THE ECONOMY OF SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79S01091A000300030001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 27
• Document Creation Date: November 9, 2016
• Document Release Date: March 3, 1999
• Sequence Number: 1
• Publication Date: March 1, 1973
• Content Type: BOOK

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DIRECTORATE OF
INTELLIGENCE
Intelligence Handbook
The Economy of South Vietnam
ER H 73-1
March 1973
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or r~:velation of its contents to or re-
ceipt by an unautho:'ized person is prohibited by law.
Classified by 015319
Exempt from general
declassification schedule of E.O. 11652
exemption category 5B(12,(2),(3)
Autc,matically declassified on
Dota Impossible to Determine
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CONTENTS
Page
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . 1
Population and Labor Force . . . . . . . . . . . . . . . . . . 4
Land and Resource Base . . . . . . . . . . . . . . . . . . . . 7
Transportation . . . . . . . . . . . . . . . . . . . . . . . . 8
Domestic Trade and Finance . . . . . . . . . . . . . . . . . 11
Domestic Trade . . . . . . . . . . . . . . . . . . . . . 11
The Financial System . . . . . . . . . . . . . . . . . . . 11
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . 12
Industry . . . . . . . . . . . . . . . . . . . . . . . . . 15
Government Finance . . . . . . . . . . . . . . . . . . . . 16
Foreign Trade and Aid . . . . . . . . . . . . . . . . . . . . 19
1. Labor Force, 1972 . . . . . . . . . . . . . . . . . . . . . . 7
2. Output of Selected Agricultural Products . . . . . . . . . . . . 13
3. Output of Selected Industrial Products . . . . . . . . . . . . . 16
Figures
1. Gross National Product . . . . . . . . . . . . . . . . . . . 2
2. Population . . . . . . . . . . . . . . . . . . . . . . . 5
3. Administrative Divisions and Military Regions . . . . . . . . . . 6
4. Land Use, 1972 . . . . . . . . . . . . . . . . . . . . . 8
5. Land Utilization and Vegetation . . . . . . . . . . . . . . . 9
6. Production, Exports, and Imports of Milled Rice . . . . . . . . 14
7. Yanmar Agricultural Machinery Plant in Bien Hoa Industrial
Park and Yanmar Machinery for Sale in Ban Me Thuot,
Darlac Province . . . . . . . . . . . . . . . . . . . . . 17
8. Government Budget . . . . . . . . . . . . . . . . . . . . 18
9. Value of Foreign Trade . . . . . . . . . . . . . . . . . . 20
10. Composition of Imports . . . . . . . . . . . . . . . . . . 21
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Khong
6don.e
'Ra nl
Wan a
Chamra p
1(opong Chhnng
nh Linh L OH
Demarcation Line '
South Vietnam
0 25 50 75 Miles
I'I 0 25 ' 50 75 Kilometers
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
March 1973
INTELLIGENCE HANDBOOK
THE ECONOMY OF SOUTH VIETNAM
INTRODUCTION
1. This handbook is designed to serve as a reference for basic
economic information on South Vietnam and complements one recently
published on North Vietnam.1 For easy comparison, some basic economic
data for both countries are presented on the last page of this handbook.
Most of the data included in this handbook are unclassified and are based on
information released by the South Vietnamese government and the various
US government agencies represented in South Vietnam. Estimates were made
in instances where data were unavailable or incomplete.
2. With a per capita gross national product (GNP) of about US $120,
South Vietnam ranks above other countries of Indochina but significantly
below most other less developed countries of Southeast and East Asia.
Despite wartime destruction and disruption, South Vietnam's GNP has
grown at a respectable rate since 1964. In large part, this has been the result
of the growth of government services and construction associated with
military activities. Agricultural production declined during the peak war
years of 1965-68, while industrial output continued to expand until 1968,
1. See CIA ER 11 72-2, The Economy of North Vietnam, December 1972, CONFIDENTIAL/NO
FOREIGN DISSEM.
Note: Comments and queries regarding this publication are welcomed. They
may be directed to of the Office of Economic Research,
Code 143, Extension 6202. 25X1A9a
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when plant damage from the enemy's Tet offensive caused a sharp decline.
