due to the destruction of the 230 KV transmis-
sion line that connected Da Nhim with the metropolitan area 250 km away, the
Da Nhim capacity remained unused for most of the war.
2.80      The 1973 patterns of electricity consumption in the south showed a
prevalence of domestic usage (60% in Ho Chi Minh City, 82% in the provinces).
Industrial usage had some importance in the city (34%) but was insignificant
(6%) in the countryside. By 1976, this pattern had already undergone signifi-
cant changes, with industrial users accounting for 50% of consumption, and
households for only 35%. Agriculture has always been an insignificant user,
owing to the absence of adequate distribution lines.
2.81      The power sector is faced with the short run task of reconstructing
and rehabilitating plants that were destroyed or damaged by the war; this
includes finding an alternative economical use for the numerous diesel units
that served as back-up capacity during the war. There are a number of expan-
sion projects that will add considerably to the country's generating capacity,
such as the expansion of the Uong Bi thermal plant near Haiphong and the
second phase of Da Nhim which would increase that plant's capacity by 140 MWe
At the same time, additional investment in distribution lines will be required
to permit agriculture to absorb a greater share of national electricity
production - planned to be about 650 million kWh or 13% of total output by
1980, of which 150 million kWh (7-8% of the regional output) will be in the
south.
2.82      In the longer run there is still considerable scope for increasing
the use of the country's hydroelectric resources. One major project alone, a
plant on the Da River presently in the planning stage, would contribute
2.75 billion kWh to the annual output. The building of additional medium and
small hydro plants would simultaneously strengthen water control, and support
the mechanization of agriculture and the development of local industries.
/1 At the end of 1973, the southern distribution network comprised about
180 km of 66 KV lines, 1,900 km of 15-66 KV lines and 2,000 km of
220/380 V and 110/220 V lines. This compares to a network of more than
3,000 km of 35, 10 and 6 KV lines in the northern part of the coiuntry.



- 24 -
2.83      In the more distant future lies the task of integrating and
standardizing the country's power generation and transmission network. This
applies not only to the linking of the two regional systems, with their
different calibration of transmission and distribution lines, but also to a
greater degree of standardization within each region where the setting up of a
local distribution system has sometimes resulted from local initiatives with
insufficient regard to compatibility with other systems.
SERVICE SECTORS
Education and Human Resources
2.84      Education in Viet Nam is given a central role in reshaping the
population's political and social attitudes and in fulfilling a supporting
function in the industrialization process. It is in keeping with these broad
objectives that the Government conceives of education as a permanent process
starting in early infancy and continuing in various forms throughout an indivi-
dual's life.
2.85      Education in the narrower sense of in-school instruction is essen-
tially the responsibility of two ministries: the Ministry of Education for
all general education up to senior secondary level (grades 11 or 12), and
the Ministry of Higher Education and Vocational Middle Schools for specialized
education including vocational, secondary and higher education.
2.86      At the base of the education system are creches and nursery schools
for infants aged two months to three years whose mothers are working; these
institutions are usually supported by a local cooperative or factory. The
next level, kindergartens, for 3-5 year old children, presently comprises
about 700,000 children and 23,000 teachers, and is more developed in the
north (500,000 children and 20,000 teachers) than in the south. Geographic
coverage is still very uneven, with provincial enrollment rates averaging
30-70% in the north. The Government plans eventually to extend kindergarten
education to all children in this age group, to give them pre-primary schooling
and enable their mothers to join the labor force.
2.87      Primary education extends over five years (ages six through ten),
including one preparatory year. In 1976 the system consisted of 11,506
(6,708)/1 schools with 7,875,000 (4,273,000) pupils and 211,000 (129,000)
teachers. Enrollment figures were probably /2 slightly larger than the size
of the relevant age group which may be explained by the presence of overage
pupils in the school system. Primary school teachers are trained through
-dcyear courses (grades 11-12)/3 in provincial schools following graduation
from senior secondary schools. Their salaries are said to be equivalent to
those of skilled workers in industry.
/1 Figures in brackets refer to subtotals for northern Viet Nam.
/2 Detailed data on the composition of the population by age are unavailable.
/3 The grade numbering system excludes the preparatory year preceding grade 1.



- 25 -
2.88      Junior secondary education lasts three years in the north (grades 5-7)
and four years (grades 5-8) in the south; in 1978 the four-year cycle is to be
introduced in the entire country. The system comprises 6,285 (5,047) schools
with 2,662,000 (1,935,000) pupils and 88,900 (70,100) teachers. This corres-
ponds to an enrollment rate in the order of 60-70%. In the northern part of
the country the transition rate from primary to junior secondary education Ln
1976 approached 100%, so universal junior secondary enrollment for that part of
the country could be achieved by 1980. Government plans for the expansion of
this educational level focus on the south, so that by the end of the present
Five-Year Plan, every village is to have a junior secondary school whose intake
should approach 100% of primary school leavers. Teachers are trained in the
same institutions as primary school teachers but by a three-year course; salary
levels only differ slightly between the two groups.
2.89      Senior secondary education lasts three years (grades 8-10 in the
north and 9-11 in the south). In 1976 the system consisted of 671 (429) schools
with 532,000 (353,000) pupils and 23,700 (17,300) teachers. Enrollments
correspond to 15-20% of the relevant age group. For the northern provinces,
transition from junior to senior secondary schools, regulated by an entrance
exam, averaged 30% in 1976, with considerable interprovincial differences.
Government plans for this educational level appear to concentrate on the
reduction of enrollment differentials between northern and southern Viet Nam,
and between urban and rural areas, rather than on its general expansion. Senior
secondary teachers are trained in specialized university-level institutions.
Their pay scales are comparable to those for other professional and technical
workers.
2.90      Except for the supervision of exams, all aspects related to the
establishment and operation of senior secondary schools are directly controlled
by the Ministry of Education, whereas the administration of the lower
levels of education is delegated to subsidiary government levels (provinces,
districts or community-level institutions, depending on the school level and
the specific administrative task).
2.91      Apart from general education through senior secondary level, the
Ministry of Education is also in charge of a variety of adult formal and
nonformal education schemes. The principal aim of adult education is to
make everybody literate, and once this has been achieved to provide continuous
instruction in areas related to the Government's broad political and social
objectives.
2.92      Since the end of the war almost 750,000 people (600,000 of them in
the south) have participated in literacy training and related activities,/1
The number of illiterate people in the south is estimated at 1.6 million
people, or about 7% of the population.
/1 The Ministry has estimated that two hours daily of literacy training, will
be sufficient to make an adult literate within six months.



26 -
2.93      Adult education also includes more specific programs that focus on
an individual's economic and occupational role, rather than on his political or
social obligations. These courses are flexible and take the form of afternoon/
evening classes or of day-release or block-release courses. Presently the
system reaches about 940,000 adults, almost 50,000 of them full-time students
who are mostiy from peasant and worker families; they follow courses comparable
to those in vocational middle schools, which offers them an opportunity for a
more demanding occupation or qualifies them for higher education.
2.94      Vocational middle schools train skilled workers in two or three-year
courses, depending on the previous education of the students. Recruitment is
from three sources: junior secondary school graduates, senior secondary
school graduates who fail to qualify for higher education, and adults with
employment experience. The system consists of more than 200 schools with
78,000 students and 7,000 instructors. While the Ministry of Higher Education
and Vocational Middle Schools is responsible for educational matters in the
entire system, only two schools are under its direct management, the remainder
being managed by other ministries (e.g. Ministry of Agriculture, Health,
Transport, etc.) or by provincial governments.
2.95      Higher education programs usually last four or five years.  Most
institutions - with the exception of three comprehensive, three polytechnical
and three preparatory (one-year) universities - are highly specialized, such
as universities of civil engineering and architecture, of foreign languages,
of economic management, etc. Only 14 of the 47 higher education institutions
(with 35,000 out of 89,000 students) are directly administered by the Ministry
of H1igher Education and Vocational Middle Schools; the rest are affiliated
withl other ministries but in educational matters are still supervised by the
Ministry of Higher Education and Vocational Middle Schools.
HeaLth and Family Planning
2.96      Viet Nam's health care system has an impressive record both in
comparison to the preindependence situation and in relation to other countries
in the region./1 In 1939, the country's health situation was reflected in a
crude death rate of 26 per thousand, an infant mortality rate of 300-400 per
thousand, and a maternal mortality rate of 20 per thousand. By 1975, these
figures had been lowered to 6.3, 26.4 and 0.6 per thousand, respectively,
substantially below the levels of ten wealthier neighboring countries.
2.97      Four diseases - malaria, tuberculosis, leprosy and trachoma - had
been endemic in colonial times, and the government concentrated its efforts
on their containment and eventual eradication. It succeeded in reducing the
incidence of malaria from 6% of the population in 1958 to 0.3% in 1964, the
tuberculosis mortality rate from 4.5-5 per thousand to 0.3 per thousand, the
number of leprosy cases from 2.1 per thousand to 0.8 per thousand, and trachoma
incidence from an average of about 65% to a range of 10-40% between low and
high incidence provinces.
/1 The description of the health care system and its performance refers
mainly to the northern provinces. There is little information about the
situation in the southern provinces, although health services there are
now being developed to follow the pattern established in the north.



- 27 -
2.98      These successes were achieved by a health system that emphasized
disease prevention and that provided for a division of labor among its various
levels. At its base is a large network of primary health workers: first a
force of "family health agents," family members in charge of basic healtln
tasks such as maintaining sanitation standards, providing first aid, dispensing
standard medicines from the family medicine chest, etc.; second, health posts
are provided in cooperatives, factories and other work places staffed by one
or two workers with one year's nursing training, supplemented later by half a
year of refresher and upgrading courses.  These nurses give first aid, treat
minor ailments and provide health advice for their fellow workers. This
informal network is supported by a four-tiered institutionalized health care
system starting from an individual village, increasing in complexity at the
district and provincial levels and culminating in highly specialized national
institutions.
2.99      At the village level a network of health centers, at least one per
community, is responsible for the basic health needs of the population:
general health instruction, supervision of hygiene measures, participation in
immunization programs and disease eradication efforts, maternal and child
health care including family planning, first aid and short-term hospita:L
care, drug distribution and guidance for primary health workers. Each center
has a staff of 5-10 including one assistant physician, one practitioner of
traditional medicine, and several nurses and midwives. It has about 10 beds
for short-term in-patient treatment and maternity care, and a small pharmacy.
2.100     At the next administrative level, the district, there are medium-sized
hospitals (with about 100 or 200 beds, depending on the population density),
each with four standard in-patient stations (general medical, surgical, pediatric
and gynecological/obstetrical), ancillary services (laboratories, x-ray facili-
ties, etc.) and one out-patient department with a somewhat greater degree of
specialization than the in-patient service. The staff of about 100 includes
about 20 professionals, 40 nurses and midwives, and 40 nonmedical staff (for
the larger hospitals, the total number roughly doubles, but the professional
complement becomes relatively larger, and the nonmedical staff smaller). The
health care network at the district level is complemented by specialized
dispensaries for certain diseases as well as for family planning, hygiene and
epidemiological stations, and a district pharmacy.
2.101     The size and degree of specialization of medical facilities increase
further at the provincial level, but no essentially different services are
added to the system. At the top of the health care pyramid are the national
institutions: central hospitals, specialized clinics, research institutes,
medical schools, and drug development and production facilities.
2.102     Each level serves as a monitoring and training agent and as a referral
service for the level immediately below it. In practice this means that physicians,
pharmacologists and specialized medical technicians are trained and deployed
by the central health authorities, auxiliary physicians, nurses and midwives
by the provinces, and other village health personnel by the districts, whereas
the village health centers advise and support the primary health workers
outside the center.



- 28 -
2.103     In terms of administration and finance, one can distinguish two
subsystems:  the community-level health service   comprising the village health
centers and the outside primary health workers, which are the responsibility of
individual villages, cooperatives and factories - and above it, the state health
system operated by the Government.
2.104     In 1975 the community subsystem comprised 5,566 village health
centers with more than 50,000 employees (about 9,000 assistant physicians,
27,000 nurses, 8,000 midwives and 6,000 assistant pharmacists and traditional
medical practitioners. Beds in village health centers numbered 46,000, in
addition to the 58,000 hospital beds in the government subsystem which operated
338 district-level hospitals, 40 provincial and 19 central hospitals, and more
than 100 specialized institutions, which together employed a staff of 73,000
including almost 20,000 physicians and assistant physicians, and 17,000 nurses,
midwives and technicians. This amounted to a density and uniformity of coverage
of medical services not observed in any other developing country and probably
not matched by more than a few industrialized countries.
2.105     In the field of family planning, efforts aim at reducing the average
number of children per family to three and to lower the natural growth rate of
the population to 2.5% by 1980, down from the present level of 2.7-2.8%./1
Guidance and persuasion by the basic health workers, emphasizing the need
for and advantages of family planning and advocating late marriage, postponement
of the first and proper spacing of subsequent pregnancies, appear to play a central
role in the family planning activities. This grass-roots work is supplemented
by professional medical advice and the distribution of contraceptives at the
village health centers, with the guidance and logistical support of the district
health agencies.
2.106     Despite these considerable achievements, the health care system was
facing a difficult task at the end of the war: in the northern provinces,
war damages had to be repaired, and equipment and supplies modernized and
replenished. Owing to the disruption of some preventive health activities
during the war and to large-scale population movements, some diseases (e.g.
malaria) that had almost been eradicated were temporarily increasing.
To reverse this trend and to continue the long-term eradication programs was
a priority assignment for the health authorities.
2.107     In the southern provinces the problems were of a different order of
magnitude altogether: the incidence of the most common diseases (malaria,
tuberculosis, leprosy, trachoma) was much higher to start with, and had
increased during the war. In addition, immunization against such diseases
as smallpox, diptheria or tetanus had been neglected, and the wartime condi-
tions had facilitated the spread of venereal diseases. The programs against
malaria and tuberculosis and the control of venereal diseases are now considered
the most urgent tasks.
/1 The current estimate for the northern provinces is 2.5% p.a., and for
the south, about 3% p.a. The latter figure is unsubstantiated.



