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Cablegate: Vietnam's 2008 Consultative Group Meeting

VZCZCXRO3597
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1349/01 3461039
ZNR UUUUU ZZH
P 111039Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8840
INFO RUEHHM/AMCONSUL HO CHI MINH 5369
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 HANOI 001349

SENSITIVE
SIPDIS

STATE FOR EAP/MLS MBROWN
SINGAPORE FOR TREASURY
HHS/OSSI/DSI PASS TO OGHA (WSTEIGER/MLVALDEZ/MABDOO)
TREASURY FOR SCHUN
USTR FOR DBISBEE
USAID FOR ASIA/AA MELLIS; EAA/ASIA DSHARMA; ODP/OD KTURNER

E.O. 12958: N/A
TAGS: ECON PGOV EAID VM
SUBJECT: Vietnam's 2008 Consultative Group Meeting

HANOI 00001349 001.2 OF 004


1. (U) Summary: Vietnam's fifteenth annual Consultative Group
meeting took place on December 4 and 5 in Hanoi against a broader
media backdrop of the corruption scandal that led Japan to suspend
nearly a billion dollars in bilateral development assistance
(septel). The core theme throughout the dialogue was the need for
transparency and competitiveness during a time of global economic
difficulty. Topics discussed include Vietnam's macroeconomic
situation, poverty reduction, health care, aid effectiveness,
corruption, public administration reform and climate change. End
Summary.

2. (U) Vietnam's fifteenth annual Consultative Group (CG) meeting
took place on December 4 and 5 in Hanoi. The CG is an opportunity
for multilateral and bilateral donors to express their positions on
a wide range of issues directly to high level GVN representatives.
PM Nguyen Tan Dung attended the morning of the first day, with
Minister of Planning and Investment (MPI) Phuc and other ministers
and vice ministers speaking on behalf of the GVN after his
departure. (Note: Since many countries have their President or
Prime Minister (PM) attend only the last day of summaries and
dinners, the PM's attendance on the morning of the first day and his
interactive role on tough issues is a sign of GVN recognition of the
importance of dialogue with donors. End note.)

3. (U) In his opening remarks, the PM noted that inflation control
had been the GVN's top priority throughout much of 2008 but that the
focus had recently shifted to address the impact of the economic
downturn and to meet the goals set by the National Assembly.
Specifically, he said, the GVN would: endeavor to boost production
and exports, especially by small and medium enterprises (SMEs);
stimulate investment and consumption; ensure social security and
poverty reduction; apply "flexible, suitable and effective" monetary
policy to prevent inflation and stimulate exports; and, pursue
better administrative reform and anti-corruption efforts, including
improved macroeconomic forecasting and SOE monitoring. The World
Bank (WB) complimented the GVN on its rapid action on inflation and
the trade imbalance earlier in the year, noting that the while
inflation called for a monetary response, the current global
downturn called would require a carefully balanced fiscal solution.


MACROECONOMIC STABILITY IS TOP PRIORITY
---------------------------------------

4. (U) Following opening remarks, the first session addressed
Vietnam's socio-economic situation and policy responses. MPI's
Phuc presented a report on Vietnam's 2006-2010 Development Plan
which highlighted 7.8 percent growth over the last three years and
42 percent of GDP being produced by the private sector. The report
noted weaknesses in macroeconomic structuring and stability, supply
of quality labor, infrastructure and environmental safeguards. The
subsequent IMF statement focused on the macroeconomic challenges in
the year ahead by encouraging the careful balancing of growth and
stability objectives, a more flexible exchange rate policy and a
more conservative fiscal stance, especially with regard to
inefficient capital projects. The statement also called for a
framework to address any vulnerability in the banking sector,
improved data quality and communication and increased structural
reforms, especially in the areas of banks and SOEs. The lead donor
statement echoed many of these themes, and also advocated for
continued implementation of WTO commitments, SME support and
increased competiveness.

