Vietnam decentralization amidst fragmention

Journal of Southeast Asian Economies Vol. 33, No. 2 (2016), pp. 188–208 ISSN 2339-5095 print / ISSN 2339-5206 electronic<br /> <br /> DOI: 10.1355/ae33-2e<br /> <br /> <br /> Vietnam<br /> Decentralization Amidst Fragmentation<br /> <br /> Vu Thanh Tu Anh<br /> <br /> <br /> <br /> <br /> Since Doi Moi (1986), decentralization in Vietnam has been expanded, but still limited to<br /> fiscal and administrative rather than political decentralization. From the central perspective,<br /> decentralization has undermined the uniformity of national policies and encouraged<br /> unhealthy competition among local governments. For local governments, decentralization has<br /> not always been accompanied by institutional autonomy and sufficient financial resources.<br /> Moreover, there has been a lack of synchronization between central ministries as well as<br /> consistency between the different dimensions of decentralization. Finally, the people and<br /> businesses have neither been adequately involved nor had sufficient voice in the most<br /> important decentralization policies. This article analyses common and cross-cutting issues<br /> shared by different dimensions of decentralization in Vietnam since Doi Moi. It shows that<br /> serious institutional fragmentations has rendered decentralization ineffective. Given Vietnam’s<br /> political economy, the first priority in designing decentralization policy is to overcome these<br /> fragmentations and prepare the prerequisites for effective and efficient decentralization.<br /> <br /> Keywords: Decentralization, institutional fragmentation, political economy, Vietnam.<br /> <br /> <br /> <br /> 1. Introduction self-responsibility at all local government levels<br /> in their management and implementation of<br /> Formal decentralization in Vietnam started socio-economic development tasks” (Nghị quyết<br /> with Doi Moi (economic innovation) in 1986 08/2004/NQ-CP của Chính phủ về tiếp tục đẩy<br /> and accelerated in the late 1990s. Since then, mạnh phân cấp quản lý nhà nước giữa Chính phủ<br /> the scope of decentralization has continuously và chính quyền tỉnh, thành phố trực thuộc Trung<br /> been expanded. However, the scope has been ương, hereafter Resolution 08).<br /> mostly limited to fiscal and administrative To date, the results have fallen short of the<br /> decentralization rather than political or personnel government’s expectations. From the central<br /> decentralization. Decentralization was expected to government’s perspective, decentralization has<br /> “promote strong dynamism, creativity, autonomy, undermined the uniformity of national policies<br /> <br /> <br /> <br /> <br /> Vu Thanh Tu Anh is the Director of Research at the Fulbright Economics Teaching Program, 232/6 Vo Thi Sau St.,<br /> District 3, Ho Chi Minh City, Vietnam, and a Research Fellow at the Harvard Kennedy School; email: anhvt@fetp.<br /> edu.vn<br /> <br /> <br /> <br /> <br /> 188 © 2016 ISEAS – Yusof Ishak Institute<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 188 28/6/16 9:19 am<br />  August 2016 Vu : Vi e t n a m : D e c e n t r a l i z a t i o n A m i d s t Fr a g m e n t a t i o n 189<br /> <br /> <br /> <br /> and encouraged unhealthy competition between among different levels of government as seen in<br /> local governments. On one hand, it has resulted in the growing number of provinces, districts, and<br /> a decline in the central government’s control over communes in the last three decades.<br /> local governments; on the other, it has resulted in The remainder of this paper is organized into<br /> an increase in localism. For local governments, five sections. Section 2 presents an overview<br /> decentralization has not always been accompanied of decentralization in Vietnam since Doi Moi.<br /> by institutional autonomy and necessary financial Section 3 describes sub-national–central relations<br /> resources. Moreover, there has been a lack of and allocations of powers between central and<br /> synchronization between central ministries as well provincial governments. Section 4 analyses two<br /> as consistency between different dimensions of recent debates about decentralization in Vietnam,<br /> decentralization. As a result, local governments namely the removal of the People’s Council at the<br /> were confused in many circumstances, and therefore district and commune levels, and the consequences<br /> became passive, relying heavily on instructions of decentralization on institutional integrity at the<br /> from the centre. Finally, the people and businesses provincial level. Section 5 provides a general<br /> — those ultimately affected by the decentralization assessment of the successes and limitations of<br /> policy — have neither been involved nor had a decentralization in Vietnam. Section 6 concludes<br /> voice in the most important policies that affect and provides some policy recommendations, which<br /> their life and economic activities. emphasize the need for a fundamental change<br /> Within the Vietnamese state hierarchy, four in the concept and design of decentralization in<br /> fundamental tensions have emerged during the Vietnam.<br /> process of decentralization. The first is that<br /> decentralization necessarily requires a fundamental<br /> 2.  An Overview of Decentralization in<br /> shift in the role of the state, from social planner<br /> Vietnam since Doi Moi<br /> and decision-maker to facilitator and rule-setter.