THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82S00205R000200010003-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 22, 2016
• Document Release Date: July 6, 2012
• Sequence Number: 3
• Publication Date: October 5, 1970
• Content Type: IR

Declassified in Part - Sanitized Copy Approved for Release 2012/07/06: CIA-RDP82SO0205R000200010003-9
Secret App"
Intelligence Report
DIRECTORATE OF
INTELLIGENCE
The Economic Situation in South Vietnam
(Biweekly)
Secret
11.'
5 October 1970
No. 0432/70
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WARNING
This document contains information affecting the national defense of the
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
The Economic Situation in South Vietnam
Summary
Prices of domestic goods have been relatively
stable recently, while prices of imported goods
have been increasing more rapidly. The growth of
the money supply also has picked up considerably
since June.
Viet Cong use of US dollars in South Vietnam--
large amounts of which come from outside the coun-
try--apparently has become more widespread as the
value of the piaster has deteriorated.
Vietnamese and Japanese investors have agreed
to construct a farm machinery plant near Saigon.
SECRET
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1. According to the USAID monthly average in-
dex, retail prices in Saigon increased 2 percent in
September bringing the increase for the first nine
months of the year to about 28 percent. The rate
of increase in prices, however, has slowed consider-
ably during the past two months. During the first
seven months of the year prices increased at an an-
nual rate of more than 50 percent, but because prices
were relatively stable during August and September,
the annual rate of increase based on the first nine
months dropped to about 40 percent.
2? The rate of increase in the money supply,
on the other hand, has picked up considerably--a
sign of renewed inflationary pressure. During the
first six months the money supply increased at an
annual rate of about 12 percent. During July and
August, however, the rate more than doubled.
Faster growth of the money supply was to be ex-
pected in view of the restrictions on import li-
censing earlier in the year which have led to a
reduction in import arrivals. As a result, gov-
ernment revenues from import taxes have declined--
disproportionately so because the licensing re-
strictions were most severe on imports of luxury
and semiluxury goods which are the most heavily
taxed. Concurrent with the decline in revenues,
government spending probably has begun to increase
as a result of new expenditures for veterans and
refugees.
3. The USAID monthly average price index for
imported commodities increased 22 percent during
the first eight months of the year. The fact that
the price of imported rice has been stable since
April, however, distorts the index somewhat, Dur-
ing April through August the index including rice
increased 16 percent, while the index without rice
increased 24 percent. Moreover, prices of imported
commodities have risen at a faster rate during the
last few months.
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4. There are several factors that may explain
why prices of domestic goods (the general retail
price index includes mainly domestically produced
items) have been relatively stable recently while
prices of imports, excluding rice, have risen rap-
idly. The price of domestic rice, which is the
most heavily weighted item in the retail price in-
dex, has been very stable since February because
of an increased supply of imported rice and gov-
ernment purchases of rice from the delta. This
stability may have promoted consumer confidence
in the market and reduced speculative buying of
many goods. In addition, supplies of other goods
such as pork, fish, and vegetables, prices of which
rose steadily during earlier months, may have in-
creased significantly. It is also possible that
speculation has turned more to imported goods thus
easing pressure on the domestic market. Consumers
as well as importers are aware that a partial de-
valuation is planned and they may be speculating
against the possibility that the devaluation could
affect a wide range of imported goods, This fac-
tor combined with reduced arrivals of imports may
be responsible for the faster increase in the
prices of imported goods.
Currency and Gold
5. The black market price of dollars in Saigon
reached an all-time high of 426 piasters on 29 Sep-
tember compared with the official rate of 118 pias-
ters per dollar. The price of MPC (scrip) increased
to 230 piasters per dollar, while the price of a
dollar?s worth of gold leaf remained relatively
steady at 505 piasters. The market continues to be
very active in anticipation of the upcoming change
in exchange rates. The modified program law cleared
the National Assembly on 29 September giving Presi-
dent Thieu the power to establish a second, higher
exchange rate for certain transactions, including
purchases of piasters by Americans, exports and
possibly some small share of imports. Thieu is ex-
pected to sign the bill and shortly thereafter to
announce the rate changes.