5. (U) The PM replied, "Macroeconomic stability is now our top
priority, because without it we cannot sustain growth." He vowed
tight but flexible monetary and fiscal policy and an exchange rate
that follows "supply and demand market principles to promote
exports, growth and macroeconomic stability." The PM promised that
Vietnam would continue to implement its WTO commitments as well as
any other bilateral or multilateral commitments. He acknowledged
concerns about transparency, saying that "we have tried but we know
we have to do more so that investors can better understand our
situation."

6. (U) Individual donors then spoke on a wide range of issues.
First to deliver remarks was the Ambassador from Japan, who
suspended low interest loans to Vietnam pending "meaningful
measures" on corruption (septel). Important themes for subsequent

HANOI 00001349 002.2 OF 004


donors included increased accountability and transparency, continued
poverty reduction efforts and the need for ongoing structural
reforms, especially in the state sector. The U.S. Ambassador noted
that competitiveness and transparency are critical for Vietnam
during a time when developing countries are forced to compete for a
shrinking pool of investment capital. The World Bank noted a need
for coherence in public spending, private partnerships and faster
implementation for infrastructure development, data transparency and
SOE management reform and equitization. The PM responded that,
given the financial crisis, all measures and policies will be aimed
at maintaining macroeconomic stability and growth.

POVERTY REDUCTION SLOWS
-----------------------

7. (U) Following the departure of the PM, afternoon discussions
turned to poverty reduction and health finance reform. On poverty,
the GVN acknowledged that poverty reduction is slowing, with the
estimated target of 11 to 12 percent by 2010 "unlikely." The UK led
the donor response, complimenting the GVN on "35 million lifted out
of poverty over the past 13 years", yet pointing out that new
patterns of poverty are being seen in Vietnam, notably among
increasing numbers of urban migrants, whose mobility makes them
difficult to reach and among ethnic minorities where there are
greater signs of hunger. Strong coordination between ministries was
urged, as well as targeted programming at the district and commune
level. Donors lauded the new Health Insurance and Unemployment
Compensation Laws as important social safety nets for at-risk
populations. MPI's Phuc responded that programs were already in
place to address ethnic minority poverty, but that urban poverty was
a new challenge. He cited unemployment compensation and other
programs directed at the 61 poorest districts in which over 90% of
populations include ethnic minorities in the mountainous areas of
the country as critical to addressing the effects of the global
downturn.

HEALTH BUDGET ON LIFE SUPPORT
-----------------------------

8. (U) The Ministry of Health (MOH) began the session by admitting
that although health expenditures had increased, Vietnam is only
spending 5 to 6 percent of its budget on health, far below the 10
percent recommended by the WHO. [Note. While the amount the GVN
commits to health has increased, as a percentage for of GDP/person
adjusted for inflation, the rate is flat, around 5 to 6 USD per
person per year. Meanwhile out-of-pocket expenses have gone through
the roof, about 32 cents in 2000 and now over USD 43 per person per
year. End Note] MOH made an appeal for additional resources, citing
needs for training, improved hospital systems and a basic health
network to provide preventative care. Donors praised the recent
passage of Vietnam's first Health Insurance Law and asked for speedy
dissemination of implementing guidance. Many, including the U.S.
Ambassador, spoke about the need for strengthening overall health
systems as an important balance to complement and help sustain
disease-specific approaches. Donors also congratulated the GVN on
its HIV programs, but cautioned that donor funding of approximately
80 percent of those programs is not sustainable as Vietnam
approaches middle income status. The GVN responded that a budget
increase had been discussed at the National Assembly but would not
be possible in 2009 due to spending in other areas, but welcomed
additional donor support for health programs.

OVERALL AID EFFECTIVENESS GETS HIGH MARKS
----------------------------------------

9. (U) Donors complimented the GVN for its leadership on the Hanoi
Core Statement and for the PM's endorsement of the Accra Action
Agenda. The Partnership Group on Aid Effectiveness, comprised of
both GVN and donor representatives, said that challenges remain due
to low participation and buy-in by line ministries, difficulty
translating GVN policies into action plans, and lack of GVN capacity
and adequate country systems. The Swiss representative noted that
aid effectiveness discussions should go beyond donors and government
to include the private sector and civil society. The Korean
Ambassador raised an oft-mentioned point about the GVN's need for "a
certain confidence in the predictability of ODA," e.g., through
multiyear commitments by donors that would enable medium and long
term planning.

