VZCZCXRO3746
PP RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHHI #0569/01 1700923
ZNR UUUUU ZZH
P 190923Z JUN 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 9782
INFO RUEHHM/AMCONSUL HO CHI MINH 5945
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC

UNCLAS SECTION 01 OF 02 HANOI 000569 
 
SIPDIS 
 
STATE FOR EAP/MLS MBROWN 
SINGAPORE FOR TREASURY 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
USAID FOR DAA/ASIA MELLIS AND EAA DSHARMA 
 
E.O. 12958: N/A 
TAGS: EINV ETRD ECON KCOR VM
 
SUBJECT: RED TAPE GRIPES AGAIN DOMINATE VIETNAM'S DISCUSSIONS WITH 
THE PRIVATE SECTOR 
 
REF: A) Hanoi 50 (Assistance as Window of Opportunity); 
B) 08 Hanoi 1329 ("Private Sector Tells Vietnam") 
 
HANOI 00000569  001.2 OF 002 
 
 
¶1. (U) Summary:  At a semi-annual meeting between the Government and 
the private sector, local and international businesses criticized 
Vietnam's multiple administrative hurdles, inefficient tax regime, 
and lack of transparency as they recommended ways to speed up 
investment in the banking, mining and tourism sectors.  GVN 
officials acknowledged most of the criticism, but did not make 
specific commitments to address the problems raised. Many other 
sectors, including some Vietnamese business associations, are 
clamoring to join the VBF, one of the few such fora for frank 
exchanges with the GVN.  End Summary. 
 
ADMINISTRATIVE REFORM AT THE TOP OF THE AGENDA 
--------------------------------------------- - 
 
¶2. (U) The need to cut inefficient and unnecessary administrative 
procedures was a major theme throughout the June 2 Vietnam Business 
Forum (VBF) in Ho Chi Minh City, hosted by the World Bank and 
Vietnam's Ministry of Planning and Investment (MPI) in conjunction 
with the mid-term Consultative Group meeting (between the donors and 
the GVN).  "For many foreign companies, the complexity of 
administrative procedures and the sometimes uncoordinated and 
inconsistent implementation of laws and regulations between 
different authorities can present a serious hindrance to running a 
successful business in Vietnam," the head of the EU Chamber of 
Commerce, told the audience, which included dozens of Government of 
Vietnam (GVN) officials, including ministry heads.  AmCham once 
again raised widespread corruption as one of the biggest taints on 
Vietnam's reputation.  All of the chambers of commerce, 
international and local, requested increased transparency. 
 
ADMINISTRATIVE REFORM EFFORTS 
----------------------------- 
 
¶3. (U) A presentation on Project 30 --a Prime Minister-led 
administrative reform effort supported by the USG designed to 
improve the business investment climate (REF A)-- listed the most 
egregious cases of red tape, such as import and investment 
licensing, and notarization of foreign documents, as examples where 
immediate remedial action could be taken.  One of the most 
interesting presentations was by the (all Vietnamese) Young Business 
Organization (YBO) of Dong Nai, in southern Vietnam.  They called 
for: 
 
--clearer bankruptcy procedures (the World Bank reports bankruptcy 
proceedings in Vietnam take an average of 5 years, with creditors 
recovering only 18% of what they are owed); 
 
--streamlined procedures for setting up new businesses 
(environmental and safety requirements are particularly hard on 
small and medium sized enterprises, he noted); 
 
--improved "equitization" (partial privatization of state-owned 
assets) rules (the YBO asserted that 75% of Vietnamese businesses 
will not buy stocks from State Owned Enterprises (SOE)); and 
 
-- the promulgation of a Freedom of Association law to clarify the 
rules to set up businesses and trade unions.  This last call was 
echoed by the (again all Vietnamese) Ho Chi Minh City Union of 
Business Associations. 
 
