US embassy cable - 01HANOI1017

VIETNAM - U.S. VOTE ON WORLD BANK'S PRSC PROGRAM

Identifier: 01HANOI1017
Wikileaks: View 01HANOI1017 at Wikileaks.org
Origin: Embassy Hanoi
Created: 2001-04-27 11:08:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: EAID EFIN ECON ETRD PREL 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.

271108Z Apr 01

2001HANOI01017 - UNCLASSIFIED
 
 
 
                           UNCLASSIFIED     PTQ2007

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ACTION SSO-00   

INFO  LOG-00   NP-00    AGRE-00  AID-00   ANHR-00  EAP-00   EB-00    
      TEDE-00  SS-00    STR-00   TEST-00  TRSE-00  SAS-00     /000W
                  ------------------E4A661  271124Z /38    
FM AMEMBASSY HANOI
TO SECSTATE WASHDC PRIORITY 2708
DEPT OF TREASURY WASH DC PRIORITY
NSC WASHDC
USDOC WASHDC
USDA WASHDC
ASEAN COLLECTIVE
AMCONSUL HO CHI MINH CITY 
UNCLAS SECTION 01 OF 04 HANOI 001017 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR E, EB, EB/IFD/ODF, EB/IFD/OMA, EB/TPP, EAP/BCLTV 
STATE PASS USAID/ANE AFERRERA AND DMCCLUSKEY 
STATE PASS USTR 
TREASURY FOR OASIA 
TREASURY PASS USED WORLD BANK AND USED IMF 
USDOC FOR 4431/MAC/IEP/OKSA/HPPHO 
USDA FOR FAS/ITP/SCHIKH/HUYNH 
PHNOM PENH FOR USAID LCHILES 
MANILA PASS USADB 
 
E.O. 12958: N/A 
                       UNCLASSIFIED 
 
PAGE 02        HANOI  01017  01 OF 04  271124Z 
TAGS: EAID, EFIN, ECON, ETRD, PREL, VM, FINREF, SOE 
SUBJECT: VIETNAM - U.S. VOTE ON WORLD BANK'S PRSC PROGRAM 
 
REF: HANOI 686 AND PREVIOUS 
 
1.  (SBU) SUMMARY: EMBASSY URGES WASHINGTON AGENCIES TO 
SUPPORT THE WORLD BANK'S POVERTY REDUCTION SUPPORT CREDIT 
(PRSC) PROPOSAL TO BE PRESENTED TO THE BANK'S BOARD IN EARLY 
MAY.  WE RECOGNIZE THAT THE PRSC, LIKE THE IMF'S POVERTY 
REDUCTION AND GROWTH FACILITY (PRGF) CONSIDERED BY THE IMF 
BOARD ON APRIL 6, IS NOT PERFECT.  IN FACT, WE AGREE WITH A 
NUMBER OF THE OBSERVATIONS MADE BY THE U.S. EXECUTIVE 
DIRECTOR'S OFFICE WHEN IT ABSTAINED ON THE PRGF.  (WE 
COMMENT ON SOME OF THESE OBSERVATIONS BELOW.)  BUT WE THINK 
THE IMF/WB STRUCTURAL PROGRAM OPERATING IN TANDEM WITH THE 
TRADE OBLIGATIONS THE VIETNAMESE GOVERNMENT HAS ASSUMED 
UNDER THE ASEAN FREE TRADE AREA AGREEMENT AND WILL ASSUME 
WHEN THE U.S.-VIETNAM BILATERAL TRADE AGREEMENT ENTERS INTO 
FORCE PROVIDE THE BEST PROSPECT FOR PROMOTING MARKET- 
ORIENTATION AND INTERNATIONAL COMPETITIVENESS THAT THE 
VIETNAMESE ECONOMY HAS SEEN IN DECADES, IF EVER.  WHILE 
UNTESTED, WE ARE ALSO HOPEFUL RECENT LEADERSHIP AND 
STRUCTURAL CHANGES IN VIETNAM'S POLITBURO WILL REINVIGORATE 
ECONOMIC REFORM MOMENTUM.  END SUMMARY. 
 
