ECONOMIC SUPPORT FOR VIETNAM

• Document Type: CREST
• Collection: Library of Congress
• Document Number (FOIA) /ESDN (CREST): LOC-HAK-19-5-4-1
• Release Decision: RIFLIM
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: January 11, 2017
• Document Release Date: November 4, 2010
• Sequence Number: 4
• Publication Date: January 3, 1972
• Content Type: MEMO

J,_ 1 .
No Objection toDeclassification in Full 2013/09/16: LOC-HAK-19-5-4-1
THE WHITE HOUSE
WAS H I NG TO N
DOS, USAID, OSD,
NSS reviews
completed.
MEMORANDUM FOR;
January 3, 1972
The Under Secretary of State
The Deputy Secretary of Defense
SUBJECT: Economic Support for Vietnam
It is important to evaluate the economic support required by the
South Vietnamese economy over the coming years, as well as the
alternative ways of meeting that requirement.
The first phase of this study should focus on how the essential level
of foreign exchange support can be provided during CY 1972 and
should include examination of:
? The foreign exchange support required by?Vietnam in 1972;
-- The potential sources of this support, including: (1) means
of reducing the AID project to free supporting assistance funds for
imports, (2) potential DOD actions to slow the reduction in foreign
exchange availability, and (3) ways to keep up the level of PL-480
support despite rice self-sufficiency;
? The legislative problems, requirements for Presidential or
other determination, and budget limitations.
The second phase should examine probable economic requirements
from 1973 through 1976 based on alternative assumptions regarding
the rate of economic growth, the level of military activity, and other
key variables. Support from DOD, PL-480, and AID should be
projected with policy alternatives clearly identified.
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
W
SECRET
Actions to increase foreign exchange availabilities should not be
delayed pending completion of the study.
The study shall be prepared under the direction of the Vietnam Special
Studies Working Group. The first phase should be completed by
January 19, 1 97 2, and the second phase by mid-February 1972.
Henry A. Kissinger
cc: The Director of Central Intelligence
The Chairman, Joint Chiefs of Staff
The Director, Office of Management and Budget
The Chairman, Council of Economic Advisors
The Administrator, Agency for International
Development
The Assistant Secretary of the Treasury for
International Affairs
The Assistant gcretary of Agriculture for
International Affairs
SECRET
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
MEMORANDUM
NATIONAL S NCIL
SECRET
MEMORANDUM FOR D
FROM: Phil Od
SINGER
lv
35402
ACTION
December 22, 1971
SUBJECT: Economic Assistance for Vietnam
The attached redraft provides for both a short-term (1972) study
of how we meet essential economic requirements in Vietnam and
a study of what will be needed in subsequent years and how we
might provide it. Other changes were also made as you requested.
Dick Kennedy concurs.
SECRET
/1
L
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
#0
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1 ---
MP 1.?4T:1 i
NATIONAL SEC ITY COU CIL
MEMORANDUM
SECRET
MEMORANDUM FOR D 9'SINGER
FROM: Phil:0 een
ACTION
December 3, 1971
.5
SUBJECT: The Economic Achilles Heel in Vietnam
Ambassador Bunker has back-channeled a message (Tab B) to the
effect that we will face critical problems in Vietnam in 1972 unless
a $700 million import level is maintained ($750 million was the
level planned for FY 71 and FY 72).
This minimum level of support requested by Bunker is $100-150
million more than we will get from the Congress.
The Economic Problem
Based on discussions with Chuck Cooper this week, it is clear that
Bunker's case for the $700 million level rests on a need for political
confidence building as well as economic necessity. The need arises
from two circumstances:
Thieu has bitten the bullet on economic reforms. The large devaluation
in November and his commitment to other reforms will generate substantial
political opposition by the affected groups.
? Thieu has also moved on military effectiveness by instituting a
substantial combat bonus while reducing ARVN commissary benefits ?
moves which do not set well in some military circles.
Thus, Thieu is counting on the development initiative and the continued
availability of U. S., funds for imports to offset the liabilities of the
excellent long-run programs on which he has embarked at our urging.
SECRET
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
SECRET
Thieu has done what we wanted on the economic front. For us now
not to produce the money would be a political disaster for him.
There are four ways to manage the $700 million level in spite of
Congressional cuts in supporting assistance.
2
-- To use up the pipeline of about $100 million we have stashed
away for future rainy days; however, FY 72 is not apt to be as rainy
as FY 73 and major use of this pipeline in FY 72 could leave Vietnam
in an impossible situation as early as September-December 1972.
-- To require DOD to take actions which will result in more
DOD purchases of piasters and thereby more exchange for Vietnam
aside from AID.
