R 161024Z MAR 09
FM AMEMBASSY HANOI
TO SECSTATE WASHDC 9331
INFO AMCONSUL HO CHI MINH 
ASEAN MEMBER COLLECTIVE
DEPT OF TREASURY WASHINGTON DC

UNCLAS HANOI 000241 
 
 
USTR FOR DBISBEE;LKARESH 
STATE FOR EAP/MLS MBROWN 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EAID EINV ELAB VM
SUBJECT: FINANCIAL CRISIS CAUSING INCREASED UNEMPLOYMENT; FULL 
IMPACT STILL UNCLEAR 
 
REF:  A) Hanoi 205 ("Summer if Sink-or-Swim Time for Exporters") 
 B) 09HO CHI MINH CITY 11 ("Falling Demand Prompts Factory Closings") 
 C) Hanoi 1391 ("Further Effects of The U.S. Financial Crisis") 
 
¶1.  (SBU) Summary:  The global economic slowdown and declining 
Foreign Direct Investment (FDI) is increasingly affecting Vietnam's 
economy, including employment levels.  The Government of Vietnam 
(GVN) says unemployment is rising and labor officials predict that 
up to 400,000 workers in the formal sector may lose their jobs in 
¶2009.  Another government source estimates the total could be much 
higher.  The formal employment sector in Vietnam includes only those 
workers, which number about 9 million, employed by foreign 
enterprises, SOEs, and private Vietnamese companies.  Over 80 
percent of the Vietnamese labor force is still employed in the 
informal sector, the vast majority working in agriculture.  Contacts 
in the private sector indicate that while they are not seeing 
massive layoffs at this point, the full effect on employment of the 
economic crisis will become clearer over the next several months. 
The GVN is responding with unemployment insurance, support for 
severance payments, and added efforts to boost labor exports. 
Unfortunately, a lack of reliable data hampers the GVN's ability to 
assess the unemployment situation accurately and limited 
administrative capacity hinders its ability to develop effective 
interventions.  The GVN expects that since the majority of workers 
who will lose their jobs come from rural areas, they will simply 
return home and be absorbed by the agricultural sector or will find 
other forms of informal employment.  End Summary. 
 
Labor Force Structure; FDI Workers Most Affected 
--------------------------------------------- --- 
 
¶2. (SBU) According to GVN estimates, about 80 percent of Vietnam's 
45 million person labor force works in the informal sector, the vast 
majority in agriculture as small farmers.  (Note:  The GVN's 
statistical collection and analytical capabilities on labor are weak 
and its statistics should be viewed in that light.)  MOLISA says the 
formal sector comprises 9 million workers.  Approximately 2 million 
are currently working for Foreign Direct Investment (FDI) 
enterprises, 2 million are employed by state owned enterprises 
(SOEs), and 5 million are employed by the private domestic sector. 
According to the Central Institute of Economic Management (CIEM), 
which is part of the Ministry of Industry and Trade (MOIT), the 2 
million SOE employees will remain employed because the GVN has told 
the SOEs that they cannot lay off any employees during the downturn. 
 CIEM believes the 5 million Vietnamese employed in the private 
domestic sector will be buffered from the global economic downturn 
since 70 percent of their production is for domestic consumption, 
which CIEM expects will be less affected by the global downturn. 
 
¶3. (SBU) CIEM officials estimate the impact of job losses will be 
most severe on workers of FDI enterprises dependent on export 
contracts, especially in the industrial zones in the southern part 
of the country.  Employees working in furniture, textiles, footwear, 
food processing, and electronics (sectors heavily affected by 
decreasing demand for exports) will be those most at risk. 
 
Unemployment Rising but Projections for the Year Vary 
--------------------------------------------- -------- 
 
¶4. (SBU) MOLISA recently announced that according to their latest 
unemployment projections, approximately 400,000 formal sector 
workers may lose their jobs in 2009.  This would mean an 
unemployment rate of approximately 10 percent in this sector. 
MOLISA reports that 66,700 workers had been laid off nationwide as 
of January 23.  To date, Ho Chi Minh City ranks first with 19,000 
workers losing jobs in January, followed by Hanoi with a job loss of 
nearly 10,000.  The southern provinces of Dong Nai and Binh Duong 
also had significant losses of 8,000 to 9,000 per province in 
January.  CIEM recently told Econoff that employment losses will be 
much more, and projects a potential loss of over 1 million jobs.  At 
a March 6 meeting with the Ambassador, the Vice Chairman of the 
Vietnam Chamber of Commerce and Industry (VCCI), Vietnam's largest 
private business association, said VCCI estimated 400,000 to 1 
million job losses this year. 
 
¶5. (U) Econoff recently checked with representatives of some of 
Vietnam's most important export industries (Ref A).  They reported 
significant drops in overseas orders and acknowledged that smaller 
factories have begun to close.  However, job losses in these 
industries have not reached the dire levels some were predicting 
earlier this year.  Still, they said they will face an inflection 
point beginning in several months as they fill existing orders and 
have to decide whether to significantly cut costs and workers if 
they do not receive new ones.  Business representatives recently 
told the Consulate in Ho Chi Minh City (septel) that while some 
export-oriented companies have let workers go, others are hiring 
significant numbers of new laborers.  The American Chamber of 
Commerce in Hanoi said last week that a membership survey found that 
while 20 percent of firms expect to lay off workers this year, 40 
percent plan to hire new staff. 
 
