VZCZCXRO2970
OO RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #0260/01 0401108
ZNR UUUUU ZZH
O 091108Z FEB 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4573
INFO RUEHHM/AMCONSUL HO CHI MINH IMMEDIATE 2501
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC IMMEDIATE
RUEHGP/AMEMBASSY SINGAPORE IMMEDIATE 2268
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION

UNCLAS SECTION 01 OF 03 HANOI 000260 
 
SIPDIS 
 
STATE FOR EB/OMA, EAP/MLS AND EAP/EP 
TREASURY FOR CAROL CARNES AND SUSAN CHUN 
STATE PASS USTR DAVID BISBEE 
SINGAPORE FOR SUSAN BAKER 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD EINV VM
SUBJECT: VIETNAM CONSIDERING CAPITAL CONTROLS 
 
 
HANOI 00000260  001.2 OF 003 
 
 
(U) This cable contains sensitive information and should not be 
placed on the internet. 
 
¶1. (SBU) Summary.  Rumors have surfaced that the Prime Minister is 
considering the imposition of capital controls as a measure to 
cooling off the overheated stock market. A contact in the State 
Securities Commission explained why that agency is opposed to the 
idea.  The Citibank Country Officer for Vietnam informed the 
Ambassador of the banking industry's concerns.  He noted the 
negative impact it would have not only on the stock market, but on 
the investment climate and the credibility of the central bank.  The 
Bank Working Group of the Vietnam Business Forum has sent a letter 
(see text in para 11) requesting a meeting with the Prime Minister 
to discuss other ways to promote stability in the stock market.  End 
summary. 
 
 
 
 
¶2.  (SBU) In the last couple of days, rumors have surfaced that the 
Government of Vietnam is considering the imposition of capital 
controls as a measure to cool off the overheated stock market.  For 
example, Credit Suisse published a report to this effect dated 
February 7. Given the negative impact resulting from Thailand's 
recent imposition of capital controls, bankers are concerned that 
the Government has not consulted with them about this initiative. 
This new development, if implemented, would be a significant 
departure from Vietnam's hithertofore hands-off approach to 
regulating capital flows. 
 
¶3.  (SBU) In order to get a picture of what's going on, we tried 
contacting the State Bank of Vietnam, but were not able to get 
though (i.e., our contacts were in meetings).  Our FSN did have 
better luck with a member of the equivalent of our SEC.  Then, we 
got more information from Charly Madan, of Citigroup, who briefed 
Ambassador Marine at noon on February 9.  The following is the 
information we have from both those contacts. 
 
¶4.  (SBU) Mr. Nguyen Son, DDG, Securities Market Development 
Department at the State Securities Commission (SSC) provided the 
following comments: 
 
  -- Recently, the stock market is growing very hot but this is 
considered normal given announcements of good year-end results of 
many listed firms. 
 
  -- The SSC is monitoring the market closely and studying measures 
to ensure a sustainable development of the market. However, 
administrative measures are being considered. 
 
  -- The GVN recently (no date provided) issued a regulation on 
operations of foreign funds in the stock market, which stipulates 
that foreign funds must open a VND account and convert their capital 
into VND for investment activities in Vietnam. They are allowed to 
switch their capital and profits back to hard currency for 
repatriation. This regulation is interpreted actually as abolishing 
the previous requirement of a one-year lock-in period for foreign 
investment (because the new regulation did not mention any lock-in 
period). In Mr. Son's opinion, it is not likely that the GVN would 
reinstate the lock-in requirement in the immediate future to prevent 
unnecessary impacts on the market. 
 
(Comment:  The thing to keep in mind about the above comments is 
that they come from a contact in the State Securities Commission. 
The above comments are consistent with the position of the SSC 
referred to in the next set of comments. End Comment.) 
 
¶5.  (SBU) The next report is from our conversation with the 
Citigroup Country Officer in Vietnam, Charly Madan, who met with the 
Ambassador at noon on February 9.  Madan is also the Chairman of the 
Bank Working Group, which includes other foreign banks (e.g., HSBC, 
Deutsche Bank, Standard Chartered Bank, ABN-AMRO).  Madan described 
his concern that Vietnam not become the next Thailand, but that was 
the risk if the rumors are true.  He indicated the bankers had just 
started to hear a few days ago that Vietnam was considering some 
form of capital controls in an effort to deal with what is believed 
to be an overheated stock market.  It was all kept very quiet.  He 
understands the State Bank of Vietnam (SBV) has already submitted a 
proposal to the Prime Minister that is on his desk for signature, 
but it is not known if the Prime Minister has signed it already or 
if he will sign it. 
 
