Cablegate: Visit to Vietnam of Regional Financial Attache Baker:

VZCZCXRO2995
RR RUEHHM
DE RUEHHI #1149/01 1731023
ZNR UUUUU ZZH
R 221023Z JUN 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 5710
INFO RUEHHM/AMCONSUL HO CHI MINH 3288
RUEHGP/AMEMBASSY SINGAPORE 2407
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 001149

SIPDIS

TREASURY FOR OASIA
SINGAPORE FOR REGIONAL TREASURY ATTACHE BAKER
STATE PASS FEDERAL RESERVE SAN FRANCISCO FOR DFINEMAN

SENSITIVE BUT UNCLASSIFIED
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN VM
SUBJECT: Visit to Vietnam of Regional Financial Attache Baker:
Overview

1. (U) This is one of five cables reporting on the May 29-June 1
visit to Vietnam of the U.S. Treasury Department's Susan Baker, the
Regional Financial Attache (FinAtt) based in Singapore. This cable
provides a general summary of the visit, some notes on institutional
reform and tax policy, and a list of Ms. Baker's interlocutors. The
other cables report on the macroeconomic situation, the banking
sector, developments in the securities markets and the relatively
new State Capital Investment Corporation (SCIC).

GENERAL OUTLOOK POSITIVE, THOUGH CHALLENGES REAL
--------------------------------------------- ---

2. (SBU) As septels report in more detail, Vietnam seems to have
pulled back from its "crisis mode" of February/March as the stock
market has cooled off a bit. Inflation and credit growth, however,
have accelerated. The central bank has responded by sharply raising
reserve requirements and reportedly increasing open market
operations, but is unwilling to use flexible interest rates or
exchange rates to help reign in liquidity at this time. Vietnam
continues to forge ahead publicly with its unique process of
"equitization" (i.e., corporatizing SOEs and distributing shares to
interested parties), but public listings of these SOEs remain a
separate and distinct step that will take more time.

3. (SBU) True privatization is still a long way off for most
government holdings, despite the creation of an institution to
manage these holdings, the State Capital Investment Corporation
(SCIC). Measures designed to reduce regulatory distinctions --
particularly disclosure and custody requirements -- between listed
and unlisted companies in the new Securities Law are not being
implemented. Vietnamese officials and private sector participants
remain nervous about the "wall of money" raised in dedicated
Vietnamese investment funds that has generally not yet been invested
in local assets.

INSTITUTIONAL REFORMS
---------------------

4. (SBU) The new National Assembly is expected to make changes to
the responsibilities of various economic ministries in the next two
to three months. In particular, the Ministry of Planning and
Investment (MPI) may lose its ability to approve financing for
various projects to the Ministry of Finance (MOF).

5. (SBU) The MOF is also keen to take over the State Bank of
Vietnam's current prerogative of staffing all the international
financial institutions (IMF, World Bank, ADB). According to one MOF
official, MPI may shift to becoming more of a think tank on
strategic and macro-economic issues, similar to China's National
Development Reform Commission (NDRC). Speculation in the press has
MPI being renamed as the Ministry of the Economy.

TAX POLICY
----------

6. (SBU) In line with a new tax law implemented in 2006, Vietnam
intends to move to a system of self-assessment, with post-audits by
the tax authorities where warranted. In 2009, the National Assembly
will take up reform of the personal income tax with the goal of
broadening the tax base and equalizing resident and non-resident
treatment. One State Securities Commission official noted that
imposition of a capital gains tax would be difficult until
transparency of the over-the-counter market improved.
Implementation of the securities law, which would require all public
companies to use centralized clearing and settlement, would help
with this.

MEETINGS
--------

7. (U) Ms. Baker began her visit in Hanoi, May 29-30 and then
traveled to Ho Chi Minh City for meetings May 31-June 1. The
following is a list of ministries and offices that Ms. Baker
contacted.

Hanoi:

* State Securities Commission: Markets Development Department
* State Bank of Vietnam: Foreign Exchange Management Dept., Banking
Development Strategy, Banks and Non-bank Financial Institutions,
Banking Inspectorate, International Relations Dept.
* Ministry of Finance: Tax Policy Dept., Capital Market Division of
Banks and Financial Institutions Dept.
* State Capital Investment Corporation
* World Bank

HANOI 00001149 002 OF 002

* Office of the Government: External Relations Dept.
* Vietcombank: Financial Institutions Dept.
* International Monetary Fund

HCMC:

* BlackHorse Asset Management
* HCMC Stock Exchange
* State Bank of Vietnam, HCMC branch
* Asia Commercial Bank
* Indochina Capital
* Dragon Capital
* Deutsche Bank
* HSBC

8. FinAtt had a productive trip and Mission looks forward to her
next visit to Vietnam.

ALOISI

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