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Cablegate: Vietnam - U.S. Vote On World Bank's Prsc Program

This record is a partial extract of the original cable. The full text of the original cable is not available.

271108Z Apr 01

2001HANOI01017 - UNCLASSIFIED

UNCLASSIFIED PTQ2007

PAGE 01 HANOI 01017 01 OF 04 271124Z
ACTION SSO-00

INFO LOG-00 NP-00 AGRE-00 AID-00 ANHR-00 EAP-00 EB-00
TEDE-00 SS-00 STR-00 TEST-00 TRSE-00 SAS-00 /000W
------------------E4A661 271124Z /38
FM AMEMBASSY HANOI
TO SECSTATE WASHDC PRIORITY 2708
DEPT OF TREASURY WASH DC PRIORITY
NSC WASHDC
USDOC WASHDC
USDA WASHDC
ASEAN COLLECTIVE
AMCONSUL HO CHI MINH CITY

UNCLAS SECTION 01 OF 04 HANOI 001017

SIPDIS

SENSITIVE

STATE FOR E, EB, EB/IFD/ODF, EB/IFD/OMA, EB/TPP, EAP/BCLTV
STATE PASS USAID/ANE AFERRERA AND DMCCLUSKEY
STATE PASS USTR
TREASURY FOR OASIA
TREASURY PASS USED WORLD BANK AND USED IMF
USDOC FOR 4431/MAC/IEP/OKSA/HPPHO
USDA FOR FAS/ITP/SCHIKH/HUYNH
PHNOM PENH FOR USAID LCHILES
MANILA PASS USADB

E.O. 12958: N/A
UNCLASSIFIED

PAGE 02 HANOI 01017 01 OF 04 271124Z
TAGS: EAID EFIN ECON ETRD PREL VM FINREF SOE
SUBJECT: VIETNAM - U.S. VOTE ON WORLD BANK'S PRSC PROGRAM

REF: HANOI 686 AND PREVIOUS

1. (SBU) SUMMARY: EMBASSY URGES WASHINGTON AGENCIES TO
SUPPORT THE WORLD BANK'S POVERTY REDUCTION SUPPORT CREDIT
(PRSC) PROPOSAL TO BE PRESENTED TO THE BANK'S BOARD IN EARLY
MAY. WE RECOGNIZE THAT THE PRSC, LIKE THE IMF'S POVERTY
REDUCTION AND GROWTH FACILITY (PRGF) CONSIDERED BY THE IMF
BOARD ON APRIL 6, IS NOT PERFECT. IN FACT, WE AGREE WITH A
NUMBER OF THE OBSERVATIONS MADE BY THE U.S. EXECUTIVE
DIRECTOR'S OFFICE WHEN IT ABSTAINED ON THE PRGF. (WE
COMMENT ON SOME OF THESE OBSERVATIONS BELOW.) BUT WE THINK
THE IMF/WB STRUCTURAL PROGRAM OPERATING IN TANDEM WITH THE
TRADE OBLIGATIONS THE VIETNAMESE GOVERNMENT HAS ASSUMED
UNDER THE ASEAN FREE TRADE AREA AGREEMENT AND WILL ASSUME
WHEN THE U.S.-VIETNAM BILATERAL TRADE AGREEMENT ENTERS INTO
FORCE PROVIDE THE BEST PROSPECT FOR PROMOTING MARKET-
ORIENTATION AND INTERNATIONAL COMPETITIVENESS THAT THE
VIETNAMESE ECONOMY HAS SEEN IN DECADES, IF EVER. WHILE
UNTESTED, WE ARE ALSO HOPEFUL RECENT LEADERSHIP AND
STRUCTURAL CHANGES IN VIETNAM'S POLITBURO WILL REINVIGORATE
ECONOMIC REFORM MOMENTUM. END SUMMARY.

