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### Viewing cable 04HANOI3331, VIETNAM CONSULTATIVE GROUP MEETING

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Reference ID | Created | Released | Classification | Origin
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04HANOI3331 | 2004-12-17 07:43 | 2011-08-25 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Hanoi

`

    This record is a partial extract of the original cable. The full text of the original cable is not available.

` `

    UNCLAS SECTION 01 OF 06 HANOI 003331

    SIPDIS

    SENSITIVE

    STATE FOR EAP/BCLTV, EB/IFD/OMA, EB/IFD/ODF AND S/OGAC
    STATE PASS USAID FOR PATTY CHAPLIN
    STATE PASS USTR FOR ELENA BRYAN
    TREASURY FOR OASIA
    USDOC FOR 4431/MAC/IFP/OKSA/HPHO
    USDA FOR FAS/FAA/
    SECDEF FOR ABLAGG

    E.O. 12958:  N/A
    TAGS: EAID EFIN ETRD ECON PREL VM KKIV AFLU HIV AIDS SOE WTO
    SUBJECT: VIETNAM CONSULTATIVE GROUP MEETING

    ¶1. (U) Summary:  The Twelfth Vietnam Consultative Group (CG)
    Meeting took place December 1-2, 2004 in Hanoi.  Minister of
    Planning and Investment Vo Hong Phuc and World Bank Country
    Director for Vietnam Klaus Rohland co-chaired the meeting.
    A wide range of Vietnamese Government officials and
    representatives of all major bilateral and multilateral
    donors attended.  The Ambassador and USAID Mission Director,
    Regional Development Mission/Asia Tim Beans co-chaired the
    U.S. Delegation.  The Government of Vietnam (GVN) intends to
    maintain its economic path and to join the World Trade
    Organization (WTO) as soon as possible and is preparing to
    start drafting its next five-year plan.  Donors called on
    the GVN to speed up financial sector and SOE reforms,
    improve transparency and accountability, reduce corruption
    and to seek to focus more on the quality of growth rather
    than on numerical targets.  The donors also encouraged the
    GVN to reduce income disparity especially in regions such as
    the Central Highlands.  Assistance pledges for the coming
    year totaled USD 3.4 billion, about USD 600 million higher
    than last year with USD 170 million due to exchange rate
    changes and about USD 100 million due to the inclusion for
    the first time of international NGOs in this year's CG
    pledge.

    ¶2. (SBU) In his meeting with delegation heads, Prime
    Minister Phan Van Khai stated that the private sector should
    become the engine of economic growth.  He pledged to improve
    the business climate, reduce SOE advantages and decisively
    tackle financial sector reform.  He also acknowledged that
    his government must improve the lives of Vietnam's ethnic
    minorities and support religious activities, lest these
    issues become threats to Vietnam's stability and economic
    growth.  This CG was more useful than those in previous
    years because there were more signals that the GVN
    understands and is focused on making progress, but the
    donors must wait to see the results. End Summary.

    ¶3. (U) The Twelfth Vietnam Consultative Group Meeting took
    place December 1-2, 2004 in Hanoi.  Minister of Planning and
    Investment Vo Hong Phuc and World Bank Country Director for
    Vietnam Klaus Rohland co-chaired the meeting.  Led by Deputy
    Prime Minister Vu Khoan and Minister Phuc, the Vietnamese
    delegation included representatives from all major economic
    and policy agencies of the government and Communist Party
    along with representatives from mass organizations, research
    organizations and NGOs.  Representatives of all major donors
    attended.  They included 25 national aid agencies, the
    European Commission, the Asian Development Bank,
    International Monetary Fund, World Health Organization and
    the UNDP and its sister agencies.  The Ambassador and USAID
    Regional Development Mission/Asia Mission Director Tim Beans
    co-chaired the U.S. Delegation.

