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Cablegate: Scenesetter for Under Secretary for Management Patrick

VZCZCXYZ0001
OO RUEHWEB

DE RUEHHI #1173/01 2890634
ZNR UUUUU ZZH
O 150634Z OCT 08
FM AMEMBASSY HANOI
TO SECSTATE WASHDC IMMEDIATE 8605

UNCLAS HANOI 001173

SENSITIVE
SIPDIS

STATE FOR U/S M PATRICK KENNEDY
ALSO FOR EAP/EX

E.O. 12958: N/A
TAGS: AMGT ABLD VM

SUBJECT: SCENESETTER FOR UNDER SECRETARY FOR MANAGEMENT PATRICK
KENNEDY VISIT TO VIETNAM

Introduction
------------

1. (SBU) Under Secretary Kennedy: Ambassador Michalak and Mission
Vietnam look forward to welcoming you to Hanoi. Your visit will be
an important signal to the Vietnamese of the importance of our
growing bilateral relationship, and the need to adequately support
it with the construction of a New Embassy Compound (NEC). We seek
to make this the culmination of ten years of negotiating the
acquisition of a NEC site, building on the progress made during the
last year of sustained and intense negotiations by post. A number
of issues have been resolved, or are amenable to settlement through
reasonable compromise and negotiations. The issue of reciprocity
regarding lease terms, however, continues to be a stumbling block.
Your discussions with the Vietnamese leadership will help push the
negotiations to a conclusion.

2. (SBU) Our strengthening relations are in large part due to
Vietnam's realization that the United States is an important force
in maintaining a stable geopolitical environment in which even small
countries like Vietnam are assured independence and freedom of
action. Vietnam also sees in the United States an increasingly
important source of investment and financial and technical
assistance, as well as a huge market for Vietnamese goods.
Vietnam's leaders are committed to continued progress in bilateral
relations and will likely speak positively and optimistically about
the future of U.S.-Vietnam ties.

3. (SBU) Differences over human rights remain, however, and
lingering fears that the United States supports the overthrow of the
current regime continue to complicate the relationship. Similarly,
while Vietnamese are overall quite positive about the United States,
you may hear references to "legacies of the war," in particular
Agent Orange.

Increasingly Conscious of International Role
--------------------------------------------

4. (SBU) The GVN recognizes the strategic importance of the United
States in the region and the world, but is not shy about criticizing
the U.S. for "interference in its internal affairs" or other U.S.
actions it perceives as outside the multilateral system. There is a
significant faction within the communist party, particularly in the
security forces, that constantly warns that "peaceful evolution"
from a communist to a democratic government represents the gravest
long-term security risk facing Vietnam. They routinely chafe over
U.S. criticism of Vietnam's human rights and religious freedom
record. Nonetheless, Vietnam's leaders are also pragmatic and
recognize that Vietnam's own continued economic well-being, growth
and security are, in large measure, inexorably tied to its
relationship with the United States.

5. (SBU) Vietnam has begun to explore opportunities within regional
organizations to increase joint efforts against terrorism,
narcotics, maritime piracy and other issues of shared concern.
Vietnam recently began joint sea patrols with its neighbors in the
Gulf of Thailand and has established hotlines to help facilitate
coordination along sea boundaries. Nevertheless, for historic and
foreign policy reasons, the GVN is generally reluctant to speak out
against its "traditional friends" such as North Korea and Iran when
they engage in behavior that the rest of the international community
condemns, and in its current role as a non-permanent member of the
Security Council it has adopted traditionally Non-Aligned Movement
positions that do not generally line up with our own.

