127. Airgram From the Embassy in Vietnam to the Department of State1



  • Assessment of Political and Economic Factors in Vietnamese War

Following is assessment of political and economic factors in Vietnamese war, prepared for use at current SecDefense meeting in Honolulu:2

1. Political Factors

The main political factors bearing on the question of who is winning the war in Viet-Nam, the GVN or the Viet Cong, relate to organization and working methods of the Government, establishment of non-Communist unity against the VC, and winning the positive support of the mass of the people in the countryside. These are the political factors which were stressed by the U.S. Government at the highest levels following the visit to Viet-Nam by the Taylor Mission in October 1961.

2. Organization

Organization and working methods constitute one of the essential keys to success against the VC. There is no question but that the DRV has established an extremely efficient organization for the conduct of the war on the Communist side, and is carrying on the war most successfully despite the difficult self-imposed handicap of clandestinity. To counter this ruthless efficiency requires a properly functioning administration on the GVN side involving delegation of authority and the use of working methods which encourage subordinates to do the job properly. Ineffectiveness in administration at the national level, in [Page 266]carrying out the central functions of the government and in extending services to the countryside represent one of the GVNʼs main weaknesses.

Some progress had been made prior to the February 27 bombing of the Palace in improving the organization and operations of the GVN, but the renewed mistrust flowing from that incident will very likely slow down progress again. The GVN revived the National Internal Security Council in December 1961, and has made limited use of it since that time. Intelligence has probably reflected most progress administratively, with the delegation of some real authority starting about November 1961 to the Director of the CIO and the concurrent naming of him as Chief of the NPSS. In the military field, naval and air force representation has been added to the Joint General Staff, but there has been little in the way of effective improvement in the authority delegated to the Field Command for the conduct of military counterinsurgency operations. On the question of systematic area pacification, Diem, after more than a monthʼs delay, has signed the General Directive for the Delta Pacification Plan,3 but has not yet signed the various Instruction on Coordination, Population Controls, Strategic Hamlets, etc., designed to implement the General Directive. There has also been confusion as to who is actually to be in charge of this operation—General Cao (who has been handling it to date) or Colonel Y (the Director of CIO) and an assistant (whom the President may be intending to name as officials in charge of pacification). It is likewise not clear whether the military have been directed to give adequate support to the pacification of the first province in which the Plan is being put into execution.

Because of GVN reticence U.S.-GVN cooperation on the civilian side has not developed extensively in the sense of direct assignment of U.S. advisors to GVN agencies, except in the intelligence field. The cooperative effort represented by the joint provincial surveys has had success in carrying out the survey of three provinces, but this project has not been pushed on the GVN side (perhaps because of personnel shortages) as rapidly as we would like, nor has the GVN (because of Diemʼs opposition) permitted the coverage in the political and economic fields which we had hoped for.

3. National Unity

Over recent months the GVN has taken a series of mobilization measures to increase popular participation in the war effort and improve the morale of the armed forces. Specific measures have included the drafting of educated persons for officer training, the institution of womenʼs military training (the thrust of which is, however, open to [Page 267]considerable question), limited military training for civil servants in Saigon and other cities, similar training for the members of the youth organizations in various areas, increased pay or allowances to the lowest two ranks in the armed forces and the Civil Guard, reduction of the period in which a drafting stays in conscript status before attaining the status of a regular soldier, the creation of NCO ranks in the Self Defense Corps, legislation establishing employment preference for veterans both in the Government and in private business, the establishment of a program for the training and employment of disabled veterans, and proposed measures to help war widows and orphans.

Steps have also been taken over recent months to establish the National Economic Council, the Constitutional Court, and provincial councils. The National Economic Council has served as a sounding board for the opinion of both trade unions and employers, and in a step in the right direction of freer expression and greater sense of participation. The Constitutional Court has had no noticeable effect. Since the provincial councils are just in the process of establishment, it is too early to determine whether they will have any political impact.