    Deputy Prime Minister Vu Khoan:  Next Five-Year Plan
    --------------------------------------------- -------

    ¶4. (U) In his opening remarks, the Deputy Prime Minister
    noted that fast and sustainable development coupled with
    poverty reduction was his government's top priority.  He set
    the focus for the meeting by describing the GVN's plans for
    the Socio-Economic Development Plan (SEDP), 2006-2010
    discussion and drafting of which will soon start.  The
    Deputy Prime Minister said that the GVN intends to speed up
    GDP growth and SOE "rearrangement," to create a more
    favorable environment for all sectors, to use resources more
    efficiently, to ensure political and economic stability, to
    enhance global competitiveness and to move Vietnam out of
    poverty by 2010. He thanked donor countries and
    international organizations for their valuable support and
    stressed his government's intention to join the World Trade
    Organization (WTO) "as soon as possible."

    Donors Voice Concerns
    ---------------------

    ¶5. (U) In response, donors and NGOs were positive about
    Vietnam's economic and social progress to date.  They
    expressed continued support for the objectives and approach
    of Vietnam's Comprehensive Poverty Reduction and Growth
    Strategy.  Donors emphasized the need for Vietnam to
    accelerate implementation of reforms in order to reach its
    full potential, to continue to reduce poverty and to
    alleviate emerging income disparities.  They called on the
    GVN to improve the quality of growth, accelerate reform in
    the financial sector and SOEs, level the playing field for
    business, control corruption, enhance transparency, prevent
    excessive economic inequities, target assistance to
    disadvantaged areas, improve access to social services,
    strengthen civil society, improve human rights and protect
    the environment.  Many donors underscored the need for a
    dynamic domestic private sector to boost productivity and
    the quality of economic development in Vietnam.  Donors
    voiced support for Vietnam's WTO bid, but questioned
    Vietnam's readiness for WTO compliance and for global
    competition.

    ¶6. (U) The Ambassador emphasized that, in order to compete
    in the global economy, Vietnam must move toward a more open
    society.  Protecting the free flow of information and
    freedom of expression are essential.  Currently, Vietnam's
    economic performance, international reputation and
    attractiveness to foreign investors are all constrained by
    the limitations Vietnam places on the human rights and
    religious freedom of its citizens.

    ¶7. (U) The GVN representatives agreed with many of these
    concerns, but pushed back in a number of key areas.  While
    acknowledging that quality and sustainability of growth are
    important, the GVN was not willing to relinquish its focus
    on the pace of growth.  Deputy Prime Minister Khoan
    questioned the accuracy of the Ambassador's assessment of
    SOEs as a drag on economic growth.  He emphasized the
    strategic role SOEs have played in advancing the economy and
    reaffirmed the GVN's political decision to retain state
    control over the economy while increasing its efficiency.
    On sharing the benefits of quality health and education
    services, the GVN representatives explained increasing
    commercialization of health and education as a way to have
    those "better off" contribute more to social services to
    compensate for the small budget available to provide
    services for all.  DPM Khoan also said that Vietnam had
    enhanced the role of elected bodies such as the National
    Assembly and that the proliferation of newspapers reflected
    a more open society. However, he stressed that Vietnam will
    continue to move in this direction at a pace appropriate for
    its culture and unique conditions.  He stated that Vietnam
    would take lessons from other countries and governments only
    where appropriate.  To underscore this point, the Deputy
    Prime Minister noted that the permissiveness on drugs in the
    Netherlands was not suitable for Vietnam.  He also
    emphasized that the GVN recognized it must focus now on
    financial sector reform.

    IMF and World Bank Assessment
    -----------------------------

    ¶8. (U) The IMF representative noted that that Vietnam's
    macroeconomic situation was reasonably good, despite the
    rise in inflation to about 10 percent due to droughts and
    bird flu earlier this year.  However, the rising trend in
    credit growth from 26 percent in 2003 to 36 percent in 2004,
    still propelled by loans to SOEs, was a cause for concern.
    He called on the GVN to move forward with SOEs and financial
    sector reforms, develop the private sector, to accede to the
    WTO and to increase government transparency.

