Vietnam Mid-Term Consultative Group Meeting

UNCLAS SECTION 01 OF 03 HANOI 001444

SIPDIS

AIDAC

DEPT PLEASE PASS TO HHS
DEPT PLEASE PASS TO USAID/ANE FOR WALTER NORTH
BANGKOK PLEASE PASS TO USAID/RDMA TIM BEANS

E.O. 12958: N/A
TAGS: WTO IPROP HIV AIDS FINREF SOE
SUBJECT: Vietnam Mid-Term Consultative Group Meeting


1. SUMMARY: The mid term consultative group meeting was held
on 2-3 June in Can Tho. Presentations were made on a range of
topics including corruption, development of Vietnam's new five
year development plan and financial reform. Overall,
however, the meeting was hampered because a draft five year
plan, the anticipated central organizing document for the
meeting, was unavailable for distribution, analysis or
comment. End summary.


2. On June 2 and 3, representatives from the Government of
Vietnam, 22 donor countries, 13 international agencies, four
international NGOs and the private sector gathered for the
informal mid-year Consultative Group (CG) meeting in Can Tho
City. Among those attending were representatives from the
Asian Development Bank, International Finance Corporation,
International Monetary Fund and World Health Organization.
First time participants included representatives from Ireland,
Spain and Hungary.


3. The United States was represented by Ambassador Michael
Marine and USAID Regional Mission Director Timothy Beans. The
delegates reviewed the state of Vietnam's economy,
preparation of Vietnam's next five-year Socio-Economic
Development Plan (SEDP) and its integration with the
Government's Comprehensive Poverty Reduction and Growth
Strategy (CPRGS) process, the preparation for WTO accession,
and the status for reforms in the banking sector, anti-
corruption and public administration reform, as well as legal
and judiciary developments. Also discussed was the
effectiveness of Official Development Assistance (ODA),the
fight against HIV/AIDs and the need to curb the spread of
Avian Influenza. Two recurring themes throughout all of these
discussion was the need for the Five Year Plan to leave room
for the private sector to grow and take on a greater role in
development and the concurrent need for financial sector
reform.


4. Deputy Prime Minister Vu Khoan opened the meeting by
presenting an overview of the challenges facing the Vietnamese
economy and inviting frank comments. He noted that the latest
multilateral negotiations for WTO membership in Geneva have
been concluded on a positive note, and Vietnam is moving
towards the conclusion of bilateral negotiations with a large
number of partners. The National Assembly, he said, will amend
this year's law-making agenda to meet WTO entry requirements
and to focus on creating an enabling business climate, address
social issues, and reinforce anti-corruption measures.


5. Minister Vo Hong Phuc of the Ministry of Planning and
Investment (MPI) provided an update on socio-economic
developments and activities carried out since the CG in
December 2004 to prepare the new SEDP, integrating the CPRGS
approach. In his opening remarks, Phuc recited a litany of
positive economic statistics: growth remains high for the
first five months at an estimated rate of 7.3% with industrial
growth over 15%. Trade and tourism grew 20% and 22%,
respectively. Overall private sector grew at 24%, and foreign
direct investment increased by 90%. While overall economic
growth is strong, the government will need to grow at 9% for
the rest of the year to reach the 8.5% target set by the
National Assembly. Phuc noted that this will be difficult as a
number of constraints are hampering growth, most especially
the energy shortage. The government will take a number of
actions to help maintain growth including simplification of
rules and regulations for foreign and domestic investment,
greater emphasis on fighting corruption and accelerated reform
of the services and financial sectors, along with accelerated
equitization of the state-owned enterprises (SOEs).


6. In their response, donors commended MPI for committing to
consultations at all levels of government and with all
population groups. They singled out the Ministries of Rural
Development, Education and Transport for the substantive
consultations already carried out and recommended similar
consultations be held with other ministries. Donors emphasized
the importance of engaging early in a substantive discussion
of the SEDP to facilitate the alignment of their ODA programs
to the new SEDP but were disappointed that the government did
not have specific documentation or at least the strategic
overview of each key sector to share. Japan echoed this view
noting they intended to align their ODA program with the next
SEDP. In response, the Government said it and the World Bank
would co-host a workshop for donors in early August to discuss
the first draft of the SEDP.


7. During discussions on the state of the economic reform
program, the IMF representative emphasized the importance of
faster banking sector reform to protect debt
sustainability, improve credit allocation, and promote
higher-quality investment and growth. Early action should be
taken to strengthen the State Bank of Vietnam's independence
and clearly establish its supervisory authority over all the
banking institutions that operate in Vietnam. The
equitization plans for state-owned commercial bank SOCB)
reform need to be pursued without further delay; government
interference in the lending decisions of SOCBs need to be
curtailed, and corporate governance should be significantly
strengthened.


