US embassy cable - 05HANOI3214

UNCLAS SECTION 01 OF 03 HANOI 003214 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EAP/MLS 
DEPT PASS USAID VIETNAM DESK 
 
E.O. 12958: N/A 
TAGS: ETRD, EFIN, EAID, KHIV, VM, HIV/AIDS, FINREF, AFLU, WTO 
SUBJECT:  VU KHOAN ANSWERS QUESTIONS FROM HEADS OF MISSION 
IN PREPARATION FOR CONSULTATIVE GROUP MEETING 
 
SENSITIVE BUT UNCLASSIFIED 
 
1. (SBU) Summary: Deputy Prime Minister Vu Khoan raised the 
following points while answering questions from thirty 
heads of mission and donor representatives at a meeting 
held December 1 in preparation for the December 6-7 
Consultative Group (CG) Meeting.  One of the dramatic 
developments in Vietnam has been the recent growth in the 
power of elected bodies.  Although there is an 
implementation gap on policies to improve the investment 
climate, the Government of Vietnam (GVN) is working to 
address the issue, including by passing the Common 
Investment Law (CIL).  Reforms will continue as Vietnam 
works towards WTO accession.  Prime Minister Phan Van Khai 
heads the newly created National Committee responsible for 
dealing with corruption.  The committee's initial focus 
will be crafting an action plan to address the issues 
raised in a recently released survey conducted with the 
Swedish Government.  The fight against HIV/AIDS continues 
to be a Government priority, as is creating favorable 
conditions for women in society.  End Summary. 
 
2. (SBU) Asked by the British Ambassador what the 
Vietnamese Communist Party will look like in ten years, DPM 
Vu Khoan began by stating that one of the dramatic changes 
that has occurred in Vietnam is the tremendous growth in 
the power of elected bodies.  While in the past the 
Government's actions were directed by the Party, now that 
power rests with the National Assembly.  The Party no 
longer intervenes in the actions of the National Assembly 
or the affairs of the Government.  Citing personal 
experience, Khoan said that there is a clear distinction 
between his duties as DPM and as Secretary of the Party 
Secretariat.  Laws and decrees now regulate his actions as 
 
SIPDIS 
DPM, rather than directions from the Party, as was 
previously the case.  The Party itself is subject to the 
law, he stressed. 
 
3. (SBU) As an example of the role of the Party, DPM Khoan 
cited the fight against HIV/AIDS, which is an affair of the 
State and Government.  The Party Secretariat issued 
instructions on this issue because of the need to mobilize 
the entire country in fighting the disease, but this 
measure does not undercut the role of the Government.  The 
same approach is needed to fight against Avian Influenza, 
he said. 
 
The Financial Sector 
-------------------- 
 
4. (SBU) In response to the Dutch Ambassador's call for 
accelerated financial sector reform, DPM Khoan said that 
financial sector reforms have not kept pace with Vietnam's 
rapid economic growth.  Power, infrastructure and banking 
are three sectors that are not meeting demand.  That said, 
there have been significant fiscal reforms achieved in the 
past twenty years. 
 
5. (SBU) One fundamental change is that the National 
Assembly, and not the Government, now controls the State 
budget, DPM Khoan said.  This change is also reflected at 
the provincial level, and requires better management and 
oversight by legislative bodies at all levels.  There is 
some overlap between the banking and financial sectors, and 
Vietnam needs to strengthen its State Bank.  Revenues from 
taxes on the private sector provide 27 percent of the State 
budget's funds.  This share is expected to rise to 34 
percent in the next five years.  Modern financing 
instruments, such as portfolio investment, are now 
available.  But these measures are not enough to fund 
Vietnam's growth.  The Government recognizes that further 
changes are needed, and the next five-year plan stresses 
completing the transition to a market-driven economy.  The 
Ministry of Finance (MOF) and the State Bank have developed 
guidelines on implementing financial sector reforms, and 
these will be carried out. 
 
Investment 
---------- 
 
6. (SBU) The Canadian Ambassador pointed out that investors 
sometimes face difficulties in Vietnam because new policies 
are often not carried out at the working level. 
 