- 29 -
2.108     Equally important, but realizable only in the longer run is the
expansion of the medical services into a network paralleling that established
in the northern provinces. At the end of the war, the south had only 2,500
physicians and about 25,000 hospital beds, with services concentrated in
urban areas. A priority of the Government was thus to provide the country-
side with an adequate basic health care system, and it began by establishing
150 district hospitals and 1,800 village health centers in the southern
provinces in 1976. By the end of 1977, a total of more than 10,000 hea'Lth
centers and hospitals with almost 180,000 beds is to be attained for the
entire country, most of the increase occurring in the southern provinces,
with the aim of creating, eventually, an integrated and comprehensive health
care system with uniform geographic coverage.



- 30 -
3. ECONOMIC PLANNING AND MANAGEMENT
3.01      Three elements of the Vietnamese economic system are fundamental
to the country's ideology: (a) public ownership of the means of production,
(b) an equitable distribution of national income among the population, and
(c) central economic planning as the basic management tool. Within the
framework of these basic elements, however, an extensive transformation of the
country's economic system is clearly under way. This is true not only in the
south, where an economy hitherto mainly based on private enterprise is being
transformed into a socialist system, but also in the north, where the Govern-
ment recognizes the inadequacy of the existing system to serve the needs of
peacetime development and is in the process of implementing wide-ranging
reforms of economic planning, management and organization.
Management and Administrative Framework
3.02      The supreme governing organ in Viet Nam is the National Assembly
which comprises 492 deputies elected through universal suffrage for four-year
terms. The Assembly's broad powers include amendment of the constitution,
all legislative authority, adoption of the state plan and budget, all fiscal
authority, and election of the President and Vice President of the Republic.
The Assembly convenes twice a year for brief sessions and elects a Standing
Committee to carry out its responsibility when it is not in session. The
Assembly and its Standing Committee are assisted by a number of commissions
responsible for legislation, budget and planning, national minorities, cultural
and educational activities, public health and social welfare, and foreign
affairs.
3.03      The President of the Republic appoints members of the Council of
Ministers, the highest administrative body of the Government. The Council
comprises the Prime Minister, six Deputy Prime Ministers, heads of the 23
ministries and heads of various state organizations with ministerial rank. It
coordinates and directs the activities of the ministries and the various state
organizations at central government level, as well as activities of the adminis-
trative committees at local government level.
3.04      Each ministry is headed by a minister assisted by several vice
ministers. Responsibilities of the ministries are defined along narrow
functional lines; for example, there are about 14 economic ministries dealing
with subsectors such as grains and food products, marine products, forestry,
water conservation, light industries, machinery and metallurgy, electricity
and coal, and construction. The larger ministries tend to be fairly self-
sufficient with their own colleges, training institutions, and health, social
and cultural facilities for their staff. There are also a number of Commis-
sions under the Council of Ministers, including the State Planning Commission
headed by a Deputy Prime Minister, the State Bank headed by a Director General
with ministerial rank, the Central Agriculture Commission, and Commissions on
price, national minorities, science and technology and government inspectorate.



- 31 -
3.05      Directly under the Prime Minister's office are a number of general
departments; the more important of these, such as oil and natural gas, and
scientific and agricultural research, are headed by ministers while others,
including the geological and survey department, the census and statistical
office, and the physical culture and sports department, are headed by officials
below ministerial level. Committees under the Prime Minister's office are
also formed when necessary to supervise implementation of projects involving
different ministries; the most important of these, the Da River Hydroelectric
Project Committee, is currently headed by a minister.
3.06      The country is divided for local administrative purposes into
35 provinces and 3 municipalities that have the status of a province (Hanoi,
Haiphong and Ho Chi Minh City).  Each province is further divided into districts,
of which there are about 500 in the country, each with an average population of
about 100,000. At both the provincial and district levels, the highest governing
authority is a People's Council composed of elected representatives, but the
actual conduct of local government functions is the responsibility cf adminis-
trative committees appointed by the People's Council.
3.07      The central government, through the various ministries and general
departments, directly manages economic activities in sectors that require, for
technical and economic reasons, a high level of centralized and uniform manage-
ment. These currently include electric power, coal, railways, marirne transport,
ports, telegraphs and banking. Agencies of these sectors in the provinces
are under the direct supervision of a central ministry or department: and not
the provincial government.
3.08      Local administrative committees manage all economic activities closely
linked to the interests and life of the people - such as retail trade, food and
beverages, housing construction and activities supporting social and cultural
life - with only general supervision by the central government. Where sector-
wide management is also required, management is by specialized agencies estab-
lished by the local administrative committees but also supervised by the
ministry responsible for that sector. For example, in each province agricul-
tural activities are managed by a provincial agricultural committee that is in
turn supervised, especially on technical matters, by the Ministry of Agriculture
of the central government. This dual management system also applies to food
and light industries, construction, machinery, etc.
3.09      In recent years, as part of its effort to apply the princ:iple of
"democratic centralism," the Government has been strengthening the administra-
tive capability and increasing the planning and management responsibility of
local governments. Most of these efforts so far have been directed at the pro-
vincial level, but the longer-term objective is to make the district the basic
management and planning level of the country.
Economic Organization and Planning
3.10      Central planning of the economy began in northern Viet Nam almost
as soon as the country gained its independence. The State Planning Commission
was established in 1955 as the "agency of the Government for planning economic
and cultural construction and organizing and guiding statistical work and



- 32 -
accounting in the country." The first attempts at comprehensive planning
were 2 three-year plans (1955-57 and 1958-60) aimed mainly at reconstructing
the economy after the war of independence and at restructuring the economy along
socialist lines. Planning was gradually strengthened and broadened in scope
during this time, and the Government was able, in 1961, to launch its First
Five-Year Development Plan (1961-65) with the primary objective of "advancing
industrialization, giving priority to heavy industry, and completing socialist
reform." When the First Five-Year Plan was completed in 1965, the escalating
war caused the Government to abandon any further attempt at long-term planning,
which was not resumed until 1973 when peace was again achieved.
3.11      The war did not, however, interrupt the socialist transformation of
the northern economy and the process was largely completed by 1970. By then
the state and cooperative sectors each accounted for about 45% of the country's
GNP and the private sector for less than 10%. As shown in the table below, the
state sector, in which units of production were owned entirely by the state and
managed by public officials, had a monopoly of external trade and financial
services, and dominated industry and construction, while the cooperative sector
accounted for more than 90% of agriculture. The private sector remained signi-
ficant only in retail trade and, to a lesser extent, construction, transport
and handicrafts.
Northern Viet Nam: Distribution of Sectoral GNP by Type of Organization, 1971
(%)
State enterprises   Cooperatives   Private
Agriculture                       2                 94             4
Industry andhandicraft           64                 30             6
Construction                     68                 10            22
Goods transport                  55                 28            17
Internal trade                   33                 24            43
External trade                  100
Source: The Democratic Republic of Viet Nam, Foreign Language
Publishing House, 1975.
3.12      From 1965 to 1973, the protracted war and widespread destruction
allowed only very short-term planning. Comprehensive planning was largely
limited to the state sector where planning and management were highly central-
ized and hierarchical. The annual plan included a large number of targets,
mostly in physical terms, and covered all aspects of operations; it was legally
binding on the state enterprises, which as a consequence had little independence
or managerial responsibility.  The cooperatives, on the other hand, enjoyed
more flexibility in determining their production plan, although output targets
for the major crops such as rice were included in the annual plan.



- 33 -
3.13      Cooperatives are the preponderant organizational unit in the rural
sector: by the end of the 1960s, virtually the entire sector had been organized
into about 8,000 socialist cooperatives of about 150 ha each. In these
socialist cooperatives, the most advanced form of cooperative organization, all
lands are owned by the cooperative, except for 5% set aside as private plots
for the cooperative members, mainly for growing vegetables and fruit trees.
Each member's share of the cooperative's net annual output is determined
according to work points he accumulates during the year. Management is the
responsibility of an administrative committee elected from the cooperative
members each year. In its annual plan the Government, usually at the provincial
or district level, establishes the cooperative's target level of output for its
major products and the amount to be sold to the state at fixed prices. State
agencies also sign contracts with the cooperative to supply agricultural inputs
and to provide credits for the coming year. Within these broad limits, produc-
tion, consumption and investment decisions are the responsibilities of the
cooperative management.
3.14      Southern Viet Nam today is a mixed economy comprising five "elements":
(a) state enterprise; (b) state-private partnership managed by the state; (c)
cooperative; (d) private company or partnership; (e) private enterprise owned
by an individual. The relative importance of these five elements varies
according to sector and geographical area.
3.15      In industry, the Government has taken over the operations ot all
enterprises of the previous government, as well as of those whose owner.. nave
left the country. Where the majority of shareholders in an enterprise have
left the country the Government now manages these as partnerships with the
remaining stockholders. At the end of.1976, enterprises managed by the state
accounted for about 70% of total industrial production in that year. The
remaining enterprises operate under private ownership, but state inspectors
supervise the operations of the larger enterprises, particularly their financial
transactions. Some artisan and handicraft activities have also been organized
into cooperatives.
3.16      In agriculture, the Government has taken over the operation of some
large-scale plantations and a small number of cooperatives have been formed,
but the bulk of the sector still consists of individual farmers working small
plots. Fisheries are also dominated by private ownership, although some coop-
eratives have been formed.  Most transport vehicles (trucks, buses, passenger
cars, boats, ferries, etc.) are still privately owned, and most construction
and assembly work, and some design work, are undertaken by private contractors.
State enterprises have taken over a large proportion of wholesale tracle,
especially in food grains, fuels and other strategic materials, accounting for
40% of total merchandise trade in late 1976, but private companies and indivi-
duals continue to dominate retail trade, especially in the towns and cities.
The Government, on the other hand, manages all financial and banking :institu-
tions and has a monopoly of external trade.
3.17      The Government extended central planning to southern Viet Nam as soon
as political unification was achieved; both the Second Five-Year Development
Plan (1976-80) and the 1977 Annual Plan cover the entire country and represent
the first unified economic plans of Viet Nam. Planning in the southe:rn pro-
vinces is, however, being applied with a considerable degree of pragmatism and
flexibility, and its scope and method differ according to the nature of the
various economic sectors.



- 34 -
3.18      In the state-operated sector direct planning is employed as in
the north and each state enterprise is required to draw up an annual plan
covering all production, technical and financial aspects of its operations.
But these plans are less comprehensive than in the north, partly because
production conditions have not yet been stabilized, but also because many of
the southern enterprises are considered capable of the new type of independent
management being introduced in the north. Planning efforts in the industrial
sector are primarily devoted to maximizing the use of productive capacity and
controlling the use of imported raw materials. The output of these state
controlled enterprises is turned over to the Government, but since a large
private sector remains, state enterprises in the south have greater freedom to
subcontract production to private enterprises and to negotiate purchase of
materials from private suppliers.
3.19      The cooperative sector is still small and mainly limited to agricul-
ture and handicrafts. The role of the Government in this sector is primarily
to coordinate investment, particularly efforts at water conservation, and to
provide technical assistance and credits. Obligations of the cooperatives
under the economic plan consist of the sale of their produce to the state and
the payment of taxes.
3.20      Indirect planning methods are used in the private sector to induce
the enterprises to operate according to the Government's guidelines and plans.
Relations between the Government and private industry are mainly based on
business contracts governing the supply of materials and the purchase of
finished products. The total volume of materials to be supplied and products
to be purchased from a particular industry as stipulated in these contracts
and thereby constitute the economic plan for that industry. In agriculture,
planning in many areas of the south is based on reciprocal economic contracts
which allow farmers to purchase a given quantity of materials and consumer
goods from the Government in returi for a specific quantity of products sold
to the state, and by state-financed investments in water conservation measures,
seed development, crop protection, etc. Through the leverage that its monopoly
of inputs such as fuels, oil, equipment and spare parts provides, the Govern-
ment induces enterprises in the fisheries, transport and communication sectors
to produce and provide services as its plan requires. The Government is also
using wage, price, and credit policies to support planning in the southern
economy.
3.21      Simultaneously, the Government is continuing to expand the socialist
sector in the south. In agriculture, the first step toward collectivization
is being taken by organizing mutual-aid work teams of private farmers to
rehabilitate and improve irrigation and other infrastructure, and by joint
ownership and use of mechanical equipment. The Government's obiective is to
organize most farmers into some form of cooperatives by 1980, but basic policy
appears to be pragmatic and collectivization will proceed only as quickly as
conditions permit. New agricultural projects, such as the New Economic
Zones, are being organized as cooperatives or state farms, and projects in
other sectors (fisheries, forestry, etc.) are being organized as state
enterprises. In industry, new investment is being organized mainly as state
enterprises, but existing privately-owned enterprises are permitted to remain
in operation, and, if it serves the needs of the economy, to expand their
productive capacity. In trade the Government's current efforts are directed
at taking over the distribution of grains and other essential food products.