<br /> However, in such a hierarchical and unitary Despite the fact that many decentralization<br /> system like Vietnam, this shift is never simple as policies have been implemented, decentralization<br /> it not only involves changes in the government’s has not fulfilled its stated objectives. The<br /> internal organization, but also undermines its Government’s Resolution 08 (30 June 2004)<br /> inherently discretionary power. The second tension acknowledged that: decentralization has given rise<br /> results from the fact that, in many cases, more to the break of uniformity in public management,<br /> decentralized responsibility is not accompanied by dispersion and localism; the responsibility of each<br /> a sufficient increase in capacities and resources, government levels has not been well defined;<br /> causing serious overload for the local government. decentralization has not been accompanied by<br /> The third tension is between accountability and the necessary conditions for the local government<br /> autonomy, as increasing autonomy for the local to carry out their tasks; there has been a lack of<br /> government does not by itself ensure accountability. synchronization and consistence among different<br /> Finally, the local government’s increasing self- ministries and dimensions of decentralization; and<br /> governance may break the consistency and some decentralized tasks stipulated in laws and<br /> uniformity of national policies. regulations have been implemented only partially<br /> This article analyses common and cross- or delayed.<br /> cutting issues shared by different dimensions Also according to the Resolution 08, the main<br /> of decentralization in Vietnam since Doi Moi, causes are that:<br /> focusing on the relationship between the two the conception and awareness of decentralization<br /> most important levels of government, namely policies and solutions are unclear, incoherent, and<br /> the central and the provincial. A major theme inconsistent between the central and provincial<br /> running through this article is that despite being a governments; there has been a concern that<br /> unitary state, there has been serious fragmentation radical decentralization may lead to localism and<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 189 28/6/16 9:19 am<br />  190 Journal of Southeast Asian Economies Vo l . 3 3 , N o . 2<br /> <br /> <br /> <br /> regionalism; there has been a lack of will and and investment attraction of Ho Chi Minh City,<br /> determination in the execution: from design to Binh Duong and Dong Nai in the south, and Vinh<br /> adoption and implementation of decentralization Phuc, Hung Yen, and Bac Ninh in the north.<br /> regulations; the review, assessment, and learning Generally speaking, except for fiscal de-<br /> from decentralization experiences are not<br /> centralization, the progress of administrative and<br /> properly carried out; the legal system has not been<br /> especially political decentralization has been<br /> synchronized and fallen short of the requirements<br /> for social and economic development in the limited. This can be clearly seen through the<br /> current conditions. assessment of all dimensions of decentralization set<br /> out in Resolution 08 and the Vietnam Development<br /> Although the government’s assessment of the Report 2010 (World Bank Vietnam 2009). The<br /> limitations of decentralization is valid, it has not next section will present key common weaknesses<br /> touched the root causes, which are deeply embedded found across all dimensions of decentralization<br /> in the current institutional system. Specifically, the in Vietnam as well as analyses of the underlying<br /> central government has always tried to protect its causes behind these limitations.<br /> authority, the most important aspects of which<br /> are its political power as well as its control over 3.  Description of Current Status of<br /> personnel appointment and budget allocation. This Sub-national–Central Relations<br /> explains why the concept of decentralization in<br /> 3.1  Brief Description of Vietnam’s Current<br /> Vietnam is limited mainly to the decentralization<br /> Administrative Structure<br /> of economic management and hardly includes<br /> political or personnel decentralization. According to the Constitution, the National<br /> The essence of the success of two decades of Assembly is the supreme body of state power in<br /> reforms since Doi Moi has been the transformation Vietnam. However, in reality, Vietnam’s political<br /> of the role of the state in the economy or, and state system comes under the absolute power<br /> more specifically, the gradual withdrawal of and comprehensive control of the Communist<br /> the government, both central and local, from Party of Vietnam (CPV).<br /> economic activities and the increasing role of the In recent years, the National Assembly has<br /> provincial government. Several examples stand become more influential in raising public issues<br /> out. The transformation of the rural areas in and shaping government policies, largely due to<br /> Vietnam in the late 1980s was the direct result of the proactiveness of its committees. However, it is<br /> many achievements in agricultural development, still very far from being able to check or balance<br /> which in turn were a consequence of land reform. the power of the government.<br /> It essentially returned the land from the collectives The head and representative of the government<br /> to the households, and the state’s decision to is the President of Vietnam, largely a ceremonial<br /> renounce its directive role and monopoly position post, appointed by the CPV and then formally<br /> in the production and distribution of rice. After elected by the National Assembly for a five-year<br /> only a few years, the country escaped from chronic term. The executive branch is led by the Prime<br /> hunger to become one of the largest rice exporters Minister (PM). In the current cabinet, under<br /> in the world. the PM, there are four Deputy Prime Ministers<br /> Another good example is that de facto (DPMs) and twenty-six ministers or ministerial<br /> decentralization (or freedom to innovate) in the equivalence. The PM and DPMs are again decided<br /> 1990s and the accelerated decentralization of by the CPV, but formally nominated by the<br /> foreign direct investment (FDI) management in the President and voted by the National Assembly for<br /> 2000s helped some provinces get ahead (Malesky a five-year term. The ministers are also decided by<br /> 2004). The most successful examples include the CPV but formally nominated by the PM and<br /> effective breakthroughs in economic governance ratified by the President.