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RR RUEHCHI RUEHDT RUEHHM
DE RUEHHI #0816/01 1241010
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FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 5264
INFO RUEHHM/AMCONSUL HO CHI MINH 2968
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
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UNCLAS SECTION 01 OF 04 HANOI 000816 
 
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E.O. 12958: N/A 
TAGS: ECON ETRD WTRO PREL PGOV VM
SUBJECT: HOW ECONOMIC DECISIONS GET MADE IN VIETNAM 
 
 
HANOI 00000816  001.2 OF 004 
 
 
(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET. 
 
REF: A) HANOI 221  B) HCMC 384 
 
¶1. (SBU) Summary: In place since June of 2006, Vietnam's Prime 
Minister and his deputy have taken greater control of economic 
policy and its implementation, increasingly dominating the 
traditional consensus decision-making process of the Politburo. 
While Hanoi-based economists state that the Communist Party of 
Vietnam (CPV) still plays a key role in setting economic strategy 
and important policy matters, they emphasize that these men have won 
greater leeway within the CPV in the wake of economic policy 
successes exemplified by Vietnam's WTO entry and the country's 
strong economic performance.  In their opinion, the efforts of the 
Prime Minister will be positive for economic reforms and government 
efficiency.  In the south, however, contacts aligned with former PM 
Vo Van Kiet hold a different point of view and see PM Dzung as less 
of a reformer, dominating the Politburo and using his authority to 
strengthen centralized Party control. 
 
¶2. (SBU) The CPV is supposed to set overarching economic strategy 
and direction for the Government of Vietnam (GVN) while relevant 
government agencies draft specific measures, the public discusses 
the proposals, and the National Assembly passes laws.  Vietnam's 
vaunted consensus-driven process ensured a balance of interests but 
was both slow and cumbersome.  The concentration of power in Prime 
Minister Dzung has already led to faster and clearer decision 
making, but contacts differ widely on whether Dzung is fundamentally 
a reformer or a hardliner.  End Summary. 
 
¶3. (SBU) According to foreign and domestic economic analysts, 
economic decision making in Vietnam has undergone an important shift 
under the new leadership of Prime Minister Nguyen Tan Dzung and 
Deputy Prime Minister Nguyen Sinh Hung, with the government cabinet 
under the two men obtaining greater, though by no means complete, 
control over economic decisions.  Il Houng Lee, Senior IMF 
Representative to Vietnam, told Econoff that while the CPV used to 
focus more on day-to-day economic management in the past, it now 
appears to be focusing more on strategy, giving the cabinet, under 
PM Dzung's leadership, responsibility to set policy.  "The party is 
starting to focus more on stability issues and leaving policy issues 
alone," Lee said, noting that Dzung and Hung's successes with 
Vietnam's WTO accession and Vietnam's impressive economic 
performance had helped the men gain credibility among other leaders 
in the CPV.  While Lee and others caution that this expanded power 
is still highly circumscribed, Lee added that "the current 
arrangement is to allow Dzung to have the power to run the economy, 
with the old guard stepping back more and observing him.  He seems 
to have carved out his own economic powers."  Dzung's rapport with 
foreign donors is giving him "extra mileage" with the CPV in the 
policy-making process, he added, an arrangement he does not expect 
to change as long as Vietnam's economic success continues and the 
country's "political stability" -- and the dominance of the CPV -- 
is not threatened.  The previous World Bank Country Director and 
Resident Representative Klaus Rohland put the shift a different way: 
while the consensus decision making process meant that in the past 
80 percent of relevant stakeholders had to be on board before a 
decision was made, Dzung's stature meant he only needed 60 percent 
in favor. 
 
