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

408. Telegram From the Ambassador in Vietnam (Durbrow) to the Department of State¹

Saigon, November 30, 1957—7 p.m.

1161. As planned, General Williams, Barrows, Haraldson, Gen Carlson and I presented to Diem, and group his principal assistants, including Vice Pres and Chau, Vu Van Thai² FY 1958 aid level along line of Embtel 1122³ using basic figures given first paras Embtel 1124.⁴ Since we did not wish to raise any false hopes for additional aid under development loan fund, I did not use figure 10–15 million dollar additional aid as suggested I would do in para 5 Embtel 1122. Merely emphasized Vietnam could qualify for unspecified additional aid for self-liquidated projects provided they able submit soonest fully justified projects such as those suggested Embtel 1122. Re PL 480, stated we might be authorized start negots for tobacco, but I had not yet received instructions.

As expected Diem obviously disappointed. Pleaded during frank but friendly discussion his “special case” because deteriorating situation this part of the world and need to move forward as fast as possible in next few years to build up security and economic base. He, Chau and other experts stated would not be possible GVN provide as much as $41.6 million from own resources as contribution to military budget.⁵ Emphasized national budget already presented to Assembly and being worked on now only provided for $20 million GVN contribution to the military budget, and that they had told us categorically in September mtg aid comite would be impossible contribute $37 million equivalent then proposed. If we insisted more than double contribution entire national budget would have to be reworked by the Assembly which they alleged would have very serious pol repercussions by giving impression to Deputies and people that government devoting too large amount to military instead of doing more for people and if it should be necessary at this date rework budget in Assembly inference would be drawn that this forced upon GVN by US. We argued our calculations indicated revenue from imports would be considerably higher than anticipated and this excess in all probability would be sufficient to cover additional GVN contribution to military budget. Diem argued while it might appear revenues higher than anticipated much of this comes from effort he making collect back taxes which gives only temporary increase and that with reduced imports through end this year, revenues would be lower. We replied if revenues not as high as we believe some addit revenue cld be derived from addit taxes on certain types semi-luxury articles whose prices here lower than world prices under present tax system. They replied, not possible raise taxes since entire business community now pleading present taxes causing deflationary movement and business stagnation and new taxes on these few semi-luxury articles would only cover very small portion of suggested GVN contribution. Altho Chau and Diem reiterated they were sure that receipts wld not be as high as we anticipated, they nevertheless agreed to study this question fully with USOM experts. We then argued that if receipts were not as high as we expected, it wld be necessary reduce economic aid proportionately to make up full difference for mil budget. Gen Williams assured Diem proposed mil budget is realistic and will permit GVN carry on its mil buildup and training at same pace as last year. Diem seemed satisfied with this assurance but obviously disappointed by small amount residue econ aid available. Diem and others, despite their belief that our procedures are too rigid and too slow, promised to work more closely with USOM experts in order work up careful justification for various econ projects. We stated it absolutely essential GVN show need for all econ assistance and take into consideration totality GVN resources. Chau pointed out draw-down of pipeline is not really new aid and that GVN hoped they cld draw-down much more from pipeline in 1958.

Diem asked me to call again this morning. In very calm and friendly but firm manner, he expressed his deep concern over the consequences of the reductions explained yesterday. Again he pled that it wld be most difficult, if not impossible, for GVN to contribute large amount suggested for mil budget. He reiterated that if small amount econ aid ($55 million) had to be further reduced to make up the balance for the mil budget, people wld get impression US only interested in mil posture Vietnam which he admitted he himself insisted upon, and people wld get impression that at this critical time when Commie subversion and Commie econ aid programs are being stepped up, that the US not interested in building up VN econ strength. He again referred as he had Nov 27 [29?] to possibility masses might begin clamoring for neutralist policy which wld permit reduction of mil forces in order to build up economy. Diem pointed out he, of course, could not accept such an attitude because of Commie strength in the north, which requires, in Vietnam as well as US interests, ARVN be as strong as possible. Nevertheless, he fears it will be difficult to deal with this feeling in the masses. In his quiet, chastened mood, he urged me to explain again the pol aspects of his problem to Washington in the hope that further assistance can be given to Vietnam. I told him that it is still possible to obtain addit aid under development loan fund provided his experts can work closely with USOM and develop worthwhile fully justified projects. He replied this wld take much time and adverse reaction to the basic aid figure wld not be compensated for by later announcements of few projects under loan fund.

Diem said he was disappointed Chuong had not been more successful in inducing Dept to increase aid. I told him matters of this kind must of necessity be worked out in field where experts on both sides are present.

Comments: As matters now stand, it was tacitly agreed national aid comite (including USOM) wld discuss and study problem of available aid resources as between mil defense support and projects for technical and econ assistance program. This will involve GVN making decision whether it can arrange, through their budget, to make the contribution to mil budget we recommended (Diem and Chau emphasized this politically and financially not possible) or accept a further reduction in econ program to make up difference in GVN contribution. When this exercise is over, we may expect Diem to make further plea on pol importance make it clear to VN people, neutralists and Commies that those who work closely with Free World fare better than those that do not. In touching on this note today, he asked if aid to Cambodia for instance is being cut as much as VN. I told him I did not know, but was certain VN getting preferred treatment.

Durbrow

1. Source: Department of State, Central Files, 751G.5–MSP/11–3057. Secret. Repeated for information to Phnom Penh and Vientiane. Passed to CINCPAC PolAd.
2. A memorandum of the conversation held on this occasion, dated November 29, is in Center of Military History, Williams Papers, Conversations with Diem 16 Sep 57–28 Dec 57.
3. Supra.
4. The figures were: Defense Support, $175 million; Technical Cooperation, $4.2 million; and drawdown of pipeline, $5.8 million; for a total of $185 million.
5. According to telegram 1124 from Saigon, the final Vietnamese military budget was $171.6 million of which the United States would carry $130 and Vietnam $41.6 million. This left a balance of $55 million from U.S. aid for development purposes.