Cablegate: Scenesetter for Codel Shelby, Aug. 21 to 24, 2008

DE RUEHHI #0934/01 2240437
P 110437Z AUG 08




E.O. 12958: N/A

HANOI 00000934 001.2 OF 004


1. (SBU) Embassy Hanoi looks forward to welcoming you to Vietnam.
Prime Minister Nguyen Tan Dung's June visit to Washington
exemplifies a U.S.-Vietnam relationship that
continues to broaden and mature, in the process spurring
economic, social and technological development that has eased the
path for a limited expansion of personal freedom and expression for
the people of Vietnam. As such, the United States is viewed by the
majority of Vietnamese as a key partner in Vietnam's current and
future success. High-level visits like yours create opportunities
for us to influence developments and respond to Vietnam's interest
in globalization, reform, combating corruption, and enhancing
educational opportunities for its people. Your particular interest
in banking and financial services coincides with one of the
Government of Vietnam's greatest challenges and priorities, as the
country's economy is going through a period of adjustment following
tremendous growth in 2007.

2. (SBU) Vietnam's economic successes have translated into
greater international clout. Vietnam has just stepped down from
chairing the U.N. Security Council in July, a major diplomatic
achievement for the GVN. While GVN leaders are not fully sure how
to handle all the attention, they understand that the United States
plays a direct role in creating the conditions for their nation's
success. Leaders here are thankful, in particular, for the key
technical assistance we've given over the past seven years to help
reform the system of economic governance.

3. (SBU) Challenges of course remain. GVN leaders assume the
Communist Party's preeminent political role to be the linchpin of
stability, and human rights remain a major sticking point in our
relationship with the GVN. China remains the GVN's critical
strategic preoccupation, but many Vietnamese view improving
relations with the United States as a key indicator of the
tremendous progress since the dark days of the 1970's and 1980's.
For these reasons, Vietnam's leaders are committed to continued
progress in bilateral relations and will speak with you
optimistically about the future of U.S.-Vietnam ties. End summary.


4. (SBU) After a decade of isolation and failed economic
policies, Vietnam is determined to catch up with the Asian
tigers. Vietnam's "doi moi" (renovation) program of economic
reform, begun in 1986, has set the country on a successful market
economy path, with an average growth rate of 7.5 percent over the
past decade. A recent World Bank study described Vietnam's poverty
reduction rate as the most significant in such a short period of
time of any nation in history. The GVN focuses on exports and
foreign direct investment in its drive to achieve middle-income
status by 2010. Vietnam is second only to Thailand in rice exports,
and second only to Brazil in coffee. Other leading exports include
crude oil, apparel, footwear and
aquatic products. Vietnam is also "moving up the value chain" by
increasing its exports of furniture, machinery, cameras, computers,
printers, consumer electronics, and other diverse products. U.S.
investors tell us the key challenges they face in Vietnam are
underdeveloped infrastructure, a shortage of skilled workers and
managers, and the considerable level of state participation in the
economy. For its part, the GVN is grappling with issues of
corruption, improving the legal environment, and implementing its
WTO commitments.

5. (U) The United States is currently Vietnam's largest export
market and third largest overall trade partner. Total two-way trade
in goods with the United States in 2007 was USD 12.53 billion, up 29
percent from 2006. One of the most positive stories from 2007 was
the surge in U.S. exports to Vietnam from USD 1.1 billion to USD 1.9
billion, driven by agricultural exports such as cotton (up 92
percent), soybeans (up 1,480 percent), and wheat (up 1,120 percent).
U.S. commodities including hardwood, hides and skins, tree nuts,
fresh fruit, and poultry and red meats also posted record gains in
2007. Driven by the technology industry, the United States is
Vietnam's seventh largest investor, with USD 2.6 billion in
registered FDI since 1988, and USD 2 billion more in "U.S.-related

6. (SBU) While the great majority of experts consider Vietnam's
long-term economic prospects to be bright, short-term macroeconomic
imbalances are worrying investors. Vietnam's current turmoil is
rooted in high inflation (27 percent year-on-year July), the large

HANOI 00000934 002.2 OF 004

current account deficit, and inefficient allocation of resources,
which is particularly obvious in the disproportionate amount of
state resources devoted to powerful State Owned Enterprises (SOEs).


7. (U) Part of Vietnam's current macroeconomic difficulties are due
to its booming banking sector. Credit growth was over 50 percent in
2007, with some newer joint stock banks growing loans at close to 90
percent. Although the GVN has committed to keeping growth at around
30% for 2008, the State Bank of Vietnam (SBV) is already admitting
that credit growth will likely exceed that number. The economic
downturn in early 2008 exposed weaknesses in the system, and there
are now a number of small banks receiving liquidity support from the
SBV. Analysts predict that an increase in non-performing loans at
the end of the calendar year may bring about additional instability
if local investors lose confidence in the banking system. State
domination is a factor here, too, as state-owned commercial banks
own 60-70 percent of banking assets.


