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

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

Saigon, February 8, 1958—1 p.m.

1653. Reference: Embtel 1581.² As indicated last para reftel, I sought and obtained appointment with Pres Diem Feb 3. Prior to meeting, both Vice Pres and Director General Foreign Aid expressed concern general economic situation to Barrows and myself, urging us earnestly do everything possible bring Pres around to agreement on outstanding issues.

My meeting with Diem, which lasted nearly three hours, was friendly, frank and basically quite fruitful.

Frank Discussions Urged

I started by stating that 1958 aid questions had been discussed for some time now at various levels and I felt time had come for me to discuss these matters directly with him. I also reminded him I would be leaving in March for Chief of Missions Conference Taipei³ and hope proceed from there US for leave. Accordingly, I hoped we could have several full and frank discussions of mutual problems to enable me to explain developments in detail in Washington. I added that Barrows and I and others on staff have sought continually make our procedures as flexible as possible in hope achieving mutually agreeable solutions.

Diem Reveals Surplus Problem

Diem replied he wanted explain his views on aid and other matters in frankest manner. He had not asked see me for over two weeks because he had had most of his top officials working out facts and figures. Then, somewhat to my surprise, he said his experts now calculated there would be about six hundred million piasters excess revenue from regular taxes GVN 1957 as result taxes, economies and postponed projects. In addition, he said an additional three hundred million piasters surplus from 1957 perequation taxes was now estimated, making total surplus of perhaps nine hundred million. He then proceeded describe number emergency measures his experts believed he must make in immediate future for which he needs these funds.

President’s Grave Security Problem

Diem said when he took over in 1954, finances were in chaos. Regional chiefs expended large sums in their districts not authorized by central government but which central government had to pay. Prior 1957 President decided all such expenditures must cease in order balance 1957 national budget. Because of this, public works in provinces came to virtual standstill. His recent trip to four north-central provinces showed clearly immediate need public public works program. Population extremely poor; it had no cash; now it was in danger subversion by Commies. Described how population this area had been under Viet Minh occupation for seven years before Geneva Accords. When Viet Minh withdrew, local currency became worthless. It was never redeemed. Therefore, here, as elsewhere in the country, President was immediately obliged start public works program in effort pump money into countryside, Work had already begun. Between 10 and 20 million piasters were to be spent immediately in each of the north-central provinces. Projects for near future now total approximately 300 million piasters.

His Disposition of Surplus

Diem said therefore half 600 million piaster excess from regular taxes for 1957 was already earmarked. Other half was needed for urgent work roads, canal clearing, dredging, pay for 17,500 in self defense corps not covered by US contribution. Also planned purchase Civil Guard equipment and finance GVN public works projects other provinces. Stressed urgent need make these “delayed expenditures” in provinces in order retain peoples’ good will.

He asserted good part excess revenue from perequation taxes is needed pay export subsidies. Furthermore part of this excess has already been used for emergency expenditures, totaling with subsidies approximately 100 million piasters, Diem said.

Having described these urgent expenditures, he referred to one additional essential cost, settlement with Cambodians of Paris Accords. He believes this step essential, although is not too optimistic re improving relations with Cambodians. He has therefore set aside the remaining 200 million piasters from perequation tax for use in a possible settlement with Cambodia.

This disposes of entire excess revenue anticipated on 1957 receipts. President stressed repeatedly great need make up lost time and repair previous negligence central Vietnam provinces. This is essential in order avoid “explosion” which Viet Minh trying cause. For all these reasons Diem could not see how GVN could pay 452 million piasters additional contribution military budget.

Commie Subversion Described

President then went on, explaining in detail newly stepped up Viet Minh subversive activities central area. These stepped up Communist activities only recently known. Commie posts are now established, Diem alleged, mostly along high mountain range west of Quang Tri, Hue, Tourane, Paifo and Quang Ngai with communication routes leading to these cities. Many such posts are in Montagnard villages. Three or four Commie radio transmitters believed operating this area; one near Ban Me Thuot. Seriousness of situation only became clear after considerable number captured agents were successfully interrogated and truer picture pieced together.

Roads

In order permit security forces control Viet Minh activities and prevent circulation Commie couriers, Diem believes, as he earlier told Gens Williams and Myers, a principal road from Kontum to Hue along Lao border must be built and an additional road is needed to connect up many existing secondary roads in eastern foothills of Quang Nhai and Quang Nam.

I reminded President these roads most expensive. I reminded him of President Eisenhower’s statement that sometimes roads become golden highways for one’s enemies.⁴ I suggested desirability concentrating on better intelligence and counterespionage organizations in Vietnam to penetrate and break up Viet Minh networks. President replied such steps already taken but because special problems presented by mountainous areas central Vietnam he is convinced he must build roads in order that security intelligence forces can enter and control those areas.

New Situation Discussed

I expressed surprise at his new view of situation this area; recalled he had told me less than two months ago National Revolutionary Movement had situation well in hand central Vietnam. President replied NRM had recently learned otherwise. Again emphasized situation subversion is increasingly grave problem. Believes Russian mission, alone, in Phnom Penh poured about 3 million piasters South Vietnam during last three months. Reiterated that unless he can improve the peoples’ lot situation will become extremely serious.

