US embassy cable - 00HANOI1299

VIETNAM'S BANK SYSTEM REFORM PLAN: TIME TO IMPLEMENT

Identifier: 00HANOI1299
Wikileaks: View 00HANOI1299 at Wikileaks.org
Origin: Embassy Hanoi
Created: 2000-06-14 00:52:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: ECON EFIN EAID VM FINREF SOE
Redacted: This cable was not redacted by Wikileaks.
This record is a partial extract of the original cable. The full text of the original cable is not available.

140052Z Jun 00

2000HANOI01299 - UNCLASSIFIED
 
 
 
                           UNCLASSIFIED     PTQ7980

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ACTION EB-00    

INFO  LOG-00   NP-00    AID-00   CEA-01   CIAE-00  CTME-00  DODE-00  
      ITCE-00  DOTE-00  ANHR-00  SRPP-00  EAP-00   EXME-00  E-00     
      FAAE-00  FBIE-00  UTED-00  VC-00    FRB-00   H-01     TEDE-00  
      INR-00   ITC-01   L-00     VCE-00   MOFM-04  MOF-03   AC-01    
      NSAE-00  OMB-01   OPIC-01  ACE-00   SP-00    IRM-00   SSO-00   
      STR-00   USIE-00  FMP-00   R-00     DRL-02   G-00     FDIC-01  
      NFAT-00  SAS-00     /016W
                  ------------------627D8E  140054Z /38    
FM AMEMBASSY HANOI
TO SECSTATE WASHDC PRIORITY 0117
INFO USDOC WASHDC
ASEAN COLLECTIVE
AMEMBASSY BEIJING 
AMCONSUL HONG KONG 
DEPTTREAS WASHDC
NSC WASHDC
AMCONSUL HO CHI MINH CITY 
UNCLAS SECTION 01 OF 05 HANOI 001299 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/IFD/OMA, EB/IFD/ODF, EAP/BCLTV 
STATE PAS USAID/ANE/D SOULES/DMCCLUSKEY 
DEPTTREAS ALSO FOR OASIA/SURBANA 
USDOC ALSO FOR 4431/MAC/AP/OKSA/VLC/HPPHO 
                       UNCLASSIFIED 
 
PAGE 02        HANOI  01299  01 OF 05  140054Z 
NSC ALSO FOR R HUSO 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EAID, VM, FINREF, SOE 
SUBJECT: VIETNAM'S BANK SYSTEM REFORM PLAN: TIME TO IMPLEMENT 
 
REF: A) 99 HANOI 3358;  B) FBIS 2813114Z FEB 00 
 
------- 
SUMMARY 
------- 
1. (SBU) THE IMF/WORLD BANK ENHANCED STRUCTURAL 
ADJUSTMENT FACILITY (ESAF) AND STRUCTURAL ADJUSTMENT 
CREDIT (SAC) AGREEMENTS FOR VIETNAM HAVE BEEN 
SUSPENDED FOR THE PAST TWO YEARS DUE TO DISAGREEMENTS 
OVER THE PACE AND EXTENT OF THE GOVERNMENT OF 
VIETNAM'S (GVN) ECONOMIC REFORMS IN THE AREAS OF 
TRADE, STATE-OWNED ENTERPRISES (SOE'S), AND BANKING. 
ON JUNE 7 THE IMF'S RESIDENT REPRESENTATIVE TOLD 
EMBASSY THE GVN RECENTLY URGED THE IMF AND BANK TO 
REDOUBLE EFFORTS TO CONCLUDE THE AGREEMENTS.  A MAJOR 
COMPONENT OF THE REFORM AGENDA WILL BE TO REVAMP 
VIETNAM'S WEAK, ILL-MANAGED BANKING SYSTEM. 
 
2. (U) THE LATEST DRAFT PLAN BY THE STATE BANK OF 
VIETNAM (SBVN) FOR BANKING REFORM INVOLVES A 
RESTRUCTURING OF ALL VIETNAMESE BANKS, ESPECIALLY THE 
FOUR STATE-OWNED COMMERCIAL BANKS (SOCB'S) THAT 
DOMINATE THE SECTOR.  IT IS INTENDED TO CREATE A 
`LEVEL PLAYING FIELD' FOR ALL BANKS, INCLUDING 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  01299  01 OF 05  140054Z 
SOCB'S, J-S, AND FOREIGN.  THE MAIN POLICY GOALS ARE 
REMOVAL OF THE RESPONSIBILITY FOR `POLICY LENDING' 
FROM THE SOCB'S, WHICH WILL BE REQUIRED TO OPERATE ON 
A PURELY COMMERCIAL BASIS; RESTRUCTURING OF 
NONPERFORMING LOANS, REPORTEDLY AS MUCH AS 27-28 
PERCENT OF TOTAL DEBT, THROUGH CREATION OF AN `ASSET 
MANAGEMENT COMPANY'; AND, ENHANCEMENT OF THE 
INSTITUTIONAL AND MANAGEMENT CAPABILITIES OF THE 
SOCB'S AND THE SBVN. 
 
