THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010094-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: May 18, 2010
• Sequence Number: 94
• Publication Date: July 1, 1971
• Content Type: IM

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Secret
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Economic Situation In South Vietnam
Secret
ER IM 71-142
July 1971
Copy No.
203
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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 revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
CROUP I
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downg,odinq and
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 1971
INTELLIGENCE MEMORANDUM
THE ECONOMIC SITUATION IN SOUTH VIETNAM
Highlights
1. South Vietnamese industrial production continued to increase at
a rapid -rate in 1970, and employment reportedly also increased
substantially. New investment by existing firms appears to be steadily
growing.
2. The Japanese government has agreed to soft loans totaling $21
million for public utility projects in South Vietnam. Tokyo is telling Hanoi
that North Vietnam can expect the same kind of assistance once the fighting
dies down in the South.
3. In mid-July, Saigon retail prices were only 1% above the level
of December 1970. The money supply remained virtually unchanged from
January through May.
4. The black market price of dollars has been relatively stable
since mid-May and was 372 piasters per dollar on 12 July.
5. Because of the rare opportunity it presents to compare current
economic conditions in rural areas with those prevailing On years ago, we
have summarized an excellent State Department report on two villages in
South Vietnam, one in Vinh Long Province in the Delta and the other
in Quang Nam Province in Military Region 1. Developments in the two
villages are in sharp contrast: the standard of living in the Delta farming
village has improved tremendously, while living conditions in the northern
coastal fishing village have changed very little.
6. Charts on foreign exchange reserves, money supply and prices,
import licensing, gold and currency prices, and the government budget
follow the text.
Note: This memorandum was prepared by the Office of Economic
Research.
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25X1
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Industrial Gains
7. Industrial output in South Vietnam continued to grow at a rapid
rate in 1970. The National Institute of Statistics' index of industrial
production increased 14% in 1970, compared with an average annual rate
of 11.5% during 1963-69. Increases in output of the most important
products (see the tabulation, below) ranged from 4% for soft drinks to
54% for cotton yarn. Partial data for the first quarter of 1971 show
continued large increases for most items. Output of only one major
product cigarettes - declined in 1970, probably a-, a result of competition
from American cigarettes in the black market. According to a recent report
every authorized PX customer buys about 39 packs per month, whereas
in Okinawa and Japan the comparable figures are 24 and 13 packs per
month, respectively.
total PX sales of cigarettes in Vietnam indicate that
Unit of
Percentage
Commodity
Measure
1969
1970
Change
Beer
Million
liters
134.2
148.7
11
Soft drinks
Million
liters
120.4
125.7
4
Refined sugar
Thousand
metric
tons
108.4
115.5
7
Cotton yarn
Thousand
metric
tons
7.6
11.7
54
Cotton fabric
Million
meters
50.4
58.0
15
Cigarettes
Thousand
metric
tons
10.5
9.7
-8
Glass bottles
Thousand
metric
tons
16.5
I8A
14
Cement
Thousand
metric
tons
247.2
285.8
16
Paper and
paperboard
Thousand
metric
tons
33.2
42.8
29
Electric power
Million
kilo-
watt
hours
1,045.4
1,134.2
8
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8. Many industrial firms are expanding their facilities, and more are
expected to follow. The rate of new investment is indicated by the value
of machinery i n equipment authorized for import under AID's Commercial
Import Program, through which South Vietnam requires almost all such
imports be financed. In 1969, authorized imports of machinery and
equipment amounted to about $10 million, most of which consisted of
equipment to replace losses from the 1968 Tet and post-Tet offensives.
Almost $16 million worth of machinery imports were approved during 1970
and another $8 million during the first quarter of 1971. US officials expect
the total to reach $50 million this year. Available data for 11070 and 1971
show imports ranging from $105,000 for a monosodium glutamate company
to $5.7 million for the joint American-Vietnamese Vimytex textile firm.
With few exceptions the projects approved have been for the expansion
of existing firms and not for new enterprises.
9. In May 1971 the capacity of the sugar refining industry was
expanded by about 40% with the opening of a new sugar mill in Quang
Ngai Province. Planning and construction of the government-owned mill
began in 1964, but lack of security delayed both construction and
installation of equipment. While Vietnam's two other sugar companies
(both government-owned) have relied almost exclusively on imports of raw
sugar for the past three or four years, the Quang Ngai mill will refine
domestic sugar cane. The output of sugar cane has dropped sharply since
1965 largely because the government prohibited planting in many areas in
order to deny the protective cover of the cane fields to the enemy. With
improved security, however, the government now has launched a campaign
to encourage the cultivation of sugar cane in Quang Ngai, which generally
provides 10%-15% of total output.
10. Along with the growth of output and expansion of facilities, there
was a sizable increase in industrial employment in 1970. A Ministry of
Labor survey in Saigon among several branches of industry employing more
than 1,000 workers shows increases in average monthly employment ranging
from a low of 3% in tobacco manufacturing to a high of 64% in metal
fabricating industries. Employment by beverage firms increased 8% in 1970,
and the number of workers in the textile industry, South Vietnam's largest,
rose 24%.