<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 190 28/6/16 9:19 am<br />  August 2016 Vu : Vi e t n a m : D e c e n t r a l i z a t i o n A m i d s t Fr a g m e n t a t i o n 191<br /> <br /> <br /> <br /> Vietnam has a two-tiered government system, the Central Committee was enlarged from 124 at<br /> comprised of the central and local governments Party Congress VI (1986) to 200 currently with<br /> (Figure 1). The local government has three provinces increasing their collective power vis-à-<br /> levels: provincial level (provinces and cities vis the central government.<br /> under the central government); district level<br /> (cities under provinces, urban districts, towns,<br /> 3.2  Allocations of Powers between Central and<br /> and rural districts); and commune level (wards,<br /> Provincial Governments<br /> town districts, and communes). The number of<br /> provinces in Vietnam has increased from forty From the beginning of Doi Moi, the need to<br /> in 1986 to sixty-one in 1997 and sixty-four in decentralize was recognized by the Party and was<br /> 2004. It is worth emphasizing that this massive enshrined in the Resolution of the Sixth Party<br /> proliferation of provinces is due to localism and Congress in 1986. This resolution emphasized the<br /> fragmentation1 rather than decentralization. An balance between the decision-making right of the<br /> important consequence of this expansion is that central level, the rights to autonomy of the local<br /> <br /> <br /> <br /> Figure 1. Vietnam’s Government StructureFIGURE 1<br /> Vietnam’s Government Structure<br /> <br /> <br /> <br /> <br /> Note: The numbers in round brackets are of 1986 and in square brackets are of 2015.<br /> Note: The numbers in round brackets are of 1986 and in square brackets are of 2015.<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 191 28/6/16 9:19 am<br />  192 Journal of Southeast Asian Economies Vo l . 3 3 , N o . 2<br /> <br /> <br /> <br /> level and production units, and the ownership The second State Budget Law, currently in<br /> role of the collective workers (Đảng Cộng sản force, was promulgated in 2002 and became<br /> Việt Nam 2004, p. 747). Thus, decentralization is effective since 2004. According to this law, tax<br /> rendered in Vietnamese as “phân công, phân cấp, revenue is shared between provincial and central<br /> phân quyền”, which literally means “hierarchical governments (Table 1) and the sharing rate is kept<br /> division of labour, administrative decentralization, stable for intervals of five years.<br /> power devolution”. The most recent State Budget Law was passed<br /> Until early 2000s, however, decentralization in 2015 and would become effective from the<br /> was pursued narrowly by the government as 2017 fiscal year. With regard to decentralization,<br /> a process of relatively simple administrative despite enormous pressure from many provinces<br /> decentralization and was a reactive and practical demanding a fair share of import tax collected at<br /> response to the serious economic woes threatening the provincial level, the new State Budget Law<br /> the country. In the earlier phase of reform, the rejects this demand. It nevertheless adds income<br /> state was successful in unleashing the private tax of the so-called overall-sector including SOEs<br /> sector’s energy and latent capacity by stepping to the tax-sharing list.<br /> back and relinquishing unnecessary control. Another noteworthy change is in the effort to<br /> Later on, the private sector has grown and local strengthen fiscal discipline at the provincial level.<br /> governments have increasingly been tasked with The 2015 State Budget Law specifies the maximum<br /> more responsibilities. As a result, the lack of a level of debt that provincial governments can<br /> broader and more comprehensive understanding mobilize. Specifically, the ratio between debt and<br /> of, and approach to, decentralization is generating decentralized revenue of Hanoi and Ho Chi Minh<br /> confusion and inefficiency. should not exceed 60 per cent. For those provinces<br /> By the mid-2000s, Vietnam’s decentralization whose decentralized revenue is greater than their<br /> agenda covered seven major areas, including: current expenditure, the maximum ratio is 30 per<br /> state budget; investment; administration and cent and for all other provinces the maximum ratio<br /> personnel; land and natural resources; planning is only 20 per cent.<br /> management; state-owned enterprises (SOEs); Closely related to fiscal decentralization<br /> and public services. It is not surprising that is investment decentralization. In Vietnam,<br /> political decentralization is not part of the Party’s decentralization of FDI and public investment<br /> overall decentralization agenda. In line with started in the 1990s. With respect to FDI, since<br /> the decentralization literature, the rest of this the early 1990s, provinces that received large<br /> section will discuss three major dimensions of amounts of FDI had tried to convince the central<br /> decentralization, namely: fiscal; administrative; government to decentralize the licensing of FDI<br /> and political decentralization. projects. In 1996, the decentralization of FDI<br /> was implemented after the State Committee for<br /> Cooperation and Investment (SCCI) and the<br /> 3.3  Fiscal Decentralization<br /> State Planning Commission were merged into the<br /> Fiscal decentralization in Vietnam started in 1989 Ministry of Planning and Investment (MPI).