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Cablegate: Fiscal Transparency Report for Vietnam

VZCZCXRO1247
PP RUEHHM
DE RUEHHI #0285/01 0711015
ZNR UUUUU ZZH
P 111015Z MAR 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7378
RUEHGP/AMEMBASSY SINGAPORE 2559
INFO RUEHHM/AMCONSUL HO CHI MINH 4422
RUEHBK/AMEMBASSY BANGKOK 6247
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000285

SIPDIS

DEPT FOR EAP/MLS, EB/IFD/OMA, USAID/ANE, USAID EGAT/EG
BANGKOK PASS TO RDM/A
SINGAPORE FOR TREASURY S BAKER
TREASURY FOR SCHUN

SIPDIS

E.O. 12958: N/A
TAGS: EFIN EAID ECON PREL VM
SUBJECT: FISCAL TRANSPARENCY REPORT FOR VIETNAM

Ref: STATE 16737

1. Pursuant to reftel, the following is an updated Budget
Transparency Report for Vietnam, current as of March 11, 2008. Post
will also e-mail the text to Andrew Snow and Richard Figueroa in
EEB/IFD/OMA as requested.

2. BEGIN TEXT OF REPORT

As part of its overall reform efforts, Vietnam is attempting to
improve its public expenditure management and the consistency and
transparency of budgetary information. Until 1999, the budget was
covered by secrecy laws and was essentially considered a state
secret. The new Law on the State Budget, promulgated in 2002, has

SIPDIS
shed some daylight on the budget and budgeting process. The
Ministry of Finance now posts budget information on its web page and
also issues a budget publication. Previously, only an aggregated
amount of the total state budget revenue and a total expenditure
figure, by ministry, were available publicly. Current budget
publications provide details of state revenue broken down into 5
categories and 16 sub-categories. Current publications also provide
details of expenditures by functional classification. Central
ministries and local governments also disclose more detailed
budgetary data in accordance with transparency regulations.

In December 2002, the National Assembly enacted amendments to
the Law on the State Budget. Effective for the fiscal year 2004, it
provides for the preparation, implementation, inspection,
supervision, audit and balance of the state budget. The law
clarifies the specific duties and responsibilities of each state
body in connection with the management and use of revenues and
expenditures, including the National Assembly, the government,
governmental bodies, local People's Committees and People's
Councils. The Ministry of Finance (MOF) is explicitly in charge of
budget formulation while the Treasury Department (within MOF) is
responsible for budget execution and reporting. The amendments also
provide for the audit of the state budget, which must be carried out
before the National Assembly or the relevant People's Council (which
approves the state budget balance sheet). The State Audit Board is
by law the only body allowed/required to carry out such audits, but
it is not truly independent from the executive branch and its
procedures are not fully transparent. The audit report must be
reported to the National Assembly and other government agencies, but
the Board is not required to make such audits public.

The National Assembly has also established a new Committee on
Budgetary Affairs to focus on the technical issues of its expanded
role in reviewing, approving, and monitoring state budget
activities. The ability of the National Assembly, however, to carry
out these responsibilities fully and effectively remains limited due
to lack of resources and capacity.

The World Bank, the European Union and some donor countries,
such as Japan, Australia, Germany and the United States, are
providing assistance in the area of public finance management. As a
result of this assistance and the GVN's efforts to improve its
institutional and legal framework, state budget expenditure
management in Vietnam has achieved some positive results. The new
State Budget Law institutionalizes clearer and more appropriate
budget decision authority for government agencies at all levels. It
also has a stronger focus on decentralizing state budget management
and provides for implementing regulations on provincial autonomy,
including the right to make expenditures already approved in the
budget. The government has issued State Budget implementing
regulations that give uniform instructions on expenditure control.
With regard to budget revenue management, a pilot implementation
program for tax self-reporting and payment for businesses has begun.
While the situation is improved, Vietnam's budgetary system is
still far from transparent and accountability remains a problem.
Vietnam has not volunteered to be evaluated for the IMF's Report on
Compliance with Standards and Codes covering fiscal transparency.

Increased transparency and accountability in Vietnam is
directly linked to the country's economic, financial and
trade-related reform efforts. USAID technical assistance in this
area focuses on trade and investment, financial sector reform and
economic governance. The major program in this area is USAID's
Support for Trade Acceleration (STAR) initiative, which is designed
to support the Government of Vietnam's efforts to liberalize its
trade and investment regime consistent with its commitments under
the Bilateral Trade Agreement (BTA). The BTA covers key issues
related to transparency, rule of law, market access for goods,
services and investment, protection of intellectual property rights,
dispute settlement and business facilitation -- and presaged 70% of
the commitments required of Vietnam to accede to the WTO. In

HANOI 00000285 002 OF 002


January 2007, Vietnam became the 150th member of the WTO.
The USAID STAR program expanded to support both BTA and WTO
implementation, to support improvements in the policy environment
for private sector development, and to support improved rule of law
and governance more broadly. This began in 2004-5 with technical
assistance to the Committee on Economic and Budgetary Affairs (CEBA)
in the National Assembly on estimating tariff/tax revenues resulting
from policy changes, briefing NA leadership on the operation of the
U.S. Government Accounting Office, and providing recommendations on
how the new State Auditing Board could operate (using the example of
how the US GAO responds jointly to the U.S. Congress and the
Executive Branch).

After more than six years of operation, USAID/STAR has now assisted
the Vietnamese Government and National Assembly to revise or develop
anew around 100 laws and implementing regulations, including almost
every major law affecting commercial activity, the rule of law, and
economic governance and transparency in Vietnam. Currently, STAR is
a lead advisor in the development of a second generation of
financial market laws, critically related to developing a stronger
and more independent State Bank, and a more modern and better
regulated banking system. STAR and the U.S. Securities and Exchange
Commission were, and continue to be, lead advisors to developing and
refining the new, highly regarded Securities Law, the new Law on
Negotiable Instruments, and key new regulations on Secured
Transactions. STAR is also a lead advisor in a second generation of
reforms to the Law on Laws, which provides support for more
progressive and open regulations on legal and legislative
transparency, and in the development of a landmark Administrative
Procedures Code. STAR and the USAID-funded Vietnamese
Competitiveness Initiative (VNCI) project are working together
closely as lead advisors to the GVN on a regulatory reform program
across the entire Vietnamese government, including 22 ministries and
64 provincial governments.

Relevant laws/regulations on budget disclosure: Law of the
State Budget; Prime Minister's Decision 225/1998/QD-TTG; Ministry of
Finance Circular 01/2002/TT-BTC; and Prime Minister Decision
192/2004/QD-TTg. The national budget is published with minimum
delay in the newspaper and on the internet.

END TEXT OF REPORT


MICHALAK

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