281. Telegram From the Department of State to the Embassy in Vietnam1

701. For Ambassador Lodge. When time and opportunity permits, but on high priority basis suggest you review Deptel 345 of 6 September2 and hold extensive discussion with Brent and Silver of USOM Saigon on questions of improvements of joint US-GVN economic policies and necessary arrangements concerning 1964 economic and budget problems.

As you know, even with CIP resumption, serious 1964 GVN budgetary problem still remains on which we had planned urge GVN use its foreign exchange resources, accept increased deficits, raise taxes, cut certain expenditures and take many other measures towards austerity and budget discipline. We do not see how this basic position can be altered since CIP amount probably cannot be raised both as US budgetary matter and because of limited capacity of Vietnamese economy [Page 542] to absorb useful imported materials. Revelation this apparently tough position may cut across desired impression full resumption of support. We need your collective judgment re timing and manner getting into these issues bearing in mind it must be tackled fairly soon if GVN is to make necessary effort.

Related question is new regime personnel in this economic area. We have impression generals unfamiliar with it and should have great need personnel familiar with past history and complexity, and able to interpret the apparently tough USG positions as in fact reasonable and essential. Personnel such as Vu Van Thai and Dean Thuc could be most helpful along these lines. On other hand, we concerned at Embtel 8843 implication that Thanh might reappear in the new cabinet. We understand that in past he has been one of the obstacles in the Diem Government to putting VN economy and the AID program, particularly the CIP, on sounder counter-insurgency footing.

We are prepared to make high level experts available to assist the new Government in this task. We also understand that some work has been done recently by the National Economic Council which might be helpful.

  1. Source: Department of State, Central Files, AID (US) S VIEI Secret; Immediate; Limit Distribution. Drafted by Stoneman, Janow, and Hilsman and cleared by Forrestal, Rusk, and Bell (in draft).
  2. In telegram 345, Hilsman and Janow informed Lodge and Brent of “fruitful interagency consultations” on the fiscal years 1964 and 1965 aid programs for Vietnam. The result of these deliberations was that planners foresaw that the Government of Vietnam was faced with an imminent financial dilemma made more difficult by Vietnam’s military budget expenditures and willingness, ability to institute self-help measures, and the U.S. Congress’ growing limitations on AID contributions to South Vietnam. (Ibid.)
  3. Dated November 2, not printed. (Ibid., POL 26 S VIET)