Foreign Relations of the United States, 1958–1960, Vietnam, Volume I

58. Letter From the Assistant Secretary of State for Far Eastern Affairs (Robertson) to the Ambassador in Vietnam (Durbrow)¹

Washington, March 10, 1959.

Dear Durby: We very much appreciated your long letter of February 16, 1959² concerning the visit of Draper Committee representatives to Viet-Nam as it is helpful to us to learn about their thinking following their discussions with you. We were particularly interested in Mr. Anderson’s questioning of the 150,000-man force level and General Collins, idea of a possible reorganization of the Vietnamese military forces involving a reduction of the number of personnel in active service.

Since we foresee no lessening in the external threat or heavy pressure on the Republic of Viet-Nam by the Communist regime in North Viet-Nam, backed by Communist China, we do not believe that a reduction in force levels is justified on this basis under present circumstances. The Defense Department has indicated in the Congressional Presentation for the FY’60 Aid Program that the Vietnamese armed forces are capable of holding for 30 to 40 days against a Viet-Minh attack across the 17th parallel, but they are not now capable without outside assistance of holding against an attack on the delta area in South Viet-Nam through Laos and Cambodia. It is hoped, of course, that further training in large scale units can improve Viet-Nam’s capability of containing an attack until external assistance arrives. I cite these capabilities because it seems to us that any reduction in force levels at this time would move us farther away from attainment of this mission of holding until external assistance arrives.

We noted with interest the point that you made to Mr. Anderson that effective organization of the Civil Guard should eventually make possible a reduction in the military force levels, and that at least one year’s time be allowed for making the Civil Guard into a more effective organization before force level action is taken. We are sure that you will keep this question under review.

We were also interested in your comments about the rising foreign exchange holdings of the Vietnamese Government and your expectation that the Draper Committee will recommend that the Vietnamese Government be compelled to spend a considerable amount of its foreign exchange for military and economic purposes to offset a recommended decrease in aid. Our impression has been that the increase in 1958 in Viet-Nam’s foreign exchange reserves was more apparent than real. According to our information, the picture of the official holdings of the National Bank of Viet-Nam has been as follows:

Foreign Exchange Holdings of National Bank of Viet-Nam (In millions of dollars)
	End 1956	End 1957	Sept. 1958
Total	132	138	161
1. French Francs	55	68	80
2. Dollars	73	63	68
3. Other	4	7	13

It was our understanding that the franc holdings include “trifrancs” made available under Section 402 of the Mutual Security Act, and that the “trifrancs” accounted for the entire increase in franc holdings of $12 million in 1958 (page 7, Saigon’s Despatch 175, November 10, 1958³). Moreover, we understood from Saigon’s Telegram 1259, January 1, 1959,⁴ that another $12–14 million of the franc holdings would be used by French firms for profit remittances during the first three months of 1959. Deduction of the “trifrancs” and expected profit remittances would eliminate all of the 1958 increase in foreign exchange reserves. We are under the impression that the net increase in dollar and other non-franc holdings and net reduction in franc holdings (after profit remittances) are due to a deliberate GVN policy to shift its reserves away from francs to other safer and more useful currencies.

If our information about Viet-Nam’s foreign exchange reserves is not correct, we would like to know it. We also wonder whether a rising trend in foreign exchange reserves is a safe assumption for the future. While we hope and expect that receipts from Viet-Nam’s exports will steadily rise, is there not a considerable likelihood that Viet-Nam is going to be impelled to spend an increasing amount of its own foreign exchange earnings for imports? We assume that our future commercial import program is unlikely to exceed its approximate current dollar level, but that rising demand flowing from the drawdown in the counterpart fund and possibly deficit financing by the Vietnamese Government may lead to a higher level of imports than during the recent period of deflation.⁵

The Vietnamese Government’s views toward devaluation have apparently been crystallizing during the past few months. We note that its representative took the same position with the Draper Committee group that he did before an Aid Committee meeting in December 1958: that Viet-Nam cannot devalue until it has revamped its budgetary revenue structure in order to reduce present heavy dependence on import taxes (receipts from which would substantially fall in the case of devaluation) and increase the proportion of revenue derived from direct taxes. If the amount of our commercial import program is going to fall during the next few years (as it may well), it is difficult to refute the point of view held by the Vietnamese Government.

As requested in the postscript to your letter, we shall endeavor to let you know what the Draper Committee recommends.⁶

Best regards.

Sincerely yours,

Walter S. Robertson

1. Source: Department of State, FE Files: Lot 61 D 6, Durbrow. Secret; Official–Informal. Drafted by Mendenhall on March 2.
2. Document 55.
3. Not printed. (Department of State, Central Files, 851G.00/11–1058)
4. Not printed. (Ibid., 85G.131/1–159)
5. In a letter to Robertson dated March 17, Durbrow stated in part: “We must differ with you regarding the nature of the increase in 1958, and in prior years, in the foreign exchange reserve of Viet-Nam. If one deducts from total reserves the movement of tri-francs and direct dollars made available to Viet-Nam, one finds a very sharp increase, indeed, in Viet-Nam’s ‘own’ reserves. Vietnamese total free exchange availabilities result from the excess of export earnings for invisible items, such as services and profit remittances.” (Ibid., FE Files: Lot 61 D 6, Durbrow)
6. The Draper Committee issued a public report entitled Composite Report of the President’s Committee To Study the United States Military Assistance Program, 2 vols. (Washington, August 17, 1959). Further documentation on the work of this committee is in the compilations on East Asian regional developments and on mutual security policy scheduled for publication in forthcoming volumes of Foreign Relations.