VZCZCXRO9981
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #1392/01 3520902
ZNR UUUUU ZZH
R 180901Z DEC 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 0616
INFO ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 0289

UNCLAS SECTION 01 OF 04 HANOI 001392 
 
SENSITIVE 
SIPDIS 
STATE PASS USTR FOR DBISBEE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINT KTDB VM
SUBJECT: VIETNAM'S NATIONAL ASSEMBLY SESSION SHOWS INCREASING BUT 
STILL LIMITED INFLUENCE 
 
REF: 09 HANOI 1234 
 
¶1. (SBU) Summary and comment.  The 12th National Assembly's (NA) 
6th month-long legislative session, closing at the end of November, 
set Vietnam's key social and economic targets, including for the 
2010 State Budget.  The legislature passed seven laws, including 
the Law on Royalty Tax and the Law on Telecommunications, and 
discussed ten other draft bills.  Stimulus measures to address the 
global financial crisis were hotly debated, as was a report on the 
management of state capital in state-owned enterprises (SOEs), 
raising concerns about the high debt and low efficiency of these 
businesses.  The lawmakers also reviewed several national key 
projects, and approved the building of Lai Chau's hydropower plant 
and Vietnam's first nuclear plant in Ninh Thuan.  NA deputies were 
active in publicly raising their voices in criticism of poor 
socio-economic governance.  The NA's rejection of proposed 
amendments to two tax laws, as well as its success in reducing the 
Government of Vietnam's (GVN) proposed budget deficit target, show 
the NA's growing substantive influence in economic policymaking. 
However, as subsequent events showed (reftel), the executive 
branch's making of the final decisions on stimulus measures 
demonstrates that NA influence, though increasing, is still 
limited.  End summary and comment. 
 
 
 
Key Socio-Economic Targets for 2010: 6.5 Percent GDP Growth, CPI 
Growth Limited to 7 Percent 
 
 
 
¶2. (U) Headlining this session was the NA's passage of Vietnam's 
socio-economic targets for 2010, including: gross domestic product 
(GDP) growth of 6.5 percent; a consumer price index (CPI) increase 
limit of 7 percent; export growth of 6 percent; creation of 1.6 
million new jobs; and a poverty rate under 10 percent.  The 
chairman of the Economic Committee of the NA acknowledged that the 
2010 targets would pose a challenge for balancing growth promotion 
and control of inflation.  While the NA appeared optimistic about 
the GVN's current ability to control price rises, critics expressed 
concern about a return of inflation when the economy starts to pick 
up.  Other important targets included the extension of compulsory 
education to secondary grade 9 throughout Vietnam and ensuring that 
45 percent of industrial and export processing zones have water 
disposal systems that meet environmental standards.  The NA 
addressed Vietnam's energy security, passing resolutions approving 
investments in the Lai Chau hydroelectricity plant and Vietnam's 
first nuclear power project in Ninh Thuan. 
 
 
 
Target Deficit of 6.2 Percent of GDP 
 
 
 
¶3. (U) Limiting Vietnam's budget deficit was a serious NA concern. 
While the Ministry of Finance sought a 6.5 percent ceiling for the 
deficit, the majority of NA members sought to restrain the deficit 
to within 6 percent of GDP.  After much debate, a compromise 6.2 
percent deficit target was finally approved, following the 
recommendation of the NA Standing Committee.  Many NA deputies were 
not persuaded, however, by the government's budget arguments and 
called for stricter regulations on the state budget.  The NA then 
approved several related measures:  (1) seeking the implementation 
of flexible but closely controlled financial policy; (2) approving 
the issuance of Government bonds worth VND 56 trillion ($3.1 
billion) to invest in projects to be determined by the NA; (3) 
increasing authority for self-management, independent of state 
ownership, for currently unprofitable SOEs, and; (4) encouraging 
investment in certain SOEs involved in education and healthcare. 
 