The educated classes continue to present an unresolved political problem which is of importance for several reasons: (1) The Government needs all available talent to fight the war against the VC, and Ambassador Nolting has urged the members of this class to offer their services to the Government in this emergency. However, because of their political dissatisfaction with the Diem Government and their belief that their services are not wanted, there is a tendency among many of them to sit on their hands (just as many Vietnamese did during the Indochina war when they did not like either political alternative—the Communists or the French). (2) The dissatisfaction among the educated classes tends to influence the masses at least toward apathy in the present struggle. This influence is attributable to the special position which the intellectual or scholar occupies among the larger masses of the people in a Confucian society like that in Viet-Nam. (3) Perhaps most important of all, the educated class exerts a strong, probably predominant influence on international opinion because of the tendency of the foreign press to accept this classʼs judgment of the GVN rather than the official views which we and the GVN put forth. Therefore, what the educated class thinks about the GVN is an important factor influencing the degree of international support which the GVN will get in its fight against the VC.

Various possible measures might be taken by the GVN to develop a more favorable attitude on the part of the educated class. For example, liberation of non-Communist political prisoners, greater freedom of the press and assembly, allowing the National Assembly to become [Page 268]more of a real parliamentary body rather than a puppet organization, and the authorization of opposition parties to operate. None of these measures has been taken to date by the GVN.

There are no indications that the VC have made any material political headway themselves among this class by the use of the “national liberation front” tactic.

4. Winning the Support of the Villagers

The first essentia1 for this purpose is to provide the villagers with a minimum of effective protection against VC terror and pressures. Only with this can the Government hope to obtain the cooperation and intelligence of the villagers. Systematic planning and execution of the strategic hamlet program, coupled with the development of paramilitary forces in adequate numbers and kinds, should restore a sense of security among the villagers. It is not certain, however, that these programs will be developed systematically since Nhuʼs pushing could well lead to overhasty, ill-advised development by officials at all levels in a manner which would alienate rather than gain the support of the people. In addition, there is the danger that Nhuʼs attempted use of the strategic hamlet program for a “revolutionary change of society” at the hamlet level could lead to further division among the population at the time when the aim should be to establish unity. (In control Viet-Nam Ngo Dinh Canʼs pragmatic approach (as opposed to Nhuʼs theoretical approach) may enable the hamlet defense program to be carried out without giving rise to the risks described above.) The SEC training and equipment program now being carried out is vitally related to this matter of giving the villagers protection, but it appears a considerably greater pare-military force will be required in order to provide each hamlet with a defense force capable of dealing with small VC groups and of trying to hold off larger groups until help can arrive from the Civil Guard and the RVNAF.

Economic and social development of the villages is also essential in order to gain the positive support of the villagers as opposed to apathy on their part. The specific goals of such a program were outlined in the Joint U.S.-GVN Communiqué of January 4, 1962.4 Much has already been accomplished in the fields of agricultural credit, education, health, etc., and what is now aimed for is extension of most of these programs to cover every village. USOM has established an organizaniona1 set-up designed to facilitate implementation of this program by backing up civic action cadres with training, advice and supplies, and the question now is whether the GVN can also be organized for rapid, prompt implementation. General Cao has been training and using rural rehabilitation teams since July 1961, for the [Page 269]development of strategic hamlets in the provinces just north of Saigon, and is expanding these teams in connection with the Delta Pacification Plan. These teams have some socio-economic flavor, though probably not sufficient at present. USOM expects to be able to work directly with General Caoʼs organization in the socio-economic field, but Cao will still need the cooperation and resources of the various Ministries of the Government in this field. No effective coordinating organization exists as yet for the village socio-economic program in other areas, including those which are relatively white. An interministerial committee on strategic hamlets was established at the beginning of February, and it may turn out to be the coordinating mechanism in the economic and social fields as well, but this is not yet clear.

