VZCZCXRO9888
PP RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #1366/01 2150724
ZNR UUUUU ZZH
P 030724Z AUG 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 5980
INFO RUEHHM/AMCONSUL HO CHI MINH 3446
RUEHGP/AMEMBASSY SINGAPORE 2422
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION

UNCLAS SECTION 01 OF 02 HANOI 001366 
 
SIPDIS 
 
STATE FOR EB/OMA AND EAP/MLS 
TREASURY FOR OASIA 
SINGAPORE FOR REGIONAL TREASURY ATTACHE BAKER 
STATE PASS FEDERAL RESERVE SAN FRANCISCO FOR DFINEMAN 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAID VM
SUBJECT: AMBASSADOR'S FAREWELL CALL ON STATE BANK GOVERNOR THUY 
 
HANOI 00001366  001.2 OF 002 
 
 
(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET. 
 
¶1. (SBU) Summary:  The Ambassador met with State Bank Governor Le 
Duc Thuy as part of his farewell calls.  The meeting covered a wide 
range of issues, including money laundering, anti-proliferation 
efforts, the stock market, equitization, inflation, the exchange 
rate, and areas for further cooperation.  It is clear that State 
Bank officials are beginning to feel the pressures of a developing 
economy, but they have not yet addressed how to reconcile 
inflationary pressures with an intentionally undervalued currency. 
End Summary. 
 
Anti Money Laundering 
----------------------- 
 
¶2. (SBU) The Ambassador met with State Bank Governor Le Duc Thuy on 
July 31 for a farewell call.  After initial greetings, the 
Ambassador raised the issue of anti money laundering (AML), noting 
that Vietnam's attendance at the Asia Pacific Group meeting in Perth 
was very encouraging.  He cited the large amount of remittances from 
the United States to Vietnam last year, approximately 4.7 billion 
USD, and stressed the mutual need to be confident in AML safeguards. 
 Ambassador Marine added that the U.S. Department of Treasury's 
Technical Assistance Office was planning an assessment of Vietnam's 
AML regime this fall, but to do so it would help to have a formal 
indication that the Vietnamese wish to engage on this matter. 
 
¶3. (SBU) Governor Thuy responded by acknowledging U.S. assistance in 
this area and admitting that the Vietnamese AML decree could be 
better.  He also noted that last month the State Bank of Vietnam 
(SBV) established the Anti Money Laundering Information Center as an 
independent organization.  The Governor explained that they were now 
working on setting up the organization and initiating the operations 
of the new entity.  He said that they still lack 
equipment/facilities to work effectively, so the SBV welcomes 
support and training from the United States.  The SBV will seriously 
consider Treasury's technical assistance offer and will make a 
report to the competent authorities for a decision.  He clarified 
that the formal request will come from either the SBV or from the 
Government of Vietnam itself. 
 
Non Proliferation 
----------------- 
 
¶4. (SBU) On a related issue, the Ambassador reminded the Governor 
that, when they last met, the Ambassador had mentioned the 
propensity of North Korea to finance proliferation activities using 
financial institutions in the region.  He noted that it has become 
evident that Vietnam is likely to be on the UN Security Council and 
therefore directly involved in directing policy on North Korea and 
other global security issues, but for now, the United States is very 
interested in how Vietnam is implementing UNSCR 1695 and 1718. 
 
¶5. (SBU) The Governor responded by stating that Vietnam is a member 
of the UN and has complied with the resolutions on North Korea. 
However, he said that, because of limited information and 
accessibility, the SBV would welcome any information from the United 
States about suspicious or problematic activity. 
 
The Stock Market and Equitization 
--------------------------------- 
 
¶6. (SBU) The Ambassador then turned to the stock market and the 
ongoing equitization process.  He complimented the Governor on 
Vietnam's economic growth, noting that the recent decision to avoid 
capital controls was illustrative of a sage, long-term viewpoint. 
However, the Ambassador continued, there was some talk that the IPO 
process was going to be delayed due to the recent downturn in the 
Vietnamese stock market.  He pointed out that some would take this 
as wavering dedication to the equitization process, and that perhaps 
an equitization/privatization plan could be shared with the public 
in an effort to assuage those concerns. 
 
