PROBABLE DEVELOPMENTS IN VIETNAM TO JULY 1956

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01012A005900030001-5
• Release Decision: RIFPUB
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• Document Creation Date: December 27, 2016
• Document Release Date: July 8, 2013
• Sequence Number: 1
• Publication Date: October 11, 1955
• Content Type: NIE

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NIE 63.1-3-55
11 October 1955
NATIONAL INTELLIGENCE ESTIMATE
NUMBER 63.1-3-55
PROBABLE DEVELOPMENTS IN VIETNAM
TO JULY 1956
Submitted by the
DIRECTOR OF CENTRAL INTELLIGENCE
The following intelligence organizations participated in the
preparation of this estimate: The Central Intelligence Agency
and the intelligence organizations of the Departments of
State, the Army, the Navy, the Air Force, and The Joint Staff.
Concurred in by the
INTELLIGENCE ADVISORY COMMITTEE
on 11 October 1955. Concurring were the Special Assistant,
Intelligence, Department of State; the Assistant Chief of
Staff, G-2, Department of the Army; the Director of Naval
Intelligence; the Director of Intelligence, USAF; and the
Deputy Director for Intelligence, The Joint Staff. The Atomic
Energy Commission Representative to the IAC, and the Assist-
ant Director, Federal Bureau of Investigation, abstained, the
subject being outside of their jurisdiction.
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CONFIDENTIAL
PROBABLE
PROBABLE DEVELOPMENTS IN VIETNAM TO JULY 1956
THE PROBLEM
To estimate the prospects for the development of a Vietnamese government with
the capability to defend itself against internal subversion and uprisings and with
sufficient authority and administrative ability to deal adequately with the many prob-
lems facing it, including those posed by the Geneva Agreements.
CONCLUSIONS
1. Since he became Premier in July 1954,
Ngo Dinh Diem has made considerable
progress toward establishing the first ful-
ly independent Vietnamese government.
Nevertheless, the capability of the South
Vietnamese to develop an effective gov-
ernment which can survive during the
next few years is still in doubt. (Paras.
9, 12)
2. Assuming Diem survives and provided
he continues to receive wholehearted US
support, we believe he will probably be
able to cope with non-Communist dissi-
dent elements and to remain in office dur-
ing the period of this estimate. More-
over, providing the Communists do not
exercise their capabilities to attack across
the 17th Parallel or to initiate large-scale
guerrilla warfare in South Vietnam, Diem
will probably make further progress in
developing a more effective government.
(Para. 54)
3. Diem will almost certainly not agree
to hold national elections for the unifica-
tion of Vietnam by July 1956. Although
Diem, under pressure from the Western
Powers, might reluctantly agree to in-
direct consultations with the DRV con-
cerning elections, he would -insist on con-
ditions which he felt certain the Commu-
nists would be unable to accept. Aware
that such a position will probably cause
the Viet Minh to increase their efforts to
destroy his government, Diem will prob-
ably seek to bind the US more specifically
to the defense of Vietnam. (Para. 49)
4. The Viet Minh, despite their relative
quiescence, present the greatest potential
threat to Diem. Should the Viet Minh
elect openly to invade the south with
regular forces, they are capable of de-
feating the VNA and any French forces
(if committed) now present in South
Vietnam. Moreover, with an estimated
10,000 military personnel in South Viet-
nam, the Viet Minh have the capability
to undertake local sabotage and terrorist
actions, and small-scale but widespread
guerrilla warfare. The Viet Minh can re-
inforce these forces by infiltrating into
South Vietnam. The Viet Minh appar-
ently exerts political influence in many
areas scattered throughout South Viet-
nam. (Paras. 24, 27-29)
CnKirinct\ITIA I
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5. We believe that the Viet Minh, at least
until July 1956, will probably continue
to concentrate primarily on a "political
struggle" designed on the one hand to
exert pressure for implementation of the
Geneva Agreements and on the other to
bring to power in the south political per-
sonalities amenable to coalition govern-
ment with the Viet Minh. Their tactics
will probably be to maintain and in-
crease their influence in the villages,
hamper government administration, dis-
credit Diem and the government, to sub-
vert the command elements in the VNA,
and to infiltrate and incite dissident
groups ? particularly elements of the
sects ? to oppose the government. (Para.
