VZCZCXRO3905
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #1240/01 1430947
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O 230947Z MAY 06
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2046
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RUEHHM/AMCONSUL HO CHI MINH CITY 1158
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 05 HANOI 001240 
 
SIPDIS 
 
STATE FOR E, EAP/MLS AND EB 
STATE PASS USTR DAVID BISBEE AND GREG HICKS 
STATE PASS USAID FOR ANE/AA KUNDER/KENNEDY/WARD 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
TREASURY FOR OASIA AND USED 
MANILA FOR USED AT READB 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON ETRD EINV PREL PINR VM
SUBJECT: VIETNAM DPM DZUNG DINNER ON CORRPUTION 
 
 
HANOI 00001240  001.2 OF 005 
 
 
SENSITIVE - DO NOT POST ON THE INTERNET 
 
A) Hanoi 771; B) Hanoi 1090 
 
¶1.  (SBU) Summary and Comment:  Deputy Prime Minister (and 
putative Prime Minister) Nguyen Tan Dzung gave assurances to 
international contributors to Vietnam's economic development 
that the Government of Vietnam (GVN) will get to the bottom 
of the major scandal involving misappropriation of funds in 
several large transportation infrastructure projects (The 
PMU-18 case, Refs A and B).  During a lengthy dinner 
conversation with representatives of major donor 
institutions and countries, Dzung acknowledged that the 
corruption problem was much broader than the PMU-18 case 
alone.  He welcomed assistance and advice from the 
international community to help Vietnam uncover weaknesses 
in its management controls and to continue its economic 
reform efforts as the country moves to WTO accession.  In 
fact, Dzung outlined in some detail the extent that 
economic, administrative and legal reforms are 
interconnected with getting better control over corruption. 
He said that the GVN welcomed help by the press in 
identifying "loopholes," but cautioned that the press should 
avoid false accusations.  He also commented that unless the 
Communist Party is able to meet the anti-corruption 
challenge, it could lose public confidence and be unable to 
keep its leadership role.  The proof of GVN commitment will 
emerge over time as demonstrated by concrete actions.  We 
believe that outside audits should be demanded for all 
project management units (PMU) involved in managing 
multilateral development bank (MDB) loans as well as of the 
GVN Development Christian Fund.  Nevertheless, we are 
encouraged by Dzung's forward leaning posture and clear 
commitments.  We see the call for donor advice and 
assistance as an opportunity to sharpen our ongoing 
governance efforts through legal reform.  End Summary and 
Comment. 
 
¶2.   (SBU) Deputy Prime Minister Nguyen Tan Dzung met 
with representatives of international financial 
institutions and ambassadors from major donor countries 
over dinner May 19.  He committed the GVN to a serious 
effort to address corruption in Vietnam.  Ambassadors, 
charges and aid directors from most donor countries had 
met the previous week at the World Bank office to 
coordinate an approach to the GVN in the wake of the 
PMU-18 scandal.  World Bank representative Klaus 
Rohland informed the donors that DPM Dzung had agreed 
to meet with a group from the donor community.  (Note: 
Dzung has been nominated by Prime Minister Phan Van 
Khai to be the next PM, a decision that may be 
confirmed soon by the ongoing National Assembly 
session.)  DPM Dzung suggested that it would be more 
effective for him to meet with a small group from key 
countries and organizations.  Consequently, Minister of 
Planning and Investment Vo Hong Phuc hosted the dinner 
with the DPM, inviting Ambassadors or charges from 
Japan, Germany, France, Australia, Netherlands, the EC 
and representatives of The World Bank, the UN, ADB and 
DFID.  Charge Boardman represented the U.S. Mission. 
 