<br /> with Council of Ministers’ Resolution No. 186 and Since the Law on Foreign Direct Investment took<br /> accelerated with the promulgation of the first State effect in 1996 until it was replaced by the Common<br /> Budget Law in 1996. This law marks an important Investment Law in 2006, the decentralization<br /> milestone for fiscal decentralization in Vietnam of evaluation and licensing of FDI projects was<br /> by, for the very first time, clearly specifying the limited by the size of capital and area of investment.<br /> division of rights and responsibilities between Specifically, the People’s Committee of Hanoi and<br /> central and provincial governments as well as Ho Chi Minh were authorized to grant licences<br /> among different levels of local government with for projects with registered capital up to US$10<br /> respect to revenue and expenditure. million, while the limit for other provinces was<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 192 28/6/16 9:19 am<br />  August 2016 Vu : Vi e t n a m : D e c e n t r a l i z a t i o n A m i d s t Fr a g m e n t a t i o n 193<br /> <br /> <br /> <br /> TABLE 1<br /> Revenue-sharing Arrangements<br /> <br /> Fully Assigned to Central Shared between Central and Fully Assigned to Provincial<br /> Government Provincial Government Government<br /> Trade taxes VAT (except VAT on imports) Land and housing taxes<br /> Value Added Tax (VAT) CIT (except enterprises with Natural resource taxes<br /> and Excise on Imports uniform accounting) (except Petroleum)<br /> Taxes and other revenue Personal Income Tax License taxes<br /> from petroleum<br /> Corporate Income Tax (CIT) Excise on domestic goods and Tax on transfer of land use rights<br /> on enterprises with services<br /> uniform accounting<br /> Gasoline and oil fees Fees on land use<br /> Land rent<br /> Lease and sale of state-owned<br /> property<br /> Fees and charges (non-tax)<br /> Source: World Bank (2014).<br /> <br /> <br /> <br /> US$5 million, except for strategically important investment and construction projects which allowed<br /> areas.2 Paradoxically, the management boards provincial governments to decide on all public<br /> of provincial industrial zones, export processing investment projects. However, the list of Category<br /> zones and high-tech zones could grant licences for A projects is still decided by the Prime Minister,<br /> FDI projects with registered capital up to US$30 and the capital amount must be jointly decided by<br /> million, which is six times higher than the limit the central and local government. Decentralization<br /> applied to provinces. of public investment was extended in 2007 when<br /> After the Common Investment Law took provincial governments were entitled to ratify<br /> effect on 1 July 2006, the limits on investment the list of and grant licences for Build-Operate<br /> size were removed, but the limits on investment Transfer, Build-Transfer-Operation and Build-<br /> area still apply. Inevitably, FDI projects deemed Transfer projects.<br /> to be nationally important must still be subject It is important to note that the recentralization<br /> to comments from relevant ministries and the of public investment also occurred in the 2000s.<br /> approval of the Prime Minister. For instance, in 2000, provinces were given “block<br /> With regard to the decentralization of public funding” for all National Targeted Programs<br /> investment, in 1999, the government issued a new (NTPs) and allowed to allocate this funding<br /> regulation regarding investment management and among different NTPs. However, in 2004, the<br /> construction, under which provincial governments central government resumed the rights to allocate<br /> are entitled to decide on public investments projects NTP funding, and provinces can now only allocate<br /> of Categories B and C, while decisions concerning funds within each NTP.<br /> the most important projects (i.e., Category A) are Investment decentralization illustrates two<br /> retained at the central government. In 2005, the principles regarding decentralization policy in<br /> government issued a decree on the management of Vietnam. The first principle is “decentralization by<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 193 28/6/16 9:19 am<br />  194 Journal of Southeast Asian Economies Vo l . 3 3 , N o . 2<br /> <br /> <br /> <br /> scale”. The central government generally maintains all policy has rendered decentralization inefficient<br /> the ultimate authority in strategically important (see more in Ninh and Vu Thanh Tu Anh 2008).<br /> and bigger investment projects while allowing Administrative decentralization in Vietnam was<br /> provincial governments to manage smaller ones. formally started in 1996 and accelerated with the<br /> Two main problems arise with this approach. Public Administrative Reform Master Program for<br /> First, the scale of an investment does not always the period 2001–10, which then continued with<br /> correspond to the nature and impact of the project. the Public Administrative Reform Master Program<br /> Second, the application of “keep the big, release for the period 2011–20 (i.e., Government’s<br /> the small” principle has played a role in tempting Resolution 30). As far as administrative<br /> provincial governments to fence break in order to decentralization is concerned, two aspects are<br /> attract more foreign investment (See Vu Thanh Tu of particular importance: the provision of public<br /> Anh, Le Viet Thai and Vo Tat Thang 2007). services; and socio-economic development plans<br /> The second principle of decentralization in (SEDP).