¶4. (SBU) Dzung's background is well known.  He spent his teenage 
years as a Vietcong medic fighting in the Mekong Delta and moved 
into district and provincial government in 1975.  Brought to Hanoi 
to serve in the Ministry of Public Security, he later served as the 
Director of the CPV Central Committee's Economic Commission, in 
charge of the Communist Party of Vietnam's financial affairs and as 
Governor of the State Bank while simultaneously serving as Deputy 
Prime Minister, in 1998 and 1999.  He also served as Chairman of the 
National Financial and Monetary Council and as head of the Party 
Central Committee Steering Board for Reorganization of State-Owned 
Enterprises.  While some observers assert that Dzung, lacking a 
formal economic education (his degree is in law), does not have a 
solid grasp of economics, Lee and other economists note that his 
background provides him with a comfort level with economics that has 
served him well to date.  They say his extensive experience with 
modern economic decision making makes him far different than his 
war-generation predecessors, including Phan Van Khai, the previous 
Prime Minister from 1997 to 2006.  While it should be remembered 
that Dzung remains a product of and core insider within the CPV, he 
also represents a new breed of more technocratic leaders within it, 
 
HANOI 00000816  002.2 OF 004 
 
 
international economists note. 
 
¶5.  (SBU) An alternative view comes from journalists and 
businesspeople in southern Vietnam.  In their view, PM Dzung is the 
consummate politician, not a technocrat.  Since becoming Prime 
Minister, they say he has orchestrated cult of personality style 
media coverage to emphasize his leadership. Vietnamese newspapers 
run daily front-page photos of the PM engaged in a range of duties - 
meeting the people, meeting with government workers, meeting with 
foreign visitors.  His views on a broad range of subjects are daily 
headlines:  "PM Dzung orders swift action against bird flu", "PM 
encourages Thais to do business in Vietnam", "PM urges all 
localities to battle El Nino".  Vietnam's other leaders, President 
Nguyen Minh Triet and CPV General Secretary Nong Duc Manh, have a 
much lower media profile.  PM Dzung is also using the Internet in 
ways not previously attempted by Vietnamese leaders; he is the first 
Prime Minister to engage in an online chat with Vietnamese 
citizens. 
 
¶6.  (SBU) HCMC contacts say PM Dzung's military and law enforcement 
background is much stronger than his economic experience.  They 
attribute the Prime Minister's rise to power through his work in 
Vietnam's security apparatus.  His economic work came fairly late in 
his career and was undertaken simultaneously with other positions. 
One journalist told the Consul General that PM Dzung took advantage 
of an unexpected vacancy when he took over the governorship of the 
State Bank of Vietnam for a year, while he also was serving as 
Deputy Prime Minister; the journalist characterized PM Dzung's SBV 
service as a political move calculated to polish his economic 
credentials. 
 
¶7. (SBU) Below the PM are two Deputy Prime Ministers, one of whom 
traditionally takes the lead for economic matters.  This DPM is 
currently Deputy Prime Minister Nguyen Sinh Hung, a reformer who was 
elevated to the position last June from his previous role as 
Minister of Finance, a job he had held since 1996.  Hung holds a 
Ph.D. in economics earned in Bulgaria and is the government's 
strongest and steadiest economic hand.  Hung currently chairs the 
government's National Monetary and Financial Advisory Council and 
even makes some decisions on behalf of the Prime Minister, said 
Vivek Suri, an Economist at the World Bank in Hanoi. 
"The DPM position is key because he, not the PM, will often sign 
important economic legislation," he said.  For example, a recent law 
related to banking reform was signed by DPM Hung, Suri said. "Hung 
is quite dynamic," said Suri. "And he is in charge of economic 
policy, so you have a champion of reform holding the key economic 
position."  DPM Hung also pronounces frequently on issues regarding 
Vietnam's stock market. 
 
Role of Party and Government in Policy Changing 
--------------------------------------------- -- 
 
¶8. (SBU) Though the formal decision-making process is highly 
regimented, economists note that decisions are highly reliant on 
informal power networks.  These informal networks are critical in 
influencing government and Party bureaucracy, which has the power to 
block or delay new measures because of the Vietnamese traditional 
system of consensus-based decision making. 
 