8. Numerous delegates, pointing out that corruption increases
the cost of doing business and often most affects the poor and
most vulnerable, commended the Government Inspectorate for its
preparation of a draft law on anti-corruption and overall
efforts to strengthen administrative, legal and judiciary
reform. The Inspectorate presentation was frank, and the draft
law appeared comprehensive in scope. If implemented
effectively, its preventive measures such as asset declaration
of Government officials, could be effective in curbing
corruption. Sweden, the lead donor in assisting the Government
in analyzing corruption and strengthening the capacity of the
inspectorate system, urged that a support program begin before
the next CG meeting in December.


9. Delegates noted that progress in harmonizing procedures
continues and expressed their commitment to continue efforts
at harmonizing ODA procedures in light of the outcome of the
Paris High Level-meeting on aid effectiveness. They also
discussed the Hanoi Core Statement which represents an effort
to localize the Paris declaration on aid effectiveness. Both
are based on principles of government ownership,
donor harmonization, simplification, and managing for
results. Delegates welcomed the Hanoi Core Statement and
expressed the intent to reach a final endorsement ahead of the
New York summit on Aid Effectiveness in September. The EU has
been leading this effort in Vietnam and the European
Commissioner noted that as donors continue working with
Government to align support to the SEDP, a parallel effort is
needed to strengthening the Government's public service
delivery systems and ensure consistency between the new SEDP
and ODA regulations. Some donors, including the French,
expressed a willingness to provide financial support directly
to the Government's budget and rely more on the Government's
own mechanisms for disbursing funds. (FYI Budgetary support
is not part of the USAID program in Vietnam and the U.S.
delegation noted that we need time to fully review the Hanoi
core statement. It has since been sent to the U.S. DAC
representative in Paris for his comments and clarification.
END FYI.)


10. In the discussion on HIV/AID, Minister of Health Tran Thi
Trung Chien described recent efforts to prevent the spread of
HIV/AIDS and to provide effective assistance to those living
with HIV/AIDs. She particularly noted the May decision of the
Prime Minister to establish a new HIV/AIDS Control Department
under the MOH as a sign that the government is taking the
problem seriously. She noted that intergovernmental and donor
coordination has been strengthened but added that her
government's manpower is limited. Delegates expressed their
desire to continue working with the government on this, but
emphasized the importance of strengthening the coordination
within Government and between donors. (FYI - A recent response
to a letter signed by the UNDP rep and six ambassadors,
including Ambassador Marine, which called for improved
coordination, was essentially non responsive to the points
raised. End FYI.)


11. Madame Chien also presented a status report on managing
and preventing outbreaks of Avian Influenza, summarizing
recent government's actions. A number of donors described
current and planned assistance in this area. Japan, for
example, said it was considering providing a bio-safety level
3 lab to the National Institute of Health and Epidemiology
while the UNDP is continuing to set up a planned trust fund
for donor funding. In response to a question from the U.S.
development representative, Tim Beans, Minister Chien did not
answer the question of when Vietnam would have an
effective disaster preparedness plan in place. The WHO
estimates that should a significant outbreak of human AI occur
that Vietnam would have a two to three week window to prevent
a pandemic and such a plan is essential. Ambassador Marine
raised this point again at the heads of delegation luncheon
with Deputy Prime Minister Vu Khoan who agreed to explore
convening a meeting of government officials and donors to get
movement on this issue.


12. In his closing remarks, the World Bank Country Director,
summed up the meeting: Vietnam is at an important juncture in
its development process and the next SEDP should provide
guidance for completing the transition to a market economy.
The government's role will be to create the right incentives
for the private sector to lead economic growth. This implies
that the government will treat production targets as
indicative and focus more on development outcomes. In areas
such as infrastructure, where investment requirements
are enormous, as illustrated by recent power
shortages, the government will need to engage the private
sector more as a partner in meeting the needs. Planning and
Investment Minister Vo Hong Phuc underlined Vietnam's
commitment to work with donors to develop a new five-year
Socio-Economic Development Plan for 2006-2010 with a new
approach, where the government will play a guiding rather than
an interventionist role in addressing important social and
economic challenges. The government, he said, remains
committed to move towards a new planning approach focused on
outcomes, with community consultation and finalizing public
expenditure plans more openly. In closing, delegates agreed
that they would meet in December for the annual CG meeting.


BOARDMAN