-- To restructure the AID allocations to take the cuts in
programs other than Vietnam, there are few possibilities for this
in supporting assistance as it hardly makes sense to cut Cambodia and Laos
to save Vietnam, but there are opportunities elsewhere.
-- To expand the PL-480 program. While Vietnam is rapidly
approaching self-sufficiency in rice, we may be able to provide other
commodities, e.g., tobacco and corn.
Before we can take a firm decision on how to meet the Vietnam requirement
for $700 million, analysis of the cost to other programs is required.
DOD and AID are looking at the problem, but more careful analysis is
needed to give you a full set of options and with their implications. At
this time, I urge you to issue a study directive asking the VSSG to
identify the need for foreign exchange support for Vietnam as well as
the means available to help Ambassador Bunker.
An additional immediate problem is the FY 73 budget request. OMB
has cut the AID request for Vietnam by $75-90 million. AID argued that
more funds are needed for Vietnam next year because of reduced DOD
expenditure, i. e., total economic U.S. funding would go down but AID
funding would go up. OMB rejected this approach on the basis, as we
understand it, that Congress would not approve an increase.
This OMB decision should be reversed during the President's budget
review since the supporting assistance request for Vietnam should be
SECRET
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
No Objection toDeclassification in Full 2013/09/16: LOC-HAK-19-5-4-1
SECRET 3
?
about $625 million for FY 73 to maintain exchange availabilities of about
the $700 million level given expected DOD reduction in expenditures and
reasonable support for development. We will keep you informed of
progress on this score.
RECOMMENDATION
That you sign the attached study directive to the VSSG (Tab A).
Concurrence: John Negroponte,
SECRET
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
?YEE
SECRET221000Z NOV 71 VIA CAS CHANNELS
FROM: AMBASSADOR BUNKER SAIGON 0172 IMMEDIATE "
TO: THE WHITE HOUSE, EYES ONLY, HENRY A. KISSINGER
1. I THINK_I4HOULD SHARE WITH YOU MY INCREASING CONCERNS ABOUT
FY 72 sujcmu AID EUIDJUG PRO-t-PEOTS THEY_MAY AFFE.CI OUR_OBJECTIVES
HERE. I BTELIEVE THAT A SHARP CUTBACK IN IMPORT FINANCINGAT THISETIME
IS LIKELY TO BE COSTLV?NOT ORLY TO -EC-ONO-MC DEVELOPMEATEPROSPECTS
BUT TO THE ABILITY OF THIE0 TO MANAGE PROSPECIIIEEESZCURITY AND
POLIE.10:SSURrS-EDURTMETHEE-COUTSEETYPE?D_____72. U. S. TROOP tan-
nAWALS, POLITICAL CRITICISM OF THIEU REGIME HERE AND IN U.S., THE
STRAINS WHICH WILL INEVITABLY ARISE DURING THE COURSE OF U. S.
ELECTION YEAR, DIFFICULTIES IN SETTING THE VIETNAMESE ECONOMY ON
DEVELOPMENT PATH, AND THE POSSIBILITY OF LOCAL EMPLOYMENT AND
SECURITY PROBLEMS ALL COMBINE TO CREATE A SITUATION IN WHICH UNDUE
ECONOMIC PRESSURE AND UNCERTAINTIES WOULD BE DANGEROUSLY UNSETTLING.
A POLITICALLY ASTUTE ENEMY CAN BE COUNTED ON TO CAPITALIZE ON
ECONOMIC DISSATISFACTIONS IN EFFORT TO UNRAVEL THE SOCIAL FABRIC
AND WEAKEN THE GVN'S ABILITY TO SUSTAIN ITS MILITUJY AND PACIFI-
CATION PROGRMGI.
2. THIEU'S STATE OF UNION MESSAGE AND ACCOMPANYING ECONOMIC REFORMS
MARK A WATERSHED FOR VIET-NAM. IT MEANS THAT THE COMMITMENT TO
ECONOMIC DEVELOPMENT AND REDUCTION OF DEPENDENCE ON U. S. ASSISTANCE
IS NOW ON A PAR WITH MILITARY, PACIFICATION AND POLITICAL ISSUES
AS A NATIONAL PRIORITY. I THINK WE HAVE EVERY REASON TO BELIEVE
THAT THIS COMMITMENT AND THE FUNDAMENTAL ECONOMIC REFORM PROGRAM WHICH
EMBODIES IT WILL RESULT IN SIGNIFICANT ECONOMIC PROGRESS AND REDUC-
TION IN AID REQUIREMENTS IN NEXT TWO OR THREE YEARS. HOWEVER,
A SHARP CUTBACK IN ECONOMIC ASSISTANCE AT THIS JUNCTURE IS LIKELY
TO STOP THIS PROCESS BEFORE IT HAS A CHANCE TO GET STARTED SINCE THE
KEY TO ECONOMIC PERFORMANCE IS PUBLIC AND INVESTOR CONFIDENCE IN
THE FUTURE. rT WILL BE HARD TO ENGENDER SUCH CONFIDENCE IF AID
IS DRASTICALLY CUT AND THE GOVERNMENT BESIEGED BY RESULTING
POLITICAL PRESSURES.
