Cablegate: Vietnam's National Assembly Session Shows Increasing But

DE RUEHHI #1392/01 3520902
R 180901Z DEC 09



E.O. 12958: N/A

REF: 09 HANOI 1234

1. (SBU) Summary and comment. The 12th National Assembly's (NA)
6th month-long legislative session, closing at the end of November,
set Vietnam's key social and economic targets, including for the
2010 State Budget. The legislature passed seven laws, including
the Law on Royalty Tax and the Law on Telecommunications, and
discussed ten other draft bills. Stimulus measures to address the
global financial crisis were hotly debated, as was a report on the
management of state capital in state-owned enterprises (SOEs),
raising concerns about the high debt and low efficiency of these
businesses. The lawmakers also reviewed several national key
projects, and approved the building of Lai Chau's hydropower plant
and Vietnam's first nuclear plant in Ninh Thuan. NA deputies were
active in publicly raising their voices in criticism of poor
socio-economic governance. The NA's rejection of proposed
amendments to two tax laws, as well as its success in reducing the
Government of Vietnam's (GVN) proposed budget deficit target, show
the NA's growing substantive influence in economic policymaking.
However, as subsequent events showed (reftel), the executive
branch's making of the final decisions on stimulus measures
demonstrates that NA influence, though increasing, is still
limited. End summary and comment.

Key Socio-Economic Targets for 2010: 6.5 Percent GDP Growth, CPI
Growth Limited to 7 Percent

2. (U) Headlining this session was the NA's passage of Vietnam's
socio-economic targets for 2010, including: gross domestic product
(GDP) growth of 6.5 percent; a consumer price index (CPI) increase
limit of 7 percent; export growth of 6 percent; creation of 1.6
million new jobs; and a poverty rate under 10 percent. The
chairman of the Economic Committee of the NA acknowledged that the
2010 targets would pose a challenge for balancing growth promotion
and control of inflation. While the NA appeared optimistic about
the GVN's current ability to control price rises, critics expressed
concern about a return of inflation when the economy starts to pick
up. Other important targets included the extension of compulsory
education to secondary grade 9 throughout Vietnam and ensuring that
45 percent of industrial and export processing zones have water
disposal systems that meet environmental standards. The NA
addressed Vietnam's energy security, passing resolutions approving
investments in the Lai Chau hydroelectricity plant and Vietnam's
first nuclear power project in Ninh Thuan.

Target Deficit of 6.2 Percent of GDP

3. (U) Limiting Vietnam's budget deficit was a serious NA concern.
While the Ministry of Finance sought a 6.5 percent ceiling for the
deficit, the majority of NA members sought to restrain the deficit
to within 6 percent of GDP. After much debate, a compromise 6.2
percent deficit target was finally approved, following the
recommendation of the NA Standing Committee. Many NA deputies were
not persuaded, however, by the government's budget arguments and
called for stricter regulations on the state budget. The NA then
approved several related measures: (1) seeking the implementation
of flexible but closely controlled financial policy; (2) approving
the issuance of Government bonds worth VND 56 trillion ($3.1
billion) to invest in projects to be determined by the NA; (3)
increasing authority for self-management, independent of state
ownership, for currently unprofitable SOEs, and; (4) encouraging
investment in certain SOEs involved in education and healthcare.

Heated NA Stimulus Debate and Conflict with GVN

4. (U) Before and during the early days of the NA session, there
was heated discussion regarding continuation of the GVN's economic
stimulus package and the NA's role in approving any such measures.
Some NA members argued that the issue was a budgetary matter
mandating NA involvement and approval (citing the NA's authority
for approval of bond issuances). NA members generally considered
the first stimulus package successful in avoiding a worse slowdown,

HANOI 00001392 002 OF 004

but also agreed that misuse should be prevented. NA members
highlighted the fact that much of the stimulus had not reached the
intended target of farmers and small and medium-sized enterprises,
that it had other shortcomings and its extension could give rise to
inflation or other macroeconomic risks. Ultimately, the executive
branch made the final decision on further stimulus measures without
NA approval, stating that the use of off-budget funds from the SBV
gave the executive branch the sole authority to finance and approve
the package, rather than the NA. (Reftel)

Public NA Debate on Management of State-Owned Industries

5. (U) Beyond the stimulus debate, the NA session provided members
the opportunity to exercise their oversight role by questioning GVN
Ministers and Vice Ministers, some sessions of which were
televised. NA questioning focused on the management of state-owned
enterprises (SOEs), the economic stimulus packages, corruption, the
possible return of high inflation, food safety, and administrative
reforms. Polls conducted by the NA found that public interest was
highest on medical care issues (over 74%), education (72.5%), and
property taxes (63.7%). According to the polls, about 55 percent
of the public was generally satisfied with the NA session and the
level of public debate, while about 15 percent of the public
reported that they were not satisfied with the NA session.

6. (U) The hearing on SOE management was broadcast live,
demonstrating high public interest in the subject. While there was
general agreement that SOEs have an important role to play,
providing employment and economic stability, the NA supervisory
report stated that half of the SOE groups and corporations operated
at low efficiency and productivity. The report showed that seven
major SOE groups owed debts totaling over $7 billion, an increase
of over 20 percent from 2007, accounting for 10 percent of the
total credit balance of the economy. There was also debate on the
role of SOE inefficiency in causing the inflation surge in 2007-8.