¶3.   (SBU) DPM Dzung set the stage by pointing out that 
Vietnam is at a very important stage in its development 
process.  The Communist Party has just finished its 
Tenth Party Congress and emerged committed and 
organized to continue rapid progress in economic 
development and in strengthening democracy.  The GVN 
wants continued help from donors for its reform efforts 
as it carries out its social and economic development 
plan for the next five years.   Following the recent 
agreement in principle in the WTO bilateral with the 
United States, the GVN is optimistic that it will be 
able to accede very soon.  Vietnam welcomes assistance 
and advice from its friends on how best to structure 
itself to fully integrate into the world market and 
society.  At the same time, the PMU-18 scandal has been 
a blow to public and donor confidence.  The GVN is 
determined to get to the bottom of the case, punish the 
guilty, and address systemic weaknesses. 
 
¶4.   (SBU) MPI Minister Phuc expanded on corruption, 
 
HANOI 00001240  002.2 OF 005 
 
 
specifically the MPU-18 case.  He promised the 
investigation will continue until authorities are 
satisfied that they have discovered all those involved. 
There would be no hesitation in punishing the guilty, 
no matter how high culpability should go.  Already 
seven or eight vice ministers and ministers have been 
affected.  The Government is also examining weaknesses 
in the regulatory, financial and legal systems that 
present opportunities for corruption.  The GVN will 
continue in a transparent manner and keep in close 
communication with the donors in the process.  Special 
assessment missions from Japan, the World Bank and DFID 
are already scheduled; the GVN welcomes their help and 
suggestions. 
 
¶5.   (SBU) In response to a comment from the World Bank 
representative on the role of a free press, DPM Dzung 
added that the GVN realizes that the system has 
weaknesses.  There is a need for a solid legal 
framework, institutional structure and good government 
officials.  The Government must enhance transparency 
and democracy so that people can be "masters" of the 
system.  The press can help in uncovering "loopholes." 
The Party and Government, however, have a clearly 
defined point of view.  The facts will be uncovered, 
regardless of whoever is involved, or where the 
investigation leads.  Government ministers have been 
called to account before the National Assembly. 
Deputies have commented that never before has an 
investigation resulted in action against so many senior 
officials.  Nor has there ever been such extensive and 
open testimony by GVN officials before the Assembly. 
Dzung will encourage the press to continue to uncover 
facts as the investigation goes forward, but the press 
should be careful not to "wrongly accuse."  The GVN is 
working at two levels on corruption.  First, it is 
investigating and prosecuting this specific case. 
Second, it is trying to determine the "pitfalls" in the 
system. 
 
¶6.   (SBU) Minister Phuc reported that the Government 
has submitted to the Assembly a resolution on measures 
to improve systemic weaknesses.  In response to a 
question from the Japanese Ambassador, Phuc said that 
he expects the PMU-18 investigation to last another 
three months.  This is "too long," according to the 
Japanese Ambassador, who also asked how much foreign 
assistance is involved in the PMU-18 case.  Phuc 
responded that the Government will continue to report 
publicly as progress is made.  So far, the 
investigation has concentrated on the betting scheme 
organized by the Director General of PMU-18.  According 
to computer forensics, USD two million is estimated to 
have been diverted, but specific details regarding only 
about 100,000 USD had been recovered from computers. 
Interrogations indicated that contractors had been 
required to give kick-backs of five percent of their 
profits.  The details are difficult to track because of 
cooked books, but audits of major building projects on 
National Highways 10 and 18 for two major bridge 
projects, including examination of quality control 
certificates from Vietnamese and foreign experts, do 
not suggest that the projects are below standard.  Nor, 
based on investigations so far, does it appear that 
foreign aid funds were a large percentage of those 
stolen. 
 
¶7.   (SBU) The Norwegian Ambassador noted that Vietnam 
ranks high on international rankings for concern about 
lack of transparency and corruption.  This was a clear 
reflection of lack of trust by the important 
international business community.  DPM Dzung responded 
that the political leadership is aware of this.  He 
suggested that WTO-mandated and other economic reforms 
would improve the environment.  For example, 3,000 of 
approximately 5,000 State-owned enterprises (SOE) have 
already been equitized.  Instances of corruption have 
fallen sharply in SOEs already equitized.  Most of the 
remaining SOE will be equitized in the next two years. 
All of the state commercial banks will be equitized in 
the next five years.  Vietnam's economy is in 
 
HANOI 00001240  003.2 OF 005 
 
 
transition from a planned to market system.  This is a 
great challenge, but reaching the WTO's standard with 
the help of the donors will enable Vietnam to carry 
through with radical reform and reduce corruption at 
the same time. 
 