3. OUR ASSESSMENT HERE IS THAT AN IMPORT LEVEL OF $700 MILLION
IS ESSENTIAL IN CV 79 AND PROBABLY CY 73 AS WELL. THIS IS $51 MILLION
BELOW WHAT ORIGINAL AID FY 72 APPROPRIATION REQUEST WOULD SUPPORT.
SINCE, HCWEVER, AS A RESULT. OF THE NEW ECONOMIC PROGRAM INVESTMENT
AND EXPORTS WILL BE STIMULATED, LESS WILL BE AVAILABLE FOR CON-
SUMPTION. CONSEQUENTLY THE REAL DEGREE OF BELT TIGHTENING IMPLIED BY.
A $700 MILLION IMPORT LEVEL WILL BE CONSIDERABLE.
4. OUR ESTIMATE IS THAT FY 72 AID ALLOCATION OF $475 MILLION WILL
BE NEEDED TO PROVIDE NECESSARY FUNDS FOR, MINIMAL ONGOING USAID AND
CORDS PROJAFINACTIVITIES AND SUFFICIENT FUNDS TO SUPPORT S700
MILLION IMPORT LEVEL. AT THIS LEVEL CV 72 FUNDS WOULD BE ONLY
SECRET
EYES
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-5-4-1
P7'71
4,1d
No Objection toDeclassification in Full 2013/09/16: LOC-HAK-19-5-4-1
gir
MINIMALLY ADEQUATE AND PROSPECTS FOR CY 73 MOULD DE 'BLEAK IN LIGHT
OF CONTINUING REDUCTION DOD SPENDING, NECESSARY ?TIGHTENING OF AID
PIPELINE, AND LIKELY DIFFICULTY IN GETTING HIGHER. AID LEVEL IN
CY 73. I HOPE THIS WILL BE BORNE IN MIND WHEN WHATEVER SUPPORTING
ASSISTANCE APPROPRITATION WE EVENTUALLY END UP ?1:1ITH IS ALLOCATED..
5. 'IN VIEW OF CURRENT PROSPECTS FOR CY 72 AID BILL, IT IS LIKELY
THAT DOD FUNDS WILL BE NEEDED TO SUPPORT VIETNAMESE ? ECONOMY AT A
LEVEL CONSISTENT WITH OUR INTERESTS HERE. IN THE PAST, PROVIDING
. SUBSIDY VIA LOW 117 OFFICIAL RATE Eft pcn EXPENDITURES HAS MEANT
.SUBSTANTIAL DOD CONTRIBUTION TO SUPPORT OF VIETNAMESE ECONOMY. BUT ?
THIS DOES NOT APPEAR FEASIBLE ANY LONGER. LEGISLATIVE HISTORY ?WITH
ARMED SERVICES -COMMITTEES, CONCENTRATED ATTACK ON 118 RATE BY
MOORHEAD COMMITTEE, REVISED MONAGHAN AMENDMENT TO HOUSE AUTHORIZA-
TION BILL, ALL MAKE EARLY DEMISE OF. IIC RATE INEVITABLE. MOREOVER,
EXPERIENCE IN LAST YEAR HAS INDICATED THAT YOU CAN INDUCE. DOD TO
? UNDERTAKE THOROUGH REVIEW OF POSSIBLE OTHER SOURCES OF DOD FINANCIAL
SUPPORT. WE ARE UNDERTAKING SIMILAR EFFORT HERE AND MISSION
SUGGESTIONS WILL BE CABLED NEXT WEEK.
6. COOPER WILL BE IN WASHINGTON WEEK OF NOVEMBER 2EDECEnER2.
I HOPE YOU WILL HAVE TIME TO SEE HIM DURING HIS VISIT TO ?GET FIRST-
HAND REPORT OF AID REQUIREMENTS HERE.
7.. I AM RELUCTANT TO ADP A.NYTHING? MORE TO YOUR BURDENS AND WOULD ?
NOT DO SO DID I'NOT THINK THE PROBLEM OF CRITICAL .IMPORTANCE TO THE
SUCCESS OF'.ACHEIVING OUR. OBJECTIVES HERE.
?
S. WARM REGARDS.
No Objection to Declassification in Full 2013/09/16: LOC-HAK-19-574-1