Skip to main contentReference ID: 08HANOI654
Created: 2008-06-04 08:49
Released: 2011-08-30 01:44
Classification: UNCLASSIFIED
Origin: Embassy Hanoi
VZCZCXRO0726
PP RUEHCHI RUEHDT RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHNH RUEHPB
DE RUEHHI #0654/01 1560849
ZNR UUUUU ZZH
P 040849Z JUN 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 7935
INFO RUEHHM/AMCONSUL HO CHI MINH 4795
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SECTION 01 OF 02 HANOI 000654
SIPDIS
E.O. 12958: N/A
TAGS: ECON EAID EFIN EINV KCOR KPRV PGOV VM
SUBJECT: STATE-OWNED ENTERPRISE REFORM KEY TO IMPROVING THE BUSINESS
CLIMATE, PRIVATE SECTOR TELLS GVN
REF: A) Hanoi 606 ("DPM Hung Speaks On Inflation");
B) Hanoi 634 (Latest Economic Data Sends HCMC Into A Panic);
C) Hanoi 563 ("GVN Arrests Anticorruption Reporters);
D) HCMC 320 ("Labor Shifts Put Pressure On Manufacturers");
E) Hanoi 451 ("Paying Heed To Business Concerns")
HANOI 00000654 001.2 OF 002
1. (U) Summary: The Government of Vietnam (GVN) got an earful of
solicited advice from domestic and foreign businesses on how to
improve its business climate at the GVN-sponsored Vietnam Business
Forum on June 2. Commonly-cited prescriptions included redoubling
efforts against corruption and red tape, harmonizing conflicting
laws and legal interpretations, accelerating infrastructure
development and addressing labor woes. The most poignant of the
presenters' criticism, however, was on the need for reform in the
state-owned sector. Local firms decried how state-owned enterprises
(SOEs) mopped up and misused available credit, while foreign
investors argued that SOEs made the economy less competitive and
effective. Both the GVN and the private sector cited the country's
ongoing macroeconomic difficulties as underscoring the need for
further reform, but no one urged radical measures and the general
mood was optimistic that Vietnam could surmount the challenges. End
summary.
GVN ASKS FOR ADVICE AND GETS IT
-------------------------------
2. (U) The Vietnam Business Forum (VBF), a biannual dialogue with
the private sector convened by the GVN with help from the World
Bank, was held in Hanoi on June 2, 2008, as part of the Mid-term
Consultative Group Meeting 2008 (Septel). The event was chaired by
the country directors of the World Bank and the International
Finance Corporation and Planning and Investment Minister Vo Hong
Phuc, and included high-level representatives from a bevy of GVN
ministries, the local and foreign business community, the diplomatic
corps and international donors. Private sector participation was
organized by working groups on banking, capital markets,
infrastructure, trading and distribution, and tourism.
IT'S THE SOES, STUPID
---------------------
3. (U) The most resonant and oft-cited demand made by the working
groups was the need for SOE reform. Criticism of SOEs came from
foreign and domestic firms. The negative influence of these
"well-connected incumbents," as an AmCham presenter put it, was
cited on issues as diverse as land use, prudent fiscal measures,
good business governance, fair competition, effective allocation of
state resources, and credit. The Eurocham urged the GVN to "avoid
further delays" on SOE reform, accelerate privatization, and provide
a roadmap for full privatization instead of the piecemeal approach
that the GVN has followed (known as "equitization").
THE LOCALS THUNDER LOUDER AGAINST THE SOES
------------------------------------------
4. (U) Some of the most poignant criticism came from Vietnamese
firms themselves, in some cases directly pointing fingers at the
miscreants (as one business group did when it used the example of
state-owned shipbuilding company Vinashin's spendthrift ways). The
Hanoi Business Association criticized the "operational inefficiency
of state-owned enterprises --especially the difference between their
total capital and their contributions to the national economy --
[which] results from uncompetitive production, which, in turn, stems
from poor management". Another local organization, the Hanoi
Association of Industry and Commerce, accused SOEs of speculating
with state capital and upsetting macroeconomic stability. "We don't
know for sure how much money [the SOEs have] invested in securities
and real estate segments, but according to the Ministry of Finance,
28 out of 70 state-owned corporations and groups hold shares in
banks, insurance companies, securities trading houses, real estate
brokerages, and fund management enterprises to the tune of [$1.4
billion]. And many of these corporations and groups have a high
debt/equity ratio. The above factors have been, and still are,
driving inflation, rather than 'loose monetary policy' alone as the
[GVN claims]."