HANOI 00001349 003.2 OF 004


CORRUPTION STILL A CRITICAL ISSUE
----------------------------

10. (U) For the opening session on December 5, the GVN provided a
summary of the annual Anti-Corruption Dialogue which took place on
November 28. The theme of this year's dialogue was "The Role of the
Media in Anti-Corruption." The GVN acknowledged the need to improve
asset declaration requirements and transparency and to intensify
public and mass media participation in anti-corruption efforts
through an improved legal framework and training for journalists.
Lead discussant Sweden, supported by the United States and many
others, said that more must be done to achieve a substantial impact
on corruption and that a zero tolerance policy should be
implemented. Switzerland said that the "collateral damage of the
PMU 18 scandal (in which reporters who exposed a major government
corruption case were subsequently jailed) is its devastating effect
on the image of Vietnam." The United States and others called for
the amendment of the draft press law, the creation of whistleblower
legislation, and an independent judiciary. (Note: A group of
donors, including the United States, recently sent a letter to the
Chairman of National Assembly (NA) expressing serious concern about
the draft press law. End note) The World Bank asked for patience on
corruption issues, commenting that "the media must be told not to
cross the line but to do their job and report on corruption."

11. (U) The Government Inspectorate (GI) responded that the U.N.
Convention on Anti-corruption would soon be submitted to President
for ratification and then reported to the NA. The GI acknowledged
that the role of public and mass media in fighting corruption is
important, adding "we have discussed the (PMU 18) journalists before
but I don't think you are satisfied." MPI's Phuc said that Press
Law being considered by NA "is to protect journalists but
journalists have their own social responsibility."

UNANIMOUS SUPPORT FOR PUBLIC ADMINISTRATION REFORM
--------------------------------------------- -----

12. (U) A vice minister from Internal Affairs delivered an update
on Project 30, the GVN's administrative reform project, nothing that
the task force, advisory council and working groups have been
established. In addition to Project 30, the Law on Civil Servants
was recently passed and now must be implemented. The lead donor
statement, delivered by Ambassador Michalak, congratulated the GVN
for undertaking Project 30 and encouraged rapid and comprehensive
implementation. Many donors, including the U.S., also asked Vietnam
to consider involvement in the Extractive Industries Transparency
Initiative, which aims to strengthen governance by improving
transparency in revenue flows between oil, gas and mining companies
and their host governments. The GVN thanked the donors for their
interest in administrative report and asked for additional support
for the implementation of Project 30.


DONORS PLEASED WITH CLIMATE CHANGE PLANNING
-------------------------------------------

13. (U) The Ministry of Natural Resources and the Environment
reported that the National Target Plan to Respond to Climate Change
was formally approved by PM just days earlier. The Plan requires a
budget of about $115 million from now until 2015 so additional donor
support is needed. The GVN also reiterated its commitment to
maintaining current emissions thresholds. The donors, led by
Denmark, said that a favorable response on funding and technical
assistance would likely be forthcoming but that additional
information on implementation of the Plan was necessary. The donors
also admitted that coordination amongst themselves was critical to
moving forward.

14. (SBU) Comment: The GVN obtained $5.014 billion in ODA
commitments for 2009, but that figure does not include Japanese
loans that would bring the figure to $6 billion, compared to about
$5.4 billion last year. MPI's Phuc called the amount a "great
achievement given financial difficulties," but Japan's suspension of
soft loans undoubtedly took much of the shine off of this year's CG
(septel). Nevertheless, the tone of this year's CG remained largely
amicable and productive throughout. Donors remain optimistic about

HANOI 00001349 004.2 OF 004


Vietnam's medium to long term prospects, despite more immediate
concerns about the effects of the financial crisis. End comment.

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