¶8.   (SBU) The EC Ambassador noted that the EC aid 
program has not been touched directly by the PMU-18 
scandal, but only because the EC does not trust GVN 
auditing and thus has not worked through the PMU 
system.  The DPM noted that the State Auditing 
authority is being brought up to international 
standards.  The EC representative said that the EC 
would prefer to rely on the GVN to police itself and 
has hopes for the State Auditing authority and the 
Government Inspectorate, which is now being put under 
National Assembly responsibility.  In most cases, 
corruption can be traced to a failure to monitor 
closely.  Once corruption is discovered, it is not 
enough for the government agency to acknowledge the 
problem and blame one individual.  The agency 
responsible should make "restitution" to recover funds 
for the project.  Dzung said that he agreed.  The 
Agency should be responsible, but a specific official 
must be held accountable. 
 
¶9.   (SBU) The DFID representative reported that UK 
public confidence in the Vietnam aid program has been 
shaken by the PMU-18 scandal.  The UK would like to 
increase its assistance to Vietnam, but reassurances of 
greater accountability will be necessary.  DPM Dzung 
said that he too is concerned about public confidence, 
in Vietnam and abroad.  He repeated that the GVN wants 
to address the problem by achieving high rates of 
economic growth while putting in place an action plan 
to implement the anti-corruption law.  He encouraged 
the donors to get involved, to send review missions and 
let the GVN know of weaknesses and shortcomings 
discovered.  The ADB representative reported that his 
organization would be sending a team to investigate the 
relationship between PMU-18 and the Ministry of 
Transportation to see if proper checks-and-balances 
could be put in place.  The ADB is contemplating 
increasing its programs in Vietnam by up to 50 percent. 
However, the confidence of board members is critical; 
they must be satisfied.  Monitoring the life style of 
suspected malefactors and recovery of stolen money are 
important means to restore confidence. 
 
¶10.  (SBU) The EC representative told the DPM that 
corruption goes well beyond irregularities in major 
public projects.  For example, exporters of textiles 
estimate that 5 - 6 percent of the export value of 
their product is needed just to pay to expedite the 
paper work to clear manufacturing inputs through 
customs.  One way of improving the situation would be 
to move more rapidly away from a cash economy.  The 
World Bank representative stressed that as long as 
Vietnam maintained a system of multiple layers of 
permits and registration requirements for normal 
activities, it would be vulnerable to corruption. 
Charge agreed and indicated that as we examined ways to 
support Vietnam in WTO compliance we could look at ways 
of making some requirements self-enforcing, by the firm 
and the individual.  Examples could be in the area of 
tax reform or even the complex law on associations that 
has been in draft for years.  The French Ambassador 
indicated an interest in helping improve the State 
Audit and Government Inspectorate functions.  The 
German Ambassador advised that transparency and speed 
of transactions were also very important for the 
business community. 
 
¶11.  (SBU) DPM Dzung pointed to ongoing banking reform 
efforts and explained that the purpose is to make the 
Vietnamese system more compatible with international 
practices as a WTO member.  The State Bank will become 
the Central Bank with the role of setting monetary 
policy.  He repeated that the State commercial banks 
will be equitized.  The exchange rate will set by 
indirect means; there will be a more relaxed control of 
 
HANOI 00001240  004.2 OF 005 
 
 
foreign exchange.  The private banking sector will be 
opened further in accord with WTO commitments.  This is 
under discussion in the monetary policy committee. 
 
