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

66. Task Force VN 22/25.2SFG, in association Vietnamese colleagues, briefed President Diem July 11th on special action program, outcome of SFG operations during past three weeks. Diem was joined by senior ministers; Ambassador Nolting,DCM, USOM Director, [Page 213] Chief MAAG, also present. Briefing considered major step forward towards US objectives Vietnam.

Costs of military and economic programs for 18 months through December 31, 1962 were projected at $85.5 million and 6.5 billion piastres over and above present programs. Military estimates based on reaching force level of 200,000 by December 31, 1962.
Emergency economic and social action program involving additional aid designed specifically to support military effort, costing about $13.5 million and 1.8 billion piastres, was described, to be centered on communications, agrovilles, land development, rural medical programs, training civil administrators, and youth corps.
A long range development program designed to assist Viet-Nam achieve target of self-sustaining growth, was also described estimated to cost $30 million and 1 billion piastres more than ongoing programs. (It is thought that additional projects of this magnitude can be developed in the private and public sector in the next 18 months.)
Seven principles underlying the commercial aid program were agreed by both Vietnamese and US representatives. These points include joint planning of the external resources of both countries available for imports; agreement that VN foreign exchange reserves should be held in the region of $200 million; agreement that the program should be so handled not to widen gap in living standard between the wealthy and poorer classes nor harm sound infant industry; and other points designed to assure orderly programming, all within the balance of payments approach to determine Vietnam’s requirements for commercial aid.
Various measures which might meet the additional piastre bill of 6.5 billion for QCP month ending December 31, 1962 were then described, including bank borrowing, 1.5 billion; an issue of victory bonds and stamps, 300 million; tax reform including tightening of collections, 1.25 billion piastres. The gap remaining after the mobilization of the 3.05 billion piastres possibly obtainable from the foregoing sources must be met from proceeds of commercial aid, which might be increased within the criteria described in pare 4. Higher yields on the US aid dollar were advocated both by Dean Thuc and Dr. Staley as essential to resolve financial problem.
Finally, there was a joint suggestion that committees be established on Vietnamese side, and on American side, to oversee all aspects of Vietnamese/American aid activities and to assure progress of all action programs. These committees will include on Vietnamese side President and representatives of the military and of the social and economic ministries; on the American side, the Ambassador and CT representation. Subordinate committees,VN and US, would be activated on military and on social and economic affairs. These VN [Page 214] and US committees will be considered “parallel” but will meet together; Diem preferred not to have them described as joint.

Comment: The result of this briefing has been to clear the air considerably on the problem of exchange rate and to stimulate GVN thinking, including Diem’s, on the necessity to assure higher piastre yield on American aid dollar. Vietnamese, in general discussion, seemed anxious set target for higher amounts commercial aid, perhaps as hedge against expected fall in export receipts. National Assembly, however, has just acted to increase production taxes by 20 per cent which will increase budget yield on American aid dollar to nearly 60 piastres although amounts deposited counterpart including customs will remain at present level of about 43 piastres to dollar.

It is opportune that IMF representatives are now holding annual consultations with GVN overlapping SFG and their influence will undoubtedly be directed toward unification of piastre dollar exchange at rate of 73.50 or higher.

Task Force recognizes, however, that we have an emergency situation here, that momentum and confidence must be preserved and that in negotiations we should estimate liberally the amount of commercial aid that can usefully come in under the principles set forth in the joint study. Believe our theme should be, not that we want to set arbitrary limits on US aid, but that we want to help get the job done in manner and under arrangements conducive to sound economic growth and sound financial management in Vietnam. We also think that negotiations here on government-to-government level should be undertaken promptly in light of imaginative and persuasive SFG study.

  1. Source: Department of State, Central Files, 120.1551K/7-1461. Secret; Priority. Repeated to CINCPAC for PolAd.
  2. Reference is to numbered paragraphs in Document 56.