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

959. CINCPAC for POLAD. Embtel 920.2 Have now received (April 23) Diem’s written reply3 re Counterinsurgency Fund. It is brief, reiterates GVN unwillingness to apply purchased-piastre procedures to GVN funds on grounds derogation of sovereignty, but states flatly that “GVN intends obtain necessary resources to finance all jointly developed projects listed in annex to your letter of March 18, 1963 (Toaid A-2874),4 even if total cost of these projects should go as high as 2 billion 300 million piastres”. Letter also states desire maintain existing relationship between, and apparently functions of, GVN Interministerial Committee on Strategic Hamlets (ICSH) and U.S. Committee on Province Rehabilitation (COPROR) and to continue coordinate U.S. and GVN activities in rural area.

Letter is of course entirely too vague on question of procedures, and Trueheart, Brent and I met with Thuan April 24 to pin down these elements of problem. To set stage, I first proposed to Thuan that—since Diem’s only explicit objection to continuing present purchased piastre procedures was that it would be derogation to sovereignty to apply them to GVN funds—the problem would be solved by transferring required piastres from counterpart tentatively earmarked for military budget to Counterinsurgency Fund, with GVN applying its own funds to former. As expected, Thuan threw up his hands at this, and we then proceeded to talk about procedures for using GVN funds. Upshot appears to be that we can get following, confirmed by exchange of letters with Thuan:

Piastres to cover province administered projects (Section A1 of attachment to March 18 letter) would be paid as required into special Treasury account from which they would be disbursed directly to province chiefs to carry out approved programs.
Province programs would be approved as in the past by ICSH and COPROR.
Disbursement would be made by province chief without need to have concurrence U.S. provincial representatives. (This is nominally only difference between this procedure and that used for purchased piastres.) However, province chief would consult with U.S. representatives re his plans and proposed actions, so that related GVN and U.S. rural programs can be properly developed and executed, and his expenditures would be made known to U.S. provincial representatives.
With regard to nationally administered programs (remainder of items in annex to March 18 letter), GVN funds would not be deposited in special account. These programs would be administered in same manner as counterpart-funded programs, i.e., on basis of appropriate understanding or agreement between Directorate General of Budget and Foreign Aid and USOM.
GVN agrees to provide piastres to support essential USOM operations (“program administration” in annex to March 18 letter). Thuan did not agree, however, to support any specific level of expenditures under this heading, pending detailed GVN review of USOM estimate. On other hand, I made it clear that we will insist after this review on definitive GVN commitment. (This is essential if we are to insure against being forced later to make piastre purchase simply to keep USOM going, and I so explained matter to Thuan.)

On paper the above goes far to meet our requirements. Only significant change from past procedures is that involving U.S. provincial representatives concurring in province chiefs’ expenditures. This is not something we would insist on—we are not interested in vetoing expenditures, quite the contrary—and procedure was initially introduced at GVN request as check on local GVN officials.

Procedurally, then, we have what we want, and we have a formal GVN commitment to speed up to our target of 2.3 billion piastres. We, therefore, recommend that this solution be accepted as best compromise obtainable in present circumstances.

In recommending acceptance, however, we wish Washington to understand that we have doubts as to how this scheme will work in practice.5 These doubts stem from fact that, though we shall be using old and tested procedures, we shall be dealing with GVN money. It may be that GVN will be as ready to spend for counterinsurgency programs as we are, and formal statement of readiness to find 2.3 billion piastres6 for types of projects we favor certainly suggests that they will be. Nevertheless, past experience with parsimonious approach of GVN dictates caution at least.

There is, however, no present alternative to trying to make this work. To try to force use of counterpart piastres for counterinsurgency would not in practice give us much more leverage in funding projects which we want-possibly less in view of bitterness which insistence [Page 256]on this would arouse. Moreover, important programs which would be affected by shift would then be subject aforementioned parsimonious GVN approach.

As for using PL 480 US-owned piastres, this seems to us nonstarter because it presupposes GVN willingness to amend existing sales agreement, and we fail to see any incentive for them to do so.

Only other alternative is further piastre purchase. We have made it very clear from outset that this is ruled out, and that we would not recommend it. We have also discussed fully with Thuan our misgivings concerning GVN’s willingness in fact to spend sums which seem to be required. Thuan is aware that our leverage on this consists in the “matching” goods and services from U.S. sources which we could withhold, if important differences arise concerning the amount of pump-priming that has to be done.

In summary, this outcome is not as fool-proof as we would like, but on balance we believe we should move ahead on this basis. Recommend Dept authorize us ASAP to exchange memoranda of understanding with GVN on this basis.

  1. Source: Department of State, Central Files, AID (US) S VIET Secret; Priority; Limit Distribution. Repeated to CINCPAC.
  2. Document 91.
  3. Not found.
  4. The letter and attachment are printed as Document 61.
  5. These doubts were expressed in a memorandum for the record prepared on April 30 by Rufus Phillips, who, as Assistant Director for Rural Affairs of the U.S. Operations Mission, had immediate responsibility for the strategic hamlet program. As Phillips saw it:

    ”We are now asked to give up essential ingredients of what has proven to be a winning formula. We are asked to give up direct US funding, and to give up effective US participation in the province administered counter-insurgency operations directed at winning the people. Yet, it is precisely this participation, and the funding system which has supported and made it possible, which are essential to the success of the program.” (Hoover Institution Archives, Lansdale Papers, Chron File C)

  6. A marginal notation at this point, in Wood’s hand, reads: “‘if’ it is needed”.