 
 
Heated NA Stimulus Debate and Conflict with GVN 
 
 
 
¶4. (U) Before and during the early days of the NA session, there 
was heated discussion regarding continuation of the GVN's economic 
stimulus package and the NA's role in approving any such measures. 
Some NA members argued that the issue was a budgetary matter 
mandating NA involvement and approval (citing the NA's authority 
for approval of bond issuances).  NA members generally considered 
the first stimulus package successful in avoiding a worse slowdown, 
 
HANOI 00001392  002 OF 004 
 
 
but also agreed that misuse should be prevented.  NA members 
highlighted the fact that much of the stimulus had not reached the 
intended target of farmers and small and medium-sized enterprises, 
that it had other shortcomings and its extension could give rise to 
inflation or other macroeconomic risks.  Ultimately, the executive 
branch made the final decision on further stimulus measures without 
NA approval, stating that the use of off-budget funds from the SBV 
gave the executive branch the sole authority to finance and approve 
the package, rather than the NA.  (Reftel) 
 
 
 
Public NA Debate on Management of State-Owned Industries 
 
 
 
¶5. (U) Beyond the stimulus debate, the NA session provided members 
the opportunity to exercise their oversight role by questioning GVN 
Ministers and Vice Ministers, some sessions of which were 
televised.  NA questioning focused on the management of state-owned 
enterprises (SOEs), the economic stimulus packages, corruption, the 
possible return of high inflation, food safety, and administrative 
reforms.  Polls conducted by the NA found that public interest was 
highest on medical care issues (over 74%), education (72.5%), and 
property taxes (63.7%).  According to the polls, about 55 percent 
of the public was generally satisfied with the NA session and the 
level of public debate, while about 15 percent of the public 
reported that they were not satisfied with the NA session. 
 
 
 
¶6. (U) The hearing on SOE management was broadcast live, 
demonstrating high public interest in the subject.  While there was 
general agreement that SOEs have an important role to play, 
providing employment and economic stability, the NA supervisory 
report stated that half of the SOE groups and corporations operated 
at low efficiency and productivity.  The report showed that seven 
major SOE groups owed debts totaling over $7 billion, an increase 
of over 20 percent from 2007, accounting for 10 percent of the 
total credit balance of the economy.  There was also debate on the 
role of SOE inefficiency in causing the inflation surge in 2007-8. 
 
 
 
¶7. (U) Though the Vice Chair of the NA, Nguyen Si Dung, publicly 
stated that SOEs' share of the economy should not be reduced, the 
NA criticized SOE inefficiency and activity outside their core 
areas.  Many SOEs have raced to invest in fields outside their core 
business, incurring large losses.  While there was discussion of 
requiring SOEs to divest of non-core activities, the NA's final 
compromise position was that SOEs could engage in some non-core 
businesses, though these should not be their focus.  The NA passed 
a resolution demanding the GVN assess the model of the SOE groups 
and corporations to make needed adjustments, to request clearer 
rights, responsibilities and benefits, and to hold managers 
responsible for the efficiency of their enterprises' operations. 
To facilitate state inspection and supervision, the NA made regular 
business reporting mandatory.  In addition to the resolution, the 
NA Economic Committee called for strong measures to deal with 
inefficient and long-term loss-making SOEs and suggested drafting a 
law on the management of state capital.  NA members also called for 
a privatization roadmap and the separation of SOE ownership from 
management. 
 
 
 
Seven Laws Passed, Two Rejected 
 
 
 
¶8. (U) The NA passed seven laws, rejected two laws, and considered 
many others on a second reading.  Laws passed covered: (1) royalty 
taxes on natural resources; (2) telecommunications; (3) extending 
compulsory secondary education; (4) radio frequencies; (5) the 
elderly; (6) health examination and treatment, and; (7) civil 
defense forces, establishing a marine militia to protect Vietnam's 
maritime sovereignty.  The Royalty Tax Law replaced the current 
Ordinance on Royalty Tax, setting more detailed tax rates for 
metals and non-metal minerals (including crude oil, natural gas, 
coal gas, and forestry products).  While the law narrowed the band 
between the minimum and ceiling tax rates imposed on certain types 
of natural resources, including gold and wood, it expanded the 
potential tax band for key resources including oil (widening to a 
6%-40% band from a 6%-30% band) and gas (widening to a 1%-30% band 
 
HANOI 00001392  003 OF 004 
 
 
from a 0-25% band).  U.S. companies criticized the widening band as 
granting excessive regulatory discretion and introducing 
unacceptable uncertainty into business transactions.  NA members 
also criticized the Royalty Tax Law for its excessive scope, poor 
definitions and lack of transparency. 
 
