PRIME MINISTER FLOATS ANTI-DEFICIT AND INFLATION MEASURES,

UNCLAS HANOI 000530 SENSITIVE SIPDIS SINGAPORE FOR TREASURY TREASURY FOR SCHUN USTR FOR DBISBEE E.O. 12958: N/A TAGS: ECON VM SUBJECT: PRIME MINISTER FLOATS ANTI-DEFICIT AND INFLATION MEASURES, VOWS TO EXPAND SOCIAL NET REF: A) Hanoi 377 ("PM Declares War On Inflation") ¶1. (U) Summary: In his annual "Government Report" before the National Assembly, Prime Minister Nguyen Tan Dung threw his support behind measures to reduce the fiscal and trade deficits, such as reducing public borrowing and slowing down "unnecessary" imports. He also vowed to keep price caps on key staples and fuel, and extend social programs to protect the poor. Although the Prime Minister for the first time lent his support to the trade deficit-reducing schemes earlier floated by his ministers, he was careful to note that any measures taken would be done in line with Vietnam's international commitments. On other plans, PM Dung avoided specifics and did not address at all his government's lowered expectations on economic growth for 2008. There are no signs of generalized unrest in Vietnam due to current economic woes, but police nonetheless rounded up a small group of people protesting local corruption just minutes before the PM spoke. End summary. INFLATION REMAINS TOP CONCERN, DEFICITS A CLOSE SECOND -------------- -------------- ¶2. (U) In his May 6 remarks to open the 2008 session of the National Assembly, Prime Minister Dung reiterated that the fight against inflation has taken center stage, but his message let on as well that the GVN will prioritize reducing its trade and fiscal deficits, which were $12.44 billion and $3.53 billion in 2007, respectively, and expected to grow this year. On the trade deficit, PM Dung vowed to raise tariffs and duties, and levy other non-tariff barriers on "unnecessary" (but unspecified) imports. He was careful to note that all those measures would be taken within the constraints of international obligations. ¶3. (U) On the budget deficit, the Prime Minister announced that he would reduce public borrowing by 25 percent via unspecified cuts or delays to pending capital projects. As a result, the bond issuances that would have been used to finance those projects will also be delayed or cancelled. Although he did not specify which projects would be affected, he announced increased spending on social spending and continuing subsidies on key staples, transportation and fuel. GVN TO EMPHASIZE SOCIAL PROGRAMS AND SUBSIDIES -------------- - ¶4. (U) PM Dung added that he intended to address the impact of higher prices on the poor by increasing welfare for vulnerable sectors like the elderly, the handicapped, children and ethnic minorities. Dung said that he would keep caps in place on the cost of schooling and hospital services, and on fuel, coal, water, and on all public transportation, including airfare. COMMENT -------------- ¶5. (SBU) The Prime Minister's message embodied GVN concerns about the impact of inflation, a growing trade deficit and worsening public finances in what he admitted would be a "difficult year." Although his game plan is not new, having been outlined earlier in his seven-point inflation plan (reftel),the speech reaffirmed his commitment to battling inflation, which is an important message for domestic consumption. While there is no indication of popular anger creating stability issues, the police made sure that the small park near Hanoi's major Party and Government buildings was cleared of demonstrators, and just in time for the start of the morning ceremonies. Scores of uniformed and plain clothed police hustled about a score of demonstrators into vehicles about fifteen minutes before the ceremony began. Small groups frequently stake out the site, most with complaints about land grabs by provincial officials. A small number were back on the site by midday. End Comment. MICHALAK 3