This chapter examines the detailed provisions of the economic reform that was initiated in 1958 and offers specific hypotheses to test the degree to which the decentralization reduced the ability of the central government to carry out the interregional resource transfers that were so characteristic of the First Five-Year Plan period. The results of these tests and supporting analysis suggest that although provincial and local governments gained considerable administrative authority, the central government continued to exercise far-reaching control over the interregional and intersectoral allocation of resources. Although it has frequently been suggested that the decentralization represented a deliberate policy choice favoring efficiency and growth over equity, these tests, as well as qualitative evidence presented in this chapter, suggest that the fundamental commitment of the leadership to a path of relatively equitable development was not abandoned after the First Five-Year Plan.

Elements of the decentralization

The economic reform announced in 1957 expanded the system of revenue sharing, gave provincial governments greater authority to determine the composition of their expenditure budgets, and generally provided for increased local authority in the management of local economic affairs, including for the first time a role in the management of central government enterprises.

Revenue sharing

The heart of the reform was the provision that provinces would receive a large fixed portion of a substantially broadened revenue-sharing base.