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Cablegate: State Bank Affirms Commitment to Fighting Inflation,

VZCZCXRO3511
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1061/01 2600601
ZNR UUUUU ZZH
P 160601Z SEP 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8459
INFO RUEHHM/AMCONSUL HO CHI MINH 5114
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 001061

SENSITIVE
SIPDIS

SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE
STATE FOR EEB/IFD

E.O. 12958: N/A
TAGS: EFIN EAID ECPS ECON EAGR ETRD VM
SUBJECT: STATE BANK AFFIRMS COMMITMENT TO FIGHTING INFLATION,
WELCOMES TECHNICAL ASSISTANCE

HANOI 00001061 001.2 OF 002


1. (SBU) SUMMARY: In a candid discussion with EAP DAS Scot Marciel
and visiting Department of Treasury representatives, State Bank of
Vietnam (SBV) Vice Governor Nguyen Van Binh defended the SBV's
efforts to fight inflation. He emphasized that despite pressure to
shore up Vietnam's state-owned enterprises, the Bank remained
committed to a tight monetary policy. VG Binh conceded that for
several months the SBV had occupied a lonely position, but averred
that the government now fully accepted the need to contain price
increases and expected inflation to drop to 15 percent in 2009. VG
Binh acknowledged deficiencies in bank supervision and the
collection and dissemination of economic data, and welcomed offers
of technical assistance. END SUMMARY.


FIGHTING INFLATION REMAINS THE TOP PRIORITY...
--------------------------------------------- -

2. (SBU) Meeting September 10, DAS Marciel urged the SBV to stay
the course in pursuing a tight monetary policy, emphasizing that
other economic priorities become impossible in the face of high
inflation. Vice Governor Binh agreed, stating that the SBV had seen
inflationary pressures building as early as June 2007. However, the
rest of the government did not recognize the problem until later and
did not begin to take "corrective measures," such as raising
interest rates and the reserve requirement until March of this year.
VG Binh expressed satisfaction with the GVN's current policies, and
said that as a result the "inflation trend" had reduced slightly.
[Comment: Binh was likely alluding to the fact that the
month-on-month rate of increase in inflation has declined. End
comment.] VG Binh said that the SBV was targeting an inflation rate
of 25 percent for 2008 and 15 percent in 2009, though he
acknowledged that it would be a challenge to meet these targets. .

...IN SPITE OF PRESSURE TO EASE CREDIT
--------------------------------------

3. (SBU) VG Binh acknowledged the fact that a tighter monetary
policy has had a significant impact on state-owned enterprises and
the banks that had loaned them money, noting that non-performing
loans had increased. He said that it was the government's
responsibility to provide protection for the economically
vulnerable. Asked to elucidate, VG Binh clarified that it was the
GVN's role, not the Bank's, to provide a social safety net; however,
he did say that the SBV had called upon banks to "share the pain"
with SOEs and not raise interest rates too high. . He insisted,
however, that the Bank's overriding priority continues to be
fighting inflation.

SBV OPEN TO TECHNICAL ASSISTANCE
--------------------------------

4. (SBU) Citing recent U.S. experience, DOT's Financial Attache for
SE Asia Susan Baker encouraged the SBV to address deficiencies in
the banking system before the ratio of non-performing loans reached
dangerous levels. Introducing her colleague from the Office of
Technical Assistance, Paul Leonovich, Baker reiterated that the USG
was prepared to offer expertise on banking supervision as well as
help in resolving insolvent banks. VG Binh said that the Bank
would welcome such assistance and expected U.S. experts to work
closely with the SBV's Director General for bank supervision.

5. (SBU) Baker and Leonovich cited data collection, analysis, and
dissemination as another set of areas on which the USG would be
willing to assist, noting in particular the availability of former
Federal Reserve Bank officials. Baker emphasized that in addition
to providing more accurate information to policymakers and the
market, the ability to marshal data would support the SBV's efforts
to enhance its independence. VG Binh agreed, and said that that the
SBV was establishing a new department whose main function would be
to analyze economic data, and that this new department would welcome
the type of assistance that the USG was proposing.

6. (SBU) Binh noted that some Vietnamese banks were interested in
opening representative offices in the U.S., but added that he
understood that having adequate anti-money laundering policies and
procedures were an issue. He said that the Asia-Pacific Group on
Money Laundering would be doing an assessment of Vietnam's
anti-money laundering/counter financing of terrorism regime this
year.

7. (SBU) Comment: While the SBV appears committed to an
anti-inflationary stance, other voices within the Vietnamese

HANOI 00001061 002.2 OF 002


government seem to be calling for a loosening of monetary policy now
that overall inflation has peaked. Our message will continue to be
that Vietnam should remain focused on controlling inflation, even if
it comes at the expense of higher growth. End comment.

© Scoop Media

 
 
 
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