THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82S00205R000200010024-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 20, 2016
• Document Release Date: August 25, 2006
• Sequence Number: 24
• Publication Date: December 15, 1969
• Content Type: IR

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DIRECTORATE OF
INTELLIGENCE
Intelligence Report
The Economic Situation in South Vietnam
(Biweekly)
State Dept. review completed
USAID review completed
Secret
1-1.11
15 December 1969
No. 0509/69
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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 ("ode, as amended. Its transmission or revelation of its contents to or
receipt by an unauthorized person is prohibited by law.
CLUDED FROM AUTOMATIC
DOWNGRADING AND
DEOLASSIFICATION
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
Summary
Recent abnormaLly large withdrawals of rice
from government stocks and the continuing high level
of rice prices led Vietnamese officials to arrange
for emergency imports during December. The arrival
of additional imports, plus the deliveries that
should begin this month from the bumper crop in the
delta, are expected to alleviate the pressure on
stocks and cause prices to decline.
The current government drive against black
marketeering in Saigon apparently is having little
effect. New US regulations on PX sales and the
purchase of postal money orders should result in
greater restrictions on black market activity, but
it is too early to judge their effect.
Retail prices in Saigon were stable throughout
November and declined slightly during the first
week in December. As of 8 December the USAID index
was 32 percent above the level of 6 January com-
pared with increases of 36 and 30 percent during
the corresponding periods of 1967 and 1968. Free
market currency and gold prices fluctuated during
the two weeks ending 9 December. The price of
dollars closed at 294 piasters per dollar, two and
a half times the official exchange rate.
ANNEX: Monthly and Weekly Currency and Gold
Prices (Graph)
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Emergency Rice Imports
1. In order to quiet fears of a rice shortage,
Vietnamese officials have arranged for emergency im-
ports of rice during December. A seasonal shortage
of domestic rice and recent high issuance of imported
rice from government stocks reduced stocks at the end
of November to the lowest level since February 1967.
US officials in Saigon have maintained that stocks
were adequate in view of scheduled imports during De-
cember and the fact that deliveries from the bumper
harvest in the delta will begin to enter the market
this month. Nevertheless, continuing demands for more
rice from province and army officials and the sharply
higher prices for domestic rice since the October
increase in austerity taxes led Vietnamese officials
to decide that additional imports were needed immedi-
ately in order to avert a rice panic. During the last
week in November, therefore, the GVN used its own
foreign exchange to purchase 40,000 metric tons of
rice from Taiwan and the following week the US agreed
to divert to South Vietnam 26,000 tons of rice destined
for Indonesia under the Food for Peace Program (PL-480).
These emergency imports plus a previously scheduled
40,000-ton shipment of US rice will arrive in South
Vietnam during December. These shipments, along with
increased deliveries of domestic rice from the delta,
should alleviate the current pressure on government
stocks.
2. The current low level of government stocks
in Saigon is primarily the result of large purchases
for private stocks rather than of real supply prob-
lems. Although deliveries from the delta fell off
sharply in October and November as delta stocks from
the 1968/69 harvest were depleted, deliveries during
January-November were equal to total deliveries during
1968 and above those of 1967. Moreover, imports have
been sufficient to maintain stocks at an adequate level
based on past consumption patterns: The demand for im-
ported rice, orn the other hand:, has risen significantly.
As shown in the following tabulation of average daily
issuances of rice (primarily imported) J'rorrt jovernment
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stocks in Saigon, recent rates have been far above
the norm established during the first seven months
of 1969.
1 Jan - 31 Jul
392 metric tons
(m.t.)
1 Aug - 28 Oct
29 Oct - 12 Nov
13 Nov - 27 Nov
687 metric tons
1,780 metric tons
706 metric tons
3. Apparently several factors are responsible
for the large drawdown of official stocks. In an
attempt to halt the rise in domestic rice prices
which began in July, the government decided to narrow
the market for domestic rice by ordering rice-deficit
provinces in III Corps to buy all rather than one
third of their rice needs from government stocks of
lower priced imported rice. The government also be-
gan to release more imported rice to the retail market
in Saigon as a means of depressing prices. Prices,
however, continued to rise. As the differential
between the free market price of rice and the subsi-
dized price at which rice is sold to civilian govern-
ment employees increased, government agencies began
to draw more rice from stocks to meet the increased
demand in their commissaries. Finally, following the
austerity tax measure in late October military offi-
cials began commissary sales of rice to ARVN depen-
dents, and other consumers hoarded rice for fear that
the tax increases would start a runaway price spiral.
The drop in issuances from stocks during the last half
of November probably reflects both a decline in hoard-
ing as the arrival of the new delta crop approaches
as well as the fact that the army and the provinces
drew their allotments early in the month.
4. A comparison of recent prices for imported
rice, the most nearly comparable variety of domestic
rice (No. 1/ 25 percent brokens), and a high-quality
domestic rice (Nang Huong), shown below, clearly in-
dicates why imported rice currently is the major
component of the Saigon rice market.
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Saigon
(piasters per 100 kg)
Sep
Nov
Average Average Average 1 Dec
Nang Huong 6,040 6,583 7,542 7,800
No. 1/ 25 percent 3,680 4,283 4,984 5,200
US medium grain N.A. 3,800 3,572 3,500
Because imported rice is the variety currently being
eaten by a majority of Saigon residents, it also is a
better cost-of-living indicator than domestic varie-
ties. With the arrival later this month of more im-
ports as well as the new crop of domestic rice, all
rice prices are expected to decline.