During 1969-71, there was substantial recovery and growth in both
agriculture and industry, but the North Vietnamese offensive brought
growth to a halt in 1972.
:3. As a result of the rapid expansion of government expenditures, the
services sector of the economy currently accounts for more than half of
national output in what is basically an agricultural country (see Figure 1).
Agriculture, including fishing and for-
estry, contributes only about one-third to Figure 1
national output, although it employs Gross National Product
60% o he labo
h
r ------
11101 e t
an
dustry runs a poor third, accounting for 1972
~
an estimated 12% of GNP and about 5%
of the labor force.
4. The years of war have badly
distorted resource allocation in South
Vietnam's economy, but have also
brought some important new assets. The
growth of the private sector was buffeted
by changing security cond.tions and con-
515431 3-73
strained by the induction of large num-
rime-age males into the armed
bers of
p
forces. Exports were nearly wiped out, and dependence on imports increased
greatly. The country shifted from a surplus to a large deficit in food. A
greatly increased urban population had to be supported largely through
imports, which in turn created an appetite for modern imported consumer
goods. Because of the avai: ability of relatively cheap imports, manufacturing
became largely a matter of processing imported raw materials. On the other
hand, gains to the economy included large-scale training of the population in
new skills and a fairly elaborate infrastructure in the form of ports, airfields,
and roads. Moreover, most of South Vietnam's productive facilities came
through the war with little damage.
5. The war also had a dramatic impact on monetary developments.
During 1965-72, consumer prices in Saigon increased nearly 900% and the
money supply more thar. 600%. The growth of demand, fed by massive
defense spending, greatly outstripped the productive capabilities of the
South Vietnamese economy. Even with large-scale foreign aid, there were
many goods and services for which the increase in demand could not be met
by imports. As a result, inflationary pressures were severe, although not
nearly so severe as in Souta Korea during the Korean War.
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6. Although many of these pressures are still present, there has been a
significant slowdown in the rate of price increases since 1970. This has been
due in large part to various economic reforms, including the adoption of
realistic-and fairly flexible-exchange rates and higher interest rates and the
relaxation of controls on domestic and foreign trade. Compared with annual
increases ranging from 30% to 55% during 1965-70, consumer prices rose
14% in 1971 and 24% in 1972.2 Although the 1972 performance shows
some deterioration, it nonetheless should be considered quite good in view
of the many supply disruptions caused by the offensive and the increasing
cost of imports with successive devaluations and higher world market prices.
7. Inflation and certain government policy decisions have effected a
major redistribution of income in South Vietnam since 1965. The real
incomes of some groups have declined substantially. Military personnel and
civil servants, who once were the top salary earners, have fallen well behind
their counterparts in the private (non-agricultural) sector, and they have
suffered an absolute decline in real income in recent years as their wages
failed to keep pace with rising prices. Income from other family members
helped to offset the decline for several years, but opportunities for increased
family employment have diminished with the withdrawal of US forces. While
urban households in general have either held their own or suffered a decline
in real income, the income of farmers, at least in the Mekong Delta, has risen
substantially since 1969. Farmers have benefited from rising yields, low
fertilizer prices, generally good procurement prices, and a near absence of
taxation. There are, of course, thousands of rural inhabitants who, as
refugees, have not shared in this relative prosperity.
8. Despite the upheavals and distortions caused by the war, South
Vietnam has potential for rapid private sector growth. The basic questions
are how to expand production, stimulate exports, and reduce dependence on
imports without severely depressing per capita private consumption. In the
past year or so the government has begun to cope with some of these issues
by offering general incentives such as devaluations, an attractive investment
law, tax reform, and broad planning guidance to private-sector interests. The
governnent, however, probably will continue to be heavily involved in many
activities usually reserved for the private sector. Some investment projects
will be too large for private interests to undertake, and there is considerable
prejudice against the ethnic Chinese community, the largest and most
dynamic element in the private sector.
9. For the foreseeable future, South Vietnam will be heavily
dependent on foreign capital (principally in the form of official aid) to
sustain its present living standards. Some 95% of its imports in 1972 were
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financed either by US payments for local transactions or by outright US
assistance. Other countries have shown a growing interest in providing
economic support to Soui:h Vietnam, but there is likely to be an enormous
gap between their support and South Vietnam's requirements.