31)
6. However, the Communists probably
estimate that unless they effectively chal-
lenge the position of the Diem govern-
ment the latter will gradually strengthen
and stabilize its position. They might de-
cide, despite the presence of the Inter-
national Control Commission, to initiate
small-scale but widespread guerrilla war-
fare in the south, provided such action
was consistent with over-all Bloc policies
and provided they estimate that such ac-
tion would not provoke Manila Pact coun-
teractions. (Para. 30)
7. Should the Viet Minh initiate large-
scale guerrilla operations supported by
substantial infiltration from the north,
the South Vietnamese government would
be hard pressed to do more than maintain
control in the Saigon-Cholon area and in
a few other major urban centers. If the
operation were prolonged, the govern-
ment probably could not survive without
military assistance from outside. (Para.
36)
8. While the French will continue to seek
to salvage as much as possible of French
commercial and cultural interests, we be-
lieve French interests and influence in
South Vietnam will progressively decline
during the period of this estimate. Ex-
cept for training personnel, possible air
and naval bases, and perhaps some token
forces, the French will have withdrawn
the bulk of the FEC by July 1956.
French forces remaining in South Viet-
nam will almost certainly not be com-
mitted against the Viet Minh, except in
self-defense or possibly as part of a mul-
tilateral Western action. (Paras. 40, 51)
DISCUSSION
I. INTRODUCTION
9. When Ngo Dinh Diem was appointed Pre-
mier by Chief of State Bao Dai in July 1954,
he faced a basically unstable and deteriorat-
ing situation. In the area under the admin-
istration of the Vietnamese government, the
population of some 12 million was war-weary,
lacked a sense of identification with the Na-
tional government, and was divided by re-
gional loyalties and religious opinion. Their
principal concern was to better their economic
position and preserve their newly-found peace.
The most significant articulate political senti-
ment of the bulk of the population was an
antipathy for the French combined with a
personal regard for Ho Chi Minh as the sym-
bol of Vietnamese Nationalism. The small
educated minority who were concerned with
national politics, were primarily power seek-
ing opportunists. The existence of armed
politico-religious sects contributed to the dif-
ficulties of establishing central government
authority throughout South Vietnam. Many
French were still trying to preserve their
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vested interest in the economic and political
life of the country and the French govern-
ment feared that the establishment of an
effective anti-Communist government in the
south might involve French forces in renewed
fighting with the Viet Minh. The prospects
were made even darker by the ease with which
the Viet Minh appeared to be consolidating its
control of the north.
10. In this situation Diem was forced to move
slowly. Although possessing considerable na-
tional prestige as a patriot, he was inexperi-
enced in administration and was confronted
at the outset by the intrigues of Bao Dai and
other self-interested individuals and groups,
who in many cases benefited from French
support. Moreover, the loyalty of the army
to the central government was in doubt and
General Hinh, its Chief of Staff who also held
a commission in the French Air Force, was
openly maneuvering for political power. The
national police and security services were
commanded by Bay Vien, the leader of the
Binh Xuyen gang who had bought them from
Bao Dai in April 1954 and who was hostile to
Diem. Finally, Diem was handicapped by a
lack of trained administrators at the national
and provincial levels.
11. In the difficult and confused situation
confronting the national government, Diem
concentrated on eliminating or neutralizing
the most important groups and individuals
challenging the authority of his government.
He successively excluded General Hinh and
Bao Dai from the political scene, won the sup-
port of the army, and established the inde-
pendence of his government from French in-
fluence. By bribery, persuasion, and finally
force, Diem virtually eliminated the Binh
Xuyen and the most important elements of
the Hoa Hao sects as threats to his authority.
At the same time, he maneuvered the Cao Dai
? the strongest of the sects ? into an uneasy
alliance. As a result of these successful ac-
tions, Diem gained prestige and increased
popularity as a symbol of Vietnamese inde-
pendence.
12. Nevertheless, the success of Diem's efforts
to establish a viable anti-Communist govern-
ment in South Vietnam is still in doubt. Al-
though Diem has established control over the
apparatus of government, he has dealt only in
part with such fundamental problems as: (a)
the development of an effective administra-
tion, particularly on provincial and local
levels; (b) the institution of a popularly-
sanctioned constitutional basis for the re-
gime; (c) the elimination of armed opposi-
tion and the extension of government authori-
ty throughout all areas of South Vietnam; (d)
the suppression of Viet Minh military and po-
litical capabilities remaining in South Viet-
nam; and (e) the restoration of the economy.
