With global concerns over climate change and forest degradation, poverty reduction in and around forest areas seem to be less prominent on the agenda, even though there is an intrinsic link between poverty and deforestation. In this highly complex context, where forests must fulfill roles that range from global to local ecological and socio-economic services, forest policies face new challenges, depending on the institutional, legal and economic conditions in different countries. Vietnam has already taken up this challenge to integrate rural development with issues for sustainable natural resource management from the early nineties onward through their Forest Land Allocation (FLA) policy. After almost 20 years of FLA policies implementation, this chapter analyses the impacts of these decentralization FLA policies have on forest protection and socio-economic improvement of selected rural communities in and around the bufferzone of the Bach Ma National Park (BMNP), Central region of Vietnam. It pays particular attention to the effects of FLA policies on long existing customary institutions at the community level to sustainably use and protect forest resources. The research argues that the policy was a good initiative to create resource use rights as well as co-management for local communities. However, local people do not benefit from the implemented “decentralized” measures, shown by continuous illegal encroachment into the core zone of the BMNP. The main reason is that active participation of local people is absent, and policies do not fit the local needs and priorities. This chapter critically examines the process of decentralization as it has taken place in central Vietnam, focusing on the buffer zone surrounding (BMNP), where the Government and international organizations have implemented projects on decentralized forest land management, following along the policy framework and donor agendas. The study emphasizes that the decentralization process in forest management is to achieve success if participation of local people is given more attention.