VZCZCXYZ0001
OO RUEHWEB

DE RUEHHI #1173/01 2890634
ZNR UUUUU ZZH
O 150634Z OCT 08
FM AMEMBASSY HANOI
TO SECSTATE WASHDC IMMEDIATE 8605

UNCLAS HANOI 001173 
 
SENSITIVE 
SIPDIS 
 
STATE FOR U/S M PATRICK KENNEDY 
ALSO FOR EAP/EX 
 
E.O. 12958: N/A 
TAGS: AMGT ABLD VM
 
SUBJECT: SCENESETTER FOR UNDER SECRETARY FOR MANAGEMENT PATRICK 
KENNEDY VISIT TO VIETNAM 
 
Introduction 
------------ 
 
¶1. (SBU) Under Secretary Kennedy: Ambassador Michalak and Mission 
Vietnam look forward to welcoming you to Hanoi.  Your visit will be 
an important signal to the Vietnamese of the importance of our 
growing bilateral relationship, and the need to adequately support 
it with the construction of a New Embassy Compound (NEC).  We seek 
to make this the culmination of ten years of negotiating the 
acquisition of a NEC site, building on the progress made during the 
last year of sustained and intense negotiations by post.  A number 
of issues have been resolved, or are amenable to settlement through 
reasonable compromise and negotiations.  The issue of reciprocity 
regarding lease terms, however, continues to be a stumbling block. 
Your discussions with the Vietnamese leadership will help push the 
negotiations to a conclusion. 
 
¶2. (SBU) Our strengthening relations are in large part due to 
Vietnam's realization that the United States is an important force 
in maintaining a stable geopolitical environment in which even small 
countries like Vietnam are assured independence and freedom of 
action.  Vietnam also sees in the United States an increasingly 
important source of investment and financial and technical 
assistance, as well as a huge market for Vietnamese goods. 
Vietnam's leaders are committed to continued progress in bilateral 
relations and will likely speak positively and optimistically about 
the future of U.S.-Vietnam ties. 
 
¶3. (SBU) Differences over human rights remain, however, and 
lingering fears that the United States supports the overthrow of the 
current regime continue to complicate the relationship.  Similarly, 
while Vietnamese are overall quite positive about the United States, 
you may hear references to "legacies of the war," in particular 
Agent Orange. 
 
Increasingly Conscious of International Role 
-------------------------------------------- 
 
¶4. (SBU) The GVN recognizes the strategic importance of the United 
States in the region and the world, but is not shy about criticizing 
the U.S. for "interference in its internal affairs" or other U.S. 
actions it perceives as outside the multilateral system.  There is a 
significant faction within the communist party, particularly in the 
security forces, that constantly warns that "peaceful evolution" 
from a communist to a democratic government represents the gravest 
long-term security risk facing Vietnam.  They routinely chafe over 
U.S. criticism of Vietnam's human rights and religious freedom 
record.  Nonetheless, Vietnam's leaders are also pragmatic and 
recognize that Vietnam's own continued economic well-being, growth 
and security are, in large measure, inexorably tied to its 
relationship with the United States. 
 
¶5. (SBU) Vietnam has begun to explore opportunities within regional 
organizations to increase joint efforts against terrorism, 
narcotics, maritime piracy and other issues of shared concern. 
Vietnam recently began joint sea patrols with its neighbors in the 
Gulf of Thailand and has established hotlines to help facilitate 
coordination along sea boundaries.  Nevertheless, for historic and 
foreign policy reasons, the GVN is generally reluctant to speak out 
against its "traditional friends" such as North Korea and Iran when 
they engage in behavior that the rest of the international community 
condemns, and in its current role as a non-permanent member of the 
Security Council it has adopted traditionally Non-Aligned Movement 
positions that do not generally line up with our own. 
 