Population and Labor For(-,e
10. South Vietnam has never had a national census. Sample surveys
over the years indicate that the population is about 19 million and has been
growing about 3% annually. Probably about three-fourths of the population
is below the age of 40, and females slightly outnumber males.
11. Almost two-thiris of the population lives in the flat southern half
of the country. Most of the remainder is concentrated along the narrow
coastal strip running front north of Saigon to the Demilitarized Zone (see
Figures 2 and 3). Saigon is the largest urban center, with a population
estimated at about 3 million for the entire metropolitan area. With more
than 400,000 persons, Di Nang is the second largest city, and there are
several cities throughout the country with populations of roughly 200,000.
12. Although the population is still predominantly rural, there has
been a fairly large migration from rural to urban areas since 1964. This
movement stemmed largely from the intensification of military operations in
the countryside and the job opportunities created by the US military
buildup. In addition, the expansion of the armed forces was accompanied by
a flow of military dependents to the cities. As a result, a larger share of the
population is located in urban areas than is true for most other less
developed countries.
l3. The largest movements of people in South Vietnam have involved
those driven from their homes by the fighting. Since the war began, more
than 7 million Vietnamese have been refugees at one time or another. In
1972 alone, more than a million persons became refugees, and more than
half of these still are in government camps waiting to be returned to their
villages or to be resettled elsewhere.
14. These large-scale population movements make it particularly
difficult to trace changes in the labor force in recent years. Currently, the
labor force is estimated at about 7 million people, with employment grouped
as shown in Table 1. The major shift has been the increase in military and
civilian government employment, which has roughly doubled since 1964.
Manning the fourth largest army in the world caused a considerable drain on
the agricultural labor force and a tight labor market in general. Labor
participation rates have increased for women, the young, and the aged, but
this has tended to reduce the productivity of the civilian labor force. The
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Population
Persons per square mile
0 50 250 500 750
g
U19
Persons per square kilometer
1968 estimated census
V Dao
Phu Quoc
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(Keen ~i t>
Tay
Ninh
Nau
Nghia
Vinh
Binh
Phuoc
Long
Quang Tin
Phuoc
Tuy
Binh
Thuan
Ninh
Thuan
Tuyen
Ba Xuyen
8.
Thua
Thien
Binh
Dinh
Phu
Yen
Khanh
Hoa
South 'Vietnam
Administrative Divisions
and Military Regions
Militar/ region boundary
Province boundary
Hu Autonomous municipality
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CONFIDENTIAL
Labor Force, 1972
Million
Persons
Percent
of Total
Total
7.0
100
Government sector
1.4
20
Military
1.1
16
Civilian
0.3
4
US sector
0.1
1
Private sector
5.5
79
Agriculture
4.0
58
Forestry and fishing
0.4
6
Manufacturing and
construction
0.4
6
Commerce
0.3
4
Domestic servants
0.1
1
Other
0.3
4
labor market has eased somewhat during the past two years with the
accelerated US withdrawal. Although the resulting unemployment has
caused problems in some urban areas, these have been minimized by a
number of factors, including assistance from the traditionally strong family
system and the fact that more than half of the jobs created by the US
presence have been held by women, many of whom have again dropped out
of the labor force.
15. South Vietnam, with an area of about
66,000 square miles, is about 700 miles long and
ranges in width from about 40 miles in the north to
120 miles in the south. Most of the northern
two-thirds of the country consists of sparsely popu-
lated mountains and hills, while the southern third is
a densely populated flat plain consisting of the Dong
Nai and Mekong River Deltas.
501631 2.73
16. South Vietnam's major natural resource is relatively abundant and
fertile farmland. At present, only about 60% of the arable land-about 15%
of the country's surface area-is under cultivation. Hardwood and pine
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forests, which make up one-third of the
land area, as shown in Figure 4, also
represent a largely untapped resource with
significant potential. South Vietnam's
metal and mineral resources are relatively
unexplored. The only minerals being ex-
ploited commercially are limestone, silica
sand, clay, and salt. Recent surveys have
indicated a potential for offshore oil
reserves, but test drilling his been delayed
by the uncertain politic~.l and military
situation.
