Foreign Relations of the United States, 1961–1963, Volume III, Vietnam, January–August 1963

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

Saigon, July 27, 1963, 8 p.m.

143. For Lodge from Nolting.

1. When I was in Washington, I had some discussion on economic aid levels for FY 1964. These conversations neither very definitive nor conclusive largely for lack time to go deeply into matter. Since my return Saigon, have reviewed five-year military plan prepared by MAAG connection 1965 MAP submission and economic projections prepared by USOM. In my view, most difficult economic-financial-political problem looms ahead here during next few years. Elements of problem are: meeting security objectives in face increasing belligerence part ChiComs, getting GVN come forward with necessary increased levels financing necessary prosecute war, avoidance dangerous inflation, planned reductions U.S. economic aid.

2. Last year U.S. provided $95 million for commercial import program; there was additionally available about $30ÿ0935 million from prior years’ funds (pipeline), making total $125 million approximately for licensing imports. Most recent messages from Washington indicate plans for $cS0 million or less this year with no prior years’ funds to add. This figure should not be frozen, I think, until all elements of equation have had careful consideration by you.

3. In summer 1961, U.S. and GVN undertook joint study which resulted in what is now referred to as Staley-Thuc report² in context of conditions as they existed that time. From this study resulted mutual understanding and/or governmental agreement on force levels, exchange rates, appropriate levels of GVN exchange reserves, deficit financing of war expenditures, and need for other economic reforms on part GVN. Though their performance uneven with respect such matters as in deal [sic] tax collections, reduction unessential imports, etc., GVN have followed through on important parts undertakings including deficit financing for war activities, and exchange rate revisions. Furthermore, they have drawn down exchange reserves substantially below figure set in report. It is perhaps unfortunate that level of reserves only item quantified giving VN strong talking point whereas other measures connected austerity which do not have such benchmarks have not been pursued to our satisfaction.

4. We now facing changed set of conditions from those confronting us in 1961 when primary emphasis on war build-up. We now (in terms military planning) looking to termination active insurgency by end 1965, involving changes force levels thereafter with its own set political problems, peak military expenditures 1964, 1965 and high plateau continuing expenditures for economic development, expanded police, and essential military needs thereafter. We encountering increasing difficulty obtaining large-scale appropriations for mutual security in light our domestic budgetary deficits and balance payments problems. GVN image in U.S. has not improved-quite the contrary in recent months. Lack of forcefulness their part in imposing austerity, by decreasing unessential imports and increasing tax collections (there has been increase in tax collections, but not enough) and their lack of drive in promoting exports make case for more economic aid difficult. Nevertheless, even if they take all possible measures, the facts would argue for amounts substantially greater than those now being proposed.

5. I therefore come to conclusion it in our interest to undertake a new study, preferably by same people (Staley and Thuc), in light of new conditions both here and in U.S. Otherwise we face series partial negotiations, some dealing with force levels and military expenditures, some with austerity and self-help measures, others with aid levels and local currency financing of war. And yet these all inter-related in fact and, equally as important, inter-related in a political and psychological sense. When Staley Mission first proposed in 1961, many skeptical as to this approach as substitute for normal bilateral negotiations. When completed, we all convinced results good especially since GVN recognized study as sincere joint effort get at facts and reach conclusions on basis those facts rather than as exercise in negotiation from preconceived position. This both tribute to Staley’s and Thuc’s handling of study and sine qua non for confidence and performance on part GVN. I would hope that a new study would lead not only to understandings on a broad front in specific and quantified terms but also agreement on specific measures to be taken during next few years.

6. In light foregoing, I would suggest that before your departure, you might wish fully explore all aspects this thorny problem with Washington offices concerned, with view to—

(a) Obtaining Department approval to proposal for new study and determine if and when Staley available three-four week study.

(b) Urging DOD reach early decision on military plan submitted by CINCPAC to JCS. This important element in any study to be made.

(c) Urging AID/W hold open question economic aid levels 1964 and be prepared accept major changes to 1965 submission which just going forward.

We believe GVN would welcome broad-scale review this type at this time.³

Nolting

1. Source: Department of State, Central Files, AID(US) S VIET . Secret.
2. See Foreign Relations, 1961–1963, vol. I, Documents 72 ff.
3. On August 13, the Department of State and AID responded to Ambassador Nolting’s proposal that a decision regarding a “Staley-type mission” should be deferred “until after Ambassador Lodge has had time formulate his own evaluation.” (Telegram 191 to Saigon; Department of State, Central Files, AID(US)S VIET)