VZCZCXRO3597
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1349/01 3461039
ZNR UUUUU ZZH
P 111039Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8840
INFO RUEHHM/AMCONSUL HO CHI MINH 5369
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 HANOI 001349 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
HHS/OSSI/DSI PASS TO OGHA (WSTEIGER/MLVALDEZ/MABDOO) 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
USAID FOR ASIA/AA MELLIS; EAA/ASIA DSHARMA; ODP/OD KTURNER 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EAID VM
SUBJECT:  Vietnam's 2008 Consultative Group Meeting 
 
HANOI 00001349  001.2 OF 004 
 
 
¶1. (U) Summary:  Vietnam's fifteenth annual Consultative Group 
meeting took place on December 4 and 5 in Hanoi against a broader 
media backdrop of the corruption scandal that led Japan to suspend 
nearly a billion dollars in bilateral development assistance 
(septel).  The core theme throughout the dialogue was the need for 
transparency and competitiveness during a time of global economic 
difficulty.  Topics discussed include Vietnam's macroeconomic 
situation, poverty reduction, health care, aid effectiveness, 
corruption, public administration reform and climate change.  End 
Summary. 
 
¶2. (U) Vietnam's fifteenth annual Consultative Group (CG) meeting 
took place on December 4 and 5 in Hanoi.   The CG is an opportunity 
for multilateral and bilateral donors to express their positions on 
a wide range of issues directly to high level GVN representatives. 
PM Nguyen Tan Dung attended the morning of the first day, with 
Minister of Planning and Investment (MPI) Phuc and other ministers 
and vice ministers speaking on behalf of the GVN after his 
departure.  (Note: Since many countries have their President or 
Prime Minister (PM) attend only the last day of summaries and 
dinners, the PM's attendance on the morning of the first day and his 
interactive role on tough issues is a sign of GVN recognition of the 
importance of dialogue with donors. End note.) 
 
¶3. (U) In his opening remarks, the PM noted that inflation control 
had been the GVN's top priority throughout much of 2008 but that the 
focus had recently shifted to address the impact of the economic 
downturn and to meet the goals set by the National Assembly. 
Specifically, he said, the GVN would: endeavor to boost production 
and exports, especially by small and medium enterprises (SMEs); 
stimulate investment and consumption; ensure social security and 
poverty reduction; apply "flexible, suitable and effective" monetary 
policy to prevent inflation and stimulate exports; and, pursue 
better administrative reform and anti-corruption efforts, including 
improved macroeconomic forecasting and SOE monitoring.  The World 
Bank (WB) complimented the GVN on its rapid action on inflation and 
the trade imbalance earlier in the year, noting that the while 
inflation called for a monetary response, the current global 
downturn called would require a carefully balanced fiscal solution. 
 
 
MACROECONOMIC STABILITY IS TOP PRIORITY 
--------------------------------------- 
 
¶4. (U) Following opening remarks, the first session addressed 
Vietnam's socio-economic situation and policy responses.   MPI's 
Phuc presented a report on Vietnam's 2006-2010 Development Plan 
which highlighted 7.8 percent growth over the last three years and 
42 percent of GDP being produced by the private sector.  The report 
noted weaknesses in macroeconomic structuring and stability, supply 
of quality labor, infrastructure and environmental safeguards.  The 
subsequent IMF statement focused on the macroeconomic challenges in 
the year ahead by encouraging the careful balancing of growth and 
stability objectives, a more flexible exchange rate policy and a 
more conservative fiscal stance, especially with regard to 
inefficient capital projects.  The statement also called for a 
framework to address any vulnerability in the banking sector, 
improved data quality and communication and increased structural 
reforms, especially in the areas of banks and SOEs.  The lead donor 
statement echoed many of these themes, and also advocated for 
continued implementation of WTO commitments, SME support and 
increased competiveness. 
 
¶5. (U) The PM replied, "Macroeconomic stability is now our top 
priority, because without it we cannot sustain growth."  He vowed 
tight but flexible monetary and fiscal policy and an exchange rate 
that follows "supply and demand market principles to promote 
exports, growth and macroeconomic stability."  The PM promised that 
Vietnam would continue to implement its WTO commitments as well as 
any other bilateral or multilateral commitments.  He acknowledged 
concerns about transparency, saying that "we have tried but we know 
we have to do more so that investors can better understand our 
situation." 
 
