VZCZCXRO0687
PP RUEHHM
DE RUEHHI #0606/01 1430942
ZNR UUUUU ZZH
P 220942Z MAY 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7878
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 2610
INFO RUEHHM/AMCONSUL HO CHI MINH 4759
RUEHBK/AMEMBASSY BANGKOK 6359
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000606 
 
DEPT FOR EAP/MLS, EB/IFD, USAID/ANE, USAID EGAT/EG 
BANGKOK PASS TO RDM/A 
DEPT PASS USTR FOR DBISBEE 
SINGAPORE FOR TREASURY S BAKER 
DEPT PLEASE PASS FED RESERVE SAN FRANCISCO FOR A MAYEDA 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EAID ECON PREL VM
SUBJECT:  DPM HUNG SPEAKS ON INFLATION, BANKS AND FISCAL RESTRAINT 
MEASURES 
 
Ref:  Hanoi 572 (MOF and SBV Discuss Inflation) 
 
¶1.  (U) Summary:  The Ambassador met with Deputy Prime Minister 
(DPM) Nguyen Sinh Hung on May 21 to discuss macro-economic issues 
and the Government of Vietnam's (GVN) plans to address inflation. 
Hung acknowledged the challenges, but said there were plans to 
address State Owned Enterprise (SOE) expansion and budget 
expenditure reform.  He conceded that some private banks were 
lending too much and may go bankrupt or merge, but said the GVN will 
"try our best not to let that happen" and would not limit the growth 
of new banks.  End Summary. 
 
THE MARCOECONOMIC DPM SPEAKS 
---------------------------- 
 
¶2.  (U) The Ambassador met with Deputy Prime Minister (DPM) Nguyen 
Sinh Hung on May 21.  DPM Hung's portfolio includes monetary and 
fiscal policy, planning, price controls, customs, banking, 
securities, statistics, labor, employment and social issues, and the 
restructuring of SOEs.  He supervises the Finance and Labor 
ministries, the State Bank and the State Capital Investment 
Corporation.  Hung is a member of the Politburo and also chairs the 
National Council for Monetary Policy.  He also oversees ethnic 
minority affairs.  He was Finance Minister from 1996 to 2006. 
 
¶3.  (U) Hung started the meeting by noting that both the U.S. and 
Vietnam are facing economic challenges.  He compared the U.S. 
economy to a "big ship in the sea" whose waves ripple across the 
world, including in Vietnam, which he considers "a small ship, just 
starting its journey." 
 
¶4.  (U) The DPM went on to note that Vietnam has some advantages 
that will allow it to weather the current economic storm.  The first 
advantage, he said, is that foreign investors are still interested 
in doing business in Vietnam.  The second is Vietnam's strong export 
sector, which accounts for a significant portion of the country's 
GDP.  Lastly, Hung said, Vietnam has a stable political and 
investment environment.  He admitted that productivity and 
efficiency were still not very high, but pointed to the hundreds of 
new private enterprises and growing foreign investment as signals of 
Vietnam's potential. 
 
HUNG ON INFLATION 
----------------- 
 
¶5.  (U) DPM Hung said he was confident of the GVN's ability to 
overcome inflation.  "The political and administrative leadership 
would work with the people and businesses to control inflation," he 
said cryptically.  He pointed to the 1997 Asian financial crisis, 
which was "more tense than now, so we have experience" in these 
types of situations.  He also cited first quarter registered FDI of 
eight billion dollars as being on pace to increase over last year's 
registered FDI of over $20 billion.  Hung encouraged the Ambassador 
to help make the U.S. the number one foreign direct investor in 
Vietnam, noting that good U.S. -Vietnam relations were 
"irreversible." 
 
¶6.  (U) The DPM then outlined the GVN's three major tasks:  to 
control inflation, to maintain growth, and to "care for people's 
lives."  He forecasted that economic growth will be around 7 percent 
in 2008, and that inflation will slow down, but that there may still 
be difficulties in 2009 before things improve in 2010.  Hung added 
that the GVN is "not very worried" because exports remain strong 
and, as a rice producer, Vietnam has good food security. 
 
BANKING AND CREDIT GROWTH 
------------------------- 
 
¶7.  (U) Hung stated that reining in credit growth was necessary to 
control inflation, but that Vietnam "still needed growth and 
exports."  He conceded that some private banks were lending too much 
and may go bankrupt or merge, but said the GVN will "try our best 
not to let that happen."  He said the GVN will not limit the 
creation of new banks but is now using better criteria for 
establishment of these banks.  Furthermore, he added, as the number 
of businesses and foreign investors in Vietnam increased, Vietnam 
will need more banks, both foreign and local. 
 
EXCHANGE RATE POLICY 
-------------------- 
 
¶8.  (U) DPM Hung refused to confirm reports in the local press that 
 
HANOI 00000606  002 OF 002 
 
 
the Dong trading band would be widened from one to two percent.  He 
reiterated the oft-heard line that the Dong exchange rate will "be 
flexible to encourage exports" and to allow Vietnam to import 
commodities that are not produced in-country.  The DPM said that in 
addition to the Council for Monetary Policy, the GVN had recently 
established a National Committee for Supervision of the Financial 
Sector to make forecasts and recommendations.  The Committee is 
headed by former State Bank Governor Thuy. 
 
SOE REFORM 
---------- 
 
¶9.  (U) Although Hung acknowledged that SOEs would be limited from 
expanding into non-core areas, he did not say whether he supported 
the 30 percent cap proposed by the Finance Ministry (Reftel).  Hung 
added that the GVN was trying to learn from the experiences of other 
"major international economies" to develop standards for SOE 
expansion.  The DPM also stated that the GVN is encouraging SOEs to 
identify strategic partners and that this would be an efficient 
means for foreign investors to "get access to Vietnam." 
 
BUDGET CUTS COMING 
------------------ 
 
¶10.  (U) The DPM said that the central and regional governments had 
been asked to revise their budgets in an effort to trim 
expenditures.  Hung noted that he was still awaiting revised budgets 
from certain districts, communes, and investment projects, but said 
the results of the exercise would be reported at this month's 
cabinet meeting, in late May. 
 
BIOGRAPHICAL NOTES 
------------------ 
 
¶11. (SBU) Hung, who rarely meets with USG officials, was the last of 
Vietnam's five DPMs to agree to meet with the Ambassador. 
Throughout the meeting, he avoided being drawn into specifics, 
relying instead on bureaucratesse to make his points. 
 
COMMENT: A REFORM CYPHER 
------------------------ 
 
¶12.  (SBU) Comment:  Hung seems committed to the idea of SOE reform, 
but reluctant to divulge details of how the GVN plans to achieve 
this goal, perhaps because the issue is still under discussion.  He 
seems personally involved in overseeing budget reform efforts, which 
is a good sign.  Not as promising is his position on banks, seeming 
to imply that protecting bad banks and even encouraging more banks 
would be a good thing for Vietnam's economic growth.  End comment. 
 
MICHALAK