PRIVATE SECTOR TELLS VIETNAM TO RAISE ITS GAME DURING

UNCLAS SECTION 01 OF 02 HANOI 001329 SENSITIVE SIPDIS STATE FOR EAP/MLS MBROWN SINGAPORE FOR TREASURY TREASURY FOR SCHUN USTR FOR DBISBEE E.O. 12958: N/A TAGS: EINV ECON EIND ELAB ENRG KCOR VM SUBJECT: PRIVATE SECTOR TELLS VIETNAM TO RAISE ITS GAME DURING ECONOMIC SLOWDOWN REF: A) Hanoi 1316 ("Vietnam Shifts Focus"); B) Hanoi 1251 ("Addressing The Economic Agenda"); C) Hanoi 1201 ("Econ Highlights: Power Generation") HANOI 00001329 001.2 OF 002 ¶1. (U) Summary: Local and foreign businesses told the Government of Vietnam to streamline red tape, intensify consultations with the private sector, accelerate investment licensing and shore up its competitiveness as ways to blunt the impact of the global economic crisis. The mining and energy sectors, in particular, gave the GVN a long list of specific recommendations and low marks on its efforts thus far to improve the business climate in their sectors. For the most part, the GVN took note of the advice without committing itself to action. The discussions were part of the twice-yearly Vietnam Business Forum, hosted by the World Bank and the GVN to elicit private sector advice. End summary. PREDICTABILITY, CERTAINTY AND TRANSPARENCY -------------- ¶2. (U) The private sector's message to the GVN centered on how to make the best of the economic crisis that is already being felt in Vietnam (REF A). Nearly all sectors which presented papers at the Vietnam Business Forum (VBF) stressed the need for the GVN to improve its decision-making process. They cited the lack of transparency in how decisions are made, the poor communication between decision-makers and those affected and between decision-makers themselves, and the uncertainty of GVN policies. ¶3. (U) The mining group, perhaps the sector most affected by the slew of regulations and taxes that the GVN has sprung on them (REF B),said that a rapid series of decisions "had changed the economic landscape" for them. "Compounding these concerns is the speed of implementation and the lack of dialogue with affected stakeholders," Robert Guest, from Asian Mineral Resources and head of the Mining Group, told the VBF panel of ministers, vice ministers, and provincial government officials. The U.S., Australian, and European chambers of commerce echoed those sentiments. "Our members would welcome better and more regular communication between [the GVN] and the business community regarding the application of laws and regulations, including consistent messages and coordination across different ministries and levels of government," Giles Cooper, from Auscham, stated. ¶4. (U) Streamlining investment and other red tape-prone activities were also cited as key goals for the coming year. "In 2009 and 2010 many quality projects are likely to be competing for the same very limited pool of money," warned the Infrastructure Working Group. Many presenters warned that the current pace of telecom regulation, investment licensing, a roadmap for the banking sector and state-owned privatization were too slow and would drive investment elsewhere. CALLS FOR INCREASED SPENDING ON INFRASTRUCTURE -------------- ¶5. (U) Many of the participants urged the GVN to ramp up infrastructure projects, which they claimed would bring in foreign investment and stimulate the local economy. Both the Manufacturing and Infrastructure Working Groups said that Vietnam could not afford to sit on long-pending licenses for power generation, telecom, transportation and other foreign investment projects (REF B). "Infrastructure was at a critical point in holding back growth in Vietnam," Tony Foster, from the Freshfields law firm and head of the Infrastructure Group, said. "As a result of the world financial crisis, the position could become worse." The group recommended, among other things, that the GVN create a single-window entity to deal with all investment licensing and speed up approvals. ¶6. (U) The Infrastructure Group also restated the energy industry's calls for higher retail electricity tariffs to make new capital investment in power generation possible. The GVN acknowledged that it needed investment in power generation, but countered that its "energy roadmap" was on track despite the travails of cash-strapped state-owned Electricity of Vietnam (REF C). The Manufacturing Working Group suggested relaxing infrastructure investment regulations and a government stimulus package as ways to overcome the lack of capital for these projects. FINANCIAL SECTOR CALLS FOR TRANSPARENCY HANOI 00001329 002.2 OF 002 -------------- ¶7. (U) Both the Bank and Capital Markets Working Groups called for increased transparency from the GVN, especially in the areas of banking and macroeconomic data. Both groups also requested that foreign ownership limits be increased and applicable regulations clarified. The Bank Group also asked about possible legislation to facilitate mergers of 10 to 15 small, troubled joint stock banks. The Capital Markets Group pushed for decreased state ownership and better disclosure requirements, especially on related party transactions. ¶8. (SBU) While recent interest rate cuts were lauded, the interest rate cap was criticized for preventing risk-based pricing. State Bank of Vietnam (SBV) Deputy Governor Nguyen Van Binh acknowledged the difficulties caused by the cap and said that he hoped the National Assembly would soon take action to remove it. (Note: The cap is part of the Civil Code and cannot be removed by the SBV. Sources within the GVN indicate that the GVN is nearing a consensus on this issue and there will soon be action by the National Assembly.) Binh also said the SBV was re-examining the issue of foreign ownership caps and would submit suggestions to the Prime Minister. INVESTMENT IN EDUCATION AND TOURISM -------------- ¶9. (U) Both the Tourism and Education groups highlighted the comparative disadvantages of Vietnam vis-a-vis its neighbors. In education, the group compared Vietnam with Malaysia to make the case that Vietnam's proposed education investment regulations were needlessly restrictive and self-defeating. The tourism sector pointed to how visa regulations made it much harder to visit and work in Vietnam than in neighboring countries. RISING COSTS AND OTHER DISINCENTIVES -------------- ¶10. (U) The private sector also mentioned that Vietnam's rising costs, in particular, personal income tax rates and labor, was eroding its competitiveness. The new personal income tax law, which will come into effect in 2009 and taxes employee benefits, came under fire from the Eurocham. Many expatriate workers are concerned that these rising taxes may drive foreign managers to commute from neighboring countries. Like at the previous VBF in June, AmCham focused on the challenges of rising labor costs and illegal strikes, and asked for a moratorium on minimum wage increases. COMMENT: THE WORD IS REFORM -------------- ¶11. (SBU) Comment: The private sector offered many specific recommendations and the overall message of continuing to reform and modernize Vietnam's economic institutions and laws was unmistakable. In choosing to frame the urgency of improving the business climate against the backdrop of the economic crisis, the private sector deftly made its case for GVN action. Although the GVN remained silent throughout most exchanges, its track record shows that it will seriously consider these recommendations. End Comment. MICHALAK