2. (SBU) WHILE ABSTAINING ON THE PRGF DUE TO GRAMM
AMENDMENT CONSIDERATIONS (APPLICABLE ONLY TO IMF LENDING),
THE U.S. EXECUTIVE DIRECTOR TO THE IMF RAISED A NUMBER OF
VALID CONCERNS ABOUT THE PROPOSED FACILITY. SINCE BOTH
STRUCTURAL PROGRAMS (PRGF AND PRSC) WERE DESIGNED TO WORK
TOGETHER, WE ANTICIPATE WASHINGTON AGENCIES MAY RAISE
UNCLASSIFIED

PAGE 03 HANOI 01017 01 OF 04 271124Z
SIMILAR ISSUES WHEN TAKING UP THE WORLD BANK'S CREDIT
PROGRAM. WHEN THE IMF'S BOARD TOOK UP THE IMF'S FACILITY,
THE U.S. EXECUTIVE DIRECTOR QUESTIONED THE VIETNAMESE
GOVERNMENT'S ABILITY TO KEEP PUBLIC SECTOR DEBT UNDER
CONTROL AND WHETHER FISCAL SUSTAINABILITY WOULD BE
ADEQUATELY SAFEGUARDED THROUGH THE LIFE OF THE PROGRAM. THE
U.S. EXECUTIVE DIRECTOR ALSO QUESTIONED THE FIGURES FOR THE
STOCK OF NON-PERFORMING LOANS. IN ADDITION, SERIOUS
RESERVATIONS WERE EXPRESSED ABOUT THE IMF'S APPROACH TO
STATE-OWNED COMMERCIAL BANK REFORM; THE U.S. EXECUTIVE
DIRECTOR WONDERED WHY THE PROGRAM DIDN'T FOCUS ON
DISMANTLING STATE-OWNED COMMERCIAL BANKS, SO THAT THEY COULD
BE REPLACED WITH PRIVATE COMMERCIAL BANKS, RATHER THAN
REHABILITATION THROUGH IMF-FUNDED RESTRUCTURING. FINALLY,
QUESTIONS WERE RAISED REGARDING MONITORING OF STATE-OWNED
ENTERPRISES UNDER THE PROGRAM: IF STATE-OWNED COMMERCIAL
LENDING TO STATE-OWNED ENTERPRISES WERE CUT OFF, HOW WOULD
PROGRAM MANAGERS ASSURE STATE-OWNED ENTERPRISES WEREN'T
FINANCED `BACKDOOR' THROUGH THE GOVERNMENT'S BUDGET, A
PARTICULARLY TROUBLING PROBLEM IN VIETNAM WHERE THE
GOVERNMENT'S BUDGET PRESENTATION REMAINS OPAQUE.

3. (SBU) THESE ARE ALL EXCELLENT QUESTIONS AND, FRANKLY, IT
IS DIFFICULT TO PROVIDE ADEQUATE REPLIES. WE COMMENT BELOW
ON SOME OF THESE CONCERNS.

PUBLIC SECTOR DEBT - WE WERE SURPRISED WASHINGTON AGENCIES
FOCUSED ON THE STOCK OF VIETNAM'S PUBLIC DEBT AT THE IMF
BOARD MEETING WHICH CONSIDERED THE PRGF. THAT DEBT STANDS
AT 63% OF GDP, A LARGE NUMBER BUT LESS THAN HALF OF WHERE
MANY DEVELOPING COUNTRIES AND AT LEAST ONE DEVELOPED COUNTRY
UNCLASSIFIED

PAGE 04 HANOI 01017 01 OF 04 271124Z
(JAPAN) ARE TODAY. WE ALSO CONSIDER THE PROSPECTS FOR
VIETNAM'S CONTINUED REAL GROWTH REMAIN FAVORABLE. A MAJOR
REASON FOR THE GVN TO UNDERTAKE THE PRSC AND THE PRGF
PROGRAMS IS TO ADDRESS THE STOCK OF STA

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