3. (U) THE SBVN'S PLAN ALSO AFFECTS OPERATIONS OF THE 
J-S AND FOREIGN BANKS IN VIETNAM.  SOME OF THE J-S 
BANKS WILL BE MERGED AND THE SBVN WILL DEVELOP NEW 
MANAGEMENT AND REPORTING CRITERIA TO ENSURE THEIR 
FINANCIAL HEALTH.  AS PART OF THE GVN'S OVERALL 
PROCESS OF INTERNATIONAL ECONOMIC INTEGRATION IT 
PLANS TO MINIMIZE THE CURRENTLY `LARGE' NUMBER OF 
RESTRICTIONS ON FOREIGN BANK OPERATIONS IN VIETNAM TO 
MOVE TOWARD CREATION OF A `LEVEL PLAYING FIELD'. 
ONE SBVN OFFICIAL SAID THE GVN MIGHT EVEN ATTEMPT TO 
MAKE THE `DOMESTIC ROADMAP' FOR REFORM FASTER THAN 
THE SCHEDULE AGREED IN THE UNSIGNED BILATERAL TRADE 
AGREEMENT. END SUMMARY. 
 
---------- 
BACKGROUND 
---------- 
4. (U) REF A REPORTED RESULTS OF SEPTEMBER 1999 
NEGOTIATIONS BETWEEN A JOINT INTERNATIONAL MONETARY 
FUND (IMF)/WORLD BANK (WB) TEAM AND THE GVN ON NEW 
ENHANCED STRUCTURAL ADJUSTMENT FACILITY (ESAF) AND 
                       UNCLASSIFIED 
 
PAGE 04        HANOI  01299  01 OF 05  140054Z 
STRUCTURAL ADJUSTMENT CREDIT (SAC) AGREEMENTS FOR 
VIETNAM.  BOTH FINANCIAL SUPPORT PROGRAMS HAVE BEEN 
SUSPENDED FOR NEARLY TWO YEARS DUE TO DISAGREEMENTS 
OVER THE PACE AND EXTENT OF THE GVN'S ECONOMIC 
REFORMS.  IN PARTICULAR, THE WB AND IMF HAVE 
TARGETTED THREE AREAS FOR REFORM -- THE TRADE REGIME, 
SOE'S, AND THE BANKING SYSTEM.  THE SEPTEMBER ROUND 
OF TALKS BROUGHT SIGNIFICANT PROGRESS ON THE FIRST 
TWO BUT LESS ON THE THIRD.  TWO MORE COMPONENTS OF 
THE AGREEMENTS WILL ADDRESS THE MACROECONOMY AND 
SUPPORT FOR THE PRIVATE SECTOR. 
 
5. (U) PERHAPS THE MOST DIFFICULT ASPECT OF THE 
REFORM AGENDA CONCERNS VIETNAM'S WEAK, ILL-MANAGED 
BANKING SYSTEM.  WORLD BANK PRESIDENT JAMES 
WOLFENSOHN RAISED THIS ISSUE WITH HIS SBVN 
INTERLOCUTORS AND OTHER HIGH-LEVEL OFFICIALS DURING 
HIS FEBRUARY 21-24 VISIT TO VIETNAM.  HE WAS QUOTED 
IN THE PRESS AS SAYING `IF YOU HAVE STATE-OWNED BANKS 
LENDING TO STATE-OWNED ENTERPRISES, YOU DON'T 
TYPICALLY GET VERY GOOD REPAYMENTS.'  SBVN GOVERNOR 
LE DUC THUY RESPONDED THAT `VIETNAM SHARES ... THESE 
CONCERNS AND CHALLENGES'. 
 
