5 VALORACIÓN GLOBAL DEL PRACTICUM

This section summarizes the causes and consequences of common idiosyncratic and covariate shocks in Vietnam. Major information comes from a Vietnam development report of World Bank (1999). The findings in that report was based on the first and the second large scale household surveys in Vietnam (VLSS93 and VLSS98) implemented by the World Bank, as well as Participatory Poverty Assessments across regions undertaken by Oxfam and Action Aid Vietnam. The actual level of shocks and their consequences might be different now, but the pattern is very similar.

Idiosyncratic shocks

A chronic illness or death of a household member is one of the most common causes of households’ extreme hardship. The cost of treatment is relatively much higher for the poor, especially when they have to go beyond the commune health center to receive treatment for a serious illness. On average, an individual in the poorest quantile has to pay 22 per cent of his/her annual nonfood expenditure for one remedial visit to a public hospital, while the equivalent figure for an individual in the richest quantile

is only about 5 per cent. The VLSS98 data shows that households in the lowest quantile spent 30 per cent of their nonfood expenditure on healthcare services and the opportunity cost due to poor health was around 25 per cent of their annual per capita consumption expenditure. Newly formed households are particularly vulnerable to the health problems (World Bank 1999).

The risk of failure can discourage households from investment which could have expanded the sources of income and reduced vulnerability in the future. In a typical case, households take a loan to invest in new production activities. However, if the investment is not successful, households have to compensate for the income deficit by other means, such as taking another loan, or selling assets, and their wellbeing would consequently deteriorate. Unfortunately, available options to diversify the farming activities in rural Vietnam also carry risk of failure: livestock is susceptible to disease and theft; crops are sensitive to bad weather and vermin; fruit trees and coffee trees can be ruined by frost in the highland areas; and farming profit can fluctuate rapidly and wildly, along with market conditions (World Bank 1999). The risk can be reduced by better extension services and veterinary services. How- ever, poorer households with less education often find it difficult to approach these types of services. An analysis of VLSS98 reveals that just only about 9 per cent of rural households in the lowest quantile reside in a commune with an agricultural extension agent. The problem is more serious in the case of highland areas which have limited access to many types of agriculture services (World Bank 1999).

Covariate shocks

In the rural villages of Vietnam, economic shocks and crises occur in two major forms: Loss of crops as a result of drought, flood, storms, wind damage, landslides and pest damage; and loss of livestock owing to epidemics. In urban areas, households also face fluctuations in the labor market (World Bank 1999).

The Vietnam National Committee for the International Decade for Natural Disaster Reduction (VNCIDNDR) has estimated the respective frequency of floods and ty- phoons as high and droughts as medium. On average, the Vietnams coast annually experiences four to six typhoons, which predominantly affect the center and north of the country (VNCIDNDR 1994). This phenomenon explains the slower growth in the Central and Northern provinces. An official document in 1992 reported that 62

per cent of the population and 44 per cent of the country were regularly influenced by typhoons, with around 250 persons killed each year (Vietnam MWR and UNDP 1992)3

Livestock accounts for an important part of household assets, so livestock death and disease are considered as main factors leading to poverty. A common report appear in the Participatory Poverty Assessments (PPAs) in different rural provinces is that: “when your buffalo dies, it may take you as long as five years for the household to recover” (Action Aid Vietnam 1999).

The slowdown in national and regional economic growth due to macroeconomic shocks, seems to have a limited effect on rural households because they earn little income from the farm. However, urbyan households notice the remittances falling immediately, and unskilled labor find it harder to have a job due to the cutbacks of local enterprises (Bond 1999).

Coping strategies

According to the results of the Participatory Poverty Assessments (PPA)4 _reported

in World Bank (1999), in general, for poor households the first coping strategy is to search for help from their family, friends, neighbors. Next, some program from local communes might be of help. Households’ coping strategies can be arranged in order such as: borrowing money or food, reducing expenditure (suffering illness at home or talking children out of school), searching for jobs (even for children), and selling assets (cattle or land).

Borrowing money or food is one of the most common ways to cope with a sudden drop in household properties. The borrowing is mainly from the informal sector because loans from the formal sector are not readily available to the poor and the procedures are too complicated to make funds available quickly. The easiest way for poor households to cope in troubled times is to reduce consumption and living with 3_{In the period from 1971 to 1994, more than six million tons of rice production was lost}

due to flood and typhoon damage in Vietnam (Benson, 1997). In five years from 2002- 2006, natural disasters killed 1,700 people and caused losses estimated at VND 75,000 bil- lion of assets. More on the impact of natural disasters can be found in National Strategy of Natural Disaster Prevention, Response and Mitigation by 2020, which can be downloaded at

http://www.isgmard.org.vn/NationalPrograms.asp.

4_{Four provinces chosen to implement PPA were Ho Chi Minh City, Tra Vinh, Ha Tinh, Lao}

ill-health. For example, they reduce the number, size and quality of daily meals. People can also be found to be living with ill-health in order to avoid the cost if consultations and treatment.

Poor households in Vietnam often shift labor from agricultural tasks to cash-earning tasks to respond to negative shocks affecting well-being. Day labor is the major source of cash for poor households, but the demand for labor is seasonal and un- stable. Poor households have additional incentive to pull children out of school in order to supplement labor deficiency. Child labor not only results in more cash (by working for cash or helping adult labor with household chores) but it also reduces the costs of fees, books, pens as well as other contributions to student insurance and school construction funds. For primary production laborers in the case where they cannot find a job, migration to other places is another solution. Households then immediately reduce food intake and depend largely on the remittances sent back. In fact, some regions have very high percentages of either temporary or permanent migrant workers.

Households with livestock or land have to sell these assets in times of hardship. In urban areas, households tend to sell their houses if they own one. Cash savings have a trivial role in coping with shocks since the facilities for saving cash are not popular in rural areas, and thus households habitually keep livestock as a form of saving. Some very poor households turn to common property as a last resort. For example, they cut wood from forests to make extra money.

At the same time, the formal safety net has low coverage and is only partly targeted, while the formal financial sector is underdeveloped so that households cannot save or borrow money easily. In the case of household specific shocks, the community can help to some extent, but as poor households frequently reside in poor communities, the amount of financial assistance from friends, relatives and other informal networks is very limited. Consequently, households have to depend mainly on their own resources to cope with unexpected shocks.