Foreign Relations of the United States, 1958–1960, Vietnam, Volume I

133. Memorandum of a Conversation, Department of State, Washington, April 8, 1960¹

Washington, April 8, 1960

SUBJECT

• Situation in Viet-Nam

PARTICIPANTS

• Under Secretary of State C. Douglas Dillon
• His Excellency Nguyen dinh Thuan, Secretary of State for the Presidency of Viet-Nam
• Mr. Avery F. Peterson, Deputy Assistant Secretary for Far Eastern Economic Affairs
• Mr. Chalmers B. Wood, Officer in Charge, Viet-Nam Affairs

Mr. Thuan opened with a statement along the following lines:

Although the internal security situation of Viet-Nam has become more serious in recent months, nevertheless the GVN continues to attach much importance to economic progress. We realize we cannot always count on US aid. To illustrate our awareness of the decline in US aid we have given figures on the recent decline in aid to Messrs. Parsons and Peterson.

In the last six months we have made far more economic progress than previously. Until then, we were in a period of gestation. Some examples of recent economic progress are:

1. Ratification of Japanese Reparations Agreements which means we will receive $50 million in currency with which to build a 150,000 kilowatt dam, to start a small area fertilizer plant and a small tool plant.

2. The resolution of Viet-Nam’s financial problems with France, which will be wound up when Mr. Thuan signs the final conventions in Paris in the next few days, will mean credits for Viet-Nam totalling 18 billion old francs for investment. With these, the GVN intends to commence the development of an industrial complex in Tourane which is near a coal mine, and build a fertilizer plant, a cement plant with a 50,000 ton capacity, and some other smaller enterprises. These credits will also assist the Vietnamese in building a 250,000 ton capacity cement plant in the south, upon the completion of which, Viet-Nam will no longer have to import cement.

3. Viet-Nam has reached economic agreements with Taiwan whereby a mixed Chinese-Vietnamese committee will meet every six months alternately in Taiwan and in Viet-Nam for the purpose of studying specific projects. Viet-Nam has already benefited from the visits of many Chinese technicians; more will be sent. The first project under Chinese guidance, a sugar mill 30 kilometers from Saigon, will be finished in eight months. Plants for pharmaceuticals and other products are planned. Both Nationalist China and Viet-Nam are studying the question of common markets. If Viet-Nam produces rubber, China has the technicians. Accordingly, it is planned to build a tire plant which will be able to market its products in both countries. There are similar plans for an anti-biotic plant.

4. U.S. aid has assisted Viet-Nam in commencing a pharmaceutical plant under the direction of Rousel, a French firm, and a textile plant near Saigon which will open in April with the most modern equipment of any in Asia. In addition to other plants, there will be opened in September with American aid and under French direction a glass plant which will be the most modern and the most important in the Far East, being larger than any in Japan. Its production, destined for the three countries of Indochina, will, however, be insufficient to the needs. The same French firm is also planning two more factories, one for frozen pork and the other for processing paddy.

The Michelin tire factory, about which Mr. Thuan had spoken to Mr. Dillon in October,² will be finished soon.

In the domain of agriculture, Viet-Nam’s rice exports have increased from 120,000 tons in 1958 to 260,000 tons in 1959 with a carry-over of 70,000 tons.

Viet-Nam is placing great emphasis on its program for expanding rubber replantation. President Diem has signed a new agreement with the French interests. It is planned to send a team abroad to interest US, German and other investors. Experts claim that Viet-Nam’s soil, the terre rouge, is better than any in Asia including Malaya. Vietnamese workers are easy to recruit and train as rubber plantation workers. They can be trained in two weeks whereas it requires a month for the Chinese and two years for the Africans. Viet-Nam’s climate is better for rubber production than Malaya’s because it has a longer dry season which reduces the incidence of disease. 300,000 hectares of good land are still available for rubber production.

Whether or not Viet-Nam obtains foreign investment, it will push ahead with the expansion of the rubber production. It is calculated that after seven years which is required for rubber trees to reach maturity, rubber exports will be worth $250 million annually.