<br /> Vietnam is “top-down decentralization”. Thus, With regards of provision of public services,<br /> rather than taking the bottom up approach to there has been a continuous decentralization<br /> decentralization (i.e., subsidiarity concept), the of education and healthcare services to the<br /> reverse is more likely. It is the central government provincial level. The 1996 and 2002 State Budget<br /> who decides which tasks it is willing to delegate to Laws increased the spending and expenditure<br /> the local level and which tasks should be kept for responsibilities for education and healthcare to<br /> itself. This approach helps maintain the hierarchical the provinces. In principle, provinces currently<br /> power structure between the centre and the local. enjoy complete autonomy in terms of revenue and<br /> As a result, the lower level feels unnecessarily expenditure. In reality, this is not entirely true.<br /> constrained and unable to increase its capacity For example, many provinces still follow guiding<br /> while the upper level is often overloaded and formulas (in the form of quotas, standardization,<br /> unable to either coordinate or monitor effectively. or cost norms) applied to budget allocations not<br /> This situation increases the problems of moral only to education and healthcare but also to payroll<br /> hazard and ambiguous accountability, and explains and pensions. It follows that for poorer provinces,<br /> why in Vietnam the lower levels of government the portion of predetermined expenditure in local<br /> tend to be passively dependent on the upper levels. budgets can be as high as 80 to 90 per cent (Ninh<br /> and Vu Thanh Tu Anh 2008). Even in some<br /> provinces with budget surpluses like Khanh Hoa<br /> 3.4  Administrative Decentralization<br /> and Vinh Phuc, this predetermined expenditure<br /> Currently, sixty-three provinces and cities in accounts for more than 50 per cent of the total<br /> Vietnam are classified into three groups. Group 1 budget, implying that the degree of autonomy is<br /> includes Hanoi and Ho Chi Minh City which actually quite limited.<br /> enjoy special status.3 Group 2 includes three other With regards to socio-economic planning,<br /> cities directly under the central government — Hai since 2003 local People’s Councils were granted<br /> Phong, Da Nang, and Can Tho — for which central the authority to coordinate, and allocate the<br /> oversight is stricter than that for Group 1 but more budget, and finalize SEDPs for their respective<br /> relaxed than Group 3, which includes the remaining levels. Starting from 2004, Provincial Peoples’<br /> fifty-eight provinces. All provinces in Group 3 are Councils are allowed to issue legal documents<br /> subjected to a common decentralization framework, other than passively implement policies imposed<br /> despite their obvious differences in economic size, by higher level authorities in the areas of: socio-<br /> fiscal space, resources, and capabilities. While it economic development; budget allocation; defence<br /> is understandable for the central government to and security; and people’s livelihoods. This is<br /> have a common decentralization framework for significant progress towards decentralization,<br /> this group, there is evidence that this one-size-fits- especially when it is accompanied by fiscal<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 194 28/6/16 9:19 am<br />  August 2016 Vu : Vi e t n a m : D e c e n t r a l i z a t i o n A m i d s t Fr a g m e n t a t i o n 195<br /> <br /> <br /> <br /> decentralization, where provincial People’s the chairman of the District People’s Committee is<br /> Councils are empowered to approve budget usually also the District Deputy Secretary. These<br /> allocations and revenue assignments for all three personnel management practices help create an<br /> levels of local government. absolute and comprehensive control of the state<br /> system by leadership of the Party.<br /> 3.5  Political Decentralization<br /> 4.  Recent Debates on Decentralization<br /> Personnel decentralization is a limited form<br /> of political decentralization. This is the most This section discusses two of the most recent<br /> conservative dimension of the decentralization contentious issues regarding decentralization in<br /> process in Vietnam and stems from an immutable Vietnam. The first debate, which was drawn to a<br /> principle of the CPV. Namely, the Party must close last year, involves the removal of the District<br /> retain comprehensive control and management of People’s Council (DPCs). The second discussion,<br /> state personnel. As a result, provincial People’s which is still ongoing, is about the consequences<br /> Councils and Committees are popularly referred of decentralization for institutional cohesion at the<br /> to as “Party elect, people vote”, meaning that the provincial level.<br /> representative bodies just rubber-stamp personnel<br /> already decided by the Party.<br /> 4.1  Piloting the Removal of DPCs<br /> All key provincial officials fall under direct<br /> central management. These officials, however, As with any other important decision about<br /> can be divided into three categories. The first the organization of local government, the pilot<br /> category are those positions decided by the programme to abolish the DPCs was formally<br /> Politburo, including the Party Secretary, Chairman started with a decision by the Central Committee<br /> of People’s Council, and Chairman of People’s of the VCP (Resolution No. 17, dated 1 August<br /> Committee of Hanoi and Ho Chi Minh City. The 2007). This undertaking was later legalized by<br /> second category are those positions decided by Resolution No. 26 (15 November 2008) of the<br /> the Central Party Secretariat, including chairman National Assembly and Resolution No. 724<br /> of the provincial People’s Council and People’s (16 January 2009) of the National Assembly’s<br /> Committee. It is worth emphasizing that the Standing Committee. It was then translated into<br /> chairman of the People’s Committee is usually policy by Circular No. 02 (19 March 2009) of<br /> also the Deputy Secretary. The third category the Ministry of Home Affairs, under which the<br /> includes those positions that need evaluation by the pilot was implemented in 99 districts and 483<br /> Central Committee before they can be appointed. communes of ten provinces and metropolises.