17. Security co--lditions have
affected the exploitation of other poten-
tially valuable resources as well. This is especially true for farming, forestry,
rubber production, and, to a lesser extent, for fishing. The escalation of the
war in 1965 caused a decline in cultivated area. of about one-half million
hectares (more than 15% of the total cultivated area shown in Figure 5)
during 1965-67, but some of this land has since been brought back into
cultivation. The primary development in land use in recent years has been
the increased amount of double-cropping with both rice and vegetables. This
has been made possible by the fairly widespread introduction of small water
pumps that enable farmers to irrigate their plots in the dry season. Most of
the large-scale water coni:rol systems in existence prior to the war have either
been damaged or neglected. Although construction of new systems is under
way in some areas (both for irrigation and to prevent salt water intrusion),
South Vietnam is far behind many other Southeast Asian countries in terms
of the amount of cultivated land subject to water control.
Transportation
18. The mainstay of the transportation system is the 12,500-mile road
network. The basic network was developed under the French and extended
and rehabilitated with US aid. Highways provide access to more regions of
the country than any other mode and carry most of the freight moved by
the transport system. Data are not available on tonnage carried by motor
carriers, but the increa ied use made of the road network is reflected in truck
registrations, which climbed from 37,000 in 1966 to 90,000 in 1970.
19. The basic highway network is generally laid out in a north-south
pattern centered on Saigon, the major port and hub of economic activity.
From the standpoint of commerce and the number of people served, the
most important roads are Routes I and 4, which link Saigon with the
northern part of the country and the Mekong Delta, respectively. Although
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Land Utilization
and Vegetation
CULTIVATED AREAS
Rice
Tree crops, chiefly rubber
A Vegetable crops
NONCULTIVATED AREAS
Will Forest
Forest, with slash and burn
C~ Grassland
1 Marshes and other
inundated vegetation
Mangrove
JDao
Phu Quoc
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the road network is an important asset for future economic development,
the cost of maintaining it will be quite high.
20. The railroad system in South Vietnam was built by the French
during the colonial period and consists primarily of one line paralleling
Route 1 along the coast. Before World War II the system linked Saigon and
Hanoi and also connected with the Chinese rail network. Currently
consisting of 780 miles of meter-gauge single-track lines, only about half of
the main rail network is available for service because of war damage. This
system, which has no international connections or electrified lines, is
operated by the government-owned South Vietnam National Railway.
During 1965-71, use of the rail system declined from 127 million metric
ton-kilometers to only 38 million ton-kilometers.
21. The Vietnamese have always made extensive use of natural
waterways and man-made canals, most of which were built by the French
during 1915-30. South Vietnam ha,; almost 3,000 miles of navigable inland
waterways, 80% of which are located in the Mekong Delta. Water transport
declined during the peak war years because of insecurity and lack of canal
maintenance. Improved security in the past three years, however, has
permitted increased use of waterways, and it is likely that waterways will
once again become the chief means of transporting produce, especially rice,
out of the Delta.
22. South Vietnam's long coastline and good harbors in the northern
half of the country give it an excellent natural base for expansion of coastal
and ocean-going shipping. During the late 1960s, ports underwent rapid
development as a result of growing military logistical requirements. In 1959,
South Vietnam had one major port, Saigon, with a rated capacity of 8,400
tons per day. The only other port of any size was Da Nang, which was rated
at 2,000 tons per day. By 1972, Saigon's daily capacity had climbed to
14,800 tons and Da Nang's to 12,2:30 tons, and new facilities had been built
at Cam Ranh Bay (6,700 tons per day), Qui Nhon (6,300 tons per day),
Vung Tau (2,550 tons per day), ant Vung Ro near Nha Trang (2,000 tons
per day). The capacities of all ports -xcept Saigon are being reduced to some
extent by the removal of some of the portable piers and other structures
erected by US forces.
23. The merchant fleet of South Vietnam is small, consisting of six
freighters of more than 1,000 deadweight tons. Coastal shipping expanded
considerably (with the use of leased vessels) when the railroad and roads
were interdicted in the northern part of the country. Improved security and
expansion of facilities in the northern ports for ocean-going vessels, however,
have resulted in a decline in coastal shipping since 1969.
