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Cablegate: Donors Boost Aid While Highlighting Continuing Development

VZCZCXRO9984
RR RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1394/01 3520905
ZNR UUUUU ZZH
R 180904Z DEC 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 0620
INFO ASEAN MEMBER COLLECTIVE
ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEHC/USAID WASHDC 0031
RUEHGP/AMEMBASSY SINGAPORE 0049
RUEHHM/AMCONSUL HO CHI MINH CITY 0293

UNCLAS SECTION 01 OF 04 HANOI 001394

SENSITIVE
SIPDIS
DEPT FOR EAP/MLS FOR MFORINO
SINGAPORE FOR TREASURY
HHS/OSSI/DSI PASS TO OGHA (WSTEIGER/MVALDEZ/MABDOO)
TREASURY FOR SCHUN
USTR FOR DBISBEE
USAID FOR DAA/ASIA MELLIS
EAA/ASIA DSHARMA AND CJENNINGS

E.O. 12958: N/A
TAGS: ECON PGOV EAID SENV KGHG VM
SUBJECT: Donors Boost Aid While Highlighting Continuing Development
Problems and Crackdown on Information

REF: HANOI 1234; HANOI 1300; HANOI 0909; HANOI 1246

1. (SBU) Summary. At the December 3-4 annual Consultative
Group meeting of donors, Vietnam received praise for its recent
fiscal and monetary policy steps to address growing macroeconomic
imbalances, including the devaluation of the dong and the decision
not to extend short-term commercial interest rate subsidies.
Donors remain concerned about the GVN's capacity to manage
macroeconomic policies, combat corruption, reform public
administration and create an enabling environment for domestic and
international business. The Ambassador expressed strong concerns
about the continued tightening of access to information, freedom of
expression and press, and civil society activities, stating that
these developments would negatively affect and cast doubt on the
future of Vietnam's economic and social development. Other CG
topics included poverty reduction and climate change. The donors
pledged significant increases in official development assistance
(ODA) from six billion USD in 2009 to eight billion USD in 2010,
with a 40% increase from the Japanese. The World Bank, Asian
Development Bank, Korea, and the European Union were the other
leading donors. The GVN noted that the assistance pledged from the
United States had increased 4 percent to over 138 million dollars
which, while not among the top five donors, is one of the highest
for an individual country. End Summary.

2. (U) The 2009 Consultative Group Meeting (CG) of donors occurred
in Hanoi December 3-4 with officials from over 31 countries and
senior GVN policymakers participating, including Prime Minister
Nguyen Tan Dung. The Ambassador, USAID Director, and econoff
attended for the United States. The meeting occurred against the
backdrop of macroeconomic policy change in Vietnam. Although
Vietnam has weathered the global financial crisis better than many
of its neighbors with expected GDP growth of 5.2 percent for 2009,
serious concerns remain, especially regarding high credit growth, a
possible return to high inflation, and Vietnam's falling foreign
exchange reserves (Ref A and B).

GROWTH IN A POST CRISIS WORLD

3. (U) On day one of the CG, the participants discussed
Vietnam's economic success, as well as challenges to the country's
macroeconomic stability. Dung emphasized the flexibility the GVN
was showing in macroeconomic management to respond to changing
global conditions and strike an effective balance between combating
inflation and encouraging growth. The Prime Minister also
highlighted the six top priorities for the GVN: 1) improving the
business and investment environment; 2) applying measures to
enhance macroeconomic stability; 3) focusing on development of
agriculture and rural areas; 4) expanding social safety nets and
speeding up poverty reduction; 5) improving the effectiveness and
efficiency of State governance; and 6) maintaining socio-political
stability while integrating more deeply into the world. He said
achievement of these objectives would enable Vietnam to enhance
economic stability and help it become a middle income country by
2010 and an industrialized nation by 2020.

4. (U) Donors were pleased in general with the GVN's recent
monetary and fiscal steps, but urged continued caution. The ADB
Country Director said, "risks are growing and we appreciate the
GVN's recognition that stabilization is the essential prerequisite
for rapid and sustainable growth." Donors called on the GVN to
continue with overall reforms, including combating corruption and
implementing poverty reduction in a manner that reaches the poorest
parts of the country, as part of improving the overall economic
environment and promoting investment and development. In response,
GVN officials made repeated appeals for continued and increased
ODA.

