VZCZCXRO9984
RR RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #1394/01 3520905
ZNR UUUUU ZZH
R 180904Z DEC 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 0620
INFO ASEAN MEMBER COLLECTIVE
ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEHC/USAID WASHDC 0031
RUEHGP/AMEMBASSY SINGAPORE 0049
RUEHHM/AMCONSUL HO CHI MINH CITY 0293

UNCLAS SECTION 01 OF 04 HANOI 001394 
 
SENSITIVE 
SIPDIS 
DEPT FOR EAP/MLS FOR MFORINO 
SINGAPORE FOR TREASURY 
HHS/OSSI/DSI PASS TO OGHA (WSTEIGER/MVALDEZ/MABDOO) 
TREASURY FOR SCHUN 
USTR FOR DBISBEE 
USAID FOR DAA/ASIA MELLIS 
EAA/ASIA DSHARMA AND CJENNINGS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EAID SENV KGHG VM
SUBJECT: Donors Boost Aid While Highlighting Continuing Development 
Problems and Crackdown on Information 
 
REF: HANOI 1234; HANOI 1300; HANOI 0909; HANOI 1246 
 
¶1.       (SBU) Summary.  At the December 3-4 annual Consultative 
Group meeting of donors, Vietnam received praise for its recent 
fiscal and monetary policy steps to address growing macroeconomic 
imbalances, including the devaluation of the dong and the decision 
not to extend short-term commercial interest rate subsidies. 
Donors remain concerned about the GVN's capacity to manage 
macroeconomic policies, combat corruption, reform public 
administration and create an enabling environment for domestic and 
international business.  The Ambassador expressed strong concerns 
about the continued tightening of access to information, freedom of 
expression and press, and civil society activities, stating that 
these developments would negatively affect and cast doubt on the 
future of Vietnam's economic and social development.  Other CG 
topics included poverty reduction and climate change.  The donors 
pledged significant increases in official development assistance 
(ODA) from six billion USD in 2009 to eight billion USD in 2010, 
with a 40% increase from the Japanese.  The World Bank, Asian 
Development Bank, Korea, and the European Union were the other 
leading donors.  The GVN noted that the assistance pledged from the 
United States had increased 4 percent to over 138 million dollars 
which, while not among the top five donors, is one of the highest 
for an individual country.  End Summary. 
 
¶2.  (U) The 2009 Consultative Group Meeting (CG) of donors occurred 
in Hanoi December 3-4 with officials from over 31 countries and 
senior GVN policymakers participating, including Prime Minister 
Nguyen Tan Dung.  The Ambassador, USAID Director, and econoff 
attended for the United States.  The meeting occurred against the 
backdrop of macroeconomic policy change in Vietnam.  Although 
Vietnam has weathered the global financial crisis better than many 
of its neighbors with expected GDP growth of 5.2 percent for 2009, 
serious concerns remain, especially regarding high credit growth, a 
possible return to high inflation, and Vietnam's falling foreign 
exchange reserves (Ref A and B). 
 
GROWTH IN A POST CRISIS WORLD 
 
¶3.  (U)   On day one of the CG, the participants discussed 
Vietnam's economic success, as well as challenges to the country's 
macroeconomic stability.  Dung emphasized the flexibility the GVN 
was showing in macroeconomic management to respond to changing 
global conditions and strike an effective balance between combating 
inflation and encouraging growth.  The Prime Minister also 
highlighted the six top priorities for the GVN:  1) improving the 
business and investment environment; 2) applying measures to 
enhance macroeconomic stability; 3) focusing on development of 
agriculture and rural areas; 4) expanding social safety nets and 
speeding up poverty reduction; 5) improving the effectiveness and 
efficiency of State governance; and 6) maintaining socio-political 
stability while integrating more deeply into the world.  He said 
achievement of these objectives would enable Vietnam to enhance 
economic stability and help it become a middle income country by 
2010 and an industrialized nation by 2020. 
 
¶4.  (U) Donors were pleased in general with the GVN's recent 
monetary and fiscal steps, but urged continued caution.  The ADB 
Country Director said, "risks are growing and we appreciate the 
GVN's recognition that stabilization is the essential prerequisite 
for rapid and sustainable growth."  Donors called on the GVN to 
continue with overall reforms, including combating corruption and 
implementing poverty reduction in a manner that reaches the poorest 
parts of the country, as part of improving the overall economic 
environment and promoting investment and development.  In response, 
GVN officials made repeated appeals for continued and increased 
ODA. 
 
