VZCZCXRO0769 
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB 
DE RUEHHI #0658/01 1560927 
ZNR UUUUU ZZH 
P 040927Z JUN 08 
FM AMEMBASSY HANOI 
TO RUEHC/SECSTATE WASHDC PRIORITY 7941 
INFO RUEHHM/AMCONSUL HO CHI MINH 4801 
RUCNASE/ASEAN MEMBER COLLECTIVE 
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION 
RUEATRS/DEPT OF TREASURY WASHINGTON DC 
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000658 
 
SENSITIVE 
SIPDIS 
 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
STATE FOR EEB/IFD 
 
E.O. 12958: N/A 
TAGS: EFIN EAID ECPS ECON EAGR ETRD VM
SUBJECT: Part II: GVN ANNOUNCES FURTHER MEASURES TO INSTILL 
INVESTOR AND MARKET CONFIDENCE 
 
Refs: A) Hanoi 634 B) Hanoi 377 
 
This cable is Sensitive But Unclassified. For official use only, 
not for dissemination outside USG channels or posting on the 
internet. 
 
¶1. (U) This cable is part of an ongoing series on Vietnam's 
macroeconomic situation. 
 
¶2. (SBU) Summary: Facing persistent high inflation and market 
concerns about the stability of the dong, the Government of Vietnam 
(VN) has begun to make a more concerted and public effort to address 
growing macro-economic concerns. The Prime Minister announced 
further actions to check speculation by Vietnam's state-owned 
sector, and the State Bank said it may force bank mergers and de-peg 
the dong from the dollar. In late May, the IMF Asia Pacific 
Director urged high-level GVN officials to take immediate action to 
shore up both international and domestic investor confidence. On 
May 31, after the PM vowed to redouble efforts against inflation and 
to tackle the state-owned sector, the National Assembly grilled the 
Minister of Planning and Investment, the State Bank Governor and the 
Minister of Finance on inflation, SOE growth and inefficient 
investment. On June 3, the GVN used the Vietnam Business Forum to 
reassure investors about its ability to control the macro-economic 
situation. End summary. 
 
IMF MAKES THE ROUNDS 
-------------------- 
 
¶3. (SBU) The Asia Pacific Director for the IMF, David Burton, 
visited Hanoi on May 29 and 30 to reinforce the IMF's message on the 
necessity of concrete GVN action to address macroeconomic concerns 
(Ref A). (Contrary to rumors, the visit did not involve discussion 
of an IMF package for Vietnam.) Burton told high-level GVN 
officials that the Prime Minister's plan to fight inflation was a 
good one, but that immediate and transparent action was needed to 
shore up both international and domestic investor confidence. The 
IMF sees the domestic component of investment as being critical to 
short-term financial sector stability, noting that if people stop 
using the banking system or start switching out of the dong, the 
flow will be difficult to reverse. The IMF says their message was 
well-received by the GVN. 
 
PM CALLS FOR REDOUBLING OF EFFORTS 
---------------------------------- 
 
¶4. (U) In remarks before the National Assembly (NA) on May 31, the 
Prime Minister (PM) called for greater efforts in the fight against 
inflation. He told the NA that the GVN was already applying a 
tighter monetary policy, reducing public expenditures and devoting 
resources to social welfare programs. He also addressed the 
critical issue of state-owned enterprise (SOE) reform, which local 
economists and analysts note has seen the least amount of concrete 
action since the PM's inflation plan was introduced on March 31 (REF 
B). While the PM observed that SOEs "have made an important 
contribution" to the economy, he said the GVN is preparing to review 
the large "economic group" model that is the basis of the SOE system 
and will submit a related decree. He added that the GVN will 
accelerate the restructuring of the SOEs by focusing on the 
"equitization" process and the "multi-ownership" model (most likely 
referring to strategic partners and foreign investors). 
 
MINISTRIES TO RESTRICT AND MONITOR SOE ACTIVITY 
--------------------------------------------- -- 
 
¶5. (U) The National Assembly then spent some time questioning the 
Minister of Planning and Investment (MPI), the State Bank Governor, 
and the Minister of Finance on inflation, SOE growth and inefficient 
investment. MPI Minister Vo Hong Phuc said that his ministry had 
been given the task of enacting the PM's plans on SOE reform, and 
that a decree would be submitted for approval in July. He went on 
to add that the decree will lay out clear regulations on SOE 
activities, especially in regards to mobilization of capital and 
operations in non-core areas. Phuc used state-owned Electricity of 
Vietnam Group (EVN) as example of speculative activities, saying 
that such a company should focus on power development projects 
(note: EVN has been one of the worst SOEs in terms of non-core 
expansion, with projects as diverse as telecommunications, hotels 
and banks). 
 
¶6. (U) Meanwhile, the Ministry of Finance (MOF) announced the 
creation of a watchlist of inefficient and loss-making SOEs for 
"intensive monitoring." An SOE will make the list if it has two 
consecutive years of losses or a loss for one year with a 30 percent 
reduction in capital. These companies will have to submit 
comprehensive quarterly and annual financial reports for analysis by 
various ministries. Firms that do not improve will be sold or 
dissolved. The list will be completed on May 30 of every year, but 
for reasons unexplained, SOEs in the "finance, banking, insurance 
and securities sector" will be exempt from the program. MOF admits 
that of Vietnam's approximately 1,500 SOEs, 600 failed to make a 
profit last year. 
 
REASSURANCES ON THE MACROECONOMIC FRONT 
--------------------------------------- 
 
¶7. (U) On June 2, GVN officials used the bi-annual Vietnam Business 
Forum (Septel) to reassure investors about the country's 
macroeconomic stability. When questioned by members of the Bank 
Working Group, State Bank of Vietnam (SBV) Deputy Governor Nguyen 
Dong Tien acknowledged that some financial institutions had been 
poorly managed and regulated, and noted that "very soon we will be 
seeing bank mergers." (Comment: There have been rumors that the 
SBV has already bailed out a few small banks, but our contacts at 
the SBV deny this.) Tien also agreed with recommendations that dong 
exchange rates be based on a basket of currencies (versus a dollar 
peg) and said that Vietnam would be moving in that direction. 
 
¶8. (SBU) Comment: The recent slew of pessimistic press and 
high-level expressions of concern on Vietnam's macroeconomic 
management appear to have prodded the GVN to go public with 
additional initiatives. The discussions at the National Assembly 
were a very public effort to respond to investor concerns and remind 
public officials that all have a role in bringing government and SOE 
spending under control. The MOF's yearly list of poorly-performing 
SOEs misses the mark (the GVN should be focusing on privatization of 
SOEs, not nursing them along in some sort of a rehabilitation 
program) but other comments by the PM, Minister Phuc and SBV Deputy 
Governor Tien show that the IMF's message of transparent, rapid 
action may have gotten through at the highest levels. As of June 4, 
the dong continued to devalue on the black market, but if these 
initiatives can be implemented in a timely and decisive manner, they 
may help improve the investor confidence that is so crucial to 
Vietnam's macroeconomic stability. End comment. 
 
MICHALAK