 
 
¶9. (U) The Telecommunication Law replaces pre-WTO-accession telecom 
regulations and is expected to help Vietnam improve its information 
technology infrastructure and meet its telecom-related WTO 
commitments.  The law regulates a wide range of telecom activities 
including: investment, business, infrastructure construction, 
public services, and state management.  From now until the law 
takes effect in July 2010, the Ministry of Information and 
Communication will continue to receive input from industry on 
drafting critical implementing regulations.  The next round of the 
US-GVN Information and Communication Technology Dialogue, 
tentatively scheduled for mid-January, will provide an opportunity 
for input into the implementing regulations.  The focus will 
include issues such as independent regulators, limitations on 
foreign ownership, and minimum capital requirements. 
 
 
 
¶10. (U) Passed with relatively low support (62%), the Law on 
Education continued to give the Prime Minister PM) the authority to 
decide on the establishment of new universities.  This ran counter 
to a broadly supported, earlier NA draft which would have given 
this responsibility to the Minister of Education, but the NA 
Standing Committee pushed the NA to let the PM temporarily retain 
this authority.  Expected amendments to the Value Added Tax (VAT) 
Law and Corporate Income Tax (CIT) Law were not approved during the 
NA session due to considerable controversy and inadequacies cited 
in the drafts.  Both laws are less than a year old, but the GVN 
argued they needed revisions, in part, to provide tax incentives 
for low income housing.  NA deputies suggested other alternatives 
and voiced doubts as to whether the proposed changes would benefit 
the intended people, pointing out many loopholes in the drafts. 
 
 
 
Draft Laws Under Discussion: Property Taxes, State Bank 
Independence, Food Safety 
 
 
 
¶11. (U) Laws and amendments discussed on first reading, but not 
passed, included: the State Bank of Vietnam (SBV); credit 
institutions; housing and land taxes; child adoption; civil 
sentence executions; energy usage efficiency; food safety; the 
disabled; postal services and trade arbitration.  These laws and 
amendments are currently scheduled to be passed in the NA's May 
2010 session.  The draft Housing Tax Law, which for the first time 
proposed property taxes, raised much controversy.  Most NA deputies 
felt the tax was unreasonable, suggesting that home ownership was a 
civil right and that the law would impede home ownership. 
 
 
 
¶12. (U) Little progress was made towards central bank independence. 
The latest version of the SBV law contained ten provisions intended 
to transfer authority from parts of the GVN to the SBV.  At issue 
was the extent to which the SBV's role should move beyond 
maintaining the value of the currency to conducting monetary 
policy.  Some NA members said the SBV should be given a greater 
role in controlling inflation.  There was, however, disagreement on 
the proposed removal of the base interest rate in the SBV law and 
on resolving the conflicting authority of the NA, GVN and SBV in 
determining monetary policies, especially setting annual inflation 
targets.  Most NA members were not satisfied that the provisions 
actually transferred additional authority to the SBV.  The NA 
ultimately agreed that the SBV would continue to be a ministry 
level agency under the GVN, at least in the medium term. 
 
 
 
¶13. (U) While the draft food safety law largely focused on 
enforcing state management and raising fines, the draft also 
included mandatory labeling for genetically modified (GMO) food. 
Despite strongly voiced U.S. concerns regarding the draft law, 
particularly the provision on mandatory labeling and that no 
specific handling, usage, safety, or compositional characteristics 
have been identified to distinguish GMO products from other food, 
 
HANOI 00001392  004 OF 004 
 
 
no objections to the mandatory labeling requirement were raised 
during NA discussion.  On other draft laws, amendments to the Law 
on Credit Institutions were considered too stringent by some NA 
deputies because they would prevent credit institutions from 
investing in each other, halve investors' maximum ownership ratio 
at banks, and give the SBV too much authority to intervene in 
operations of banks. 
Michalak