 
 
6. (U) ON FEBRUARY 28, THE COMMUNIST PARTY'S DAILY 
NEWSPAPER `NHAN DAN' (THE PEOPLE), IN A REMARKABLY 
CRITICAL EDITORIAL ENTITLED `LET'S RESTORE ORDER AND 
RENOVATE THE BANKING SYSTEM' (REF B), CHARACTERIZED 
VIETNAM'S FINANCIAL AND BANKING SYSTEM AS `FULL OF 
WEAKNESSES AND DISCREPANCIES'.  IT SAID `URGENT 
MEASURES' WERE REQUIRED TO RENOVATE THE SYSTEM AND 
PREVENT `MORAL DEGENERATION' OF BANKING PERSONNEL. 
 
----------- 
REFORM PLAN 
----------- 
7. (SBU) ON JUNE 7 THE IMF'S RESIDENT REPRESENTATIVE 
TOLD EMBASSY THE GVN, IN PARTICULAR DEPUTY PRIME 
MINISTER NGUYEN TAN DUNG, WAS URGING THE IMF AND 
WORLD BANK TO ACCELERATE THEIR NEGOTIATIONS AND 
CONCLUDE THE LONG-STALLED AGREEMENTS.  HE HOPED TO 
HAVE MORE DETAILS OF THE GVN'S PLANS BY JUNE 9, BUT 
THE FINAL FORM OF THE PROGRAM PROBABLY WILL REQUIRE 
SOME ADDITIONAL NEGOTIATION.  EMBASSY HAS NOT YET 
SEEN THE GVN'S LATEST PROPOSAL, BUT BASED ON RECENT 
DISCUSSIONS WITH DIRECTOR XUAN NGHIA LE OF THE 
BANKING STRATEGY DEPARTMENT AND OTHER SBVN OFFICIALS 
WE BELIEVE IT WILL INCLUDE THE FOLLOWING ELEMENTS. 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  01299  02 OF 05  140054Z 
 
8. (U) THE PLAN WOULD INVOLVE A RESTRUCTURING OF ALL 
VIETNAMESE BANKS, ESPECIALLY THE FOUR SOCB'S THAT 
DOMINATE THE SECTOR.  IT IS INTENDED TO CREATE A 
`LEVEL PLAYING FIELD' FOR ALL BANKS, INCLUDING STATE- 
OWNED, J-S, AND FOREIGN.  THIS, SAID MR. LE, WAS THE 
ONLY WAY TO ENSURE A SOUND AND SAFE BANKING SYSTEM. 
 
------------------------- 
SEPARATE "POLICY LENDING" 
------------------------- 
9. (U) THE SBVN PLAN INCLUDES FOUR MAIN POLICY GOALS. 
FIRST, RESPONSIBILITY FOR `POLICY LENDING' SHALL BE 
REMOVED FROM THE SOCB'S, WHICH WILL BE REQUIRED TO 
OPERATE ON A PURELY COMMERCIAL BASIS.  THE TASK OF 
POLICY LENDING WOULD BE TRANSFERRED TO A NEW AND 
SEPARATE AGENCY, SUPERVISED BY THE SBVN.  DIRECTOR LE 
EMPHASIZED THIS POLICY LENDING WOULD INCLUDE LOANS 
FOR STUDENTS, POOR PEOPLE, AND VICTIMS OF NATURAL 
DISASTERS, RATHER THAN COMMERCIALLY UNSOUND LOANS TO 
SOE'S. 
 
10. (U) LE SAID `IN PRINCIPLE' THE SOE'S WOULD HAVE 
TO BORROW FROM BANKS ON A COMMERCIAL BASIS.  IN THE 
PAST THE GVN HAS CHANNELLED STATE FUNDS THROUGH THE 
SOCB'S TO SELECTED SOE'S TO INCREASE THEIR PRODUCTIVE 
CAPACITY.  TO REPLACE THIS MECHANISM, THE NEW PLAN 
WOULD PROVIDE FOR AN `INVESTMENT ASSISTANCE FUND' 
COMPLETELY OUTSIDE THE BANKING SYSTEM.  THIS FUND 
ALSO WOULD BE USED FOR WORLD BANK AND ASIAN 
DEVELOPMENT BANK PROJECTS CO-FUNDED BY THE GVN. 
                       UNCLASSIFIED 
 
