Foreign Relations of the United States, 1964–1968, Volume VII, Vietnam, September 1968–January 1969

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

Saigon, October 19, 1968, 1045Z.

40697. For the President from Bunker. Herewith my seventy-first weekly message.

A. General

1. In early July, I summarized in my fifty-ninth message the events and trends, the achievements, and shortcomings of the first half of 1968. I think a similar summation of the third quarter may now be useful. Accordingly, this message is a review of the situation as it developed in July, August, and September. As in my summary of the first six months of 1968, this message will begin with an overview, followed by more detailed accounts of the salient political, military, economic and pacification developments. In my next message, I propose to cover the priority areas where we think it most essential to drive ahead and where we intend to concentrate our maximum efforts between now and Tet, i.e., in the next four months.

2. The major events of the past three months were: A) the Honolulu conference; B) the enemy’s abortive August/September “third offense”; C) the assumption of the military initiative by friendly forces; D) the rapid build-up of the Vietnamese armed forces and their continued improvement; E) the gradual but steady drive toward pacification; F) the step-up in the attack on VC infrastructure, and plans for future intensification; G) the preparation of a pacification counteroffensive to be carried out November 1-January 31; H) the completion of the recovery program; I) the move toward political organization with the official launching of the Lien Minh and its new action program; J) the decision to allow General Duong Van Minh to return to Viet-Nam; and K) the gradual return of the economy toward pre-Tet levels. The enemy’s strategy of “general offensive” continued both costly and unrewarding to him, but as the quarter ended there was as yet no definitive sign of a change in his strategy.

3. I think several important trends emerged from the events of the past three months. I characterized the major trend of the first half of 1968 as the movement toward a stronger, more self-confident, more unified Vietnamese people and government. This trend has continued. The expectation of a renewed enemy drive against the nation’s cities served to maintain pressures for unity, cooperation with the government and maximum mobilization of all military and civilian resources. The subsequent failure of the enemy’s military effort, plus the improved performance of both the government and the armed forces, further increased Vietnamese confidence in their ability to run their own government, to shoulder a greater part of the war’s burden, and to determine their own future. This increased self-confidence was also reflected clearly in a marked decline in fears that the United States might impose a settlement which could lead to a Communist takeover. I should add, however, that these fears could re-emerge if intent underlying apprehensions are stimulated by new events or rumors.

4. Contributing heavily to the growth in Vietnamese unity and self-confidence was the effectiveness of the working alliance between President Thieu and Prime Minister Huong. This has been one of the major pluses for the period. Thieu and Huong have complemented and supported one another in the effort to prepare the people for peace negotiations and a future political contest with the Communists. Despite some obvious difficulties, Thieu backed Huong on his anti-corruption campaign and significant progress was made. He allowed Huong to run the government from day to day with little interference and supported his decisions, while Huong looked to Thieu for policy guidance and threw his considerable personal influence and prestige behind the Thieu regime. The result has been more effective government, significantly increased popular support, and continued, though not yet adequate, movement toward national unity.

5. The Vietnamese confidence in the US also improved. In late June and early July, the Assembly and the press were full of forebodings about American intentions. The lower house called on the US to put a time limit on the Paris talks and one Deputy called the absence of a Vietnamese representative at the talks “a national disgrace.” By the end of September, these fears and suspicions had subsided to a considerable extent. The Honolulu conference and our firm stand at Paris were two factors contributing to this change. It also reflected Vietnamese relief at the outcome of our national party conventions. It sprang significantly from awareness of the fact that the military situation was greatly improved.

6. Also contributing to the trend toward more national unity was Thieu’s efforts to nurture a broad nationalist political organization. The official launching of the Lien Minh took place on July 4 and some 840 cadre have been since trained for a high impact self-help social welfare program in Saigon.

7. The second basic trend which I observed in the first half continued; there was further movement toward constitutional democracy, government based on institutions rather than personal relationships, and civilian control of the military. Thieu is in fact now close to exercising the full powers vested in him by the Constitution, and the extra-constitutional power of Vice President Ky and the other Generals has continued to decline.