¶9. (SBU) Formally, the Communist Party sets the strategic direction 
of economic policy, but first consults with a range of researchers 
and others before issuing guidelines for government officials to 
implement, economists note.  The broad outlines of strategy are 
outlined at each five-year Communist Party Congress.  The last 
Congress, held in May 2006, for example, gave approval for the 
continued integration into the international economic community via 
the World Trade Organization and "equitization," the GVN term for 
the transformation of State Owned Enterprises (SOEs) into joint 
stock companies and their partial privatization, Suri noted.  Aside 
from the Congress, plenums held three or four times a year also 
issue guidelines for policy makers.  In cases of sensitive issues 
the Politburo also provides guidance via resolutions, many of which 
are not public, leading many analysts to decry the GVN's lack of 
transparency.  The CPV's Central Economics Commission, which Dzung 
used to head, is the key party organ examining economic policy, 
though six other CPV economics committees also examine economic 
issues.  Recent public resolutions included those on judicial 
reform, banking reform, and human development, Suri said.  The most 
recent CPV Plenum, held in January, also issued an important 
directive on the Vietnamese military divesting itself from a range 
 
HANOI 00000816  003.2 OF 004 
 
 
of economic activities, a measure economists are eager to see take 
place (reftel). 
 
¶10. (SBU) After the Party Congress, the National Assembly passes a 
five-year Socio-Economic Development Plan (SEDP), used by the Prime 
Minister and government policy makers generally.  Using the SEDP and 
other CPV instructions as a guide, the PM then directs relevant 
ministries to draft specific new laws and/or policies.  "The Prime 
Minister looks at the SEDP everyday," said Le Danh Doanh, a senior 
economist at for the government-owned Central Institute for Economic 
Management (CIEM).  The generation of policy specifics is the 
responsibility of the department director, with the government often 
holding inter-ministerial workshops or passing new policies, 
regulations or draft laws throughout the government.  These measures 
are often made public for debate, and it is not unusual for 
different government officials to air opposing views in the media. 
Such public debate is part of Vietnam's consensus-building process, 
creating buy-in from a range of society and interest groups, 
observers note.  After this process, measures are approved by the 
Prime Minister's office, and in the case of legal changes, are then 
sent on to the National Assembly.  Increasingly, the National 
Assembly itself has been reserving a more independent role, and in 
the case of recent reforms to Vietnam's labor code (allowing 
independent representatives to negotiate for workers in some 
strikes), it implemented changes that the national union, the 
Vietnam General Confederation of Labor, strongly resisted, and which 
the Prime Minister and Communist Party allowed to be made (reftel). 
 
¶11. (SBU) The IMF's Lee gave the GVN high marks for its consultative 
process and for consulting with the international community on 
economic policies.  "They hold very frank discussions... and they 
consult us on everything," he said.  He noted that in many cases, 
this advice is taken, and noted that in February an IMF paper urged 
officials to resist the temptation to impose capital controls on 
foreign investment in order to cool Vietnam's white-hot stock 
market.  The advice was kept, with the GVN making pains to distance 
itself from rumors that the government would impose capital controls 
to tamp down speculative foreign investment in Vietnam's soaring 
stock market.  (Note:  There were also many others, such as the U.S. 
Department of Treasury, private sector bankers, and even other 
Vietnamese officials who were providing similar advice.  End note.) 
In any event, the PM later issued a notice similar to a range of 
other earlier IMF proposals, including those urging the GVN to focus 
more on better enforcement of market regulations and greater 
transparency. 
 
Personnel and Organization Changes Expected 
------------------------------------------- 
 
¶12. (SBU) The current leadership configuration has started to 
implement several administrative reforms now underway and observers 
expect a government personnel shake-up to follow the National 
Assembly elections in late May.  In line with PM Dzung's 2007 
initiative to undertake administrative reform, economists within and 
without the GVN expect ministries, such as the Ministry of 
Fisheries, to close and the roles of several other ministries, such 
as the Ministry of Finance and Ministry of Planning and Investment, 
to change.  "There has been a general dissatisfaction with the way 
the government functions, and a generally well-recognized problem 
with poor coordination," the UNDP's Pincus said.  Economists widely 
expect the MOF to take greater responsibility for capital spending 
and the budget process at the expense of the Ministry of Planning 
and Investment (MPI) and MPI to lose power as it becomes more like a 
"ministry of economic reform," similar to a body that exists in 
China, Pincus said. 
 