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Planning and Management Reforms
3.22      The advantage of the centralized planning and management system as
practiced in northern Viet Nam until recently is that it ensures production
strictly according to plan, particularly in strategic sectors where detailed
material balances are calculated. Aided by the strong popular commitument to
the nation's priorities it allowed the effective mobilization of physical and
human resources without extensive use of material incentives, a system that
served the needs of the country well during the war. However, now that the
Government has been able to turn its attention to longer-term developrment
needs of the economy, the inadequacy of the present planning and management
system in peacetime conditions has become obvious. Specifically, Viel:namese
economists and economic planners have pointed out that the system does not
adequately coordinate activities of the various sectors and geographilcal
areas, does not adequately reflect the principles of "democratic centralism,"
makes little use of local initiative, and can lead to the development of
small-scale and inefficient production units. Planning and management of the
rural sector is particularly weak, and the management system for industry can
lead to inefficiency, waste of materials, disregard of quality and consumer
needs, and unproductive use of capital and equipment.
3.23      During the last few years, therefore, the Government has introduced,
and to a significant extent implemented, wide-ranging reforms of the economic
planning and management system. These reforms include coordination cf sector
and regional planning, reorganization of production units, and reform of
management procedures and practices.
3.24      Sector and Regional Planning.  Planning for each sector has always
been the responsibility of individual ministries or general departments of the
central government, while each province also prepared a provincial development
plan. All these plans have hitherto focused mainly on those activities directly
managed by the planning body; a sector plan prepared by a central ministry mainly
concentrated on those activities it directly managed while a provincial plan
concentrated on those activities managed by the province. Integrated planning
of economic sectors was attempted only for those sectors entirely managed by
the central government (i.e. electric power, railways, coal, etc.). Coordination
of sectoral development was inadequate, and few attempts were made tD plan
regional development in an integrated and comprehensive manner.
3.25      Beginning in 1976, the Government has instructed each ministry or
general department to prepare a plan incorporating all activities of the
sector, whether managed by local authorities or by the ministry itself. These
sector plans are to ensure that the national plans for production, consumption
and investment in the sector are consistent, in particular that supply and
demand (including imports and exports) of the major products are balanced; to
plan the sector's technological research and development; to establish uniform
management and regulatory policies for the sector; to organize the training of
technicians and manual workers; and to ensure that skilled workers, equipment,
capital and materials are efficiently allocated within the sector. Each sector
plan is to be disaggregated by province and district to permit coordination
with concurrent regional planning efforts.



- 36 -
3.26      Regional planning is a newer concept in Viet Nam.  The main
purpose is to plan the integrated development of a geographical area through
balanced and coordinated development of the various economic activities,
whether managed by central government agencies or local authorities, and in
particular to ensure that development of physical and social infrastructure
is adequate to support the planned development of production. A regional
plan, for example, seeks to ensure that railway facilities are adequate to
serve a planned mining project, that feeder roads are being built for the
evacuation of additional agricultural output, and that housing is being provided
for workers in an industrial plant being sited in the area. In addition,
regional planning includes the allocation and employment of labor, supply and
demand of building materials, and monetary income and expenditure of the
population in the area; proposed changes in management and regulatory practices
to suit the special conditions of the region; and protection of the area's
environment and natural resources.
3.27      Regional planning was initiated in 1976 only at the provincial
level, but the longer term objective is for every local government level
to prepare an integrated development plan for the geographical area under its
jurisdiction and, specifically, for the district to become the basic planning
unil: of regional development.
3.28      Reorganization of Production.  During the war, most production
units in northern Viet Nam became geographically scattered and characterized
by small-scale production. Because of transport difficulties, specialization of
production was not well developed and production units, especially agricultural
cooperatives, became increasingly self-sufficient. To reverse these trends, the
Government is attempting to agglomerate small industrial and agricultural units
into larger units that would be more efficient and capable of independent
management. Production planning is also being modified in the direction of
greater specialization so that each producing unit could exploit its comparative
advantage. Agricultural cooperatives, in particular, are being reorganized into
township size units with 300-500 ha of farmland (compared to the present average
of about 150 ha) to make better use of land, be better suited for mechanization,
and form basic management units for the rural sector. Industrial enterprises
are being organized either into larger units or into federations of enterprises
that could take over some of the current functions of the central ministry such
as the supply of materials.
3.29      Management Reforms.  Until recently, management of most state enter-
prises in northern Viet Nam was patterned after the "administrative-supply
system," whereby all raw materials, inputs and labor requirements were supplied
by the state and the enterprises' managers were given very little flexibility
pr-duction decisions.  Most enterprises covered their expenses from and paid
all their receipts into the state budget and many functioned much like a
department of the central ministry. Even in those enterprises that had moved
to an independent cost-accounting system, the state budget covered all business
losses and received most of the enterprises' profits. Each enterprise was
given a larger number of plan targets to meet, of which the quantity of output
was usually regarded as the most important.



- 37 -
3.30      Recognizing that the administrative system of management could be
improved, the Government in the last few years has introduced wide-ranging
reforms of management practice in state enterprises. The aims of these reforms
are to make it easier to carry out the plan in a balanced and realistic fashion,
ensure that the mair 7olicies and orientation of economic policy are carried
out, and enhance the scientific and technical aspects of the plan. Some of the
more important changes that have been, or are being implemented are as follows:
(a)  Applying the Economic Accounting System to all Enterprises.
Under the economic accounting system, each enterprise is regarded
as a legal entity with the right to take the initiative in pro-
duction and business operations. Subject to certain quotas,
specifications and standards set by the state, the enterprise
has the right to utilize its own production capacity and to
arrange the production and operation plan to meet the needs of
consumers. Each enterprise is responsible for its income and
expenditure; to the extent possible, income and cost calculations
are made for all production units within the enterprise. The
number of plan targets given to each enterprise as "legal norms"
is reduced and physical output targets, in particular, are
replaced by value of output targets which take account of quality.
Each enterprise is under the personal leadership of a manager who
is held accountable for its performance.  While the economic
accounting system has been applied in some enterprises in northern
Viet Nam since 1957, it has not been widely used and the economic
policy framework in the country did not permit the system to be
fully effective. The Government intends to apply the economic
accounting system to agricultural cooperatives as well as state
enterprises within the five-year plan period (197b-80).
(b)  Use of profit as one of the main indicators of an enterprise's
achievements and efficiency, as well as to measure its contribu-
tion to the national economy.  A state enterprise is now permltted
to retain a proportion of its profits for its development fundl
(to finance increased productive capacity), social welfare fund
(for social welfare expenditures on behalf of its employees),
and bonus fund (to distribute to employees bonuses for good
performance), the proportion of profits retained to be deter-
mined by the degree to which the enterprise achieves the plan's
targets.
(c)  Reform of the price system so that prices paid to each enter-
prise (producer's price) more accurately reflect production
costs and quality, thereby encouraging enterprises to keep down
costs, improve quality, and make efficient use of labor and
raw materials.
(d)  Introduction of capital charges, so as to cha^:o state enter--
prises for capital assets previously provided by the state and
supplying more capital as repayable loans and credits from the
State Bank, rather than as grants from the state budget, in order
to encourage greater efficiency in the use of capital equipment.



- 38 -
(e) Reform of the wage system to promote increased labor productivity
and improve the division of labor. In particular, to make more
extensive use of wages according to piece-work, and use of
bonuses and fines as incentives for better individual and
collective performance.
(f) Increasing use of negotiated economic contracts as the basis for
relations between individual enterprises. Specifically, an
enterprise is required to sign legally binding contracts for the
purchase of materials it requires and the sale of its products, and
arbitration councils are being established at all levels to
ensure adherence to these contracts.
3.31      The management reforms now being implemented in Viet Nam will ulti-
mately have wide ranging implications. The authorities are introducing changes
with considerable caution and much preparation and "pilot projects"t have been
used to test out some of the proposed reforms. While some issues remain
unresolved, the direction of change is apparent and the future planning and
management system is likely to include the following features: increased
planning from below, with substantial participation of basic units of produc-
tion-and lower level administrative units; economic plans to a large extent
based on contracts between independent economic entitities instead of adminis-
trative orders from higher level authorities to subordinate units (horizontal
instead of vertical planning); state enterprises with increased responsibility
for their production and investment decisions which are run by managers
accountable for their performance; and use of economic policies and levers to
promote growth and efficiency.



- 39 -
4. FINANCIAL MANAGEMENT AND EXTERNAL TRADE
4.01      Since the political unification of northern and southern Viet Nam
in July 1976 considerable progress has been made in integrating the financial
systems of the two areas. Although practices still differ to a certain extent
and two currencies remain in circulation, the country in 1977 has a unified
budget, and a common banking and external trade system.
Budgetary Process
4.02      In Viet Nam the state budget, reflecting the overriding influence of
the Government's direct participation in the economic and social life of the
country, plays a much more important role in the economic process of the coun-
try than it does in most other developing countries. The budget is, in fact, the
financial expression of thie economic plan and the main instrument for determin-
ing the distribution of national product between consumption and investulent, and
the distribution of national income among the population. Before reunifica-
tion, budget revenues in northern Viet Nam normally accounted for about half of
the country's GNP; in 1977, even including the mixed economy of the south,
expected revenue of the unified state budget represents about 35% of GN]?,
compared to less than 20% in most developing countries of comparable income
levels. National income, according to Vietnamese methodology which excludes most
service sectors, is estimated as D 18.8 billion in 1976 and D 21.4 billion in
1977; and according to conventional United Nations methodology as D 22.65 billion
in 1976 and D 25.7 billion in 1977.
4.03      The Ministry of Finance, in consultation with the State Planning
Commission, prepares the annual state budget. Review and approval are the
responsibilities of the Standing Committee of the National Assembly, assisted
by the Planning and Budget Commission. Following approval by the Standing
Committee, the Council of Ministers is empowered to implement the budget.
Preparation of the budget follows the same timetable as the annual plan,
beginning in June and with final approval by the Government in October of
the year preceding the budget (calendar) year. The state budget incorporates
all local as well as the central government budget; there is no independent
local public finance system, but provincial governments are responsible for
revenues and expenditures in those sectors under their direct management, and
they prepare provincial budgets which are incorporated into the state budget.
In 1977 provincial budgets account for about 30% of planned expenditures of the
state budget but for a considerably smaller proportion of revenues, because
activities managed by the provincial governments, mainly agriculture and
handicrafts, generate relatively little revenue. The share of provincial
budgets in the state budget has steadily increased since 1960 and will probably
continue to do so in the future as part of the Government's efforts to decen-
tralize economic administration.



- 40 -
Sources of Revenue
4.04      By far the largest source of budget revenue is contributions from
state enterprises. The contribution to the state budget from each state enter-
prise is determined by a complex process closely linked to the pricing and
distribution system. The following describes the process as it is currently
applied to state enterprises under the economic accounting system which (as
explained in para. 3.30) will in the near future be extended to include all
state enterprises.
4.05,     The producer's price of any product is the price received by the
state enterprise, either from other enterprises or the state purchasing
agencies. The Government determines this price by estimating the average
cost of production (including cost of labor and materials, and depreciation
allowances) and then adding a margin. Since the size of this margin usually
varies according to the use of the product, it performs an important distri-
butive function. The margin currently ranges from 5-10% for capital goods
(e.g. irrigation pumps), to 20-30% for essential consumer goods (e.g. textiles),
and 50-60% for nonessential consumer goods (e.g. cigarettes).
4.06      In any particular year, each state enterprise generates a surplus
(or loss) calculated as the difference between its output, valued at the
government-determined producer's price, and the actual production costs it
incurred. Depending on the extent to which the enterprise fulfilled its
assigned plan targets for the year, a proportion of the enterprise's profits 
retained for its development, social welfare and bonus funds. The rest goes to
the state budget. The proportion of profit currently retained by state enter-
prises is quite small, averaging less than 10%, but is expected to rise in the
future as part of the current management reforms.
4.07      Profits from state enterprises are expected to represent about
70% of total domestic revenue in 1977, somewhat less than in the previous
year, while depreciation allowances are expected to account for another 10%.
The only other important source of revenue in northern Viet Nam is a tax
on agricultural cooperatives which normally averages about 7-8% (payable in
kind by rice farmers) of estimated output, the latter calculated on the basis
of past yields. Even in southern Viet Nam, where the state sector is still
relaitively small, state enterprises are already a major source of revenue;
however, taxes remain an important instrument for mobilizing domestic resources.
In the urban areas, the Government has retained most of the taxes imposed by
the previous regime, including the income tax, license tax, super profits
tax and special consumption tax, but has abolished the petroleum tax,
amusement tax and a number of other minor taxes.



- 41 -
State Budget
Budget
1976 actual                  1977
---------- (D million) -
Domestic revenue                                 6,002                   7,150
External grants and credits                      2,652                   1,300
Others (nonrecurrent)                              320                       -
Total revenue                              8,975                    8,950
Recurrent expenditure                            5,645                   5,950
Capital expenditure                              3,630                   3,000 /a
Total expenditure                          9,275                    81950
As Percentage of National Income
Vietnamese Methodology /b United Nations Methodology
1976      1977              1976       1977
Domestic revenue                      32         33                27        28
External assistance                   14          8                12         7
Others                                 2          -                 1         -
Total revenue                    48        42                40         35
Recurrent expenditure                 30         28                25        23
Capital expenditure                   19         14/a              16         12/a
Total expenditure                49        42                41         35
/a  Excludes D 1,200 million investment credits to be provided by State Bank
(see text).
/b  Vietnamese methodology excludes incomes by service activities, including public
administration, defense, health, education and transport.
Source: Ministry of Finance.