<br /> Since 2007, there is an important decentralization This policy can be interpreted in at least two<br /> of responsibility with respect to positions in this different ways. The first interpretation is that<br /> group: the Vice Chairman of People’s Council and this is a manifestation of the recentralization<br /> People’s Committee (except for Hanoi and Ho Chi process in order to streamline policy design and<br /> Minh) are no longer subjected to pre-evaluation by implementation, thereby reducing organizational<br /> the Central Committee, but can now be evaluated duplication and improving efficiency. For<br /> and decided by the provincial Party’s Standing instance, Malesky, Nguyen and Tran (2014) find<br /> Committee. that “recentralization significantly improved<br /> The logic of “Party elects, people vote” also public service delivery in areas important to<br /> applies at the local level. For example, the central policy-makers, especially in transportation,<br /> Chairmanship of the District People’s Council and healthcare, and communications”. It is worth<br /> People’s Committee is decided by the provincial noting that this experiment was only applied at the<br /> Party Committee and rubber-stamped by the District district level, where key personnel are appointed<br /> People’s Council. Similarly at the provincial level, by the Provincial People’s Council.<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 195 28/6/16 9:19 am<br />  196 Journal of Southeast Asian Economies Vo l . 3 3 , N o . 2<br /> <br /> <br /> <br /> Another interpretation is that this pilot Phong: “If the People’s Councils were abolished,<br /> programme is essentially an effort of the then the local government would no longer be of<br /> government to concentrate power at the district the people and by the people” (Tu Hoang 2014).<br /> level by eliminating its main “check-and-balance” Similarly, Tran Minh Dieu, a deputy from Quang<br /> mechanism, rather than by recentralizing power Binh said: “To maintain the People’s Councils at<br /> directly. One evidence is that both District and all levels is to ensure that where there is power,<br /> Commune People’s Committees, which are local there must be supervision by the people” (Tu<br /> governments, were not removed in the experiment. Hoang 2014).<br /> The fact is that among the major stakeholders, Subsequently, the report on amending the Law<br /> only the government — both central and local — on Local Government Organization was discussed<br /> is the wholehearted advocate for this policy. As at the 37th session of the National Assembly<br /> for the Party, despite all the evidence provided Standing Committee (9 April 2015). In this<br /> by the government about significant efficiency report, contrary to the government’s proposals, the<br /> improvement, and despite the fact that the policy Legislation Committee of the National Assembly<br /> was only in the piloting phase without reaching proposed in its First Option that all administrative<br /> any final conclusion, the CPV actually put an units defined in Article 110 of the 2013 Constitution<br /> end to this pilot with the promulgation of the must have both People’s Council and People’s<br /> new Constitution in 2013. Article 111 of this new Committee. Nguyen Van Giau, the Chairman<br /> Constitution confirms that all local administration of the Economic Committee of the National<br /> levels (i.e., province, district, and commune) are Assembly, supported this proposal and said that<br /> composed of the People’s Council and People’s the pilot was “laborious and inefficient”. Nguyen<br /> Committee. Thi Nuong, the Chairwoman of the Committee of<br /> Equally interesting, even when the Constitution Deputy Affairs, agreed (Xuan Hai 2015):<br /> of 2013 has decided to retain the DPCs, the<br /> government still firmly defended their proposal to I am the leader of the delegates responsible for<br /> unify People’s Councils and People’s Committees overseeing the pilot to abolish People’s Council<br /> for the metropolises. Notification No. 176 (dated at district and commune levels. I observed two<br /> 24 April 2014) from the Prime Minister on a draft emerging problems: the people in piloting and<br /> non-piloting provinces alike desired to return to<br /> of the Law on Local Government Organization<br /> the old model, having both People’s Council and<br /> insisted that: People’s Committee. I’m very glad they have<br /> such an aspiration. Otherwise, the debate at the<br /> Districts and wards should not have People’s central level would be very tiresome.<br /> Councils. Not having People’s Councils at these<br /> administrative levels does not mean giving up the<br /> role of people’s representation or the supervision<br /> The end result is that the will of the Party prevailed,<br /> of People’s Committees in those localities, but despite the evidence on efficiency ground provided<br /> transferring that task to the Metropolis People’s by the government. The power structure at the<br /> Committee. local level was kept intact, meaning that the<br /> government has failed to concentrate power in the<br /> For its part, the National Assembly’s view has executive branch.<br /> been consistent with the directives of the Party. In<br /> the discussion on the Law on Local Government<br /> 4.2  Institutional Fragmentation at the<br /> Organization on 24 November 2014, many<br /> Provincial Level<br /> deputies were in favour of maintaining the People’s<br /> Councils at all levels to ensure the supervisory The effectiveness of decentralization policies<br /> role of citizens. This opinion was summarized depends critically on the policy and institutional<br /> succinctly by Tran Ngoc Vinh, a deputy from Hai environment in which they are designed and<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 196 28/6/16 9:19 am<br />  August 2016 Vu : Vi e t n a m : D e c e n t r a l i z a t i o n A m i d s t Fr a g m e n t a t i o n 197<br /> <br /> <br /> <br /> implemented. In Vietnam, the rate (not the quality) divided into sixty-three smaller and inefficient<br /> of GDP growth is used by the central government ones.