II. THE INTERNAL POLITICAL AND SECURITY
SITUATION
The Deem Government
13. At present, Diem's greatest assets are his
reputation for honesty and unsullied nation-
alism, his control of the Vietnamese National
Army, and the moral and financial support of
the US. In addition, Diem has gained con-
siderable popular following, especially in ur-
ban centers and in recently pacified areas and
has the loyalty of the refugees from North
Vietnam. However, should he lose army or
US support, his regime would probably col-
lapse.
14. Diem also has the sympathy and in many
instances the active support of the estimated
1,000,000 Catholics in South Vietnam (in-
cluding about 500,000 Catholic refugees from
the north) , who represent an anti-Communist
core with considerable political potential.
'However, in order to avoid aggravating the
religious issue, Diem, a Catholic, has been
careful not to appear to champion the Cath-
olic cause.
15. Diem is still in the early stages of organi-
zing a political machine. His cabinet is com-
posed primarily of loyal technicians who lack
political stature, Most well known political
figures of the pre-Diem period have been al-
ienated by Diem's unwillingness to trust them
and by his insistence that unquestioned ac-
ceptance of his leadership is the only basis
for cooperation. Diem has depended heavily
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on his unpopular brothers for advice and en-
trusts them with positions of great responsi-
bility. His tendency toward "one man rule,"
his dependence on his brothers for advice, and
his rejection of Vietnamese leaders whom he
does not trust, has denied his government
many of the few trained administrators.
16. Although Diem has established firm con-
trol over the army and security forces, he has
not established internal security. This fact,
coupled with his failure to organize his gov-
ernment effectively, has been largely respon-
sible for the delay in the implementation of
promised reforms in government procedure
and agrarian policies. Projects for agricul-
tural development and land reform, under the
guidance of US advisors, are still largely in
the planning stage. Even with US assistance
and its own best efforts, the Diem govern-
ment has completed only about 47,000 hous-
ing units accommodating approximately 40
percent of the 650,000 refugees from the
north. Diem has made some progress in in-
creasing the number of villages under the
administrative guidance of the central gov-
ernment. Civic action teams, composed of
representatives of the various ministries,
have been trained and sent out to villages in
about 10 provinces.
17. Diem has made a considerable effort to
galvanize mass popular support behind his
program. Initially, he concentrated on ex-
ploiting popular antipathy for Bao Dai and
the French; more recently he has sought to
develop strong anti-Communist sentiment.
Although there have been instances of un-
controlled manifestation of popular anger
and xenophobia, Diem has on the whole suc-
ceeded in keeping popular passions within
bounds.
18. Diem and his advisors are currently plan-
ning a three-phase program to obtain a pop-
ular mandate for his regime and eventually
to form a representative assembly in South
Vietnam: (a) an early referendum for a
simple public choice between Diem and Bao
Dai as Chief of State; (b) a referendum on a
new constitution coupled with elections at the
communal and municipal levels; and (c)
elections by the end of 1955 for a national as-
sembly with limited powers. To what extent
this process will be carried through will de-
pend largely on Diem's judgment as to his
own appeal in the south and the extent of
Communist influence. The formation of a
representative body may be delayed into 1956.
Non-Communist Opposition
19. The Cao Dai, the most powerful of the
sects, aspires to political control of South
Vietnam and is potentially Diem's most im-
portant non-Communist opposition. It con-
trols a sizeable rural area and has a relatively
cohesive religious following of some 1,500,000
Vietnamese, including a trained army of
about 15,000. While the Cao Dai spiritual
leader, Pope Pham Cong Tac, has cooperated
with other sect leaders opposing Diem, most
Cao Dai military leaders have supported
Diem. General Phuong, the Commander-in-
Chief of Cao Dai forces and probably the sect's
most influential political leader, has entered
into an agreement with the government to
integrate the bulk of his troops into the VNA
and to disband the remainder. However,
Phuong has continued to intrigue to obtain
better terms and the agreement still has not
been fully implemented.
20. During the spring and summer of 1955,
the Cao Dai sought to become the major po-
litical force in South Vietnam by attempting
to capture control of the Revolutionary Com-
mittee (RC). This committee was formed
during the spring of 1955 at the time of the
Binh Xuyen crisis. It resulted from a mer-
ger of followers of Diem's brother Nhu, Cao
Dai generals The and Phuong, and Hoa Hao
General Ngo, all of whom sought to use the
force of nationalism to serve their own po-
litical ends. It is likely that much of the
extrri-e nationalist activity of the Commit-
tee during April and May of 1955 reflected
Cao Dai efforts to undercut Diem and to give
the RC the political initiative. However,
Diem's supporters have thwarted Cao Dai
efforts.