8. (U) It has been a turbulent year for Vietnam's stock market.
After topping out over 1200 last year, the market dropped quickly as
the SBV struggled to control inflation by reducing liquidity.
Earlier this year, the market fell as low as 366 before slowly
rebounding as economic indicators improved. With the market now
hovering in the mid-400's, investor confidence seems to be
improving, but challenges for the State Securities Commission (SSC)
remain. Companies are slow to list on the exchange, instead
preferring to raise capital in the unregulated gray market, and SSC
enforcement capabilities are a work in progress. To its credit, the
SSC is aware of these shortcomings and is working to improve its
regulatory capacity.


9. (SBU) Vietnam is believed to be a destination country for
significant amounts of laundered money, much of it stemming from the
narcotics trade in the U.S. and Canada. After years of dragging its
feet, the GVN has begun to slowly address the issue. Vietnam
recently joined the Asia Pacific Group of the Financial Action Task
Force (FATF) and is scheduled for an evaluation this November. Law
enforcement cooperation on AML is also gradually improving, with
2007 bringing the first instance of cooperation from the Ministry of
Public Security. There is, however, much work left to be done. The
GVN's ability to prevent, detect and prosecute money laundering
remains weak. The SBV has an AML Information Center charged with
collecting and monitoring bank data, but the Center suffers from a
lack of resources and political will. Terrorism finance is not
considered to be an issue in Vietnam at this time.

--------------------------------------------- -------

10. (U) U.S. Agency for International Development (USAID) programs
provide aid in legal reform, governance, economic
growth, HIV/AIDS, environmental protection, and disaster
prevention. For FY 2007, U.S. aid from all agencies was about USD
86.6 million, the bulk of which has gone towards providing
health-related assistance, notably in the areas of HIV/AIDS and
avian influenza. Vietnam is one of fifteen countries receiving
assistance from the President's Emergency Plan for AIDS Relief
(PEPFAR), through which the United States will provide USD 88
million in FY 2008 to expand integrated HIV/AIDS prevention, care
and treatment programs. The U.S. Centers for Disease Control and
Prevention (CDC) provides assistance in HIV/AIDS, avian influenza,
and emergency outbreak response.

11. (U) U.S. assistance in areas other than HIV/AIDS remains very
modest in relation to spending in smaller neighboring nations, but
increased substantially in FY08 from that low base to more than USD
10 million due to earmarks for governance programming and demining.
The Administration's FY09 request roughly equals the total for FY08.
To a large degree, the FY08 earmarks reflect the profound impact of
several U.S. programs. U.S. programs such as Support for Trade
Acceleration (STAR) and the Vietnam Competitiveness Index have
helped to reshape trade
and economic regulation, with huge positive impact on governance
throughout the country. Treasury is also starting to engage on
economic issues, with programs in areas such as anti-money

HANOI 00000934 003.2 OF 004

laundering, taxation, insurance and bond market development.
Regarding education, the United States now sponsors well over 200
students for graduate study in the United States through a
combination of Fulbright grants and the Vietnam Education Foundation
(VEF). In-country, the Fulbright Economics Teaching Program trains
mid-level Vietnamese professionals in economics and public policy.
Both Embassy Hanoi and ConGen HCMC are actively involved in
promoting educational exchanges.


12. (SBU) The selling and buying of babies and children for
international adoption is a serious issue in Vietnam. Due to
pervasive problems with fraud and children being offered for
adoption without the consent of their birth parents, we have
informed the GVN that we will not renew the current bilateral
agreement which expires in September. As of July 1, no new
applications for adoptions are being accepted by the GVN. The clear
"way forward" for Vietnam is to accede to the Hague Convention on
Inter-Country Adoption, which it says it wishes to do, as soon as
possible. We are heartened that, after months of denying USG
reports of corruption in the system, the Vietnamese police have
recently arrested a number of persons for falsifying documents and
trafficking in babies. This is a first step and we stand ready to
help Vietnam make the systemic reforms it needs to run an
international adoptions program which protects the rights of all


13. (SBU) Serious deficiencies related to human rights in
Vietnam include lack of freedom of speech, freedom of assembly and
freedom of the press. One of our key objectives is to end the use
of catch-all "national security" provisions for the prosecution of
peaceful dissent. We continue to call for the release of all
prisoners of conscience, but where we see individuals expressing
their political opinions, many of our government interlocutors see
"lawbreakers" trying to destabilize the regime. The recent arrests
and sackings of Vietnamese reporters and editors in the wake of a
corruption scandal reveal the on-going battle within the GVN over
the role of freedom of the press. The continued existence of groups
in the United States that advocate regime change complicates human
rights engagement by providing ammunition to hard-liners who want to
stoke the fading paranoia that we are indeed still "the enemy."
Reassuring the GVN that the USG does not support separatist groups
can assist in building a better human rights dialogue based on
mutual trust.