PAGE 04        HANOI  01299  02 OF 05  140054Z 
 
------------- 
BAD BANK DEBT 
------------- 
11. (U) THE SECOND POLICY GOAL IS TO RESTRUCTURE 
NONPERFORMING LOANS EXTENDED BY THE SOCB'S WITHIN A 
RELATIVELY SHORT TIME.  ALTHOUGH SBVN AND MINISTRY OF 
FINANCE OFFICIALS REPEATEDLY HAVE REFUSED TO DIVULGE 
THE TOTAL AMOUNT OF BAD DEBT IN VIETNAM'S BANKING 
SYSTEM, ON FEBRUARY 17 THE VIETNAMESE PRESS REPORTED 
TOTAL BAD DEBT HAS REACHED 9.92 TRILLION DONG (U.S. 
$708 MILLION), EQUIVALENT TO 27-28 PERCENT OF TOTAL 
DEBT.  SEVERAL FOREIGN BANKERS, HOWEVER, ESTIMATE THE 
ACTUAL AMOUNT IS SIGNIFICANTLY LARGER. 
 
12. (U) BECAUSE THIS ISSUE IS INTERCONNECTED WITH THE 
PROBLEM OF SOE BAD DEBT, THE GVN INTENDS TO CREATE AN 
`ASSET MANAGEMENT COMPANY' (AMC), SUBORDINATE TO THE 
SBVN BUT FUNDED FROM THE STATE BUDGET, TO PURCHASE 
SOE AND OTHER CORPORATE DEBT.  THE OBJECTIVES ARE TO 
INSURE THE SOCB'S BECOME FINANCIALLY HEALTHY AS SOON 
AS POSSIBLE, WHILE AT THE SAME TIME EXPEDITE 
LIQUIDATION OF COLLATERAL ASSETS OF CORPORATE 
BORROWERS. 
 
 
 
13. (U) LE EXPECTED THE AMC TO BEGIN OPERATIONS LATER 
IN 2000 AND CONTINUE FOR UP TO 5-7 YEARS, OR UNTIL 
THE BAD DEBT PROBLEM IS SOLVED.  WHILE UNWILLING TO 
SAY HOW MUCH BAD DEBT WAS ON THE BOOKS, LE SUGGESTED 
THE AMC'S INITIAL BUDGET WOULD BE INSUFFICIENT TO 
PURCHASE ALL OF IT.  INSTEAD, THEY WOULD CHOOSE THE 
MOST URGENT COMPANIES FOR THE FIRST TRANCHE OF THEIR 
OPERATIONS.  HE SAID IF, FOR EXAMPLE, THE TOTAL SOCB 
BAD DEBT WAS ONE BILLION DOLLARS, THEN AMC'S LIKELY 
BUDGET WOULD BE ABOUT 300 MILLION, WHICH OBVIOUSLY 
WOULD NOT BE SUFFICIENT TO PURCHASE ALL THE 
COLLATERAL AT ITS ORIGINAL VALUE. 
 
14. (U) LE CLAIMED NATIONAL ASSEMBLY APPROVAL FOR 
CREATION OF THE AMC IS NOT REQUIRED, ALTHOUGH SOME OF 
ITS OPERATIONS MIGHT BE LIMITED IF THEY CONTRADICTED 
ANY EXISTING LEGISLATION, SUCH AS THE LAND LAW OR THE 
ENTERPRISE LAW.  HE SAID THERE ALSO MAY BE LEGAL 
RESTRICTIONS ON DISCLOSURE AND LIQUIDIZATION OF 
COLLATERAL.  IF, FOR EXAMPLE, AN ITEM OF COLLATERAL 
INITIALLY WAS VALUED AT ONE BILLION DONG, THEN WAS 
ACQUIRED BY THE AMC AND SOLD FOR JUST 500 MILLION, 
UNDER VIETNAMESE LAW `SOMEONE' WOULD HAVE TO BE 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  01299  03 OF 05  140055Z 
RESPONSIBLE FOR THE LOSS.  DIRECTOR LE SAID THE GVN 
WAS `FRIGHTENED' BY THIS POSSIBILITY, AS THE SOCB'S 
WOULD BE AFRAID TO SELL COLLATERAL ASSETS TO THE AMC 
IF THEY MIGHT HAVE TO TAKE RESPONSIBILITY FOR LOSSES. 
 