8. Perhaps the most obvious example of this trend was the removal, without repercussion, of General Khang as III Corps commander. Khang was not only the principal Ky supporter still holding a position of great power, but he is an avowed opponent of constitutional democracy. He thoroughly distrusts civilian politicians and the National Assembly, and he has never concealed the fact. His removal symbolizes the further decline of the power of the military group that took over the government in 1965.

9. Less dramatic than Khang’s removal, but at least equally as important in moving toward constitutional government and full democracy, was the continued functioning of an independent legislature. While it was by no means all smooth sailing, the Assembly and executive continue an effective working relationship. Besides serving as a vital sounding board of public opinion, thus providing both a safety valve and a meaningful check on the executive, the Assembly hammered out several basic laws. These included the measure establishing the Supreme Court, the law governing the Inspectorate, war risk insurance, and an electoral law for the by-election in Saigon. Well along toward enactment were the laws governing the press, the political parties, and setting up the three councils provided for in the Constitution.

10. During this period the GVN continued to carry out its general mobilization program. By September 30, regular forces alone had a strength of 825,000; including the paramilitary forces, the total was well over a million. Efforts to upgrade and increase the strength of RF and PF continued, and self-defense forces were enlarged to over 650,000 men and women. While many weaknesses and shortcomings remain in the effort to effect total mobilization, when one considers what has been achieved from a manpower pool representing two-thirds of a population of 17 million, the magnitude of the accomplishment is impressive.

11. On the military side, the trend has been one of steady improvement in the position of allied forces and deteriorating capability on the part of the enemy. The enemy continued to suffer very heavy casualties; the total enemy KIA this year is already greater than for 1966 and 1967 combined. Although the August attacks made few headlines because they were smashed before they really got off the ground, enemy losses were almost as great as those suffered in the more spectacular May/June offensive. One result of these heavy losses is the growing proportion of regular North Vietnamese troops, a situation which is causing the enemy increasing difficulties in terms of local support and troop morale.

12. While the May/June enemy drive was markedly less effective than his Tet attacks, the decline in enemy offensive potential was revealed with far greater force by his almost complete failure to get the long threatened “third wave” underway. Except for a brief foray into the outskirts of Tae Ninh, the enemy penetrated no urban areas. He was forced to abandon his intention to attack Ban Me Thuot, and the main target—Saigon—was never seriously threatened. By defeating the enemy away from population centers, the heavy damage and loss of civilian lives that accompanied the Tet and May offensives were averted. This enemy failure, unfortunately, had the paradoxical effect that others elsewhere in the world did not take cognizance of the fact that he had tried, and failed, to launch a third offensive.

13. It is also notable that the withdrawal of friendly forces from the countryside to defend cities and towns did not reoccur, so the proportion of the population under reasonable government control continued to increase slowly but steadily despite the August attacks and is now virtually back to the pre-Tet level. At the end of the quarter, the government was developing plans aimed at increasing further its control of the countryside—the pacification counteroffensive. This took on new importance in light of the heavy emphasis by the enemy on the formation of “liberation committees.” While these committees could serve a variety of purposes, it seems likely that they are intended primarily for a cease-fire situation. Given some kind of internationally supervised cease-fire, liberation committees could lead some credibility of control over wide areas of the countryside. It should be noted, however, that much of this is “old wine in new bottles”; that many of these committees are simply existing bodies under a new name and that more than half of them are in VC controlled hamlets and villages. In any case, it is vitally important that this tactic be countered and the government’s plans for this, I believe, are sound. We will support them fully.

14. There is, of course, a debit side of the ledger. While I think it is fair to say that the overall situation has improved significantly in the past three months, important weaknesses and shortfalls still plague the GVN and its allies.

15. On the political side, it must be said that the progress toward unity which I have cited above still leaves us far short of the goal. The government needs much more popular support than it has won so far. For it to rally the anti-Communist majority for a successful political effort against the Communists, the Lien Minh must find a way to draw in other political groups, such as the militant Catholics, Hoa Hao, and Buddhists. Though the decline in Ky’s power makes his relationship to Thieu less crucial, the continuing distrust between them remains an important political liability.

16. In some areas, the Thieu-Huong government has made important progress toward effective constitutional democracy; it must also be said that they have often proved less than skillful in handling problems affecting youth and the press and a few dissidents such as Truong Dinh Dzu. Corruption has been cut back and the attack continues, but it still remains a deep rooted cancer.