Drive Against Black Market
5. During the past several weeks the US and
Vietnamese governments have taken steps to curtail
black market activity in both goods and currency. On
27 November Vietnamese national police in Saigon be-
gan a series of raids on currency exchange establish-
ments and on vendors and stalls selling PX goods.
Within a week, however, it became apparent that this
drive against black marketeers was following the pat-
tern of similar drives in the past--namely, success
in closing down only small-time operators for a short
period of time. During 27 November - 3 December the
police confiscated about 11,000 items ranging from
TV sets to liquor valued at 2.8 million piasters
($24,000 at the official rate of exchange or $10,000
at the November average black market rate). They also
confiscated $12,700 worth of dollars, money orders,
checks, and MPC(scrip). According to the US Embassy,
most of the people arrested were small-time operators
such as sidewalk vendors, bar girls, taxi drivers, and
small shopkeepers. The few raids made on know large-
volume currency traders produced little or no evidence.
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6. Measures enacted by the US Government prom-
ise to be more effective, although it is too early
to evaluate the results. Among the steps taken to
reduce the black market in commodities are the alloca-
tion of goods to certain PXs throughout the country
on the basis of troop strength being served and the
discontinuation of PX sales of high-priced items such
as diamonds and furs. Such measures should eliminate
disproportionately large purchases of goods at PXs,
especially those serving Third Nation Forces, and
reduce the supply of goods available to the black
market. In addition, accounting and control proce-
dures at PXs have been tightened.
7. In order to cut down the volume of black
market currency exchange, new procedures were insti-
tuted in October regulating the sale of postal money
orders, which are a major source of funds entering
the black market and are used as a means of trans-
ferring funds out of South Vietnam illegally. Sales
of money orders at US military postal and banking
facilities in South Vietnam averaged about $25 mil-
lion per month during 1967-69, and embassy officials
in Saigon estimate that 25 percent or more of this
amount has entered the black market. Under the new
procedures, all purchasers of money orders, bank
drafts, or cashier's checks must present a currency
control card and an envelope preaddressed to an ad-
dressee located in the US or US possessions or to an
APO or FPO outside South Vietnam. The postal clerk
or bank teller must fill in the name of the payee
and deposit the money order or check in a US mail box
in the presence of the purchaser.
8. These controls along with new restrictions on
the use of MPCs by Third Nation Forces should curtail
the black market trading in MPCs, a large volume of
which are used to purchase postal money orders. Prior
to the new restrictions, a series of black market trans-
actions involving MPCs and money orders might have pro-
ceeded as follows: A soldier pays his Saigon bar bill
with MPCs. (MPCs are officially on a par with the dollar
at 118 piasters to one dollar and are legal exchange
only in US installations for authorized personnel.)
The bar owner then sells the MPCs to a money changer
for 150 piasters per MPC. The money changer takes
the MPCs to a US serviceman or civilian authorized to
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buy US postal money orders in Vietnam. The service-
man cashes in the MPCs for money orders, keeping a
percentage for himself and giving the remainder to
the Vietnamese money changer. The money changer then
either sells the money orders to a wholesale currency
dealer for 180 piasters per dollar, making a 20 per-
cent profit, or he mails the money orders to his or a
client's bank account outside South Vietnam.
9. The new restrictions on money orders and
MPCs probably have contributed to the relatively
greater stability of the black market rate for MPCs
during the past six weeks (130 to 150 piasters per
dollar) as compared with the high and widely fluctu-
ating rate for dollars (250 to 298 piasters per dol-
lar). Nevertheless, the rate for MPC remains con-
siderably above the official rate of 118 piasters,
indicating that there still is a black market in
scrip. No matter what measures are taken to tighten
controls, the black market in currency cannot be
eliminated until the Vietnamese Government establishes
a realistic exchange rate for the piaster.
10. Retail prices in Saigon, as measured by
the USAID index, were stable throughout November and
declined two percent during the first week in Decem-
ber. Prices of nonfood items increased during the
period, but these increases were offset by lower
prices for food products. As of 8 December the USAID
index for all items was 32 percent above the level
prevailing at the beginning of the year. During the
corresponding periods of 1967 and 1968 prices in Sai-
gon increased 36 and 30 percent, respectively.
Indexes for Saigon
(1
January 1965 - 100)
All items
Food items
Nonfood Items
2
Jan
1968
308
344
241
6
Jan
1969
400
443
319
17
Nov
1969
539
628
373
1
Dec
1969
537
616
381
8
Dec
1969
529
609
382
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11. The index for prices of selected imported
commodities increased slightly each week during the
five weeks ending 9 December, reaching a level
75 percent above that prevailing at the beginning
of the year. About two thirds of this increase oc-
curred following the higher austerity taxes levied
on imports in late October.
Currency and Gold
12. Black market currency and gold prices
fluctuated during the two weeks ending 9 December.
The price of dollars rose six piasters to 294 pi-
asters per dollar, while the rate for MPCs (scrip)
fell seven piasters to 143 piasters per dollar. The
official rate for both dollars and scrip is 118. to 1.
Several explanations have been offered for the ex-
tremely high rate for dollars, including the recur-
ring rumors of devaluation and issuance of new piaster
notes, but the new restrictions on MPCs and money
orders (see Paragraphs 7-9) and general uncertainty
about price trends probably also are contributing
factors. The price of gold leaf fluctuated during the
two weeks ending 9 December, but closed at the 25 No-
vember level of 367 piasters per dollar. (A graph
on monthly and weekly currency and gold prices is
included in the Annex.)
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Saigon Free Market Gold and Currency Prices
OCT NOV DEC
1969
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