AMBASSADOR'S CALL ON CPV ECONOMIC CHAIRMAN

UNCLAS SECTION 01 OF 02 HANOI 000517

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV
STATE ALSO PASS USTR BRYAN
TREASURY FOR OASIA
USDOC FOR 4431/MAC/IFP/OKSA/HPPHO

E.O. 12958: N/A
TAGS: ECON ETRD KIPR EFIN PREL PINR VM IPROP FINREF SOE WTO BTA
SUBJECT: AMBASSADOR'S CALL ON CPV ECONOMIC CHAIRMAN


1. (SBU) SUMMARY: In a meeting with Ambassador, CPV
economic czar Truong Tan Sang underscored the importance of
the private sector and SOE reform in maintaining high growth
rates and employment generation. He promised to privatize
parts of Vietnam Airlines and to strengthen IPR enforcement.
The Ambassador urged Sang to encourage the GVN to permit
more activities by foreign banks, including EXIM, and to buy
a US satellite. Sang was an unimpressive interlocutor, more
eager to parry questions than engage in give-and-take or
share any vision for Vietnam's economic future. END SUMMARY.


2. (U) Role: Ambassador, accompanied by ECON/C, called on
Truong Tan Sang, Politburo member (#10 in rank) and Chairman
of the CPV's Economic Commission of the Communist Party of
Vietnam, on February 12. It was the Ambassador's first
meeting with Sang, who had previously chaired the HCMC
People's Committee. Sang described his Commission as
responsible for trade policy, macroeconomic policy, and
external economic relations, and added that he would
appreciate assistance by the US with WTO accession
negotiations (to which his commission sends a
representative). Although his commission sets the long-term
vision for Vietnam's economy, Sang did not comment on the
Ambassador's description of some key difficult issues that
such a vision would need to address.


3. (U) SOE reform: Sang recited the target 7.5% real GDP
growth per year in the current five-year plan and asked
whether the US had any advice about increasing the current
40% private sector contribution to GDP. The highest growth
rate was in the foreign invested sector, he commented. The
revised enterprise law had helped develop some small and
medium-sized enterprises faster and he expressed a hope this
trend would continue. At the same time, state sector reform
was continuing. He emphasized that his commission must
consider both the economic aspects and the socio-economic
aspects of reform (i.e. employment effect). When reform
leads to job creation, there is never opposition. In the
first phase of reform, 6,000 SOEs of the original 12,000
were eliminated with no opposition, he claimed. By 2001 --
at the start of the second phase of SOE reform -- some 5000
SOEs remained. Unlike the first phase, this phase involves
SOEs in both unimportant and important sectors. For next
year, he predicted higher economic growth without
dissatisfied voices. There are 1.5 million new workers
annually and GVN strives to create 2 million new jobs for
them and for those who are underemployed.


4. (U) Limits on investment: The Ambassador asked Sang to
comment on sectors where foreign investment was forbidden.
Sang noted that in the transportation sector, there was a
great deal of private sector activity -- and few SOEs -- for
taxis and trucks, while in marine transportation about 70%
of activity was by SOEs. In civil aviation, Vietnam
Airlines and Pacific Airlines were both operating. Pacific
is a private stock firm, and in the future the GVN will
privatize parts of Vietnam Airlines, he promised. In
banking, there are 53 publicly traded banks and only about
30 private banks, and 1000 cooperatives currently operating.
(Note: This was a rather incomplete answer.)


5. (U) Finance: Noting that financial sector reform was
important in order to mobilize capital for Vietnam's future
development, the Ambassador related that Eximbank was
considering allowing a Vietnamese joint stock bank to make
loans using Eximbank funds. According to Eximbank, two
joint stock banks -- Sacom and Asia Commercial Bank -- might
qualify. Sang noted that IFC sources had invested about $3
million in each bank. (NOTE: According to IFC staff, they
have invested $5 million in ACB and $4.5 million in Sacom,
and could purchase additional shares in the future. END
NOTE) The Ambassador pointed out that both Citibank and Hong
Kong Shanghai Bank would like to invest significantly higher
amounts in one or both banks, but were constrained from
doing so because a foreign firm could not own more than 10%
of the equity in a joint stock bank. Should these foreign
firms be allowed to hold more equity, they intended to train
staff and improve the technology of these banks.


6. (U) IPR: Difficulty with IPR enforcement might keep
information technology investors away from Vietnam, the
Ambassador warned. He asked whether Sang was concerned
about this issue and had a plan to improve it. Sang claimed
agreement by "both sides" on Intel's $800 million investment
in a HCMC software park, although the bird flu had stopped
Intel officers from coming to Hanoi to finalize the deal.
(NOTE: According to Intel Country Manager, Vietnam
continues to be one of three countries -- along with India
and Thailand -- under consideration for this project. There
has been no final decision and no decision is expected for
at least another year. END NOTE) Sang added that he was
personally involved in this project. He stressed that he
fully understood the importance of IPR protection to improve
the investment climate for not only for SOEs, but also for
private enterprises, both foreign and domestic. During his
tenure in HCMC as Chair of the People's Committee, a multi-
million dollar investment to produce CDs had failed because
of imported pirated discs. As for how to improve
enforcement, Sang said that he did not understand the law,
but stressed that IPR was a problem in all countries and
joked that to avoid the problem entirely one would probably
have to locate in Singapore. He acknowledged that IPR
enforcement was a weak point, but pledged that Vietnam would
continue to strengthen it.


7. (U) BTA/WTO: Sang described the BTA was the first step
towards normalizing trade relations, which had resulted in
billions of dollars of increased trade for both sides,
albeit in favor of Vietnam. Vietnam was currently striving
to join the WTO, though there were some difficulties and
problems. Noting that some forces in the US did not support
developing trade relations with Vietnam, Sang said that he
hoped that both sides could avoid difficulties in this area.
He expressed a hope that US firms would keep investing in
Vietnam. Although US investment in Vietnam was rising, it
was still lower than from other Asian countries. Vietnam
was working to improve transparency, he added.


8. (U) Buy US: Ambassador noted that the US and Vietnam
were working together through technical assistance to help
make the commercial law and regulations more attractive to
investment. Currently there was a significant trade
imbalance in favor of Vietnam. The purchase of Boeing
aircraft had helped in 2003 and would again in 2004.
Another good opportunity to improve the trade imbalance
would be for Vietnam to buy a cutting edge U.S.
communications satellite and launch from the sole U.S. firm
in this procurement process. Sang acknowledged the trade
imbalance in favor of Vietnam and said he hoped both sides
would try to increase trade. Sang said that Vietnam was new
to the market economy and wanted to learn from experts. He
agreed to take the Ambassador's suggestions into
consideration.


9. (SBU) Bio comment: Sang stuck to his script and showed
little desire to engage in a meaningful dialogue even on his
field. He parried questions well. If he has a vision for
Vietnam's economic future, he chose not disclose it.
Compared to other CPV economic types we have met, he was not
very impressive.
BURGHARDT