751G.5 MSP/11–2452: Telegram
The Ambassador at Saigon (Heath) to the Department of State
1065. Rptd info Paris unn. Joint Emb, STEM and MAAG message.
- A.
- The primary purpose of Embtel 983, Nov 13 was to stress conviction US missions Saigon that (1) if AS and France unable to increase their financial contribution IC war effort either by increasing revenues or by economizing on expenditures (2) if US convinced expansion mil effort required to bring speedier victory and (3) if outside budgetary assistance as well as aid in kind necessary for objective in (2), it would appear to be in interest of US to relax previous policy regarding financing budgetary deficits.
- B.
Present tel covers fol additional points: (1) Local financing. STEM has pointed out that present AS tax system generally regressive and that important elements in IC economy appear to be earning large profits—indeed profits which might in some instances be called war profiteering. If these excessive profits could be absorbed by forced [Page 302] bond issue or by special export exchange tax, AS could finance larger share of war costs. Impossible state how great these are but as indicated in Emb desp 495, April 9, 1952,1 total Fr profits transferred to France in 1950 could be conservatively estimated at 36 million dols. No recent figures available, but continued expansion IC economy since 1950 may have counterbalanced effects of fall in rubber prices on 1950 profit picture. In addition we believe Chinese middlemen and some Vietnamese are also earning handsome war associated profits. We recognize AS tax authorities would be possibly unenthusiastic and certainly inefficient in collecting additional taxes from own nationals. It would also be difficult collect taxes from Chinese who do not keep European type books so that any attempt to divert continuing profits for financing war effort might fall largely on Fr houses. This does not appear to be valid reason why this source of revenue should not be tapped but opposition powerful Fr elements can be expected.
(2) Extravagant living. While battle rages in the north to protect IC from Chi Commie domination, business and life as usual continue in all principal cities of the AS. There is practically no rationing (gasoline) no price controls (rice export taxes) no wage controls, no forced savings. Senior public officials from Bao Dai down appear to have sufficient funds not only for living well but for transfer of savings outside country. Certainly same applies to higher Fr officials and businessmen.
(3) Canadian and Belgian pressure. US and Metropolitan French have hitherto been unable to induce sense of dedication and austerity in IC which would allow legal govts divert larger portion of earnings of nationals and of local Fr elements to war effort and less to plush living. Both US and Fr, however, are so deeply committed in this theatre that relatively little room remains for bargaining with Fr in IC or Assoc States elements. STEM for instance, in practice unable to carry out any threat of reducing or temporarily terminating economic aid in order apply pressure to speed up necessary reforms. This inability due to the adverse reaction which stopping impact programs and important commercial imports would have in population. In view these circumstances, we suggest that if Canada and Belgium can be induced to consider extending aid in goods or money for IC war, as presently uncommitted partners for this theatre they might be able secure prior guarantees from both French and AS. These might include promise that wartime profit taxes, exchange taxes, financial transfer controls or “forced” aid issues would be instituted and honestly applied, that present relatively high standard of living of influential groups would not be officially tolerated, high salaries etc., at the expense of war effort. In short that AS would try to approximately [Page 303] same dedication and personal sacrifice which presently exhibited by top Vietminh leaders and which to all accounts is one reason for Vietminh support among population. Canada and Belgium would be free to point out that taxpayers while willing help IC war effort should not be called upon indirectly to contribute war profiteering and present unrealistically high standards of living top Fr and AS elements.
- C.
- Emb STEM and MAAG realize suggestions this tel are radical and not yet supported by thorough going studies of tax and monetary systems including natl income estimates. They are presented in order assure no opportunity unexplored to reduce cost war to US and to France or hasten victory.
- D.
- STEM sending separate tel re assignment consultants make studies outlined above.