Foreign Relations of the United States, 1952–1954, Indochina, Volume XIII, Part 1

751G.00/5–1052: Telegram

The Minister at Saigon (Heath) to the Department of State

secret

Saigon, May 10, 1952—midnight.

2218. Rptd info Paris, Hanoi, Phnom Penh, Vientiane unnumbered.

1. My immed preceding tel,¹ Legtel 2224,² Musto 429³ outlined polit decisions and declarations which we think Fr and Bao Dai need make in order insure creation of Viet Govt of natl union willing and able to govern. This Leg-STEM message sets forth series of social and econ reforms such govt might undertake with US help, urging and guidance.

2. Bao Dai controlled Vietnam must at least rival effectiveness of Commie VM Govt by (a) strengthening govt tax and budgetary apparatus, implanting sense of dedication in public servants, and setting example of austerity; (b) appealing to econ groups—to peasants by implementing rapidly real and reform program coupled with agrarian tenancy and credit reform program and with reorg of rice trade; to bourgeois by providing commercial and industrial credit; and to workers by promulgating and enforcing modern labor legis; (c) appealing to Viets as individuals by intensifying illiteracy reduction, housing, and health programs. None of these suggestions new; each announced over year ago in Bao Dai’s first Tet message,⁴ but none has been energetically pushed. This leads STEM and Leg to believe emphasis must in present phase be concentrated on governmental reforms, although this obvious only part of program.

3. With this background, STEM and Leg suggest possibility, after reading substantial preliminary agreement with French, of arranging meeting at ministerial level Saigon or Dalat with Letourneau and Huu, and possibly with Bao Dai present, to explore ways and means of getting legal regime off present dead center and formulate specific recommendations to Viet Govt for concrete action in order of priority. If groundworks carefully prepared to preclude possible resentment Amer initiative and invest recommendations with maximum auth, such meeting might afford us appropriate opportunity to propose urgent consideration by Viet Govt of fol measures:

A. Governmental reforms.

(1) US, and if French and Viets agree, wld be prepared finance Amer econ counselors or third nationality (perhaps UN) experts to assist Viet Govt; particularly in field gen finance, customs, taxes, budgets, and civil service at regional as well as natl levels. Their terms office wld be limited strictly to one year renewable only at request Viets. Their job wld be:

(a) Assist budget preparation and year-end accts of actual receipts and revenues.

(b) Recommend tax reforms; type, scale, and admin including possible exchange tax help finance war effort.

(c) Recommend and help institute admin improvements including reduction supernumerary personnel.

We have hitherto opposed this while Viets have appeared willing have such experts, but possibly time ripe for new attempt sound out both parties though realized in long run only Viets can run Vietnam.

(2) US strongly to support institute of issue program for bond issuance to finance B (3) and B (5) below and to mop up surplus purchasing power. US to urge institute ask IMF study question of piaster exchange rate and IBD [IBRD] study possibility longterm loans.

(3) High [garble], or its equivalent, shld be reinvigorated, given adequate personnel and funds in order reduce corruption.

(4) US to help finance and possibly staff with third party experts school for public admins. This long pending project.

(5) Vietnam Govt shld give example of self-imposed austerity. Letourneau indicated he wld impose austerity on all under his auth.

(6) As suggested preceding tel, France shld implement reorg its own admin soonest and take other similar measures in order give impression “new deal”.

B. Appeal to econ groups.

(1) Land reform on large scale shld be instituted immed along lines Kor and Jap programs. US might offer finance admin costs. There has been gen acceptance of land reform by Viet Govt but no concrete actions to date. French believed interested, subj to legitimate exceptions, for rubber and other “industrial” crops.

(2) Landlord-tenancy laws shld be reformed and promulgated immed. Reform of South Vietnam’s law has been pending for over year.

(3) Pre-war “credit populaire” system of agri credit shld be reinstituted or new system established—original financing to come from US and from bond issue A (2) above. Latter wld of course be repayable. As soon as system created, local usury shld be drastically punished. These measures have also been “under consideration” for over year.

(4) System of rice crops extending from farmer to consumer (whether local or export) shld be established, possibly under supervision third party experts, in order have yardstick for margin between prices recd by farmer and paid by consumer. Gen concept part of Pipaud (SOC) program presented Natl Assem bly.

(5) New and increased govt commercial and industrial credit facilities shld be made available assist creation Viet bourgeoisie. Same sources for funds as for (3).

(6) Fr shld be encouraged in their own long-run interest persuade, if possible, their entrenched business groups gradually take in Viets on Boards of Directors, starting with Bank of Indochina on which French Govt directly represented. Present French hegemony over basic industries of Vietnam one of Ho‘s strong points.

(7) Vietnam promulgate long pending labor reform law and revise rubber plantation labor contracts. Both actions shld tend deflate some of effectiveness Ho propaganda.

(8) Adopt some of Ho‘s sanctions against illiteracy, for instance requiring persons having govt facilities such as market stalls, etc., to be able read and write after period of grace.

Most of above program, except for original capital of credit institutions involves only admin or tech assistance expenditures. This part of program stressed because without strong govt and without appealing to individuals basic econ security and consequent stake in community, it believed that continued emphasis on direct impact programs may become increasingly less effective. It difficult to buy allegiance. Allegiance based on healthy self-interest. Hence entire reform and improvement program shld be fully publicized, not simply to make it known but to generate popular enthusiasm, sense of individual responsibility and hope of personal benefit. This program wld fall short of its mark of achieving definite polit benefits if it limited to exchanges between techs. It seems more realistic attempt force Bao Dai govt to win allegiance by insuring increased econ stake in that govt’s success by all elements population. Without such stake Commie propaganda will presumably continue delude Ho population.

C. Other programs.

Other desirable programs involving public works, health, housing, etc., shld, if funds restricted, be subordinated drive for better govt and direct appeal to individual in their econ capacity.

4. STEM and Leg stress that none of projects in para 3 is new. Essential recommendation now being presented is that time has arrived to give old and in most cases accepted projects different emphasis and new type of push in new setting. As described in preceding tel, program shld be preceded by far-reaching polit adjustments.

Heath

1. Telegram 2217 from Saigon, May 10, is not printed.
2. Infra.
3. Telegram Musto 429, from the Mutual Security Agency in Washington to the MSA mission at Saigon, Apr. 11, not printed, requested the mission and the Legation to formulate proposals for measures which might be taken to forestall deterioration in the economic and financial condition of the Associated States. (751G.5 MSP/4–1152)
4. Bao Dai’s Lunar New Year address, Feb. 6, 1951, announced plans for economic development and agrarian reform. The text of the address was transmitted to the Department of State as enclosure 9 to despatch 503 from Saigon, Feb. 14, 1951, not printed. (751G.00/2–1451)