¶6. (U) Individual donors then spoke on a wide range of issues. 
First to deliver remarks was the Ambassador from Japan, who 
suspended low interest loans to Vietnam pending "meaningful 
measures" on corruption (septel).  Important themes for subsequent 
 
HANOI 00001349  002.2 OF 004 
 
 
donors included increased accountability and transparency, continued 
poverty reduction efforts and the need for ongoing structural 
reforms, especially in the state sector.  The U.S. Ambassador noted 
that competitiveness and transparency are critical for Vietnam 
during a time when developing countries are forced to compete for a 
shrinking pool of investment capital.  The World Bank noted a need 
for coherence in public spending, private partnerships and faster 
implementation for infrastructure development, data transparency and 
SOE management reform and equitization.   The PM responded that, 
given the financial crisis, all measures and policies will be aimed 
at maintaining macroeconomic stability and growth. 
 
POVERTY REDUCTION SLOWS 
----------------------- 
 
¶7. (U) Following the departure of the PM, afternoon discussions 
turned to poverty reduction and health finance reform.  On poverty, 
the GVN acknowledged that poverty reduction is slowing, with the 
estimated target of 11 to 12 percent by 2010 "unlikely."  The UK led 
the donor response, complimenting the GVN on "35 million lifted out 
of poverty over the past 13 years", yet pointing out that new 
patterns of poverty are being seen in Vietnam, notably among 
increasing numbers of urban migrants, whose mobility makes them 
difficult to reach and among ethnic minorities where there are 
greater signs of hunger.  Strong coordination between ministries was 
urged, as well as targeted programming at the district and commune 
level.  Donors lauded the new Health Insurance and Unemployment 
Compensation Laws as important social safety nets for at-risk 
populations.   MPI's Phuc responded that programs were already in 
place to address ethnic minority poverty, but that urban poverty was 
a new challenge.  He cited unemployment compensation and other 
programs directed at the 61 poorest districts in which over 90% of 
populations include ethnic minorities in the mountainous areas of 
the country as critical to addressing the effects of the global 
downturn. 
 
HEALTH BUDGET ON LIFE SUPPORT 
----------------------------- 
 
¶8.   (U) The Ministry of Health (MOH) began the session by admitting 
that although health expenditures had increased, Vietnam is only 
spending 5 to 6 percent of its budget on health, far below the 10 
percent recommended by the WHO.  [Note. While the amount the GVN 
commits to health has increased, as a percentage for of GDP/person 
adjusted for inflation, the rate is flat, around 5 to 6 USD per 
person per year.  Meanwhile out-of-pocket expenses have gone through 
the roof, about 32 cents in 2000 and now over USD 43 per person per 
year. End Note]  MOH made an appeal for additional resources, citing 
needs for training, improved hospital systems and a basic health 
network to provide preventative care.  Donors praised the recent 
passage of Vietnam's first Health Insurance Law and asked for speedy 
dissemination of implementing guidance.  Many, including the U.S. 
Ambassador, spoke about the need for strengthening overall health 
systems as an important balance to complement and help sustain 
disease-specific approaches.  Donors also congratulated the GVN on 
its HIV programs, but cautioned that donor funding of approximately 
80 percent of those programs is not sustainable as Vietnam 
approaches middle income status.  The GVN responded that a budget 
increase had been discussed at the National Assembly but would not 
be possible in 2009 due to spending in other areas, but welcomed 
additional donor support for health programs. 
 
OVERALL AID EFFECTIVENESS GETS HIGH MARKS 
---------------------------------------- 
 
¶9. (U) Donors complimented the GVN for its leadership on the Hanoi 
Core Statement and for the PM's endorsement of the Accra Action 
Agenda.  The Partnership Group on Aid Effectiveness, comprised of 
both GVN and donor representatives, said that challenges remain due 
to low participation and buy-in by line ministries, difficulty 
translating GVN policies into action plans, and lack of GVN capacity 
and adequate country systems.  The Swiss representative noted that 
aid effectiveness discussions should go beyond donors and government 
to include the private sector and civil society.  The Korean 
Ambassador raised an oft-mentioned point about the GVN's need for "a 
certain confidence in the predictability of ODA," e.g., through 
multiyear commitments by donors that would enable medium and long 
term planning. 
 
