Foreign Relations of the United States, 1955–1957, East Asian Security; Cambodia; Laos, Volume XXI

471. Telegram From the Embassy in Laos to the Department of State¹

Vientiane, August 20, 1957—3 p.m.

271. Department pass CINCPAC POLAD. Following is our current estimate of prospects Laos under new government.

1. New government is “transitional” in character. Six Ministers (two of whom now in Paris) cannot administer affairs adequately. Not only does Lao opinion recognize this but there is also pressure from ex-Ministers whose demotion and votes in Assembly made it possible end crisis. While Crown Prince is opposed to opening up constitution lightly, we doubt revision along lines Embtel 266² will be long delayed. After revision, we understand it is present intent of leaders (Souvanna, Katay, Phoui) to enlarge present government rather than resign and form new one. Ministers to be added will all be from Nationalist and Independent parties and so conservative hue may well be deepened. Removal Bong and adherents, also Democrats, from Assembly committees is significant this connection (Embtel 252³).

2. Negotiations with PL will probably not be resumed until process outlined above is well along. Only at that time will true reaction of PL to ascendancy of Katay–Phoui become evident although propaganda reaction already more shrill with intensification attacks on “American interference” (including Peiping blast against me by name) and for first time against Filipino “Operation Brotherhood”. We think RLG plans unless altered by circumstances will be based on some variant of “Katay scheme” reported Embtel 227,⁴ basic object of which is to create situation in which Pathet Lao problem can be regarded as purely internal and ICC dispensed with. Souvanna has twice in recent days spoken to diplomats here along these lines and it begins to appear there is considerable convergence of views among top leaders. Indians are now encouraging Lao to think that if Souphanouvong commits Pathet Lao to political settlement and dissidence in two provinces should continue, ICC would consider that matter was internal. While developments of foregoing nature are not just around corner, we will have to look into this most carefully in view of fallacies and pitfalls we see ahead.

3. For moment, however, danger of disastrous accommodation to Communists is less than at any time in past twelve months. Souvanna continually refers to “need consult his colleagues”—a new phrase in his vocabulary. Key French adviser remarked acidly other day “you Americans must be happy now with Katay and Phoui in power.” These two do pretty well control sources of government’s power (Nationalist–Independent votes), they are anti-Communist, quite friendly to United States, and they hold key ministries. From strictly political viewpoint short term prospects are much improved.

4. On economic side and particularly with respect to aid program present government may prove not only difficult but even dangerous. Business interests of Phoui (notably Lao–Vieng Bank) and Katay (notably Lao-Thai trading company) benefit from gap between official rate and free rate for kip in Bangkok. Katay, in particular as Minister of Economy, has wide powers over import program with consequent temptation to manipulation for both personal and political gain. Disquieting signs are already appearing and will be reported separately. Thus, government which is politically advantageous to us, perhaps necessary if we are to continue keep Communists out, may rapidly move in economic field towards scandalous excesses which if not checked, might threaten whole basis for continuance aid program. Over short term this is where our most difficult problems may He and I fear that will rapidly become acute.

Parsons

1. Source: Department of State, Central Files, 751J.13/8–2057. Secret. Repeated to Paris, London, Saigon, Bangkok, Phnom Penh, Ottawa, and New Delhi.
2. The revision, as described in telegram 266 from Vientiane, August 19, was to permit government investiture and overthrow by simple majority with ministers and secretaries of state not voting. (Ibid., 751J.13/8–1957)
3. Document 467.
4. Dated August 10, not printed. (Department of State, Central Files, 751J.13/8–1057)