US embassy cable - 05HANOI1444

UNCLAS SECTION 01 OF 03 HANOI 001444 
 
SIPDIS 
 
AIDAC 
 
DEPT PLEASE PASS TO HHS 
DEPT PLEASE PASS TO USAID/ANE FOR WALTER NORTH 
BANGKOK PLEASE PASS TO USAID/RDMA TIM BEANS 
 
E.O. 12958: N/A 
TAGS: WTO, IPROP, HIV/AIDS, FINREF, SOE 
SUBJECT: Vietnam Mid-Term Consultative Group Meeting 
 
1.  SUMMARY: The mid term consultative group meeting was held 
on 2-3 June in Can Tho. Presentations were made on a range of 
topics including corruption, development of Vietnam's new five 
year development plan and financial reform. Overall, 
however, the meeting was hampered because a draft five year 
plan, the anticipated central organizing document for the 
meeting, was unavailable for distribution, analysis or 
comment. End summary. 
 
2.   On June 2 and 3, representatives from the Government of 
Vietnam, 22 donor countries, 13 international agencies, four 
international NGOs and the private sector gathered for the 
informal mid-year Consultative Group (CG) meeting in Can Tho 
City. Among those attending were representatives from the 
Asian Development Bank, International Finance Corporation, 
International Monetary Fund and World Health Organization. 
First time participants included representatives from Ireland, 
Spain and Hungary. 
 
3.  The United States was represented by Ambassador Michael 
Marine and USAID Regional Mission Director Timothy Beans.  The 
delegates reviewed the state of Vietnam's economy, 
preparation of Vietnam's next five-year Socio-Economic 
Development Plan (SEDP) and its integration with the 
Government's Comprehensive Poverty Reduction and  Growth 
Strategy (CPRGS) process, the preparation for WTO accession, 
and the status for reforms in the banking sector, anti- 
corruption and public administration reform, as well as legal 
and  judiciary developments. Also discussed was the 
effectiveness of Official Development Assistance (ODA), the 
fight against HIV/AIDs and the need to curb the spread of 
Avian Influenza. Two recurring themes throughout all of these 
discussion was the need for the Five Year Plan to leave room 
for the private sector to grow and take on a greater role in 
development and the concurrent need for financial sector 
reform. 
 
4.  Deputy Prime Minister Vu Khoan opened the meeting by 
presenting an overview of the challenges facing the Vietnamese 
economy and inviting frank comments. He noted that the latest 
multilateral negotiations for WTO membership in Geneva have 
been concluded on a positive note, and Vietnam is moving 
towards the conclusion of bilateral negotiations with a large 
number of partners. The National Assembly, he said, will amend 
this year's law-making agenda to meet WTO entry requirements 
and to focus on creating an enabling business climate, address 
social issues, and reinforce anti-corruption measures. 
 
5. Minister Vo Hong Phuc of the Ministry of Planning and 
Investment (MPI) provided an update on socio-economic 
developments and activities carried out since the CG in 
December 2004 to prepare the new SEDP, integrating the CPRGS 
approach. In his opening remarks, Phuc recited a litany of 
positive economic statistics:  growth remains high for the 
first five months at an estimated rate of 7.3% with industrial 
growth over 15%. Trade and tourism grew 20% and 22%, 
respectively. Overall private sector grew at 24%, and foreign 
direct investment increased by 90%.  While overall economic 
growth is strong, the government will need to grow at 9% for 
the rest of the year to reach the 8.5% target set by the 
National Assembly. Phuc noted that this will be difficult as a 
number of constraints are hampering growth, most especially 
the energy shortage.  The government will take a number of 
actions to help maintain growth including simplification of 
rules and regulations for foreign and domestic investment, 
greater emphasis on fighting corruption and accelerated reform 
of the services and financial sectors, along with accelerated 
equitization of the state-owned enterprises (SOEs). 
 
6. In their response, donors commended MPI for committing to 
consultations at all levels of government and with all 
population groups.  They singled out the Ministries of Rural 
Development, Education and Transport for the substantive 
consultations already carried out and recommended similar 
consultations be held with other ministries. Donors emphasized 
the importance of engaging early in a substantive discussion 
of the SEDP to facilitate the alignment of their ODA programs 
to the new SEDP but were disappointed that the government did 
not have specific documentation or at least the strategic 
overview of each key sector to share.  Japan echoed this view 
noting they intended to align their ODA program with the next 
SEDP.  In response, the Government said it and the World Bank 
would co-host a workshop for donors in early August to discuss 
the first draft of the SEDP. 
 
7.  During discussions  on  the  state of the economic reform 
program, the IMF representative emphasized the importance of 
faster banking  sector reform  to  protect debt 
sustainability, improve credit allocation,  and promote 
higher-quality investment and growth. Early action should be 
taken to strengthen the State Bank of Vietnam's independence 
and clearly establish its supervisory authority over all the 
banking institutions that operate in Vietnam. The 
equitization plans for state-owned commercial bank SOCB) 
reform need to be pursued without further delay; government 
interference in the lending decisions of SOCBs need to be 
curtailed, and corporate governance should be significantly 
strengthened. 
 
