THE VIET CONG ECEONOMY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78S02149R000100270012-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 9, 2016
• Document Release Date: March 12, 1999
• Sequence Number: 12
• Content Type: REPORT

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A. Economic Organization
The Viet Cong have successfully developed and expanded an
economic organization to meet the basic task of funding VC
revolutionary activity. The economic organization, operating
through the Finance and Economic Section of the People's
Revolutionary (Communist) Party, is assisted by the National
Liberation Front and Communist military eomponentsin acquiring,
transporting, and storing within South Vietnam almost all the
non-military supplies required by the VC. During the past five
years, the VC economic organization has expanded with the
development of VC forces. Starting as a local self-production
unit, the economic structure progressed, first into a voluntary
fund. drive, then, into a more formally organized financial
mechanism. and, finally into an organization actively supporting
enlarged base and battlefield requirements.
Taxation is the principal means used by the VC to acquire
financial and material resources within South Vietnam. Agri-
cultural taxation remains the most important source of VC tax
receipts, accounting for approximately 80 percent of all tax
revenues, and is clearly dependent on continuing VC access to
or some measure of control over the rural population. The VC
currently exercise predominant political influence over 25 to 30
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percent of the rice-cultivated area of South Vietnam, which
produces between 700,000 and 950,000 metric tons of rice per
year. Annual consumption of rice by Communist regular forces
theoretically could be obtained by an average tax of about 3
percent of total production in VC areas alone. The VC, however,
usually tax at a substantially higher level (10 to 15 percent).
This is necessary to build up rice reserves for the increasing
number of communist troops, to replenish stocks destroyed by
Allied Military Operations, to help feed the large number of
non-main force troops, as well as to cover the purchases of
other food and non-food items. There is no indication that
resentment by the rural population against taxes of this
magnitude has reached levels adequate to stop rice collections.
Plantation taxes -- either in money, goods or services -- continue
to be collected and are an important source of supply for VC
forces, particularly in the northern III Corps. In addition to
taxes on agriculture, taxes are collected on internal trans-
portation, business establishments, and commercial activities.
These provide about 20 percent of all tax revenues.
VC-initiated economic activities, seizures, and clandestine
operations supplement VC tax receipts. Bond drives, food pro-
duction, and simple manufacturing units have been initiated by
the VC to support military personnel. Significant supplies of
war booty continue to be accumulated by the VC. Clandestine
front business operations and discreet purchases by civilians
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acting for the VC,, provide access to resources from GVN-controlled
areas, including imported manufactured goods.
VC use of Cambodia as a source of non-military supplies has
increased significantly since late 1965, although the main source
of VC supplies still comes from within South Vietnam.. One
important commodity reaching the VC from Cambodia is rice.
Estimates of VC requirements for rice in the deficit areas of
the Highlands of South Vietnam. and for the Communist infiltration
network of southern Laos indicate that 20,000 metric tons and
possibly as much as 30,000 metric tons of Cambodian rice may
have reached VC/NVA forces from late 1965 through 1966. Although
local Cambodian civilian and military officials probably are
aware and possibly involved in shipping rice to the VC, the
extent of central government involvement is difficult to determine.
In addition to rice, the VC are acquiring in Cambodia significant
quantities of explosive chemicals, communications equipment,
pharmaceuticals, gasoline, cloth, salt, fish and fish sauce.
B. The Economic Impact of Increased Military Pressure
The build-up in VC/NVA forces in South Vietnam during
the last year has placed a heavy strain on VC logistical
operations. Confirmed VC/NVA main force streng`g has more than
doubled since mid-1965 -- from 18,000 then to a current strength
of 105,,000. Whereas guerrilla personnel, like the civilian
population, are expected to be self-sufficient in basic supplies,
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main force units require extensive logistical support. Food
supplies, especially rice, remain the principal bulk commodities
required by these forces. For example, regimental main force
units are directed to maintain at least a one-month reserve of
rice. The entire increase in main force strength has been
recorded in rice-deficit areas, namely I and II Corps and
northern ITLCorps. There has been little, if any, increase in
VC main force strength in the rice-surplus IV Corps where VC
logistical requirements for food supplies are relatively small.
With the concentration of VC/NVA main force strength in I
and II Corps and in northern III Corps, annual rice requirements
clearly exceed the total rice production under VC control in the
provinces of Pleiku, Kontum, Phu Bon, the western districts of
the coastal provinces of Central Vietnam, and the rice-deficit
areas of VC military region VII. In all of these areas, there
is evidence that the VC are experiencing food supply problems.
For example, a recently captured document cited the logistical
difficulties experienced by the VC during an early 1966 campaign
in rice-deficit Quang Duc Province. Since the VC did not have
sufficient rice for its own provincial force VC regional forces
assigned to the campaign were required to arrange their own rice
supply "through the border," presumably the Cambodian border.
During the course of the campaign, one-third of VC combat strength
was diverted to the transportation of rice.
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The increase in allied military action has continued to
hamper the VC logistical system. Allied military actions have
had an adverse effect on agricultural production in VC controlled
areas and on the percentage of the harvest that the VC can acquire
and transport to their base areas. The area covered and percentage
of crop harvested in these rice-harvesting operations is not re-
ported, and no reliable aggregative estimate of their impact is
possible. Even with continued VC access to rice-producing areas,
however, the VC face a second major difficulty in transporting
this commodity. The bulk of this movement has been carried out
by civilian laborers, but as the tempo of military activity has
increased the danger of involvement in military action has caused.
serious disaffection among the VC controlled population. A
third major difficulty caused by allied military activity has
been the disruption caused by allied destruction of VC supply
caches.