15. (U) THE NON-PERFORMING LOANS FROM THE SOCB'S 
WOULD BE RESTRUCTURED IN THREE WAYS.  FIRST, A 
CERTAIN AMOUNT SIMPLY WOULD BE WRITTEN OFF, ALTHOUGH 
BUDGETARY CONTRAINTS WOULD REQUIRE THIS PROPORTION TO 
BE RELATIVELY SMALL.  FURTHER, LE SAID THIS INABILITY 
TO WRITE OFF AS MUCH OF THE DEBT AS NEEDED MAY LEAD 
TO MORE BAD DEBT IN THE FUTURE AND TO CONTINUING 
FINANCIAL ILL HEALTH FOR THE SOCB'S, BUT THE GVN HAD 
NO CHOICE.  SECOND, A SOMEWHAT LARGER PROPORTION OF 
THE DEBT WOULD BE RESCHEDULED AND/OR RESTRUCTURED. 
FINALLY, THE GVN WILL REPAY SOME OF THE LOANS, 
ALTHOUGH LE WOULD NOT SAY HOW MUCH. 
 
16. (U) IN A RELATED MOVE TO PROTECT BANK DEPOSITORS 
FROM RISK, AND THEREBY ENTICE MORE VIETNAMESE PEOPLE 
TO KEEP THEIR SAVINGS IN BANKS RATHER THAN GOLD OR 
DOLLARS, THE SBVN ANNOUNCED INAUGURATION OF A 
`DEPOSIT INSURANCE ORGANIZATION' (DIO).  THE DIO WILL 
BE RESPONSIBLE FOR INSURING DEPOSITS UP TO 30 MILLION 
DONG (USD 2,100).  ALL COMMERCIAL BANKS AND CREDIT 
INSTITUTIONS WILL BE REQUIRED TO JOIN THE PROGRAM AND 
PAY THE INSURANCE PREMIUM, REPORTEDLY TO BE SET AT 
0.15 PERCENT OF THE DEPOSIT VALUE.  SOME OF THE 
LARGER SOCB'S BELIEVE, HOWEVER, THAT THE RISKIER 
(JOINT-STOCK) BANKS SHOULD PAY A HIGHER PREMIUM. 
 
                       UNCLASSIFIED 
 
PAGE 04        HANOI  01299  03 OF 05  140055Z 
--------------------- 
TIGHTEN UP THE SYSTEM 
--------------------- 
17. (U) THE THIRD AND FOURTH POLICY GOALS OF THE NEW 
REFORMS ARE TO ENHANCE THE INSTITUTIONAL AND 
MANAGEMENT CAPABILITIES OF THE SOCB'S AND TO 
STRENGTHEN THE SUPERVISORY FUNCTIONS OF THE SBVN OVER 
THE SOCB'S.  LE SAID THE SBVN ALREADY HAD RECEIVED 
TECHNICAL ASSISTANCE FOR THIS FROM THE WORLD BANK, 
IMF, ADB, AND SOME BILATERAL DONORS, BUT NEEDED MORE. 
HE CLAIMED THERE HAD NOT BEEN MUCH PROGRESS IN THIS 
AREA BECAUSE THE `CONCEPTIONS' OF THE DONORS WERE 
`NOT SATISFACTORY'.  IN PARTICULAR, SOME OF THE 
SOCB'S WERE HAVING DIFFICULTY MEETING REQUIREMENTS 
SET BY THE WORLD BANK FOR EACH SOCB TO FORMULATE ITS 
OWN STRATEGY TO MEET INTERNATIONAL CRITERIA.  THIS, 
HE SAID, WAS SIMPLY BEYOND THE CAPABILITIES OF THE 
SOCB'S.  IT ALSO WAS DIFFICULT FOR THE SBVN ITSELF TO 
EVALUATE THE SOCB PROPOSALS BECAUSE THE SOCB'S WOULD 
NOT PROVIDE SUFFICIENTLY TRANSPARENT INFORMATION ON 
THEIR OPERATIONS. 
 
18. (U) THE PLAN ALSO REPORTEDLY INCLUDES A PROPOSAL 
FOR A PILOT SOCB RESTRUCTURING PROGRAM FOR THE 
AGRICULTURAL AND RURAL DEVELOPMENT BANK AND THE BANK 
OF FOREIGN TRADE.  IT WILL INVOLVE RESTRUCTURING AND 
IMPROVING THEIR FINANCIAL AND ACCOUNTING SYSTEMS, 
DEBT, PERSONNEL, AND STRATEGY.  THE SBVN HOPES THEY 
CAN BE UPGRADED TO INTERNATIONAL STANDARDS. 
 