CALL FOR FREEDOM OF INFORMATION 
 
¶5.  (U) The Ambassador led the call for increased freedom of 
 
HANOI 00001394  002 OF 004 
 
 
information, transparency, and openness in all levels of society. 
He noted the recent "shrinking of space for honest reliable 
information," citing the recent arrests of bloggers and editors, 
the closure of prominent NGOs, and the recently-enacted Decision 
97, which limits the ability of independent research organizations 
to publish findings critical of government policy.  The Ambassador 
also expressed concern regarding the recent shut-down of Facebook 
in Vietnam (Ref C).  In comments which were widely reported in the 
media, Ambassador said the Facebook shut-down was a "serious matter 
involving a fundamental question of people's right to communicate 
with one another and to share ideas."  He emphasized that such GVN 
actions reduce Vietnam's attractiveness to foreign partners, 
especially but not exclusively in the field of education and 
inhibit Vietnam's growth and development.  The PM's response was 
that each country has its own definition of democracy in accordance 
with its own constitution and the wishes of its people.  He called 
on the CG participants for patience and continued dialogue. 
 
POVERTY REDUCTION CONTINUES, LOW HANGING FRUIT GONE? 
 
¶6.  (U)   The GVN proudly reported that in spite of the past year's 
economic difficulties, the poverty rate had decreased to 12 
percent.  While that fell short of the GVN's 11 percent goal, it 
was nevertheless part of the continued remarkable success that has 
seen poverty reduced in Vietnam from 58 percent in 1993 to 12 
percent in 2008.  The participants praised the GVN for its 
consistent efforts and results, highlighting successful poverty 
alleviation activities, including the program focusing on the 62 
poorest districts. 
 
¶7.  (U) Serious concerns remain that while the overall poverty rate 
has decreased dramatically, for ethnic minority communities the 
rates remain at over 50 percent.  Donors noted that while the 
ethnic minorities are a small part of the population of Vietnam 
(two to three million people in a country of over 90 million), this 
number is greater than the total population of some countries.  In 
addition, the ethnic minorities are in the poorest and most remote 
parts of the country with the least access to social safety nets 
and government programs, including health and education.  Donors 
also raised concerns about people with disabilities and their lack 
of social integration and support. 
 
¶8.  (U)   Donors also raised concerns that the current economic 
situation and increasing urbanization had created a new class of 
vulnerable migrants who have left the support of their agricultural 
communities but have no access to urban programs and safety nets. 
Their living conditions are especially dire when the economy slows 
down, and they face unemployment with no insurance or social 
support.  Women were also cited as increasingly vulnerable when 
they leave rural areas for urban jobs, often in the manufacturing 
sector. 
 
ANTICORRUPTION IN THE HEALTH SECTOR 
 
¶9.  (U)   The Swedish Ambassador led discussions on the recent 
Anti-Corruption Dialogue held as preparation for the CG meetings. 
Participants and the GVN applauded the selection of corruption in 
the health sector as a point of focus for several reasons.  First, 
while termed "petty," corruption in this sector costs lives and 
disproportionally affects the poorest and most vulnerable.  Second, 
health sector reform is a powerful example of the complex 
challenges of effectively combating corruption.  Finally, 
corruption in the health sector includes serious IPR violations, 
for example, in medicines and medical devices.  The GVN reported on 
its progress and shortcomings, acknowledging the need for better 
implementation of laws and regulations, as well as human resources 
shortcomings at all levels.  Donors pointed out the need for 
participation by civil society and the media in combating 
corruption.  A final comment by the Ministry of Health 
representative highlighted how ingrained corruption can be and the 
extent of the challenges in raising awareness when he stated that 
"an envelope of money given to a doctor is a gesture of 
appreciation - not a bribe." 
 
HANOI 00001394  003 OF 004 
 
 
PUBLIC ADMINISTRATION REFORM THE HEART AND SOUL OF DEVELOPMENT 
 
¶10.  (U) The Ambassador led the discussion on Public Administration 
Reform (PAR), highlighting the importance of USAID program Project 
30, the Prime Minister's top priority program for improving and 
reforming public administration at all levels.  Project 30 focuses 
on institutional reform and regulatory and administrative 
simplification to reduce the costs and risks of doing business in 
Vietnam.  The Ambassador said, "PAR fundamentally affects every 
aspect of a government's ability to fulfill and implement its 
obligations and responsibilities to society."  Donors raised 
questions regarding the capacity and willingness of the GVN to 
address such challenges as tax reform, recruitment and promotion of 
civil servants, and reduction of bureaucracy at all levels of the 
government.  The GVN provided a detailed description of its efforts 
to implement Project 30, including the requirement that all 
ministries make a monthly report on their progress to the Prime 
Minister's office.  (Comment:  The GVN saw no contradictions in 
their goals for potential use of e-government and increased use of 
information technology in government services and the current 
restrictions and control of the internet and information flows. 
End comment.) 
 