21. During the period of this estimate, in-
tegration of Cao Dai forces into the VNA will
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probably continue. This process may be
marked by considerable political jockeying
and some local armed flare-ups may occur.
Because Phuong and other Cao Dai leaders
lack popular support, we do not believe they
will elect to resist Diem by force. Should
they adopt such a course, we believe they
would not pose a major threat to the con-
tinued existence of the government. How-
ever, the effort to suppress their forces would
disrupt army training and divert attention
from other critical tasks including the sup-
pression of the Communists.
22. Although the Binh Xuyen and some ele-
ments of the Hoa Hao sect still retain the
power to wage guerrilla warfare in limited
areas, the government by force and bribery
has drastically reduced the potential of these
groups to challenge its authority. The fol-
lowing is the disposition of the four principal
forces of the Hoa Hao: Ba Cut's unit is be-
lieved to be reduced to about 1,000, who are
scattered and in hiding after evading VNA en-
circlement; Soai's group has been badly .disor-
ganized as a result of VNA operations and
probably does not now total more than 1,500;
Nguyen's force of some 2,500, though osten-
sibly rallied to the government, is in fact
neutral; and Ngo's unit of some 3,000 is co-
operating with the government. The Binh
Xuyen have probably ceased to be an effec-
tive force following the recent VNA operation
against their swamp hideout. However, the
remaining forces of Bay Vien, Ba Cut, and
perhaps Soai will probably continue to oppose
the government during the period of this esti-
mate and may be tempted to cooperate with
the Viet Minh.
23. Most of the other political groupings are
opposed to Diem and are composed primarily
of intellectuals and political opportunists.
They have little popular following. While
these groups will continue to maneuver for
position in an effort to secure power, we be-
lieve the majority will gradually come to
terms with Diem as they become convinced
that he cannot be removed by political ma-
neuvers.
5
Communist Opposition
24. The Communists pose the ultimate threat
to the independence of South Vietnam. The
Communist regime in North Vietnam possess-
es a far stronger army, a more experienced ad-
ministration, greater cohesion of leadership,
and greater drive than the government of
South Vietnam. However, we do not believe
there will be a direct test of military and
political strengths during the period of this
estimate. Considerations of over-all bloc
strategy and apprehension concerning possi-
ble US intervention will almost certainly pre-
vent an open Viet Minh attack. On the other
hand, Premier Diem will almost certainly not
agree to a test of relative popular strengths in
national elections.
25. The struggle, therefore, will be indirect.
On the Viet Minh side it will be carried out
by their agents now in South Vietnam, by the
combined resources of Bloc diplomatic and
propaganda facilities, and possibly by troops
infiltrated across the 17th Parallel.
26. Since the cease-fire and the subsequent
evacuation of most Viet Minh military units
to the north, the Communists in South Viet-
nam have concentrated on methods of "politi-
cal struggle" designed on the one hand to
exert pressure for nationwide elections accord-
ing to the Geneva Agreements, and on the
other to infiltrate and subvert the institutions
of Free Vietnam with a view to bringing to
power in the south political personalities who
would be amenable to a coalition government
with the north.
27. We have little intelligence on Viet Minh
strength, activities, and intentions in South
Vietnam. We estimate, however, that in
South Vietnam there are about 10,000 armed
Viet Minh military personnel in addition to
an unknown number of political cadres and
several Communist front groups. Military
personnel are probably organized as skeletal
units. Unit locations are not fully known,
nor is the identity of their leaders. However,
the strongest groups and most extensive activ-
ity appear to be centered in the coastal moun-
tains of Southern Annam, the interior moun-
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tains of Central Annam, the Plaine des Joncs
area adjacent to Cambodia and the Laotian
borders, and in the Ca Mau region of Cochin-
China. These elements are probably engaged
in intelligence activity, organizational and
training functions, and in protecting local
headquarters and base areas. They are also
probably encouraging and perhaps assisting
those Binh Xuyen and Hoa Hao forces in con-
tinued opposition to the government. Avail-
able information indicates that the Viet Minh
in South Vietnam retain a continued capabili-
ty for armed action and for a campaign of
mass intimidation, assassination, sabotage,
and terrorism.
28. The Viet Minh probably exercises effective
political control only in areas which are un-
derpopulated and in which the government
has made no attempt to establish its own ad-
ministration. These include pockets in the
plateau and foothill areas of South-Central
Vietnam, the Camau peninsula in the extreme
southern part of Vietnam, and the Plaine des
Joncs in Cochin-China. The Viet Minh also
probably exerts influence in rural areas where
government administration is present but still
ineffective. In urban areas where national
government control is greatest, the Viet Minh
are working primarily through front organi-
zations, such as labor unions, social service,
and "peace" groups.
