Press Briefing by National Economic Advisor Gene Sperling

Caravelle Hotel

Ho Chi Minh City, Vietnam

3:25 P.M. (L)

MR. DIRINGER: Good afternoon, everyone. For our final briefing on the President's trip to Vietnam we have Gene Sperling, who will recap some of the President's announcements regarding new efforts to strengthen economic ties between our two countries.

MR. SPERLING: The President focused today on economics and in addition to announcing the $200 million OPIC line of credit for investment in Vietnam and the creation of a new high-level economic dialogue between the United States and Vietnam, he also made very clear that he believed that Vietnam's future and amazing potential will be much determined by the degree that it embraces a new era of entrepreneurship, innovation and competition.

Vietnam has certainly -- has many impressive statistics, economic statistics for a developing country and has made some further progress on reforms with its enterprise law, which makes it easier for private enterprises to get started without as much onerous licensing and some modification of foreign direct investment. And they do -- have started a, the very, very beginning of opening a stock market in Vietnam.

But while the Vietnam people very clearly share the values that those in the United States do of work ethic, education and entrepreneurship, there is no question that there is a different vision that still exists on economics at the highest levels of the government.

When the President met with Party Secretary General Le Kha Phieu, there was clearly a noticeable difference in philosophy. He saw their return to growth as a reaffirmation of their socialism, even in the face of the Soviet Union's collapse; and that he described Vietnam as an economy in which there were several sectors -- a state sector, a cooperative sector, a private sector -- in which there was no particular preference between which of those sectors was more likely to lead future growth and job creation.

As the President said today, however, we clearly believe that while these choices will ultimately be those of the Vietnamese people, we think that the degree for them to expand and promote their potential will be very dependent on the course they take, particularly with regards to encouraging a vibrant private sector.

If you look at Vietnam right now, 70 percent of the loans, of the capital, goes to state-owned enterprises, even though they make up only 6 percent of the jobs and only 30 percent of the GDP. And the President addressed that today by simply saying, imagine what could happen here if that capital was going into the hands of the young people with the ideas, with the innovation; imagine what the potential job creation could be if that capital was not being directed by the state sector, but was allowed to go to those people with the best ideas and the best ability to expand companies and expand jobs.

The President also talked about imagining what Vietnam could do with a more vibrant, more business-friendly environment. In 1997, there was $2 billion of foreign direct investment in Vietnam. There was significant excitement on Vietnam by foreign investors. But over the last three years, that has slowed down. the foreign direct investment in '98, '99, and 2000 combined is less than the $2 billion that was invested in 1997. Now, that is just to say that foreign investors had high hopes and are waiting and looking right now. I think that most see the bilateral trade agreement with the United States as perhaps the most promising sign that Vietnam may be on a course to more significant structural reform, restructuring their financial sector, and people will be looking very closely at that.

The business people he will talk to here will no doubt talk about the difficulties with bureaucracy and being priced at different levels, and high cost of telephones and air traffic, all things that Vietnam could do to make its economy even more terrific.

When you talk about potential, there is very high literacy rates for a developing country, unquestionably. Ninety percent of the kids are at least in primary school. The rates fall off a bit as you get into the high school area. But it is strong.

One of the places where I think you would see the most significant difference in philosophy and where I believe the U.S. bilateral trade agreement could make a difference, and where I think just the realities of the market will make a difference, is in the telecom and Internet area. When you listen to the party General Secretary speak, there is a great understanding that information technology is the future, but there's a sense that somehow the state can somehow manage that itself, almost as if the United States were to have decided 10 years ago we really didn't need Microsoft and Cisco and AOL.

Clearly, everything that we have learned is that the best way to foster growth in the telecom and Internet area in a way that benefits average people is to create an environment of competition that allows for the new ideas and new competition to just emerge. Motorola, one of the best companies in the world, their CEO would tell you that their iridium project will be the last time any major company will ever try to plan something in this area five years in advance. It just -- things move to fast. They're now dealing with what to do with the satellites in space. The notion that a government can predict these things is very suspect.