CLIMATE CHANGE HEATS UP 
 
¶11.  (SBU)   Climate change dominated the environmental issues 
discussion.  A significant portion of ODA is targeted for efforts 
in this area (over $245 million earmarked in 2010), with 
significant increases expected in the coming years.  The GVN 
emphasized to participants Vietnam's UN designation as one of the 
top five countries most vulnerable to climate change.  Both Japan 
and Korea pledged increased support for climate change activities, 
but the specific projects proposed remain traditional 
infrastructure development such as road and dike construction. 
Donors expressed concerned about coordination and duplication of 
their efforts. 
 
¶12.  (U)   The Danish Ambassador and other donors praised the GVN's 
plan to actively participate in the upcoming Copenhagen Climate 
Change Conference and highlighted that the Prime Minister is 
leading the delegation.  When the GVN was asked about the 
possibility of Vietnam taking a lead role in bridging the gap 
between developed and developing countries, the representative from 
the Ministry of the Environment and Natural Resources (MONROE) was 
non-committal and responded that the delegation would be requesting 
funding from developed countries to assist developing countries 
affected by climate change.  (Note:  Earlier, members of the GVN 
Copenhagen delegation told us that Vietnam would seek for all large 
emitters, regardless of development status, to commit to greenhouse 
reductions.  (Ref D) End Note)  Donors commended the GVN  for 
having established a senior  Climate Change National Steering 
Committee in 2009, chaired by the Prime Minister, though the GVN 
did not provide a timeline for the first meeting despite repeated 
inquiries.  The GVN provided few details regarding what practical 
steps it would take to decrease water pollution and build green 
energy alternatives. 
 
PRIVATE SECTOR INPUT FOR THE CG 
 
¶13.  (U) During the December 1 Vietnam Business Forum (VBF), the 
private sector had a half day opportunity to present its views of 
Vietnam's investment climate and hear senior GVN officials' 
responses.  Representatives of foreign chambers of commerce and a 
Vietnamese business association struck similar notes, lauding the 
GVN for its response to the global economic downturn, but voicing 
concern about the business environment, including inadequate 
infrastructure, a higher educational system which produced 
graduates without necessary skills, corruption, the slow pace of 
SOE reform, and market access issues.  The American Chamber noted 
that labor relations had substantially improved in contrast to last 
year, when a number of wildcat strikes had disrupted the operations 
of foreign business.  Despite the cited shortcomings, foreign 
companies generally expressed optimism about the long-term, with 80 
percent stating in a survey conducted for the VBF that they 
 
HANOI 00001394  004 OF 004 
 
 
expected to expand their business over the next three years. 
Japanese companies ranked Vietnam third, after China and India, as 
a promising country over the medium term. 
 
¶14.  (U) Vietnamese officials described their response to the 
financial crisis and ongoing improvements, such as administrative 
reform, occurring in the investment climate.  They stated that 
infrastructure development was progressing, but some significant 
problems existed, such as a lack of financing and the difficulty of 
increasing energy prices as a means to promote additional energy 
generation capacity when lower income people were accustomed to low 
energy costs.  Investment officials said they recognized that 
private sector financing participation was indispensable to 
infrastructure development given Vietnam's enormous infrastructure 
needs and inadequate funding from official sources.  Ministry of 
Planning and Investment Minister Vo Hong Phuc said the GVN 
recognized that more needed to be done to address investment 
environment problems, and said the GVN would work with the business 
community. 
 
¶15.  (SBU)  Comment:  The CG 2009 meeting remained a highly 
scripted event with comments and questions provided ahead of time 
to the GVN.  Nevertheless, many participants felt there was a 
better dialogue than in previous years due to procedural changes 
advocated by the donors which limited speechifying by donors 
regarding their own programs.    This year's CG also provided a 
good opportunity to deliver a strong message with some other donors 
that highlighted growing concern about controls on access to 
information, press freedom, and civil society as they relate to 
Vietnam's continued development.  End Comment 
Michalak