29. There appears to be little Communist in-
filtration in the higher echelons of the Viet-
namese National government or the army, but
there are indications of fairly extensive pene-
tration of lower units of the administration,
possibly including regional and provincial
governments, and almost certainly the village
councils. With respect to the South Vietnam
politico-religious sects, recent information
from Vietnamese sources suggests growing
and probably successful Communist efforts to
penetrate the factions of these sects which re-
main hostile and in armed opposition to the
government.
30. The Communists are confronted with a
serious dilemma in their campaign to estab-
lish Viet Minh control over South Vietnam.
They probably estimate that unless they effec-
tively challenge the position of the Diem gov-
ernment the latter will gradually strengthen
and stabilize its position. Moreover, they have
probably concluded that Diem will not agree
to elections or unification schemes which
would favor the Communists. Under these
circumstances the chances for a Communist
take-over of the south by means short of open
force might decline. On the other hand, the
Communists also probably realize that the use
of force against South Vietnam ? either
through open invasion or by infiltrating suffi-
cient troops across the 17th Parallel to insure
a successful "liberation" ? would jeopardize
current Bloc peace policies and risk provoking
US intervention. In addition, the Commu-
nists may not presently have sufficient
strength in South Vietnam quickly to over-
throw the Diem government and may there-
fore estimate that to undertake widespread
guerrilla warfare without substantial infiltra-
tion from the north might lead not only to
the weakening of their exposed organization
in the south but also to a drastic loss of public
support.
31. We believe that until July 1956 the Com-
munists will follow a course of action which is
primarily political. They did not seize upon
the crisis of last spring to initiate guerrilla
warfare and their propaganda pronounce-
ments from Hanoi appear to direct their
followers in the south to continue their politi-
cal actions. Their objective appears to be the
preservation of their pose as the defenders of
Vietnamese unity and independence and as
the supporters of the provisions of the Geneva
Accords. In the south, they will probably
work in both the villages and urban centers
to exploit local grievances, to hamper and sab-
otage government administration and reform,
to subvert the command elements in the VNA,
to discredit Diem as a nationalist, to encour-
age dissident groups in armed opposition
against the government, and to increase sup-
port for plausible Communist proposals for
unification. By these measures, which may
involve terrorism and violence short of con-
certed guerrilla action, the Viet Minh could
seriously hamper government efforts to ad-
minister the rural areas. They would prob-
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ably hope by this tactic to force a change in
the government of South Vietnam or to de-
velop widespread antipathy toward Diem.
32. However, the Communists might, despite
the presence of the ICC, decide to initiate
small-scale but widespread guerrilla warfare
in the south, provided such action was con-
sistent with over-all Bloc policies and provided
they estimate that such action would not pro-
voke US counteraction. The Communists
presumably would be less fearful of US inter-
vention if they believed that they could con-
duct successful guerrilla operations with suffi-
cient support from the south to make unnec-
essary obvious and extensive support from the
north.
III. VIETNAMESE MILITARY AND SECURITY
SERVICES
33. The Vietnamese National Army (VNA)
has an estimated strength of 147,000, exclu-
sive of some 8,000-10,000 sect forces in the
process of integration. The VNA is composed
of 159 combat battalions, including 148 in-
fantry-type, 2 armored, and 9 artillery battal-
ions. As a result of recent reorganization
most of the battalions have been regrouped
to form 4 field infantry divisions; 6 light
infantry divisions; 13 territorial regiments;
and 3 independent infantry regiments. The
remainder of the battalions are independent.
The larger elements generally are still in the
formative stage, and are not yet operational.
The Vietnamese government hopes to increase
the VNA to a strength of 200,000, whereas
current US-approved force levels, including air
and naval forces, call for a total strength of
about 150,000 by July 1956.
34. In recent operations against sect forces,
the VNA displayed major weaknesses in staff
work, particularly in logistics, and the tactical
control of units was poor. Since October 1954,
several key VNA officers have been purged,
and much of the present army leadership is
new. Time will be required for the new team
to "grow" into their positions, but with experi-
ence and the scheduled training of VNA offi-
cers in US service schools, the army leader-
ship should improve gradually.
7
35. The morale of the VNA has risen sharply
as a result of its operations against the boa
Hao and Binh Xuyen dissidents. This factor,
together with the halt in demobilization and
the firm nationalist stand of the government
against the French, has given the VNA a new
sense of independence and confidence.