U.S. Assistance Areas: Health, Humanitarian and Governance
--------------------------------------------- -------

6. (U) Since 1995, we have had an active program in health
diplomacy. Programs have provided aid in legal reform, governance,
economic growth, HIV/AIDS, environmental protection and disaster
prevention. For FY 2008, total U.S. assistance from all agencies
for the President's Emergency Plan for AIDS Relief (PEPFAR) was
about USD 88.9 million, and since 2004, USD 234 million, which has
gone towards providing assistance in the area of HIV/AIDS treatment
and prevention. Vietnam is one of fifteen countries with a PEFAR
program. Over 50 percent of our overseas development assistance is
devoted to health in areas such as influenza, tuberculosis, vaccine
development, and tobacco control. For example, the USG is the
largest single bilateral donor in implementing the President's Three
Pillar Strategy to avert the next influenza pandemic. These efforts
are complemented by the provision of in-kind technical assistance,
for example, in human capacity development, cholera control, and
road safety. Our fundamental goal is to assist Vietnam in the
challenging road of health sector reform, given the rapid pace of
economic change and modernization.

Trade and the Economy

---------------------

7. (SBU) Trade and investment have played a central role in our
improved relations and we are seeking to keep up the momentum with
agreement soon on a new bilateral investment treaty and a more
liberal civil aviation agreement. After a decade of isolation and
failed economic policies, Vietnam is determined to catch up with the
Asian tigers. Vietnam's "doi moi" (renovation) program of economic
reform, begun in 1986, has set the country on a successful market
economy path, with an average growth rate of 7.5 percent over the
past decade. The GVN understands that continued economic growth is
essential to political survival. The GVN focuses on exports and
foreign direct investment in its drive to achieve middle-income
status by 2010. The United States is Vietnam's largest export
market and third largest overall trade partner. U.S. investors tell
us the key challenges they face in Vietnam are underdeveloped
infrastructure, a shortage of skilled workers and managers, and the
considerable level of state participation in the economy. For its
part, the GVN is grappling with issues of corruption, improving the
legal environment, and implementing its WTO commitments.

8. (SBU) Vietnam is dealing with serious macroeconomic challenges
which prompted some analysts in the spring to warn that it faced a
1997-like meltdown. Inflation has risen sharply (28 percent
year-on-year for August) and the current trade deficit is
uncomfortably high. High money and credit growth and global
inflation are the main causes. Vietnam has tightened monetary and
fiscal policy in response. These measures have proved effective so
far and the government needs to stay the course. Over the longer
term, Vietnam needs to undertake serious reforms of its powerful
State Owned Enterprises (SOEs) to ensure long-term economic growth.


Embassy Staffing and the Real Estate Crunch
-------------------------------------------

9. (SBU) The increasingly strong diplomatic and trade relations, the
greater importance of Vietnam on the world stage, and burgeoning
U.S. assistance has resulted in significant staff growth that
promises to continue for the foreseeable future. Staffing has
increased by more than one third over the last four years, and is
projected to increase by the same amount over the next five.

10. (SBU) The Embassy has long since out-grown its current Chancery,
which was provided to us as a "temporary" building in 1995 until a
more permanent site was obtained. Consular, PAS, GSO, CDC, HHS, DOD
PEPFAR, FCS, FAS, and Treasury operations are located in an Annex
called the Rose Garden, around the corner from the Chancery; USAID
is located in the Tung Shing building, 20 minutes driving time from
the Chancery. We have now reached the space limitations of these
two annexes as well, and the Chancery is filled beyond capacity. In
order to relieve the over-crowding and provide space for current and
future growth, while maintaining programmatic integrity, the Embassy
is seeking to collocate the PEPFAR and assistance agencies (USAID,
CDC, HHS, and DOD PEPFAR) in a new office building. The
over-heating economy and lack of infrastructure, however, have
combined to make available space exceedingly difficult to find.
Currently in Hanoi, 98.6% of office space is occupied. Considerably
more office space is scheduled to come on line in 2010 and after,
but continued Embassy growth means that this will come too late.
Most of this space will be far from the Embassy in any case.
Currently, the Embassy is evaluating two properties for rental: the
ITT, which is about a seven minutes drive time from the Embassy; and
RESCO which is about eight minutes away. The first appears to have
too many safety issues to be practical; the second is still under
assessment.

