VZCZCXRO3432
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0329/01 0991010
ZNR UUUUU ZZH
P 091010Z APR 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 9468
INFO RUEHHM/AMCONSUL HO CHI MINH 5770
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000329 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: ECON EAID ETRD EINV ELAB PGOV SOCI VM
SUBJECT: VIETNAM POVERTY REDUCTION SURVIVING ECONOMIC DOWNTURN 
 
REF: A) 08 Hanoi 37 ("Slower Economic Growth, High Inflation"); 08 
Hanoi 377 ("Prime Minister Declares War on Inflation"); 
B) 08 Hanoi 206 ("Frozen Assets: Record Cold Snap Harms Crops, 
Livestock, Economy"); 
C) Hanoi 1391 ("Further Effects of the U.S. Financial Crisis"); 
D) Hanoi 241 ("Financial Crisis Causing Increased Unemployment"); 
HCMC 11 ("Falling Demand Prompts Factory Closings") 
 
HANOI 00000329  001.2 OF 002 
 
 
¶1. (U) Summary: Despite high inflation and the global economic 
crisis, Vietnam managed to bring down poverty levels in 2008 to 
13.1% from 14.7% the previous year.  Vietnam has made dramatic 
strides in poverty reduction since it began to adopt market economy 
policies.    As the global financial crisis continues and Vietnam 
faces rising unemployment and economic hardship, there is increasing 
concern that hard-won anti-poverty gains may begin to slip. 
However, there is little evidence to date that the poverty rate in 
Vietnam is increasing.  In addition, the "poorest of the poor," 
already at subsistence levels, are unlikely to sink much lower.  At 
greatest risk are the new middle class and those workers who left 
agricultural areas to work in factories and are now losing their 
jobs.  Most experts believe that overall poverty levels will 
continue to fall in Vietnam in 2009, albeit at a slower rate than in 
recent years, due to continuing GVN efforts to address this problem. 
 End Summary. 
 
AMBITIOUS POVERTY REDUCTION 
--------------------------- 
 
¶2. (U) Although the Government of Vietnam (GVN) fell short of its 
ambitious poverty reduction target of 12% for 2008, it still saw a 
significant decline in the poverty levels from 14.7% to 13.1%.  This 
was a remarkable achievement in a year filled with high inflation, 
economic problems (REF A) and natural disasters (REF B).  GVN 
efforts played an important role in this success.  State budget 
investment in poverty reduction and job-creation programs increased 
by 20% in 2008, and the budget for direct social security assistance 
reached $1.1 billion.  In spite of continuing economic challenges 
(REF C), the GVN is again hoping to cut down poverty in 2009, to 
12%.  Officials from the Labor Ministry (MOLISA) told EconOff they 
are optimistic this goal can be reached.  Most experts, including 
locally-based World Bank poverty reduction experts, believe that 
overall poverty levels will continue to fall in Vietnam, albeit at a 
slower rate than in recent years. 
 
¶3. (U) While the overall rate may decline, certain groups are less 
likely to see progress.  Unregistered or temporarily registered 
migrants who have come to work in urban areas are among those 
vulnerable to slipping back into poverty.   World Bank poverty 
reduction experts told Econoff that this group is likely to increase 
as job losses continue.  Vulnerability in job security is a key risk 
factor for poverty. 
 
ECONOMIC CRISIS THREATENS GAINS 
------------------------------- 
 
¶4. (U) Vietnam's poverty reduction efforts face significant 
challenges as the result of the global economic crisis.  As GDP 
declines and unemployment rises, Vietnamese workers are at risk. 
MOLISA expects 400,000 people to lose their jobs this year (REF D). 
The traditional path out of poverty has been for workers to leave 
rural areas and farming and take salaried positions at factories in 
urban areas.  If these factories close or fire significant number of 
workers, this pattern will reverse and there will be a flow of 
people back to countryside. 
 
¶5. (U) Not only are jobs being lost, but the number of new jobs 
being created is falling as well.  Mr. Vu Trung Chinh, Director of 
the Hanoi Job Promotion Center, told EconOff that at the beginning 
of 2009, his center had only three to four thousand job vacancies 
compared to six to seven thousand at the beginning of 2008.  Labor 
Minister Nguyen Thi Kim Ngan said publically that the anticipated 
target of 1.7 million new jobs in 2009 may not be achieved. 
 
MIDDLE CLASS SUCCESS AT RISK 
--------------------------- 
 
¶6. (U) Vietnam's urban middle class (those making between $4,200 to 
$6,000 a year) grew by 77 percent from 1999 to 2006, according to 
TNS Media, the country's leading consumer trends research group. 
TNS's latest study shows that over a third of urban households now 
 
HANOI 00000329  002.2 OF 002 
 
 
earn more than $6,000 per year.  World Bank experts said that if 
unemployment rises even the middle class could find itself 
backsliding into poverty. 
 
HOW ROBUST IS VIETNAM'S POVERTY REDUCTION ANYWAY? 
--------------------------------------------- ---- 
 
¶7. (U) It is important to keep in mind that the GVN has a relatively 
low bar for its poverty threshold. The poverty line for an 
individual living in a rural area is approximately 40 cents per day 
and in urban areas is approximately  50 cents per day.  These low 
levels of income are vulnerable to inflation.  The GVN has been 
considering raising the poverty threshold to 57 cents per day for 
those living in rural areas and 73 cents per day for those in urban 
settings to reflect inflationary pressures.  According to MOLISA, if 
the proposal is approved, the poverty rate would increase to between 
16% and 17%. 
 
¶8. (U) The World Bank uses definition of poverty as $1.25 per day, 
based on the GDP per capita, adjusted in terms of purchasing power 
parity.  Using this standard, the number of people in Vietnam 
earning less than $1.25 makes up 21.5% of the population.  According 
to the 2008 Vietnam World Bank Development Report, the poverty rate 
dropped from 58.1% in 1993 to 37.4% in 1998, 28.9% cent in 2002, and 
19.5% in 2004. 
 
COMMENT: STILL A SUCCESS STORY AND A HOPEFUL OUTLOOK 
--------------------------------------------- ------- 
 
¶10. (U) Comment:  If Vietnam can manage some GDP growth this year 
and avoid massive unemployment, the GVN should be able to forestall 
an increase in the poverty rate.  Moreover, the GVN should be 
commended for its honesty in factoring in inflation and possibly 
raising the poverty threshold, even when it knows doing so will send 
its poverty numbers higher. End Comment. 
 
MICHALAK