What Will Happen to the Workers? 
-------------------------------- 
 
¶6. (SBU) MOLISA told Econoff that it anticipates most of the 
laid-off workers who come to industrial zones from rural areas will 
simply return home if no other jobs are available.  The returning 
workers will be absorbed by the agricultural sector and supported by 
their families, or may find other types of informal employment, such 
as helping in shops or selling small goods.  CIEM officials share 
MOLISA's views that unemployed workers will return to the 
agricultural sector or find employment in the informal sector. 
Nevertheless, CIEM predicts significant declines in the standard of 
living of agricultural households if family members employed in 
factories lose their jobs and are no longer able to send money home. 
 While people will be able to survive, there will be fewer funds 
available for education, healthcare, and transportation and 
unnecessary spending will be eliminated.  According to CIEM, the 
Vietnamese people understand this and will adjust to the new 
situation.  Others, such as Nguyen Quang A from the Institute for 
Development Studies, inject a note of caution, arguing that land-use 
disputes may increase in number and intensity as unemployed workers 
return home, particularly in semi-rural provinces neighboring 
Vietnam's larger industrial areas. 
 
Rural Provinces:  Business as Usual 
----------------------------------- 
 
¶7. (U) A February provincial trip by Embassy officers highlighted 
the dichotomy of the employment effect of the global economic crisis 
on the formal and informal employment sectors in Vietnam. 
Government leaders in two rural provinces in the Central Highlands 
did not report a sharp increase in unemployment nor were they seeing 
large numbers of workers migrating into or out of the provinces. 
While local officials were aware of Vietnam's economic difficulties, 
they did not anticipate serious labor issues or social problems in 
their provinces.  They noted that provinces with little FDI and few 
or no industrial zones may be in a better position to protect 
workers from job loss. 
 
¶8. (U) Local businesses, including transportation companies, coffee 
and furniture producers, and organic flower and vegetable growers in 
these provinces did not anticipate laying off workers.  Demand 
remains stable for goods and services being provided to the domestic 
market. Exporters to Japan and Europe were not yet seeing decreases 
in orders.  In fact, one company reported increased flower exports 
to Japan since domestic Japanese flower producers were going out of 
business. 
 
GVN Response: Multiple Approaches 
--------------------------------- 
 
¶9. (U) The GVN is applying several different remedies to mitigate 
the effects of rising unemployment.  First, MOLISA is pursuing 
expansion of labor exports. Vietnam currently has a total of 
approximately 500,000 laborers overseas, most working in 
agriculture, construction, and fishing. Remittances from export 
laborers for 2008 were estimated to be USD 1.6 billion. 
Approximately 85,000 workers went overseas in 2008 and the GVN has a 
2009 target of 90,000, which it still hopes to meet in spite of the 
economic downturn.  While key countries such as Taiwan, Japan and 
South Korea are reducing the numbers of export laborers accepted and 
even returning some to Vietnam prematurely, the GVN hopes to 
identify other destinations still needing workers, including 
countries in the Middle East. 
 
¶10. (U) The GVN has also decided to provide assistance to the 
unemployed by supporting those enterprises that are forced to lay 
off workers.  For those enterprises forced to reduce workers by 30 
percent or enterprises losing 100 or more workers, the Vietnam 
Development Bank will make loans available at 0 percent interest. 
These loans can be used to maintain business operations and to 
provide termination payments to departing workers equal to two weeks 
salary for each year worked. 
 
¶11. (U) Finally, the GVN is moving forward with implementation of 
Labor Code reforms initially passed in 2006, though these measures 
will not apply to all workers and will not provide benefits this 
year to those laid off.  The new laws, which went into effect on 
January 1, 2009, create unemployment insurance for employees who 
lose their jobs or terminate their labor contracts.  For employees 
to receive unemployment insurance benefits they must fulfill three 
requirements.  First, only workers with employers with at least 10 
employees will be eligible for benefits.  Second, the employee must 
have an official labor contract with terms of at least 12 months. 
Third, the employee must have contributed to the unemployment 
insurance fund for at least twelve months before being unemployed. 
Since Vietnam only began collecting for the fund in 2009, employees 
can only receive their allowances in 2010 at the earliest and only 
if they meet the other qualifications. 
 
¶12. (SBU) Comment:  While estimates of unemployment vary, the 
message from our contacts is the same: the GVN will take actions to 
assist unemployed workers but is counting on the agricultural sector 
to absorb unemployed industrial workers, as well as the ability of 
informal laborers to find new types of employment.  This is a 
reasonable calculation, but it is premised on the assumption that 
there are adequate land and employment opportunities in the 
villages.  At this point, we do not see any significant indication 
that growing unemployment has led to social instability. 
Nevertheless, while apparently satisfied with its response so far, 
Vietnam's government and Party will be keen to forestall any 
possibility of unrest.  End comment. 
 
¶13. (U) This cable was coordinated with ConGen HCMC. 
 
MICHALAK