¶13. (SBU) The Office of the Government (aka the Prime Minister's 
Office) has also begun to take on a stronger role, something 
reflected in a variety of moves.  A recent decision of the Office of 
Government (OOG) to take coordination of a study on government 
strategy to 2020 away from MPI reflects Dzung's efforts to boost the 
power of the office and the declining stature of the ministry. 
Dzung's decision to eliminate the quasi-independent Prime Minister's 
Research Council is another indication of an effort to streamline 
decision-making. "It seems the PM is more interested in moving more 
power to the Office of Government to act as a White House, stocking 
it with professionals who can give good advice, acting like a 
Downing Street," said World Bank Country Director Rohland.  Other 
recent institutional reform measures included a decision to reduce 
the number of CPV Economic Commissions from 11 to six and reducing 
 
HANOI 00000816  004.2 OF 004 
 
 
the status of the Central Institute of Economic Management, which 
used to serve as an important government think-tank under the MPI. 
The re-alignment will likely strengthen the MOF and help cut down on 
the bureaucratic stove-piping that is harming the efficiency of 
government decision making, Pincus said. 
 
¶14. (SBU) Personnel changes will also occur.  One important change 
will likely be the management over the State Bank of Vietnam (SBV), 
with the expected departure of SBV Governor Le Duc Thuy.  In 
contrast to the powers of the Prime Minister, SBV Governor Thuy 
currently exercises little relative power over key decisions such as 
setting interest rates.  Nguyen Dinh Cung, Director General of the 
Macroeconomic Policy Dept of the Central Institute for Economic 
Management (CIEM), told Econoff that recent corruption scandals -- 
one involving Thuy's attempt to take personal ownership over a 
valuable home in central Hanoi and another involved his son's being 
given a lucrative contract to print Vietnam's official currency -- 
have damaged Thuy's credibility.  "The State Bank governor is quite 
weak," Cung said.  Others attribute Thuy's weak position to his 
resistance to follow maneuvering by some influential CPV members to 
get him to leave his position as Governor earlier last year, and see 
the corruption charges as orchestrated to counter his intransigence. 
 
 
¶15. (SBU) Of all the changes, economists note the character of 
Thuy's replacement will provide an important indicator of the tone 
and direction of future economic policy.  Vietnam policy makers have 
already stated their intention to move the SBV toward a more 
independent role, in line with the received wisdom on promoting more 
economic stability in a developed economy.  Such independence is 
lacking now, partly because of Thuy's weakness, both politically and 
as a policy maker, and the GVN needs a stronger, more competent hand 
to implement those changes.  Some would like to see someone similar 
to the current Le Thi Bang Tam, Chairwoman of the State Capital 
Investment Corporation. 
 
¶16. (SBU) The appointment of a reformer is not a foregone 
conclusion, however, Pincus noted, primarily because anti-reform 
elements within the CPV and within State Owned Enterprises (SOEs) 
are far more powerful than many wish to admit and will resist it. 
Pincus blasted The World Bank and investment banks such as Merrill 
Lynch and UBS issuing glowing reports on the state of the economy 
and touting the country's investment opportunities in the face of 
this challenge from anti-reformers.  They could easily scuttle any 
attempt to advance reform through personnel changes, he said.  "If 
the next governor is some old party guy then it will be 
clear--someone has paid them off," Pincus said. 
 
¶17. (SBU) Among the most difficult challenges is equitization. 
While the Party Congress indicated that equitization should 
continue, it also laid out a process of equitization ensuring State 
control over many state-owned firms and allowing an 
insider-influenced process of equitization that has to date resulted 
in the issuing of SOE shares to a combination of managers, other 
SOEs and even GVN officials.  This process has in turn created a 
complex web of cross-ownership and interlinked interests, often with 
the objective of protecting enterprises from privilege-reducing or 
monopoly-busting reforms, critics including Pincus assert.  It may 
be, therefore, naive to believe that Dzung, Hung and others will be 
able to have a radical impact on reforms.  In fact, southern 
contacts say that these leaders are the establishment and seek first 
and foremost to make the Party and the state more effective in 
controlling the economy.  UNDP's Pincus is more sanguine.  "The good 
news is that the government is committed to reform," Pincus said. 
"The bad news is that the politics and the money may overrun their 
intentions." 
 
MARINE