17. On the military side, we must note that despite his failures and defeats, the enemy still has some capability of building up for further costly offensives, in the hope of wearing down our determination to see the war through. His ability to withdraw to sanctuaries in Laos, Cambodia, and North Viet Nam gives him a great advantage if this is his purpose. Nobody could tell us as of the end of September to what extent Hanoi believes its own propaganda about our losses and how they assess the likelihood of important American concessions in Paris. While we objectively judge their military situation to be very bad, they may subjectively still judge it to be good enough to hold out for American concessions.

18. Finally, the basic question is are we making progress, are we gaining or losing ground? In Viet-Nam, an assessment is doubly difficult because the very nature of the way makes defining victory or defeat so much more complicated than in most conflicts. I have outlined the progress for the last three months, the trends as I see them, and the remaining problems. After adding all of the factors, the pluses and minuses together, and making allowances for the imponderables, I can only say that I feel optimistic about this situation; that the steady, though not spectacular progress I have previously noted has continued and accelerated. The tide of history now seems to me to be moving with us and not against us; and I believe that if we persevere, this bitter war will serve to prevent future, broader conflicts.

B. Political

19. When I wrote the summary for the first six months of 1968, the Huong government was still so new in office that it was difficult to say much about its performance. Now, with only a little over four months to judge by, it is still early to come to firm conclusions, but I think it may be useful to draw up a tentative balance sheet.

20. Perhaps the first item on the plus side of the ledger is the increase in popular support which Huong brought to the government. He has a substantial personal following in the South. More important, his image as an incorruptible, tough, paternal figure has not suffered after four months in power. If anything, his speeches, his travels, and his public acts have brightened the image.

21. Huong has his detractors and his political opponents, and the Vietnamese public remains perhaps the most skeptical in the world. At the very outset Huong faced stiff opposition from the Revolutionary Dai Viets, some Northern Catholic elements, and some of the cliques around Vice President Ky. Ky himself predicted that the Huong government would not last long.

22. Huong’s opponents adopted the tactic to trying to label Huong soft vis-à-vis the NLF and pro-Communist elements. Huong cut the ground from under them, not without some political cost, by firing Doctor Phan Quang Dan and by taking a very tough line with students and the press. The trial of Truong Dinh Dzu and the Alliance leaders was in part this kind of response to the pressures Huong felt from his political enemies.

23. However regrettable some of these moves from our point of view, they at least proved effective in terms of Vietnamese domestic politics. Barring unforeseen events, such as a turn in the Paris talks considered unfavorable to the GVN, there seems no immediate danger that Huong’s opponents can generate any significant degree of popular pressure for a change in government. On the contrary, recognizing that their tactics have been unprofitable, the leaders of the Revolutionary Dai Viets have recently decided to moderate their opposition stance.

24. Probably the second most important plus for the Huong government is the anti-corruption drive. This effort pre-dates the Huong government, and it is due at least as much to President Thieu’s support as to Huong’s determination to clean up the government. With the sometimes free swinging support of the Assembly and the local press, Huong has given the fight against corruption new impetus and new prominence.

25. Among Huong’s first moves against corruption was the revitalization of the executive Inspectorate system by placing it under Minister of State Mai Tho Truyen. Truyen’s office is charged with investigating charges of corruption and documenting them. Truyen had told us that his staff cannot keep up with the volume of complaints they receive. A more recent administrative anti-corruption measure was the creation in August of anti-corruption committees in every province and municipality. They are specifically charged with inventing and implementing measures that will make corruption more difficult and less profitable. Also in August, the Huong government directed all civil servants to declare their property holdings, including the property of their wives, children, and parents.

26. Huong has continued Thieu’s earlier efforts to remove corrupt officials, particularly province chiefs, and replace them with more honest and more able men. Since Tet, 23 of 44 province chiefs have been changed and the government has made known its intention to replace four more; while many of these were not relieved for corruption, the majority of those whom we had reason to consider notoriously corrupt were among the men removed. In the past such offenders were often not prosecuted or otherwise punished even though they were fired for corruption. In September the Huong government not only announced the removal of three province chiefs “in order to push forward vigorously the anti-corruption campaign” but also stated that two of them would be prosecuted for corruption.