I told President I would report all he said and was confident it would receive careful consideration.

Memorandum presented. Urged reach decisions.

I then gave Diem a memorandum⁵ containing description of vital decisions needed in order use US aid FY 58 most effectively. I pointed out it was essential for him decide on apportionment of US aid FY 1958 between military and economic sectors. I urged him accept suggestion that $130 million be allocated military budget, and $55 million to economic and technical sector. I reminded him of State Department declaration December 26 to Vietnamese Ambassador Washington⁶ that if it became clear after careful analysis that GVN could not contribute 450 million piasters to military budget, questions would then be re-examined.

I urged him strongly, despite emergency needs he had described, contribute as much of the excess revenue to military budget as possible. I reminded him of Department’s statement that we must take into consideration total resources available to meet current needs. I suggested that perhaps many planned emergency works might not be put into effect immediately, and hence considerable sums would be available for contribution to military budget.

I added if after careful study GVN could not contribute total additional contribution suggested, we could consider question of piasters in pipe line, and find out whether Washington would agree allocate increased amount this source. I mentioned that now there is in pipe line only enough to pay for two months’ US contribution to military budget. It would be imprudent to draw more at this time. Perhaps in two or three months pipe line situation might justify request to Washington draw down pipe line for remaining sum needed for military budget. Furthermore, considerable sums might be saved from 1957 military budget to apply 58 military expenditures. There was also a slight possibility also, [sic] if all other sources did not make up difference, urge Washington give additional aid FY 58 if any money left over from global appropriation.

In any case, if all other sources unavailable, as last resort we might make decision May or June postpone or eliminate some economic projects. I could thus assure him that military budget for Calendar Year 58 would somehow be covered. I added it would be unwise for him to decide he must have absolute assurance that the military budget would be fully covered now because the only available alternative at this time would be postponement or elimination of badly-needed economic projects. I reminded him of his desire obtain economic independence soon as possible. Unless essential economic development is started now, economic independence would be further delayed. I stressed that US also desires Vietnam become economically independent soon as possible. Firm decisions build up economy should therefore be reached now.

Diem’s Reaction.

The President then described in detail how slowness USOM procedures delayed money entering economy. I replied while some projects perhaps delayed our side, many others delayed by Vietnamese. He repeated that for reasons he had given he must inject money into economy immediately and could not await USOM–GVN agreement on projects which may not get started for many months. He insisted situation in Vietnam might be out of hand if his projects are not carried out.

Referring suggestions that Vietnam contribute more to military budget, he commented on impression created abroad that everything is fine in Vietnam. He himself helped create this impression during his official visits in Asia. But situation is not as it is portrayed to outside world.

He went on to say it not easy for him understand why Vietnam was given such large cut in aid when his government had been so steadfast in loyalty to free world and he had personally used his full influence to awaken Asia’s understanding of Commie threat. I replied US Government fully appreciated his efforts, and explained that aid to Vietnam had not been cut proportionally to total global cut. I added that because of fine progress made by Vietnam I was certain he could see his way clear to contribute much as possible cover military budget. This would make an excellent impression on US. It would be convincing proof that Vietnam is doing all it can to achieve economic independence despite its grave problems. The President replied it was still hard to understand our reluctance help him further at this critical time. I urged President to read carefully memorandum I had given him and said I hoped it would be helpful and flexible. I emphasized that a decision was needed in near future re apportionment of aid to appropriate economic and military factors if Vietnam wished to take full advantage of US aid for Fiscal Year 58. President promised to read it.

Memorandum of conversation follows.⁷

Durbrow

1. Source: Department of State, Central Files, 751G.5–MSP/2–858. Confidential; Limit Distribution. Passed to CINCPAC PolAd.
2. In telegram 1581, January 13, the Embassy reported that from discussions with working-level Vietnamese officials it was clear that only two questions remained unresolved concerning U.S. aid to Vietnam. The first was additional contributions by Vietnam to its military budget and the second was the consequent proportion of total aid to be allocated to military and economic sectors. The Embassy reported that Diem was concerned over aid cuts and was preparing to make his case that Vietnam could not contribute more than 900 million piasters to the military budget notwithstanding the expected substantial surplus in the 1957 Vietnamese budget. Durbrow noted that he was attempting to arrange a meeting with Diem to discuss these questions. (Ibid., 751G.5–MSP/1–3158)
3. Information on the conference will appear in a forthcoming volume of Foreign Relations.
4. Diem had stressed the need for aid to South Vietnam’s roadbuilding program during his conversation with President Eisenhower held in Washington on May 9, 1957. At one point in the discussion, according to the memorandum by Durbrow, the “President, half jokingly, said that there was an old adage that roads sometimes were a ‘golden bridge for your enemies’.” See Foreign Relations, 1955–1957, vol. I, p. 794.
5. This memorandum is attached to despatch 293 from Saigon, February 13, which also contains a more complete account of the meeting. (Department of State, Central Files, 751G.5–MSP/2–1358)
6. Not found.
7. See footnote 5 above.