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Cablegate: Private Sector Tells Vietnam to Raise Its Game During

VZCZCXRO9151
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1329/01 3400812
ZNR UUUUU ZZH
P 050812Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8809
INFO RUEHHM/AMCONSUL HO CHI MINH 5342
RUEHGP/AMEMBASSY SINGAPORE 2717
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 001329

SENSITIVE
SIPDIS

STATE FOR EAP/MLS MBROWN
SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE

E.O. 12958: N/A
TAGS: EINV ECON EIND ELAB ENRG KCOR VM

SUBJECT: PRIVATE SECTOR TELLS VIETNAM TO RAISE ITS GAME DURING
ECONOMIC SLOWDOWN

REF: A) Hanoi 1316 ("Vietnam Shifts Focus");
B) Hanoi 1251 ("Addressing The Economic Agenda");
C) Hanoi 1201 ("Econ Highlights: Power Generation")

HANOI 00001329 001.2 OF 002


1. (U) Summary: Local and foreign businesses told the Government of
Vietnam to streamline red tape, intensify consultations with the
private sector, accelerate investment licensing and shore up its
competitiveness as ways to blunt the impact of the global economic
crisis. The mining and energy sectors, in particular, gave the GVN
a long list of specific recommendations and low marks on its efforts
thus far to improve the business climate in their sectors. For the
most part, the GVN took note of the advice without committing itself
to action. The discussions were part of the twice-yearly Vietnam
Business Forum, hosted by the World Bank and the GVN to elicit
private sector advice. End summary.

PREDICTABILITY, CERTAINTY AND TRANSPARENCY
------------------------------------------

2. (U) The private sector's message to the GVN centered on how to
make the best of the economic crisis that is already being felt in
Vietnam (REF A). Nearly all sectors which presented papers at the
Vietnam Business Forum (VBF) stressed the need for the GVN to
improve its decision-making process. They cited the lack of
transparency in how decisions are made, the poor communication
between decision-makers and those affected and between
decision-makers themselves, and the uncertainty of GVN policies.

3. (U) The mining group, perhaps the sector most affected by the
slew of regulations and taxes that the GVN has sprung on them (REF
B), said that a rapid series of decisions "had changed the economic
landscape" for them. "Compounding these concerns is the speed of
implementation and the lack of dialogue with affected stakeholders,"
Robert Guest, from Asian Mineral Resources and head of the Mining
Group, told the VBF panel of ministers, vice ministers, and
provincial government officials. The U.S., Australian, and European
chambers of commerce echoed those sentiments. "Our members would
welcome better and more regular communication between [the GVN] and
the business community regarding the application of laws and
regulations, including consistent messages and coordination across
different ministries and levels of government," Giles Cooper, from
Auscham, stated.

4. (U) Streamlining investment and other red tape-prone activities
were also cited as key goals for the coming year. "In 2009 and 2010
many quality projects are likely to be competing for the same very
limited pool of money," warned the Infrastructure Working Group.
Many presenters warned that the current pace of telecom regulation,
investment licensing, a roadmap for the banking sector and
state-owned privatization were too slow and would drive investment
elsewhere.

CALLS FOR INCREASED SPENDING ON INFRASTRUCTURE
---------------------------------------------

5. (U) Many of the participants urged the GVN to ramp up
infrastructure projects, which they claimed would bring in foreign
investment and stimulate the local economy. Both the Manufacturing
and Infrastructure Working Groups said that Vietnam could not afford
to sit on long-pending licenses for power generation, telecom,
transportation and other foreign investment projects (REF B).
"Infrastructure was at a critical point in holding back growth in
Vietnam," Tony Foster, from the Freshfields law firm and head of the
Infrastructure Group, said. "As a result of the world financial
crisis, the position could become worse." The group recommended,
among other things, that the GVN create a single-window entity to
deal with all investment licensing and speed up approvals.

6. (U) The Infrastructure Group also restated the energy industry's
calls for higher retail electricity tariffs to make new capital
investment in power generation possible. The GVN acknowledged that
it needed investment in power generation, but countered that its
"energy roadmap" was on track despite the travails of cash-strapped
state-owned Electricity of Vietnam (REF C). The Manufacturing
Working Group suggested relaxing infrastructure investment
regulations and a government stimulus package as ways to overcome
the lack of capital for these projects.

FINANCIAL SECTOR CALLS FOR TRANSPARENCY

HANOI 00001329 002.2 OF 002


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

7. (U) Both the Bank and Capital Markets Working Groups called for
increased transparency from the GVN, especially in the areas of
banking and macroeconomic data. Both groups also requested that
foreign ownership limits be increased and applicable regulations
clarified. The Bank Group also asked about possible legislation to
facilitate mergers of 10 to 15 small, troubled joint stock banks.
The Capital Markets Group pushed for decreased state ownership and
better disclosure requirements, especially on related party
transactions.

8. (SBU) While recent interest rate cuts were lauded, the interest
rate cap was criticized for preventing risk-based pricing. State
Bank of Vietnam (SBV) Deputy Governor Nguyen Van Binh acknowledged
the difficulties caused by the cap and said that he hoped the
National Assembly would soon take action to remove it. (Note: The
cap is part of the Civil Code and cannot be removed by the SBV.
Sources within the GVN indicate that the GVN is nearing a consensus
on this issue and there will soon be action by the National
Assembly.) Binh also said the SBV was re-examining the issue of
foreign ownership caps and would submit suggestions to the Prime
Minister.

INVESTMENT IN EDUCATION AND TOURISM
-------------------------------

9. (U) Both the Tourism and Education groups highlighted the
comparative disadvantages of Vietnam vis-a-vis its neighbors. In
education, the group compared Vietnam with Malaysia to make the case
that Vietnam's proposed education investment regulations were
needlessly restrictive and self-defeating. The tourism sector
pointed to how visa regulations made it much harder to visit and
work in Vietnam than in neighboring countries.

RISING COSTS AND OTHER DISINCENTIVES
-----------------------------
10. (U) The private sector also mentioned that Vietnam's rising
costs, in particular, personal income tax rates and labor, was
eroding its competitiveness. The new personal income tax law, which
will come into effect in 2009 and taxes employee benefits, came
under fire from the Eurocham. Many expatriate workers are concerned
that these rising taxes may drive foreign managers to commute from
neighboring countries. Like at the previous VBF in June, AmCham
focused on the challenges of rising labor costs and illegal strikes,
and asked for a moratorium on minimum wage increases.

COMMENT: THE WORD IS REFORM
---------------------

11. (SBU) Comment: The private sector offered many specific
recommendations and the overall message of continuing to reform and
modernize Vietnam's economic institutions and laws was unmistakable.
In choosing to frame the urgency of improving the business climate
against the backdrop of the economic crisis, the private sector
deftly made its case for GVN action. Although the GVN remained
silent throughout most exchanges, its track record shows that it
will seriously consider these recommendations. End Comment.


MICHALAK

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