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Cablegate: Vietnam: Snapshot of Recent Economic Events

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

UNCLAS SECTION 01 OF 03 HANOI 003084

SIPDIS

STATE ALSO FOR EAP/BCLTV AND EB
STATE PASS USTR FOR EBRYAN
STATE PASS USAID FOR ANE/KUNDER AND ANE-SPO BRADY
STATE ALSO PASS USAID FOR ANE/KENNEDY
TREASURY FOR OASIA
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO

E.O. 12958: N/A
TAGS: ECON ETRD EINV EAID ENRG VM FINREF
SUBJECT: VIETNAM: SNAPSHOT OF RECENT ECONOMIC EVENTS

1. This cable describes economic events in Hanoi during
October and early November 2004.

Financial Sector Donor Working Meeting
--------------------------------------

2. The Financial Sector Donor Working Group met in Hanoi on
October 18 to discuss donor projects in the financial sector
and the key areas of reform that should be focused on in the
World Bank's next Poverty Reduction Support Credit (PRSC) 4.
The World Bank hosted the meeting with participation by the
State Bank of Vietnam (SBV) and representatives from 15
donor organizations and donor-funded projects. (Note: The
goals of the PRSCs are speeding up economic growth and
poverty-reduction through promoting competition,
accelerating state-owned enterprise and banking reform, and
improving transparency and accountability in SOEs and in the
banking sector. The most recent in the series of credits,
PRSC 3, was signed on July 8, 2004 in the amount of US$100
million. However, due to the persistently slow pace of
state-owned enterprise and banking sector reforms, the
United States abstained on the third Poverty Reduction and
Support Credit for Vietnam. The PRSC 4 is currently under
development with a tentative timeline proposing a draft
program by February 2005 and the presentation to the World
Bank Board in June 2005. End Note.)

3. Representatives of the World Bank, the European
Commission, USAID, IMF, Agence Francaise de Developpement
(AFD), and the Canadian International Development Agency
(CIDA) shared highlights of their specific ongoing
assistance projects in Vietnam. They also identified
proposed areas for future assistance, including assistance
in the audit and restructuring of the State Owned Commercial
Banks (SOCBs), strengthening of banking supervision,
enhancement of the corporate governance and regulatory
framework for banking, and other areas of Vietnam's capital
market development. Donors expressed concern that there is
a lack of strategic focus guiding the large volume of
assistance in the banking sector. To address this concern,
the Donor Working Group discussed ways in which the PRSC 4
could be used to help focus donor assistance and advance the
financial sector reform agenda. The Donor Working Group
also suggested two additional steps for advancing financial
sector reforms: 1) encouraging relevant agencies such as
the Ministry of Finance (MoF) and the State Securities
Commission (SSC) to take a leadership role and participate
more actively in financial sector reform issues; and 2)
holding a donor meeting led by the State Bank of Vietnam
(SBV) on the SBV's reform agenda and its immediate
assistance needs in November and then holding more regular
sector work group meetings thereafter.

Oil Discovery off Northern Coast
--------------------------------

4. American Technologies Inc Petroleum (ATIP), announced
October 20 that initial drilling in the Yen Tu-1X well about
70km off the coast of Hai Phong had found oil and gas. ATI
(an American company also invested in aquaculture and eco-
tourism ventures in Vietnam) is in a partnership with
Petronas Carigali (Malaysia), Oil and Gas Investment and
Development Company (PetroVietnam) and Singapore Petroleum
(Singapore) to explore blocks 102 and 106 in the Gulf of
Tonkin. Press reports indicate Petronas has a fifty percent
stake in the project, ATI and PetroVietnam each have twenty
percent and Singapore Petroleum has ten percent. To date,
the partnership has spent about $20 million and estimated it
would need to spend another $100 million before commercial
activities could begin. According to ATI, the company's oil
and gas and geology experts have estimated that these fields
could contain 722 million barrels of recoverable oil and 40
billion cubic meters of gas in the wells.

5. However, certain issues cast some doubt on the validity
of this announcement. According to subsequent news
articles, an official from Petronas, one of ATIP's partners,
has said that Petronas believes the recoverable reserves may
only be about seven to ten million barrels. The Petronas
official claims that Petronas found some oil in the well.
However, when Petronas attempted to drill deeper, it
encountered a large amount of poisonous hydrogen sulfide
gas, which prompted the company to abandon the well. In a
meeting with the Ambassador on October 22, a ConocoPhillips
executive resident in Vietnam indicated that initial
petroleum finds in Vietnam's northern waters had contained
significant Carbon Dioxide (CO2) levels, as high as 80
percent. At this level of CO2 contamination the commercial
viability of these reserves could be affected.
Additionally, throughout the press conference on October 20,
ATIP General Director Huu Dinh, repeatedly requested that
the media "ignore the rumors" about the discovery and focus
on the "facts" presented by ATIP. Huu Dinh is reportedly on
the "verge of bankruptcy" in Vietnam. Several people who
attended the press conference speculated the announcement
might have been an attempt to attract other investors to a
questionable venture.

