US embassy cable - 04HANOI517

UNCLAS SECTION 01 OF 02 HANOI 000517 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV 
STATE ALSO PASS USTR BRYAN 
TREASURY FOR OASIA 
USDOC FOR 4431/MAC/IFP/OKSA/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, KIPR, EFIN, PREL, PINR, VM, IPROP, FINREF, SOE, WTO, BTA 
SUBJECT: AMBASSADOR'S CALL ON CPV ECONOMIC CHAIRMAN 
 
1.  (SBU)  SUMMARY:  In a meeting with Ambassador, CPV 
economic czar Truong Tan Sang underscored the importance of 
the private sector and SOE reform in maintaining high growth 
rates and employment generation.  He promised to privatize 
parts of Vietnam Airlines and to strengthen IPR enforcement. 
The Ambassador urged Sang to encourage the GVN to permit 
more activities by foreign banks, including EXIM, and to buy 
a US satellite.  Sang was an unimpressive interlocutor, more 
eager to parry questions than engage in give-and-take or 
share any vision for Vietnam's economic future. END SUMMARY. 
 
2.  (U)  Role:  Ambassador, accompanied by ECON/C, called on 
Truong Tan Sang, Politburo member (#10 in rank) and Chairman 
of the CPV's Economic Commission of the Communist Party of 
Vietnam, on February 12.  It was the Ambassador's first 
meeting with Sang, who had previously chaired the HCMC 
People's Committee.  Sang described his Commission as 
responsible for trade policy, macroeconomic policy, and 
external economic relations, and added that he would 
appreciate assistance by the US with WTO accession 
negotiations (to which his commission sends a 
representative).  Although his commission sets the long-term 
vision for Vietnam's economy, Sang did not comment on the 
Ambassador's description of some key difficult issues that 
such a vision would need to address. 
 
3. (U)  SOE reform:  Sang recited the target 7.5% real GDP 
growth per year in the current five-year plan and asked 
whether the US had any advice about increasing the current 
40% private sector contribution to GDP.  The highest growth 
rate was in the foreign invested sector, he commented.  The 
revised enterprise law had helped develop some small and 
medium-sized enterprises faster and he expressed a hope this 
trend would continue.  At the same time, state sector reform 
was continuing.  He emphasized that his commission must 
consider both the economic aspects and the socio-economic 
aspects of reform (i.e. employment effect).  When reform 
leads to job creation, there is never opposition.  In the 
first phase of reform, 6,000 SOEs of the original 12,000 
were eliminated with no opposition, he claimed.  By 2001 -- 
at the start of the second phase of SOE reform -- some 5000 
SOEs remained.  Unlike the first phase, this phase involves 
SOEs in both unimportant and important sectors.  For next 
year, he predicted higher economic growth without 
dissatisfied voices.  There are 1.5 million new workers 
annually and GVN strives to create 2 million new jobs for 
them and for those who are underemployed. 
 
4.  (U)  Limits on investment:  The Ambassador asked Sang to 
comment on sectors where foreign investment was forbidden. 
Sang noted that in the transportation sector, there was a 
great deal of private sector activity -- and few SOEs -- for 
taxis and trucks, while in marine transportation about 70% 
of activity was by SOEs.  In civil aviation, Vietnam 
Airlines and Pacific Airlines were both operating.  Pacific 
is a private stock firm, and in the future the GVN will 
privatize parts of Vietnam Airlines, he promised.  In 
banking, there are 53 publicly traded banks and only about 
30 private banks, and 1000 cooperatives currently operating. 
(Note:  This was a rather incomplete answer.) 
 
5.  (U)  Finance:  Noting that financial sector reform was 
important in order to mobilize capital for Vietnam's future 
development, the Ambassador related that Eximbank was 
considering allowing a Vietnamese joint stock bank to make 
loans using Eximbank funds.  According to Eximbank, two 
joint stock banks -- Sacom and Asia Commercial Bank -- might 
qualify.  Sang noted that IFC sources had invested about $3 
million in each bank. (NOTE: According to IFC staff, they 
have invested $5 million in ACB and $4.5 million in Sacom, 
and could purchase additional shares in the future.  END 
NOTE) The Ambassador pointed out that both Citibank and Hong 
Kong Shanghai Bank would like to invest significantly higher 
amounts in one or both banks, but were constrained from 
doing so because a foreign firm could not own more than 10% 
of the equity in a joint stock bank.  Should these foreign 
firms be allowed to hold more equity, they intended to train 
staff and improve the technology of these banks. 
 
6.  (U)  IPR:  Difficulty with IPR enforcement might keep 
information technology investors away from Vietnam, the 
Ambassador warned.  He asked whether Sang was concerned 
about this issue and had a plan to improve it.  Sang claimed 
agreement by "both sides" on Intel's $800 million investment 
in a HCMC software park, although the bird flu had stopped 
Intel officers from coming to Hanoi to finalize the deal. 
(NOTE:  According to Intel Country Manager, Vietnam 
continues to be one of three countries -- along with India 
and Thailand -- under consideration for this project.  There 
has been no final decision and no decision is expected for 
at least another year.  END NOTE) Sang added that he was 
personally involved in this project.  He stressed that he 
fully understood the importance of IPR protection to improve 
the investment climate for not only for SOEs, but also for 
private enterprises, both foreign and domestic.  During his 
tenure in HCMC as Chair of the People's Committee, a multi- 
million dollar investment to produce CDs had failed because 
of imported pirated discs.  As for how to improve 
enforcement, Sang said that he did not understand the law, 
but stressed that IPR was a problem in all countries and 
joked that to avoid the problem entirely one would probably 
have to locate in Singapore.  He acknowledged that IPR 
enforcement was a weak point, but pledged that Vietnam would 
continue to strengthen it. 
 
7.  (U)  BTA/WTO:  Sang described the BTA was the first step 
towards normalizing trade relations, which had resulted in 
billions of dollars of increased trade for both sides, 
albeit in favor of Vietnam.  Vietnam was currently striving 
to join the WTO, though there were some difficulties and 
problems.  Noting that some forces in the US did not support 
developing trade relations with Vietnam, Sang said that he 
hoped that both sides could avoid difficulties in this area. 
He expressed a hope that US firms would keep investing in 
Vietnam.  Although US investment in Vietnam was rising, it 
was still lower than from other Asian countries.  Vietnam 
was working to improve transparency, he added. 
 
8.  (U)  Buy US:  Ambassador noted that the US and Vietnam 
were working together through technical assistance to help 
make the commercial law and regulations more attractive to 
investment.  Currently there was a significant trade 
imbalance in favor of Vietnam.  The purchase of Boeing 
aircraft had helped in 2003 and would again in 2004. 
Another good opportunity to improve the trade imbalance 
would be for Vietnam to buy a cutting edge U.S. 
communications satellite and launch from the sole U.S. firm 
in this procurement process.  Sang acknowledged the trade 
imbalance in favor of Vietnam and said he hoped both sides 
would try to increase trade.  Sang said that Vietnam was new 
to the market economy and wanted to learn from experts.  He 
agreed to take the Ambassador's suggestions into 
consideration. 
 
9.  (SBU)  Bio comment:  Sang stuck to his script and showed 
little desire to engage in a meaningful dialogue even on his 
field.  He parried questions well.  If he has a vision for 
Vietnam's economic future, he chose not disclose it. 
Compared to other CPV economic types we have met, he was not 
very impressive. 
BURGHARDT