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O.GVls_r. 1 VOW
VC Use of US Dollars
6. Viet Cong use of US dollars in South Viet-
nam apparently has become more widespread as the
value of the piaster has deteriorated and expecta-
tions of devaluation have increased. Although the
VC can acquire dollars through black market opera-
tions within Vietnam, evidence indicates that large
amounts of the dollars are supplied from outside
the country.
7. Documents and money captured in mid-1968
provided the first hard evidence that the VC had
been resorting to the use of dollars as a store of
value and as a direct supplement to provincial
level budgets. In July 1968, US forces in Binh
Dinh Province discovered a cache containing $150,000
and 935,000 piasters. Documents also were found
ordering Economic-Finance Sections of provinces
and cities subordinate to MR-5 to convert dollars
to piasters on the black market only when needed
to buy supplies in government-controlled areas.
During the past year captured documents have con-
tained evidence of increased amounts of dollars be-
ing used and of their use in a greater number of
areas. At the highest level, the 1970 budgets of
certain COSVN and PRG agencies indicate that ex-
penditures in dollars would be 75 percent above
the 1969 level. In only two transactions during
the first half of 1970 the VC in Quang Da Special
Zone, which includes Da Nang and most of Quang Nam
Province, are known to have exchanged a total of
$40,000. They also planned to establish a special
currency exchange cell to facilitate conversions.
In August a VC cache of dollars was discovered for
the first time in Binh Tuy Province, where until
1970 no dollar conversions had been reported. The
cache contained $22,500 along with documents indicat-
ing that sizable amounts of dollars already had been
exchanged for piasters earlier in the year. The
funds probably were handled by Rear Services Group
84, a direct subordinate of COSVN.
SECRET
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Vol
8. Although the VC could get a much better
black market rate in Saigon, they apparently prefer
in many instances to convert the dollars in the
locale where the piasters are to be spent. Trans-
port of large amounts of currency into and out of
Saigon may be too risky. The VC also may prefer
to hold dollars as long as possible as a hedge
against further inflation and/or the possibility
that the government may issue a new series of pias-
ters.
9. The share of VC-held dollars acquired out-
side South Vietnam cannot be determined. Neverthe-
less, there is evidence that large amounts come
from outside the country. Documents found in the
large Binh Dinh cache included lists stamped with
Chinese characters of the serial numbers of $50,000
In addition,
the $150,000 found in Binh Dinh were all in $50 bills,
and the $22,500 in Binh Tuy were all in $100 and
$500 bills. Had these notes been supplied from
black market sources within South Vietnam, they prob-
ably would have been in various, and probably smaller,
denominations.
Private Vietnamese-Japanese Joint Venture
10. Subject to government approval, a group of
Vietnamese and Japanese private investors have agreed
to construct a factory to assemble motorized hand
tillers and light marine engines. The plant, which
will be located on land owned by the Vietnamese Con-
federation of Labor (CVT) in Thu Duc near Saigon,
is expected to be completed by the end of 1971. Of
the initial investment of 200 million piasters
($l07 million at the official exchange rate), 49
percent will come from the Mitsubishi enterprises
of Japan and 51 percent from a Vietnamese consortium
composed of the CVT, the CVT's Federation of Tenant
SECRET
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Farmers, the National Federation of Agricultural
Cooperatives, and the New Great South Company.
Actual control of the new company, to be known as
Farmassin, will rest with the Japanese, however,
since the New Great South Co., although registered
as a Vietnamese firm, is managed by Japanese na-
tionals. The new firm has indicated that it in-
tends to increase the proportion of Vietnamese-
produced parts in the assembled products from an
initial 20 percent to over 50 percent by 1977.
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