As to his visit to Washington, Mr. Thuan said he was aware that we are much concerned with the question of monetary reform since Messrs. Parsons, Peterson and Riddleberger had already spoken to him on the subject.

Mr. Dillon indicated that this interest was extended to the Congress.

Mr. Thuan emphasized that such a decision without proper fiscal reform is but the beginnings of a series of devaluations. While the present level of exchange is not realistic, neither is the free market rate.

The Ford Foundation will provide a team of experts which will help the GVN make proper over-all plans for reform. A list of persons who will be sponsored by the Brookings Institute has been made up.

Mr. Dillon expressed his pleasure at having been given this report on the government’s economic progress and on its projects for fiscal matters. He noted the mutual interest which existed in fiscal and monetary reform. While an indefinite amount of time was not available, he said, we ask only that the GVN give priority to this work. Mr. Dillon had not heard of the Ford contract and was very interested. As to the level of the exchange, he suggested that the GVN talk with the experts of IMF; “it is their affair and they are skillful, able and sympathetic.”

Mr. Thuan said that Messrs. Vu van Thai and Hanh have already made contact with the IMF. He assured Mr. Dillon that the GVN was not seeking delays, but wished to prepare things so as to avoid “a cascade of devaluations.”

Mr. Dillon said the present situation could not exist indefinitely since Senator Mansfield has insisted on an eventual cessation of grant aid.³ He noted that while Senator Mansfield was very sympathetic to Viet-Nam, this was a question of general policy. Mr. Dillon pointed out that our aid to Viet-Nam in per capita terms is larger than to any other country in the world. He added that a fiscal reform will give more opportunities for private investment.

Mr. Thuan replied that some senators are concerned as to the change in the form of aid (see memcon with Senator McGee⁴). With the present counterpart arrangement we not only pay our soldiers, but also must make available a commensurate amount of consumer goods. But if we borrow, we will have money without goods.

Mr. Dillon emphasized that a sudden cut off was not suggested. In Formosa the military, which is twice as large, costs half as much as in Viet-Nam. Certainly there are reasons for this such as the recent war and the division of the country. However, this fact does draw attention in Congress when comparisons are made to the aid received in other Asian countries. It is a mutual problem. It is something to discuss with USOM in Saigon. There is nothing to settle today, merely something to keep in mind.

Mr. Thuan again emphasized that loans are inflationary.

Mr. Dillon suggested there should be even more emphasis on the present programs to provide factories, rice exports and other means of strengthening the Vietnamese economy.

Comment

The atmosphere of the meeting was friendly and understanding and afterwards Mr. Thuan expressed his admiration for Mr. Dillon’s ability to quickly comprehend the main problems which his country faced. The meeting lasted 30 minutes.

(Prior to seeing Mr. Dillon, Thuan told Wood that the GVN did not consider the Lao devaluation successful. Although stability had been restored, there was little economic activity. Kip had been used to buy dollars and francs and there had been no investments in Laos. Wood replied this probably reflected the general situation in Laos which was certainly more unsettled than in Viet-Nam. Mr. Thuan did not raise this point with Mr. Dillon.)

1. Source: Department of State, Central Files, 751K.00/4–860. Confidential. Drafted by Wood.
2. See Document 91.
3. Apparent reference to a recommendation in the report of the Mansfield Subcommittee on State Department Organization and Public Administration, United States Aid Program in Vietnam, February 26. See Document 107. On April 5 Thuan and Thai met with members of the Senate Foreign Relations Committee—Senators Fulbright, Mansfield, Hickenlooper, Church, and Wiley as well as staff members Marcy and Valeo— for a wide-ranging discussion of the situation in Vietnam. A report of that meeting is in a memorandum of conversation by Wood, April 5. (Department of State, Central Files, 851K.00/4–560)
4. Thuan met with McGee on April 8. A report of their discussion is in a memorandum of conversation by Wood, April 8. (Ibid., 751K.5–MSP/4–860)