HANOI 00000260  002.2 OF 003 
 
 
 
¶6. (SBU) Madan said even now, nobody is sure what the elements of 
the proposal are, but understands SBV is considering what he termed 
a "lock-in period of one year" for all foreign portfolio 
investments, i.e. both equities and debt.  He explained this meant 
the money must be kept onshore to buy and sell various securities 
and cannot be remitted before one year.  He distinguished it from 
the case of Thailand on the grounds that the proposal would probably 
be intended for new foreign inflows, rather than applied 
retroactively (although he also noted that Thailand's recent lock-in 
measures were also not applied retroactively).  He described the 
other proposed measures being considered as being more 
administrative in nature, such as a 30-day approval process for 
repatriation of profits, capital raising restrictions for bank, 
rules on dividend payments and stricter guidelines for public 
listing. 
 
¶7. (SBU) Madan's main concern was the potential impact of the 
proposed one-year lock-in provision on the investment climate.  He 
thought it could weaken offshore investor sentiment, and possibly 
send a wrong signal on Vietnam's commitment to market 
liberalization.  Again, at this point, it is not clear if the 
proposed rules will be signed and implemented, and it may well be 
that the Prime Minister has not and will not sign off on the idea. 
Madan also understands that the State Securities Commission (SSC) is 
against the proposed rules and thinks other foreign stakeholders 
have also been lobbying against them.  He has made calls on the 
World Bank and IFC to intervene with the Prime Minister, and said he 
would be calling the IMF this afternoon.  He noted the stock market 
in Vietnam has been up significantly in 2006 and up about 50% 
already since the beginning of the year.   While understanding the 
interest of the authorities in wanting to cool down the stock 
market, he was concerned that this kind of proposal could cause a 
negative shock to the system that would have a wider impact than 
merely the stock market.  Madan believes that the impact of adopting 
the proposal would lead to a significant drop in the stock market, 
and would hurt small-scale local stock market investors, such as 
taxi drivers, more than the institutional investors. 
 
¶8. (SBU) Already, following the surfacing of the rumors the day 
before, Madan noted that the VN Index had dropped 4 percent.   He 
thought adopting the proposal would cause the stock market to drop 
significantly, and lose about 20 percent of its value.   He 
commented that billions of dollars were lost in market 
capitalization when Thailand announced capital controls. 
 
¶9. (SBU) The biggest loss from the imposition of capital controls 
would be to the credibility of Vietnam's central bank, Madan 
continued.  He also explained that in his view Vietnam needs to be 
careful to avoid doing anything that might harm its bond market as 
Vietnam needs the flexibility that the bond market provides in 
raising money.  In his view instead of imposing capital controls, 
Vietnam ought to be taking steps in the direction of improving 
issues such as governance, accounting, documentation and insider 
trading issues. 
 
¶10. (SBU) Madan stressed that the GVN should have at least asked for 
the advice of the private sector before considering and receiving 
any proposals for capital controls from the SBV.  In that regard, he 
signed a letter (see para  11) along with other bank officers on 
behalf of the Vietnam Business Forum's Bank Working Group asking the 
Prime Minister to have a meeting to discuss foreign portfolio 
investments in the Vietnam securities market.  Here is the text of 
that letter 
 
¶11.  (SBU) Begin Text 
 
07 February 2007 
 
Request an urgent meeting appointment with the Prime Minister to 
discuss foreign portfolio investments in the Vietnam securities 
market. 
 
On behalf of the Banking Working Group of the VBF, we would like to 
send our warmest greetings to you and the Government of the 
Socialist Republic of Vietnam. 
 
By this Letter, we would like to seek an urgent meeting appointment 
with yourself at the earliest in order to discuss the recent changes 
in the Vietnam securities market and would like to represent the 
interest of foreign and local investors operating in this market. 
 
HANOI 00000260  003.2 OF 003 
 
 
 
We understand that the Government is looking at measures related to 
monitoring and/or controlling the movement of non-resident capital 
into and out of the country and would like to extend our sincere 
offer of assistance to the Government and all related institutions 
in their forthcoming deliberations.  As leading foreign banks in the 
market with unparalleled global reach, we are able to provide a 
range of information on cross-border investment channels, the role 
of custodian banks, and investment regulation in Asia and throughout 
the world.  We would be delighted to contribute further to 
streamlining the subject regulations to ensure that they are 
implemented in a fair, orderly and practical manner, and above all 
meet the objectives of promoting stability of the local securities 
and currency markets. 
 
Should you require further information, could you please request 
your office to contact any of us as the undersigned. 
 
Your acceptance shall be an honour to Banking Working Group of the 
BVF in Vietnam and we look forward to this meeting. 
 
Thank you very much for your acceptance. 
 
Yours sincerely, 
 
Charly Madan 
Chairman of the Bank Working Group 
Citigroup Country Officer (Vietnam) 
 
Alain Cany 
President and CEO of HSBC 
Vietnam 
 
Lawrence Wolfe 
Chief Country Officer - Deutsche Bank 
 
Ashok Sud 
CEO-Standard Chartered Bank 
 
END TEXT 
 
¶12. (SBU) The Consulate General is reporting by septel the view from 
Ho Chi Minh City. 
 
MARINE 
 
 
 
 
 
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