VZCZCXRO0327
RR RUEHDT RUEHPB
DE RUEHHM #0879/01 2390111
ZNR UUUUU ZZH
R 270111Z AUG 07
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 3025
INFO RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 3232

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000879 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS BLACKSHAW, USTR FOR DBISBEE, H FOR JCHARTRAND 
 
E.O. 12958: N/A 
TAGS: ECON EFIN OTRA OVIP VM
SUBJECT: STAFFDEL GUDES TALKS BUDGETING IN HCMC 
 
 
HO CHI MIN 00000879  001.2 OF 003 
 
 
¶1. (SBU) Summary:  During an August 14-15 visit to Ho Chi Minh 
City (HCMC), Senate Budget Committee Minority Staff Director 
Scott Gudes and Committee Chief Economist Daniel Brandt 
discussed bilateral relations (touching on U.S. assistance) with 
the HCMC External Relations Office, U.S. trade and investment 
with the HCMC American Chamber of Commerce, and municipal 
funding mechanisms and long-term growth strategies with the HCMC 
People's Committee and HCMC Institute for Economic Research. 
Topics discussed ranged from Vietnam's process for meeting WTO 
commitments to HCMC's new rules for assisting poor residents 
dislocated by urban renewal projects.  The visit yielded a 
number of insights into HCMC's challenging budgeting process and 
provided an outstanding peer-to-peer opportunity to share 
insights.  End summary. 
 
American Chamber of Commerce 
---------------------------- 
¶2. (SBU) American Chamber of Commerce (AmCham) Executive 
Director Herb Cochran began by describing both his organizations 
membership (400 members: 50 percent U.S. companies, 40 percent 
multinational and 10 percent Vietnamese) and HCMC's unique 
economic role in Vietnam.  With roughly 7 percent of the 
population (officially), HCMC accounts for 21 percent of 
Vietnam's GDP, 30 percent of industrial output, one-third of 
state budget revenues, 38 percent of exports, two-thirds of 
international departures, and 70 percent of container traffic. 
 
¶3. (SBU) Asked about AmCham's overall assessment of Vietnam's 
progress in implementing WTO obligations and the accompanying 
legal framework, Cochran replied that Vietnam has adopted more 
than eighty laws and decrees to implement its WTO obligations 
and has generally followed a very transparent process, actively 
soliciting industry comment on most draft legislation and then 
acting upon suggestions offered.  Cochran noted, however, that 
AmCham's members are not happy about all aspects of the WTO 
accession process and that trading and distribution rights 
currently top AmCham's action agenda.  Cochran noted generally 
that the GVN has been unclear about how it plans to implement 
its WTO commitments in this area and that GVN officials argue 
that rapidly opening up the retail sector to international 
competition will destroy domestic retail companies.  While he 
highlighted this issue, Cochran also acknowledged that not all 
U.S. companies retailing in Vietnam have trading/distribution 
rights problems. 
 
¶4.  (SBU) Asked about the challenges facing U.S. firms in 
Vietnam, Cochran first mentioned corruption.  He noted that 
Korean, Taiwanese, and Japanese companies seem to have fewer 
problems because the OECD anti-bribery convention they are 
subject to is not as restrictive as U.S. rules.  He added that 
corruption is not the only way to lock in a role in major 
projects, noting that an abundance of official development 
assistance (ODA) enables the Japanese, in particular, to lock up 
big infrastructure projects like the planned HCMC subway.  The 
last major challenge Cochran noted originated purely in the USA. 
 He believes that changes to U.S. tax policy for professionals 
living overseas (including classifying housing allowances as 
income) mean that many flagship U.S. companies (e.g., 3M, 
Proctor and Gamble and IBM) have shifted to non-American 
managers in Vietnam. 
 
External Relations Office:  Role of U.S. Assistance 
--------------------------------------------- ------ 
¶5. (SBU) External Relations Office (ERO) Deputy Director Le Hung 
Quoc explained that his office is the foreign affairs advisor to 
the HCMC People's Committee and the southern branch of the 
Ministry of Foreign Affairs.  The HCMC ERO has two sections and 
20 staff working on issues relating to the United States and the 
U.S. Consulate.  StaffDel Gudes described the 1995 normalization 
debate from the Senate staff perspective, noting the importance 
that POW/MIA issues played at that time.  Quoc replied that now 
we face more opportunities than challenges, adding that progress 
in U.S.-Vietnam relations is slower than Vietnam's progress with 
other countries though we are working hard to narrow the gaps. 
Quoc also said that the GVN is working to lift the living 
standard of its citizens, to address rural/urban inequality, and 
to raise the awareness of overseas Vietnamese about current 
conditions in Vietnam. 
 
¶6. (SBU) Quoc said that Vietnam faces human resource and capital 
constraints.  Vietnam receives a lot of aid, including from the 
United States, with the Vietnam Education Foundation (VEF) and 
Fulbright programs helping Vietnam develop human resources and 
the Support for Trade Acceleration (STAR) program helping 
Vietnam to play by the rules of the WTO.  He added that the 
President's Emergency Plan for AIDS Relief (PEPFAR) also 
addresses critical needs in Vietnam.  Gudes agreed that Vietnam 
needs to address human resources problems, noting that when he 
ran the National Oceanic and Atmospheric Agency (NOAA) human 
resources were also his priority. 
 
HO CHI MIN 00000879  002.2 OF 003 
 
 
 
People's Council - Paying for the Future 
---------------------------------------- 
¶7. (SBU) StaffDel called on Budget Sub-Committee of the People's 
Council of HCMC Vice Chairman Nguyen Minh Hoang, who explained 
that the sub-committee advises the People's Council on 
development and infrastructure issues.  Hoang noted that HCMC is 
growing faster than the rest of Vietnam. He estimated 12.5 
percent in 2007, as opposed to 8.5 percent for the country as a 
whole.  Hoang stated that this is in no small part because 
public administration reforms are going well in HCMC. 
 