27. The replacement of General Loan as Director General of Police by Colonel Tran Van Hai has also been important in reducing corruption. Petty graft and shake-downs by police have long been among the most visible and annoying forms of corruption from the point of view of the average citizen. Hai has removed, punished, and disciplined literally hundreds of police and police officials in an effort to end these practices. We have several reports that indicate he has in fact made significant inroads on this politically important kind of corruption.

28. The Huong government should also get credit for several meas-ures designed to realize Huong’s belief that the government must make sure that the Constitution is applied and that all citizens are equal under law; in effect, to reestablish the government’s authority. Among the more important of these moves was the effort to liberalize the processing of civil prisoners. Dismayed by the number of persons being held without charge in jails throughout the country, Huong ordered the formation of special committees to screen all such prisoners within a minimum time period. Prisoners were either to be charged and tried or released promptly. Huong himself visited a number of prisons to follow up his orders. The result is that several thousand illegal detainees have been released, and the police system generally brought more into line with the guarantees written into the Constitution.

29. The most notable beneficiary of Huong’s move to free or try illegal detainees was Thich Tri Quang and several of his followers. These An Quang leaders had been put under “protective custody” after the Tet attacks. With Thieu’s blessing, Huong acted to release them. This move not only dramatized the government’s confidence and determination to support legal forms, but in Vietnamese eyes it also placed Tri Quang under a public obligation which makes it more difficult for him to attack the Huong government directly.

30. In line with this policy, Huong has also pressed Thieu to permit General Duong Van Minh to return to Viet Nam. At the end of the quarter Thieu took the decision, in part I believe also at my encouragement, and Big Minh returned to Viet Nam October 5. While Minh has so far avoided all efforts to identify him with the government or any opposition group, his return is widely regarded as a wise and liberal measure. I also hope that in the future Big Minh’s considerable popularity can be brought to bear in support of the GVN and against the Communists.

31. The Huong government should also be given credit for pressing the civil defense program forward vigorously. After Vice President Ky dropped this project, Huong and his Ministers picked it up. With our encouragement, Huong designated August self-defense month, and as I noted in the general section, well over 650,000 men and women are now enrolled in self-defense units.

32. There are other areas in which the Huong government has registered achievements. These include his travels and speeches aimed at preparing the population for the coming political contest with the Communists. (He has specifically tied the self-defense organization to this need in a number of his speeches. Along with Thieu, Huong has worked hard to win a public acceptance of a negotiated settlement and the imperative need for political unity against the Communists in the peace that is coming.) While not temperamentally inclined to an easy relationship with the Assembly, Huong has succeeded in working well with Assembly leaders. Huong is also generally credited with increasing the efficiency of the Cabinet and the Ministries. He has focused bureaucratic attention on the priority problems and applied pressure for results.

33. On the negative side, despite real progress, the Huong government still has a long way to go in winning positive popular support, eradicating corruption, reforming the civil service and breathing more vigorous life into the democratic forms which the Constitution outlines. The major shortfalls as well as the major accomplishments are in those areas; it is not that Huong has not done well, but that there is so much to do and that time is so short.

34. The Huong government’s dealing with the press and students has been mixed. Although one of the first acts of the Huong government was to lift censorship, it then proceeded to mete out suspensions and fines to some papers for false reporting and failing to take guidance on some issues. Criticism has not been stifled by any means, but the government has made clear that the press is not to print any story which may undercut the GVN position on peace, negotiations, or the prosecution of the war. Similarly, the Huong government has dealt sternly with some left-leaning student leaders which may have alienated some of the politically minded students who constitute the usual minority of the student body.

35. There were also the trials by a military court of the Alliance leaders and Truong Dinh Dzu. While these trials probably strengthened the government internally—certainly they caused virtually no expressions of opposition—especially Dzu’s conviction had a most unfortunate effect on the GVN image abroad. I think it is also fair to say in this connection that in general the Huong government has been preoccupied by its internal problems to the point where very little has been done to promote its interests in the international sphere.