- 42 -
4.08      In the rural sector, a progressive agricultural production tax
is collected from all private farmers. The actual rate imposed is determined
by the size of the farmer's annual production, area of land cultivated and
family size, so that farmers with lower production or smaller cultivated
area per member of the family would pay lower rates. The current rates
range from 8-33% of annual production, with the average rate expected to be
about 12%. "Annual production" is the estimated output that can be harvested
under normal conditions, not actual output. To encourage double cropping
farmers are taxed only on their main crop, but a tax will be imposed on
seczond crops once double cropping has become an established practice. The
tax is also waived for newly cultivated or recently reclaimed areas, and
lower rates are applied in the mountainous areas where production conditions
are particularly difficult.
4.09      In 1977, the Government plans to introduce substantial changes in
the tax system in southern Viet Nam with the objective of achieving a
uniform fiscal system in the north and south by the end of the year or early
1978. Because of this and because fiscal institutions in the south are not
yet: well organized and need to strengthen their collection efforts, taxes
are not expected to be a major source of revenue and will probably only
account for about 20% of total domestic revenue in 1977, with the agricultural
tax representing more than half of total tax revenues.
4.10      Foreign aid and credits also represent important sources of budget
support. In 1976, 30% of total budget revenue was derived from foreign sources,
mainly in the form of assistance for economic rehabilitation, reconstruction
and relief. In 1977, external revenues are expected to decline to D 1,800 mil-
lion, representing only 20% of total revenues, because increased disburse-
ments for development assistance projects are not expected to offset the fall
in reconstruction and relief assistance. Since the Second Five-Year Plan has
now been prepared, the Government expects this decline to be temporary and
external assistance for development projects to increase substantially during
the remaining years of the five-year plan.
4.11      An important feature of the state budget is that the state sector -
which in effect means the industrial, construction and transport sectors -
accounted for only about 45% of the GNP and 35% of national income in northern
Viet Nam, but contributed about 80% of domestic budget revenues. This was
ach:ieved mainly by maintaining very high relative prices in these sectors,
especially for industrial consumer goods, which allowed state enterprises to
generate large surpluses. Consumers of industrial goods have clearly borne the
heaviest fiscal burden in the country. Since the Government intends to make
more consumer goods available to the population during the current plan period,
the prospects for increased revenues from this source may be limited. The
current reform of enterprise management which would permit state enterprises to
retain larger proportions of their profits might also restrain the growth of
budget revenues in the future, although the Government expects contributions
from state enterprises to increase in the longer run as a result of improved
management and increased efficiency. On the other hand, if the State Bank
is able to mobilize increased resources outside the budgetary system to
finance an increasing proportion of state investment, the demand on budget
revenue may be correspondingly reduced. Budget revenues from the southern
provinces could also increase rapidly as production revives and conditions
stabilize.



- 43 -
Expenditure
4.12      Grant allocations from the state budget have hitherto accounted for
about 70-80% of total investment expenditure in northern Viet Nam and invest-
ment credits provided by the State Bank, mostly to cooperatives, were very
small by comparison. The Government has recently decided that more credits
from the State Bank should be used to finance the investments of state
enterprises as well as cooperatives. Accordingly, investment expenditure
from the state budget is expected to decline from D 3,600 million in 1976 to
D 3,000 million in 1977, while investment credits provided by the State Bank
are expected to finance D 1,200 million of state investment in 1977.
Therefore, while total state investment is expected to rise from D 3,600 mil-
lion in 1976 to D 4,200 million in 1977, investment as a proportion of
the total budget expenditure will fall from 40% to 34% while recurrent
expenditure rises correspondingly.
4.13      Social-cultural expenditure, mostly on education and health,
will account for 20% of budget expenditure in.1977. Public administration
will account for about 10% while the remaining 30-35% will be for subsidies,
defense and other expenditures. To improve the living conditions of the
people, the Government plans, in the next few years, to increase substantially
the percentage allocated to social-cultural expenditures and subsidies
(mostly on food prices and social services) and reduce the allocations to
general administration and defense. By 1980, the Government intends t:o
increase subsidies and social welfare grants financed by the state bucdget by
two and a half times over 1976; these indirect payments are expected, by
then, to amount to 30-50% of the average wage of a worker or government
official, and 15-20% of the average income of a farmer.
Money and Banking
4.14      The scope for monetary and credit policies is fairly limited in
Viet Nam. Monetary policy mainly ensures: (a) a balance between money supply
and the demand for a circulating medium, and (b) a stable currency with fixed
purchasing power. Credit is not widely used as an instrument of economic
policy and investment is financed mainly by budget revenues allocated accor-
ding to the economic plan. Credits for consumption purposes are limited to
small amounts for construction of residential housing.
4.15      However, the situation is changing rapidly.  As discussed earlier
(paras 3.30 and 4.12). State Bank credits are being increasingly used to
finance the investment expenditure of state enterprises; in 1977 the State
Bank, in addition to its traditional role of financing investment in the
cooperative and private sector, expects to provide about 30% of state
investment expenditure, mostly at the provincial and district govermnent
levels. Credit terms will vary according to government priorities; interest
rates will range from 2-8% with priority sectors such as agriculture
and export industries enjoying the lowest rates and easier access to credits.
Financial management and, in particular, monetary policies, will become
increasingly important in the future as a result of the recent reforms because,



- 44 -
first, there seems to be an element of deficit financing in the increasing
reliance on State Bank credits to finance state investment without clearly
identified sources of funds. Second, state enterprises are being given much
greater financial independence; and third, more extensive use of bonuses and
other material incentives will inevitably expand the purchasing power of
private individuals. In the south, strict financial management will be
necessary to ensure an orderly restructuring of the economic system.
4.16      The State Bank and specialized banks under its supervision consti-
tute the banking system of Viet Nam and has been reorganized under a govern-
ment decree of June 1977. The State Bank is an autonomous government
agency, headed by a Director General with ministerial rank. It has branches
in every district, provincial capital and municipality and runs its own
banking college, training institutes and printing facilities and provides
housing and a wide range of other health and social services for its 40,000-odd
employees.
4.17      The State Bank performs all functions normally associated with
a central bank, including issuance of currency, and determination and execution
of monetary and credit policies. It accepts deposits from cooperatives
and state enterprises, paying interest ranging in the north from 3% on
saving accounts to 5% on time deposits, and in the south at somewhat higher
rates. After the annual economLic plan has been prepared by the State
Planning Commission, the State Bank and the Ministry of Finance are responsible
for preparing the financial plan. The State Bank has special responsibility
for preparing the financial plan for sectors outside the state budget (i.e.
the cooperative and private sectors). In northern Viet Nam, for example,
each agricultural cooperative has to submit its financial plans to the State
Bank at the district level, and the State Bank has the final responsibility
for preparing the financial plans of the agricultural sector. The State
Bank, normally through the Bank for Foreign Trade, is also the sole agency
of the Vietnamese Government authorized to borrow abroad.
4.18      Following the recent reorganization the State Bank will now
supervise a banking system consisting of five specialised institutions.
Four of these will be banks for Industry, Agriculture, Internal Trade and
Foreign Trade, and the fifth will be a Socialist Savings Fund.
Bank for Foreign Trade. The Bank for Foreign Trade is responsible
for all foreign exchange transactions arising from foreign trade,
and manages foreign exchange reserves. Together with the Ministry
of Foreign Trade, it prepares the country's annual import and
export plans. The Bank also manages foreign grants and credits on
behalf of the State Bank. As part of the Government's effort to
promote exports, the Bank for Foreign Trade has been authorized to
grant loans and credits to enterprises producing for export.
The Banks for Industry, Agriculture, and Internal Trade will
provide long and short-term credit for enterprises and cooperatives.
They will also control the salary funds and supervise the financial
management of state enterprises in their respective sectors.



- 45 -
A Socialist Savings Fund has been established to accept deposits
from the public. It is currently paying interest of up to 5% for
time deposits and also paying dividends in the form of a lottery,
awarding prizes in lieu of paying interest.
4.19      Although the money and banking system in Viet Nam has been unified,
different currencies continue to circulate in southern and northern Viet Nam.
In September 1975, the then Government of South Viet Nam replaced the currency
of the previous regime - the Piastre - by a new currency denominated in the
same units as the northern currency (one Dong = 10 Hao = 100 Xu). At that
time comparison of prices in the north with the south indicated that, if the
southern Dong were to have the same purchasing power as the northern Dong,
one southern Dong should be exchanged for 300-330 Piastres. But the Government
then decided it would be impossible to maintain a common currency in the two
areas as long as the economic systems and particularly price formation
differed significantly. The decision was therefore made to have two separate
currencies whose purchasing power would converge over time. Inflationar,
pressure was expected to be stronger in the South because first, prices were
to a larger extent still determined by market relations (while they were
determined by the Government in the North), and second, excess demand
existed because money incomes were not reduced relative to the reduced
availability of goods and services. The purchasing power of the southern
Dong was thus expected to fall relative to its northern counterpart. The
southern Dong was therefore issued in September 1975 at the rate of one Dong
to 500 Piastres, making the purchasing power of the southern Dong at the
prevailing price level equivalent to one and a half times that of the northern
Dong.
4.20      After political unification in 1976 the two currencies remain in
circulation and are not fully convertible. Exchange of the currencies, as well
as merchandise trade between the two areas is restricted to government agencies;
for these transactions, the rate used in late 1976 was 1.25 northern Dong per
southern Dong. The Government intends to adjust this rate periodically to
reflect purchasing power parity. Since the price system will, in the near
future, continue to differ in the southern and northern halves of the country,
the dual currency system will need to be maintained and monetary and credit
management pursued independently in the two areas.
Foreign Trade and Exchange
4.21      All Viet Nam's foreign merchandise trade is carried out by about
twelve specialized companies under the Ministry of Foreign Trade, each company
handling both import and export of one type of product (e.g. machinery and
equipment, iron, steel and minerals, industrial consumer goods, foodstuiffs,
etc.). These companies deal directly with either state organizations in
socialist countries or private companies in nonsocialist countries and handle
all aspects of procurement and sales. Trade with all socialist countries is
conducted through bilateral trade agreements. Profits and losses of state
trading companies are transferred to or covered by the state budget. The



4- 6 -
Mirnistry of Foreign Trade, in consultation with the Bank for Foreign Trade, is
responsible for preparing the country's annual import and export plan on the
basis of import requirements and export plans submitted by other ministries and
general departments. Trade transactions omitted from the approved plan are not
normally permitted, but in recent years the Bank for Foreign Trade has apparently
been authorized to finance imports outside the plan if they were required to
expand exports. All foreign exchange transactions arising from merchandise
trade go through the Bank for Foreign Trade. All other transactions require
prior authorization from and go through the State Bank.
4.22      Since external trade is the monopoly of the Government, the exchange
rate of Vietnamese currencies serves mainly an accounting function. In October
1976, the IMF agreed to a representative exchange rate for the southern Dong of
SD 2.13087 per SDR (or SDR 0.469292 per SD). Since then, the exchange rate
between the southern Dong and 13 major currencies has been determined by the
daily SDR transaction rates for these currencies and the representative SDR
exchange rate for the southern Dong. As to the northern Dong, no represen-
tative SDR exchange rate has been proposed to the IMF and the Vietnamese
authorities independently determine its exchange rate against the US dollar
monthly on the basis of movements in domestic prices and costs, and judgements
regarding the near-term movement of the US dollar. In early 1977, the exchange
rate for the southern Dong was SD 1.85 per US dollar and for the northern Dong,
ND 2.49 per US dollar. The resulting external cross rate of ND 1.35 to SD 1.00
therefore was not consistent with either the official transaction rate within
the country of ND 1.25 per southern Dong (para. 4.20) or with their relative
purchasing power (which would imply a rate of ND 1.50 per southern Dong, see
para. 4.19). Sirnce then the value of the northern Dong has appreciated in
terms of the US dollar.
Foreign Investment
4.23      The Government has recently made known its intention to welcome
foreign investment in Viet Nam and has prepared a foreign investment
code which includes the following provisions:/l
(a)  Three forms of foreign investment are to be permitted:
(i) investment in specialized production for export
purposes; (ii) joint ventures between a foreign investor
and a Vietnamese state economic organization; and (iii)
production sharing partnerships with a Vietnamese state
organization.
(b)  The share of foreign capital permitted will range from a
minimum of 30% to a maximum of 40% in joint venture
enterprises and up to 100% in enterprises specializing in
production for export.
/1  The code was promulgated by Government Decree No. 115/CP, of
April 18, 1977.



- 47 -
(c) Protection by the Government of the foreign investor's
capital and compensation in the original currency of
investment in the event of nationalization.
(d)  Righi. of the foreign investor to repatriate his share
of net annual profits, after deduction of taxes and
levies to establish a reserve fund of up to 25% of the
capital invested, and to employ foreign technicians and
personnel when qualified Vietnamese personnel are not
available.
(e) Income tax to be paid by the foreign investor at the
rate of 30% for investment in specialized production
for export and 30-50% for other types of joint ventures.
(f) Incentives in the form of exemptions or reduction of
income tax, import and export duties, to accelerate
implementation of high priority projects, and also to
encourage the reinvestment of capital in Viet Nam.
It is too early to say how effective the regulations for foreign investment
will be in encouraging private capital flows into Viet Nam. However., they
offer a framework for the participation of such capital which is unusual for
a centrally planned socialist economy, and which can be flexibly applied to
suit particular circumstances. The potential for such flexibility has been
enhanced by the inclusion of a general article to the code which states that:
"In specific cases . . . the Government of the Socialist Republic of Viet Nam
may approve more advantageous terms in favor of the foreign party."