PLEA FOR TAX CERTAINTY 
---------------------- 
 
¶4. (U) The private sector representatives cited the lack of tax 
certainty and the heavy tax burden as two of the biggest 
disincentives to doing business in Vietnam.  AmCham urged the GVN to 
manage its tax policy with more clarity, predictability and 
efficiency.  The current sliding scale nature of the local tax 
regime creates an unstable market for investment, according to many 
business leaders.  "With many of our members shouldering effective 
tax burdens of up to 50% or more, we believe that further 
improvement is both possible and necessary in order to further 
stimulate economic activity," the EuroCham President stated. 
Recommendations included providing tax incentives to promote private 
insurance, clarifying real estate taxes, lifting or removing the cap 
on advertising and promotional expense deductions, and easing the 
tax burden for those living in Vietnam for less than one year and on 
income generated outside Vietnam.  Minister of Planning and 
 
HANOI 00000569  002.2 OF 002 
 
 
Investment Vo Hong Phuc acknowledged that last year's tax law was 
"unrealistic in some areas."  He added that investment in Vietnam 
faced two "bottlenecks:" infrastructure and human resources.  To 
address this, he said, the GVN is reviewing the financing of 
education, and working to improve cooperation with provincial and 
local governments. 
 
BANKING 
-------- 
 
¶5. (U) The Banking Working Group (BWG), representing more than 30 
international financial companies operating in Vietnam, urged the 
GVN to flesh out its long term plans for foreign investment in this 
sector.  "There is a need for clarity on quantum [of ownership] and 
timing of further increase in shareholding," the BWG Chairman, who 
is also Standard & Chartered Bank's top official in Vietnam, stated. 
 Additionally, the BWG recommended that the GVN set up an accredited 
rating agency in Vietnam, which would considerably ease capital 
raising through corporate bonds and commercial paper.  Vice Finance 
Minister Tran Xuan Ha responded that his Ministry was reviewing the 
Securities Law and would pass proposed revisions to the National 
Assembly in 2011. He reaffirmed the GVN's commitment to "equitizing" 
Vietnam's SOEs as stated in the Road Map to 2010 approved by the 
Prime Minister, but acknowledged that "progress has been slow."  He 
said the BWG's proposal for a pension fund was "in line with the 
development of intermediary institutions" and committed to study the 
concept. He also noted that Vietnam's stock market would be open for 
an additional 15 minutes in the morning and that a pilot program 
would begin soon to test the utility of an afternoon session. The 
State Bank of Vietnam publicly endorsed many of the BWG's 
recommendations, but then noted that the issues were the purview of 
the Ministry of Finance. 
 
MINING INVESTORS DETERRED 
-------------------------- 
 
¶6. (U) The Mining Working Group (MWG) asserted that Vietnam's mining 
sector is the most heavily taxed in the world (particularly because 
most taxes are production rather than profit based) and blamed lack 
of investment in the sector on policy inconsistency.  The Ministry 
of Finance responded unequivocally that the GVN considered minerals 
"non-renewable resources and does not encourage their export."  The 
Ministry of Natural Resources and Environment's Department of 
Geology announced that the terms of exploration would be increased 
from 24 to 36 months, and per the recommendations of the MWG would 
be extendable (additional information is available on dgmr.gov.vn). 
 
CHANGES IN VISA POLICIES TO ATTRACT MORE VISITORS 
--------------------------------------------- ---- 
 
¶7. (U) The Tourism Working Group (TWG) asked the GVN to dramatically 
improve the current "visa on arrival" procedures for nationals from 
the United States, Hong Kong, Taiwan, Australia, France, Canada and 
other countries that have a "long standing commitment to Vietnam and 
can help provide for economic growth."  The TWG described current 
procedures as "complicated, mysterious and intimidating," and said 
that Vietnam finds itself at a disadvantage with neighboring 
countries with laxer visa entry policies like Thailand, Indonesia, 
and Malaysia. Furthermore, the TWG suggested that the GVN create a 
visitor's bureau and undergo a comprehensive sales and marketing 
campaign to rebrand Vietnam as a tourism destination. 
 
COMMENT: FOLLOW UP IS KEY 
------------------------- 
 
¶8. (U) The GVN officials acknowledged most of the criticism leveled 
at the Government.  Although, as is customary at these meetings, the 
GVN did not commit to specific action it did not refute the 
criticism either.  The semi-annual Business Forum is rapidly 
becoming the preeminent venue for airing complaints and making 
recommendations to the GVN.  Where it can, the GVN does its best to 
follow up -- such as suspending the new personal income tax after it 
drew sharp criticism at the last VBF.  However, some of the most 
oft-cited problems, like the lack of transparency and infrastructure 
development, have no easy fixes.  The private sector is wise to keep 
pressing these issues nonetheless and hold the GVN accountable 
before this public and, often effective, forum. 
 
¶9. (U) This telegram was coordinated with ConGen HCMC. 
 
PALMER