Foreign Relations of the United States, 1955–1957, Vietnam, Volume I

381. Memorandum of a Conversation, Blair House, Washington, May 10, 1957, 3:30 p.m.¹

Washington, May 10, 1957, 3:30 p.m.

SUBJECT

• Economic Aid Problems in Viet-Nam

PARTICIPANTS

• His Excellency Ngo Dinh Diem, President of the Republic of Viet-Nam
• His Excellency Nguyen Huu Chau, Secretary of State at the Presidency and Secretary of State for the Interior
• His Excellency Tran Van Chuong, Ambassador of Viet-Nam
• The Secretary of State
• The Honorable Walter S. Robertson, Assistant Secretary of State for Far Eastern Affairs
• The Honorable Elbridge Durbrow, American Ambassador to Viet-Nam
• Mr. Kenneth T. Young, Jr., Director, Office of Southeast Asian Affairs
• Mr. Thomas J. Corcoran, Officer in Charge, Viet-Nam Affairs
• Mr. Charles Sedgwick, Interpreter

The Secretary asked if there were any questions apart from the joint communiqué² which the President would care to discuss. Mr. Chau said that earlier in the day he had reviewed with Mr. Young all of the points which President Ngo Dinh Diem had covered in his previous talk with the Secretary.³ Mr. Chau then recapitulated these various points, placing great stress on the need for tractors in connection with the resettlement projects in the high plateau. President Ngo Dinh Diem discussed at length the superiority of tractors over water buffalos in this area.

The Secretary asked how many rice crops per year were harvested in South Viet-Nam. President Ngo Dinh Diem replied that in the south there was only one crop a year and that this meant that families were fully and profitably occupied for only one and a half to two months per year. Furthermore, dependence on a one crop economy, which meant that rice had to be exported at a low price in international competition, made the country very vulnerable to economic depression. Therefore, it was necessary to work as quickly and cheaply as possible, not only to produce sufficient rice for export, but also to supply the needs of the people in the high plateau. As a means of profitably using the people’s time during the large part of the year when they were not engaged in rice production there were many resources, particularly in the high plateau, such as rubber, tea, coffee, vegetables, fruits, cane, bamboo, and wood for handicraft purposes which could be exploited. It was necessary that Viet-Nam develop handicraft production in both the plains and the high plateau, since cultivation of the rice crop did not suffice to maintain full employment. President Ngo Dinh Diem further discussed both the scarcity of water buffalo and their unsuitability for employment in the high plateau in comparison with bulldozers and tractors. He stressed that in view of the approach of the rainy season he was very anxious to begin work on the resettlement projects and that this work depended largely on provision of tractors and bulldozers.

Mr. Robertson, said that on May 6 after the President’s departure from Saigon on his visit the Government of Viet-Nam had been informed of ICA/Washington’s approval of the resettlement project and that he understood that orders were now being placed for equipment. President Ngo reiterated the importance he attached to the provision of mechanical equipment for this project, stressing that it was tractors which had made possible “miracle Cai San”, where 40,000 refugees and 10,000 local inhabitants had been resettled. This project had become a pilgrimage for newspapermen and statesmen of other countries. President Ngo felt that tractors and bulldozers were as important to Viet-Nam now as tanks were during an offensive in time of war. People had already started moving to the high plateau. Half the total number involved were already there and half were on the way. Without tractors and bulldozers they had to depend on hand choppers to clear the land. Mr. Robertson said that we understood that the President wished us to expedite the shipment of mechanical equipment for the resettlement project, that Mr. Chau had already explained this matter to Mr. Young in the morning and that we would work on it. Mr. Chau said that apart from the general agricultural problems already discussed Viet-Nam had aid problems of an industrial nature. The Government of Viet-Nam on the one hand, and the USOM and ICA/Washington on the other, were not in full agreement on the manner in which to use American aid. The Vietnamese idea was to use United States equipment for industries that would be mixed enterprises, with both private and state participation and there was some reluctance on the part of American experts to approve enterprises involving state participation in industry.

President Ngo said the Vietnamese had thought this over very carefully and they hoped that an exception could be made permitting some government participation in a few enterprises as a catalyst to stimulate private participation. He said that French capital was still important in Viet-Nam and that the French capitalists would like to see state participation in enterprises in which they were to invest. Vietnamese investors also favored state participation. Also there was the fact that private investment was not attracted to such essential industries as sugar production. The government’s aim was not to promote state ownership but merely to encourage private investment. Once private industries had gotten under way the government’s shares would be sold to private owners.

President Ngo next discussed the question of direct aid at great length indicating that the Vietnamese would prefer less commercial aid and more direct aid which they could use for acquiring capital goods. Mr. Durbrow pointed out the need for commercial imports in order to generate counterpart local currencies for military expenses. The Secretary suggested that these matters could be discussed in detail with representatives of ICA. Mr. Robertson said that the Director of Planning, Mr. Huynh Van Diem, and the American Aid Administrator, Mr. Vu Van Thai, had already discussed these matters with officers of the Department and with ICA⁴ and that they would return to Washington next week for further discussions.⁵ Ambassador Chuong then remarked it was impossible to strengthen an underdeveloped country from the outside by supplying it with arms and consumer goods. It was necessary to strengthen the country from the inside by giving it means of production. As long as the Vietnamese could not produce goods from raw materials they would be dependent on American aid and this they did not want. President Diem said that the Vietnamese lived at a faster rate than the Thai or the Cambodians, for example, and that their consumption needs were more similar to the Japanese. Therefore they had to produce enough to meet these needs.

Mr. Durbrow said that an industrial development center was included in next year’s proposed aid budget. The Secretary asked what sort of industry was envisaged. Mr. Durbrow replied that sugar, glass, cement, and textile production were being considered. The Secretary asked if Viet-Nam had to import cotton for its textile industry. President Ngo replied that this raised the question of triangular currencies and said that the Vietnamese did not want soft French money; they wanted dollars. If they got aid in francs they lost about one-third of its value. The Suez crisis had raised insurance and other costs by 22% and the francs had depreciated in value by 6 to 8%, while the cost of material products in francs had gone up by 6%. The French, instead of paying the United States in dollars for agricultural surpluses, were paying in francs and thus dumping their soft currency into the Vietnamese aid program.

President Ngo next referred to a note⁶ he had received from the American Embassy in Saigon concerning possible devaluation of the piaster and said that the very possibility of devaluation would create a panic in Viet-Nam. Devaluation was possible only for a country with a very high level of production. Devaluation would have an effect, not only on the price of goods, but on the Vietnamese standard of living, since salaries and the prices of locally-produced articles would both be affected and that the prices of imported products, on which the Vietnamese standard of living depended, would be increased considerably.

Mr. Robertson said that the question of devaluation was not a device to reduce aid and that we merely wished to get the best out of the aid program. No one in Washington at the policy level recommended the type of cut in aid envisaged in the Clement Johnson report.⁷ Since the whole question of devaluation was so complicated the Vietnamese and American economists should sit down and talk it over. It was important that this matter be looked into soon. We understood President Ngo Dinh Diem’s concern but an examination of the question of devaluation could not be avoided. If American aid was going into the Vietnamese economy at the rate of 35 piasters to one dollar and the real rate of exchange was perhaps twice that there had to be some determination of what was happening to the difference. Mr. Chau said that this difference was responsible for the improved Vietnamese standard of living. Mr. Chau asked whether the problem should be studied in Washington or Saigon. Mr. Durbrow suggested that it be studied in Saigon. President Ngo suggested that it be studied in Washington. Mr. Robertson suggested that talks could commence while the President’s party was still in the United States and it was agreed that Mr. Chau and Messrs. Huynh Van Diem and Vu Van Thai would return to Washington next week for talks with officers of the Department and ICA.

1. Source: Department of State, Central Files, 751G.5–MSP/5–1057. Confidential. Drafted by Corcoran and initialed by Corcoran, Robertson, and Young.
2. For the text of the joint communiqué, see the Department of State Bulletin, May 27, 1957, pp. 851–852. The address Diem made before the Joint Session of Congress, May 9, is also printed ibid., pp. 852–854.
3. See Documents 376, 377, and 378.
4. These discussions took place at a series of meetings on May 6 and 7 prior to Diem’s arrival in Washington. Those participating in the meetings were Vu Van Thai and Huynh Van Diem for South Vietnam and a U.S. interagency group made up of Young, Price, and Corcoran for the Department of State and Paul Summers, Deputy Regional Director for Far East, and Frederick Bunting, Chief, Cambodia, Laos, and Vietnam Division, for ICA. The Department of State record of these meetings is in memoranda of conversations by Corcoran, May 6, and by Price, May 7. (Department of State, Central Files, 851G.00–Five Year/5–657 and 751G.5–MSP/5–757, respectively) The ICA versions, memoranda by Bunting, May 6 and 7, are attached to a covering memorandum from Summers to FitzGerald, May 8. (Washington National Records Center, FOA–ICA Files: FRC 61 A 32, W–3057, Box 317, Vietnam)
5. Memoranda of some of these discussions, May 16 and 17, are ibid.
6. Not found in Department of State files.
7. Apparent reference to a study prepared under the auspices of the National Advisory Council on International Monetary and Financial Problems on the problem of overvalued currencies in the Indochinese states, Korea, and Turkey. More information is in Department of State, Current Economic Developments, No. 522, June 25, 1957, pp. 1–4.