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

76. Task Force VN 22/26. Following briefing reported Embtel 66.2 President Diem invited SFG for tea at Palace July 13th.

Appears from Staley’s account this interview, which lasted three hours all told, that President Diem now finds a measure of currency reform desirable, and he changed in his own hand portion of joint report3 dealing with piastre receipts from sale commercial aid to read as follows:

“There is complete agreement in the joint group on the desirability of simplifying and unifying Vietnamese system exchange. In other words a single and realistic exchange rate instead of present multiple rate system is recommended.”

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VN members joint group expressed pleasure to Staley at this action of Diem’s stating that “this commits the President to our way of thinking.”

Its first step in direction of unification and as measure to increase receipts from imports, GVN now considering adding “premium” of 25 piastres to 35 piastres official exchange, with customs duties and excise levies additive above and beyond the new basic 60 (composed of exchange 35 and exchange premium 25). To effectuate this move expert financial advice is needed and IMF group now present are offering to leave a financial technician temporarily to assist GVN work out details of necessary regulations.

Comment: Such a drastic measure clearly involves much administrative procedure both in modification of present exchange operations and in measures to tax away windfall profits.

Foregoing I most hopeful result of SFG operations and is reason most cordial congratulations. Obtaining such substantial additional revenues for GVN budget will go far to buttress GVN efforts in civilian as well as military sections.

I believe stage is now set for comprehensive agreement with GVN to include three major measures:

Agreement 200,000 force level (with further increase remaining under study).
Establishment of exchange premium of 25 piastres on substantially all imports, over and above present 3s rate, with a sliding scale of customs duties added (see following telegram).4
Agreement on commercial aid at level sufficiently high to assure meeting aid requirements subject criteria described paragraph 4 Embtel 66. Generous estimate necessary for two good reasons: (A) assure GVN’s confidence our intentions, (B) provide adequately for balance payments gap in probable shortfall GVN export receipts below estimates prepared for Congressional presentation.

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Our suggestions for position to be adopted by US in negotiating long term aid agreement will follow.5

“Reason for sense of urgency is not only inherent in situation here, where time is of essence, but also fact that momentum in forward planning developed over past several months seems to be waning a bit; also, ad hoc requests from GVN hard to handle in absence over-all plan with priorities; also rumors circulating re ‘devaluation’, which of course harmful to chances successful negotiations here ( Time magazine Karnow mentioned these to me the other day).” (Ibid., 120.1551K/7-2961)

  1. Source: Department of State, Central Files, 120.15s1K/7-1661. Secret; Priority. Repeated to CINCPAC for PolAd.
  2. Document 90.
  3. See Document 93.
  4. Nolting elaborated on this point in telegram 88 from Saigon, July 18. (Department of State, Central Files, 120.1551K/7-1861)
  5. Apparently a reference to telegram 141 from Saigon, July 29, in which Nolting reported that it was urgent he be authorized to negotiate with the Vietnamese Government on the matters covered in the Special Financial Groups Report. One of the reasons for urgency, wrote Nolting, was that the Berlin crisis was being interpreted by some people in Saigon as making it more difficult for the United States to give increased and accelerated support to the Vietnamese Government, and that “we must demonstrate that we can act promptly and decisively wherever necessary.” Nolting also stated: