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

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

Saigon, December 12, 1957—6 p.m.

1245. Reference: Deptel 1031.²

1. It will not be easy for GVN contribute VN $1,457 million to 1958 military budget and perhaps impossible without imposition additional taxes. While Embassy–USOM convinced imposition additional taxes selected imported consumption [consumer] goods desirable both as source additional revenue and as means reducing consumption these items, also recognize GVN strongly opposed such action.

2. On the other hand we are convinced GVN can contribute more than VN $900 million and will certainly accumulate more than that amount in counterpart fund derived from customs receipts. Nevertheless, GVN persists asserting it cannot go beyond VN $900 million and thus far has not engaged in any serious discussion this matter. GVN disagreed with USOM estimates presented at national aid committee meeting September 27, but has offered no real evidence in support of its view.

3. Unfortunately, GVN also included VN $900 million figure in formal budget presentation National Assembly in face our warnings about probable aid cut and USOM analysis probable total government revenues. Since presidential meeting reported Embtel 1161³ only USOM–GVN discussions budget which might have considered the possible contribution to military budget occurred last week in working group where GVN only presented some long-range forecasts and discussed probable trend GNP, but current revenues, current expenses and real prospects for 1958 not discussed.

4. USOM–Embassy position is that GVN can contribute VN $1,300 million discussed at aid committee meeting September 27 and has possibility reaching the VN $1,457 million figure even without new taxes. (Increased contribution of VN $4,967 million in the budget that we asked GVN to contribute was caused by C/T acceptance of GVN–DOD reclaimer asking for these additional sums above original MAAG-approved military budget.) Basis for this opinion (which can be explained in detail by Haraldson now on consultation Washington) in summary follows:

a. Since imposition production tax, March 1957, government revenues have been exceeding expenses; yield taxes has exceeded estimates. GVN 1957 budget estimate production tax yield of VN $150 million per month. Seven months taxes in effect by VN $550 million. This is principal factor underlying USOM estimate that GVN will be able make VN $900 million contribution to 1957 budget and still record VN $400 million surplus above civilian expenses.

b. While some imports clearing customs 1958 will be somewhat below 1957, higher tax rates will be in effect twelve months instead nine. It thus seems reasonable believe that if 1957 ordinary receipts exceed civilian expenditures by VN $1,300 million, budget can make at least as good showing in 1958.

5. Problem can be approached other ways. Example: Throughout 1956 and thus far in 1957 GVN deposits customs receipts (not including receipts from production, perequation [?] taxes) in counterpart fund have been running at rate of about VN $100 million per month. Thus far that portion these funds in excess of so-called GVN contribution to military budget have remained in counterpart fund. USOM has never released such deposits for any purpose other than support military budget and presumably could not do so without specific Washington approval. Thus, from customs duties alone, to say nothing of other taxes levied upon aid-financed imports, GVN will derive more revenue than VN $900 million proposed contribution to military budget.

6. Another approach: Aid-financing commercial imports now yield average VN $50 per dollar of imports (VN $35 in exchange, VN $15 in customs duties and tariff). VN $50 x US $130 million (the amount of the 1958 aid identified as military budget support) equals VN $6,500 million, or more than enough to cover MAAG approved military budget, including both US contribution and so-called VN contribution. In effect GVN has fallen into habit relying on part of proceeds aid given for military budget, but also a substantial portion its civilian budget. Fact that Vietnamese have suddenly been made aware this extreme dependence on US merely adds to our difficulties, and does not make it easier for them accept calculations we have made.

7. In circumstances believe it best that GVN be encouraged accept allocation recommended military contribution. If, during next few months it becomes clear GVN cannot contribute as much as we have proposed without serious economic consequences, we recommend additional aid be considered. As a last recourse and as means persuading GVN accept our proposal, recommend that further drawdown counterpart pipeline beyond US $5,800,000 already recommended be considered, and that we be authorized agree with them that an additional contribution from this source will be made if in the course of VN fiscal year government revenues from import duties and taxes do not attain the levels we have foreseen.

