VIETNAMESE TYCOON OFFERS EXAMPLES OF ECONOMIC DOWNTURN

C O N F I D E N T I A L HO CHI MINH CITY 000162 STATE FOR EAP/MLS MBROWN, EEB SINGAPORE FOR TREASURY TREASURY FOR SCHUN USTR FOR DBISBEE E.O. 12958: DECL: 3/5/2019 TAGS: ECON EIND EFIN PGOV SOCI VM SUBJECT: VIETNAMESE TYCOON OFFERS EXAMPLES OF ECONOMIC DOWNTURN LEADING TO BETTER GVN DECISION-MAKING REF: HANOI 138 CLASSIFIED BY: Kenneth J. Fairfax, Consul General, U.S. Consulate General Ho Chi Minh, Department of State. REASON: 1.4 (b),(d) ¶1. (C) Summary: The global economic downturn is proving to be an opportunity for Vietnam as well as a challenge, according to many in the Ho Chi Minh City (HCMC) business community, including one of the country's richest men, Dang Thanh Tam. Vietnam's leadership is fixated on the economic crisis, Tam said, and this level of discussion and debate is leading to better policy. Tam cited the evolution of Vietnam's fiscal stimulus package from a $6 billion USD sop to state-owned enterprises into a targeted 1 billion USD package to subsidize lending and provide for Vietnam's most vulnerable as an important example. Still, the downturn is hitting hard. While the GVN and factory owners are trying to minimize unemployment by reducing salaries or cutting back on hours, the number of people employed in Tam's industrial parks is dropping in some cases by as much as 30 percent. Comment: Vietnam's media as well as American business leaders point out that recent shifts in the labor market, along with renewed attention to bureaucratic reform, are helping to make Vietnam more competitive, but most in government and business believe that Vietnam will only turn the corner when the United States begins to recover. End summary. Tam Gives Stimulus Plan High Marks -------------- ¶2. (C) Econoff recently spoke to Saigon Invest Company's President Dang Thanh Tam, a HCMC People's Council member, confidante to senior GVN leadership and leading private-sector businessman, who is well-placed to evaluate economic decision-making and the GVN stimulus package. Tam believes the GVN is responding well to the global downturn, but needs more transparency and better laws -- the kind of liberalization (e.g., streamlining investment licensing) that a real economic crisis could force through. The $1 billion GVN stimulus package (reftel) can be leveraged to support up to $25 billion in new lending. More importantly, Tam said, in a series of heated debates Vietnam's leadership decided against an earlier $6 billion USD proposal that would have sent most of the funds through state-owned commercial banks (SOCB) to state-owned enterprises (SOE) to stimulate the economy. ¶3. (C) The February 16 issue of the Vietnam Investment Review made this point publicly, saying that limited resources mean the country's leaders are being forced to make hard decisions about the future of Vietnam's economy. Support for SOEs is a prime example. Pumping more money into the SOEs (as some Politburo members wanted) would have been a disaster, Tam declared. The state-owned shipbuilder VinaShin promised to create a shipbuilding industry in Vietnam but instead cost Vietnam almost $200 million USD last year, Tam stated, and as much as the National Assembly wants to kill VinaShin to save money, the GVN wants to keep the company alive because it employs 100,000 workers. Since VinaShin's orders aren't there, he concluded, tougher times lie ahead and "VinaShin will die." Tam observed that the global economic downturn forced Vietnam's leaders to put the country's limited resources to better use than propping up SOEs, stating that "the GVN learned a lot last year and began adopting views much closer to those of the private sector than ever before." ¶4. (C) The $1 billion stimulus plan isn't perfect, Tam assessed, and Vietnam needs desperately to build more infrastructure projects, but that would mean more borrowing. Municipal and provincial governments are repackaging and accelerating planned infrastructure spending as "stimulus plans" to help, he said, but unless they shift to build-own-operate or build-own-transfer projects the short-term stimulative effect will be minimal. As a member of the Ho Chi Minh City People's Council with "budgetary oversight," Tam said the 80,000 billion VND ($1.3 billion USD) "HCMC stimulus package" reported in the press is a great example of already planned spending repackaged as stimulus. The People's Council is pushing for more efficient investment and the People's Committee "listens 10 percent of the time" according to Tam. The GVN also needs to do more to support domestic consumption, he concluded. Production and Employment Down in Saigon Invest IPs -------------- -------------- ¶5. (C) While the government is responding well, Tam thinks Vietnam's economy needs more help. He pointed to decreased investment and slowing production as two clear signs that the global downturn is affecting his industrial parks, which focus heavily on manufacturing for export. Tam said most companies in his industrial parks have reduced their staffs by as much as one-third in order to cut costs. The Taiwanese electronics manufacturer Foxcom, which produces Ipods and Iphones at one of Tam's parks, let go 30 percent of the workers at that factory to cope with a 30 percent drop in orders. A temporary drop in manufacturing jobs won't be a problem in Tam's view, because Vietnam's agricultural economy can still reabsorb virtually all of these workers. ¶6. (C) Others factories have chosen to reduce the number of working days per month from 25 to 18 or to cut staff salaries. A few companies, especially SOEs, are hoping that cash on hand or preferential access to capital from State-owned commercial banks will allow them the luxury of selling at a loss to keep production underway, Tam said, noting that at one point VinaCoMin sold coal for $30 USD/ton that cost the company $40 USD/ton to produce and transport. Already the global downturn is putting pressure on the GVN to limit this wasteful spending, he said. New Capital is Hard to Come Buy -------------- ¶7. (C) Finding new investors is tough as well, Tam continued. In January 2009, he saw just one-third the level of new investor interest that he saw last January. The GVN is getting ready to announce a few big new investment licenses concluded in February, but these are just developers making "marketing announcements" in order to help them raise money for their projects, he said. Puffed up licensed investment numbers "are not a problem" according to Tam, but rather are a distraction because the performance of provincial officials is rated in part on these numbers. (Comment: We are a bit more critical than Tam of the policies that effectively encourage provincial leaders to focus on generating wildly inflated promises of future investment in the form of FDI licenses. Rather than rewarding officials who rack up the biggest tally of dubious projects that may or may not ever get off the ground, the GVN needs to reward provinces that are most effective in improving the business on the ground so that implemented FDI rises. End Comment.) ¶8. (C) Despite the challenges, it's not all gloom and doom, Tam said. Saigon Invest did much better financially in late 2008 and early 2009 because interest rates dropped from over 20 percent to under 10 percent, leading to a huge savings on interest payments alone. Comment: -------------- ¶9. (C) Various newspapers, most notably the Vietnam Investment Review, have asserted that the global downturn is improving economic policy in Vietnam in ways that are tangible, though far from systemic. This may be too positive an assessment, since it remains to be seen how effectively the $1 billion stimulus plan will address the macroeconomic problems Vietnam is now facing and whether the GVN will begin systematically addressing other weaknesses, such as inefficient SOEs, that slow economic growth. Tam's views summarize many of the things private sector businesses -- including members of the American Chamber of Commerce (AmCham) -- in Ho Chi Minh City have been saying, especially that the GVN is trying hard to keep people employed and to find ways to attract new investment. They, together with Vietnam's media, also point out that recent shifts in the labor market, along with new efforts to cut red tape, are helping to make Vietnam more competitive. Still, most in government and business believe that Vietnam will have to be content with slower economic growth until the United States begins to recover. End comment. ¶10. (U) This cable was coordinated with Embassy Hanoi. FAIRFAX