<br /> as virtually the sole measure of the success of the As already mentioned, the number of provinces<br /> provincial government’s performance. It follows in Vietnam proliferated between 1989 and 1997.<br /> that each province will seek to maximize its rate of Their large number reduces the average size of<br /> GDP growth, even at the cost of other provinces. provinces, meaning that they are not able to take<br /> One of the simplest ways to achieve GDP growth advantage of economies of scale and efficiently<br /> is by trying to get a bigger share of the expenditure solve problems as a result of externalities (Xu<br /> budget as reflected in the spending overruns of 2011). In addition, their small size and large<br /> local governments, which amounted to 54 per cent number may indeed lead to unhealthy competition<br /> in the period 2005–2013 (Figure 2). between provinces.<br /> However, since provinces compete with each In some respects, such as improving the business<br /> other for resources and growth, their investments environment or promoting the private sector<br /> have often been uncoordinated, resulting in much development, competition among provinces is<br /> duplication and inefficiency. Indeed, competition healthy and has led to better performance as seen in<br /> has become so fierce that each province only cares various Provincial Competitiveness Index reports.<br /> about the economic activities within its territory, However, in other respects, especially related to<br /> and ignores spillover effects or aggregate impacts. contesting for resources or getting favours from the<br /> As a result, the administrative boundaries between centre, the outcome may be very negative.<br /> provinces have virtually become their economic In recent years, there have been movements in<br /> borders, and the national economy has been developing deep seaports, coastal economic zones,<br /> <br /> <br /> <br /> FIGURE 2during 2005-2013 (%)<br /> Figure 2. Percentage of Budget Overruns<br /> Percentage of Budget Overruns during 2005–2013 (%)<br /> <br /> <br /> 80<br /> 70<br /> 60<br /> 50<br /> % 40<br /> 30<br /> 20<br /> 10<br /> 0<br /> 2005 2006 2007 2008 2009 2010 2011 2012 2013<br /> <br /> Total Central Government Provincial Government<br /> <br /> <br /> Source: Author’s calculation from Ministry of Finance data.<br /> Source: Author’s calculation from Ministry of Finance data.<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 197 28/6/16 9:19 am<br />  198 Journal of Southeast Asian Economies Vo l . 3 3 , N o . 2<br /> <br /> <br /> <br /> and industrial zones in many provinces because much improvement in both public service delivery<br /> of provincial political decisions. Moreover, the and poverty reduction. With respect to provision<br /> decision is now much easier since according to the of public services, the Provincial Governance and<br /> current Land Law, only a single decision issued Public Administration Performance Index (PAPI)<br /> by the chairman of the People’s Committee of data show that during the period 2011–15, the<br /> a province is needed to convert a large area of provision of public services (primary education,<br /> agricultural land to industrial or commercial land.4 healthcare, basic infrastructure, and law and<br /> As a result, public investment at the provincial order) has improved slightly, while administrative<br /> level is diffused and often redundant. For example, procedures (document certification, construction<br /> Vietnam currently has twenty-six airports, most permits, land-use rights, other personal procedures)<br /> of them under capacity.5 The country also has have not improved at all.<br /> more than fifty major seaports along its coast, With respect to poverty reduction, there has<br /> while about 97 per cent of the cargo goes through been evidence that while fiscal decentralization<br /> seaports around Ho Chi Minh City and Hai Phong. may contribute to poverty reduction outcomes, it<br /> Although it is clear that decentralization plays is not necessarily pro-poor (Bjornestad 2009). The<br /> a role and provincial governments are partly reason is that, whereas equalizing fiscal transfers<br /> responsible for duplicate, redundant and inefficient do work for the poor, the pro-poor policy itself has<br /> investments, the lack of central government not been well targeted. Nguyen (2008) found that<br /> supervision and discipline — together with the an increase in sub-provincial share of provincial<br /> low quality of planning — are certainly important expenditures is associated with a considerable<br /> causes. Arguably, with regards to the inefficiency decrease in average monthly income of the lowest-<br /> of the biggest and most important infrastructure quintile population. This implies that greater fiscal<br /> investment — airports, deep seaports, coastal decentralization from provincial to sub-provincial<br /> economic zones, highways, and electricity — levels does not necessarily lead to more efficient<br /> the central government, rather than provincial pro-poor resource allocations.<br /> government, is to be blamed since the key functions As discussed earlier, although the government<br /> have not been decentralized at all (Table 2). has long recognized the limitations of<br /> decentralization, there has not been much<br /> improvement in its effectiveness. The rest of<br /> 5.  Assessment of Decentralization Outcomes<br /> this section will discuss major shortcomings<br /> The outcomes of Vietnam’s decentralization in the design and implementation of Vietnam’s<br /> process are mixed. Decentralization, particularly decentralization policy.