THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82S00205R000200010004-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 20, 2016
• Document Release Date: August 25, 2006
• Sequence Number: 4
• Publication Date: September 21, 1970
• Content Type: IR

Approvor Release 2007/03/08: CIA-RDP82S00205R00028
1W 010CM
DIRECTORATE OF
INTELLIGENCE
Intelligence Report
The Economic Situation in South Vietnam
(Biweekly)
State Dept. review completed
USAID review completed
Secret
12
21 September 1970
No. 0431/70
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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
)de, as amended, its transmission or revelation of its contents to or
by an unauthorized person is prohibited by law.
OR OUP 1
D FWU AUTOMATIC
V NORADINO AND
iLASSTFTCATION
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
The Economic Situation
Summary
A greatly modified "program law" probably will
be approved by the National Assembly shortly, but
it is not clear what latitude it will give Presi-
dent Thieu to enact economic reforms. The National
Bank of Vietnam already has effected an interest
rate reform designed to counter inflation.
The Australian Government is planning substan-
tially increased aid to South Vietnam during the
next three years, and the Japanese Government'.has
decided to increase assistance now rather than wait-
ing until hostilities cease.
Retail prices in Saigon increased three percent
during the first two weeks in September to a level
about 30 percent above the average level for Decem-
ber 1969. Black market prices for dollars and gold
remained high, while the rate for scrip declined.
ANNEX: Monthly and Weekly Currency and Gold Prices
(Graph)
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1. After months of delay a greatly restricted
version of the so-called program law--President
Thieu's request for decree powers over economic mat-
ters--probably will be approved by the National As-
sembly within the next week or two. At a minimum,
the law will provide for an exchange rate substan-
tially above the present official rate of 118 piasters
to the dollar to apply to purchases of piasters by
American personnel in Vietnam, a measure of little
benefit to the Vietnamese. The higher rate also may
apply to certain classes of imported luxury goods,
which would tend to discourage purchases of such
goods and reduce importers' profits. It is not known
which of the other economic reforms the government
originally had planned to carry out under the program
law can or will now be enacted by President Thieu on
his own authority. The passage of even a very lim-
ited program law, however, could improve Thieu's po-
litical position sufficiently to permit him to go
ahead with unpopular measures. With Thieu's approval,
the National Bank of Vietnam (NBVN) already has put
in effect a new interest rate program, the major ob-
jective of which is to reduce the rate of inflation.
2. The National Bank has raised its rediscount
rates (the rates at which commercial banks borrow
from the NBVN) and informed each of the commercial
banks that it is to set its own interest rates for
loans and deposits and submit them to the NBVN for
approval. The new rediscount rates, effective 14
September, are 10 percent for export paper and 18
percent for all other commercial paper. A penalty
rate of 24 percent was established for commercial
banks whose loans exceed the maximum level set by
the NBVN. Rediscount rates formerly ranged from
four percent to a penalty rate of 12 percent.
3. The Saigon bankers' association, which has
effectively set interest rates in the past, report-
edly would have preferred to avoid any competition
by submitting one set of rates for all banks. The
government-owned Credit Commercial, however, which
is the largest commercial bank in Vietnam, has set
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its own minimum and maximum rates for loans and all
other banks are falling into line, apparently without
any serious opposition. The new loan rates range
from 14 percent (for-:exports) to 24 percent per year
compared with former rtes of eight percent to 14 per-
cent. Individual banks, however, will be able to com-
pete with each other for loans at rates between these
limits based on the credit standing of the borrower.
4. Credit Commercial has raised the rate for
regular savings accounts from five percent to eight
percent per year. Rates for time deposits will range
from 10-percent per year for one-month deposits to 20
percent per year for 12-month deposits. A 12-month time
deposit has been earning 12 percent per year since
March 1970 when the rate was raised from four percent.
Other commercial banks reportedly are setting similar
rates, but the NBVN is encouraging banks to negotiate
freely with individuals to set rates and maturities
for large deposits.
5. The Agricultural Development Bank, Vietnam
Development Bank, and the Industrial Development
Center have not yet increased their interest rates.
Rates on agricultural loans are expected to be in-
creased soon, but interest rates on loans for indus-
trial development probably will remain low in order
to encourage local investment.