What does that mean for the Vietnamese people? Right now one-tenth of one percent are on the Internet; by 2005, the projection is still that there will be less than 1 percent. Cost will tell you a lot there. There's a state-controlled telecom industry. The price of being on the Internet for an hour is nearly $3.00. If you consider that the per capita income for a week is $6.00, if $2.00 on the Internet is your entire per capita income average, you're not going to have an expansion and you're not going to be able to fully participate.

And so, again, I think that the movement in the U.S. bilateral trade agreement is promising in that that trade agreement is more than just cutting tariffs. It lays out essentially a road map for integrating in the world economy. It allows for joint ventures by the United States, two years with Internet, in three years -- I think how open that they are to that in implementing that, and will say a lot as to whether foreign direct investment does come back.

Again, this is a country with just remarkable economic potential -- I mean, truly remarkable economic potential. And I think that the President did not want to leave here, again, without saying that while each of has our different philosophies, the President said in the meeting with Le Kha Phieu, he said, each of us has to come up with our own way of balancing the rights of individuals and the community, the rights of the private sector and the state. But clearly, we felt, the President felt, that at least sharing our experience on the importance of the strong, vibrant private sector, particularly in the new information technology era, in bringing benefits that can be spread throughout the society to all the people was an important message that we wanted to give before leaving here today.

So, thank you.

Q: The President has spent a lot of time these last few days trying to connect to young people and talking about young people. For a lot of these young people, as Vietnam develops a more vibrant private sector, the best opportunities are in sneaker factories and garment factories that are of such a source of concern in the U.S. Can you talk about the extent to which that is a potential source of tension for the U.S., and also what the administration is doing in discussions now on labor standards with Vietnam?

MR. SPERLING: Let me make three points. Obviously, one of the reasons the President talks to the young people is that this is a young country. One of the most disturbing facts you will see on Vietnam is that there are only 5 percent over 65 years old. And that is the kind of statistic one sees only in a very wartorn country -- only 5 percent over 65. So one, by necessity, talks to the young people.

When you talk to, I think, the people -- the top economists here or World Bank, IMF -- one of the things they will tell you is that it's not just foreign direct investment that matters, but what is the quality of that. Is it foreign direct investment and high value added products that can be exported or is it just in hotels and consumption here or just in lower products? And, again, that goes to the general message that we're giving today. You know, when you have 92 percent piracy rates, when the state pretty much controls telecom, that shuts off a lot of the potential for there to be investment that could put Vietnamese people -- who, again, are very educated and skilled -- it cuts off a lot of potential for them to get a lot of the high value added jobs in the world economy.

On your next point, one of the things that we were very happy with and it's worth commending the Vietnamese government for, was that they were willing to enter into a labor dialogue with us. In fact, if you remember, on the first day the President witnessed the signing of the memorandum of understanding, which Andrew Samet, the Under Secretary of Labor, has done an excellent job on working on. That was not a so-called deliverable that we knew would be here. In fact, we probably didn't think that that would happen.

So I think the fact that they were willing as part of this visit, as part of the overall economic dialogue to have a labor exchange with us, an ongoing labor dialogue, shows that we have at least opened the door to discussing with them issues that could go into, clearly, technical assistance on health and safety, but also can get into the issues of core labor standards that we think are appropriate when having such an economic dialogue.

So within the economic dialogue that set up is a labor dialogue, there will be a focus on trade -- implementation of the trade agreement, a focus on the science and technology.

Q: The President mentioned some flooding. Is the U.S. going to provide any direct financial support, like it did in Mozambique or Central America?

MR. SPERLING: You know what, you moved just a slight bit out of my area, so let me have PJ or Jake get back to you on that. I just don't know. Sorry.

Q: Gene, realistically, how far is the Vietnamese government from bringing about the kinds of reforms in the court system and in sort of free market reform that it will bring in new kinds of investment that will really make a difference? I mean, we're years from that, aren't we?

