FINANCIAL CRISIS CAUSING INCREASED UNEMPLOYMENT; FULL

UNCLAS HANOI 000241


USTR FOR DBISBEE;LKARESH
STATE FOR EAP/MLS MBROWN

E.O. 12958: N/A
TAGS: ETRD ECON EAID EINV ELAB VM
SUBJECT: FINANCIAL CRISIS CAUSING INCREASED UNEMPLOYMENT; FULL
IMPACT STILL UNCLEAR

REF: A) Hanoi 205 ("Summer if Sink-or-Swim Time for Exporters")
B) 09HO CHI MINH CITY 11 ("Falling Demand Prompts Factory Closings")
C) Hanoi 1391 ("Further Effects of The U.S. Financial Crisis")


1. (SBU) Summary: The global economic slowdown and declining
Foreign Direct Investment (FDI) is increasingly affecting Vietnam's
economy, including employment levels. The Government of Vietnam
(GVN) says unemployment is rising and labor officials predict that
up to 400,000 workers in the formal sector may lose their jobs in

2009. Another government source estimates the total could be much
higher. The formal employment sector in Vietnam includes only those
workers, which number about 9 million, employed by foreign
enterprises, SOEs, and private Vietnamese companies. Over 80
percent of the Vietnamese labor force is still employed in the
informal sector, the vast majority working in agriculture. Contacts
in the private sector indicate that while they are not seeing
massive layoffs at this point, the full effect on employment of the
economic crisis will become clearer over the next several months.
The GVN is responding with unemployment insurance, support for
severance payments, and added efforts to boost labor exports.
Unfortunately, a lack of reliable data hampers the GVN's ability to
assess the unemployment situation accurately and limited
administrative capacity hinders its ability to develop effective
interventions. The GVN expects that since the majority of workers
who will lose their jobs come from rural areas, they will simply
return home and be absorbed by the agricultural sector or will find
other forms of informal employment. End Summary.

Labor Force Structure; FDI Workers Most Affected
-------------- ---


2. (SBU) According to GVN estimates, about 80 percent of Vietnam's
45 million person labor force works in the informal sector, the vast
majority in agriculture as small farmers. (Note: The GVN's
statistical collection and analytical capabilities on labor are weak
and its statistics should be viewed in that light.) MOLISA says the
formal sector comprises 9 million workers. Approximately 2 million
are currently working for Foreign Direct Investment (FDI)
enterprises, 2 million are employed by state owned enterprises
(SOEs),and 5 million are employed by the private domestic sector.
According to the Central Institute of Economic Management (CIEM),
which is part of the Ministry of Industry and Trade (MOIT),the 2
million SOE employees will remain employed because the GVN has told
the SOEs that they cannot lay off any employees during the downturn.
CIEM believes the 5 million Vietnamese employed in the private
domestic sector will be buffered from the global economic downturn
since 70 percent of their production is for domestic consumption,
which CIEM expects will be less affected by the global downturn.


3. (SBU) CIEM officials estimate the impact of job losses will be
most severe on workers of FDI enterprises dependent on export
contracts, especially in the industrial zones in the southern part
of the country. Employees working in furniture, textiles, footwear,
food processing, and electronics (sectors heavily affected by
decreasing demand for exports) will be those most at risk.

Unemployment Rising but Projections for the Year Vary
-------------- --------------


4. (SBU) MOLISA recently announced that according to their latest
unemployment projections, approximately 400,000 formal sector
workers may lose their jobs in 2009. This would mean an
unemployment rate of approximately 10 percent in this sector.
MOLISA reports that 66,700 workers had been laid off nationwide as
of January 23. To date, Ho Chi Minh City ranks first with 19,000
workers losing jobs in January, followed by Hanoi with a job loss of
nearly 10,000. The southern provinces of Dong Nai and Binh Duong
also had significant losses of 8,000 to 9,000 per province in
January. CIEM recently told Econoff that employment losses will be
much more, and projects a potential loss of over 1 million jobs. At
a March 6 meeting with the Ambassador, the Vice Chairman of the
Vietnam Chamber of Commerce and Industry (VCCI),Vietnam's largest
private business association, said VCCI estimated 400,000 to 1
million job losses this year.


5. (U) Econoff recently checked with representatives of some of
Vietnam's most important export industries (Ref A). They reported
significant drops in overseas orders and acknowledged that smaller
factories have begun to close. However, job losses in these
industries have not reached the dire levels some were predicting
earlier this year. Still, they said they will face an inflection
point beginning in several months as they fill existing orders and
have to decide whether to significantly cut costs and workers if
they do not receive new ones. Business representatives recently
told the Consulate in Ho Chi Minh City (septel) that while some
export-oriented companies have let workers go, others are hiring
significant numbers of new laborers. The American Chamber of
Commerce in Hanoi said last week that a membership survey found that
while 20 percent of firms expect to lay off workers this year, 40
percent plan to hire new staff.

