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Cablegate: Prime Minister Floats Anti-Deficit and Inflation Measures,

VZCZCXRO9442
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0530 1280025
ZNR UUUUU ZZH
P 070025Z MAY 08 ZDK
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7755
INFO RUEHHM/AMCONSUL HO CHI MINH 4677
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS HANOI 000530

SENSITIVE
SIPDIS

SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE

E.O. 12958: N/A
TAGS: ECON VM
SUBJECT: PRIME MINISTER FLOATS ANTI-DEFICIT AND INFLATION MEASURES,
VOWS TO EXPAND SOCIAL NET

REF: A) Hanoi 377 ("PM Declares War On Inflation")

1. (U) Summary: In his annual "Government Report" before the
National Assembly, Prime Minister Nguyen Tan Dung threw his support
behind measures to reduce the fiscal and trade deficits, such as
reducing public borrowing and slowing down "unnecessary" imports.
He also vowed to keep price caps on key staples and fuel, and extend
social programs to protect the poor. Although the Prime Minister
for the first time lent his support to the trade deficit-reducing
schemes earlier floated by his ministers, he was careful to note
that any measures taken would be done in line with Vietnam's
international commitments. On other plans, PM Dung avoided
specifics and did not address at all his government's lowered
expectations on economic growth for 2008. There are no signs of
generalized unrest in Vietnam due to current economic woes, but
police nonetheless rounded up a small group of people protesting
local corruption just minutes before the PM spoke. End summary.

INFLATION REMAINS TOP CONCERN, DEFICITS A CLOSE SECOND
--------------------------------------------- ---------

2. (U) In his May 6 remarks to open the 2008 session of the National
Assembly, Prime Minister Dung reiterated that the fight against
inflation has taken center stage, but his message let on as well
that the GVN will prioritize reducing its trade and fiscal deficits,
which were $12.44 billion and $3.53 billion in 2007, respectively,
and expected to grow this year. On the trade deficit, PM Dung vowed
to raise tariffs and duties, and levy other non-tariff barriers on
"unnecessary" (but unspecified) imports. He was careful to note
that all those measures would be taken within the constraints of
international obligations.

3. (U) On the budget deficit, the Prime Minister announced that he
would reduce public borrowing by 25 percent via unspecified cuts or
delays to pending capital projects. As a result, the bond issuances
that would have been used to finance those projects will also be
delayed or cancelled. Although he did not specify which projects
would be affected, he announced increased spending on social
spending and continuing subsidies on key staples, transportation and
fuel.

GVN TO EMPHASIZE SOCIAL PROGRAMS AND SUBSIDIES
--------------------------------------------- -

4. (U) PM Dung added that he intended to address the impact of
higher prices on the poor by increasing welfare for vulnerable
sectors like the elderly, the handicapped, children and ethnic
minorities. Dung said that he would keep caps in place on the cost
of schooling and hospital services, and on fuel, coal, water, and on
all public transportation, including airfare.

COMMENT
-------

5. (SBU) The Prime Minister's message embodied GVN concerns about
the impact of inflation, a growing trade deficit and worsening
public finances in what he admitted would be a "difficult year."
Although his game plan is not new, having been outlined earlier in
his seven-point inflation plan (reftel), the speech reaffirmed his
commitment to battling inflation, which is an important message for
domestic consumption. While there is no indication of popular anger
creating stability issues, the police made sure that the small park
near Hanoi's major Party and Government buildings was cleared of
demonstrators, and just in time for the start of the morning
ceremonies. Scores of uniformed and plain clothed police hustled
about a score of demonstrators into vehicles about fifteen minutes
before the ceremony began. Small groups frequently stake out the
site, most with complaints about land grabs by provincial officials.
A small number were back on the site by midday. End Comment.

MICHALAK

3

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