- 48 -
5.  MEDIUM-TERM PROBLEMS AND PROSPECTS
5.01      In addition to the development problems faced by almost all low-
income countries - low agricultural productivity, a small industrial base,
shortage of capital and an unfavorable balance of payments - Viet Nam suffers
today from the destruction and distortions caused by almost three decades of
continuous warfare and the development of two completely different economic
systems for more than 20 years. These consequences of the war and partition
overwhelmingly dominate the current situation and will continue to be important
determinants of the country's economic prospects for at least the coming
decade.
Consequences of War and Partition
5.02      The overriding conclusion to be drawn from an examination of the
current situation in Viet Nam is that in terms of the population's standard of
living, the economic infrastructure and the level and pattern of production,
the economy stands today roughly where it was in the mid-1960s. Average income
in northern Viet Nam when the war ended in 1973 was only about the level
attained in 1960. GDP per capita in southern Viet Nam in 1972 has also been
estimated as practically unchanged since 1960, at about US$140. In the north,
the average income, though low, is fairly evenly distributed. Basic needs
of- the population are met by a subsidized minimum diet and housing; education
and medical services of a standard matched by few developing countries are
provided free, while all other types of consumption are restricted by rationing
and (on the free market) by high prices.  In the South, the possibilities of
famine and severe hardship, especially among the urban poor, immediately
following the collapse of the former regime were successfully avoided with the
help of supplies from the North and international relief efforts.
5.03      The northern and southern halves of the economy emerged from the
war and the long period of partition with different sets of problems. In
the north the impact of the war was considerable and the full effects of the
widespread physical destruction and disruption are still being evaluated.
The destruction and damage to the country's infrastructure were widespread
and in some cases total. In the transport sector, for example, all the
main bridges and railroad stations were put out of action. The main power
stations and industrial centers were extensively damaged and 12 cities
and 51 townships totally destroyed.  Apart from the destruction and loss
of life, it -vas necessary to relocate industry in small-scale, less efficient
industri:4_ uaits removed from the centers of population and consumption;
rural c mmur:Lties became isolated from the urban and industrial centers and
had to becomEr largely self-sufficient. Such wartime exigencies did not
permit the uormal evolut on of a productive structure geared to longer term
development needs and t: raising the population's standard of living.  Instead,
additional produictive c~ ,acity, supplied to a significant degree through
foreigrn assistance, was -pplied mainly to the pursuit of war, while
maintenance and expansion of the economy's productive capacity were postponed
and the growing population s3 _-ardard of living remained at a low level.
The necessityv for highly centralized management and control during the war



- 49 -
impeded the development of a management system oriented towards planning
and organizing the long-term growth of the economy under peacetime conditions.
5.04      Immediately upon the end of the war in 1973 in the north, the Govern-
ment formulated a Three-Year (1973-75) Economic Reconstruction Plan aimed
primarily at reconstruction of economic infrastructure and restoring production
to the mid-1960 level. Although the primary objective of rehabilitation was in
large part achieved by the end of the plan period, a massive backlog remains of
investment requirements in economic infrastructure. The transport network, in
particular, is a major bottleneck to development; in recent years, for instance,
state enterprises have reportedly often needed to transport their equipment and
material requirements from the suppliers. Clearance of goods from the port of
Haiphong is much delayed and congestion is not yet evident in the road and
railway system only because vehicles and rolling stock are in short supply.
The Government already considers the material supply system to be a major
constraint on growth: unless substantial planning and investment are urLdertaken
immediately, the growing volume of both internal and external trade resulting
from resumed economic activity, as well as increased specialization of produc-
tion within the country, will quickly exacerbate the transport situation.
5.05      Industry has also undergone a period of intensive reconstruct:ion
from 1973-76, but substantial relocation and reorganization of production
units are still required.  This involves not only completing the reloca:ion
of industry dispersed during the war, but also the reorganization of bo;-h
agricultural and industrial production from small, self-sufficient units
towards larger, more efficient units that specialize according to their com-
parative advantages.
5.06      The effects of the war in the south were different.  The physical
destruction of assets and infrastructure was much less. In fact, as far as
urban infrastructure and transport facilities are concerned, the south, aided
by a large inflow of foreign assistance, may have on balance added to such
infrastructure at a faster rate than it might otherwise have have done. On
the other hand, there was considerable destruction of agricultural assets and
a large backlog of deferred maintenance of rural infrastructure has accumulated.
For example, because of long neglected maintenance as well as physical destruc-
tion by the war, irrigation, drainage, flood control and salinity prevention
systems serving about half a million hectares need rehabilitation and :improve-
ment.  Huge areas of cultivated land abandoned during the war require substan-
tial rehabilitation before they can be brought back into production. The
agricultural export sector was also adversely affected, especially the rubber
plantations which have suffered severely from destruction of trees and defolia-
tion and now require considerable rehabilitation and replanting.
5.07      The greatest effect of the war in the south, however, was the
disturbance to agricultural production resulting from widespread involuntary
movements of population within the rural areas and to the main urban centers.
Artificial urbanization took place as the populations of Saigon and other
large towns grew while the level of commodity output per capita fell steadily.
These migrants were fed, and to some extent, employed through foreign
inflows that financed the vast increase in imports needed to compensate



- 50 -
for the decline in domestic production. An industrial structure developed
but it produced mainly consumer and light capital goods on the basis of
imported raw materials. The bias towards the urban areas was also reflected
:Ln the development of economic infrastructure, as the network of highways
connecting urban centers expanded while rural roads were neglected, and the
power system was oriented mainly to serve urban needs. The result was an
economy enjoying a higher standard of living than could be sustained on the
basis of domestic output and the country's normal ability to import, but
with an unbalanced industrial structure and severe maldistribution of
population. Immediately before the end of the war in 1975, 40% of the
southern population were living in urban centers, with half the labor force
engaged in the service sector, including a quarter in war-related and public
administration activities.
5.08      The divergent development of the two halves of the economy since
1954 also poses a number of serious problems. Integration of economic infra-
structure, especially the transport and power systems, will require substantial
investment. It will take time and effort, in particular, to reconcile the
differences in attitudes and habits that have been formed in more than two
decades under vastly different economic and social systems. The Government
recognizes that the restructuring of the southern economy into a socialist
system is a difficult and complex job that cannot be completed in a short time.
For some time, therefore, the present mixed economic system in the south will
continue to exist.
5.09      While the differences between the northern and the southern economies
present considerable management difficulties that may impede the development
effort in the short term, a united economy clearly offers greater potential
arLd much wider options for longer term development. Indeed unification
could considerably facilitate the tasks of reconstruction and rehabilitation.
In many respects, the two parts of the country face problems and difficulties
that will be less intractable if tackled within the context of a larger,
united economy. Despite the differences that still exist in the two parts
of the economy, therefore, the Government is approaching the task of economic
development in the context of a unified economy and, immediately following
political unification in July 1976, began the preparation of a five-year
development plan for the country as a whole.
Second Five-Year Development Plan (1976-80)
5.10      In Viet Nam, the five-year plan is the longer term framework that
defines all the national economic objectives, while the annual plan specifies
the way in which these objectives are to be approached or achieved in the short
term. Although the current five-year plan nominally covers the period 1976
to 1980, it was only adopted by the National Assembly at the end of 1976, and



- 51 -
detailed investment programs are still being prepared. Meanwhile, investment
is being undertaken under the framework of the 1977 Annual Plan, the first to
be prepared for the reunified country.
5.11      The Party Congress in December 1976 defined the major political
tasks of the country to be three concurrent revolutions - production relations
revolution, ideological and cultural revolution, and scientific and technical
revolution, of which the scientific and technical revolution is to be
considered the most important. In addition to the immediate needs of
reconstruction and rehabilitation, the general objectives of the plan are
twofold: to build the economic and social infrastructure for sustained and
rapid long-term growth and to improve the material and cultural life cf the
working population. Towards this end, the Government has defined seven
"fundamental tasks" for the plan:/1
"(i)  To concentrate fully the strength of the whole country and all
sectors and echelons on achieving a rapid development of
agriculture; to accelerate the growth of forestry and i-ishery,
develop light industry and food industry, including handicrafts
and the artisan industry, in order to meet the country's
needs for food, foodstuffs and other essential consumer goods;
to improve the material and cultural life of the people; and
to increase investment for longer term socialist industrializa-
tion;
(ii)  To maximize the use of existing industrial capacities and
build new establishments of heavy industry, especially engineer-
ing, for the purposes of serving, above all the needs of
agriculture, forestry, fishery and light industry and paving
the way to provide technical equipment during the next stage
of development; to expand communications and transport; to
increase capital construction capacities; to step up scientific
and technical research and begin preparation of large-scale
construction projects in all sectors that will be undertaken
in future long-term plans;
(iii)  To make full use of the social work force; to organize and
manage the manpower and redistribute the manpower among
various areas and sectors in order to achieve a marked increase
in labor productivity; to begin the establishment of a modern
industrial-agricultural economic structure; to combine centrally-
run economy with locally-managed economy, gradually building
each district into an agro-industrial economy; to integrate
economic construction with national defense;
/1 Report on "The Guidelines, Tasks and Principal Objectives of the Second
Five-Year State Plan" by Prime Minister Pham Van Dong to the Fourth
Congress of the Viet Nam Workers' Party, December 1976.



- 52 -
(iv) To achieve basic socialist transformation in the south and
consolidate and perfect socialist production relations in
the north; to improve distribution, pricing, and financial
and banking services:
(v) Rapidly to increase export, especially of agricultural and
light industrial products, and expand economic relations with
foreign countries;
(vi) To accelerate the development of education, culture and health,
carry out educational reform throughout the country, step up
the training of cadres and workers and eradicate the social
vestiges of war and neocolonialism; and
(vii) To carry out extensive reforms of economic organization and
management in order to build a new system of economic manage-
ment for the whole country,"
5.12      During the plan period, the gross output of the economy is projected
to increase by 14-16% per year while national income is expected to increase by
13-14% p.a. These results are to be achieved by state investment expenditures
of D 30 billion comprising D 9 billion for agriculture, D 10.5 billion for
industry and D 10.5 billion for transport and services. The plan also sets
physical objectives for key sectors in terms of the volume of production to be
reached. These are summarized in the table below, together with the current
levels of production where known, and the targets for 1977:
1976                 1977                1980
(Actual)            (Target)            (Target)
Grain                    13.7 million tons  16 million tons    21 million tons
Sea fish                 600,000 tons        700,000 tons        1 million tons
Hogs                     9.3 million         10.8 million        16.5 million
Coal                     4.7 million tons   6 million tons       10 million tons
Electric power           3 billion kWh       3.3 billion kWh    5 billion kWh
Cement:                  722,000 tons        816,000 tons        2 million tons
Chemical fertilizers    438,000 tons         560,000 tons        1.3 million tons
Steel                         -                                  250,000-300,000 tons
Timber                   1.6 million cu m   1.8 million cu m   3.5 million cu m
Cottorn cloth                                                    450 million m
Paper                                                            130,000 tons
Sugar                         -                                  220,000-250,000 tons
Land reclamation /a      149,000 ha          270,000 ha          1 million ha
Afforestation /a         95,700 ha           200,000 ha          1.2 million ha
Housing /a                    -                                  14 million sq m
/a Targets are cumulative.



- 53 -
5.13      The 1977 Annual Plan sets out the detailed targets and implementa-
tion of the segment of the five-year plan applying to that year. Reflecting
the scope for relatively large increases in output as the economy switches
from wartime to peacetime conditions, the percentage growth projected in t:he
1977 Annual Plan is generally more ambitious than the projected increase for
the plan period.
1977 Annual Plan Growth Target
% increase over
1976
Values
Gross social product                     18%
National income                          16%
Gross agricultural output                16%
Gross industrial output                  20%
Exports                                  55%
Capital construction                     43%
Gross output of:
Energy                               11%
Metallurgy                           38%
Machine industries                   25%
Chemicals                            23%
Food                                 17%
Textile, leather goods                   24%
Volumes
Paddy                                    14%
Pork                                     18%
Afforestation (area)                    109%
5.14      The clear priority of the Government's development program is agri-
cultural development, first of all to meet the population's basic food require-
ments, and then to provide raw materials for industries and for export.
The main objective is to be self-sufficient in food grains by the end of the
plan period and the production of at least 21 million tons of grains by 1980 is
regarded as the most important target of the plan.
5.15      Agricultural development will be based on intensive cultivati.on,
improvement of crop varieties and expansion of cultivated area, with investment
initially being concentrated on irrigation infrastructure. While industries
are being expanded to provide the necessary tools and equipment, the Government's
efforts will concentrate on the mobilization of labor for the rehabilitation
and construction of smaller scale irrigation facilities.



- 54 -
5.16      High priority is also given to the development of forestry, fisheries
and consumer goods industries, both to improve the population's standard of
living and for export. Industrial development is viewed during the plan
period primarily as a means of supporting agricultural development and will
be based to the extent possible on domestic raw materials. The main objectives
in the north are the continued reconstruction and modernization of industrial
installations; acceleration of the exploitation of domestic raw materials
(including coal and other minerals); and development of industrial capacity to
supply spare parts and intermediate goods needed by industries in the south.
The main objectives in the south are the development of regional industries
in rural areas, in particular, the New Economic Zones; the substitution of
domestic for imported raw materials and the development of a domestic
capability to supply spare parts and accessories for existing machinery;
backward integration of production to increase the contribution of industry
to the economy; and development of export-oriented industries. Special
emphasis will be given during the plan period to exploration for oil and gas
in both the north and south.
5.17      Development of infrastructure during the plan period is intended
mainly to support agricultural and industrial activities. Special attention
will be devoted to transport and communication links between the north and
south, and between the coastal areas and the highlands, with priority given to
development of coastal sea transport, railways, rural and mountain roads, and
roads serving the New Economic Zones. In the power sector, the immediate tasks
are the reconstruction and rehabilitation of plants destroyed or damaged during
the war, expansion of generating capacity, and reorientation of generating and
distribution capacities in the south towards the rural areas, especially for
such uses as irrigation pumping. The first step will also be taken during the
current plan period towards the longer term development of the country's
substantial hydroelectric resourcgs and the integration of the separate power
systems of the different regions.
5.18      Expansion of educational and health facilities will be concentrated
in the south where existing services are less developed. In addition, the
Government plans to carry out extensive educational reforms throughout the
country to combine education with social development, incorporate technical
education into the general curriculum and develop work-study programs. Housing
will be an important component of the Government's effort to improve the
population's standard of living; large housing construction programs, in
particular, are planned for cities and industrial areas in the northern pro-
vinces. On the other hand, the Government does not consider it possible to
increase significantly per capita consumption of grain and foodstuffs during
the plan period and Government efforts will concentrate on improving food
processing and distribution. Similarly, per capita consumption of fabrics will
not significantly increase and emphasis will be on improvement of quality and
stLyle.



