Indo-Pacific Dialogue – White Paper – 2018

EXECUTIVE SUMMARY of INDO-PACIFIC DIALOGUE – VIETNAM 2018

Overview

Envisioning and creating the building blocks for a “Free and Open Indo-Pacific” (FOIP) was the main message of the Indo-Pacific Dialogue – Vietnam 2018.

Different perspectives and opinions were exchanged at the Dialogue. The emerging issue that permeated through the discussions was how to create a Free and Open Indo-Pacific for the benefit of the countries and how to further peace and economic prosperity within the region. Speakers and Panelists from various governments, business sector and the civil society contributed their valuable viewpoints.

“Free and Open Indo-Pacific”

The US Ambassador to Vietnam Daniel J. Kritenbrink delivered a keynote address wherein he shared  his views that the US strategy in the Indo-Pacific region was focused on economic development, seeking long-term partnerships without dominance, accompanied by high standards of transparency and law.

Based on the history of the United States as a country with a long tradition of partnerships in the Indo-Pacific, the US Ambassador made it a point to emphasize that he expects the US to deepen its engagement with many countries in this region. He expressed his optimism that the United States also expects the “Indo-Pacific” would be a region where nations boldly pursue their own interests respecting their neighbors as equals, where societies, beliefs and traditions flourish side by side; and where individuals exercise liberty to pursue their dreams and chart their own destinies.

“The vision (of a Free and Open Indo-Pacific) is built on principles that are widely shared throughout the region, ensuring the freedom of the seas and skies, insulating sovereign nations from external coercion, promoting market economics, open investment climates, fair and reciprocal trade; and supporting good governance and respect for individual rights. The United States commitment to the Indo-Pacific has never been stronger” – Ambassador Daniel J. Kritenbrink.

The Ambassador also emphasized the critical role of the private sector vis-à-vis the economic development of the Indo-Pacific and Vietnam in particular with special emphasis on developing infrastructure, the digital economy and energy resources.

The specific example cited in the context of infrastructure development, Asia Development Bank estimates, developing countries in Indo-Pacific need an investment about $1.7 trillion every year or $30 trillion by 2030. Emphatically, this is an amount of money that no government can afford, so the private sector needs to be playing a critical role of raising, allocating and deploying capital within this area.

On Bilateral Relationships, the Ambassador emphasized that the “US was committed to supporting the development of strong, prosperous and independent Vietnam that contributes to international security, engages in free, fair and reciprocal trade and respects human rights and the rule of law.”

Currently, Vietnam is an important partner of the United States and it is a country which is in the process of global integration, building trust and transparency. U.S is committed to supporting Vietnam’s development based on independence, international security and fairness; helping Vietnam find solutions to energy security; leveraging infrastructure; building smart cities and encouraging startups. Besides, it also enhances Vietnam’s military capacity to join the United States in contributing to regional security. In terms of education, the establishment of a Fulbright University is a big step.

Deputy Minister of Foreign Affairs and Previous Vietnamese Ambassador to the United States, Pham Quang Vinh expressed his appreciation on the importance of the initiative of a Free and Open Indo-Pacific;

“Viet Nam highly welcomes all open and inclusive initiatives, including the IPS (Indo-Pacific Strategy), in contribution to peace, cooperation, stability and development in the region with respect for international laws, independence, sovereignty and territorial integrity of regional countries as well as the assurance of ASEAN’s centrality. We welcome countries in and out of the region that have been putting forward concrete initiatives in the areas of economy-trade, infrastructure development to open up effective and practical cooperation prospects among relevant countries.”

He expressed the roles of ASEAN as an association and individual countries. His also pointed the that the continued cooperation between Vietnam and the United States is not only important for the two countries, but also for the region and the world. Each country takes its responsibility will create a better world.

The Indian Ambassador to Vietnam Parvathaneni Harish shared is viewpoints as being complimentary to the previous statements of the previous Ambassadors and expressed that India viewed the Vietnam – US relationship in a favorable development stage with much potential and suggested that other countries, including India, also facilitate the regional development story to a higher playing field which would also bring in additional shared economic opportunities  and connectivity.