5. (U) Despite the Prime Minster's oft-mentioned call for curtailing
the speculative activities of the SOEs (Ref A), most of the GVN
representatives at the VBF did not address the calls for SOE reform
directly. On banking, Deputy Governor of the State Bank of Vietnam
Nguyen Dong Tien acknowledged that the "poor management" by state
banks and the GVN had led to the current macroeconomic instability.
He vowed to force smaller SOE banks to merge with larger ones "very
soon" (Septel). Tien also agreed with private sector assessments
that, while restricting credit to speculative SOEs was a move in the
right direction, the GVN should ensure that exporters and
manufacturers still have access to credit.
HANOI 00000654 002.2 OF 002
MACROECONOMIC COMPOSURE
-----------------------
6. (U) Both the private sector and GVN representatives at the VBF
alluded to Vietnam's current macroeconomic challenges during their
discussions, but they stayed clear of alarmist tones (Ref B). The
chair of the Capital Markets Working Group, Dominic Scriven from
Dragon Capital, summed up the mood by stressing that good economic
governance, calm and continuing reform were the best course of
action. "In times of economic volatility, it is extremely important
to encourage good governance practices, and penalize breaches of
governance," he said. The head of the Banking Working Group, Ashok
Sud from Standard Chartered Bank, commended the GVN for its monetary
policy but also urged it to enact "strong fiscal measures" and
quicken the development of the financial sector.
RED TAPE AND CORRUPTION
-----------------------
7. (U) Business leaders also urged Vietnam to accelerate
administrative reform. Delays in licensing were commonly cited
irritants for the Manufacturing, Trade and Distribution and the
Banking working groups. "Huge gaps in interpretation" of
regulations were another, according to the head of the Manufacturing
working group. The president of the Australian Chamber of Commerce
noted the "lack of consistency with different departments within the
government, meaning many share the same rules, but have different
interpretations of what these mean," and asked the GVN to ensure
"the formation of a standard, consistent procedure" for interpreting
regulations. The Japanese External Trade Organization also cited
the lack of clear trade regulations, especially for foreigners in
the service sectors.
8. (U) While recognizing Vietnam's anti-corruption efforts, the head
of the Hanoi AmCham, Mike Pease of Ford, said that the business
community was concerned about the May 12-13 arrests of two
journalist and other GVN officers for exposing corruption (Ref C).
"For anti-corruption measures to be effective, it is critical that
members of the public and officials who are responsibly acting to
remove corruption are not penalized. Active government support and
endorsement of anti-corruption measures at all levels of society,
government and business is required."
LABOR AND INFRASTRUCTURE BOTTLENECKS
------------------------------------
9. (U) Much like last year's VBF, skilled labor shortages and
inadequate infrastructure came up again as two key areas that could
choke off further growth. Port congestion and insufficient cargo
handling capacity at Vietnam's ports are "particularly acute,"
according to Shirley Justice, from Nike, who presented the report on
Ports and Infrastructure. The GVN replied that it would accelerate
its master plan for ports, and would have it ready by December of
this year rather than May of 2009.
10. (U) Another source of concern was illegal labor strikes, which
have been exacerbated by rising inflation (Ref D). AmCham's Pease
recognized that workers had "legitimate concerns," but that these
needed to be addressed "in a legal, constructive and peaceful way."
He and the EuroCham urged the GVN to take mediating action and to
ensure that workers abide by Vietnam's Labor Code.
COMMENT
-------
11. (U) The frank discussion between Vietnam and the private sector
is a good indication that the GVN continues to favor a pragmatic and
inclusive approach to economic governance. The criticism from
domestic business groups, particularly against the entrenched
interests of the SOEs, was even more encouraging. The criticism did
not detract from the recognition that Vietnam has moved fast and has
been responsive to private sector concerns, including those raised
during the latest VBF in December 2007 (Ref E). Vietnam will be
wise to pay heed to the friendly advice, particularly calls for
further reform in order to stay competitive and weather the
macroeconomic turbulence. End Comment.
MICHALAK
5
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