¶8.  (SBU) Hoang said HCMC is reviewing and adjusting its urban 
planning-land zoning approach (originally drafted in 1998) and 
recently produced a report on urban development plans through 
year 2020.  The GVN and HCMC governments are reviewing 
compensation rates for land and developing new support 
mechanisms (e.g., vocational training) to assist low-income 
residents displaced by urban redevelopment projects.  Hoang said 
public health care, education and training, urban traffic 
systems and environmental protection are also big challenges, 
adding that increased cooperation and investment would be 
welcome in any of these. 
 
¶9.  (SBU) Hoang outlined HCMC's budget development process, 
saying HCMC will collect 78,000 billion VND ($4.8 billion USD) 
in tax revenue this year, which is more than 30 percent of the 
official State budget.  The central government is placing an 
increasing tax burden on HCMC because it is the nation's 
wealthiest city and the primary engine of Vietnam's economic 
growth.  While the city government is responsible for collecting 
tax funds, it is allowed to retain only 26 percent of the 
revenue for the HCMC budget.  Hoang said the budget process 
starts in August when The People's Council develops a draft city 
budget based on its own internal review as well as negotiations 
with the Ministry of Finance and National Assembly.  In 
practice, most details are worked out with Ministries before the 
budget reaches the National Assembly, whose main role is to 
adjust provincial/municipal budgets to reflect national 
development priorities. 
 
¶10. (SBU) Hoang noted that HCMC has 2 million unofficial 
migrants and asked Gudes for advice in addressing public health, 
sanitation, education and public transport needs of these 
unofficial residents.  Gudes responded that a combination of 
Federal, State and Local government programs and approaches help 
the United States address both national disasters and the stress 
that migration puts on local systems. 
 
Institutive for Economic Research 
--------------------------------- 
¶11. (SBU) StaffDel Gudes met with HCMC Institute for Economic 
Research (IER) President Tran Du Lich, a National Assembly (NA) 
member and member of the NA Committee for Economic Affairs. 
Senior Economist Brandt suggested leveraging Vietnam's high 
domestic savings rate for development through domestic savings 
bonds.  Lich agreed, stating that HCMC began issuing domestic 
savings bonds in 2003.  The city currently has 8,000 billion VND 
(USD $500 million) in mid- and long-term bonds outstanding.  Of 
those, 80 percent are held by institutions and 20 percent by 
individuals.  He added that a central government cap on 
international bond issuances by HCMC means that the city can't 
rely on overseas financing for infrastructure projects. 
 
¶12. (SBU) When Gudes asked Lich about the National Assembly's 
budget oversight role, Lich described the operation of Vietnam's 
system of maintaining a single, central budget.  The overall 
budget process starts with budget data (both projected revenues 
and projected expenditures) collected from provinces and is 
negotiated with the Ministry of Finance (MOF) before being 
forwarded to the National Assembly (NA) for final action and 
approval.  In the end, the budget for each of the 64 provincial 
and municipal governments is allocated by the central government 
back to the provinces from whence it came.  When negotiating its 
own budget contributions, the HCMC People's Committee negotiates 
with the Ministry of Finance (MOF) on such key variables as GDP 
growth and estimates of revenue (e.g., import taxes, income 
taxes, and property taxes) to be collected by the municipality. 
Once negotiations with MOF are finished, the budget data goes to 
the Budget Committee of the NA.  Most changes are implemented by 
the committee before the budget is forwarded to the entire NA 
for approval.  In general, the NA changes only those funding 
requests affecting national priorities.  Once the process is 
finished and total expenditures for a province/municipality are 
allocated by the central government, the provincial governments 
decide how to spend funds according to MOF regulations governing 
expenditures (e.g., civil service salaries generally follow an 
MOF schedule). 
 
¶13. (SBU) Lich said for 2006 and 2007 HCMC expenditures as a 
 
HO CHI MIN 00000879  003.2 OF 003 
 
 
percentage of total revenue collected was set at 26 percent, so 
that for every $100 of revenue collected, $74 goes to other 
provinces.  He noted that HCMC is allowed broader authority than 
many other provinces.  For example, the city can borrow up to 
100 percent of the value of its annual budget investment capital 
while other provinces are capped at 30 percent.  HCMC has also 
been the beneficiary of ODA (e.g., $1 billion USD for a 
Japanese-built highway or $20 million USD for World Bank 
community water projects) that provides investment funds over 
and above those included in its annual budget. 
 
¶14. (SBU) Lich said that over the course of the budget process, 
the people of HCMC have various opportunities to learn about the 
budget.  They also have opportunities to comment on the budget 
when the HCMC People's Council debates it.   Lich said rural 
constituents typically lambaste the People's Council for 
neglecting rural roads and city dwellers criticize the Council 
for not spending enough money on city services such as 
education. 
 
Comment 
------- 
¶15. (SBU) StaffDel Gudes provided an outstanding peer-to-peer 
opportunity to better understand the HCMC municipal budgeting 
process.  Chief economist Brandt observed that HCMC's 
disproportionate contribution to Vietnam's State budget may yet 
constitute a catalyst for political change.  There are only 23 
HCMC representatives on the 498 person National Assembly yet 
HCMC accounts for over 30 percent of State revenues.  The 
widening economic gap between HCMC and other provinces may 
provide additional impetus for future political change as other 
provinces seek to mimic the city's formula for success. 
 
This cable was coordinated with Embassy Hanoi and StaffDel was 
given an opportunity to comment.  End Comment. 
FAIRFAX