The Chairman of Vietnam Chamber of Commerce and Industry (VCCI) Dr. Vu Tien Loc provided the perspective of the Vietnamese business community, which welcomes regional initiatives towards the principle of sovereignty, territorial integrity and its agreement on the important role of the private sector in development of the economy of Viet Nam. In addition to the main pillars of digital connectivity, energy, and infrastructure, Mr. Loc also stressed the importance to the advanced development of MSME’s (Micro Small & Medium Enterprises). The Indo-Pacific region has many MSMEs, so it is important to shift the focus to promote the development of this region with the participation of MSME’s as integral to the growth and economic prosperity of the Indo-Pacific region. Thus, he aspires to move toward the omnibus development of MSME’s to become the backbone of economic development not only for Vietnam but for regional prosperity within the Indo-Pacific.

Speaking on the subject on future policy aspirations, Dr. Loc mentioned Vietnam will continue to endeavor based on two factors: Innovation and high technology platforms. Vietnam continues to carry out bilateral and multilateral cooperation with other countries in the region. Vietnam also welcomes the investment projects and support on digital and general infrastructure, energy for sustainable and balanced development. In principle it is therefore willing to accept and commit to opening and the integration of markets and look at models of cooperation with global institutions of excellence.

Speaking on the subject on trade related issues, Dr. Loc Vietnam expects that free trade will be maintained however recognizing that overall, Vietnam is still trying to improve the business investment environment, and still works with the United States on many issues such as network security or copyright.

In addition, Dr. Loc was appreciative that the United States continues to help Vietnam to reform institutions and also plays an important driving force in its development.

Economic impacts from US-China trade tensions to the ASEAN region (2018)

Keynote addresses from Andrew Tilton, Chief Asia-Pacific Economist, Goldman Sachs and Marie Diron, Managing Director, Sovereign Risk Group, Moody’s Investor Service provided the Indo-Pacific Dialogue – Vietnam 2018, with the critical economic data, objective analysis and potential outcomes of the current state of US-China trade negotiations and their potential cause and effects on credit markets, investments, financial markets, supply chains and trade policies regionally within the ASEAN geography and larger implications with the Asian markets.

In summary it was observed that the forecast for 2019 would be a year of slowing global growth with tighter financial conditions as the Federal Reserve in the US continues to signal rate increases for 2019.

As US-China trade tensions persist, ASEAN is seen as a potential trade and investment beneficiary, with the final outcome of trade negotiations and China’s policy responses being the outliers for this trend.

China’s economic growth was seen to have slowed quite significantly in 2018, although preliminary data points to a bottoming out in early 2019.

Increasing signs that despite global growth having peaked, fundamentals in most Asian economies including ASEAN remain relatively robust.

Windows to address longstanding sovereign credit challenges are closing as tightening financing conditions carry risks especially for frontier markets. ASEAN growth to moderate but still faster than in most other regions.

US-China trade tensions will continue to swing between compromise and conflict, weighing on the sovereign credit outlook in ASEAN within 2019.

Likely developments in key areas of dispute, Trade, Technology, Investment & Geopolitics. US-China trade tensions will potentially impact ASEAN through supply chains.

Vietnam which has close trade linkages with both China and the US and is an important node in the regional supply chain, and as a large intermediate-goods exporter, the ramifications for the electronics supply chain are particularly important. (Electronics comprise 20% of total exports, with production dominated by a few large players).

Vietnam’s seen as beneficiary to US-China trade tensions from relocation of supply chains and the rapid growth supports stabilizing government debt. Although the debt burden is unlikely to fall significantly.

Fiscal strength to remain a credit challenge however, rapid credit growth remains a source of risk as past history of susceptibility to credit cycles still an overhang and credit gap persists.

Digital Trade and Financing Infrastructure

Discussion on these two themes provided some unique insights on the difficult question posed.

The consensus was that this pending Cybersecurity Law would limit large US technology companies from having any meaningful footprint in Vietnam in the interim period, it could also could be viewed as a lost opportunity to not only secure substantial FDI’s into Vietnam from these firms however this Law could also meaningfully slow new venture creation and innovation in Vietnam.

The consensus for the discussion on financing infrastructure projects, was the issues related to attracting competitive financing is not new to Vietnam. However intra-agency policy co-ordination, cutting the red-tape and transparency would enable the timely execution of the many projects currently sidelined.

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