U.S. Assistance Areas: Health, Humanitarian and Governance 
--------------------------------------------- ------- 
 
¶6. (U) Since 1995, we have had an active program in health 
diplomacy.  Programs have provided aid in legal reform, governance, 
economic growth, HIV/AIDS, environmental protection and disaster 
prevention.  For FY 2008, total U.S. assistance from all agencies 
for the President's Emergency Plan for AIDS Relief (PEPFAR) was 
about USD 88.9 million, and since 2004, USD 234 million, which has 
gone towards providing assistance in the area of HIV/AIDS treatment 
and prevention.  Vietnam is one of fifteen countries with a PEFAR 
program.  Over 50 percent of our overseas development assistance is 
devoted to health in areas such as influenza, tuberculosis, vaccine 
development, and tobacco control.  For example, the USG is the 
largest single bilateral donor in implementing the President's Three 
Pillar Strategy to avert the next influenza pandemic.  These efforts 
are complemented by the provision of in-kind technical assistance, 
for example, in human capacity development, cholera control, and 
road safety.  Our fundamental goal is to assist Vietnam in the 
challenging road of health sector reform, given the rapid pace of 
economic change and modernization. 
 
Trade and the Economy 
 
--------------------- 
 
¶7. (SBU) Trade and investment have played a central role in our 
improved relations and we are seeking to keep up the momentum with 
agreement soon on a new bilateral investment treaty and a more 
liberal civil aviation agreement.  After a decade of isolation and 
failed economic policies, Vietnam is determined to catch up with the 
Asian tigers.  Vietnam's "doi moi" (renovation) program of economic 
reform, begun in 1986, has set the country on a successful market 
economy path, with an average growth rate of 7.5 percent over the 
past decade.  The GVN understands that continued economic growth is 
essential to political survival.  The GVN focuses on exports and 
foreign direct investment in its drive to achieve middle-income 
status by 2010.  The United States is Vietnam's largest export 
market and third largest overall trade partner.  U.S. investors tell 
us the key challenges they face in Vietnam are underdeveloped 
infrastructure, a shortage of skilled workers and managers, and the 
considerable level of state participation in the economy.  For its 
part, the GVN is grappling with issues of corruption, improving the 
legal environment, and implementing its WTO commitments. 
 
¶8. (SBU) Vietnam is dealing with serious macroeconomic challenges 
which prompted some analysts in the spring to warn that it faced a 
1997-like meltdown.  Inflation has risen sharply (28 percent 
year-on-year for August) and the current trade deficit is 
uncomfortably high.  High money and credit growth and global 
inflation are the main causes.  Vietnam has tightened monetary and 
fiscal policy in response.  These measures have proved effective so 
far and the government needs to stay the course.  Over the longer 
term, Vietnam needs to undertake serious reforms of its powerful 
State Owned Enterprises (SOEs) to ensure long-term economic growth. 
 
 
Embassy Staffing and the Real Estate Crunch 
------------------------------------------- 
 
¶9. (SBU) The increasingly strong diplomatic and trade relations, the 
greater importance of Vietnam on the world stage, and burgeoning 
U.S. assistance has resulted in significant staff growth that 
promises to continue for the foreseeable future.  Staffing has 
increased by more than one third over the last four years, and is 
projected to increase by the same amount over the next five. 
 
¶10. (SBU) The Embassy has long since out-grown its current Chancery, 
which was provided to us as a "temporary" building in 1995 until a 
more permanent site was obtained.  Consular, PAS, GSO, CDC, HHS, DOD 
PEPFAR, FCS, FAS, and Treasury operations are located in an Annex 
called the Rose Garden, around the corner from the Chancery; USAID 
is located in the Tung Shing building, 20 minutes driving time from 
the Chancery.  We have now reached the space limitations of these 
two annexes as well, and the Chancery is filled beyond capacity.  In 
order to relieve the over-crowding and provide space for current and 
future growth, while maintaining programmatic integrity, the Embassy 
is seeking to collocate the PEPFAR and assistance agencies (USAID, 
CDC, HHS, and DOD PEPFAR) in a new office building.  The 
over-heating economy and lack of infrastructure, however, have 
combined to make available space exceedingly difficult to find. 
Currently in Hanoi, 98.6% of office space is occupied.  Considerably 
more office space is scheduled to come on line in 2010 and after, 
but continued Embassy growth means that this will come too late. 
Most of this space will be far from the Embassy in any case. 
Currently, the Embassy is evaluating two properties for rental:  the 
ITT, which is about a seven minutes drive time from the Embassy; and 
RESCO which is about eight minutes away.  The first appears to have 
too many safety issues to be practical; the second is still under 
assessment. 
 