- 55 -
5.19      During the plan period, the Government intends to expand economic
relations with foreign countries, both socialist and nonsocialist. Priority
will therefore be given to exports of agricultural, marine and forest products,
minerals, and handicraft and light industrial products. Tourism will be
developed end foreign investment, as a source of both capital and technology,
will be encouraged.
5.20      To achieve these economic and social objectives, the Government has
identified three major programs to be undertaken in the plan period:
(a)  Reorganization of Production and Redeployment of Labor Force
Throughout the Country. As discussed earlier (para. 3.28), a, major
government objective in the plan period is to reorganize agricultural
and industrial production units into larger, more efficient a.nd
better specialized units. Furthermore, recognizing that the
existing distribution of the country's labor force has been distorted
by the war and does not adequately serve the needs of development,
the Government regards the redeployment of the labor force towards
the production of commodities as its most important and urgent task
during the current five-year plan period.  Because the numbers
involved are so enormous - at least 2-3 million workers are already
unemployed in the southern cities - industries cannot possibly
provide the necessary employment opportunities in the short l:erm.
The immediate solution is a massive resettlement program in the
rural areas; the core of this program is the establishment of New
Economic Zones mostly in the southern half of the country but also
to a lesser extent in the northern interior (see paras. 2.34-2.39),
Although the main objective is the resettlement of the unemp:Loyed
from the urban centers in the south, resettlement from overpopu-
lated northern provinces to underpopulated areas is also an important
part of the program. An organizational and administrative framework
has already been established, and in 1976 more than one million
people were resettled. The target is to resettle a further four
million people in the remaining four years of the plan. As part of
its redeployment of the labor force, the Government is increasing the
participation of the armed forces in the country's development effort,
especially in the construction of New Economic Zones and other large
construction projects. For the longer term, the reorganization of
production aims at combining agricultural and industrial development
at the regional level, improving coordinated development of the
central and local economy and deploying the labor force effectively
throughout the country.
(b)  Improvement of Management Methods.  This program aims at continuing
the planning and management reforms that have been initiated in the
north during the last few years (see paras. 3.23-3.31). A more
important role for the financial and banking s-stem is also planned.



- 56 -
(c)  Increased EfficiencyothGvenn.  The objective is
to increase the efficiency of the administrative machinery
and the cultural and economic management organizations. Tnis
includes the timely formulation of an economic plan for each
sector in which production responsibility and direction of
growth of each basic unit are clearly defined; revision of
management regulations and procedures that have become obsolete,
and adoption and application of new management techniques better
suited to the current situation and conditions. Attention is
also being given to improving public administrative capability,
promoting government discipline and encouraging individual
responsibility.
5.21      These general objectives, major tasks and programs of the Second
Five-Year Development Plan set the framework for the country's medium-term
economic and social development. Some of the quantitative targets are very
ambitious and may be difficult to achieve, but whether these targets are
realistic or not is less important than the plan's fundamental development
objectives. These clearly aim at building a base for sustained and rapid
longer term growth, as well as significantly improving the population's standard
of living, but serious constraints to the economy's growth remain and will not
be easy to overcome.
Planning and Management
5.22      The five-year plan indicates that the concurrent tasks of rehabili-
tating the economy, building the base for longer term development and integra-
ting the northern and southern economies will place a heavy burden on the
country's planning and managerial capability. The Government is therefore
currently making a major effort to improve the country's managerial ability.
The Ear-reaching reforms now under way in the north will, to a large extent,
determine the country's future planning and management capability, but many
important issues remain unresolved. In the south, the country has lost some of
its higher level manpower and the effective supply of management and technical
skills in the immediate future will depend largely on the success of the
Government's effort to integrate those managers and technicians trained and
brought up under a different social and economic system into the new society.
5.23      Viet Nam's economic prospects depend to a large extent on this
cutrent effort to develop an efficient planning and management system.  The
effective management and mobilization of labor, for instance, have been the
hal'mark of the Vietnamese approach to economic development and facilitated
the sps edy repair of wartime damage and the Government's effort to stimulate
agricultural production. It is an obvious response to a situation in which
unskilied labor is abundant and capital is scarce. Now that peace and
reunification have been achieved the need for management and organizational
skills has expanded, along with the development opportunities, and the tasks
are in many respects more difficult. As Prime Minister Pham Van Dong warned
in his report on the five-year plan cited above, "careful planning should be
made to avoid massive mobilization of labor without adequately preparing the
facilities and equipment, thus wasting labor, capital and land; utmost effort
should be made to prevent current projects from interfering with the longer
range economic development plan."I



- 57 -
5.24      In particular, the establishment of the New Economic Zones which
will eventually involve millions of families requires extensive planning,
organization and managerial skills. As with any resettlement program of this
magnitude in any country, inadequate planning and implementation could
jeopardize the welfare of the settlers, endanger the future of the program in
the eyes of the population, and lead to the uneconomical use of cultivable
land. The present program is designed to meet the pressing need to get people
onto the land and able to produce at least their basic food requirements as
quickly as possible. While success depends mainly on the Government's organi-
zational and managerial capability, external assistance could help the
Government to carry out a longer range program. Such a program will enable
larger numbers of settlers to achieve a higher level of income, but will
require more capital than is currently available to the Government.
5.25      Planning in Viet Nam has hitherto been dominated by considerations of
short-term consistency and balance; in the future more attention can bte devoted
to questions of longer run efficiency and optimum allocation of resources.
While many of the economy's immediate needs are obvious and the authorities are
anxious to get on with the urgent tasks without unnecessary delays, longer
range planning is important to ensure that investments take advantage of the
complimentarity of the northern and southern economies as well as the country's
comparative advantage in an international context. The Mekong Delta, for
instance, offers the immediate prospect of substantially increased rien rroduc-
tion and, in the longer run, the potential - in terms of known cultivable areas
and available varieties of rice - of producing 16 million tons of paddy per
year (2 million hectares planted to two crops of high yielding varieties
producing 4 tons per hectare per crop), roughly the expected consumption of the
whole country in the early 1980s. In view of the current serious food shortage,
the Government's current efforts to rehabilitate and improve water control
facilities and to increase the area of cultivated land in the delta as quickly
as possible seem eminently sensible. At the same time, studies could be
initiated to determine, among other things: (a) whether increased diversion of
fresh water upstream during the dry season for irrigation purposes will seri-
ously aggravate the salinity intrusion problem; (b) whether there is potential
for increased production of other crops, possibly without costly investment in
water control facilities; and (c) what implications the vast rice-growing
potential of the delta may have for the pattern of agricultural development in
the rest of the country and for exports. Similarly, studies of market prospects
both within Viet Nam and internationally are required for investment planning
in the industrial sector. Since the Government has had little experience with
international trade outside the Socialist Bloc, the planning and management of
the Government's ambitious export program will be particularly challenging.
Special management techniques may be necessary, for instance, for export-
oriented industries to permit quick responses to changing market conditions.
These are also areas where external assistance in the forms of modern equip-
ment, market studies and engineering and management techniques could complement
the Government's development efforts.



- 58
Investment and Resource Requirements
5.26      The ambitious investment program of the Government's current five-
year plan will require a considerable effort to mobilize both domestic and
external resources. In 1976 and 1977, the first two years of the plan, state
investment amounted to an average of slightly less than D 4,000 million, while
investment by cooperatives and the private sector was probably in the order of
D 700 million per year. Total investment in the economy was therefore about
19% of national income (estimated according to United Nations methodology, or
23% according to Vietnamese methodology).  Although it is not possible to
reconcile budget and balance of payments estimates of external capital inflows
for the individual years, both estimates indicate that foreign capital amounted
to an average of about D 2,100 million in the two years, thus accounting for
about 45% of investment expenditure.
investment and Savings
(D million)
Actual    Plan
1976     1977
State investment                                   3,630    4,200
Cooperatives and private /a                          570       800
Total investment                               4,200    5,000
Financed by:
External assistance /b                           2,062    2,117
National savings                                 2,138    2,883
As % of National Income
Vietnamese Methodology /c   United Nations Methodology
1976     1977                 1976     1977
State investment                   19.3      19.6                16.1      16.3
Cooperatives and private            3.0       357                 2.5       3.1
Total investment               22.2     23.3                 18.6     19.5
Financed by:
External assistance              11.0       9.9                 9.1      8.2
National savings                 11.3    1-35                   9.5      11.2
/a Provisional estimates.
/b. Based on balance of payments data and are consistent with budget data only
when averaged over the two years. Balance of payments data in US dollars
are converted to Dong at the rate of US$i,00 = ND 3.98 and do not include
commodity aid.
/c National income estimates excluding mosc services.
Sources:  Data provided by the Ministry of Fiance and the State Bank.



5.27       Total state investment expenditure of D 30,000 million is projected
for the five years 1976 to 1980. To achieve this will require an average expen-
diture of D 7,400 million over the next three years, or an increase in state
investment from the current level of D 4,200 million to almost D 9,000 mil-
lion by 1980. A possible time profile of investment expenditure over the
five-year period to meet the plan's target is given in the table below:
Annual
Actual   Plan    -----Projections----    1976-80
1976    1977    1978    1979    1980         Total
-------------------D billion-------------------
State investment                3.6      4.2      6.0      7.5      8.7       30.0
Others                          0.6      0.8      1.0       1.2     1.4         5.0
Total investment            4.2      5.0      7.0      8.7    10.1        35.0
Financed by:
External assistance           2.1      2.1      3.1      3.6      4.3       l5.0
National savings              2.1      2.9      3.9      5.1      5.8       20.0
Sources:  1976-77:  State Bank.
1978-80:  World Bank staff estimates.
5.28       The above projections imply that, to achieve the plan's investment
target, the rate of investment would need to increase from the 1976 level of
19% of national income to 27% by 1980 (or from 22% to 33% according to
Vietnamese methodology). The Government has thus set out upon an ambitious
program and its achievement will, to a large extent, depend upon two factors,
managerial and organizational abilities and the mobilization of domestic and
external resources.
5.29.      Since a significant proportion of investment will need to be financed
through external assistance, the economy will need to develop a capacity to
absorb an expanding volume of project assistance from abroad. The above projec-
tions suggest that about 40% of total investment during the plan period would
need to be financed by external assistance. However, national savings will
still play the predominant role, rising in relative importance from 50% of the
total in 1976 to an estimated 60% in 1980. The savings rate would need to rise
from the current level of 9.5% to almost 16% of national income (or from 11% to
19% according to Vietnamese methodology), implying a marginal savings rate of
about 25%.
5.30      Most of the current savings in the economy are generated ir the
northern provinces where the Government has in the past demonstrated it-s
ability to restrict private consumption and mobilize resources for ir'c-trv:nt
and a 16% savings rate by 1980 would not seem unrealistic. The southe:-%
economy, in the wartime conditions of the late 1960s and early 1970s, ,ain-
tained an average consumption level significantly above its income. LI:s



- 6C -
ability to mobilize savings in the current peacetime conditions and under the
transitional economic system remains to be demonstrated. In a socialist
economy the level of saving and irnvestment is, to a large extent, directly
determined by the Government. but it still depends fundamentally uipon the level
and rate of growth of real incomes. Viet Nam is planning for a relatively high
rate of growth of national income, 13-14% p.a. in real terms. With a popula-
tion growth rate of' around 2.5%, a marginal savings rate of 25%. would allow per
capita consumption to rise by about 8% p.a. To realize such an increase in
consumption will require an appropriate mix of domestic output of consumer
goods, plus imports.  Personal consumption in the north is already very low and
the Government has indicated that one of its aims is to increase it, thus
leaving little scope for further increasing the average rate of savings. There
is a similar need to maintain and even increase the level of public consumption.
5.31      The above points to the importance of improving domestic resource
mobilization, especially in the southern provinces. In the period of transi-
tion foreseen in the plan much will depend upon maintaining the incomes and
savings of enterprises still in private ownership. Appropriate public
policies towards such enterprises in the fields of taxation, access to
credit, and imported new materials and spare parts could do much to maintain
a high -ate of growth of output and thus permit higher savings in the south.
For the same reasons, plus the need to create more employment, there is a
strong case for using the maximum capacity of the industrial sector in the
soluth. To do so will require, however, that the resultant output be absorbed;
since a significant proportion of that output will consist of consumer goods,
that implies that the overall management of the economy will be such as to
per-mit the increase in consumption to take place.
5.32      There is a clear link between the need for a high rate of growth of
incomes,    order to support a stronger effort in mobilizing domestic savings,
and the need for substantial foreign assistance.  As discussed in the following
chapter, imports of capital goods, raw materials and intermediate products are
complemnentary to domestic resources, and are required to permit the relatively
high rates of growth set out in the five-year development plan. The achievement
of these high rates of growth will be jeopardized if imports have to be cut
back because of a continuing shortage of foreign exchange. The prospects for
the balance of payments and capital inflows are discussed in the next chapter.
it should be noted here that the impact of any shortfall in foreign exchange
will depend upon the Goverment's reactions in cutting imports. Such cuts would
be bound to affect investment, but the effect upon output growth would then
nd uron the nature of the cuts, and the extent to which it was possible
t- . nta-n supplies of inputs essential to current output. Investment
its  th long gestation periods could be cut back with little impact
-. seue urrent rate 3f growth of output.



- 61 -
6. THE BALANCE OF PAYMENTS AND EXTERNAL CAPITAL INFLOWS
6.01      The economy of Viet Nam has emerged from the war with a structure
which is vitally dependent upon foreign trade both to maintain the output of
agriculture and industry and to carry out the investment programs of the
plan. However, the shortage of foreign exchange is severe, with exports
covering only 40% of the value of imports in 1976, with the balance covered
by aid and capital from abroad./1 While the plan places great stress on
self-reliance, it also gives high priority to expanding exports and econo-
mizing on imports. The extent to which the economy should attempt, in the
longer run, to be self-sufficient is a question which cannot easily be
answered in the present plan period; in the short run there are only limited
possibilities for import substitution and the growth of output, including
exports, requires that imports increase as well.
6.02      The five-year plan does not set out detailed projections for the
balance of payments up to 1980. Presumably these will be filled in as each
annual plan is prepared. It does set out as an objective that exports should
cover 80% of the value of imports in 1980, which would imply a substantial
improvement in the balance of payments situation over the next two to t:hree
years. This is an ambitious objective, which, if achieved, will mean a
significant fall in the net transfer of resources from abroad. In the
absence of a detailed balance of payments projection spelling out the pz.h by
which the above target would be reached the following discussion presents aa
alternative scenario in which the trade deficit would not show such a dramati-
improvement. This alternative projection is presented for illustrative pur-
poses, and has been derived from estimates of the possible rate of growth of
exports and of the country's import requirements. It is intended to show
the possible orders of magnitude likely to be involved in the remaining
three years of the plan, in circumstances where there would be a relatively
large net transfer of resources from abroad.
Import Requirements
6.03      The Government's ability to mobilize domestic resources has, in the
past, been impressive and it is possible to be sanguine about future prospects.
The problem of external resource mobilization may prove to be more difficult
mainly because Viet Nam's current imports complement, rather than substi-
tute for, domestic production and any reduction over the next 3-5 years
would result in decreased domestic production and investment. Specifically,
the bulk of Viet Nam's imports - two thirds in 1977 - consists of intermediate
goods, including raw materials (31% of total planned imports in 1977), fuels
(17%), spare parts (9%), and fertilizer and insecticides (8%) (see Table 1).
In the longer run, there are obvious opportunities to reduce substantially
the economy's reliance on these imported inputs, particularly as integration
/1 The official figures for the balance of payments exclude certain imports
financed under aid agreements, (see footnote /c to Table 3), but the
amounts involved are not thought to be large enough to change the general
order of magnitude of the situation discussed in this chapter.