36. Despite the VNA's lack of experience and
training, it probably has the capability of
maintaining the government in power against
potential armed opposition now located south
of the 17th Parallel, and of maintaining con-
trol of major urban centers and lines of com-
munication. Should the Viet Minh initiate
a major guerrilla operation supported by sub-
stantial infiltration from the north during the
period of this estimate, the government would
be hard pressed to do more than maintain
control of Saigon-Cholon and a few? other
major urban centers. If the operation was
prolonged, the South Vietnamese government
probably could not survive without military
assistance from outside. Provided US assist-
ance is continued, and conditions permit the
implementation of planned reorganization
and training programs, the VNA in another
two years should be able to maintain a large
measure of internal security even in the event
of considerable infiltration of guerrillas from
the north. Moreover, against external aggres-
sion, it should be able at that time, with out-
side naval and air support, to provide a 60 day
delay in withdrawing to the general vicinity
of Ban Me Thuot ? Dalat ? Nha Trang, and
to conduct a defense for some months of the
Saigon-Cap St. Jacques area.
37. Vietnam has a small air force with an
over-all personnel strength of about 3,000 (in-
cluding 78 trained officer and enlisted pilots,
90 pilot trainees, and approximately 1,100
other skilled and semi-skilled personnel) , and
an aircraft strength of about 100 liaison/train-
ing and transport types. The Vietnam Air
Force (VNAF) has minor capabilities for per-
forming artillery observation, target spotting,
battle area liaison, and air evacuation mis-
sions. No significant increase in VNAF capa-
bilities is expected during the period of this
estimate although a larger and more effective
VNAF is planned for the next 2-3 years. Any
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substantial increase in air force capabilities
will depend primarily upon the training
and re-equipment programs of the US spon-
sored Training Relations Instruction Mission
(TRIM) and MAAG.
38. The Vietnam Navy is under operational
control of the Chief of Staff of the VNA and
under the administrative command of a sen-
ior naval officer. Its naval component con-
sists of 1,618 men, with a Coast Guard of 82
men and a Marine Corps of 2,470 men. In
addition, 550 Vietnamese serve with the
French Naval Forces, Far East, on a con-
tractual basis. The naval component pos-
sesses 1 submarine chaser (PC) , 3 coastal
minesweepers (MSC (0) ) , 7 amphibious ves-
sels (1 LSSL, 2 LSIL, 4 LCU) , and 49 smaller
amphibious and patrol craft. The Vietnamese
Navy has limited effectiveness, but is capable
of undertaking river patrol, and minor coastal
and amphibious operations. Both the navy
and marines depend upon foreign logistic sup-
port, and will require considerable additional
training before they can perform effectively.
39. The Vietnamese National Police, under
new and apparently more effective leadership,
consists of about 4,500 men, at least half of
whom are in the Saigon-Cholon area. Con-
siderable improvement in the morale, equip-
ment, and effectiveness of these forces is likely
during the period of this estimate. A Civil
Guard is currently being organized through a
merger of former provincial guards, local
militia, and suppletif elements under the cen-
tral direction of the Minister of Interior.
This organization with an estimated 65,000
men still lacks cohesion, skills, and necessary
equipment. Of these, 25,000 will be trained
under a US program now being instituted.
40. The French Expeditionary Corps (FEC)
has been reduced to a strength of about 45,-
000, because of concern for the-North African
situation, a general loss of interest in South
Vietnam, and Vietnamese pressures. Nego-
tiations are now proceeding between South
Vietnam and France concerning the future
role and status of the French military in
South Vietnam. Unless the Vietnamese de-
8
mand the withdrawal of all French forces,
the French may continue to maintain some
token forces in South Vietnam. In particu-
lar, the French will probably seek to retain
naval and air bases in South Vietnam. The
principal missions of the FEC at the present
time are to protect the ICC in Vietnam and
French nationals and property. Only some
token forces now remain in the vicinity of
the 17th Parallel. The FEC will almost cer-
tainly not be committed against the Viet
Minh, except to protect itself or as part of a
multilateral Western action. The French will
continue to provide training facilities for VNA
personnel in France and will also probably
continue to participate, although reluctantly,
with the US in training the VNA in Vietnam.
In addition, the French will probably com-
plete the turnover of depots and installations
to the VNA.
IV. ECONOMIC
41. Vietnam's economic position has not im-
proved in the past year. Formidable basic
economic problems still confront the govern-
ment. The country is dependent on foreign
aid to finance imports and the defense budget.