¶11. (SBU) In addition to being over-crowded, the Chancery has a 
number of serious functional and structural problems.  The building 
was never meant to house the Embassy for more than five years (much 
less thirteen now, and what is likely to be close to twenty by the 
time the NEC has been built).  A NEC is critical to resolving these 
problems - as well as bringing, at last, all agencies under one 
roof. 
 
Ho Chi Minh City Real Estate Issues 
----------------------------------- 
 
¶12.  Sustained rapid economic growth in Ho Chi Minh City continues 
to drive rental rates up sharply -- a trend unlikely to abate for 
many years. Over the past two years, the Consulate has experienced 
an aggregate increase of 18% in their residential lease costs in a 
market already significantly more expensive than others in the 
region. Although some are hoping that the current global financial 
crisis may bring about a softening in the leased space market, our 
most recent renewals demonstrate an accelerating rate increase, 
typically in the 30% range. In order to contain spiraling lease 
costs, provide for a more stable housing base and to make more 
 
effective use of USG-owned land, the Consulate proposes developing a 
vacant property under a public-private partnership model. They have 
been working closely with both OBO and the CFO, both of which 
support the project, and understand the issue has now been put 
forward to OMB. 
 
¶13.  The market for office space in Ho Chi Minh City is even more 
costly and dramatic than that of residential.  The Consulate 
currently has eight agencies and offices located in two off-premise 
locations.  In 2006, the Consulate experienced a 32% rate increase 
for the property supporting our Public Affairs Section, FCS, FAS and 
DHS/ICE.  Last year, they experienced a 58% increase in the lease 
rate for the commercial space for the Humanitarian Resettlement 
Section, CDC, AID and DHS/CIS.  To illustrate further the direction 
the market has been headed, last month the Canadian Consulate 
renegotiated their lease and witnessed rental rates soar from USD 26 
per square meter to USD 72.  The good news is that a number of 
commercial buildings are coming on line in 2009 and the forecast is 
that there may be a (short-lived?) softening in the market.  The 
Consulate is trying to take advantage of this window of opportunity 
and is currently working with OBO to develop a Space Requirements 
Plan for consolidating all off-premise offices. 
 
Definition of HCMC Consular District Still an Issue 
--------------------------------------------- ------ 
 
¶14.  The GVN is anxious to open a consulate in Houston.  It would be 
helpful if you would reinforce our desire to open Houston as soon as 
we have regularized the consular district of our Consulate General 
in HCMC (which we proposed in 1995 should include 33 provinces and 
which the GVN currently limits to the HCMC city limits).  We have 
told the GVN we would be willing to move forward with Houston after 
a "significant" enlargement of the HCMC Consular District.  The MFA 
tells us some provincial governments and some Ministry of Public 
Security officials object to the enlargement because of concern that 
we meet with troublemakers (dissidents).  The MFA has recently 
strictly enforced the limits, denying travel, for example, to Danang 
of  a HCMC officer while allowing a Hanoi officer to make the same 
trip for the same meetings on the same day.   Deputy Secretary 
Negroponte also raised these issues when he visited Hanoi September 
¶11. 
 
What You Can Expect 
-------------------- 
 
¶15. (SBU) You can expect your interlocutors not only to be 
articulate and well informed, but also to speak in terms generally 
supportive of growth in the bilateral relationship.  As noted above, 
lingering suspicions still exist among conservatives in leadership 
about the development of closer ties with the United States, but the 
overall tenor is one of support and interest at a measured pace that 
will not upset the GVN's calibrated attempts to maintain balance 
among its other regional partners.  GVN NEC negotiators have been 
flexible on some issues (e.g., infrastructure cost), and not so 
flexible on others (e.g., agreeing to the possibility of a 99+99 
year lease).  We believe that the GVN sincerely wishes to negotiate 
an acceptable agreement with us, due to our increasingly close ties, 
as well as their desire to have a similar arrangement for their 
facilities in the United States; but they feel bound by their law, 
and to some extent, by certain agencies within the GVN. 
 
¶16. (SBU) We look forward to your visit and stand ready to do 
everything we can to make your time in Vietnam as productive as 
possible. 
 
Michalak