FOA files, FRC Acc No. 55 A 374, MAAC files
Memorandum by the Assistant Director for Mutual Security (Tannenwald)1
Summary of remarks of Theodore Tannenwald, Jr., Assistant Director for Mutual Security and Chief of Staff, made as an oral report and given to DMS Staff on December 3, 1952, regarding his trip to the Far East and Middle East October 19, 1952 to November 30, 1952.
[Page 306]Indo-China
My first stop on this trip was Saigon in Indo-China where I spent three full days along with Ty Wood. Most of the work was on the economic side but I did have a chance to check into the political and military situation somewhat. This was at a given time before the recent offensive of the Viet Minh had started full blast and certainly before it had turned into the Thai region where the fighting is now going on. While I was there the Viet Minh had made their first moves but everybody was hopeful they would be able to be contained and not get into the Red River Delta.
On the economic side the biggest problem was the exchange rate. There is an artificial rate of 20 piasters to the dollar. The real rate is about 50 piasters to the dollar and great problem in doing anything about it is that the piaster is tied to the franc. Any devaluation will affect the franc. The feeling was not to tamper with the exchange rate on the ground that if you did get a more realistic rate, in the long run you would not save any money—the prices would go up and the economic effect would be the same after about six months. After a temporary period the cost to the French of the war in Indo-China and the value of our counterpart would end up being the same as it was now. I got this story from everybody—both the French and the local American officials. The biggest argument was a political one—devaluation would give the Viet Minh a good propaganda line and they would then say to the Indochinese people—the currency of the country isn’t worth anything and your government is taking away what little you have.
There was one special problem arising out of some importers making a tremendous profit out of the MSA program. They were bringing stuff in at the official rate under our program and then reselling it at the unofficial rate, thus collecting two and one-half times as many piasters as it cost them. We checked into that pretty carefully and found that it only amounted to between two and three million dollars worth of the total program. However, all agreed that this was a serious problem in terms of Congressional reaction and that something had to be done about it. MSA/W and the MSA mission in Indo-China are dealing with this problem right now.
Rice production is a tremendous problem because of the fact so many parts of Indo-China are so insecure and cannot be put into production. Awhile back they had a large amount of rice exports which caused the local price of rice to rise tremendously. The local officials thought they could cure this by banning exports but it didn’t work out that way—whether it was because stuff got out because of smuggling, or hoarding, I couldn’t determine. When I left they had a feeling that the stuff would begin to come out on the local market as the new crop was [Page 307] about to come out of the fields and that would make it essential that the old stuff come out before the new crop.
The most important thing I got out of Indo-China was a general reaction to the political and military situation. I gained several impressions:
The French appear to have little real intention of getting out of Indo-China; they are doing everything they can do perpetuate their control and at the same time to create a facade that will satisfy the U.S. and other countries who are doing everything they can for the Indochinese.
French firms were getting 95 of the MSA business because (1) they could get credit from the banks; the banks won’t give loans to local businesses because the banks are controlled by the French; (2) the French concerns have the opportunity to jiggle with dollar resources from the Metropole and there was evidence that these concerns were using these resources to pay subsidies on imports. The French importer could get that extra money whereas a local importer could not and this enabled the French importers to make low bids on MSA business.
The French are in control of the banking and currency and of transportation. The same is true of coastal shipping. I spent an evening with a local Indochinese who was a President of an Air Transport Company and he had been unable to get permission to fly passengers from Saigon to Hanoi because this would compete with Air Viet Nam, a French company.
On the military side the French are moving ahead in the training of the ground troops because they need them to fight the Viet Minh. The French are doing practically nothing however with regard to Indo-China’s naval or air arm with the result you will get a situation where the Associated States will have a good ground force but no air or naval force to go with it.
I saw only Viet Nam—did not get to Laos or Cambodia. As far as the local Vietnamese officials are concerned, they are married to French girls and my feeling is they weren’t concerned about the welfare of the Vietnamese people as a whole.
I came away with a rather disillusioned impression of the situation in Indo-China and the feeling that we have been kidding ourselves and that we either ought to recognize the fact that the French are not going to give up their control or decide that the French ought to give up their control and do our utmost to see that they do in a reasonable time. We ought not be kidding ourselves by continuing to assume in our policy planning that the French will give independence to the Associated States.
I spent a good deal of time going into the common-use program in Indo-China which is not a common-use program at all. It is strictly an [Page 308] end-item program. I understand the ’53 program has the Army catalog numbers on it. I’m not saying the program is wrong but we ought to stop kidding ourselves. We ought to recognize it for what it is.
[Here follows discussion of areas other than Indochina.]
- Circulated in the interdepartmental Mutual Assistance Advisory Committee as document MAAC Memo No. 4, Jan. 12, 1953.↩