7. (SBU) DPM Khoan acknowledged that there is a gap between 
the will of the political leadership and implementation at 
the grassroots level.  This problem is not peculiar to 
Vietnam, he said, and the interests of local people must be 
taken into account.  To address the problem, the GVN has 
increased the oversight role of the central authorities, 
especially on the issue of law implementation.  While 
previously this involved only the Government, now bodies 
both at the National Assembly and People's Committee levels 
have been established to deal with the issue.  The GVN has 
tried to decentralize responsibility for implementation, 
and to make local authorities responsible.  To accelerate 
this change, the Government plans to make a major policy 
decision on local accountability and investment 
decentralization, and is waiting for the National Assembly 
to pass the Common Investment Law (CIL).  (Note: the 
National Assembly passed the CIL on November 26.  End 
note).  Finally, the Government is trying to harmonize the 
regulatory framework at the central and local levels, a 
subject discussed by the National Assembly at its last 
session. 
 
8. (SBU) The EC representative pointed out that in the 
past, investment licenses required that 80 percent of the 
manufactured product be exported, meaning that the exports 
were not market driven and leaving Vietnam open to fair 
trade remedies.  DPM Khoan responded that under the new 
CIL, investment licenses will not be required, and there 
will be no requirement for export quotas.  All enterprises, 
including those already established, will operate under the 
CIL. 
 
9. (SBU) The Australian Ambassador commented that although 
the new CIL reflects most of the changes desired by the 
private sector, concerns remain about the registration and 
evaluation systems.  DPM Khoan answered that Vietnam will 
continue with the consultation process to meet all 
concerns.  He said that although the law cannot be changed, 
it is possible to address the remaining issues in the 
implementing regulations. 
 
10. (SBU) DPM Khoan said that land and property issues are 
some of the most complicated in Vietnam.  He conceded that 
although the Land Law has been repeatedly amended, more 
efforts are needed to establish a viable real estate 
market. 
 
WTO AND REFORMS 
--------------- 
 
11. (SBU) In response to a question from the Swiss 
Ambassador, DPM Khoan said that there are many reasons for 
Vietnam to join the WTO, including accelerating the reform 
process.  While the leadership is aware that Vietnam will 
not be able to accede this year, the National Assembly (NA) 
continues its reform work.  Although some NA members 
believe that this process should not be undertaken so 
quickly, the Government has convinced the NA leadership to 
support it in the accession effort. 
 
CORRUPTION 
---------- 
 
12. (SBU) Noting the recently released corruption survey, 
the Swedish Ambassador asked the DPM how Vietnam plans to 
move forward to address this problem.  DPM Khoan thanked 
Sweden for its cooperation with the survey.  He noted that 
the study is attracting much attention in the mass media 
because corruption is a concern to all members of society, 
and because this was the first time that Vietnam 
collaborated with another country to study an issue of such 
importance.  The Prime Minister leads the National 
Committee responsible for dealing with corruption.  DPM 
Khoan said that he anticipates the new anti-corruption law 
will be implemented rigorously, and that the Government 
will develop a plan of action in early 2006. 
 
SOCIAL AND HEALTH ISSUES: HIV/AIDS AND GIRLS' EDUCATION 
--------------------------------------------- ---------- 
 
13. (SBU) Ambassador Marine expressed concern that there is 
increasing complacency on HIV/AIDS prevention, and that 
prevalence rates are rising.  DPM Khoan responded that 
HIV/AIDS prevention is still a great concern, and that it 
is essential to raise awareness regarding HIV/AIDS through 
public campaigns.  A second measure is to provide needles 
to intravenous drug users, and condoms to migrant 
populations.  He said 70 percent of this population already 
receives free condoms.  A third measure is to integrate 
people living with HIV/AIDS (PLWHA) into the community, 
noting that a recent exhibit on PLWHA was well attended. 
He added that a pilot detox program in Ho Chi Minh City has 
yielded encouraging interim results, though a more thorough 
assessment needs to be done. 
 
14. (SBU) The UNDP representative said that two critical 
issues are: a recent survey that shows Vietnamese women to 
be less optimistic about the future and their prospects 
than men; and the poor access to schooling for migrant 
children.  DPM Khoan responded that he was not familiar 
with the survey, but that in his opinion, the Government 
has policies to prevent discrimination and create favorable 
conditions for women.  As an example, he said that the 
ratio of women at the central and leadership levels at the 
next Party Congress is expected to reach 50 percent. 
Companies, on the other hand, may hesitate to hire women 
because of increased costs for social benefits, especially 
for married women of childbearing age.  Tradition can 
influence hiring decisions, and result in fewer educational 
opportunities for girls. 
 
MARINE