8. Numerous delegates, pointing out that corruption increases 
the cost of doing business and often most affects the poor and 
most vulnerable, commended the Government Inspectorate for its 
preparation of a draft law on anti-corruption and overall 
efforts to strengthen administrative, legal and judiciary 
reform. The Inspectorate presentation was frank, and the draft 
law appeared comprehensive in scope. If implemented 
effectively, its preventive measures such as asset declaration 
of Government officials, could be effective in curbing 
corruption. Sweden, the lead donor in assisting the Government 
in analyzing corruption and strengthening the capacity of the 
inspectorate system, urged that a support program begin before 
the next CG meeting in December. 
 
9. Delegates noted that progress in harmonizing procedures 
continues and expressed their commitment to continue efforts 
at harmonizing ODA procedures in light of the outcome of the 
Paris High Level-meeting on aid effectiveness. They also 
discussed the Hanoi Core Statement which represents an effort 
to localize the Paris declaration on aid effectiveness.  Both 
are based on principles of government ownership, 
donor harmonization, simplification, and managing for 
results. Delegates welcomed the Hanoi Core Statement and 
expressed the intent to reach a final endorsement ahead of the 
New York summit on Aid Effectiveness in September.  The EU has 
been leading this effort in Vietnam and the European 
Commissioner noted that as donors continue working with 
Government to align support to the SEDP, a parallel effort is 
needed to strengthening the Government's public service 
delivery systems and ensure consistency between the new SEDP 
and ODA regulations. Some donors, including the French, 
expressed a willingness to provide financial support directly 
to the Government's budget and rely more on the Government's 
own mechanisms for disbursing funds.  (FYI Budgetary support 
is not part of the USAID program in Vietnam and the U.S. 
delegation noted that we need time to fully review the Hanoi 
core statement.  It has since been sent to the U.S. DAC 
representative in Paris for his comments and clarification. 
END FYI.) 
 
10.  In the discussion on HIV/AID, Minister of Health Tran Thi 
Trung Chien described recent efforts to prevent the spread of 
HIV/AIDS and to provide effective assistance to those living 
with HIV/AIDs.  She particularly noted the May decision of the 
Prime Minister to establish a new HIV/AIDS Control Department 
under the MOH as a sign that the government is taking the 
problem seriously. She noted that intergovernmental and donor 
coordination has been strengthened but added that her 
government's manpower is limited. Delegates expressed their 
desire to continue working with the government on this, but 
emphasized the importance of strengthening the coordination 
within Government and between donors. (FYI - A recent response 
to a letter signed by the UNDP rep and six ambassadors, 
including Ambassador Marine, which called for improved 
coordination, was essentially non responsive to the points 
raised. End FYI.) 
 
11. Madame Chien also presented a status report on managing 
and preventing outbreaks of Avian Influenza, summarizing 
recent government's actions. A number of donors described 
current and planned assistance in this area. Japan, for 
example, said it was considering providing a bio-safety level 
3 lab to the National Institute of Health and Epidemiology 
while the UNDP is continuing to set up a planned trust fund 
for donor funding.  In response to a question from the U.S. 
development representative, Tim Beans, Minister Chien did not 
answer the question of when Vietnam would have an 
effective disaster preparedness plan in place. The WHO 
estimates that should a significant outbreak of human AI occur 
that Vietnam would have a two to three week window to prevent 
a pandemic and such a plan is essential. Ambassador Marine 
raised this point again at the heads of delegation luncheon 
with Deputy Prime Minister Vu Khoan who agreed to explore 
convening a meeting of government officials and donors to get 
movement on this issue. 
 
12. In his closing remarks, the World Bank Country Director, 
summed up the meeting: Vietnam is at an important juncture in 
its development process and the next SEDP should provide 
guidance for completing the transition to a market economy. 
The government's role will be to create the right incentives 
for the private sector to lead economic growth.  This implies 
that the government will treat production targets as 
indicative and focus more on development outcomes.  In areas 
such as infrastructure, where investment requirements 
are enormous, as illustrated by recent power 
shortages, the government will need to engage the private 
sector more as a partner in meeting the needs.  Planning and 
Investment Minister Vo Hong Phuc underlined Vietnam's 
commitment  to  work with donors to develop a new five-year 
Socio-Economic Development Plan for 2006-2010 with a new 
approach, where the government will play a guiding rather than 
an interventionist role in addressing important social and 
economic challenges.  The government, he said, remains 
committed to move towards a new planning approach focused on 
outcomes, with community consultation and finalizing public 
expenditure plans more openly. In closing, delegates agreed 
that they would meet in December for the annual CG meeting. 
 
 
BOARDMAN