CALL FOR FREEDOM OF INFORMATION

5. (U) The Ambassador led the call for increased freedom of

HANOI 00001394 002 OF 004


information, transparency, and openness in all levels of society.
He noted the recent "shrinking of space for honest reliable
information," citing the recent arrests of bloggers and editors,
the closure of prominent NGOs, and the recently-enacted Decision
97, which limits the ability of independent research organizations
to publish findings critical of government policy. The Ambassador
also expressed concern regarding the recent shut-down of Facebook
in Vietnam (Ref C). In comments which were widely reported in the
media, Ambassador said the Facebook shut-down was a "serious matter
involving a fundamental question of people's right to communicate
with one another and to share ideas." He emphasized that such GVN
actions reduce Vietnam's attractiveness to foreign partners,
especially but not exclusively in the field of education and
inhibit Vietnam's growth and development. The PM's response was
that each country has its own definition of democracy in accordance
with its own constitution and the wishes of its people. He called
on the CG participants for patience and continued dialogue.

POVERTY REDUCTION CONTINUES, LOW HANGING FRUIT GONE?

6. (U) The GVN proudly reported that in spite of the past year's
economic difficulties, the poverty rate had decreased to 12
percent. While that fell short of the GVN's 11 percent goal, it
was nevertheless part of the continued remarkable success that has
seen poverty reduced in Vietnam from 58 percent in 1993 to 12
percent in 2008. The participants praised the GVN for its
consistent efforts and results, highlighting successful poverty
alleviation activities, including the program focusing on the 62
poorest districts.

7. (U) Serious concerns remain that while the overall poverty rate
has decreased dramatically, for ethnic minority communities the
rates remain at over 50 percent. Donors noted that while the
ethnic minorities are a small part of the population of Vietnam
(two to three million people in a country of over 90 million), this
number is greater than the total population of some countries. In
addition, the ethnic minorities are in the poorest and most remote
parts of the country with the least access to social safety nets
and government programs, including health and education. Donors
also raised concerns about people with disabilities and their lack
of social integration and support.

8. (U) Donors also raised concerns that the current economic
situation and increasing urbanization had created a new class of
vulnerable migrants who have left the support of their agricultural
communities but have no access to urban programs and safety nets.
Their living conditions are especially dire when the economy slows
down, and they face unemployment with no insurance or social
support. Women were also cited as increasingly vulnerable when
they leave rural areas for urban jobs, often in the manufacturing
sector.

ANTICORRUPTION IN THE HEALTH SECTOR

9. (U) The Swedish Ambassador led discussions on the recent
Anti-Corruption Dialogue held as preparation for the CG meetings.
Participants and the GVN applauded the selection of corruption in
the health sector as a point of focus for several reasons. First,
while termed "petty," corruption in this sector costs lives and
disproportionally affects the poorest and most vulnerable. Second,
health sector reform is a powerful example of the complex
challenges of effectively combating corruption. Finally,
corruption in the health sector includes serious IPR violations,
for example, in medicines and medical devices. The GVN reported on
its progress and shortcomings, acknowledging the need for better
implementation of laws and regulations, as well as human resources
shortcomings at all levels. Donors pointed out the need for
participation by civil society and the media in combating
corruption. A final comment by the Ministry of Health
representative highlighted how ingrained corruption can be and the
extent of the challenges in raising awareness when he stated that
"an envelope of money given to a doctor is a gesture of
appreciation - not a bribe."

HANOI 00001394 003 OF 004


PUBLIC ADMINISTRATION REFORM THE HEART AND SOUL OF DEVELOPMENT

10. (U) The Ambassador led the discussion on Public Administration
Reform (PAR), highlighting the importance of USAID program Project
30, the Prime Minister's top priority program for improving and
reforming public administration at all levels. Project 30 focuses
on institutional reform and regulatory and administrative
simplification to reduce the costs and risks of doing business in
Vietnam. The Ambassador said, "PAR fundamentally affects every
aspect of a government's ability to fulfill and implement its
obligations and responsibilities to society." Donors raised
questions regarding the capacity and willingness of the GVN to
address such challenges as tax reform, recruitment and promotion of
civil servants, and reduction of bureaucracy at all levels of the
government. The GVN provided a detailed description of its efforts
to implement Project 30, including the requirement that all
ministries make a monthly report on their progress to the Prime
Minister's office. (Comment: The GVN saw no contradictions in
their goals for potential use of e-government and increased use of
information technology in government services and the current
restrictions and control of the internet and information flows.
End comment.)