----------------- 
JOINT STOCK BANKS 
----------------- 
19. (U) IN ADDITION TO THE ABOVE FOUR POLICY GOALS, 
THE SBVN'S REFORM PLAN ALSO CONTAINS PROVISIONS 
AFFECTING OPERATIONS OF THE JOINT STOCK (J-S) AND 
FOREIGN BANKS IN VIETNAM.  SOME OF THE 48 J-S BANKS 
CURRENTLY OPERATING IN VIETNAM, PARTICULARLY THE 
SMALLER ONES, WILL BE MERGED, WHILE IN GENERAL THE 
SBVN WILL TRY TO INCREASE BOTH THE NUMBER OF 
SHAREHOLDERS AND THE AMOUNT OF REGISTERED CAPITAL. 
ADDITIONALLY, THE SBVN WILL DEVELOP NEW CRITERIA TO 
ENSURE THE FINANCIAL HEALTH OF THE J-S BANKS.  THESE 
CRITERIA WOULD FOCUS ON `MANAGEMENT CAPABILITY' OF 
THE BANKS AND ALSO INCLUDE STRICTER REQUIREMENTS FOR 
SUPERVISION, INSPECTION, AND REPORTING.  THE SBVN 
WILL ASSIST THE BANKS TO RESTRUCTURE THEIR ASSETS AND 
LIABILITIES BASED ON RISK ASSESSMENT. 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  01299  04 OF 05  140055Z 
 
20. (U) ACCORDING TO DIRECTOR LE, MANY OF THE J-S 
BANKS ARE `RELUCTANT' TO MERGE AND THEREFORE THE SBVN 
WILL HAVE TO INTERVENE IN THE MERGER AND ACQUISITION 
PROCESS.  HE SAID A NUMBER OF THEM ALREADY HAD BEEN 
MERGED OR DISSOLVED, AND NONE HAD FAILED.  THEIR 
MANAGEMENT CAPABILITY, HOWEVER, REMAINED A MAJOR 
WEAKNESS, AND THE SBVN WILL PROVIDE TRAINING IN THIS 
AREA.  LE ALSO HOPED SOME J-S BANKS WOULD FORM JOINT 
VENTURES WITH FOREIGN BANKS, WHICH COULD TRANSFER 
MANAGERIAL AND TECHNICAL EXPERTISE. 
 
------------- 
FOREIGN BANKS 
------------- 
21. (U) ACCORDING TO LE, AS PART OF THE GVN'S OVERALL 
PROCESS OF INTERNATIONAL ECONOMIC INTEGRATION IT 
PLANS TO MINIMIZE THE CURRENTLY `LARGE' NUMBER OF 
RESTRICTIONS ON FOREIGN BANK OPERATIONS IN VIETNAM. 
IN PARTICULAR, HE SAID THE SBVN WOULD REDUCE 
RESTRICTIONS ON MANAGEMENT OF ASSETS AND LIABILITIES 
IN LOCAL CURRENCY AND ON ABILITY OF FOREIGN BANKS TO 
ACCEPT DEPOSITS IN LOCAL CURRENCY.  THIS, HE SAID, 
WAS A PRECONDITION FOR CREATION OF A `LEVEL PLAYING 
FIELD'. 
 
22. (U) FURTHERMORE, LE SAID THE SBVN WOULD PROPOSE 
TO PHASE OUT LIMITS ON FOREIGN BANK EQUITY SHARES AND 
THEIR PERCENTAGE SHARES IN JOINT VENTURES WITH 
VIETNAMESE BANKS, IN ACCORDANCE WITH THE SCHEDULE 
AGREED IN PRINCIPLE UNDER THE BILATERAL TRADE 
                       UNCLASSIFIED 
 
