61. Letter From the Ambassador in Vietnam (Nolting) to Secretary of State at the Presidency and Assistant Secretary of State for National Defense Thuan1

Dear Mr. Secretary: I refer to Mr. Brent’s letter of January 14, 1963,2 and to our subsequent conversations on the subject of a piaster fund to finance the local currency component of the jointly agreed priority economic program. The high priority accorded the strategic hamlet program and the total counterinsurgency effort by both our governments, in addition to the recognized need for adopting procedures of implementing such programs in an extraordinary and expeditious manner compatible with the extraordinary demands of counterinsurgency, are the factors prompting the proposal to establish a new fund.

Mr. Brent’s letter communicated to you a proposal worked out at the staff level in broad terms. These proposals are elaborated below in more specific terms which I hope you will find acceptable on behalf of the Government of Viet-Nam. The proposal consists briefly of the following points:

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I. Total Requirements

At the staff level, a total piaster requirement for the economic program has been agreed to on the order of 2.3 billion piasters. The Directorate General of Budget and Foreign Aid and USOM have been: working on the details of this program, and while they have not reached agreement on all details, the differences are small enough that it has become, I am sure, a relatively minor problem. The breakdown of this requirement, prepared by the USOM, is attached for your convenience.

II. Sources of Financing

Sources of financing for the Fund in 1963 would be (a) the unexpended balance of “purchased” piasters (approximately 635 million as of January 1, 1963); (b) the unobligated balance of 1962 counterpart (approximately 200 million piasters as of January 1, 1963); (c) all newly generated counterpart not committed by agreement to the military budget; (d) other GVN piasters, including VN$300 million “earmarked” in the National Budget for counterinsurgency, VN$100 million from the Lottery, and additional amounts as required to make up the deficiency between the total agreed program, on the one hand, and the total of (a), (b), and (c) on the other.

III. The Fund

It is proposed that a piaster Fund for the agreed program be established (a special “compte hors budget”), upon signature of a Fund Agreement. The Fund Agreement would provide principally for the following:

The deposit in the Fund of the unexpended balance of the $10 million “piaster purchase.” From the moment of such deposit the piasters would be subject to the procedures applicable to all releases from the Fund.
The deposit in the Fund of all counterpart piasters not already obligated and not otherwise committed by joint agreement to the military budget.
The deposit into the Fund of the Government of Viet-Nam’s contributions including, but not limited to, the 300 million piasters earmarked in the 1963 budget for strategic hamlets and 100 million piasters from Lottery receipts.
In the case of U.S. purchased piasters and unencumbered counterpart piasters, the deposits would be made initially upon establishment of the Fund. In the case of additional GVN contributions, deposits would be made in such a manner as to insure adequate financial resources to cover obligations contained in Action Plan Piaster Agreements or Project Agreements. In order to facilitate expeditious preparation of such agreements, the total of deposits to the tuna from all sources would not be less than 1.5 billion piasters by June 30, 1963 and 2.0 billion piasters by September 30, 1963.
The Fund would be managed by the Director General of Budget and Foreign Aid, and obligations against it would be accomplished by Action Plan Piaster Agreements and Project Agreements signed by him on behalf of the Government of Viet-Nam and by the Director of USOM on behalf of the United States Government

IV. Implementing Agreements

With respect to Action Plan Piaster Agreements in which responsibility for administration rests primarily with the province chief (with the assistance of the province committee), the development of specific requirements and budgets would continue to arise from hamlet, village, district and province requests, which would be screened, as is now the case, by the Interministerial Committee on Province Rehabilitation, on the one hand, and by the U.S. Interagency Committee or USOM, on the other hand. It would then be signed by, in addition to the two signatories noted in III (e) above, the province chief concerned, and by the head of the Secretariat of the Interministerial Committee.
With respect to agreements for which the primary responsibility for direction and administration resides with a GVN national agency or any other agreements to be financed from the Fund, such agreements would be signed by the head of the appropriate agency, as well as by the Director General of Budget and Foreign Aid and the Director of USOM.