36. To sum up, I think the Thieu-Huong alliance has resulted in a government that is more popular, more effective, and more stable than any since the early years of the Diem regime. Nevertheless, the GVN faces monumental tasks; it must redouble its efforts if it is to succeed in forging the national unity and the strong institutions which are likely to be essential for success in the future political war with the Communists.

C. Military

36. When the third quarter began, it appeared that the enemy was prepared to launch a series of attacks against Saigon, Banmethuot, the eastern DMZ area, the Hue-Quang Tri area, and the area southwest of Danang. Allied forces aggressively disrupted this effort, engaging the enemy wherever possible, penetrating his base areas, and breaking up his logistics system.

37. Air strikes and artillery contributed significantly to the effort. B-52 strikes proved particularly effective. One Hoi Chanh who rallied on 22 September near Kontum City stated that air strikes had left only 40 survivors out the 450 assigned personnel in the 4th Battalion of the 24th Regiment. Recent evidence indicates that the B-52 strikes have caused serious damage to the enemy in all four corps tactical zones, and that the psychological impact on his morale has hurt his fighting ability.

38. The enemy was kept off balance, and when he finally launched what he termed his “third offensive” on August 18, he was unable to achieve any of his major objectives. He was defeated in sharp engagements at Tay Ninh, near Danang, and at the Duc Lap CIDG camp. He was forced to abandon his plans for an attack on Banmethuot, and although Saigon was rocketed on the night of August 22, the capital was never threatened by a ground attack.

39. Enemy activity peaked near the end of August and declined steadily in September. Our forces continued to pursue the enemy in September, inflicting further casualties and capturing very large quantities of weapons and supplies. By the end of the quarter, the threat had been met and defeated by allied counter-offensive actions. Enemy activity, for the most part, was reduced to attacks by fire against population centers and military installations, an increasing number of terrorist acts, interdiction of friendly LOC’s and attempts to avoid battle with organized friendly forces.

40. The threat has not been eliminated. The enemy’s access to sanctuaries across South Viet-Nam’s borders is a tremendous advantage should he decide to rest and regroup for a new offensive thrust. But the capability of the enemy to achieve his objectives has been reduced. By moving aggressively in the pacification field to take advantage of this opportunity, we can strike a severe blow at his longer-term capabilities.

41. Enemy losses this quarter were again very heavy. Enemy KIA during what he calls the third phase offensive were over 23,000—nearly as great as that inflicted during the May-June attacks. Enemy forces lost vast quantities of arms and supplies as they were driven back and were hence unable to protect their logistics system. During the period January-September, we have taken from caches almost 8,500 weapons (over 900 crew-served), and over 700 tons of ammunition.

42. RVNAF also continued to expand and improve its combat performance during this quarter. On June 30 RVNAF had approximately 765,000 men under arms. This was an increase of 120,000 over the level of January 1. At the end of this quarter, the RVNAF strength had increased to about 825,000, a jump of nearly 60,000 men in a period of only three months. Total armed forces in this country, as I said above, are now well over the million mark. This would be the equivalent, on our much larger population base, of an American force of 18 million men.

43. The RVNAF is also fighting better. MACV reports that ARVN forces have gained self-confidence through their victories in recent months, and show encouraging signs of aggressiveness in the conduct of their operations. The increase in firepower of GVN units resulting from issuance of the M-16 rifle and M-60 machine gun has caused a substantial change in the soldier’s attitude toward closing with the enemy. Now, armed with a weapon better than the enemy’s he has frequently sought contact with enemy main force units and shown less reluctance to accept casualties in order to decisively engage and defeat the enemy. Large unit leaders have displayed a new aggressiveness, and junior officer and NCO leadership have shown improvement, although certain units are still plagued by serious problems of leadership and training.

44. While it is difficult to quantify such matters, I call your attention to the conclusions reached by systems analysis of the Department of Defense in a study published in the September issue of Southeast Asia Analysis Report. It showed that since March of this year, ARVN battalions have been 56 percent as effective as US battalions in killing the enemy versus 48 percent during 1967. It concluded that this better performance by ARVN is equivalent to getting the output of an additional 16 US battalions against the enemy. The improved performance plus the increased RVNAF size have added the equivalent of almost 200,000 Americans between 31 December 1967-31 August 1968. This is the more impressive when one remembers the great difference in artillery and air support which the US forces receive. A separate study in the same systems analysis publication showed that per man, the US soldier in a maneuver battalion gets more that ten times the rounds of artillery supporting a Vietnamese in a tactical unit. I don’t have a comparable figure for air support, but we know the Vietnamese get much less.