PAGE 04        HANOI  01299  04 OF 05  140055Z 
AGREEMENT.  HE SAID THE SBVN WOULD ATTEMPT TO MAKE 
THE `DOMESTIC ROADMAP' FOR REFORM FASTER THAN THE 
SCHEDULE AGREED IN THE BTA, WHICH HE DESCRIBED AS 
`REALISTIC' BUT IMPROVEABLE.  HE ADDED THAT VIETNAM 
ALREADY HAD AGREED TO A BANKING REFORM TIMETABLE FOR 
THE ASEAN FREE TRADE AREA (AFTA) THAT WAS BOTH FASTER 
AND STRONGER THAN PROPOSED COMMITMENTS TO THE U.S. 
AND WORLD TRADE ORGANIZATION.  FOR AFTA, VIETNAM 
WOULD BEGIN TO OPEN ITS BANKING SECTOR BY THE YEAR 
2006 AND COMPLETE THE PROCESS BY 2010, BUT HE 
BELIEVED THE MORE DEVELOPED ASEAN MEMBERS HAD 
PROPOSED THAT VIETNAM, MYANMAR, AND LAOS SHOULD 
ACCELERATE THIS PROCESS.  LE ALSO SAID THE SBVN WAS 
CONSIDERING EQUITIZATION (PARTIAL PRIVATIZATION) OF 
ONE OF THE STATE-OWNED COMMERCIAL BANKS, AND FOREIGN 
BANKS MAY BE INVITED TO PARTICIPATE. 
 
------- 
COMMENT 
------- 
23. (SBU) REFORM OF VIETNAM'S BANKING SYSTEM CANNOT 
SUCCEED WITHOUT A SIMULTANEOUS AND SEVERE ASSAULT ON 
THE STATE-OWNED ENTERPRISES, A FORMIDABLE OBSTACLE, 
AND PROBABLY NOT WITHOUT MAJOR LIBERALIZATION OF THE 
TRADE REGIME.  THIS IS WHY THE WORLD BANK AND 
INTERNATIONAL MONETARY FUND HAVE LINKED THE THREE 
ISSUES, AND ALSO WHY WE TARGETTED ALL THREE IN THE 
BILATERAL TRADE AGREEMENT NEGOTIATIONS. YET WHILE 
THIS IS TRUE, IT IS ALSO CRITICAL THAT VIETNAM BEGIN 
THE PROCESS OF RESTRUCTURING IN A MEANINGFUL WAY. 
THE TIME FOR PLANNING IS OVER, IT'S NOW TIME TO 
IMPLEMENT. 
 
24.  (SBU) THIS CABLE INDICATES THERE ARE A NUMBER OF 
OPTIMISTIC SIGNS THAT CHANGE IS IN THE AIR, 
PARTICULARLY WITH REGARD TO BANKING AND FINANCIAL 
SECTOR REFORM.  MOREOVER, THE HANOI-BASED IMF 
REPRESENTATIVE CONSIDERS THAT VIETNAM MAY NOW BE 
CONSOLIDATING THE POLITICAL WILL NEEDED TO MOVE 
FORWARD ON A MAJOR RESTRUCTURING EFFORT ALONG THE 
LINES PROPOSED BY THE WORLD BANK AND THE IMF. 
HOWEVER, HE, LIKE EMBASSY OFFICERS, REMAINS PERPLEXED 
WHY VIETNAM WOULD CHOOSE THE PRESENT TIME TO PROCEED. 
THIS IS A PERIOD OF POLITICAL INTROSPECTION, AS THE 
PARTY PREPARES FOR THE WATERSHED EVENT OF ANOTHER 
PARTY CONGRESS IN THE FIRST QUARTER OF 2001, NOT AN 
IDEAL TIME TO TAKE RADICAL DECISIONS WHICH CAN 
GENERATE CRITICISM.  MOREOVER, IT IS AGAINST 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  01299  05 OF 05  140055Z 
VIETNAMESE CHARACTER TO UNDERTAKE BOLD MOVES UNLESS 
THEY FEEL BACKED INTO A CORNER.  THEY ARE NOT.  WHILE 
NEW FDI COMMITMENTS CONTINUE ON A DOWNWARD SPIRAL AND 
EMPLOYMENT GENERATION IS NEGLIGIBLE, MANY GOVERNMENT 
OFFICIALS ARE PLEASED WITH RECENT ECONOMIC DATA: 
GROWTH (SIX PERCENT FOR THE FIRST HALF OF THE YEAR), 
EXPORTS (ROBUST) AND INFLATION (NONE).  THE ECONOMY 
IS IN MANY WAYS IMPROVING ALONG WITH THE REST OF THE 
ASIAN REGION. REGARDLESS OF THE REASONS WHY THE 
VIETNAMESE MAY MOVE NOW, IF BANKING AND FINANCIAL 
SECTOR REFORM PROCEEDS, IT WOULD GIVE FURTHER LIFT TO 
THE ECONOMY.  WE HOPE THIS HAPPENS SOON. 
HARTER 
 
                       UNCLASSIFIED 
 


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