C. Manpower Recruitment
The South Vietnamese population in VC controlled areas is
at least 3.5 million people and could be as much as 5 million
people depending on the extent to which the VC have access to
contested areas. Most of the VC controlled population live in
the delta region. This controlled population probably contains
some 500,000 physically fit young males. An additional 30,000
to 35,000 youths annually become old enough to fight. In
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addition to this controlled population, the VC also draw on
the population of military age in contested areas, on GVN
deserters and on recruits from urban areas.
An increasing requirement for manpower during 1965 and
1966 forced the VC to resort to forced conscription, returnee
programs, and various inducements to obtain local personnel.
With these new methods the VC were able to attain a significantly
higher level of local recruitment -- over 80,000 in 1965 compared
to 30,000 to 40,000 annually during 1961-64+. It is estimated
that the VC have a capability in 1966 to recruit and train some
7,000 to 10,000 personnel a month.
Recruitment at this scale must be regarded as close to
the maximum. capabilities of the VC, particularly if these
recruits are to receive adequate training. There have been
increasing signs of a growing squeeze on VC manpower during
1966. This is reflected in the growing dominance of North
Vietnamese troops as the VC/NVA force expands. There are also
frequent prisoner reports of manpower shortages and the poor
quality and training of new recruits.
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A. Background
Among South. Vietnam's many economic problems, inflation is
most likely to influence the political situation in South
Vietnam. For more than a year, South Vietnam has been gripped
by a severe inflation primarily caused. by heavy US and GVN
spending for war operations. Greatly increased demand has not
been matched by increased. output, nor have imports bridged, the
gap. By June 1966, the inflationary process had reached such
critical proportions -- the cost of living was 75 percent above
the January 1965 level -- that the GVN was forced to devalue its
currency by 50 percent in order to absorb excess purchasing
power and drive down black market rates for dollars and gold.
The immediate results of these measures were encouraging.
Prices rose, as expected, about 25 percent during July and then
held fairly steady at this new higher level during August and
September. In October, prices actually declined slightly. More-
over, black market rates for dollars and gold moved down well
below the rates prevailing in June and July and continued to
hold steady at these lower levels.
It appeared, therefore, that a modicum of economic stability
had been achieved. Beginning in late October, however, the cost
of living began to edge up again, and during November prices were,
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on the average, about 7 percent above the October level. Even
more ominous was the fact that the price of rice -- a commodity
that accounts for 13 percent of the Vietnamese working class family
budget -- began to increase steadily and by mid-November reached. a
new 1966 high, which was 25 percent above the average September
price and 32 percent above the level prevailing just prior to the
June devaluation.
B. Prospects
Although the rise in the cost of living in November apparently
stemmed from supply and demand developments in specific commodities
most notably rice and pork -- there are a number of more basic
threats that could send the inflation soaring again. Among these
are increased US and GVN spending, the Saigon regime's inability
to increase agricultural production, and port congestion. In view
of this situation, the US is now vigorously attempting to secure
GVN agreement to a 1967 economic stabilization program that would
impose strict piaster ceilings on both US and GVN spending. The
ceilings proposed by the US would probably result in at least a
20 percent increase in the cost of living in 1967 -- a tolerable
increase. Whether the line can be held at these levels, however,
is subject to considerable doubt.
In order to improve agricultural production, the US is
attempting to gain GVN approval of a new rice price policy that
would include raising the price of rice in order to provide an
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incentive to the farmer to increase production. The new policy
should be implemented before the harvest of the new crop begins
this month in order that benefits of higher prices will accrue
to the farmer and favorably influence next year's rice production.
Otherwise, higher rice prices would result only in urban dis-
satisfaction without improvement in the rural attitude toward
the government or the desired increase in production. Although
some GVN officials appear to have finally developed a sense of
urgency on this issue, no final agreement has yet been reached..
Another element essential for the maintenance of relative
economic stability in 1967 is the continuation of an adequate
flow of imports into South Vietnam. Sufficient inflows of com-
modities will depend primarily on a significant improvement in
Saigon port operations. Although the port situation has improved
somewhat over the past several months, the ability to pass the
necessary tonnages through the port still is far from assured.
A further complicating factor will be the ability of the GVN to
move commodities within the country to points where they are
needed, an operation that has been greatly impeded not only by
insecurity but also by GVN administrative weaknesses.
In brief, continued inflation is to be expected. If, how-
ever, the GVN can be persuaded to take forceful action in the
areas outlined above, the increase in prices probably can be
held within tolerable limits.
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C. Political Implications
Inflation has significant implications for political stability
within the GVN. A large segment of the Vietnamese work force has
been caught in the squeeze between fairly stable incomes and rapidly
rising prices. This is particularly true of Vietnamese civil
servants and military personnel. The result has been a lowering
of morale and a rise in corruption among underpaid government
employees. Moreover, although the effects of the inflation
probably fall most heavily on the urban lower and middle classes --
the most likely potential sources of political unrest -- the rural
areas also have suffered. Higher prices in the provinces result
not only from the inflation but also from. disruptions in the supply
and distribution system.
In general, inflation has increased dissatisfaction with the
GVN and in addition, has provided a basis in everyday experience
for Viet Cong anti-GVN and anti-US propaganda. Illustrative of
the continuing Viet Cong effort to focus attention on GVN economic
problems is a recent lengthy Viet Cong radio commentary that
pictured the GVN economy near bankruptcy, small business on the
verge of collapse, and, prices constantly rising. Moreover, the
Viet Cong in IV Corps are currently expounding the theme that
the expected arrival of US troops in the Mekong Delta will drive
prices up further in that area. It appears likely that if the
proposed economic stabilization plan for 1967 does not succeed.
and prices resume their previous rapid rise, the GVN will be
faced, with widespread popular discontent.
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