VZCZCXRO7576
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1127/01 2760128
ZNR UUUUU ZZH
P 020128Z OCT 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8560
INFO RUEHHM/AMCONSUL HO CHI MINH 5179
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SECTION 01 OF 02 HANOI 001127
(C O R R E C T E D C O P Y - TEXT BELOW SIGNATURE LINE REMOVED)
SENSITIVE
SIPDIS
STATE FOR EAP/MLS MBROWN
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE
E.O. 12958: N/A
TAGS: ECON PGOV EAID VM
SUBJECT: GVN DISCUSSES ECONOMIC SITUATION, BIT AND BUSINESS
CLIMATE
REF: A) Hanoi 1095 ("IMF Says GVN Not Out of the Woods");
B) Hanoi 1108 ("Vietnam Economic Highlights");
C) "Governance in Vietnam: Program Options for USAID"
HANOI 00001127 001.4 OF 002
1. (U) This cable is sensitive but unclassified. For official use
only, not for dissemination outside USG channels or posting on the
internet.
2. (SBU) Summary: In meetings with the DCM, officials at the
Ministries of Finance, Planning and Investment, and Industry and
Trade, and the Office of the Government discussed their plans to
overcome Vietnam's macroeconomic challenges, their outlook on the
Bilateral Investment Treaty (BIT) negotiations and the Trans-Pacific
Strategic Economic Partnership Agreement (Transpac), and issues
affecting the overall business climate. The U.S. financial crisis
was also a popular topic, with officials at every ministry asking
for updates. End Summary.
COMPARING NOTES ON FINANCIAL TURMOIL
------------------------------------
3. (SBU) During her meeting with Finance Ministry (MOF) Vice
Minister Tran Xuan Ha, the DCM reinforced the importance of
macroeconomic stability to both local and foreign investors and
noted the continued absence of a revised budget. She asked Ha about
the MOF's plans for fiscal spending during the second half of 2008,
citing the mid-September IMF assessment that MOF planned to increase
expenditures for the rest of the year (REF A). Ha said that the
Government of Vietnam (GVN) recently asked the ministries and
provinces to cut another 10 percent of expenditures during 2008 (in
addition to the initial 10 percent request earlier in the year), but
said nothing about a revised budget. The Vice Minister called the
IMF conclusion "incorrect" because the IMF "should have looked at
GVN cash flow" instead of second-half budget projections. Ha stated
that the GVN remained committed to controlling inflation.
4. (SBU) GVN officials were keen to know what the DCM thought about
the financial turmoil in the United States. Vice Minister Ha
confided that a slowing down of the U.S. economy and of other large
markets would almost certainly result in a contraction of Vietnam's
exports. The DCM explained that the solutions under consideration
were meant to provide rapid relief so that the U.S. economy could
move towards recovery, rather than taking many years to work out
systemic issues as other countries had done.
SCHEDULING THE FIRST ROUND OF BIT TALKS
---------------------------------------
5. (SBU) On the BIT, the DCM urged her GVN counterparts "to get the
process going" before the end of the year. "We don't expect the
bilateral relationship to change, but it takes time for a new
administration to get started," she said. Ministry of Planning and
Investment (MPI) Vice Minister Dung agreed, adding that he hoped to
hold the first round of negotiations "soon." He cautioned, however,
that "given the importance [of negotiations], we have to have
careful preparations, when it is signed we want to be prepared to
implement it." The Office of the Government's (OOG) Director of
International Relations, Bui Huy Hung, and Ministry of Industry and
Trade (MOIT) Vice Minister Hao were equally cautious, but both
pledged to get to the table before the end of the year.
TRANSPAC
--------
6. (SBU) The GVN officials also told the DCM that they were taking
an even more cautious approach to Transpac. The MPI's Dung likened
Vietnam to a "sick man learning to go outdoors for the first time"
and cited the need for a "comprehensive assessment" of new
initiatives. MOIT's Hao and the OOG's Hung said that the GVN had
not made up its mind about participating and noted that they would
need time to review such a complex proposal. Hung added that the
GVN has asked the Support for Trade Acceleration (STAR) program for
assistance in understanding the potential benefits to Vietnam.
[P1]
U.S. BUSINESS CONCERNS
----------------------
7. (SBU) The DCM raised a number of business concerns with the
MOIT, MPI and MOF, including the growing unpredictability of the
GVN's taxation regime and the effect that this has on major U.S.
company projects and Vietnam's overall business climate (REF B). The
MOIT and MPI vice ministers recognized that the business climate in
HANOI 00001127 002.4 OF 002
Vietnam was less than ideal, and blamed these measures on the
current macroeconomic challenges that the country is facing. "I
agree we should strive for transparency and predictability," VM Dung
told her. Finance Vice Minister Ha, however, defended the proposed
mineral and oil tariff hikes, saying that Vietnam needed to
"conserve its non-renewable resources." The DCM urged him to
implement such hikes gradually so that businesses could plan
accordingly.
GOVERNANCE REFORM
-----------------
8. (SBU) The DCM took the opportunity to present MPI with a copy of
the "Discussion Paper for Joint Vietnam/U.S. Consultation on
Expanding Governance Technical Assistance," based on a lengthier
study prepared by USAID (REF C). Mission Vietnam had presented the
Discussion Paper to the OOG in June, and the OOG forwarded the
document to MPI. As of September 25, however, our contacts at MPI
claimed not to have received it. MPI VM Dung acknowledged that this
was the first time that he had seen the report but promised to
review it and provide comments.
MICHALAK