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

2014. Reference: Embtel 1676.2 Department Pass Defense, ICA.

After careful consideration MAAG-recommended GVN military budget for 1960 of $169.3 million, which represented fine job reducing GVN/DOD’s military budget proposals, I concluded on basis following overall economic and financial considerations that every effort should be made reduce total budget to $165 million:
Guideline given GVN last spring called for total budget of $165 million and US contribution not to exceed $130 million. Given congressional cuts and no increase in military costs over those than foreseen, there is no reason to reverse earlier decision and reversal would set bad precedent.
$185 million defense support requested of Congress for Vietnam for FY 1960 cut to $156 million; thus previous maximum $130 million on US contribution GVN military budget must be adjusted downward to conform to reduced aid availabilities.
Import level under commercial import program declining as result increased domestic production, thus reducing US capability generate counterpart which in turn means lower piaster availabilities from aid.
Accumulated counterpart resources on both program and cash bases declining.
GVN confronted by estimated $VN 500 million deficit in 1959 budget and projecting $VN 300–500 million deficit in civilian budget for 1960. Any GVN financing 1960 military budget will add to projected deficit, thus creating additional inflationary pressures. Unless inflationary potential of budget deficits restricted as much as possible, we run unnecessary risk of undoing one of first achievements of our economic aid program which was attainment of financial stability.
GVN will require piaster resources to finance local currency costs DLF projects and other projects being financed in part by foreign credits and VN foreign exchange resources. These costs likely add projected budgetary deficit and compete with other demands on piaster resources.
We hope balance of payments approach in determining level of US aid, plus reduced austere military budget, will exert pressure GVN to increase taxes and adjust piaster exchange rate.
I have now approved country team staff recommendations by committee established to study means reduce MAAG-recommended 1960 military budget to $165 million. These recommendations which constitute least harmful methods of achieving reduction of $4.3 million as follows (figures given below have been rounded after conversion from piasters):
Pay and allowances—reduction of $2,500,000: MAAG budgeted for 147,913 man-years (excluding reserve force). Committee however believed it unlikely forces could be maintained this level without exceeding 150,000 force level which committee, in accordance with what is believed to be normal personnel practice, interpreted as ceiling, not as 150,000 man-years. Committee recommended application 2–1/2 percent lapse rate, resulting in effective realized strength of 144,217 man-years as compared monthly average strength Oct 1958–Sept 1959 of 143,804.
Foodstuffs—Reduction of $400,000: Recommended lapse rate of 2–1/2 percent would also produce saving in this item.
Reserve forces—reduction of $500,000: Committee recommended reduction number programmed reservists 1960 from 30,000 to 20,000 which still almost double number trained in 1959 (11,000).
New construction—reduction of $900,000: Committee noted large unexpended pipeline of 1958 and 1959 budgeted funds for construction (about $8 million as of October 31) far exceeds level funds budgeted for one year for this purpose. History military construction 1958–1959 raises serious question as to whether there sufficient local contractors, materiel, etc. Available carry on simultaneously work on 1958, 1959 and 1960 construction programs. Committee therefore recommended that funds for this item be budgeted at $4.5 million, which is $270,000 below level budgeted for 1959. MAAG and GVN should determine which projects should be postponed to bring construction budget within reduced figure. This reduction $900,000 in MAAG-recommended figure believed in accord likely construction achievement possibilities.

We intend propose to GVN that 1960 military budget be financed as follows:

$124.4 million from counterpart equivalent of FY 60 defense support aid;
$26.5 million from customs receipts collected on DS aid and deposited in counterpart account;
$14.1 million from GVN resources.

GVN previously told $130 million represented ceiling on US contribution 1960 military budget from new funds and aware aid likely be below previous year. Propose tell GVN reduction military budget support to $124.4 million due to large congressional cut sustained overall aid program decreasing ability CIP generate counterpart and increasing congressional insistence on progress toward economic self-support. Therefore highly desirable that GVN contribution to military budget from own resources show steady increase, and that adequate portion of DS be reserved to finance foreign exchange and local currency costs of economic infrastructure projects.

We assume no Washington objection to approach outlined above for 1960 military budget and propose approach GVN along above lines in week to ten days unless instructions to contrary received.
Chief MAAG is prepared to comply with this approach. He continues to believe, however, that $169.3 million budget is minimum to support established force levels, and that it may be necessary during calendar 1960 to furnish additional funds or accept force level reduction with all related serious implications.3
  1. Source: Department of State, Central Files, 751G.5–MSP/12–2459. Secret. Paragraph 1 of this telegram and its subsections follow closely in substance Mendenhall’s memorandum of a presentation made by the Ambassador on the Vietnamese military budget at a Country Team meeting held on November 14. (Center of Military History, Williams Papers, Memoranda to and from Ambassador 1959)
  2. In telegram 1676, November 17, the Embassy reported that a Country Team Staff Committee had been established to study means of reducing Vietnam’s 1960 military budget from the $169.3 million recommended by General Williams to $165 million. (Department of State, Central Files, 751G.5–MSP/11–1759)
  3. The language of this paragraph was recommended to Durbrow by Williams in an undated memorandum. (Center of Military History, Williams Papers, Memoranda to and from Ambassador 1959)