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Cablegate: Ambassador's Farewell Call On State Bank Governor Thuy

VZCZCXRO9888
PP RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #1366/01 2150724
ZNR UUUUU ZZH
P 030724Z AUG 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 5980
INFO RUEHHM/AMCONSUL HO CHI MINH 3446
RUEHGP/AMEMBASSY SINGAPORE 2422
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION

UNCLAS SECTION 01 OF 02 HANOI 001366

SIPDIS

STATE FOR EB/OMA AND EAP/MLS
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: EFIN ECON EAID VM
SUBJECT: AMBASSADOR'S FAREWELL CALL ON STATE BANK GOVERNOR THUY

HANOI 00001366 001.2 OF 002


(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET.

1. (SBU) Summary: The Ambassador met with State Bank Governor Le
Duc Thuy as part of his farewell calls. The meeting covered a wide
range of issues, including money laundering, anti-proliferation
efforts, the stock market, equitization, inflation, the exchange
rate, and areas for further cooperation. It is clear that State
Bank officials are beginning to feel the pressures of a developing
economy, but they have not yet addressed how to reconcile
inflationary pressures with an intentionally undervalued currency.
End Summary.

Anti Money Laundering
-----------------------

2. (SBU) The Ambassador met with State Bank Governor Le Duc Thuy on
July 31 for a farewell call. After initial greetings, the
Ambassador raised the issue of anti money laundering (AML), noting
that Vietnam's attendance at the Asia Pacific Group meeting in Perth
was very encouraging. He cited the large amount of remittances from
the United States to Vietnam last year, approximately 4.7 billion
USD, and stressed the mutual need to be confident in AML safeguards.
Ambassador Marine added that the U.S. Department of Treasury's
Technical Assistance Office was planning an assessment of Vietnam's
AML regime this fall, but to do so it would help to have a formal
indication that the Vietnamese wish to engage on this matter.

3. (SBU) Governor Thuy responded by acknowledging U.S. assistance in
this area and admitting that the Vietnamese AML decree could be
better. He also noted that last month the State Bank of Vietnam
(SBV) established the Anti Money Laundering Information Center as an
independent organization. The Governor explained that they were now
working on setting up the organization and initiating the operations
of the new entity. He said that they still lack
equipment/facilities to work effectively, so the SBV welcomes
support and training from the United States. The SBV will seriously
consider Treasury's technical assistance offer and will make a
report to the competent authorities for a decision. He clarified
that the formal request will come from either the SBV or from the
Government of Vietnam itself.

Non Proliferation
-----------------

4. (SBU) On a related issue, the Ambassador reminded the Governor
that, when they last met, the Ambassador had mentioned the
propensity of North Korea to finance proliferation activities using
financial institutions in the region. He noted that it has become
evident that Vietnam is likely to be on the UN Security Council and
therefore directly involved in directing policy on North Korea and
other global security issues, but for now, the United States is very
interested in how Vietnam is implementing UNSCR 1695 and 1718.

5. (SBU) The Governor responded by stating that Vietnam is a member
of the UN and has complied with the resolutions on North Korea.
However, he said that, because of limited information and
accessibility, the SBV would welcome any information from the United
States about suspicious or problematic activity.

The Stock Market and Equitization
---------------------------------

6. (SBU) The Ambassador then turned to the stock market and the
ongoing equitization process. He complimented the Governor on
Vietnam's economic growth, noting that the recent decision to avoid
capital controls was illustrative of a sage, long-term viewpoint.
However, the Ambassador continued, there was some talk that the IPO
process was going to be delayed due to the recent downturn in the
Vietnamese stock market. He pointed out that some would take this
as wavering dedication to the equitization process, and that perhaps
an equitization/privatization plan could be shared with the public
in an effort to assuage those concerns.

7. (SBU) Governor Thuy was quick to disavow any official plan to
delay the equitization timeline. He stated that the IPO timeline
for the commercial banks is proceeding and that there has been no
statement from the Cabinet that it should be delayed. Any opinions
to the contrary were merely "informal." He agreed that the
equitization plan for other enterprises had not been completely
transparent, but that the SBV was working with the Ministry of
Finance to provide a clear roadmap for the bank IPOs. The Governor
was also frank about the general sense of confusion regarding which
direction the stock market was heading, but stated that the GVN
would not allow the market to impact negatively the stable economic

HANOI 00001366 002.2 OF 002


development of Vietnam.

Inflation and Currency
----------------------

8. (SBU) The Ambassador linked the equitization process to the
larger macro-economic picture, making it clear that there was
concern in some camps about inflation and credit growth in the
Vietnamese economy. He noted that as the economy continues to
develop, the policy of targeted interest and exchange rates would be
difficult to maintain. Specifically, the Ambassador noted that we
were interested in knowing whether Vietnam would display any
flexibility with its currency, which would help to control
inflation.

9. (SBU) The Governor took the "party line" and explained that, in
the short term, inflation was due to a number of causes, including
avian flu, natural disasters and higher energy prices. He did admit
that, for the long term, inflation posed a question of monetary
policy; specifically, how to regulate capital inflows while creating
a flexible exchange rate and strengthening reserves. He stated that
Vietnam knows it does not want to "chase" too much foreign currency,
but that Vietnam has to keep the value of the dong close to its
actual buying power. In other words, he clarified, the nominal and
real exchange rates are currently similar and the SBV did not want
them to drift too far apart. He then reiterated that the main
reason for inflation in 2007 was the external forces listed above,
but that Vietnam did want to find a way to ensure that the exchange
rate was not contributing to inflation.

Past and Future Cooperation
---------------------------

10. (SBU) Both the Ambassador and the Governor acknowledged the
strong working relationship between USAID's Support for Trade
Acceleration (STAR) program, which provides technical assistance as
Vietnam upgrades its economic governance legislation, and the State
Bank. The Ambassador said that the United States welcomed the
opportunity to provide comments and suggestions as Vietnam moved
forward in creating a new central banking system. Governor Thuy
thanked the Ambassador, stating that the SBV would make good use of
the information it had received through technical assistance. He
noted that, in accordance with Vietnam's situation, it was unlikely
that they would have a very powerful central bank like the U.S.
Federal Reserve. He went on to outline several areas where he
thought the SBV could use additional assistance, including how to
have healthy growth in the stock market, how to control capital
inflows, and the most appropriate role for the State Bank in the
stock market.

Comment
-------

11. (SBU) Governor Thuy mostly stuck to the party line, but was
frank in describing the challenges facing the State Bank. We are
hopeful that this meeting will bring about some movement on the
formal request necessary for AML technical assistance. The overall
relationship to date between the Embassy and the SBV has been a
positive one. The Governor would clearly welcome additional
technical assistance on the development of the central banking
system in Vietnam and wants to maintain the momentum on this
positive track. The Governor did not discuss his impending
departure from office, or the criticism directed at his family with
regard to corruption allegations (nor did we ask). Subsequent to
our meeting, the GVN announced the new Governor will be Nguyen Van
Giay, currently the Party General Secretary of Ninh Thuan Province;
prior to that position, he was the Deputy Governor of SBV.

MARINE

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