14. (SBU) Despite these obstacles, real progress has been made. Key
Vietnamese leaders are committed to enhancing governance,
establishing the rule of law, and combating corruption. Vietnam's
leading newspapers are more aggressive in terms of the types of news
they publish and their willingness to push back against censors,
peaceful protests involving a myriad of issues have been tolerated,
and surprising progress on religious freedom has been made. While
problems remain, we removed Vietnam from our list of countries of
particular concern for religious freedoms in late 2006.


15. (U) Obtaining the fullest possible accounting of American
POW/MIAs remains an important goal in the bilateral relationship for
the United States. The Joint POW/MIA Accounting Command has
operated in Vietnam since 1988. JPAC has accounted for 880
Americans previously listed as MIA; 1766 remain missing throughout
Southeast Asia.


16. (SBU) In your meetings, you may hear references to
"consequences of war" or "legacies of war" issues, which include
Agent Orange(AO)/Dioxin, unexploded ordnance (UXO), land mines, and
Vietnamese MIAs. While debate continues over the human impact of
AO, recent studies reveal that dioxin contamination is concentrated
in approximately 20 "hotspots," mostly former U.S. bases where AO
was stored. Areas subjected to heavy aerial spraying do not
currently have soil concentrations considered hazardous. Our
engagement on this issue has accomplished much, in both transforming
the tone of the dialogue and capacity building. Projects have
included work at the Danang airport as well as a USD 3 million

HANOI 00000934 004.2 OF 004

Congressional appropriation for "dioxin mitigation and health
activities," which USAID has begun to implement. The USG is
continuing to work together with the GVN, UNDP, Ford Foundation and
other NGOs to discuss the next steps in the environmental
remediation of three priority hotspots in Danang, Hoa Binh and Phu
Cat airfields.

17. (SBU) Since 1989, USAID, through support from the Patrick J.
Leahy War Victims Fund (LWVF) and other sources, has provided more
than USD 43 million to support organizations to develop programs for
disabled people. The USG has invested more than USD 37 million in a
broad spectrum of programs not only to remove unexploded ordnance
and landmines but also to address the effects of UXO on Vietnamese
living in affected areas. Today, various NGOs conduct UXO and land
mine clearance, risk education, and victim rehabilitation. The USG
has also donated equipment to the PAVN to assist in UXO and landmine
clearance and return land to productive use. In 2006, the State
Department provided USD 3.5 million to support UXO action and
demining activities in Vietnam, almost a third of which went
directly to PAVN in the form of donated demining equipment. For
FY08, Congress stipulated that approximately USD 2.5 million be
spent on demining programs, a substantial increase from the $800,000
requested by the Administration.


18. (SBU) While Vietnam's engagement with the United States will
continue to broaden, China necessarily constitutes Vietnam's most
important strategic preoccupation. This is not to say that Vietnam
is "choosing" China over the United States; the situation is much
more complex than that. For starters, Vietnam's leadership is
sophisticated enough to realize that relations with China and the
United States do not represent a zero sum game; it is possible to
have good relations with both. While China constitutes a vital and
necessary commercial partner and former ally, it is also perceived
as a significant and frustrating constraint to Vietnam's freedom on
action. Continuing disagreements over territorial issues in the
South China Sea threaten to reawaken Vietnam's long-standing
animosity for their former colonial master. China also looms large
on security issues, as the GVN is understandably cautious with
regard to Chinese reactions to increased cooperation with the
United States.


19. (SBU) You can expect your interlocutors not only to be
articulate and well informed, but also to speak in terms generally
supportive of growth in the bilateral relationship. As noted above,
lingering suspicions still exist among conservatives about the
development of closer ties with the United States. Nonetheless, we
fully expect the overall tenor to be one of support and interest at
a measured pace that will not upset the GVN's calibrated attempts to
maintain balance among its other regional partners. There may be
media interest among Vietnamese outlets and you should expect
photographers at some GVN meetings.

19. (U) Again, we look forward to your visit and stand ready to do
everything we can to make your visit to Vietnam as productive as


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