    ¶9. (U) The World Bank's chief economist in Hanoi concurred
    with the IMF's generally positive assessment.  He remarked
    on Vietnam's progress toward WTO accession and its efforts
    to reduce exclusion and improve governance.  He identified
    two key challenges: whether Vietnam could implement WTO
    commitments and whether the National Assembly and ministries
    could pass laws and issue regulations necessary for WTO
    compliance on time.  He called for longer or more frequent
    legislative sessions.  The economist also echoed concerns of
    other delegations and representatives on maintaining focus
    on social development commitments, especially given the
    current pressure for economic development and international
    integration.  One other continuing challenge would continue
    whether Vietnam had the political will and ability to
    address SOE and banking reform concerns, he added.  The
    economist noted the limited progress the GVN has made in
    managing State budget assets.  Although his assessment was
    that the problem had not yet become a crisis, he cautioned
    that postponing a solution would prove more costly in the
    future and could threaten recent gains in economic growth.
    He also noted that no country in history had sustained its
    economic growth unless there was also comparable growth in
    the quality of health and education.

    ¶10. (U) In response, Vice Minister of Finance Le Thi Bang
    Tam noted that budgetary transparency was important.  She
    pointed to recent shifts in SOE valuation methodology and
    the planned establishment of a state asset corporation as
    positive steps on SOE reform.  She acknowledged the need for
    stronger oversight of capital markets in Vietnam.

    Preparing the Next Five Year Plan
    ---------------------------------

    ¶11. (U) As preparations for the next five Year Plan (SEDP)
    begin, the GVN also reported on the main findings of its
    second annual progress report of the Comprehensive Poverty
    Reduction and Growth strategy (CPRGS).  MPI Minister Phuc
    said that the next socio-economic development plan would
    include a new system of using more qualitative targets and
    fewer quantitative ones. Besides economic targets, it would
    include targets for quality of life and human development.
    As such, the plan would have to incorporate targets set in
    the CPRGS.  According to the GVN, the plan will be built
    from the bottom up and involve many rounds of consultation
    with stakeholders, including the private sector.  Donors
    concurred and said it was essential for the next Five-Year
    Plan to shift from the production target-oriented approach
    of a planned economy towards the outcome-oriented planning
    and the broad-based participatory approach of a market
    economy.  At the same time, they pledged to support
    Government's preparation of the next SEDP using CPRGS
    methodology.  Donors supported addressing growing
    inequalities driven by ethnicity, location and gender.  The
    Canadian representative noted that with 14 percent of the
    total population the Central Highlands had 30 percent of the
    population under the poverty line. Likewise the World Bank
    pointed out that of the 10 percent of children not in
    school, 46 percent of those were ethnic minorities.

    Report from Vietnam Business Forum
    ----------------------------------

    ¶12. (U) The CG also featured a report on the November 29
    Vietnam Business Forum's issues of concern to foreign firms
    seeking to operate in Vietnam.  Deputy Prime Minister Khoan
    attended this meeting as well.  The list of issues is
    essentially the same ones that have been on the agenda for
    some years.  Frustration among business representatives with
    lack of progress was evident.  The message to the GVN is
    that most investors in Vietnam want to expand and many
    factors are attractive, but the lack of a transparent,
    adequate legal framework and sufficiently developed
    infrastructure are significant deterrents.  Investors seek
    improved development and application of policies on fair
    treatment and reduced corruption.  Local private businesses
    want access to credit and land and improved public
    administration.  They also called for the improved behavior
    of parties in labor relations and better performance by
    local authorities in enforcing and applying new policies.
    The international business community seeks stiffer IPR
    penalties that will compensate owners of rights and
    trademarks, improved enforcement and access to an effective,
    fair judicial system.  There was a strong pitch for the GVN
    to remove the three percent cap (Decree 105) on foreign
    employment.  The Government responded that few enterprises
    were affected and that they have submitted an amended draft
    that provides for certain exceptions or waivers to small
    employers on a case-by-case basis.  In addition, the
    Government noted that it was seeking infrastructure
    investment from abroad and was considering revisions to the
    1993 BOT law.  DPM Khoan called for the creation of a
    committee comprised of government, private sector, and donor
    representatives to explore improvements to Vietnam's
    infrastructure woes.