8. Following are country team views re Self-Defense Corps figure 43,500: total 43,500 based on detailed MAAG staff study (para 7 Embtel 1122⁴). MAAG and country team consider SDC units should be located in villages and towns along Laos–Vietnam and Cambodia–Vietnam borders, in other remote villages along possible avenues of approach in pacified but still vulnerable areas not protected by static units SDC units should be provided only for villages 5,000 or less. Size of units should vary according population villages, remoteness, other security forces and security requirements. Figure was calculated as follows:

1541 villages under 1000 population 10 each—15,410

359 villages under 2000 population 15 each—5,385

334 villages under 5000 population 15 each—5,010

623 villages under 5000 population 25 each—15,575 (greater need due dangerous location)

Overhead—2,120

Total—43,500

Strength of Self-Defense Corps has never reached 60,000 authorized maximum. During months December 56 through March 57 Self-Defense Corps was 58,300. Since that time it has been gradually current 49,500. Apparently GVN wants US provide 60,000 for CY 58 regardless actual strength Self-Defense Corps. Total 43,500 based on detailed MAAG staff study and is total force for which US contribution recommended although GVN states they need and will develop total force 60,000. The specific steps to be taken by GVN mentioned in para 7 Embtel 1122 were given to DOD in writing⁵ two days prior to my November 29 meeting with Diem and were mentioned at that time. These are (in addition to MAAG and country team consideration re SDC units mentioned above):

Since considerable sum in military budget is allocated for SDC and since these funds are derived from US contribution toward defense support, MAAG reps will be responsible for advising GVN re operations and administrative problems SDC during coming year. GVN if requested will provide US Government information showing disposition US funds involved in support SDC. Support for SDC for CY 1958 will be provided subject GVN agreement that following objectives pursued by all available means:

a. The Self-Defense Corps itself should be organized under a clearly defined chain of command.

b. Self-Defense Corps should be properly trained to protect villages from banditry and Communist subversion.

c. Any Self-Defense Corps members who are Viet Cong agents will be weeded out.

d. Recruitment into the Self-Defense Corps should be carried out with stricter measures to verify the loyalty and patriotism of recruits, such as a more effective nationwide finger-printing system, investigation of records in other provinces or bureaus, as well as neighborhood checks, or other investigations where information could be found.

Comment: We had thought GVN had given up hope of getting anywhere by Washington end-runs (last para Embtel 1212⁶). I suggest Dept make it clear to VN Ambassador that whatever part of above material is used was supplied by US and reiterate that these matters should be discussed by experts in Saigon. Prior to our discussion on Nov 24 and subsequently the principal theme we have been emphasizing is that GVN and USOM experts must work closely together in order to get full data on needs and be in position to justify their requests and projects. As long as they think end-runs are possible they will not get down to cases with us here.

Durbrow

1. Source: Department of State, Central Files, 751G.5–MSP/12–1257. Secret; Priority. Passed to ICA and the Department of Defense.
2. In this telegram, December 6, the Department of State requested from the Embassy information on the status of USOM/Government of Vietnam budget discussions, on the Embassy’s best estimate of how much the Government of Vietnam could contribute to the 1958 military budget, and on its views and arguments in support of a 43,500 as opposed to a 60,000-man SDC. (Ibid., 751G.5–MSP/11–3057)
3. Document 408.
4. Document 407.
5. This letter was sent to the Ministry of Defense by the MAAG on November 26, and transmitted to CINCPAC in MAGCH 6764, November 29 (290201Z). (Center of Military History, Williams Papers, TWXs 1957 (14))

6. The last paragraph of this telegram, December 7, reads as follows:

   “Comment: During past week Vice President and other GVN officials at meetings with USOM experts were much more cooperative than in the past two months. In order to encourage them and also Diem continue realistic approach to problems would be most helpful if Department could authorize us soonest to start negotiations for PL 480 loan.” (Department of State, Central Files, 751G.11/12–757)