MR. SPERLING: Well, this is where I think there is such importance in things like these bilateral trade agreements which essentially open the economy. And it's no secret that this is much of our philosophy, as some of you have written on, in terms of the President's philosophy on open markets, which is that in bringing openness you bring to bear larger forces. Those forces affect free expression, human rights. Those forces also express basic competition. And by forcing countries into the global -- or by having countries enter into the global economy they have an opportunity to seek their comparative advantage.

Ultimately, as Secretary Summers always says, no other country can want to perform more than the country, itself, does. Every country will make its decisions based on what they see as best for their people. But to the extent that you have an outdated ideology holding back the potential of the people, to the degree that you are subjecting your economy to more open, competitive sources through trade, through openness, you may have a greater speeding up of some of those processes.

If somebody -- I mean, I always feel that we can come and talk about these things, and we should, but there's nothing as effective as when private sector companies come here, or come to any country, and say, we'd love to invest. A lot of times you go to countries and they say, we'd like to invest but you just don't have a strong enough work force. Here you have a very highly motivated, literate work, but to say there's just not strong enough intellectual property regime, there's just not a competitive enough telecom or low enough prices for us to do business here. So the question you're asking on the speed could be very much, I think, improved by the opening of their economy and, hopefully, their decision that they should speed up these processes -- not because the United States or anybody thinks it's a good idea, but because they see a chance to leapfrog development.

And there's no question that the Prime Minister, the President, Le Kha Phieu, all of them talked about the important of information technology, the degree that this can allow a certain leapfrogging in development. Our hope is that as they continue to go further, they'll have a greater sense that fostering private sector competition is the irreplaceable means to getting there.

Q: Would it be fair to infer that you got different impressions from various members, senior members of the Vietnamese government than the President spoke to, and that the General Secretary seemed to be more opposed or more concerned about the consequences of economic reform for the government than the other two senior leaders he spoke to?

MR. SPERLING: I think that there is no question that there was a more ideological bend from the party General Secretary. I think many of the specific goals are the same. As you know, they are coming forward with their next 10-year plan, and so there is certainly an understanding. But there was a little more -- in one sense a little more of a pragmatism and a little less ideology in the first two meetings. There was a very strong statement about the USSR has failed, but we're still on our feet, socialism reaffirmed. There was not that kind of discussion. I did not hear that in any of the other meetings.

Again, I think though there was -- to be fair, and this is a country that has returned to growth this year that could be over six percent, it's not at the nine percent level it was prior to the financial crisis. The foreign direct investment has not returned. But, again, you have a new enterprise law, which is at least a start. You have a stock market that is a start. You have this historic bilateral trade agreement which is a start. You have some easing of foreign direct investment.

So again, I think the important thing is what is done, not so much what is said. But I think in one sense, the difference is that one may get the feeling that if there's a determination that telecom in the Internet is the most important thing, then, therefore, the government should control it, where obviously we would believe and have believed and have had the policy that this was so vibrant and such a potential for productivity growth that we should be ultra-careful in getting in the way.

And much of the compliments that we get in the Clinton administration from some of the CEOs of the major companies, it won't surprise you, is as much about what we didn't do as we did. The people appreciate the Telecom Act; they appreciate the deficit reduction act that lowered interest rates; but they also appreciate that there was a general view that vigorous private sector competition would bring down prices for all Americans, and not that you don't have common sense regulation, but you do so with care when you have such a vibrant industry. I think there might be -- one could here a somewhat different tone at times in the third meeting.

Q: Just to expand on that -- you said there was a statement the USSR failed, we're still on our feet. What was the party General Secretary trying to say? That their system worked and central planning worked because they're still around? How did you interpret this?

MR. SPERLING: I interpreted it as that he was saying that they have a multilevel economy, and that they do not believe that one has to have a sole priority per the private sector. He described a state sector, a cooperative sector, a private sector, perhaps even a foreign investment sector, and said all of them could operate on equal terms, all of them consistent with the law, and that -- he referred to the fact that China had had to import rice in the '80s, and that they had now -- were up to 20 million in production in the Mekong Delta where they'd been --

Q: You said China. Did you mean Vietnam?

MR. SPERLING: I'm sorry, what did I say?

