Foreign Relations of the United States, 1969–1976, Volume VIII, Vietnam, January–October 1972

137. Memorandum From Philip A. Odeen of the National Security Council Staff to the President’s Assistant for National Security Affairs (Kissinger)¹

Washington, May 8, 1972.

SUBJECT

• Vietnam Economy

As the enemy offensive continues, its impact on the Vietnamese economy intensifies. It still appears that the GVN will be able to keep the short-term inflation problem under control and overcome other immediate problems. Nonetheless, some short-term actions on our part are needed. John Bushnell, my economics expert, is currently in Saigon. I have had several calls from him and Chuck Cooper, the Economics Counsellor, to discuss needed action.

The GVN is planning a series of steps to boost taxes and encourage public support of the war effort through bond sales. But before they act, they wish to be sure prices, particularly rice, are under control.

This memorandum examines the immediate steps that need to be taken and gives you a status report on the longer term issues.

Short-Term Impact

The offensive has had two different short-term impacts. First, it has led to pressure on price levels in South Vietnam. In part this is due to uncertainty and speculation and in part to shortages of matériel, food, and other supplies caused by the war. The second impact is to increase GVN budget costs. The large numbers of refugees (now estimated at over 700,000) will generate substantial expenditures, there will be recovery and reconstruction costs and added military expenditures.

Steps are already underway to cope with these problems.

• —PL–480 rice is being sent to Vietnam. Thirty thousand tons will be sent to Saigon over the next two months to build government stocks and keep rice prices from increasing sharply. This is the top priority short-term action according to Cooper. PL–480 sales will also generate additional counterpart funds which the South Vietnamese can use to meet war costs.
• —DOD is increasing its expenditures in Vietnam. Secretary Laird’s letter of May 2, 1972 (Tab B)² reported on the planned DOD program for FY 1973 which developed in response to NSDM 154.³ This will divert approximately $30 million in additional spending into Vietnam during the second half of this year and another $30 million during the first half of next year.

While these steps will help, there are other measures which can be taken. One is to find some way to reduce the impact of the supporting assistance funds being diverted to Jordan from the South Vietnamese program. Unfortunately, South Vietnam has only recently been notified that their supporting assistance allocations for FY 1972 were to be reduced by some $6.5 million in order to free funds for Jordan. This notification came after the North Vietnamese offensive began, at a time when the South Vietnamese were seriously concerned over increased spending and the need for additional help. Even though the reductions were small, the psychological impact was adverse. Another aspect is that the role of Ngoc, the Economics Minister and one of the most effective members of the GVN, has been undermined. He is known as a close associate of the Americans and the man who is able to get our support when required. This reduction is a blow to him.

While the amount of money is small, I believe it would be very useful to find some way to at least reduce the scope of this cut. Even if it were only reduced to half, it would be a good move at this time. AID has agreed to defer the implementation of this reduction temporarily. This will give us time to see if we can find ways to restore some or all of the cut.

Longer-Term Program

The impact of the current offensive on the South Vietnam economy over the next several years will be serious. It has dealt a severe blow to GVN efforts to encourage exports since rubber and timber, two of the prime exports, have been directly affected by the offensive. In addition, interest in longer term development by the South Vietnamese and outside investors has been reduced to almost zero. Prior to the offensive, interest in longer run development projects was beginning to build and there were reasonable prospects for substantial and growing private investment in the future. The outcome of the current battle will certainly influence investment prospects. But even if it comes out well, the psychological impact will deter investment for an extended period.

The implications are that substantial U.S. aid is going to be required for South Vietnam for a long time. Even rapid economic development would not permit the level of U.S. aid to drop sharply. Current events will make future reductions much more difficult.

As you will recall when we began this current round of Vietnam economics studies last December, a two-part effort was directed. The short-term study looked at the current year and resulted in NSDM 154. The second part was a longer term study looking at Vietnam economic prospects and our aid requirements for the next five years. That study is well along and John Bushnell’s current trip to Vietnam will help us wrap it up. I expect that in June, after your Moscow trip, we will be in a position to address the longer run economic issues.

Recommendations

Enclosed is a brief memo to Secretary Laird thanking him for the DOD work supporting our economic support for SVN during CY 1972. In addition to stressing the importance of this support, it approves the program as submitted.

Recommend signature on memo to Secretary Laird (Tab A).⁴

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–231, National Security Decision Memoranda, NSDM 154. Confidential. Sent for action. Haig initialed for Kissinger. Copies were sent to Holdridge and Richard Kennedy.
2. Attached but not printed.
3. Document 29.
4. Kissinger signed the attached memorandum and sent it to Laird on May 19.