USVTC Hosts ICSID General Council
---------------------------------

6. Under USAID's program to assist GVN in implementing the
U.S.-Vietnam Bilateral Trade Agreement (BTA) and Vietnam's
efforts to join the WTO, the U.S.-Vietnam Trade Council
(USVTC) and the Ministry of Planning and Investment (MPI)
hosted a visit of Gonzalo Flores, Senior counsel of the
International Centre for Settlement of Investment Disputes
(ICSID), to Hanoi October 26-29. USVTC and MPI organized a
workshop on ICSID for officials from a number of agencies
including MPI, the Ministry of Justice, the Ministry of
Trade, the Office of Government, and the National Assembly.
The workshop provided a forum for Vietnamese legal experts
to learn more about ICSID and to consider the impact ICSID
membership will have on Vietnam. During the seminar, Flores
stressed that because of its commitments in the BTA (as well
as a number of bilateral investment agreements with other
countries), Vietnam has consented to arbitration at the
ICSID and investment dispute cases may already be referred
to ICSID for dispute settlement. (Note: The investment
chapter of the BTA (Chapter IV) states that nationals or
companies of either the United States or Vietnam may submit
an investment dispute to ICSID for settlement by binding
arbitration. Until Vietnam becomes a party to ICSID,
settlement would be done through ICSID's Additional
Facility. End Note.) Besides the seminar, Flores met with
officials at the MPI, MOJ and OOG to discuss ICSID
accession, met with officials of the Supreme People's Court
to discuss enforcement of ICSID arbitration awards and spoke
at an Amcham luncheon.

Policy Dialogue on Services Sector
----------------------------------

7. On October 26, in Hanoi, the Ministry of Planning and
Investment (MPI), in cooperation with the UNDP, organized a
policy dialogue seminar on the challenges and approaches to
liberalization of Vietnam's services sector. The seminar
was held under the framework of the UNDP's technical
assistance (TA) project "Capacity Strengthening to Manage
and Promote Trade in Services in Vietnam in the Context of
Integration." Senior foreign government officials and
consultants from Malaysia, India, Australia, Canada and
Brazil participated in the seminar, described their
respective countries' experiences with services
liberalization and making recommendations for Vietnam.
Representatives from the Vietnam's General Statistics Office
(GSO) and other local economic experts pointed out that GVN
statistics on the services sector do not comply with the
WTO's classification of services sectors and sub-sectors and
called for donor assistance in filling this gap.

8. Officials from the Ministry of Planning and Investment
(MPI) stressed the need for a national strategy for
developing the services sector. MPI officials also noted
that to attract additional foreign direct investment in the
services sector, the GVN should: 1) enhance transparency of
legislation and policies; 2) simplify licensing procedures
for FDI projects especially in the services sector; and 3)
remove the 30 percent minimum capital contribution
requirement by foreign investors in joint venture companies
in some sectors. However, MPI officials also stressed that
the GVN needs to maintain the ceiling on foreign ownership
in some particularly important services projects. A
Canadian UNDP consultant cited telecom, IT services,
education and training, and financial services as key
sectors for development and liberalization. Some foreign
experts said that Vietnam should be cautious in making
services commitments and that the GVN should consider what
the most appropriate balance between government and private
participation would be in the various services sectors.
According to foreign experts, the GVN should also consider
the possible impact of such commitments on the domestic
market and on social and economic growth. A representative
from the Prime Minister's Working Group on implementing the
Enterprise Law commented that Vietnam's domestic services
market should be open to investment from domestic private
enterprises before they are open for foreign investment.

Vietnam Literary Copyright Center Established
---------------------------------------------

9. On November 2, The Vietnam Writers' Association (VWA)
hosted a ceremony in Hanoi to announce the establishment of
the Vietnam Literary Copyright Center (VLCC). The VLCC is a
non-governmental, non-profit organization under the
management of the VWA, which the Ministry of Home Affairs
established in August 2004. The stated functions of the
VLCC include: executing contracts on copyright transfer
between the Center and authors; settling disputes among
members; coordinating with international organizations on
the protection of copyrights; and disseminating the text of
laws, regulations and international conventions on literary
copyright issues to its members, other writers and the
general public. At present, about 100 Vietnamese writers
have signed contracts with the VLCC. The VLCC has asked the
William Joiner Center to act as an intermediary between the
VWA and American writers, whose books are published by the
VWA's publishing house in Vietnam. Embassy Hanoi's Public
Affairs is providing a USD500 grant to the Center to support
copyright protection.

New Insurance Regulations
-------------------------

10. On October 19, the Ministry of Finance issued two new
insurance circulars (98/2004/TT-BTC and 99/2004/TT-BTC),
updating and replacing two earlier circulars, drafted with
Asian Development Bank technical assistance. These
circulars serve as implementing regulations for the
Insurance Law (April 2001) and subsequent Government Decrees
on the insurance sector (Decree 42/2001/ND-CP and 43/2001ND-
CP from August 2001) in Vietnam. The local representative
of a U.S. insurance company (which has a representative
office in Vietnam but is still awaiting a license to
operate), commented that these circulars include new and
more specific provisions on product approval, pricing
assumptions and formulas, hiring of appointed actuaries, the
wording of policies, sales illustrations, contracting,
agency supervision and profit sharing rations. Unofficial
translations of the circulars have been emailed to
EAP/BCLTV.

MARINE

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