Acreage under cultivation is still far below
prewar levels and the position of the peasant
needs to be improved. There are also serious
immediate problems. Despite adequate pro-
duction of rice for domestic consumption,
distribution and marketing difficulties have
forced a dramatic rise in the price of this
commodity in the large urban centers. Un-
employment is rising as a result of the closing
of the French enterprises and military in-
stallations and is aggravated by the demo-
bilization of VNA and sect armed forces.
These problems may come to have significant
political effects and add to instability in the
months to come.
42. Rice output, Vietnam's principal resource,
is roughly 2,100,000 metric tons for the cur-
rent crop year, representing virtually no gain
over recent years and little more than half
of pre-World War II production. This level
should provide a small export surplus of 150,-
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000 to 200,000 metric tons. The dislocations
of war, and the continued lack of security in
many rural areas have left one-third of the
prewar rice acreage uncultivated. Rice, rub-
ber, and other exports earn $94,000,000 a year,
which pays roughly for only one-third of
South Vietnam's imports. US aid is now the
major source of foreign exchange for the area.
43. Local resources are expected to cover
about 30 percent of the estimated 1955 nation-
al budget of $521,000,000. US military and
economic assistance is programmed at about
$325,000,000 which will cover most of the bal-
ance. The French now provide only about
$34,000,000 in foreign aid and this will prob-
ably diminish as their military forces are with-
drawn.
44. France continues to be the chief source of
imports and French capital still controls the
bulk of manufacturing and plantation agri-
culture. However, Franco-Vietnamese eco-
nomic ties are weakening because of mutual
mistrust and suspicion and the shift to direct
US dollar aid. Vietnam's Foreign Exchange
Office has limited franc imports and has cur-
tailed the flow of remittances to France. The
new Vietnamese tariff schedule continues the
traditional preferential rates for France, but
at sharply reduced levels. Under these con-
ditions, French enterprises will curtail the
scale of their operations and general trade re-
lations between France and South Vietnam
will not improve.
45. Vietnam is also losing its traditional trade
within Indochina. Cambodia, which formerly
used the port of Saigon to channel its imports
and exports, is becoming increasingly oriented
toward Thailand as the result of new rail and
ferry facilities. Moreover, trade with Cam-
bodia has been curtailed since the dissolution
of the Indochinese customs and monetary
unions at the end of 1954. Relations between
these countries have also been troubled by the
failure of South Vietnam to turn over Cam-
bodia's full share of the custom receipts col-
lected by the Indochinese customs. Tradi-
tional trade with North Vietnam has also been
disrupted primarily because of Vietnam's self-
imposed restrictions.
46. Improvement in economic conditions in
South Vietnam will depend largely on the
success of government efforts to deal with
such problems as unemployment, land tenure,
rural credit, currency reform, foreign com-
mercial relations, and the recreation of a rice
surplus for export. The Diem government
has recently established a new central bank,
initiated independent control over foreign ex-
change resources, and undertaken develop-
mental planning. The government probably
will be successful in permanently settling size-
able numbers of refugees, in initiating effec-
tive import policies, and in regularizing its
trading relations with Cambodia and Laos.
However, institutional reforms and other pro-
grams designed to alleviate the economic sit-
uation will not pass beyond preliminary stages
during the period of this estimate.
47. Despite economic stagnation in Vietnam,
the situation is unlikely to become critical so
long as US aid continues. On the other hand,
there is little prospect of sufficient improve-
ment in economic conditions to provide a
strong stimulus to popular support for the
government.
V. EXTERNAL FACTORS
48. Recognizing that his regime is dependent
on US aid and support, Diem will probably
continue to follow a foreign policy marked by
cooperation with the US. At the same time,
Diem's foreign policies will bear the mark of
strong independence of action, and may fre-
quently lead him to misunderstandings with
his closest allies. Diem will continue to urge
the development of effective defense mechan-
isms under the Manila Pact, while seeking
diplomatic support through wider recognition
of his government, particularly in Asia.