¶7.  (SBU) Governor Thuy was quick to disavow any official plan to 
delay the equitization timeline.  He stated that the IPO timeline 
for the commercial banks is proceeding and that there has been no 
statement from the Cabinet that it should be delayed.  Any opinions 
to the contrary were merely "informal."  He agreed that the 
equitization plan for other enterprises had not been completely 
transparent, but that the SBV was working with the Ministry of 
Finance to provide a clear roadmap for the bank IPOs. The Governor 
was also frank about the general sense of confusion regarding which 
direction the stock market was heading, but stated that the GVN 
would not allow the market to impact negatively the stable economic 
 
HANOI 00001366  002.2 OF 002 
 
 
development of Vietnam. 
 
Inflation and Currency 
---------------------- 
 
¶8. (SBU) The Ambassador linked the equitization process to the 
larger macro-economic picture, making it clear that there was 
concern in some camps about inflation and credit growth in the 
Vietnamese economy.  He noted that as the economy continues to 
develop, the policy of targeted interest and exchange rates would be 
difficult to maintain.  Specifically, the Ambassador noted that we 
were interested in knowing whether Vietnam would display any 
flexibility with its currency, which would help to control 
inflation. 
 
¶9. (SBU) The Governor took the "party line" and explained that, in 
the short term, inflation was due to a number of causes, including 
avian flu, natural disasters and higher energy prices.  He did admit 
that, for the long term, inflation posed a question of monetary 
policy; specifically, how to regulate capital inflows while creating 
a flexible exchange rate and strengthening reserves.  He stated that 
Vietnam knows it does not want to "chase" too much foreign currency, 
but that Vietnam has to keep the value of the dong close to its 
actual buying power.  In other words, he clarified, the nominal and 
real exchange rates are currently similar and the SBV did not want 
them to drift too far apart.  He then reiterated that the main 
reason for inflation in 2007 was the external forces listed above, 
but that Vietnam did want to find a way to ensure that the exchange 
rate was not contributing to inflation. 
 
Past and Future Cooperation 
--------------------------- 
 
¶10. (SBU) Both the Ambassador and the Governor acknowledged the 
strong working relationship between USAID's Support for Trade 
Acceleration (STAR) program, which provides technical assistance as 
Vietnam upgrades its economic governance legislation, and the State 
Bank.  The Ambassador said that the United States welcomed the 
opportunity to provide comments and suggestions as Vietnam moved 
forward in creating a new central banking system.  Governor Thuy 
thanked the Ambassador, stating that the SBV would make good use of 
the information it had received through technical assistance.  He 
noted that, in accordance with Vietnam's situation, it was unlikely 
that they would have a very powerful central bank like the U.S. 
Federal Reserve.  He went on to outline several areas where he 
thought the SBV could use additional assistance, including how to 
have healthy growth in the stock market, how to control capital 
inflows, and the most appropriate role for the State Bank in the 
stock market. 
 
Comment 
------- 
 
¶11. (SBU) Governor Thuy mostly stuck to the party line, but was 
frank in describing the challenges facing the State Bank.  We are 
hopeful that this meeting will bring about some movement on the 
formal request necessary for AML technical assistance.  The overall 
relationship to date between the Embassy and the SBV has been a 
positive one.  The Governor would clearly welcome additional 
technical assistance on the development of the central banking 
system in Vietnam and wants to maintain the momentum on this 
positive track.  The Governor did not discuss his impending 
departure from office, or the criticism directed at his family with 
regard to corruption allegations (nor did we ask).  Subsequent to 
our meeting, the GVN announced the new Governor will be Nguyen Van 
Giay, currently the Party General Secretary of Ninh Thuan Province; 
prior to that position, he was the Deputy Governor of SBV. 
 
MARINE