11. (SBU) In addition to being over-crowded, the Chancery has a
number of serious functional and structural problems. The building
was never meant to house the Embassy for more than five years (much
less thirteen now, and what is likely to be close to twenty by the
time the NEC has been built). A NEC is critical to resolving these
problems - as well as bringing, at last, all agencies under one
roof.

Ho Chi Minh City Real Estate Issues
-----------------------------------

12. Sustained rapid economic growth in Ho Chi Minh City continues
to drive rental rates up sharply -- a trend unlikely to abate for
many years. Over the past two years, the Consulate has experienced
an aggregate increase of 18% in their residential lease costs in a
market already significantly more expensive than others in the
region. Although some are hoping that the current global financial
crisis may bring about a softening in the leased space market, our
most recent renewals demonstrate an accelerating rate increase,
typically in the 30% range. In order to contain spiraling lease
costs, provide for a more stable housing base and to make more

effective use of USG-owned land, the Consulate proposes developing a
vacant property under a public-private partnership model. They have
been working closely with both OBO and the CFO, both of which
support the project, and understand the issue has now been put
forward to OMB.

13. The market for office space in Ho Chi Minh City is even more
costly and dramatic than that of residential. The Consulate
currently has eight agencies and offices located in two off-premise
locations. In 2006, the Consulate experienced a 32% rate increase
for the property supporting our Public Affairs Section, FCS, FAS and
DHS/ICE. Last year, they experienced a 58% increase in the lease
rate for the commercial space for the Humanitarian Resettlement
Section, CDC, AID and DHS/CIS. To illustrate further the direction
the market has been headed, last month the Canadian Consulate
renegotiated their lease and witnessed rental rates soar from USD 26
per square meter to USD 72. The good news is that a number of
commercial buildings are coming on line in 2009 and the forecast is
that there may be a (short-lived?) softening in the market. The
Consulate is trying to take advantage of this window of opportunity
and is currently working with OBO to develop a Space Requirements
Plan for consolidating all off-premise offices.

Definition of HCMC Consular District Still an Issue
--------------------------------------------- ------

14. The GVN is anxious to open a consulate in Houston. It would be
helpful if you would reinforce our desire to open Houston as soon as
we have regularized the consular district of our Consulate General
in HCMC (which we proposed in 1995 should include 33 provinces and
which the GVN currently limits to the HCMC city limits). We have
told the GVN we would be willing to move forward with Houston after
a "significant" enlargement of the HCMC Consular District. The MFA
tells us some provincial governments and some Ministry of Public
Security officials object to the enlargement because of concern that
we meet with troublemakers (dissidents). The MFA has recently
strictly enforced the limits, denying travel, for example, to Danang
of a HCMC officer while allowing a Hanoi officer to make the same
trip for the same meetings on the same day. Deputy Secretary
Negroponte also raised these issues when he visited Hanoi September
11.

What You Can Expect
--------------------

15. (SBU) You can expect your interlocutors not only to be
articulate and well informed, but also to speak in terms generally
supportive of growth in the bilateral relationship. As noted above,
lingering suspicions still exist among conservatives in leadership
about the development of closer ties with the United States, but the
overall tenor is one of support and interest at a measured pace that
will not upset the GVN's calibrated attempts to maintain balance
among its other regional partners. GVN NEC negotiators have been
flexible on some issues (e.g., infrastructure cost), and not so
flexible on others (e.g., agreeing to the possibility of a 99+99
year lease). We believe that the GVN sincerely wishes to negotiate
an acceptable agreement with us, due to our increasingly close ties,
as well as their desire to have a similar arrangement for their
facilities in the United States; but they feel bound by their law,
and to some extent, by certain agencies within the GVN.

16. (SBU) We look forward to your visit and stand ready to do
everything we can to make your time in Vietnam as productive as
possible.

Michalak

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