6. Two objectives of interest rate reform in
South Vietnam are to increase savings so as to re-
duce inflation and ultimately help finance economic
development and to promote confidence in financial
institutions and the government. Institutional in-
terest rates have been much below the rate of infla-
tion, so that holders of savings and debt instruments
lose money, while debtors receive a bonus. In this
situation credit has to be rationed, frequently on
the basis of influence. Savings are penalized,
spending stimulated, and speculatipn.encouraged, es-
pecially by importers who are the major recipients
of commercial bank credit. Speculation, in turn,
has drained foreign exchange reserves and further re-
duced confidence in the piaster.
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7. Although an increase in interest rates is
a step in the right direction, the new rates fall
well short of the rate of inflation, and, therefore,
will not eliminate, nor necessarily alleviate, these
problems. To be effective, interest rate reform will
require further, probably substantial, increases in
rates. Interest rates consistent with current market
conditions probably would exceed 40 percent annually,
at least approximating the rate currently obtained
in the private money market. An effective interest
rate reform would be an important anti-inflationary
move, but by itself cannot contain inflation in South
Vietnam.
Increased Assistance from Australia and Japan
8. The Australian Ministry of External Affairs
has proposed a substantial increase in economic and
military aid to South Vietnam during the next three
years. The Japanese Government also plans to in-
crease assistance to South Vietnam, but apparently
prefers to extend loans rather than grants.
9. Preliminary Australian plans call for com-
bined military and economic aid to rise from $3.2
million in FY 70 to $8 million in FY 72. The total
aid level would decline slightly in FY 73 as military
aid is reduced, but economic aid is scheduled to
reach a new high of $5 million that year compared
with $2 million in FY 70. Much of the increased mili-
tary aid will be used to provide foodstuffs and other
commodities for the Vietnamese Army and to construct
housing for military dependents. Specific uses for
the additional economic aid are not known, but in the
past Australia has sent medical and civil engineering
teams to Vietnam and provided commodities such as con-
struction materials, textbooks, and radio equipment.
Although Australian economic assistance to South Viet-
nam is less than one half of one percent of US eco-
nomic aid, the proposed program represents a major in-
crease in Australia's commitment to South Vietnam,
especially following the recently announced expansion
of aid to Cambodia.
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10. Tokyo currently provides South Vietnam
about $1 million per year mainly in the form of
scholarships and medical personnel and equipment.
In connection with Prime Minister Khiem's visit to
Japan last month, the Japanese Government announced
that it will provide a $4.5 million loan for the con-
struction of an electric power station in Saigon.
The loan offer is one of the first indications that
the Japanese are willing to increase assistancpinow
rather than waiting until hostilities cease. The
Japanese also are sending a team of technicians to
Vietnam early in October to survey other projects
which Japan might agree to finance. Negotiations
on the terms of the power station loan are under wa
but no settlement has been reached.
US and Vietnamese officials, on the other hand,
naturally would prefer a grant rather than a loan,
even on the most favorable terms. Japanese embassy
spokesmen in Saigon have indicated to US officials
that if loan terms acceptable to both governments
can be arranged on this first Japanese offer without
too much delay, further assistance, some in the form
of grants, would be forthcoming. The Japanese al-
ready are committed to spend about $3 million repair-
ing the Da Nhim hydroelectric power project near Da
Lat. Construction was financed from Japanese repara-
tions, but the plant has been out of operation since
1965 because of enemy sabotage. Repairs will not be-
gin, however, until the South Vietnamese can provide
adequate security for Japanese technicians.
11. Retail prices in Saigon increased three
percent during the first two weeks in September. As
measured by the USAID weekly index, prices on 14
September were about four percent above the average
price level for August and about 30 percent above the
average for December 1969.
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Currency and Gold
12. With many buyers in the market, Saigon
black market prices of dollars and gold remained
at a high level during the first two weeks in Sep-
tember. On 14 September the price of dollars was
416 piasters per dollar and the prices of a dollar's
worth of gold leaf was 507 piasters. The rate for
MPC (scrip) declined during the period from an all-
time high of 240 piasters per dollar to 206 piasters
per dollar, probably because of rumors that a new
series of MPCs will be introduced when the exchange
rate for American personnel is changed (see para-
graph 1). (A graph on monthly and weekly currency
and gold prices is included in the Annex.)
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Free Market Gold
and Currency Prices
1970 1970
GOLD basis: gold loaf worth $35 per troy ounce US $10 MPC Military payment Certificates (scrip)
US $10 GREEN
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Secret
Secret
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