- 62 -
of the two halves of the economy progresses, but for at least the next 3-5
years imports will need to expand in line with the rapidly rising level of
economic activities.
6.04      Machinery and equipment are expected to account for about one fourth
of imports in 1977. In view of the relatively small size of the domestic
capital goods industries and the massive rehabilitation and reconstruction
requirements, there is an obvious need to increase the volume of imported
machinery and equipment to supplement limited domestic supply and to serve as a
vehicle for the transfer of technology.
6.05      Perhaps less obvious but no less urgent in present circumstances is
the need for a wide range of imports to achieve the Government's current
development objectives. First, the Government is committed to improving the
standard of living of the population; since the minimum needs of the population
are already adequately met, this commitment can only be manifested to a large
extent in increased availability of industrial consumer goods, e.g., clothing,
shoes, bicycles, simple home appliances, clocks, radios, etc., and building
materials for residential housing. Second, an adequate supply of such consumer
goods is necessary to ensure the effectiveness of the new management system,
wbLich relies on material incentives more than hitherto. Third, improved avail-
ability of consumer goods is required to achieve the Government's objective of
increased specialization in the country's production pattern. For example, if
the seven agricultural zones are to specialize in the production of the crops
for which they have a comparative advantage, the producers must receive assur-
ances that increased production will result in higher real incomes. Experience
elsewhere in Southeast Asia as well as in Viet Nam has amply demonstrated that
rice farmers are reluctant to make the effort required to plant a second crop
even if irrigated water is available, unless they are certain that their
surplus production can be exchanged for a reasonable amount of consumer goods.
6.06       Furthermore, the current level of consumer goods imports is very
low, the projected amount for 1977 (excluding food grains) being less than 10%
of total imports. Even if the Government chooses to postpone any substantial
increase in private consumption and continues to maintain consumer imports at
the current low level, total imports must nevertheless rise rapidly in line
with the planned increase in investment and domestic production. In the
present circumstances of Viet Nam, it seems undesirable to continue giving
highest priority to the import of machinery and equipment at the expense of
intermediate goods. Underutilization of industrial capacity is evident in
the north (para. 2.57) as well as in the south (para. 2.56) because of in-
adequate maintenance and shortage of spare parts and raw materials. Reduced
imports of intermediate goods will undoubtedly exacerbate the problem; indeed,
it would seem that, in the short and medium term, imports of maintenance
equipment, spare parts and raw materials could yield mich higher returns to
the economy than imports of new plant and machinery. Similarly, reducing
imports of consumer goods whenever foreign exchange is scarce could also
result in a loss of incentives to industrial workers and farmers and lead
to reduced production in the economy. For these reasons, it seems desirable
to imaintain a balanced import structure even if the supply of foreign exchange
turns out to be less than expected.



- 63 -
6.07      Table 1.1 in Annex 1 brings together a set of projections for the
years of the plan. The total projected imports of $1,830 million in 1980 are
close to twice the plan's target for 1977, implying a very rapid rate of
growth over the coming three years. However, it should be noted that the
projected volume of imports in 1980 would still be substantially less than
the total amount imported by the two separate economies of Viet Nam six years
earlier ($1,700 million in 1974 prices), of the order of 30-35% less after
taking into account past and projected inflation.
Export Prospects
6.08      The Government's export target during the current plan period
is very ambitious; while the longer term prospects certainly seem very
favorable, the prospects for immediate growth appear more limited and the
rehabilitation and expansion of export production may require a much longer
time than anticipated by the Government. Substantial rehabilitation of
existing rubber plantations is required, for instance, before the past export
volume can be attained; increased exploitation of the country's fishery,
forestry and mineral resources for export requires substantial capital
investment and a fairly lengthy gestation period. In addition, the import
-component of the major export projects, including rubber processing factories,
freezing plants, timber processing and pulp and paper plants, and mining
equipment, is very large and it would appear that these projects are likely
to be net users of foreign exchange, at least until the early 1980s.
6.09      The Government's export target of $446 million in 1977 represents
a 55% increase over the revised estimate for 1976 and more than double
the highest level ever achieved by the two separate economies before unifi-
cation. A further doubling of exports by 1980 would be a considerable
achievement. A more cautious projection for the plan period is given in
Table 1.2, Annex 1. It shows total exports increasing by 160% from the 1976
total to reach $750 million by 1980.
6.10      Table 1 shows the balance of payments for 1976, the forecast: in the
plan for 1977 and illustrative projections for 1978-80 on the basis of the
above discussion of the prospects for exports and the imports required to
support the Government's five-year development plan. Since service trans-
actions are small they have been omitted, and the trade balance is thus also
the current account deficit which indicates the financing requirements that
will have to be covered by capital inflows. The cumulative deficit amounts
to US$3.4 billion over the remaining four years of the plan. Such deficits,
while large, would not be excessive for a country the size of Viet Nain (about
$21 per capita in 1980) during a period of rehabilitation and rapid economic
growth.  There is also a strong presumption that the need for large capital
inflows would be much less in the early 1980s in the next plan periods Given
the new situation arising from the reunification of Viet Nam and its declared
intention of opening up wider trade and economic relationships, it is difficult
to forecast the prospects for financing deficits of this size. The following
discussion spells out one possible pattern of financing, distinguishing between
the two sources, the socialist countries and the rest of the world.



- 64 -
Table 1:  ILLUSTRATIVE ?ROJECTION OF THE BALANCE OF PAYMENTS, 1976-80/a
($ million)
1976        1977         1978        1979        1980
(Actual)     (Plan)
Exports                   288          446          530        640         750
Imports /b                794        1,045        1,300      1,555       1,830
Trade Balance            -506         -599        -770        -915      -1,080
Capital inflows: c
Socialist countries    350           200         325         412         500
Rest of the world       156          399          445        503         580
/a  Some imports financed by grants and aid agreements are not included in the
balance of payments account.
/b  Includes food grain imports for 1977-79; see footnote /a to Table 1.1,
Annex 1l
/c  It -ts assumed that the financing needs arising from possible imports of
rice in 1977-79 will be shared equally between the socialist countries and
the rest of the world. This is not the same as assuming that the rice
imports will be provided, either as aid or through credits, in that
proportion by the two groups.
Sources: 1976-77: State Bank.
1978-80: World Bank staff estimates.
6.11      Viet Nam's trade deficits with the socialist countries have hitherto
been financed largely by grants from the exporting countries, with relatively
small amounts of long-term credit. Although an accurate valuation of assis-
tance from socialist countries in terms of convertible currency is not
possible, economic aid to northern Viet Nam in the decade before reunification
has been estimated to be of the order of $350 million per year, of which
about 80% was from the Soviet Union and the People's Republic of China. Aid
>Jas c1h anneled primarily to the construction of economic infrastructure,
parti _larly transport, communication and power, and basic industry. In 1977
et "am's trade deficit with the socialist countries is expected to fall
sharp. from an estimated $350 million in 1976 to about $150 million./l  Even
tsough :he trade account does not include all transactions, this would seem
i imply a decrease in net transfers from the socialist countries. Vietnamese
authorities explained that this was due to the decline in disbursements for
development projects while the current five-year plan was being prepared.
/1  Excluding additional financing requirements for grain imports; see foot-
note /a to Table 3.



- 65 -
Now that the plan has been launched, disbursements for socialis_ coutntries-
assisted projects should rise sharply over the next few years, probably to
some $500 million by 1980.  Among the more important projects being financed
with assistance from the socialist countries are the construction of a new
bridge across the Red River near Hanoi (People's Republic of China);
construction of a dam and hydroelectric facility on the Da River, a petroleum
refinery, reconstruction and expansion of the port of Haiphong (Soviet
Union); reconstruction of the city of Vinh (German Democratic Republic); and
expansion of the Gia Lam railway factory in Hanoi (Poland).
6.12      Past economic assistance to Viet Nam from socialist countries was
mainly for machinery and equipment imports associated with investment projects.
In the early 1960s, for instance, 60-80% of socialist aid was used for the
import of machinery and equipment and only 20-40% for fuel, raw materials and
consumer goods.  Assuming that the average ratio of 70% of a'd for capita'.
goods and 30% for intermediate and consumer goods remains valid tolay, the
use of assistance from socialist countries over the remaining year.3 of tue
current plan period is likely to be as follows:
1978     1979      1980
--- ($ million) 
Machinery and equipment                235      290       350
Intermediate and consumer goods         90      122       1 )
Total assistance from
socialist countries            325       412       500)
6.13      In recent years, assistance from nonsocialist countries to ncrtnern
Viet Nam and, after 1975, to reunified Viet Nam has also been expanding, the
major sources being Sweden, France and Japan. Grants from the Swedish Govern-
ment, amounting to over $200 million over the past three years, are financing
the construction of a 50,000 ton pulp and paper mill near Hanoi, a ped]Latric
hospital in Hanoi and a general hospital in the coal mining district of Uong
Bi. Grants from the Japanese Government financed $45 million of imported
construction materials and transport equipment in 1975 and 1976, while most
other assistance was in the form of long-term credits.  Subst-iltiai relief
assistance was also provided by the United Nations Organlization irt  '7T; and
1976.
6.14      Assistance will also be forthcoming from other cotintries, and VIet
Nam can expect to draw futher upon the resources of the LMF and to OD tain loans
and credits from the other multilateral agencies. It is too early to state
what will be covered by such financing, but if the first priorlty of assistance
is to meet the remaining import requirements for machinery and equipment, the
use of external assistance in convertible currencies could be as foliows'i



a 66 -
1978     1979      1980
------ ($ million)-----
Machinery and equipment               240      245       250
Intermediate and consumer goods       205      258       330
Total assistance required
in convertible currencies       445       503      580
6.15      These estimates should be taken with more than the usual caveat
associated with this type of analysis. In the absence of sufficient detailed
knowledge of the Government's development programs, the economy's propensity
to import, the country's export potential, or the magnitude of assistance
that is likely to be provided by the socialist countries, the estimates can
only illustrate an order of magnitude of Viet Nam's needs. The following
tentative conclusions might be drawn from such projections: first, in addi-
tion to assistance that is likely to be provided by the socialist countries,
very substantial assistance will be desirable from multilateral agencies and
nonsocialist countries to support the Government's reconstruction and devel-
opment program; second, the magnitude of the assistance required would
indicate that bilateral aid from nonsocialist countries will have to be
increasingly important sources of assistance, especially since concessional
aid from multilateral agencies is likely to be limited by the availability of
funds; and third, because the amount of aid required exceeds the probable
imports of capital goods, aid policy will need to be flexible during the
reconstruction period and consideration should be given to the financing of
intermediate and consumer imports through quick disbursing program assistance.
Increased imports of noncapital goods are essential to the Government's
efforts to revive production and prqmote efficiency. The limits to what Viet
Nam can accomplish in the short run may then be set by the country's absorp-
tive capacity, which has yet to be demonstrated. It would be prudent, in any
event, to bear in mind the possibility that specific bottlenecks might arise,
especially in the transport sector, which would make it impossible to carry
out the proposed investment expenditures at the rate required. It will
always be necessary to make a careful choice of priorities, particularly if
cuts in imports have to be made. The priorities should then take account of
the need to maintain the rate of growth of output, which would mean ensuring
that adequate supplies of imported raw materials and intermediate goods are
made available.
6.16      The final conclusion to be drawn from the above estimates is that
there is a need to provide a significant proportion of the capital inflows on
concessional terms. In many respects the case for such terms is more obvious
than for other countries. It rests squarely on the fact that the country is
still in a reconstruction phase, following a lengthy war, and needs a breathing
space in which to reorient its economy to peacetime objectives. Moreover, Viet
Nam's economy is not self-sufficient and it is not possible immediately to
divert resources to the production of exports to the extent necessary to



- 67 -
finance all the urgent import requirements. Assistance is needed to help
cover the costs of basic import requirements for a period sufficiently long to
permit the country to develop an increased capacity to export.
6.17      Furthermore, Viet Nam is a country that has demonstrated an ability
to mobilize its limited resources for investment purposes, despite the low
level of per capita income. These investment expenditures are to be carr1ed
out within the framework of a development plan which addresses the priority
problems of the economy. Within those priorities it should be possible to make
effective use of foreign inflows obtained on concessional terms.
6.18      Viet Nam's international reserves are largely depleted.  In the
course of 1976, the Government used up its entire holding of foreign exchange
reserves ($68 million), drew its gold tranche from the IMF ($18 million), and
used $22 million out of its $23 million allocation of SDR. In early 1977 it
also drew SDR 31 million ($35.8 million) under the compensatory financing
facility. At the end of 1976, gross international reserves of the country
amounted to only $117 million, comprising $28 million in gold (valued at
$42.22 per ounce), $1 million in SDR, $7 million in blocked French francs,
pending settlement of claims of the former French Indochinese Monetary Union,
and $81 million in US dollar assets of the former Government of South Viet
Nam, blocked by the US Government.
6.19      Disbursed and outstanding debt of the former Government of South
Viet Nam amounted to about $200 million at the end of 1975, of which the
major creditor countries are the United States ($96 million), Japan ($51 mil-
lion) and the Federal Republic of Germany ($22 million). At the time of
political unification in July 1976, Viet Nam had no outstanding debt to the
socialist countries. External assistance from these countries had been
provided mainly as grants, and the snmall amount of debt outstanding was
written off at the time of unification. In late 1975 and 1976 the Government
received about $100 million of commitments in convertible currencies of
private bank credits. Although it starts from a modest debt situation it
will need to keep debt service low until the balance of payments situation
can be improved.



