VZCZCXRO9151
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1329/01 3400812
ZNR UUUUU ZZH
P 050812Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8809
INFO RUEHHM/AMCONSUL HO CHI MINH 5342
RUEHGP/AMEMBASSY SINGAPORE 2717
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 001329 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: EINV ECON EIND ELAB ENRG KCOR VM
 
SUBJECT: PRIVATE SECTOR TELLS VIETNAM TO RAISE ITS GAME DURING 
ECONOMIC SLOWDOWN 
 
REF: A) Hanoi 1316 ("Vietnam Shifts Focus"); 
B) Hanoi 1251 ("Addressing The Economic Agenda"); 
C) Hanoi 1201 ("Econ Highlights: Power Generation") 
 
HANOI 00001329  001.2 OF 002 
 
 
¶1. (U) Summary:  Local and foreign businesses told the Government of 
Vietnam to streamline red tape, intensify consultations with the 
private sector, accelerate investment licensing and shore up its 
competitiveness as ways to blunt the impact of the global economic 
crisis.  The mining and energy sectors, in particular, gave the GVN 
a long list of specific recommendations and low marks on its efforts 
thus far to improve the business climate in their sectors.  For the 
most part, the GVN took note of the advice without committing itself 
to action.  The discussions were part of the twice-yearly Vietnam 
Business Forum, hosted by the World Bank and the GVN to elicit 
private sector advice.  End summary. 
 
PREDICTABILITY, CERTAINTY AND TRANSPARENCY 
------------------------------------------ 
 
¶2. (U) The private sector's message to the GVN centered on how to 
make the best of the economic crisis that is already being felt in 
Vietnam (REF A).  Nearly all sectors which presented papers at the 
Vietnam Business Forum (VBF) stressed the need for the GVN to 
improve its decision-making process.  They cited the lack of 
transparency in how decisions are made, the poor communication 
between decision-makers and those affected and between 
decision-makers themselves, and the uncertainty of GVN policies. 
 
¶3. (U) The mining group, perhaps the sector most affected by the 
slew of regulations and taxes that the GVN has sprung on them (REF 
B), said that a rapid series of decisions "had changed the economic 
landscape" for them.  "Compounding these concerns is the speed of 
implementation and the lack of dialogue with affected stakeholders," 
Robert Guest, from Asian Mineral Resources and head of the Mining 
Group, told the VBF panel of ministers, vice ministers, and 
provincial government officials.  The U.S., Australian, and European 
chambers of commerce echoed those sentiments.  "Our members would 
welcome better and more regular communication between [the GVN] and 
the business community regarding the application of laws and 
regulations, including consistent messages and coordination across 
different ministries and levels of government," Giles Cooper, from 
Auscham, stated. 
 
¶4. (U) Streamlining investment and other red tape-prone activities 
were also cited as key goals for the coming year.  "In 2009 and 2010 
many quality projects are likely to be competing for the same very 
limited pool of money," warned the Infrastructure Working Group. 
Many presenters warned that the current pace of telecom regulation, 
investment licensing, a roadmap for the banking sector and 
state-owned privatization were too slow and would drive investment 
elsewhere. 
 
CALLS FOR INCREASED SPENDING ON INFRASTRUCTURE 
--------------------------------------------- 
 
¶5. (U) Many of the participants urged the GVN to ramp up 
infrastructure projects, which they claimed would bring in foreign 
investment and stimulate the local economy.  Both the Manufacturing 
and Infrastructure Working Groups said that Vietnam could not afford 
to sit on long-pending licenses for power generation, telecom, 
transportation and other foreign investment projects (REF B). 
"Infrastructure was at a critical point in holding back growth in 
Vietnam," Tony Foster, from the Freshfields law firm and head of the 
Infrastructure Group, said.  "As a result of the world financial 
crisis, the position could become worse."  The group recommended, 
among other things, that the GVN create a single-window entity to 
deal with all investment licensing and speed up approvals. 
 
¶6. (U) The Infrastructure Group also restated the energy industry's 
calls for higher retail electricity tariffs to make new capital 
investment in power generation possible.  The GVN acknowledged that 
it needed investment in power generation, but countered that its 
"energy roadmap" was on track despite the travails of cash-strapped 
state-owned Electricity of Vietnam (REF C).  The Manufacturing 
Working Group suggested relaxing infrastructure investment 
regulations and a government stimulus package as ways to overcome 
the lack of capital for these projects. 
 
FINANCIAL SECTOR CALLS FOR TRANSPARENCY 
 
HANOI 00001329  002.2 OF 002 
 
 
--------------------------------------- 
 
¶7. (U) Both the Bank and Capital Markets Working Groups called for 
increased transparency from the GVN, especially in the areas of 
banking and macroeconomic data.  Both groups also requested that 
foreign ownership limits be increased and applicable regulations 
clarified.  The Bank Group also asked about possible legislation to 
facilitate mergers of 10 to 15 small, troubled joint stock banks. 
The Capital Markets Group pushed for decreased state ownership and 
better disclosure requirements, especially on related party 
transactions. 
 
¶8.  (SBU) While recent interest rate cuts were lauded, the interest 
rate cap was criticized for preventing risk-based pricing.  State 
Bank of Vietnam (SBV) Deputy Governor Nguyen Van Binh acknowledged 
the difficulties caused by the cap and said that he hoped the 
National Assembly would soon take action to remove it.  (Note:  The 
cap is part of the Civil Code and cannot be removed by the SBV. 
Sources within the GVN indicate that the GVN is nearing a consensus 
on this issue and there will soon be action by the National 
Assembly.)  Binh also said the SBV was re-examining the issue of 
foreign ownership caps and would submit suggestions to the Prime 
Minister. 
 
INVESTMENT IN EDUCATION AND TOURISM 
------------------------------- 
 
¶9. (U) Both the Tourism and Education groups highlighted the 
comparative disadvantages of Vietnam vis-a-vis its neighbors.  In 
education, the group compared Vietnam with Malaysia to make the case 
that Vietnam's proposed education investment regulations were 
needlessly restrictive and self-defeating.  The tourism sector 
pointed to how visa regulations made it much harder to visit and 
work in Vietnam than in neighboring countries. 
 
RISING COSTS AND OTHER DISINCENTIVES 
----------------------------- 
¶10. (U) The private sector also mentioned that Vietnam's rising 
costs, in particular, personal income tax rates and labor, was 
eroding its competitiveness.  The new personal income tax law, which 
will come into effect in 2009 and taxes employee benefits, came 
under fire from the Eurocham.  Many expatriate workers are concerned 
that these rising taxes may drive foreign managers to commute from 
neighboring countries.  Like at the previous VBF in June, AmCham 
focused on the challenges of rising labor costs and illegal strikes, 
and asked for a moratorium on minimum wage increases. 
 
COMMENT: THE WORD IS REFORM 
--------------------- 
 
¶11. (SBU) Comment:  The private sector offered many specific 
recommendations and the overall message of continuing to reform and 
modernize Vietnam's economic institutions and laws was unmistakable. 
 In choosing to frame the urgency of improving the business climate 
against the backdrop of the economic crisis, the private sector 
deftly made its case for GVN action.  Although the GVN remained 
silent throughout most exchanges, its track record shows that it 
will seriously consider these recommendations.  End Comment. 
 
 
MICHALAK