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24. War requirements spurred development of air transport. South
Vietnam's civil air service now includes both domestic and international
operations by the national airline-Air Vietnam-and by nine foreign carriers.
Air Vietnam connects Saigon with 23 other cities in South Vietnam. There
are over 140 weekly domestic flights of DC-3s and DC-4s, ranging from two
to more than 20 flights per week between individual cities. Air Vietnam also
has routes extending to Laos, Cambodia, Taiwan, Japan, the Philippines,
Singapore, Malaysia, Hong Kong, and Thailand. Its aircraft inventory consists
of three Boeing 727s, two DC-6s, 16 DC-3s and DC-4s, and four smaller
planes.
25. Despite war disruptions, the free market distribution system in
South Vietnam has continued to function relatively effectively. The major
effect of hostilities has been the periodic shortage of basic commodities as a
result of temporary road interdiction. However, some traditional market
patterns have changed because of the war. Rice marketing, for example, is
now handled partly by the government, which sets the prices of imported
rice and distributes it and frequently purchases domestic rice in the Mekong
Delta for shipment to the northern rice-deficit provinces. The government
also attempts to influence domestic trade by maintaining price controls on
almost all commodities. These controls are difficult to administer, and prices
vary widely from permissible limits. In addition, the government periodically
attempts to control the flow of goods throughout the country-and thus
limit Communist supply sources-by its operation of control checkpoints on
roads and waterways.
The Financial System
26. South Vietnam's financial system is still relatively small and
immature, but its operations and efficiency have been much enlarged and
improved by recent reforms. The banking system consists of the National
Bank of Vietnam (the central bank), several commercial banks (the largest of
which is government-owned), and several public credit institutions. The
major institutional sources of credit are the commercial banks; noninsti-
tutional lenders (such as moneylenders, pawnshops, informal credit pools,
employers, landlords, friends, and relatives) still provide a major share
(probably more than half) of the credit to the private sector.
27. The organized financial system is only just beginning to play an
influential role in the economy. Until a few years ago there were virtually no
institutional sources of credit in rural areas. Now, private rural banks
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(approximately half of their capital provided by the government) are
springing up throughout the country. Combined with the provincial branches
of the government's Agricultural Development Bank, the organized financial
system is providing a growing-although still small-share of the credit needs
of the rural population.
28. Two other recent developments also have contributed to the
improvement in South Vietnam's financial system. They are the increasing
size and activity of public credit institutions and interest rate reform. With
increased funds and more vigorous leadership, development lending institu-
tions sharply increased investment loan authorizations in 1972 despite great
uncertainty resulting from the offensive. The increase in hostilities did,
however, cause the postponement of the spending of most of these
authorized funds.
29. The interest rate reform in late 1.970, which approximately
doubled both lending aid deposit interest rates, was a major factor in the
.relative economic stability in both 1971 and 1972. By making interest rates
more accurately reflect inflation and real risk, the banking system was able
to attract a much large: share of people's money incomes. This slowed the
rate of growth of money supply, reduced speculative consumer purchases,
and improved popular attitudes toward the banking system. During the 1972
Communist offensive, for example, savings and time deposits rose substan-
tially.
Agriculture
30. Agriculture i the major economic activity in South Vietnam and
supplies nearly all of -:he country's exports. Most resources are devoted to
rice production, although in recent years increasing emphasis has been given
to other crops-particularly vegetables-and to livestock production. Fishing
and forestry combine to make up about 15% of the total value of
agricultural output, a share likely to rise fairly rapidly with the increasing
development of these resources for the export market.
31. Decreases in cultivated area and dislocation of the farm labor force
resulted in a decline in agricultural production of about 12% during the peak
war years. Starting in 1969, however, improvements in security, adoption of
new technology, and ienerally favorable price incentives for farmers brought
about a rapid recove y. By 1970, output had surpassed the 1963-64 level,
with annual growth averaging about 9% during 1969-71. Production
probably did not in,-rease at all in 1972 because of disruption from the
enemy offensive and '-)ad weather.
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32. Rice is grown in all 44 provinces and on roughly 80% of the
cultivated area of South Vietnam. Most crops (see Table 2) are raised on
small family farms. Only a few crops such as rubber, tea, and coffee are
grown commercially on plantations, many of which have been damaged or
Output of Selected Agricultural Products
Coffee
Corn
Fruits
Manioc
Peanuts
Rice (paddy)a
Rubber
Sugar cane
Sweet potatoes
Tea
Tobacco
Vegetables
3
3
4
4
4
46
32
31
31
34
526
420
440
473
498
289
260
234
216
270
36
32
34
32
37
5,327
4,688
4,366
5,115
5,715
74
34
28
33
38
1,055
426
321
336
340
301
235
226
220
230
5
5
5
5
6
7
8
8
8
9
108
193
235
218
244
abandoned during the war. The Mekong Delta produces three-fourths of the
annual rice output, and the major harvest occurs during December-January.
Most of the country north of Saigon produces less rice than it consumes and
consequently relies on imports from the Delta or outside sources. Prior to
1965, South Vietnam exported rice, but has since had to import large
quantities each year (see Figure 6). During 1965-69, production generally
declined, and the rapid gains since then have not been sufficient to meet
increased consumption requirements.3
3. The wide fluctuations in rice availability indicated by Figure 6 are largely the result of sizable
changes in government stock levels, which, for example, reached a record high level in 1968.
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e"d" 3 ~n aYe s%~tiefi gas ~~ cos ~ad
3
}o. ocaat ell 6\ocj a~~ ~2c~1ce o`~za \9~'~' des oc~ab1e AIi~r
.fot o ye ati1 w, ti~U~e yeas l> bceri
c,3 eat ,the
A ,9
a
as 1 ice ~>~e
02 t"
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permitted a much greater amount of irrigation and thus double cropping;
and tractors and rototillers plow fields earlier, more efficiently, and more
cheaply than water buffalo.
34. Another significant wartime development was the adoption in
March 1970 of a radical land reform program to give tenant farmers and
squatters free title to the land they are cultivating. Within three years,
ownership of about one million hectares (or more than one-third of the total
cultivated area) was to be transferred at government expense to more than
500,000 farm families. By the end of 1972, new titles had been issued for
about 700,000 hectares and applications had been approved for an
additional 225,000 hectares.
Industry
35. South Vietnam has a very small industrial sector with virtually no
heavy industry. Manufacturing consists primarily of small-scale consumer
industries processing imported raw materials and some local agricultural
products. Four industries-foodstuffs, beverages, tobacco, and textiles-
account for about 70% of manufacturing output, and a handful of firms
produce the lion's share. The remainder consists mainly of paper and paper
products, plastics and other chemicals, cement, glass, and the output of a
variety of smaller industries and handicraft enterprises. Almost all non-handi-
craft industry is concentrated in the Saigon metropolitan area because of the
availability of power, the large market, and greater security. Most of the
large firms are owned by the government or by local Chinese businessmen.
Table 3 presents output from the most important branches of industry in
recent years.
36. With the exception of 1968, when some manufacturing facilities
were damaged during the Tet offensive, industry has grown at a fairly rapid
rate throughout the war. Manufacturing and electric power output combined
rose at an average annual rate of about 8% during 1965-71, and construction
activity (including US construction) probably grew somewhat more rapidly.
The 1972 enemy offensive, however, led to a substantial decline in industrial
output. Uncertainty over security conditions caused a decline in demand for
durable goods and forced production cutbacks in most large firms and
closure of many small ones. Increased local procurement by Vietnamese and
US military forces was the only thing that kept some firms in operation.
37. During 1970-71, security and economic conditions stabilized
sufficiently to attract a number of inquiries from private foreign investors.
The government approved about a dozen proposals from foreign business-
men-mostly Japanese-to invest jointly with Vietnamese partners in
assembly plants for farm machinery, radio and television sets, light trucks,
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Table 3
Output of Selected Industrial Products
Commodity
1964
1968
1969
1970
1971
Beer
95.7
119.4
134.2
148.7
146.9
Soft drinks
54.3
92.3
120.4
125.7
118.5
Thousand Metric Tons
Cement
75.3
144.7
247.2
285.8
263.3
Cigarettes
6.1
10.3
10.5
9.7
12.2
Cotton yarn
7.8
5.0
7.6
11.7
13.4
Glass bottles
Paper and
11.0
10.1
16.5
18.8
20.8
paperboard
18.2
19.6
33.2
42,8
48.5:
Refined sugar
56.4
96.1
108.4
115.5
202.1
Cotton fabric
51.7
28.5
50.4
58.0
64.1
Electric power
469.6
715.2
1,045.4
1,134.2
1,342.8
and sewing machines. To date, only a few of these, such as the Yanmar
agricultural machinery plant shown in Figure 7, have come to fruition.
Domestic investors ha%e continued to plan for new enterprises or the
expansion of existing ones, but security and business conditions in 1972
stopped most of them from going beyond the planning stage.
38. Government expenditures in South Vietnam have risen rapidly
since 1965, reflecting the radically increased domestic costs of goods and
services, larger defens,, expenditures, and expansion of the civil service.
Spending by the government in 1972 amounted to about 365 billion
piasters, or almost seven times the 1965 level (see Figure 8). The budget
planned for 1973 calls for an increase in spending levels of nearly 20% in
current prices over those of 1972. The most outstanding characteristic of the
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Yanmar Agricultural Machinery Plant in the Bien Hoa Industrial (Park
Yanmar Machinery for Sale in Ban Me Thuot, Darlac Province
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Government Budcjet*
Deficit**eiA and
IN IrON" es,,Tares
Civilian U on
V
REveo'jEs
1965 1969 1971 1972 1973
Projected Plan
Data include exirabudgetary revenues and expenditures.
**Residual. Financed primarily by borrowing from the National Bank.
***Includes customs duties and other import taxes, counterpart funds generated by
US-financed import programs, and profits from foreign exchange transactions.
A major result of the November 1971 reforms was to make explicit agreater share
of US aid to the budget that earlier took the form of high customs duties on
aid-financed imports.
South Vietnamese budget has been the preponderance of military spending.
Between 1965 and 1972, civilian expenditures increased more than 500%
while military expenditures rose by more than 600%. In recent years,
roughly 75%-80% of total military expenditures has been accounted for by
military salaries and rllowances. The level of civilian expenditures has been
affected not only by the expansion of civil service employment but also by
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implementation of programs which include pacification, police training,
construction and development, and education and health.
39. Government expenditures are financed by a combination of
foreign aid, borrowing from the National Bank of Vietnam, and national tax
revenues. The foreign aid program is particularly important as a source of
revenue. The national tax base has traditionally been highly dependent on
revenues derived from imports. The main sources of domestic revenues have
been taxes of the sales and excise types, most of which have been derived
from areas of urban and commercial concentration. Direct taxation of
personal income and property has been minimal, accounting for only a small
fraction of total revenues.
40. Government measures taken in late 1972 indicate serious efforts to
exploit the potential domestic tax base. The tax system as it evolved in
South Vietnam consisted of myriad rates and forms, was poorly designed to
achieve compliance, and was not uniformly applied throughout all sectors of
the economy, including particularly rural areas. The new tax reforms provide
inter alia for (1) the complete restructuring of the property tax on
agricultural lands; (2) new income tax provisons to encourage compliance
and broaden coverage; and (3) a new value-added tax to be applied in
mid-1973 to all goods and services in the economy except exports and
government services.
Foreign Trade and Aid
41. In the face of rapidly rising demand and inadequate domestic
output, South Vietnam has imported massive quantities of goods to stem
inflation and-to a lesser degree-to repair or increase productive capacity.
During the period since 1965, commodity imports have ranged between
$625 million and $735 million, compared with average annual exports of
only $16 million (see Figure 9). The large import deficit has been financed
by US aid and US purchases of services within South Vietnam.
42. The largest share of South Vietnam's imports, both now and
before the war, has consisted of such intermediate goods as textiles (raw
cotton and yarns), raw materials for the foodstuffs industry, vehicle engines
and parts, and chemicals. During the height of the war, however, imports of
food predominated, as shown in Figure 10 for 1967. Finished consumer
goods make up the third major category of imports, generally accounting for
15% to 20% of total commodity imports.
43. Throughout the war, commodity exports consisted almost entirely
of rubber. In 1972, however, the combined exports of shrimp and logs, each
of which was virtually nil in 1971, made up more than one-third of total
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Figure 9
Value of Foreign Trade*
Million US $
800 I-?_.--
I Export s I -__ 1
0 64 65 66 67 68 60 70 71 72
1960 61 62 63
ctual shipments and arrivals.
f
a
-Commodity trade reported on the basis o
.15434. 3 73 - - -
for
abou exports. These two items together with rubber a in oummod ty omt 0% Of
total exports last year. As a result of the change export market.
Japan replaced France last year as South Vietnam's major orts.
The United States and J ipan continue to be the major sources of imp
44. South Vietna.n has a flexible, dual exchange rate system. The rate and
hen there structure underwent major revisions i ?V tbs faronly upward.tThe mo t
have been periodic; small rate adjustments-thus
'recent devaluation in January 1973 brought the official exchange ate to 475
piasters per dollar anti the special rate for US-financed imp 0
piasters per dollar. All transactions except US-financed imports take place
from 100 piasters to
the 475 rate, but exporters receive subsidies ranging
125 piasters for every dollar's worth of foreign exchange earned. In addition that fl
urishe for
to the official exchange market, there s raa te black
reforlmr Nket ow that?the ? ficial
several years until the 1971 exchange exchange rate is more realistic, black market activity has been greatly
reduced.
45. The United States is the major contributor or odf yeign import aid to South
programs
Vietnam, providing grant funding under surplus agricultural
of the Agency for International Development and s
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Composition of Imports
Million US $
1967
1972
180
411-0 Agricultural Inputs
Food
commodities under the Food
for Peace Program (PL-480) of
the Department of Agricul-
ture. In addition, South Viet-
nam has gained substantial for-
eign exchange from US gov-
ernment purchases of piasters
for official and personal use
in-country. Although the Viet-
namese provide goods and ser-
vices in return for the dollars,
there has nonetheless been a
substantial element of "aid" in
these piaster purchases be-
cause the piaster was over-
valued for so many years.
During US fiscal years
1954-72, total US economic
aid amounted to more than $6
billion, over half of which has
been provided since fiscal year
1965. US government pur-
chases of piasters amounted to
another $2 billion during cal-
endar years 1964-72.
46. More than 40 other
nations and several interna-
tional organizations have pro-
vided grant economic, tech-
nical, and humanitarian assist-
ance valued at about $200
million since the South Viet-
namese appealed for aid from
other countries in 1964. Sig-
nificant contributors include
West Germany, France, Aus-
tralia, Japan, Canada, and the
United Kingdom, all of which
have continuing aid programs
in South Vietnam. In 1970,
South Vietnam received its
first loan commitments in
many years; since then Japan,
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the Asian Development Bank, the United Kingdom, and West Germany have
made soft-term loans totalirg about $45 million.
The Vietnams: Key Economic Statistics
Land area
Cultivated area
Population (1972)
GNP (1972 estimate)
GNP per capita
Rice production (1972)
(milled equivalent)
Imports (1971)
(major commodities)
Exports (1971)
(major commodities)
Major industries
Electric power (1971)
Cement (1971)
Economic aid
South Vietnam
66,000 square miles
15%
19 million
$2.3 billion
$120
3.7 million metric tons
$683 million
Machinery and transporta-
tion equipment, textile
fabrics and yarns, petro-
leum, rice, fertilizer, chem-
icals, medicines
$12 milliona
Rubber, shrimp, feathers
Small-scale, light manufac-
turing and processing of
local products, textiles,
beer and soft drinks, ciga-
rettes, glass, tires, sugar,
paper, cement
$576 million (fiscal year 1971) $585 million (calendaryear 1971)
61,300 square miles
14%
20 million
$1.9 billion
3.0 million metric tons
$655 million
Petroleum, steel products,
railroad equipment, ve-
hicles, machinery and
equipment, chemicals,
medicines, raw cotton, fer-
tilizer, grain
$70 million
Agricultural and handi-
craft products, coal, min-
erals, ores
Food processing, textiles,
machine building, mining,
cement
560 million kilowatt hours
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