76. Telegram From the Embassy in Vietnam to the Department of State1

1945. Task Force VN 11. References: A.Deptel 1534, B. Icato 1904.2 I had full discussion with Thuan June 26 regarding financing 20,000 army increase for 1961. I told him (para b-1 reftelA) that I [Page 186] was now authorized to make available 178.5 million piasters from US-controlled sources provided GVN continues mobilization at full speed and on understanding that balance of 1961 military budget would be met from GVN resources. Thuan said that this offer had already been made when he was in Washington, that he had said then that GVN was unable to fill remaining gap, but that nevertheless GVN had moved ahead on mobilization as he had agreed to do in Washington. He said that he had upon his return again looked into GVN’s budgetary situation and had found the cupboard bare; it was for this reason that they had been forced to cancel the international fair. While he had in good faith given me impression before his departure to Washington that problem might be solved by roughly 50-50 split of additional costs (i.e., by use $5.1 million equivalent plus GVN funds), it was now unfortunately true that GVN could not make up the difference nor any part thereof. They simply did not have the funds, he said. I told him that neither I nor my government wanted to take advantage of the fact that GVN was moving ahead on mobilization; nor did we wish to put squeeze on other essential programs required to win battle in VietNam. However, the only available funds were those mentioned. Thuan said that this left him in an extremely exposed position; that the possibility of an increase in aid (amount unspecified) had been mentioned in Washington; and that he had confirmed that GVN would not put up additional funds.

In studying instructions beforehand, I had decided, after talking with Staley, that it would be unwise to use positions B-2 and B-3 because of their exchange rate feature, which would be prejudicial to SFG’s work and predictably unacceptable at this stage to GVN. Nevertheless, I did try out alternative 2, i.e., conversion of $12.6 million balance at VN $73.5 to US $1, plus customs and taxes. Thuan said he would not be able to close the gap on this basis; that he hoped the SFG could work out some arrangement for future financing which would give a more realistic piaster yield for imports and would be acceptable to GVN, but he simply could not prejudge that issue in context of this problem. If he did, he said, he could not get it approved.

During discussion Thuan showed me, as evidence GVN’s good faith, a chart of proposed tax increases for 1962 to be presented to the national assembly. Unable to agree, we left it that we would meet again on problem in a couple of days.

I did not use alternative 3.

As Thuan apparently expects additional dollar aid based on conversations in Washington, and it is not yet timely to discuss higher rates of conversion (changes in rates cannot be broached now without prejudicing SFG studies) believe advisable proffer additional [Page 187] aid now. Can be done if USOM receives immediate allotments. USOM proposes pay entire amount for industrial equipment.

Following is proposed negotiating line for which prompt approval requested.

Estimated 500,000,000 piasters required meet ARVN expansion balance 1961. (This estimate may prove to be high in light rate of induction and other factors undetermined at this time. If so, can be adjusted in 1962 aid figures. But optimum induction should be provided for at this time.) Can meet 200,000,000 piasters from remaining unprogrammed counterpart. Remaining 300,000,000 can be generated by present rate 35 plus 8 customs duties plus production taxes say 7 piasters, by allotment $6,000,000.

Therefore propose proceed pay 12.6 million final 1961 allotment on usual terms (which must do by June 30 to prevent lapse funds) and provide additional $6 million for above-specified purposes.

Foregoing will not prejudice SFG operations (although SFG will doubtless take $6 million into account) but would be proffered to GVN without prejudice to basis of future calculations of appropriate aid levels.

Please advise soonest, as this matter needs to be cleared up promptly if momentum and confidence to be maintained.

  1. Source: Department of State, Central Files, 751K.5-MSP/6-2861. Secret; Priority. Repeated to CINCPAC for PolAd. Received at 3:17 a.m., June 28.
  2. Telegram 1534 is Document 71; Icato 1904 has not been found.