208. Telegram From the Ambassador in Vietnam (Reinhardt) to the Department of State1

5769. Ref: Deptel 5235.2 This is country team message.

Purpose of this message is to outline results of analysis just completed by country team of costs of past five months of Vietnam military program; to estimate requirement for U.S. financial support for program balance of CY55; and, based on these analyses and estimates, to provide data requested in reftel.

a. As Dept is aware, original estimates of costs of military program for CY55 ($303.2 million) was compiled early this year from the data then available and predicated on assumption that plans for phased reduction of armed forces would be carried out on schedule and that programs of reorganization, training, and construction of facilities would proceed in orderly manner.

b. Political events of past months and difficulties between govt and sects have drastically upset military program in all its aspects with consequent impact on original cost estimates for period to date and for balance of year. Most obvious development has been slow-down in schedule of force reductions, coupled with integration by govt of sect forces into army, thus creating higher level of forces than expected. Additional $40 million requested in Embtel 51723 were funds estimated as required to meet cost of such larger forces, including integration of sect troops as part of long-range solution to sect problem proposed to in [sic] govt in CollinsEly plan.

c. Although pay, allowances, and personnel support element of costs of forces have been greater than the original estimate due to higher troop strength, it now appears, after country team analysis, that U.S. fund requirements for other items will be less than expected. For example, during first five months CY55 practically none of planned construction was able to be carried out, and MAAG estimated [Page 447] that over entire year only two-thirds of funds designated in original construction program can be obligated.

Following is situation as it now stands:
Strength of Vietnamese armed forces as of 1 June 55 was 182,000 of which 17,000 are sect forces. 3,000 additional sect forces will be integrated under CollinsEly plan.
Conscription of low-pay personnel does not appear feasible in CY55.
A total of $108.1 million has been spent or committed for support of VN forces thus far in CY55 (to 1 June). Of the entire $303.2 million, there thus remains $195.1 million for balance of CY55.
The reduction of force level by 31 Dec 55 at the slowest of reduction rates to 170,000 (including 20,000 sects), a level believed by the Chief, MAAG to be minimum that should be reached in light of operational requirements, MAAG now estimates that [$]26.8 million additional will be needed for CY55. Country team recognizes that larger force reductions this year would be desirable, but believes possibility that conditions of internal instability that have thus far caused delay in forces reduction program may continue throughout rest of year, and we should be prepared for this contingency. Country team therefore urges that 26.8 million (in lieu of $40 million requested in Embtel 5173) be made available.
Force strength for June through December estimated to average 182,000 costing $31.7 million per month for seven month total of $221.9 million. This calculation based on $2,000 per man year plus additional $1.3 million per month for construction new facilities during last seven months to make up part of construction program delayed during first five months. Reduction of 12,000 to end-year level of 170,000 will be made latter months of year (Nov, Dec) if conditions permit. No assurance present political conditions will be stabilized sooner hence funds requested in light present situation.
Estimates of portion to be financed by local currency and portion by foreign exchange is based on tentative breakdown provided by Defense Ministry. Criterion used was whether items to be purchased are easily available in VN or need to be purchased abroad. Estimate is for 89 percent piastre expenditures and 11 percent foreign exchange expenditures.

Costs for CY56: If forces at beginning of CY56 are at strength of 170,000, costs for CY56 will be much higher than $180 million originally estimated when it was assumed level would have been reduced to 100,000 by 1 Jan 56 and conscription begun 1 Sep 55. Estimate of specific costs depends on what reduction schedule is followed in CY56. In this connection attention invited to MAAG report titled “Development of a Force Basis for a Time-Phased FY57 MDA [Page 448] Program for Indo-China”4 delivered CINCPAC via courier last days of May in which MAAG recommends force level of 170,000 until 1 July 56, and reduction to 150,000 by 31 Dec 56 with conscription starting 1 Jan 57; and Embassy–USOM recommend reduction to 100,000 man structure and beginning of conscription early in CY56.

a. On basis MAAG recommendations, total cost CY56 would be $336 million compared to $180 million originally estimated, and would entail increasing U.S. contribution from FY56 funds by difference $156 million, inasmuch as VN considered unable increase its contribution.

Re VN increase in its financial contribution for CY55 beyond $79.8 million presently estimated, country team believes such increase not possible for following reasons:
Increase in 800 million piastre surplus in civilian budget not likely since, as result of slow-down in importing, anticipated government revenues from customs duties may fall short of VN expectation. Reduction civil expenditures unlikely. Extra budget funds probably needed for Garde Civile.
VN Govt expected to borrow 400 million piastres from Central Bank to complete its contribution to military expenditures in CY55. Govt also plans other financing by this means, i.e., capital for investment bank and agricultural credit. Also govt will need to resort to increased deficit financing in CY56 when reimbursements of VN contribution to 1954 military expenditures will not be forthcoming. Therefore increased borrowing from VN National Bank to raise VN contribution to military program in 1955 is considered unfeasible.
$26.8 million of full $40 million additional funds requested Embtel 5173 now required to carry out military program CY55 with force strength outlined para 4 above. These funds would also satisfy requirements for sect integrations proposed in CollinsEly plan. (It should be noted that govt has already integrated totals of sect forces approximately those proposed in CollinsEly plan, i.e. 17,000 including 3,000 of Gen. Ngo, although integrations have not been accompanied as yet by other actions suggested in plan such as demobilization and resettlement of sect forces and arrangement for specific locations of units.)
Costs of CY56 military program will depend on Washington decisions as to force levels to be supported in CY56 based upon recommendations contained in correspondence referred to in para 6 above.
  1. Source: Department of State, Central Files, 751G.00/6–1155. Secret. Repeated for information to Paris; passed to FOA, Defense, and CINCPAC.
  2. In this joint State–FOA–Defense message, May 25, Reinhardt was informed that he should not consider himself limited to the plan for sect integration into the VNA prepared by the CollinsEly group. For Reinhardt’s and the Embassy staff’s information, the Washington agencies sending the cable required an explanation of requirements for additional funds over $223.4 million already obligated for Vietnamese troop support and an estimate of Vietnam’s ability to increase its own financial contributions to the program and others. Finally, the Embassy was asked to comment on the assumption that the already funded expenditures and the estimated Vietnamese contribution of almost $80 million would be sufficient to cover additional costs requested by Collins. (Ibid., 751G.00/5–1455)
  3. The reference is in error; it should be to telegram 5173 from Saigon, May 10. (Ibid., 751G.00/5–1055)
  4. Dated May 23, not printed. (Ibid., Saigon Embassy Files: Lot 61 F 22)