On the political and psychological side, various actions are also desirable to counter the effect of VC propaganda. Payment of the salaries of village officials, now often enough not met because of the inability of the village to collect taxes, is necessary. The Minister of Interior is now understood to be making Central Government resources available for this purpose, and to be checking to see whether the funds furnished are actually being used to pay the salaries of village officials. This requires further checking (perhaps during province surveys) to determine actual status. The Government also needs an effective information program at the rural level, but it is doubtful that this can be mounted as long as the ineffectual Mr. Tho remains Director General of Information. The Government also faces the major obstacle of the skepticism and disbelief of the populace in what the Government says. Therefore, the only information program likely to succeed is one based on concrete accomplishments by the Government in the security, economic and social fields, thus restoring credibility in the Governmentʼs word. Aside from that, the information program should explain the record for population control measures, as well as continuing to paint the VC in their real colors.

Perhaps most important of all in the political sense for generating mass support are inspired leadership from the top in the Government and the creation of a politically attractive public image. The President continues to travel in rural areas, but the security shield necessary during these trips vitiates much of the favorable impact. Efforts have been made for years to induce the President to make frequent use of radio for popular talks, since this would reach a much vaster audience in the rural areas than his trips, but thus far there has been no real success. Continuing effort is also required to induce the President to switch his theme in rural areas from sacrifice and discipline to that of improvement in security and living standards with the help of the Government. In other words, the theme needs to be what the Government can do to help the people (together with their own efforts) and not what the people should do for the Government. The GVN has also [Page 270]seriously weakened its domestic position by publicly airing imaginary or historical differences with the U.S., its principal source of military and economic aid and international support.

5. Economic

Aside from the economic and social programs at the village level discussed above, other economic factors are also important in the war against the VC. At the end of 1961 the Government took measures that resulted in de facto devaluation of the currency, thus imposing a more severe financial burden which primarily rests on the well-to-do, who are, by and large, the heaviest consumers of imports. This step was designed to enable the Government to expand the piastre resources available for both security and socio-economic programs. The amount of piastres which will be generated for this purpose will be determined by the level of imports, which in turn depends upon the demand of a free market. VC activities in the countryside have tended to cause this demand to contract somewhat over the past year or more. There will probably be no permanent change in this trend until security begins to be restored systematically in the countryside. The markets in Saigon and in the provincial centers, and in many villages, are well stocked with both domestic and imported goods; prices on the whole are stable; and deficiency of imports in no way inhibits the current snuggle.

The GVNʼs efforts to collect internal taxes on land, on incomes, and from various excise measures are being intensified, and the realities of their financial situation are bound to require internal borrowing as well, a course on which the Government has decided.

For the first time the GVN is launching an appreciable deficit financing; in the past two months it has borrowed VN$1 billion from the National Bank, borrowing of some VN$800 million by the Industrial Development Center from the National Bank (to help finance the 5/7 tax or capital/equipment) is expected during 1962, and the 1962 budget is expected to result in a deficit of VN$2.5 to 3.0 billion out of total expenditures of VN$23.4 billion. Most recent proposals imply an additional deficit of VN$700 million by June 30, 1962, from a further increase in the military budget. Thus, a minimum deficit of VN$3.0 billion seems indicated for 1962. As against the VN$37.2 billion total money and credit outstanding on December 30, 1961, this means an increase of some $75. Also, an expected decrease in minimum bank reserve requirements with the National Bank may permit expansion of bank credit by as much as VN$3 billion. Indeed, the new effective exchange rate requires a considerable increase in bank credit-which, however, should be largely siphoned off as taxes.

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Yet most expert observers believe that the economy can stand this increase without serious inflation. In the first place, all evidence of the past several years points to a very low velocity of money circulation, and hence a low multiplier effect.5 Despite uncertainties caused by VC and floods in 1961,6 money supply remained stable and there were indications of hoarding money. Secondly, the exchange black market is affected more by security conditions than economic conditions, and there has been virtually no forward speculation in exchange or conditions in anticipation of devaluation. Third, the modest price increases of imported goods were caused by tax increases, not speculative demand or inflationary pressure. Food staple prices, which were sensitive to VC disturbances and the Mekong flood in the final quarter of 1961, and which mean more than imported goods to the masses, are continuing their normal downward seasonal trend. And the GVN for the first time is building reserve rice stocks as a result of better organized commercial paddy collection price guarantees, and imports from America. Fourth, there are sound implications that the GVN is continuing to grow, as well as population (thus offsetting the expected increase in money supply). Finally, the economy is becoming increasingly monetized.