    Corruption
    ----------

    ¶13. (U) The CG featured a special session on Vietnam's fight
    against corruption.  Frankly acknowledging the problem, the
    GVN representatives described recent initiatives to tackle
    corruption.  The GVN and donors agreed that corruption
    increases the cost of doing business and that too often the
    poorest and most vulnerable members of society are the
    victims of corruption.  Donors encouraged the GVN to use the
    diagnostic assessment currently being conducted for the
    Communist Party with Sweden's support as a basis for a
    coherent anti-corruption strategy. Donors suggested that
    elements of a solution to corruption issues in Vietnam would
    include: a comprehensive legal framework, public
    administration reform, transparency, accountability, a
    greater role for the media, SOE and financial sector reform,
    and a careful screening of policy lending. While
    acknowledging the GVN's commendable confirmation of
    corruption, donors opined that implementation would be
    difficult. Better transparency in public financial
    management, resource allocation, procurement, audit and
    inspection and fees and charges for public services, as well
    as on the essential role of a free press in fighting
    corruption would be key to progress, donors stressed.  Both
    this effort and government's efforts at financial sector
    reform would be reviewed at the CG's mid term review.

    ¶14. (U) On ODA effectiveness, donors complimented the GVN
    for its progress achieved in implementing the harmonization
    action plan.  For some donors this has meant moving to more
    generalized budgetary support while for others, such as
    USAID, it has resulted in enhanced HIV/AIDS coordination and
    other common shared efforts.  New ODA Decree 17 and the new
    ODA master plan should help facilitate aligning the ODA
    utilization with the new five-year plan.

    HIV/AIDS: Coordination is Key
    -----------------------------

    ¶15. (U) The frank session on HIV/AIDS included admonitions
    from the donor community on the need to deal in a
    coordinated fashion with the growing epidemic.  The UNAIDS
    Representative in Vietnam stressed the need for a
    multisectoral, supra-ministerial coordinating body to
    coordinate HIV/AIDS activities across ministries and donor-
    supported projects in Vietnam.  She called for improved
    management of resources through collaboration of ministries
    including the Ministries of Finance, Health, Planning and
    Investment, and Labor, Invalids and Social Affairs.  Besides
    a multisectoral coordination body, she said there was a
    growing need for a task force to monitor and evaluate
    government programs.  She reiterated the crucial need for
    more proactive involvement of the highest level of
    government in a concerted campaign to fight stigma and
    discrimination at all levels of society.

    ¶16. (U) Following this a number of donors made interventions
    on HIV/AIDS. The United Kingdom representative noted the
    Government's overtaxed capacity to manage donor-supported
    programs, especially since they are all funneled through the
    Health Ministry.  He urged the Government to consider
    adopting the United Nations 3-1s initiative, which calls for
    each country to have one coordinating body, one monitoring
    and evaluation system, and one framework to manage the
    epidemic.  Representatives of Japan and Sweden stressed the
    importance of mainstreaming HIV/AIDS activities in all
    development projects as well as the increasing need to
    address stigma.  The Australian representative said more
    participation of people living with AIDS was needed both in
    actual work and policy development in the National Strategy.

    ¶17. (U) The Ambassador endorsed the UNAIDS statement and key
    major points made by the UNAIDS coordinator. He also noted
    that Vietnam has a window of opportunity to make great
    strides in curbing the epidemic, but must mobilize all
    resources including civil society, involving both private
    and religious organizations to achieve the greatest impact.
    He also said that high-level leaders need to do more to
    counter stigma and discrimination.  Given that the majority
    of cases of HIV are injecting drug users and sex workers,
    more focus should be on convincing men to change their
    behavior, he added. The UNDP representative advocated that
    Vietnam shift its messages away from scare tactics to more
    informative public messages that support people living with
    HIV/AIDS.

    ¶18. (U) In response, Vice Minister of Health Trong
    highlighted the relatively young epidemic in Vietnam and
    thanked donors for their assistance to curb stigma and
    discrimination. Noting that changing perceptions on HIV/AIDS
    takes time, he said that people with aids (PWA) are now
    viewed as people with a disease who should be taken care of
    by their communities.  He noted that the GVN had assigned
    the Ministry of Health to provide treatment to PWA.  The
    solid support the GVN is receiving from the international
    community is enabling them to develop treatment facilities
    in infectious disease departments of hospitals in Hanoi, Hue
    and Ho Chi Minh City.  Although VM Trong's comments did not
    address the need for greater coordination across sectors, in
    his closing remarks Deputy Prime Minister Khoan told the
    donors that Deputy Prime Minister Nguyen Tan Dung is ready
    to meet with the donors on this subject.  DPM Khoan also
    singled out the United States for special thanks for its
    help in combating HIV/AIDs.

    WHO: Bird Flu Pandemic Warning
    ------------------------------

    ¶19. (U) The local WHO representative gave a presentation on
    why the World Health Organization expects that an influenza
    pandemic is likely to occur in the next few years when the
    avian flu virus changes to infect humans.  The WHO
    representative's statements came along with public warnings
    from the WHO that same day throughout Asia.  He offered dire
    predictions of the result when (not if) the pandemic comes.
    Various donors called for efforts to try to improve the
    ability of Vietnam to respond to such a situation.

    Results of Pledging
    -------------------

    ¶20. (U) The final total assistance pledges came to USD 3.4
    billion in assistance for the coming year, approximately USD
    600 million higher than last year with USD 170 million due
    to exchange rate changes and about USD 100 million due to
    the inclusion for the first time of international NGOs in
    this year's CG pledge.  Co-delegation head, Tim Beans,
    Director of the USAID Regional Development Mission/Asia led
    the U.S. delegation at this session and said that the United
    States planned to expend USD 61 million in support of
    Vietnam's efforts primarily in the areas of economic growth,
    HIV/AIDS, disabilities and the environment.

    ¶21. (U) In his closing remarks, the World Bank Country
    Director for Vietnam underlined that this meeting was taking
    place at a decisive juncture. In the next five years,
    Vietnam should have acceded to the WTO and completed its
    transition to a market economy, he said.   With a diminished
    role for Government as a producer of goods and services, the
    GVN would instead focus more on strengthening the
    foundations of a market economy to encourage business
    development.  The Government's role would be essential in
    areas where the market could not provide such as targeted
    poverty reduction programs, social protection,
    infrastructure development and ensuring a clean and safe
    environment for future generations.

    Prime Minister Khai Meeting with Heads of Delegation
    --------------------------------------------- -------

    ¶22. (SBU) The Heads of Delegation wrapped up this year's CG
    with a private meeting with Prime Minister Phan Van Khai.
    World Bank Country Director Rohland opened the 45-minute
    meeting by summarizing the results of the CG.
    (Inexplicably, Rohland failed to mention the HIV/AIDS
    discussion.)  An obviously well-briefed PM Khai then took
    the floor.  After thanking the donors for their generosity,
    the PM listed several other areas on which his government
    will focus.  These included the quality of growth, human
    resource development (both within the government and the
    general population), and balancing environmental protection
    and economic growth.  The GVN will expand its efforts to
    encourage the private sector to invest in Vietnam's
    education and health systems, he said.  In addition, the PM
    acknowledged that his government must do a better job
    protecting and lifting up Vietnam's ethnic minorities and in
    providing room and support for religious activities.
    Otherwise, he warned, these issues may become threats to
    Vietnam's stability and economic growth.  PM Khai promised
    to provide a level playing field for the private sector and
    foreign investors by eliminating the advantages now enjoyed
    by the state-owned enterprises.  He declared that he wants
    the private sector to become Vietnam's primary engine of
    growth.  He also promised that the GVN would move decisively
    to tackle the issue of financial sector reform in the year
    ahead.  PM Khai closed by calling for donor support for
    Vietnam to host a major conference on combating the HIV/AIDS
    epidemic in 2005.

    ¶23. (SBU) Comment: This year's CG was more useful than those
    in previous years.  Throughout the meeting, the GVN
    acknowledged that there are significant social and economic
    problems that it needs to address.  However, we and the
    other donors will have to wait to see whether the GVN will
    translate this general understanding will be translated into
    effective policies. End Comment.

    BOARDMAN

`