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

63. Saw Souvanna at his residence late afternoon July 9. Three subjects discussed.

1. Monetary reform.

I first handed him copy of letter from Acting Director USOM given Leuam by Loren that same morning informing RLG that no further dollars will be sold to National Bank until agreement reached on monetary reform.2 Prime Minister replied that he is sorry US could not await outcome negotiations before taking such drastic action. Said that since army and police must be paid on time he may have to take entire problem before National Assembly to get its approval for advance by Lao National Bank. Prime Minister also said that delay by US in replying to Lao proposal postponed agreement monetary reform by at least one week. I replied that both Director USOM and myself had warned Lao Government on many occasions that unless agreement reached before June 30 it would be impossible to continue selling dollars to RLG at present unrealistic rate. I also tried discourage him [Page 458] from taking monetary problem before Assembly since in my opinion this would merely make it more difficult come to agreement later. I justified this recommendation by pointing out that if Lao Government will act quickly in informal clarification and resolution of differences as suggested by Washington, monetary problem should be settled before end of month which would permit US resume payments and taking issue before Assembly now might therefore be premature.

Prime Minister then said Lao experts have certain comments on American proposal (Embtel 24).3 We agreed that technicians would meet again July 11 to juxtapose US proposal and Lao comments with latter being forwarded informally to Washington.4 Prime Minister mentioned specifically that in Lao view principle free convertibility which is cornerstone of US proposal seems to be inconsistent with controls requested by USOM and with maintenance PA system.

2. Pending Cabinet crisis.

Prime Minister said that validation deputies will be completed this week and present Cabinet will resign either Friday or next Monday. (Lao Presse evening July 9 reported that special commission on supplementary elections had completed its report and had forwarded it to National Assembly.)

He said that if he should be designated form next government he would include 3 to 4 good deputies in Cabinet but the majority would be young technicians. If Assembly should refuse invest such Cabinet he would no longer stand in way of young people and would encourage them to “express their views freely”. Latter have come to see him recently to tell him that unless strong government can be invested army and young elite will not stand aside idly and watch country slide down hill. He hoped however that extreme measures would not be necessary and that Assembly will accept his solution.

He stressed present delicate political situation and thought that a brutal one-step devaluation would jeopardize necessary popular and legislative support and perhaps even make impossible task of any new anti-Communist government. He pleaded with me to ask Washington to re-examine more carefully Lao two step approach to monetary reform since this would give anti-Communist government time to establish itself firmly in saddle and prices will not rise as result devaluation. I replied that I would transmit his message to Washington but I [Page 459] should think Washington would need more details on Lao two-step devaluation project before it could even receive any consideration. Such details might include:

Setting definite date for elimination second rate,
Providing automatic means of switching from dual rate system to single rate (i.e. no further negotiations needed),
Suggested figure for new rate,
Limiting amount of dollars which could be sold at 35 to one rate.

He replied that he would ask Lao experts give these details July 11 when US proposal will be discussed.

3. Purchase of residence.

Before leaving I asked him about status Embassy’s request to purchase present residence from Lao Government. Prime Minister replied that he and Minister Foreign Affairs had approved it but it also needed approval of rest of Cabinet. He did not expect any difficulty from other members but this would be decided July 10. Once principle of purchase agreed on, it will only be necessary determine fair price. I told him that Washington would certainly appreciate this friendly gesture since I knew that certain other resident diplomatic missions had made similar request but had in end been turned down by RLG.

Comment: It was apparent that Prime Minister was greatly disturbed over necessity of facing fact that monetary reform and serious government crisis had come to head at exact same moment. His fear that this might make formation government he has been working for impossible seemed genuine. Over past two weeks he had obviously become less certain of his ability to obtain necessary votes to support formation of strong anti-NLHX government when faced simultaneously with necessity of monetary reform of type proposed by US. I believe fact that he is trying to force through validation of deputies, vote on anti-Communist bill and resignation of his government next week and also seems determined to attempt form government of type we have urged immediately thereafter is largely motivated by his belief that with formation of such a government he may hope to get enough concessions from US on monetary reform to make Lao swallow bitter pill of devaluation.

  1. Source: Department of State, Central Files, 851J.13/7–1058. Secret. Repeated to Paris and CINCPAC for POLAD.
  2. Text of the letter was transmitted in telegram 65 from Vientiane, July 11. (ibid., 851J.13/7-1158; included in the microfiche supplement)
  3. Telegram 24 from Vientiane, July 5, contained the Embassy’s draft memorandum on monetary reform. (Department of State, Central Files, 851J. 13/7–558; included in the microfiche supplement)
  4. These comments were forwarded to Washington in telegram 80 from Vientiane, July 12, which included a record of the July 11 meeting, (Department of State, Central Files, 851J.13/7–1258)