D. Pacification

45. July-August 1968 saw a stepped up trend in pacification recovery from the post-Tet low. According to the hamlet evaluation system, the rate of improvement was the sharpest of any three month period since the HES started in January 1967. September HES figures just available indicate a one percent countrywide increase in relatively secure population, bringing the total recovery to seven percentage points in six months.

46. Almost 67 percent of SVN’s 17.5 million population is now regarded as relatively secure, thus practically erasing the Tet setback. If we look at rural population only, the same trend is evident. Relatively secure rural population has now reached 51.3 percent of the countrywide total. Contested rural population declined to 22.8 percent, and VC controlled rural population to 25.9 percent, by the end of September.

47. While the improvement in pacification prospects is attributable partly to enemy losses and emerging weaknesses, much must also be ascribed to favorable developments in several pacification areas—particularly improvement in RF/PF and in the attack on the VC infrastructure.

48. MACV’s long-standing efforts to improve the neglected RF/PF are finally beginning to pay off. Their weaponry has been significantly upgraded, and more is in prospect as we begin the issue of M-16s. By the end of the third quarter 1968, RF/PF strength had reached 386,000, the highest ever. This rapid expansion caused a temporary shortage in officer and NCO cadre, but in August-September this gap began to be filled. Operational results for August (September data is not yet available) show that RF unit operations increased by 8,000 over July (16 percent) and contacts with the enemy increased by 300 (22 percent). PF unit operations increased by 7,600 (9 percent) and contacts by 330 (26 percent). The RF/PF killed 77 percent more enemy in August that in July, while their own KIA increased by 47 percent. We see no reason why this trend in RF/PF improvement should not accelerate.

49. The second notable development in July-September 1968 has been the coming of age of the attack on the VC infrastructure. Thieu gave the Phung Hoang program his personal blessing in July and Minister of Interior Khiem has been energetically pushing it. By the end of September the number of key district intelligence and operations centers had risen to over 200. We estimate that in 1968 to date between 9,500 and 10,000 VCI have been neutralized—either killed, captured, or rallied. It has taken a long time to get this program well organized and effectively operating on the GVN side, but the program has finally reached the point where it should make an increasingly vital contribution to pacification.

50. The GVN also continues to put in stronger leadership at the key district and province level. What was once the exception has now become the rule. Most province or district chiefs whom we recommend for relief are removed—if not always quickly, at least when “conditions” are right—a second province and district chiefs training course will graduate on 19 October. Minister Khiem has asked for our up-to-date list of poor province and district chiefs for his use in placing the new graduates. Police Chief Hai, the Chieu Hoi Minister and Refugee Minster Lu-Y have also acted rapidly over the past few months to remove corrupt and/or ineffective chiefs of police and technical serv-ices in the provinces. We count this upgrading as one the of biggest pluses in pacification.

51. Chieu Hoi returnee rates remained steady during the quarter; during July-September some 4,669 ralliers came in. In view of the increased enemy activity during August, including seven attacks on Chieu Hoi centers in the last week of August alone, the rates are considered favorable.

52. Another area of significant improvement is civilian self-defense, which indicates growing popular identification with the national government. According to GVN figures for end-September, the total number of participants in self-defense activities of all types was 658,934. Of these, 239,264 had received training, and 58,318 had been issued weapons. Popular enthusiasm was fostered by designating August as self-defense month. High-level GVN personalities participated in self-defense ceremonies and it was used to gain popular participation. The traditional reluctance of the government to put weapons in the hands of the people is gradually changing. Some local defense groups have performed well against enemy attack and they are an increasingly valuable source of intelligence.

