VZCZCXRO1876
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1391/01 3570218
ZNR UUUUU ZZH
P 220218Z DEC 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8897
INFO RUEHHM/AMCONSUL HO CHI MINH 5417
RUEHGP/AMEMBASSY SINGAPORE 2724
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 001391 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: EINV ECON VM
SUBJECT: Vietnam: Further Effects of Global Financial Crisis 
 
REF:   A) Hanoi 1158 (Effects of U.S. Financial Crisis on VN) 
B) Hanoi 1171 (VN Stock Market Drops on Global Financial Turmoil) 
C) HCMC 972 (VN's Exporters Expect to Grow in 2009, But More 
Slowly) 
  D) Hanoi 1206 (GVN Cuts Rates on Fears of Slowdown) 
  E) Hanoi 1242 (VN Macroeconomic Update) 
F) Hanoi 1250 (VN Favors Global Solution to Financial Crisis) 
  G) Hanoi 1316 (VN Shifts Focus to Maintaining Growth) 
 
HANOI 00001391  001.2 OF 002 
 
 
 
¶1. (SBU) Summary:  The U.S. financial crisis and the resulting 
global economic slowdown continue to have ramifications in Vietnam 
(reftels).  The GVN is preparing a fiscal stimulus in response to 
growing negative economic numbers, though the size and details are 
still under consideration.  Demand in Vietnam's major labor export 
markets is weakening, and as a result, remittances from overseas 
workers are expected to decline.  Vietnamese tourism officials 
report that arrivals are falling significantly and will likely drop 
in 2009 compared to this year.  The IMF projects that Vietnam's 
economy will grow 5 percent next year and inflation fall to single 
digits.  The current account deficit will decline but remain high as 
a percentage of GDP.  The fiscal deficit will rise to 8.3 percent of 
GDP, a shortfall the GVN will likely fund domestically.  The risks 
to these projections are to the downside, the IMF says.  End 
summary. 
 
Government Preparing Fiscal Stimulus 
------------------------------------ 
 
¶2. (SBU) In response to the growing tide of negative economic news 
(reftels), the GVN recently announced a USD 1 billion stimulus 
package and now says it is considering boosting the size by 
approximately USD 5 billion more.  The original package of USD 1 
billion reportedly included money for high-priority development 
projects, including construction and housing and interest-free 
credit for state-owned distributors to make rice purchases. 
 
¶3. (SBU) According to sources at the Office of Government, an 
official announcement on the additional USD 5 billion is expected at 
the monthly cabinet meeting sometime this week.  Nonetheless, Deputy 
Prime Minister Nguyen Sinh Hung discussed the additional amount with 
a group of young businessmen on December 14, saying that the GVN 
"will use its reserve fund to support production, business and 
consumption, as well as exempt and cut down taxes to businesses, 
particularly small and medium-sized firms." He added that part of 
the package will be used to invest in rural infrastructure 
development, including the construction of schools, hospitals and 
houses for low income residents, as well as "vocational training, 
hunger eradication and poverty elimination."  Hung also said that 
the money would come from various sources, including the issuance of 
new government bonds. 
 
¶4. (SBU) Local economists are already privately voicing concerns to 
us about how the money will be spent, noting that channeling more 
money into state owned enterprises (SOEs) will result in potentially 
inefficient or unimplemented projects, a primary source of inflation 
earlier this year.  Nguyen Dinh Cung, Director of Macroeconomics for 
the Central Institute for Economic Management, told the press that 
he couldn't say "whether it is a good and effective investment - it 
depends on how the government spends and controls it."  The PM and 
several DPMs held a meeting with SOEs on December 16 to discuss 
measures to prevent economic slowdown, but many of the SOEs used 
their time to request funds from the stimulus package.  The Chairman 
of Vinatex, a state owned textile firm, took a different approach, 
suggesting that the GVN distribute stimulus funds directly to needy 
people "as is done in other countries." 
 