¶12.  (SBU) DPM Dzung summed up by listing five 
overarching GVN goals:  To transform fully into a 
market economy; integrate into the international 
economy as a full member of the WTO; practice 
democracy; develop sustainable growth while reducing 
poverty and protecting the environment; and, carry out 
administrative reform and fight corruption.  Vietnam 
will need cooperation and support from outside to 
design necessary reforms.  The GVN values development 
assistance (ODA) greatly and pledges to use it wisely. 
Minister Phuc has presented to the National Assembly a 
comprehensive plan to use ODA more effectively.  Many 
deputies have made constructive comments, and MPI 
welcomes suggestions from donors on how to improve the 
administration of ODA.  The GVN is aware that ODA 
consists of loans for use by future generations. 
 
¶13.  (SBU) World Bank representative Rohland thanked 
the DPM for allowing the donor community to share its 
concern over the problem of corruption and for the 
assurances of the highest level of government that this 
is being addressed seriously.  Rohland noted that the 
corruption issue would be further elaborated at the 
upcoming Consultative Group meeting, where a joint 
GVN/donor action plan would be discussed. 
 
¶14.  (SBU) DPM Dzung remarked that even after 20 years 
of success, the Communist Party leadership realized 
that the Party could lose its lead role if it loses the 
fight against corruption.  However, Party leaders are 
confident of success, with support from donors.  Their 
seriousness is indicated in the firing of vice 
ministers and ministers.  Next the GVN would move to 
more comprehensive measures. 
 
¶15.  (SBU) Comment:  Reading Dzung's approach to the 
international community is not easy.  On the one hand it is 
not new, and he could merely be paying lip service before an 
important audience while continuing the faade of cleaning 
up corruption in select cases.  On the other hand, it is 
possible that he and the leadership could be serious, but we 
need to see concrete proof of this commitment through 
continued anti-corruption efforts and legal and 
administrative reforms.  Even though the Standing DPM and 
next Prime Minister put himself on record about governmental 
responsibility and commitment, other contacts, especially in 
the media, have told us that the GVN is moving to limit the 
impact of the PMU-18 scandal on the Party as quickly as 
possible (Ref A - HCMC 503).  Under this reading, the 
scandal was brought into the open as part of the maneuvering 
around the Party Congress and it is now time to get it back 
in the box.  Similarly, the open media debate that preceded 
the Congress has reportedly been terminated by a party 
directive.  It is clear from Dzung's attention to this issue 
that the GVN understands that PMU-18 could be a pandora's 
box in its relations with donors.  The dilemma for the GVN 
will be balancing the need to reestablish credibility with 
donors with the potential domestic damage of revealing too 
much.  At the same time, the GVN will discuss corruption at 
the mid-term consultative group meeting June 8-9 and beyond. 
Given the potential liability of various donors and their 
growing concern with the current system, the issue could 
easily dominate the December Consultative Group meeting. 
 
¶16. (SBU)  These developments underscore the importance of 
continued U.S. assistance which is working to develop the 
broad legal and regulatory framework necessary for a modern 
economy.  Our assistance, which is highly regarded, will 
help assure that Vietnam's economy is more transparent and 
our overall economic relationship is based on international 
standards. 
 
 ¶17.  (SBU) Action Recommendation:  The USG does not 
directly fund infrastructure projects in Vietnam, but both 
the IBRD and ADB do.  The current situation provides an 
unusual opportunity for the international community to press 
hard for greater transparency.  We have seen this already on 
 
HANOI 00001240  005.2 OF 005 
 
 
the part of bilateral donors in Hanoi, some of whom appear 
to have been shocked out of their complacency.  We recommend 
that the USG and other donors begin by insisting on the 
elimination of corruption.  One approach could be by 
requiring outside audits of all Project Management Units 
involved in managing multilateral development bank (MDB) 
loans and of the murky GVN Development Assistance Fund that 
is the initial depository of most such funds (Ref B 2005 
Hanoi cable on DAF).  But of course, the key will be the 
reliability of the audits since certain MDBs have a strong 
motivation to keep pumping money out with less regard for 
its utilization. 
 
BOARDMAN