VZCZCXRO3419
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1060/01 2600130
ZNR UUUUU ZZH
P 160130Z SEP 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8457
INFO RUEHHM/AMCONSUL HO CHI MINH 5112
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 001060 
 
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: STATE BANK AFFIRMS COMMITMENT TO FIGHTING INFLATION, 
WELCOMES TECHNICAL ASSISTANCE 
 
HANOI 00001060  001.2 OF 002 
 
 
¶1.  (SBU) SUMMARY:  In a candid discussion with EAP DAS Scot Marciel 
and visiting Department of Treasury representatives, State Bank of 
Vietnam (SBV) Vice Governor Nguyen Van Binh defended the SBV's 
efforts to fight inflation.  He emphasized that despite pressure to 
shore up Vietnam's state-owned enterprises, the Bank remained 
committed to a tight monetary policy.  VG Binh conceded that for 
several months the SBV had occupied a lonely position, but averred 
that the government now fully accepted the need to contain price 
increases and expected inflation to drop to 15 percent in 2009.  VG 
Binh acknowledged deficiencies in bank supervision and the 
collection and dissemination of economic data, and welcomed offers 
of technical assistance.  END SUMMARY. 
 
 
FIGHTING INFLATION REMAINS THE TOP PRIORITY... 
--------------------------------------------- - 
 
¶2.  (SBU) Meeting September 10, DAS Marciel urged the SBV to stay 
the course in pursuing a tight monetary policy, emphasizing that 
other economic priorities become impossible in the face of high 
inflation.  Vice Governor Binh agreed, stating that the SBV had seen 
inflationary pressures building as early as June 2007.  However, the 
rest of the government did not recognize the problem until later and 
did not begin to take "corrective measures," such as raising 
interest rates and the reserve requirement until March of this year. 
 VG Binh expressed satisfaction with the GVN's current policies, and 
said that as a result the "inflation trend" had reduced slightly. 
[Comment: Binh was likely alluding to the fact that the 
month-on-month rate of increase in inflation has declined.  End 
comment.]  VG Binh said that the SBV was targeting an inflation rate 
of 25 percent for 2008 and 15 percent in 2009, though he 
acknowledged that it would be a challenge to meet these targets. . 
 
...IN SPITE OF PRESSURE TO EASE CREDIT 
-------------------------------------- 
 
¶3.  (SBU) VG Binh acknowledged the fact that a tighter monetary 
policy has had a significant impact on state-owned enterprises and 
the banks that had loaned them money, noting that non-performing 
loans had increased.  He said that it was the government's 
responsibility to provide protection for the economically 
vulnerable.  Asked to elucidate, VG Binh clarified that it was the 
GVN's role, not the Bank's, to provide a social safety net; however, 
he did say that the SBV had called upon banks to "share the pain" 
with SOEs and not raise interest rates too high.  .  He insisted, 
however, that the Bank's overriding priority continues to be 
fighting inflation. 
 
SBV OPEN TO TECHNICAL ASSISTANCE 
-------------------------------- 
 
¶4.  (SBU) Citing recent U.S. experience, DOT's Financial Attache for 
SE Asia Susan Baker encouraged the SBV to address deficiencies in 
the banking system before the ratio of non-performing loans reached 
dangerous levels.  Introducing her colleague from the Office of 
Technical Assistance, Paul Leonovich, Baker reiterated that the USG 
was prepared to offer expertise on banking supervision  as well as 
help in resolving insolvent banks.   VG Binh said that the Bank 
would welcome such assistance and expected U.S. experts to work 
closely with the SBV's Director General for bank supervision. 
 
¶5.  (SBU) Baker and Leonovich cited data collection, analysis, and 
dissemination as another set of areas on which the USG would be 
willing to assist, noting in particular the availability of former 
Federal Reserve Bank officials.  Baker emphasized that in addition 
to providing more accurate information to policymakers and the 
market, the ability to marshal data would support the SBV's efforts 
to enhance its independence.  VG Binh agreed, and said that that the 
SBV was establishing a new department whose main function would be 
to analyze economic data, and that this new department would welcome 
the type of assistance that the USG was proposing. 
 
¶6.  (SBU) Binh noted that some Vietnamese banks were interested in 
opening representative offices in the U.S., but added that he 
understood that having adequate anti-money laundering policies and 
procedures were an issue.  He said that the Asia-Pacific Group on 
Money Laundering would be doing an assessment of Vietnam's 
anti-money laundering/counter financing of terrorism regime this 
year. 
 
¶7.  (SBU) Comment:  While the SBV appears committed to an 
anti-inflationary stance, other voices within the Vietnamese 
 
HANOI 00001060  002.2 OF 002 
 
 
government seem to be calling for a loosening of monetary policy now 
that overall inflation has peaked.  Our message will continue to be 
that Vietnam should remain focused on controlling inflation, even if 
it comes at the expense of higher growth.  End comment.