Q: You said China.

MR. SPERLING: Vietnam. That they --

Q: Wrong communists.

MR. SPERLING: Just a little more used to talking about the prior country. But he was referring to I think the self-reliance, the autonomy, and that they have come back in going from being an importer to a major rice exporter to production of 2 million tons a year in the Mekong Delta to 20 million tons a year, and that they're doing well. He said the USSR had gone down, but that they had been -- that they were still on their feet was the interpretation we were given. Were still on their feet, and that had reaffirmed at least their brand of socialism, which he then went on to describe as having these several sectors that all could operate equally, as opposed to the United States where there was a clear priority that the private sector was the engine for economic growth.

Q: When you talked about the officials talking about the imports of government control over telecoms and the Internet, was that a message from all of them, or just from the General Secretary?

MR. SPERLING: I think that that -- I think I said there that I think that was more of a tone type of issue, more of -- that this was extremely important and that, therefore, the state sector would focus appropriately on training workers. And that is -- in the United States, as well -- an appropriate function for the state sector is the education and private sector. But there did not seem to be a reflection of the importance of opening up the telecom system to vigorous competition or that high prices were pricing out the overwhelming majority of the Vietnamese population.

So that was more of an impression and interpretation from the tone and from just what is happening in the economy right now. But, again, there is still, then again, this bilateral trade agreement where there is a fairly significant commitment, 50 percent equity investment by United States' companies within three years; two years, I think, in base telephone; four years in, I think, mobile and cellular -- though I think 49 percent equity. So, again, there is much one can point to of positive signs, but I think people are looking at the pace and the commitment and I think the degree that the bilateral trade agreement is enforced and implemented, that will be one of the most positive things.

I should say in all three meetings there was -- all three meetings, entering the WTO was a top priority; all three meetings, the President, the Prime Minister and the Party Secretary General all said that they were very focused on being able to have permanent normal trade relations with the United States and enter the WTO. And, again, if that commitment is serious, too, that takes with it a series of additional reforms that one would have to go through that would open the economy and I think be ultimately to their benefit.

Q: Gene, where specifically is the $200 million line of credit coming from? Is it export-import or --

MR. SPERLING: I'm sorry, it's OPIC. It is OPIC, and I believe George Munos will be here in December to do an announcement. And it's a line of credit for both export financing or political risk insurance -- I think consistent with others we have done.

Q: What do you say to American companies about the prospects for the trade agreement? The phase-ins are pretty long, up to seven years sometimes. What do you say -- what might you say or advise American companies coming here, or thinking about coming here, given the fact that piracy is so high? Nike doesn't sell shoes here; Microsoft says it's 99 percent pirated. What do you say?

MR. SPERLING: I think you have an interesting picture here. I mean, you do have a very young, extremely hard working populous, and I think companies talk about the commitment to working hard. You have a very -- again, as I say, the numbers fall off, but one can't downplay the literacy rate that they have, the number of skilled people that they have here -- you can walk the streets and see the entrepreneurial spirit in people, itself.

So I think -- I can remember when Secretary Rubin visited here a few years ago, he called me about something else while he was here, but he said he thought this was -- he had really been impressed and that if he were back in the private sector, this would be a place you'd really be looking at. Now, that was 1997 and that was a year in which there was $2 billion of investment.

So I think what you saw here was significant excitement because of the potential; but then there was, you know, a little less optimism about the pace of structural reform. There's always symbolic things, there was a big BP Amoco project here that has sat on the shelf for a while. Often, things like that become symbolic.

So I think -- I guess what I would say is that there is enormous potential in this country and that there are lots of positive signs, including the BTA, of moving forward and that this is a place I'd be watching closely to see what they do and which path they follow.

The fact that there are complaints about the licensing and the sub-licensing and bureaucracy, that is true. In fairness to Vietnam, those are criticisms one who hear of many, many developing countries. But, on the other hand, some have made a commitment to wanting to attract foreign investment and really working on those things. So this would be a place I would be optimistic of, but watching closely.

Thank you.

END 3:33 P.M. (L)