HANOI 00001349  003.2 OF 004 
 
 
 
 
CORRUPTION STILL A CRITICAL ISSUE 
---------------------------- 
 
¶10.  (U) For the opening session on December 5, the GVN provided a 
summary of the annual Anti-Corruption Dialogue which took place on 
November 28.  The theme of this year's dialogue was "The Role of the 
Media in Anti-Corruption."  The GVN acknowledged the need to improve 
asset declaration requirements and transparency and to intensify 
public and mass media participation in anti-corruption efforts 
through an improved legal framework and training for journalists. 
Lead discussant Sweden, supported by the United States and many 
others, said that more must be done to achieve a substantial impact 
on corruption and that a zero tolerance policy should be 
implemented.  Switzerland said that the "collateral damage of the 
PMU 18 scandal (in which reporters who exposed a major government 
corruption case were subsequently jailed) is its devastating effect 
on the image of Vietnam."  The United States and others called for 
the amendment of the draft press law, the creation of whistleblower 
legislation, and an independent judiciary.  (Note:  A group of 
donors, including the United States, recently sent a letter to the 
Chairman of National Assembly (NA) expressing serious concern about 
the draft press law. End note)  The World Bank asked for patience on 
corruption issues, commenting that "the media must be told not to 
cross the line but to do their job and report on corruption." 
 
¶11.  (U) The Government Inspectorate (GI) responded that the U.N. 
Convention on Anti-corruption would soon be submitted to President 
for ratification and then reported to the NA.  The GI acknowledged 
that the role of public and mass media in fighting corruption is 
important, adding "we have discussed the (PMU 18) journalists before 
but I don't think you are satisfied."  MPI's Phuc said that Press 
Law being considered by NA "is to protect journalists but 
journalists have their own social responsibility." 
 
UNANIMOUS SUPPORT FOR PUBLIC ADMINISTRATION REFORM 
--------------------------------------------- ----- 
 
¶12.  (U) A vice minister from Internal Affairs delivered an update 
on Project 30, the GVN's administrative reform project, nothing that 
the task force, advisory council and working groups have been 
established.  In addition to Project 30, the Law on Civil Servants 
was recently passed and now must be implemented.  The lead donor 
statement, delivered by Ambassador Michalak, congratulated the GVN 
for undertaking Project 30 and encouraged rapid and comprehensive 
implementation.  Many donors, including the U.S., also asked Vietnam 
to consider involvement in the Extractive Industries Transparency 
Initiative, which aims to strengthen governance by improving 
transparency in revenue flows between oil, gas and mining companies 
and their host governments.  The GVN thanked the donors for their 
interest in administrative report and asked for additional support 
for the implementation of Project 30. 
 
 
DONORS PLEASED WITH CLIMATE CHANGE PLANNING 
------------------------------------------- 
 
¶13.  (U) The Ministry of Natural Resources and the Environment 
reported that the National Target Plan to Respond to Climate Change 
was formally approved by PM just days earlier.  The Plan requires a 
budget of about $115 million from now until 2015 so additional donor 
support is needed.  The GVN also reiterated its commitment to 
maintaining current emissions thresholds.  The donors, led by 
Denmark, said that a favorable response on funding and technical 
assistance would likely be forthcoming but that additional 
information on implementation of the Plan was necessary.  The donors 
also admitted that coordination amongst themselves was critical to 
moving forward. 
 
¶14. (SBU) Comment:  The GVN obtained $5.014 billion in ODA 
commitments for 2009, but that figure does not include Japanese 
loans that would bring the figure to $6 billion, compared to about 
$5.4 billion last year.  MPI's Phuc called the amount a "great 
achievement given financial difficulties," but Japan's suspension of 
soft loans undoubtedly took much of the shine off of this year's CG 
(septel).  Nevertheless, the tone of this year's CG remained largely 
amicable and productive throughout.  Donors remain optimistic about 
 
HANOI 00001349  004.2 OF 004 
 
 
Vietnam's medium to long term prospects, despite more immediate 
concerns about the effects of the financial crisis.  End comment.