49. In stubbornly refusing to recognize or ad-
here to the terms of the Geneva Agreements,
Diem has shown little sensitivity to world
opinion. He is probably concerned by Indian,
British, and French pressures, with which the
US has been to some degree associated, to hold
election consultations and publicly declare his
cooperation with the ICC. But he is fearful
of the possible effect that consultations might
have on public opinion and on his public sup-
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port. He clearly believes that any recogni-
tion of the DRV as a "government" in the
north would have adverse political conse-
quences. Consequently, although Diem will
attempt to moderate the disfavor of the ICC
and the Geneva powers, he will probably con-
tinue to resist external pressures to hold con-
sultations. However, under pressure from the
Western Powers and Asian neutralists, Diem
might reluctantly agree to some form of indi-
rect consultations, but in such circumstances
he would vigorously press for conditions
which he felt certain the Communists would
be unable to accept. Aware that his position
will probably cause the Viet Minh to increase
their efforts to destroy his government, Diem
will probably seek to bind the US more specif-
ically to the defense of Vietnam.
50. Because he recognizes that the continued
presence of the International Control Com-
mission in Vietnam exerts some deterrent
force on possible Communist designs, Diem
will probably continue a grudging and re-
luctant cooperation with that body. How-
ever, he will reject any efforts by the ICC to
inject itself into the question of elections in
Vietnam, even if his refusal should lead to the
departure of the ICC from Vietnam.
51. The French have decided to withdraw the
bulk of their forces from South Vietnam and
to reduce their financial contributions to the
Vietnamese government because of commit-
ments in North Africa, popular sentiment in
France, and Vietnamese pressures. While
the French will continue to seek to salvage
as much as possible of French commercial and
cultural interests, we believe French interests
and influence in South Vietnam will progres-
sively decline during the period of this esti-
mate. The French will probably continue to
give no more than lip service to the imple-
mentation of the Geneva Agreements. In
any case, they will attempt to avoid involve-
ment of French forces in renewed hostilities
or internal disorders. While the French gov-
ernment will give its verbal support to the
Diem government, it will in fact cooperate
with the latter and with the US in Vietnam
only grudgingly.
52. India's principal objectives toward Viet-
nam will be dictated largely by its concern to
prevent the outbreak of hostilities in the area.
To effect this, India will attempt to imple-
ment the terms of the Geneva Agreements.
This policy may lead India into conflicts with
the Diem government and may lead India to
propose the dissolution of the ICC in Vietnam.
However, India's policy toward South Vietnam
is likely to be moderated to the extent that
Diem succeeds in establishing a strong and
popular regime and replacing Ho Chi Minh as
the symbol of nationalism in Vietnam.
53. Canada, though a member of the ICC
along with India and Poland, has consistently
supported US efforts to establish a strong
anti-Communist government in the south and
may be expected to continue to follow a policy
generally parallel to that of the US in the area,
even in the event of the break-up of the ICC.
The UK, on the other hand, has had pro-
found misgivings as to the strength of the
Diem government and the wisdom of Diem's
policies. Because of its position as co-chair-
man of the Geneva Conference on Indochina
and because of its deep fears of a renewal of
hostilities in the Indochina area, the UK has
consistently urged upon Diem a technical
compliance with the Geneva provisions. The
UK will continue to press Diem to urge gen-
uinely free elections in an effort to take the
initiative away from the DRV and force it to
accept the onus of rejecting adequate election
guarantees. Indications are that if Diem
continues to refuse even indirect consulta-
tions, the UK will probably not join in provid-
ing Diem with external protection should
South Vietnam be attacked from the north.
VI. OUTLOOK FOR THE DIEM GOVERNMENT
54. Assuming Diem survives and provided he
continues to receive wholehearted US sup-
port, we believe he will probably remain in
office during the period of this estimate.
Moreover, provided the Communists do not
exercise their capabilities to attack across the
17th Parallel or to initiate large-scale guer-
rilla warfare in South Vietnam, Diem will
probably make further progress in developing
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a more effective government. His position
will probably be strengthened as a result of
increased popular support, the continued
loyalty of the VNA, and a deterioration in the
strength and cohesiveness of his non-Com-
munist opposition. The national government
will probably increase the number of rural
communities under its control, particularly in
areas now held by the sects. However, Diem
will probably have advanced little beyond the
preliminary stages in his social and economic
reform programs. Moreover, should Diem
for whatever reason be eliminated from the
scene, a period of extreme political instability
11
would almost certainly follow. Such cir-
cumstances might produce a successor more
amenable to a. rapprochement with the Viet
Minh.
55. Viet Mirth elements in South Vietnam will
continue to control or influence remote areas
and to hamper government action in the pro-
vinces. The Viet Minh capability to infil-
trate personnel and arms into South Vietnam,
and to reinforce Communist and potential dis-
sident elements will remain the most serious
threat to the establishment of a viable and
stable national government in the south.
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WARENT?
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