CLIMATE CHANGE HEATS UP

11. (SBU) Climate change dominated the environmental issues
discussion. A significant portion of ODA is targeted for efforts
in this area (over $245 million earmarked in 2010), with
significant increases expected in the coming years. The GVN
emphasized to participants Vietnam's UN designation as one of the
top five countries most vulnerable to climate change. Both Japan
and Korea pledged increased support for climate change activities,
but the specific projects proposed remain traditional
infrastructure development such as road and dike construction.
Donors expressed concerned about coordination and duplication of
their efforts.

12. (U) The Danish Ambassador and other donors praised the GVN's
plan to actively participate in the upcoming Copenhagen Climate
Change Conference and highlighted that the Prime Minister is
leading the delegation. When the GVN was asked about the
possibility of Vietnam taking a lead role in bridging the gap
between developed and developing countries, the representative from
the Ministry of the Environment and Natural Resources (MONROE) was
non-committal and responded that the delegation would be requesting
funding from developed countries to assist developing countries
affected by climate change. (Note: Earlier, members of the GVN
Copenhagen delegation told us that Vietnam would seek for all large
emitters, regardless of development status, to commit to greenhouse
reductions. (Ref D) End Note) Donors commended the GVN for
having established a senior Climate Change National Steering
Committee in 2009, chaired by the Prime Minister, though the GVN
did not provide a timeline for the first meeting despite repeated
inquiries. The GVN provided few details regarding what practical
steps it would take to decrease water pollution and build green
energy alternatives.

PRIVATE SECTOR INPUT FOR THE CG

13. (U) During the December 1 Vietnam Business Forum (VBF), the
private sector had a half day opportunity to present its views of
Vietnam's investment climate and hear senior GVN officials'
responses. Representatives of foreign chambers of commerce and a
Vietnamese business association struck similar notes, lauding the
GVN for its response to the global economic downturn, but voicing
concern about the business environment, including inadequate
infrastructure, a higher educational system which produced
graduates without necessary skills, corruption, the slow pace of
SOE reform, and market access issues. The American Chamber noted
that labor relations had substantially improved in contrast to last
year, when a number of wildcat strikes had disrupted the operations
of foreign business. Despite the cited shortcomings, foreign
companies generally expressed optimism about the long-term, with 80
percent stating in a survey conducted for the VBF that they

HANOI 00001394 004 OF 004


expected to expand their business over the next three years.
Japanese companies ranked Vietnam third, after China and India, as
a promising country over the medium term.

14. (U) Vietnamese officials described their response to the
financial crisis and ongoing improvements, such as administrative
reform, occurring in the investment climate. They stated that
infrastructure development was progressing, but some significant
problems existed, such as a lack of financing and the difficulty of
increasing energy prices as a means to promote additional energy
generation capacity when lower income people were accustomed to low
energy costs. Investment officials said they recognized that
private sector financing participation was indispensable to
infrastructure development given Vietnam's enormous infrastructure
needs and inadequate funding from official sources. Ministry of
Planning and Investment Minister Vo Hong Phuc said the GVN
recognized that more needed to be done to address investment
environment problems, and said the GVN would work with the business
community.

15. (SBU) Comment: The CG 2009 meeting remained a highly
scripted event with comments and questions provided ahead of time
to the GVN. Nevertheless, many participants felt there was a
better dialogue than in previous years due to procedural changes
advocated by the donors which limited speechifying by donors
regarding their own programs. This year's CG also provided a
good opportunity to deliver a strong message with some other donors
that highlighted growing concern about controls on access to
information, press freedom, and civil society as they relate to
Vietnam's continued development. End Comment
Michalak

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