<br /> fiscal decentralization and, to a lesser extent,<br /> administrative decentralization, has complemented<br /> 5.1  Decentralization Has Not Been Accompanied<br /> the process of market transition, thereby unleashing<br /> by Necessary Preconditions<br /> the private sector’s enormous latent energy. The<br /> development of the private sector helps promote The theory and practice of decentralization<br /> reform experiments and improves the business generally assume that local, rather than central<br /> climate at the provincial level (Malesky 2009; government — thanks to their proximity to the<br /> Schmitz et al. 2015). Arguably, these are the most people — has better information on their needs<br /> successful aspects of decentralization in Vietnam. and desires, and understands more about local<br /> An important expectation of decentralization conditions. Accordingly, local governments are<br /> is to help enhance the quality of public service able to respond more quickly and efficiently to<br /> delivery and poverty reduction. So far, however, the people’s needs and make relevant decisions<br /> there has been little analysis on the impact of that have direct impact on their welfare. It follows<br /> decentralization on these outcomes. Limited that handing over power and responsibility from<br /> available evidence suggests that there has not been the central to local government, and thus, making<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 198 28/6/16 9:19 am<br />  August 2016 Vu : Vi e t n a m : D e c e n t r a l i z a t i o n A m i d s t Fr a g m e n t a t i o n 199<br /> <br /> <br /> <br /> TABLE 2<br /> Functional Authority of Central vs. Local Government in Major Public Investments<br /> <br /> Deep Airports Economic Highways Electricity<br /> Seaports Zones<br /> Planning CG CG CG CG CG<br /> Appraisal CG CG CG CG CG<br /> Approval CG CG CG CG CG<br /> Financing CG CG CG/PG CG CG<br /> Implementation CG CG CG/PG CG CG<br /> Supervision CG/PG CG/PG CG/PG CG/PG CG/PG<br /> Evaluation CG CG CG/PG CG CG<br /> Auditing CG CG CG CG CG<br /> Note: CG = Central Government, PG = Provincial Government.<br /> <br /> <br /> <br /> <br /> the government closer to the people, will enhance upward accountability towards the central<br /> the performance and responsiveness of the public government where the responsibility and<br /> sector. power are transferred from, and downward<br /> These theories are, however, implicitly based on accountability with respect to the communities<br /> some preconditions, the most important of which which are directly affected by decentralization.<br /> are:6 For instance, the local government should comply<br /> with policies issued by the central government<br /> • Transparency: The local community has access and be accountable to local communities for its<br /> to full, timely, and accurate information on service delivery. If the mechanisms by which<br /> public decisions. For example, when the local the two-way accountability is carried out are<br /> government provides a public good or service, lacking, bringing the government closer to the<br /> people are informed about the viable policy people will not necessarily serve them better<br /> options, including their costs and benefits. while diminishing central government control.<br /> Transparent information helps ensure the • Resources: Even if information is transparent,<br /> meaningful provision of public goods and people have a voice, and the local government<br /> facilitates the people’s effective supervision is responsive, the people’s needs cannot be met<br /> over local government activities. without sufficient resources. In other words,<br /> • Voice: There are effective mechanisms by which if increases in power and responsibility are<br /> the local community can convey their needs and not followed by money and other resources,<br /> priorities to the government. This, combined decentralization will be severely handicapped.7<br /> with transparency and accountability, will<br /> encourage the people to actively engage in the These preconditions are necessary (but nevertheless<br /> process of making and implementing policies to not sufficient) for successful decentralization. They<br /> protect their benefits as well as the benefits of are theoretically affected by, and to a certain extent<br /> the community. result from, the greater institutional environment.<br /> • Accountability: The local government is Thus, successful decentralization requires an<br /> supposed to have two-way accountability — adjustment in the institutional and governance<br /> <br /> <br /> <br /> <br /> 16-1432 JSEAE 05.indd 199 28/6/16 9:19 am<br />  200 Journal of Southeast Asian Economies Vo l . 3 3 , N o . 2<br /> <br /> <br /> <br /> environment such that they move in the same transparency index of Vietnam increased from<br /> direction and facilitate decentralization. However, 2/100 in 2006 to 18/100 in 2015. Although this<br /> institutions are usually persistent, and hence, in is a significant improvement, the government only<br /> many cases, not only hardly help decentralization, provides the public with scant budget information.<br /> but actively hinder it. Moreover, the current nested budget system leads<br /> Ideally, to assess these necessary preconditions to overlaps and confusion (World Bank 2014).<br /> for efficient and effective decentralization, we Data from PAPI8 also reveal a low level of<br /> need to compare the pre- and post-decentralization information transparency. For example, from 2010<br /> data. Historical data, however, is not available and to 2015, among thousands of interviewees, less<br /> we have to limit ourselves to the use of current than a third had ever heard about the Grassroots<br /> data. Democracy Ordinance at the commune level,<br /> although it