The GVN and the VC are engaged in a battle for rice, the main crop of South Viet-Nam. VC control of extensive rural areas, their ability to blackmail peasants everywhere in the Delta, and their harassment of communication lines, cut down rice shipments to Saigon over the past two years, with the result that Viet-Nam, which is normally a rice exporting country, is this year now importing rice. The GVN has been having a fair success, however, in the battle over the past three or four months for the rice harvest in the Mekong Delta area, with the result that rice deliveries to Saigon have improved. Unless these deliveries can be maintained at a more satisfactory level, the GVN will be loath to export rice, and it may face a shortage next summer in Saigon and Central Viet-Nam.

The VC have the capability of bringing about major disruption in rubber production and exports, but up to date have refrained from exercising this capability. Since rubber is Viet-Namʼs major foreign exchange earner, and a fall in exports would seriously embarrass the GVN, it must be assumed that the VC are not interfering with rubber because of funds which they collect from rubber plantations or because of their belief in ultimate victory and the desire to avoid destruction of the asset which the rubber trees represent.

VC activities have totally disrupted the trade in cinnamon, which was once a significant export.

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The other side of the economic coin is the ability of the VC to obtain necessary supplies from the people and their levying of taxes on the people. There is not question that the VC live off the land, and the greatest hope of gradually squeezing them in this respect is through the strategic hamlets program. Denial of food to the VC through this program ought eventually be relatively successful in Central Viet-Nam and the provinces north of Saigon, but the prospects are considerably less bright in the food-rich Mekong Delta provinces.

6. Conclusions

One of the main weaknesses of the GVN in its ineffectiveness in administration at the National level, is carrying out the control functions of government and in extending services to the countryside.
GVN programs in rural areas—the strategic hamlet program and village-level economic and social developments-aim in the right direction, but depend upon effective implementation for success in restoring security to the villages and winning the support of the villagers.
The present GVN theme in rural areas “sacrifice and discipline” is not winning the support of the people and should be changed to “improvement in security and living standards with the help of the government.” Any rural information program to be successful must be based on concrete security and socio-economic achievements.
GVN is short of trained personnel to carry out its political, economic and psychological programs in the countryside at all levels. However, because of GVN reticence U.S.-GVN cooperation on the civilian side has not developed extensively in the sense of direct assignment of U.S. advisers to GVN civilian agencies at all levels.
The GVN is doing little to develop a favorable attitude on the part of the educated class, who have some influence on the masses of the people and considerable influence on the international opinion of the GVN.
Confronted with the efficient military, political and propaganda attack of the VC, the GVN has not yet organized an effective set-up to deal with the insurgency, nor has it taken the actions necessary to establish unity and win the support of the people in this fight. Unless the GVN develops a coordinated system of government among all fields (security, political, economic and psychological) at all levels from top to bottom, prompt to act and aimed at winning the people, it [Page 273]will not be able to turn the insurgency tide which has run against it for over two years.7
  1. Source: Department of State, Central Files, 751K.00/3-2362. Secret. Drafted by Mendenhall and cleared with Gardiner, Fippin, and Bogardus. Repeated to all Asian posts, and CINCPAC, London, Paris, and Ottawa.
  2. See Document 124.
  3. Document 113.
  4. See Document 4.
  5. Next to this sentence were written the words “Not related.”
  6. Regarding the floods of 1961, see Foreign Relations, 1961-1963, vol. I, Documents 153 ff.
  7. At the end of the airgram, Cottrell wrote the following: “I think: a) This paper reverses the priorities. The villagers are the key, gov’t efficiency next, and non-commie unity third. b) The focus of our effort and appraisal should be: How are the VN doing in efforts to provide security and benefits to the villages? The answer is coming out thru the strategic village effort. If successful, we are on our way to victory over the Viet Cong. Cot”.