What Will Happen to the Workers?
--------------


6. (SBU) MOLISA told Econoff that it anticipates most of the
laid-off workers who come to industrial zones from rural areas will
simply return home if no other jobs are available. The returning
workers will be absorbed by the agricultural sector and supported by
their families, or may find other types of informal employment, such
as helping in shops or selling small goods. CIEM officials share
MOLISA's views that unemployed workers will return to the
agricultural sector or find employment in the informal sector.
Nevertheless, CIEM predicts significant declines in the standard of
living of agricultural households if family members employed in
factories lose their jobs and are no longer able to send money home.
While people will be able to survive, there will be fewer funds
available for education, healthcare, and transportation and
unnecessary spending will be eliminated. According to CIEM, the
Vietnamese people understand this and will adjust to the new
situation. Others, such as Nguyen Quang A from the Institute for
Development Studies, inject a note of caution, arguing that land-use
disputes may increase in number and intensity as unemployed workers
return home, particularly in semi-rural provinces neighboring
Vietnam's larger industrial areas.

Rural Provinces: Business as Usual
--------------


7. (U) A February provincial trip by Embassy officers highlighted
the dichotomy of the employment effect of the global economic crisis
on the formal and informal employment sectors in Vietnam.
Government leaders in two rural provinces in the Central Highlands
did not report a sharp increase in unemployment nor were they seeing
large numbers of workers migrating into or out of the provinces.
While local officials were aware of Vietnam's economic difficulties,
they did not anticipate serious labor issues or social problems in
their provinces. They noted that provinces with little FDI and few
or no industrial zones may be in a better position to protect
workers from job loss.


8. (U) Local businesses, including transportation companies, coffee
and furniture producers, and organic flower and vegetable growers in
these provinces did not anticipate laying off workers. Demand
remains stable for goods and services being provided to the domestic
market. Exporters to Japan and Europe were not yet seeing decreases
in orders. In fact, one company reported increased flower exports
to Japan since domestic Japanese flower producers were going out of
business.

GVN Response: Multiple Approaches
--------------


9. (U) The GVN is applying several different remedies to mitigate
the effects of rising unemployment. First, MOLISA is pursuing
expansion of labor exports. Vietnam currently has a total of
approximately 500,000 laborers overseas, most working in
agriculture, construction, and fishing. Remittances from export
laborers for 2008 were estimated to be USD 1.6 billion.
Approximately 85,000 workers went overseas in 2008 and the GVN has a
2009 target of 90,000, which it still hopes to meet in spite of the
economic downturn. While key countries such as Taiwan, Japan and
South Korea are reducing the numbers of export laborers accepted and
even returning some to Vietnam prematurely, the GVN hopes to
identify other destinations still needing workers, including
countries in the Middle East.


10. (U) The GVN has also decided to provide assistance to the
unemployed by supporting those enterprises that are forced to lay
off workers. For those enterprises forced to reduce workers by 30
percent or enterprises losing 100 or more workers, the Vietnam
Development Bank will make loans available at 0 percent interest.
These loans can be used to maintain business operations and to
provide termination payments to departing workers equal to two weeks
salary for each year worked.


11. (U) Finally, the GVN is moving forward with implementation of
Labor Code reforms initially passed in 2006, though these measures
will not apply to all workers and will not provide benefits this
year to those laid off. The new laws, which went into effect on
January 1, 2009, create unemployment insurance for employees who
lose their jobs or terminate their labor contracts. For employees
to receive unemployment insurance benefits they must fulfill three
requirements. First, only workers with employers with at least 10
employees will be eligible for benefits. Second, the employee must
have an official labor contract with terms of at least 12 months.
Third, the employee must have contributed to the unemployment
insurance fund for at least twelve months before being unemployed.
Since Vietnam only began collecting for the fund in 2009, employees
can only receive their allowances in 2010 at the earliest and only
if they meet the other qualifications.


12. (SBU) Comment: While estimates of unemployment vary, the
message from our contacts is the same: the GVN will take actions to
assist unemployed workers but is counting on the agricultural sector
to absorb unemployed industrial workers, as well as the ability of
informal laborers to find new types of employment. This is a
reasonable calculation, but it is premised on the assumption that
there are adequate land and employment opportunities in the
villages. At this point, we do not see any significant indication
that growing unemployment has led to social instability.
Nevertheless, while apparently satisfied with its response so far,
Vietnam's government and Party will be keen to forestall any
possibility of unrest. End comment.


13. (U) This cable was coordinated with ConGen HCMC.

MICHALAK