53. As the quarter ends, the most promising development is the across-the-board pacification offensive now laid on for November-January. It calls for upgrading the security status of 1,000 contested hamlets, a major Phung Hoang campaign to eliminate 3,000 VCI a month, a special effort to rally 5,000 Chieu Hoi returnees, a campaign to increase popular self-defense groups to over one million people, and a major psywar campaign. The purpose is to galvanize the GVN pacification effort, and if we achieve even half of these ambitious goals it will be a powerful shot in the arm. Thieu is energetically pushing the offensive, and has accepted the proposals of our pacification advisors. Their initiative is commendable. Despite the many continuing problems in this most difficult of all Vietnam programs, pacification is back in stride and the outlook more favorable than in months if not years.²

E. Economic

54. The economic situation in the third quarter began to shift slowly away from the pattern of the first half. The rise of spending, the size of the public deficit, and the monthly increase in money supply all fell off as the impact of mobilization passed its peak. Heavy import licensing ($42.9 million compared to $31.4 million during the previous quarter) showed renewed confidence. The increase in prices (about 30 percent so far this year) has not yet reflected the increase in money supply (up to 50 percent). With confidence slowly but steadily returning, there will almost certainly be further price increases in the last quarter of the year.

55. The rural economy moves toward pre-Tet levels of activity as transportation routes were generally open and a plentiful supply of goods available. At the same time, prices of many items bought by farmers rose while farm income remained below the level of the previous year, largely because of the situation in the rice trade. That situation was characterized by depression paddy prices paid to the farmer, low retail prices in Saigon, large quantities of paddy stored in delta rice mills and unsold on farms, and excessive stocks of imported rice in Saigon. On October 11, the Prime Minster told me that the government had decided to cut the present subsidy on imported rice in half, i.e., that the price of imported rice should be permitted to rise. Since the price of imported rice tends to set the market price, this will assist farmers. The impact on urban living costs should not be significant. The Prime Minister said the Cabinet would make a full report to President Thieu on economic matters in a few days. Announcement of action on the rice subsidy and other economic matters should follow soon thereafter.

56. During the quarter, USAID continued our efforts to promote economic recovery and growth. More than 21,000 hectares of IR-8 and IR-5 rice during the first crop planting from April through August. Sample average yields are five tons compared to two tons for local varieties.

57. A new program involving the training and use of village officials was initiated to accelerate the distribution of government-owned rice land. It appears that the government’s goal of distributing 70,000 hectares by December 1968 will not be reached until April 1969; however, the December deadline was generally regarded as overly ambitious. With respect to land tenure in areas where VC “land reform” has been carried out, I have continued to urge President Thieu to develop and announce a national policy which would give present occupants title to such land if possible, and exempt them from back rents and taxation. He spoke favorably of such a policy during a recent trip I made with him to Ba Tri (where the government has received control of a formerly VC held area), and he has told me he will follow up on it. It would have to be coordinated with land tenure policy in GVN-controlled areas, and the problem of compensation for former landlords must be worked out, but these things can be done.

58. Despite a five month work stoppage caused by the Tet and May attacks, the hamlet school program for 1968 is almost on schedule. Eighty-five to ninety percent of the allocated classrooms (2,495) and 100 percent of the teacher training (3,238) will have been completed by year’s end.

59. USAID also participated in the reconstruction of some 100 industrial plants damaged by the Tet and mini-Tet attacks. The GVN has provided one billion piasters and USAID $10 million for this purpose. These funds will permit long-term, low interest loans under the administration of the GVN’s industrial development center which is technically assisted by the USAID industry division. The GVN grant is already over 70 percent obligated while the US Government grant is approximately 40 percent obligated.

Bunker

1. Source: National Archives and Records Administration, RG 59, Central Files 1967-69, POL 27 VIET S. Secret; Immediate; Nodis. Received at 8:50 a.m. Repeated to Paris for the Vietnam Mission. This telegram is printed in full in Pike, ed., The Bunker Papers, Vol. 2, pp. 600-611.
2. On October 21 Rostow transmitted to the President a report dated October 16 on the pacification counter-offensive. (Johnson Library, National Security File, Country File, Vietnam, 1C(4), Revolutionary Development Program) The President indicated his approval for a major land reform program in South Vietnam on an October 18 memorandum from Rostow. (U.S. Army Center for Military History, DepCORDS/MACV Files, Land Reform-LBJ)