V. Expenditures

As there are at this time two distinct types of operation-expenditures made at the province level and those made by national agencies or departments—I propose the following procedures appropriate to each:

For expenditures made at the province level, the procedures now in use for U.S. “piaster purchase’ release agreements would be used. This procedure involves the establishing of a fund at the province level which is initially funded for only a relatively small portion of the total agreed expenditures, and is then replenished as required by expenditures under the approved plan.
For plans administered by national agencies, procedures similar to those now used for such expenditures would be employed. It has been agreed by our staffs that some improvements in these procedures might be effected on the occasion of the establishment of this Fund.

In conclusion, it should be pointed out that we recognize that the extent of the liability of the GVN for this fund is not a fixed one. We cannot predict precisely the amount of counterpart that will become available for this purpose. There is no way this can be determined in advance very definitely, since commercial import program licensing rates and military budget requirements are factors in the equation.

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It is proposed, however, that in view of the high priority accorded by both our governments to the counterinsurgency effort, that the Government of Viet-Nam agree to provide from its own resources whatever funds are necessary to augment previously identified contributions to the fund to the extent necessary to fully fund an agreed 1963 expenditure program of approximately 2.3 billion piasters. And it is noted that the GVN’s contribution to the Fund from non-aid generated sources would not exceed as a maximum, 1.4 billion piasters (including the 300 million and 100 million piasters referred to in II (d) above) even in the event that newly generated counterpart piasters available to the Fund in 1963 were zero. This assumes the contribution in excess of 200 million unencumbered 1962 counterpart piasters and 635 million purchased piasters. The actual GVN contribution might, of course, be less.

If this proposal is agreeable to your government, I would appreciate your concurrence. This would then permit our respective staffs to undertake the establishment of the fund and implementation of the program.3

Accept, Excellency, the renewed assurances of my highest consideration.4



Note: Figures shown were developed by USOM in December, 1963 [1962] during DCBFA/USOM staff talks. A number of modifications will be necessary when final agreement on the program is worked out, following establishment of the Fund.

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Total Program (piasters millions) 2,325
A. Activities Directly Affecting Strategic Hamlets 1,330
1. Province Administered 1,200
S.H. Construction, Civic Action Teams
Hamlet Militia
Training Hamlet Councils
Hamlet Schools
Village/District Works
Fishboat Motors, Facilities
VC Rehabilitation, Resettlement
Emergency Relief
Miscellaneous and Contingency
Montagnards Plans
2. Administered by National Agencies 130
Well Digging
Rural Info. Media
Plant Protection
Village/Hamlet Radios
Identification (Teenage Photographs)
Village Health
B. Activities Supporting the Above (Administered by National Agencies) 330
Farm Improvement
Credit and Coops
Land Development
Rural Trade Schools
Public Health (Province Level)
Malaria Eradication
Operations Support
C. Support of Infrastructure for War Economy 390
Municipal Water Supply
Electric Power
Inland Waterways
Air Traffic Control
National Information Programs
National Radio Network
National Instructional Materials
Nursing Services
National Public Safety Services
D. Long Range Economic Development 85
Vocational Education
Teacher, Public, Higher Education
Medical Education
Participant Costs
Labor Institutions
Public Administration
Agriculture (Support)
Saigon Fish Facilities
E. Program Administration 190
  1. Source: Washington National Records Center, RG 84, Saigon Embassy Files: FRC 67 A 677, 350 GVN Task Force (Econ). Confidential. Drafted by Solomon Silver of USOM. Transmitted to Washington in Toaid A-2874.
  2. Not found.
  3. In telegram 821 from Saigon, March 19, Ambassador Nolting reported that he gave this letter to Thuan on March 18: “Thuan promised prompt response and said that he did not anticipate any difficulties”. (Department of State, Central Files, AID(US) S VIET) The source text is a copy of the letter sent to Thuan and contains no indication of his response.
  4. The source text bears no signature.
  5. Confidential. Prepared in the Embassy in Saigon.