2.  (SBU) WHILE ABSTAINING ON THE PRGF DUE TO GRAMM 
AMENDMENT CONSIDERATIONS (APPLICABLE ONLY TO IMF LENDING), 
THE U.S. EXECUTIVE DIRECTOR TO THE IMF RAISED A NUMBER OF 
VALID CONCERNS ABOUT THE PROPOSED FACILITY.  SINCE BOTH 
STRUCTURAL PROGRAMS (PRGF AND PRSC) WERE DESIGNED TO WORK 
TOGETHER, WE ANTICIPATE WASHINGTON AGENCIES MAY RAISE 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  01017  01 OF 04  271124Z 
SIMILAR ISSUES WHEN TAKING UP THE WORLD BANK'S CREDIT 
PROGRAM.  WHEN THE IMF'S BOARD TOOK UP THE IMF'S FACILITY, 
THE U.S. EXECUTIVE DIRECTOR QUESTIONED THE VIETNAMESE 
GOVERNMENT'S ABILITY TO KEEP PUBLIC SECTOR DEBT UNDER 
CONTROL AND WHETHER FISCAL SUSTAINABILITY WOULD BE 
ADEQUATELY SAFEGUARDED THROUGH THE LIFE OF THE PROGRAM.  THE 
U.S. EXECUTIVE DIRECTOR ALSO QUESTIONED THE FIGURES FOR THE 
STOCK OF NON-PERFORMING LOANS.  IN ADDITION, SERIOUS 
RESERVATIONS WERE EXPRESSED ABOUT THE IMF'S APPROACH TO 
STATE-OWNED COMMERCIAL BANK REFORM; THE U.S. EXECUTIVE 
DIRECTOR WONDERED WHY THE PROGRAM DIDN'T FOCUS ON 
DISMANTLING STATE-OWNED COMMERCIAL BANKS, SO THAT THEY COULD 
BE REPLACED WITH PRIVATE COMMERCIAL BANKS, RATHER THAN 
REHABILITATION THROUGH IMF-FUNDED RESTRUCTURING.  FINALLY, 
QUESTIONS WERE RAISED REGARDING MONITORING OF STATE-OWNED 
ENTERPRISES UNDER THE PROGRAM: IF STATE-OWNED COMMERCIAL 
LENDING TO STATE-OWNED ENTERPRISES WERE CUT OFF, HOW WOULD 
PROGRAM MANAGERS ASSURE STATE-OWNED ENTERPRISES WEREN'T 
FINANCED `BACKDOOR' THROUGH THE GOVERNMENT'S BUDGET, A 
PARTICULARLY TROUBLING PROBLEM IN VIETNAM WHERE THE 
GOVERNMENT'S BUDGET PRESENTATION REMAINS OPAQUE. 
 
3.  (SBU) THESE ARE ALL EXCELLENT QUESTIONS AND, FRANKLY, IT 
IS DIFFICULT TO PROVIDE ADEQUATE REPLIES.  WE COMMENT BELOW 
ON SOME OF THESE CONCERNS. 
 
PUBLIC SECTOR DEBT - WE WERE SURPRISED WASHINGTON AGENCIES 
FOCUSED ON THE STOCK OF VIETNAM'S PUBLIC DEBT AT THE IMF 
BOARD MEETING WHICH CONSIDERED THE PRGF.  THAT DEBT STANDS 
AT 63% OF GDP, A LARGE NUMBER BUT LESS THAN HALF OF WHERE 
MANY DEVELOPING COUNTRIES AND AT LEAST ONE DEVELOPED COUNTRY 
                       UNCLASSIFIED 
 
PAGE 04        HANOI  01017  01 OF 04  271124Z 
(JAPAN) ARE TODAY.  WE ALSO CONSIDER THE PROSPECTS FOR 
VIETNAM'S CONTINUED REAL GROWTH REMAIN FAVORABLE.  A MAJOR 
REASON FOR THE GVN TO UNDERTAKE THE PRSC AND THE PRGF 
PROGRAMS IS TO ADDRESS THE STOCK OF STA 

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