How did the planning and budgetary system evolve in the years prior to the decentralization that was introduced in late 1957? What was the nature of the budgetary and planning process, particularly the mechanisms of central government control? More important, how did the evolution of fiscal relations between the center and the provinces reflect the complex trade-offs between central control and efficiency and between efficiency and equity?

The desire of the center to use the budgetary and planning process to exert a growing influence over the allocation of resources is reflected in the broad scope of the budget, the unitary nature of the budgetary process, the vast intersectoral and interregional transfers of resources carried out during this period, and the rising rate of capital formation. Although this far-reaching degree of central control was relatively effective in achieving certain structural and equity goals, it was also a source of increasing friction between the center and the provinces. In an effort to reduce this friction and in particular to provide greater economic incentives for local growth and development, the central government undertook a number of adjustments of the fiscal system even prior to the major decentralization introduced at the end of the First Five-Year Plan.

Each of the adjustments of the fiscal system in the 1950s was an attempt to resolve the basic centralization–decentralization dilemma. This dilemma was created by the desire to insure centralized fiscal control while allowing enough decentralization to stimulate local economic growth.