Foreign Demand for Vietnamese Labor Drops 
----------------------------------------- 
 
¶5. (SBU) At a December 15 Hanoi Conference on Employment and Labor 
Export, Vietnamese officials said that demand in Vietnam's major 
labor export markets has weakened as a result of the global economic 
crisis.  Factories in Taiwan, Malaysia, and Korea are reducing 
operations and are no longer providing employees with extra work, 
which usually accounts for 20 to 40 per cent of the workers' total 
income.  Some Vietnamese workers in Taiwan reportedly face the 
prospect of having their labor contracts terminated early, and some 
firms in Taiwan and Malaysia have stopped receiving workers despite 
signing contracts.  In the first 11 months of 2008, Vietnam sent 
78,700 workers overseas to its main markets.  The target for 2009 is 
 
HANOI 00001391  002.2 OF 002 
 
 
90,000 workers, but many now question the feasibility of this goal. 
A large decline in foreign worker remittances would not help 
Vietnam's relatively precarious balance of payments situation, which 
relied on remittances for an estimated $8 billion in foreign 
exchange payments in 2008. 
 
Tourism Falls 
------------- 
 
¶6. (SBU) Another source of needed foreign exchange earnings -tourism 
- is also declining as a result of the global economic downturn. 
International tourist arrivals have been falling over recent months, 
with October bringing 300,000 visitors, a drop of almost 12 percent 
compared to October of last year.  November arrivals were down 22 
percent year on year, although part of this decline may have been 
due to airport closures in Bangkok.  Tourism operators note that 
clients from the United States and Europe are increasingly scarce 
compared to years past.  The Minister for Culture, Sports and 
Tourism warns that the tourism sector, which employs more than 10 
percent of Vietnam's workforce, is facing zero or possibly negative 
growth in 2009.  The Vietnam National Administration of Tourism is 
more pessimistic, projecting that arrivals will fall 20 to 30 
percent compared to 2008. 
 
IMF Projects 2009 Growth of 5 Percent 
------------------------------------- 
 
¶7. (SBU) In a December 18 briefing for the diplomatic corps at the 
conclusion of annual Article IV Consultations, IMF Assistant 
Director in the Asia and Pacific Department Shogo Ishii said the IMF 
projects that Vietnam's economy will grow by 5 percent in 2009 and 
year on year inflation will fall to single digits by year end.  The 
current account deficit is forecasted to drop with very rapidly 
declining imports offsetting lower exports, FDI, and private 
remittances.  However, the current account deficit will remain at a 
high level (9 percent of GDP) and remains a source of vulnerability 
given Vietnam's relatively low 3 months of international reserves to 
import cover.  The IMF said that risks to these projections are 
primarily on the downside given likely further drops in global 
economic growth. 
 
¶8. (SBU) The IMF projects that the GVN's fiscal deficit (using 
international standards) will rise significantly to 8.3 percent of 
GDP in 2009 given falling tax revenues.  The GVN told the IMF it 
will fund the shortfall domestically, probably through bond 
issuance.  The Ministry of Planning and Investment (MPI) tells us 
that funding will come from several sources, including disbursed 
ODA.  This budget projection does not include the $6 billion in 
announced fiscal stimulus.  The IMF said the GVN did not ask for 
advice on the stimulus package and the IMF believes its size, 
details, and funding are still under debate.  The IMF representative 
noted that fiscal stimulus could lead to increased imports and 
pressure Vietnam's balance of payments.  The IMF cautioned the GVN 
about further monetary policy easing and the impact it could have on 
the exchange rate.  [Note: Per reftels, the GVN has dramatically 
dropped its base interest rate, now at 8.5 percent, and cut banks' 
required reserve ratios in the last two months. End note.]  It also 
emphasized that the GVN should be prepared to deal with any banking 
system strains as non-performing loans are expected to increase in 
¶2009. 
 
Michalak