I



ANNEX I
Page 1
PREIMsINARY ESTIMATES OF VIET NAMNS EXPORTS AND IMPORTS
1976-80
1.        The Government's import plan for 1977 amounts to $945 million,
19,' higher than the revised estimate for 1976.  The allocations by end use
are $320 million for machinery, equipment and spare parts, $540 million for raw
materials, fuel and agricultural inputs and $85 million for consumer goods.
Food grain imports, financed in the last two years mainly through commodity
aid, have apparently not been included in these projections. Assuming that
500,000 tons of rice need to be imported in the year, an additional allocation
of about $100 million will be required.
2.        According to the State Planning Commission, import components of
investment expenditure in Viet Nam range from 20% in agriculture to 40-50% in
industry, power and railways. There is no reason to expect these ratios to be
reduced in the near future. Since investment in the economy under the current
plan is projected to double from 1977 to 1980, imports of machinery, equipment
and spare parts will also need to double, from $320 million in 1977 to about
$600 million by 1980. As the plan's investment program appears to have been
estimated in current price terms, no allowance has been added for expec-Led
inflation, but a higher rate of international inflation relative to domestic
inflation could increase the ratio of imports to total expenditure and th-re-by
lead to higher import requirements in current price terms.
3.        Imports of raw materials, fuels, fertilizer and insecticides would
normally grow at the same rate as the expansion of economic activities, especi-
ally agricultural and industrial production. The volume of agricultural and
industrial output in 1977 is expected to increase by 16% and 20% respecl:ively,
but these rates of growth are not expected to be sustainable in the rest of the
plan period and 10-15% seems more realistic. Including a 6-7% annual increase
in price, import values of these intermediate goods seem likely to grow by about
20% per year, thereby increasing from $540 million in 1977 to $930 million
by 1980.
4.        Consumer goods are the one component of imports the volume of which
could be determined according to government development priority. The Govern-
ment obviously intends to restrict consumer imports - apart from food grains
and other essential foodstuffs - as long as foreign exchange remains scarce.
Although the Government aims to achieve sufficiency in rice by 1980 it is
necessary to allow for imports of food grains in the intervening years. For
the purposes of these calculations it is assumed that these will amount: to
500,000 tons in 1977, falling to 300,000 tons in 1978, 150,000 tons in 1979 and
being eliminated altogether in 1980. Applying prices per ton appropriate to
the quality which is likely to be imported, ($200 in 1977, $170 in 1978 and
1979) gives the totals for food grain imports in Table 1.1 below. Inc:Luding
food grain imports (which the Government apparently did not include in its
balance of payments plan) of about $100 million, consumer imports are Likely to
be about $185 million. The total could rise to at least $300 million by 1980,
with imports of other consumer goods replacing food grains.



ANNEX 1
Page 2
Table 1.1:  COMPOSITION OF IMPORTS, 1976-80
($ million)
1976        1977         1978        1979        1980
(Actual)/a   (Plan)                (Projected) 
Food grains                           100            50          25          -
Other consumer goods                   85           150         225         300
Intermediate goods:                   540           650         780         930
Fuel
Raw materials
Other
Capital goods                         320           450         525         600
Total                  794        1,0O45        1300        1,555       1,830
/a Composition not available.
Sources: 1976-77: State Bank.
1978-80: World Bank staff estimates.
5.        Table 1.2 gives a possible order of magnitude for the value of
exports and their composition over the plan period.  The most optimistic
assumption of export earnings in 1980 would seem to be about $750 million.
Table 1.2: COMPOSITION OF EXPORTS, 1976-80
($ million)/a
1976        1977         1978        1979        1980
(Actual)     (Plan)                (Projected) 
Coal                                                                       100
Rubber                                                                      70
Fishery products                                                           200
Wood & wood products                                                       100
Manufactures
Handicrafts                                                               (280
Other {
Total                  288          446          530         640         750
/a Composition of the total not available for 1976 and 1977.
Sources: 1976-77: State Bank.
1978-80: World Bank staff estimates.



,NNEX I
P'age 3
6.         The provinces north of Haiphong possess large reserves of coal.
Provided a large expansion program can be implemented quickly, including the
necessary expansion of the coal port, the country has the potential oi exporting
about 2 million tons by 1980, at a probable price of $50 per ton. Existing
rubber estates in the south already have a potential output of about 30,000
tons but substantial rehabilitation is required and, in many instances, complete
replanting may prove to be economically desirable. About 60,000 tons of rubber
exports appear to be the maximum possible by 1980, at a projected price of
about $1,200 per ton. Both the northern and southern eonomies possess consider-
able fishery potential and this is the Government's priority export sector.
Including both fish farming and offshore fishing, the total catch by 1980 could
be of the order of one million tons, of which about 10% would be exported.
Half of the exports is assumed to be high value items such as shrimps and crabs
for which there are large potential markets in neighboring Asian countries and
total exports in 1980 could amount to $200 million. The country also possesses
considerable forestry resources which are presently not exploited. Substantial
exports of logs, sawn wood, plywood, pulp and pulp products will be plossible in
the future but, owing to the lack of exploitation facilities at present, export
value of $100 million appears to be the maximum likely by 1980. Other exports,
including light industrial products, handicrafts and processed agricultural
products, are not likely significantly to exceed $250 million by 198(0. Thus,
total exports of $750 million appear to be the maximum feasible by 1980.



ANNEX 2
Page 1
POPULATION CHARACTERISTICS
Present Population
A general enumeration of the population in February, 1976, which was
carried out in preparation for the April elections, provided the first reliable,
if highly aggregate, data on the country's population./1
2.        Prior to that date, the North had carried out two censuses (in 1960
and 1974), whereas population data in the South were based on estimates derived
froma surveys with limited geographic coverage; this procedure naturally implied
a substantial margin of error. In the light of the 1976 enumeration results it
appears that these estimates, apart from their incomplete coverage, have consis-
tently underestimated the natural rate of population growth.
3.        The 1974 census in the North showed a population of 23.8 million (51%
females). The intercensus (1960-74) natural growth rate averaged 2.9% p.a.,
but had already dropped to 2.5-2.6% by the end of that period. This came about
through a combination of a moderately high crude birth rate of 32 per 1,000 and
a low crude death rate of 6 per 1,000.
4.        The 1975 population estimate for the South was 19.7 million (50%
females), with an assumed annual growth rate of only 1.8%; there can be little
doubt that this rate was much too low. On the other hand, alternative popula-
tion indicators that became available, largely through urban records, seem to
have been influenced by the influx of rural refugees, so that their application
to the entire region would lead to errors in the opposite direction. Those
sources suggested a crude birth rate of 41 per 1,000, a crude death rate of 11
per 1,000, and an annual population growth rate of 3.0%.
5.        The February 1976 count for the entire country gave a population
of 47.15 million, 8% above the figure that was expected on the basis of informa-
tion previously available; of this total, 23.0 million lived in the northern
part of the country, and 24.20 million in the south (see Table 2.1). The large
difference between the 1975 population estimate for the south and the actual
1976 figure is not surprising in the light of the uncertainties mentioned previ-
ously7. However, there is also a discrepancy of about two million persons between
the 1976 population for the North derived by extrapolation of the 1974 census
figlmres, and the actual 1976 enumeration results. Part of this difference is
explal-ed by changes in administrative boundaries:  in the course of an adminis-
;--ati e concentration, the former northern province of Quang Binh was joined
nh    former southern provinces of Quang Tri and Thua Thien to form the new
southerl province of Binh Tri Thien. Assuming that this administrative transfer
Involved not more than one million persons, and that both the 1974 census and
the 1976 enumeration were essentially accurate, it appears that there has been a
postwar net population movement from the northern to the southern region in the
order of at least one million persons.
/1 A summary of Viet Nam's most recent population data is contained in a
memorandum by the UN Population Division dated November 17, 1976 (Ref-
erence SO 322 Viet Nam), which forms the basis for this annex.



ANNEX 2
Page 2
Table 2.1: VIET NAM: POPULATION, LAND AREA AND POPULATION DENSITY BY PROVINCE,
1976
Population
Population         Area                 density
(1,000)          (sq km)           (persons/sq km)
NORTHERN VIET NAM
Cities:     Hanoi                   1,443.5              597               2,418
Haiphong               1,190.9            1,515                  786
Provinces:  Lai Chau                  265.6           17,408                   15
Hoang-lien-son           677.2           14,125                   48
Ha-tuyen                 686.1           13,519                   51
Bac-thai                  752.9           8,615                   87
Cao-lang                 843.9           13,781                   61
Son-la                   410.1           14,656                   28
Vinh-phu               1,579.5            5,187                  305
Ha-bac                 1,466.2            4,703                  311
Quang-ninh               701.8            7,076                   99
Ha-son-binh            2,041.6            6,860                  298
Hai-hung               1,929.9            2,526                  764
Thai-binh              1,416.2            1,344               1,054
Ha-nam-binh            2,574.6            3,522                  731
Thanh-hoa              2,262.1           11,138                  203
Nghe-tinh              2,704.6           22,380                  121
Subtotal            22,946.7         148,957                  154
SOUTHERN VIET NAM
City:       Ho Chi Minh             3,460.5            1,815               1,876
Provinces:  Binh-tri-thien          1,751.8           19,018                  92
Quang-nam - Da-nang   1,414.4            11,376                  124
Gia-lai - Cong-tum        465.0          18,480                   25
Nghia-binh              1,789.1          14,700                  122
Dac-lac                   372.7          18,300                   20
Phu-khanh               1,066.2           9,620                  111
Lam-dong                  343.1          10,000                   34
Thuan-hai                 836.9          11,000                   76
Song-be                   561.4           9,500                   59
Dong-nai                1,260.3          12,130                  104
Tay-ninh                  625.9           4,100                  153
Long An                   828.8           5,100                  163
Tien-giang              1,137.2           2,350                  484
Ben-tre                   932.0           2,400                  388
Dong-thap                 991.3           3,120                  318
Cuu-long                1,319.1           4,200                  314
An-giang                1,361.7           4,140                  329
Hau-giang               1,870.4           5,100                  366
Kien-giang                834.0           6,000                  139
Minh-hai                  981.1           8,000                  123
Subtotal            24,203.2          108,449                  134
Grand Total         47,149.9          329,406                  143
Source: Population Enumeration, 1976.



ANNEX 2
Page 3
6.        The UN estimates for distribution by age for 1975 are given
in Table 2.2. Because of the apparent underestimate of births during the
war, they would seem to require some upward adjustments for the youngest age
groups (and corresponding downward corrections for some of the older age
brackets) for the South.
Table 2.2:  VIET NAM:  ESTIMATED COMPOSITION OF POPULATION BY AGE GROUP,
1975 (%)
A&e (yearsl)                   North              South
0-4                        16.5                15.7
5-9                        12.7                12.7
10-19                       22.8                23.2
20-29                       12.3                12.5
30-39                       12.9                13.0
40-49                        9.8                 9.9
50-59                        6.9                 6.9
60+                          6.2                 6.2
Source: UN Population Division Document ESA/WP 60.
Regional Population Data
7.        The geographic distribution among the country's 35 provinces and
3 Special Cities (Hanoi, Haiphong, Ho Chi Minh City) is very uneven, in the
north more so than in the south (see Map). This is evident from Table 2.3
which regroups the data in Table 2.1.
8.          Statistics on the urban-rural distribution of the population are
unavailable. The three Special Cities alone account for 13% of the 1976 popu-
lation. The existence of numerous medium and minor provincial and local centers
throughout the country would suggest an urban population share in the range of
20-25%.



ANNEX: 2
Page 4
Table 2.3: VIET NAM: RELATIVE CONCENTRATION OF POPULATION
IN NORTH AND SOUTH, 1976 /a
Provinces with                Northern Region                      Southern Region
population         No. of           % of total             No. of          % of total
densities of       provinces  land area  population   provinces  land area  population
<25 persons/sq km      1           12           1             1          10           2
<50    "    "   "      3           29           9             3          26           6
<100 persons/sq kw    7            61          21             6          48          21
>100   "    "   "      8           39          79            14          52          79
>250 persons/sq km    6            16          71             6          12          37
>500   "    "   "      3            5          31             0           0           0
Totals:          15          100         100            20         100         100
/a Special Cities excluded.
Source: Population Enumeration, 1976.
9.        The planned urban-rural and interprovincial population movements
will relieve slightly the population pressures in the most densely populated
provinces and markedly in Ho Chi Minh City but will not alter the basic pattern:
two heavily populated river deltas, moderate population densities in the other
coastal provinces, and scattered settlement in the mountainous provinces.
Population Trends
10.       Given the scarcity of relevant data, population projections are of
necessity formulated with a considerable margin of error.  The Government hopes
that by 1980 the annual population growth rate will have dropped to slightly
over 2%. It appears that the main factor of uncertainty is the present level
of fertility in the southern region (which presumably is higher than in the
north), and the possibility of lowering it appreciably within a period of only
three or four years. Assuming a 1976 baseline growth of 2.8% for the entire
country and annual decreases of 0.1 percentage points would give a 1980 popula-
tion estimate of 52.4 million persons. Following a more optimistic hypothesis
of annual reductions of the population growth rate by 0.2 percentage points
(leading to a 1980 rate of 2.2%) would result in an alternative 1980 population
estimate of 52.0 million.






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