7. (U) Though the Vice Chair of the NA, Nguyen Si Dung, publicly
stated that SOEs' share of the economy should not be reduced, the
NA criticized SOE inefficiency and activity outside their core
areas. Many SOEs have raced to invest in fields outside their core
business, incurring large losses. While there was discussion of
requiring SOEs to divest of non-core activities, the NA's final
compromise position was that SOEs could engage in some non-core
businesses, though these should not be their focus. The NA passed
a resolution demanding the GVN assess the model of the SOE groups
and corporations to make needed adjustments, to request clearer
rights, responsibilities and benefits, and to hold managers
responsible for the efficiency of their enterprises' operations.
To facilitate state inspection and supervision, the NA made regular
business reporting mandatory. In addition to the resolution, the
NA Economic Committee called for strong measures to deal with
inefficient and long-term loss-making SOEs and suggested drafting a
law on the management of state capital. NA members also called for
a privatization roadmap and the separation of SOE ownership from

Seven Laws Passed, Two Rejected

8. (U) The NA passed seven laws, rejected two laws, and considered
many others on a second reading. Laws passed covered: (1) royalty
taxes on natural resources; (2) telecommunications; (3) extending
compulsory secondary education; (4) radio frequencies; (5) the
elderly; (6) health examination and treatment, and; (7) civil
defense forces, establishing a marine militia to protect Vietnam's
maritime sovereignty. The Royalty Tax Law replaced the current
Ordinance on Royalty Tax, setting more detailed tax rates for
metals and non-metal minerals (including crude oil, natural gas,
coal gas, and forestry products). While the law narrowed the band
between the minimum and ceiling tax rates imposed on certain types
of natural resources, including gold and wood, it expanded the
potential tax band for key resources including oil (widening to a
6%-40% band from a 6%-30% band) and gas (widening to a 1%-30% band

HANOI 00001392 003 OF 004

from a 0-25% band). U.S. companies criticized the widening band as
granting excessive regulatory discretion and introducing
unacceptable uncertainty into business transactions. NA members
also criticized the Royalty Tax Law for its excessive scope, poor
definitions and lack of transparency.

9. (U) The Telecommunication Law replaces pre-WTO-accession telecom
regulations and is expected to help Vietnam improve its information
technology infrastructure and meet its telecom-related WTO
commitments. The law regulates a wide range of telecom activities
including: investment, business, infrastructure construction,
public services, and state management. From now until the law
takes effect in July 2010, the Ministry of Information and
Communication will continue to receive input from industry on
drafting critical implementing regulations. The next round of the
US-GVN Information and Communication Technology Dialogue,
tentatively scheduled for mid-January, will provide an opportunity
for input into the implementing regulations. The focus will
include issues such as independent regulators, limitations on
foreign ownership, and minimum capital requirements.

10. (U) Passed with relatively low support (62%), the Law on
Education continued to give the Prime Minister PM) the authority to
decide on the establishment of new universities. This ran counter
to a broadly supported, earlier NA draft which would have given
this responsibility to the Minister of Education, but the NA
Standing Committee pushed the NA to let the PM temporarily retain
this authority. Expected amendments to the Value Added Tax (VAT)
Law and Corporate Income Tax (CIT) Law were not approved during the
NA session due to considerable controversy and inadequacies cited
in the drafts. Both laws are less than a year old, but the GVN
argued they needed revisions, in part, to provide tax incentives
for low income housing. NA deputies suggested other alternatives
and voiced doubts as to whether the proposed changes would benefit
the intended people, pointing out many loopholes in the drafts.

Draft Laws Under Discussion: Property Taxes, State Bank
Independence, Food Safety

11. (U) Laws and amendments discussed on first reading, but not
passed, included: the State Bank of Vietnam (SBV); credit
institutions; housing and land taxes; child adoption; civil
sentence executions; energy usage efficiency; food safety; the
disabled; postal services and trade arbitration. These laws and
amendments are currently scheduled to be passed in the NA's May
2010 session. The draft Housing Tax Law, which for the first time
proposed property taxes, raised much controversy. Most NA deputies
felt the tax was unreasonable, suggesting that home ownership was a
civil right and that the law would impede home ownership.

12. (U) Little progress was made towards central bank independence.
The latest version of the SBV law contained ten provisions intended
to transfer authority from parts of the GVN to the SBV. At issue
was the extent to which the SBV's role should move beyond
maintaining the value of the currency to conducting monetary
policy. Some NA members said the SBV should be given a greater
role in controlling inflation. There was, however, disagreement on
the proposed removal of the base interest rate in the SBV law and
on resolving the conflicting authority of the NA, GVN and SBV in
determining monetary policies, especially setting annual inflation
targets. Most NA members were not satisfied that the provisions
actually transferred additional authority to the SBV. The NA
ultimately agreed that the SBV would continue to be a ministry
level agency under the GVN, at least in the medium term.

13. (U) While the draft food safety law largely focused on
enforcing state management and raising fines, the draft also
included mandatory labeling for genetically modified (GMO) food.
Despite strongly voiced U.S. concerns regarding the draft law,
particularly the provision on mandatory labeling and that no
specific handling, usage, safety, or compositional characteristics
have been identified to distinguish GMO products from other food,

HANOI 00001392 004 OF 004

no objections to the mandatory labeling requirement were raised
during NA discussion. On other draft laws, amendments to the Law
on Credit Institutions were considered too stringent by some NA
deputies because they would prevent credit institutions from
investing in each other, halve investors' maximum ownership ratio
at banks, and give the SBV too much authority to intervene in
operations of banks.

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