New Japanese Loans
11. The Japanese government has decided to provide two additional
loans to South Vietnam amounting to $21 million for the construction
of a thermal powerplant at Can Tho in the Delta ($16 million) and the
installation of a telephone exchange in Saigon ($5 million). Last fall the
Japanese agreed to lend South Vietnam $4.5 million to build a diesel
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generating plant in Saigon (the contract was signed in January 1971). The
terms of the new loans are the softest yet given by the Japanese
government - repayment in 25 years, including a seven-year grace period,
with interest at 3% per year. The earlier loan for the Saigon power station
called for repayment in ten years, including a three-year grace period, and
interest at 6% per year. Final negotiations on the Can Tho loan are expected
to be completed soon, after which Tokyo will give the go-ahead for the
telephone loan.
12. Aware that the projects they are sponsoring are vulnerable to
sabotage, the Japanese are trying to protect their investments by telling
Hanoi that once fighting dies down in the South they will be giving North
Vietnam the same kind of assistance now being given South Vietnam.
there has been no direct response from Hanoi 25X1
13. Saigon retail prices remained relatively stable during June and the
first half of July. As of 12 July the USAID index had increased only 1%
since the end of last year and only 3% since July 1970. The price index
for imported commodities also was stable during June and was only 8%
above the level of December 1970. The money supply has remained
essentially unchanged from January through May.
Currency and Gold
14. The Saigon black market price for dollars has held fairly steady
since it declined in mid-May as a result of the world monetary situation
and the crackdown on smuggling at the Saigon airport. On 12 July the
rate for dollars was _72 piasters per dollar, or 7% below the April level.
The rate for MPC (scrip) was 266 piasters, 9 piasters below the legal rate.
The price of a dollar's worth of gold leaf has declined since the middle
of June and by 12 July had fallen 21 piasters to 488 Fiasters.
Ten-Year Update of Village Studies
15. The following crticle is a summary of an excellent State
Department report of June 1971 (Saigon A-90) comparing economic
conditions in two South Vietnamese villages, one in the Delta and one in
Military Region 1, and reporting the changes that have occurred in these
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villages since they were studied by an advisory team from Michigan State
University in 1960-61. The existence of the earlier studies provides a rare
opportunity to see in detail how the lives of at least some villagers have
been affected by the war and other factors during the past decade. The
villages were not selected for study because they are considered "typical,"
but simply because they are two of the few for which there is some
description ten years ago. In fact, the Delta village is not "typical" in several
respects: (1) it is on the main commercial highway through the Mekong
Delta; (2) it is a center for marketing; and (3) it houses the district
administrative offices. The author demonstrates once again that
generalizations about South Vietnam and the effect of the war on the
countryside can be extremely misleading. There have been dramatic
improvements in living standards in the Delta rice farming village, but
conditions have changed very little in the fishing village on the northern
coast.
My Thuan Village
In 1960, a Michigan State University (MSU) team visited My Thuan
Village, Binh Minh District, Vinh Long Province, and found that agricultural
practices were not highly developed, the standard of living was low, and
icicentives to improve were lacking. In 1971, with slightly less favorable
security conditions and fewer hectares under cultivation, the village is
prosperous, rice farming has been modernized with capital inputs, and the
population has aspirations similar to those of Saigon's citizens. The MSU
team described the dirt footpaths along the canals in front of widely
separated, thatched-roof houses. Many of the footpaths are now paved with
concrete, and many primitive wooden bridges have been replaced with
concrete or steel footbridges. Because of insecurity, many people moved
from the outer hamlets into the areas along National Route 4, with the
result that houses are now built close together. A majority of the houses
now have tin or tile roofs and many of them are built of concrete and
brick. Hondas are in evidence, al! the sampans have long-shaft boat motors,
almost every house has a radio, and many farmers, when not working, can
be seen in slacks and western-style shirts.
Now almost everyone lives the way the old landlords did, according
to the old man who was the village chief in 1960. Most farmers now finance
their operations out of their own capital. The old cycle of debt to finance
a crop, harvest to pay off the debt, and then debt again to finance the
next crop has been broken. Day-labor, which was once abundant and cheap,
has become scarce and expensive. The number of business establishments
now total 232, up 42% from 1960. Most stores are now two-
and three-story brick buildings instead of the one- story wooden or thatch
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houses the MSU team saw. New types of business activity include radio
and TV sales and repair shops, beauty parlors, ice cream stores, and bakeries.
The increase in material wealth apparently has altered some social
patterns. Because farming has been mechanized and farmers are better off,
older children are more free to pursue an education. All children now
complete the first three grades, half continue through elementary school,
and about one-fourth complete high school. There are now 30 classrooms
compared with 15 in 1960, and there is now a public high school, a private
Hoa Hao high school, and a Catholic elementary school. Another shift in
social patterns is that farmers now work their fields and stay in the village
most of the year. In 1960, they farmed about half the year and then sought
work elsewhere for the remaining five or six months.
The prosperity found in My Thuan stems from changes in agricultural
production that have lifted farmers out of subsistence farming and allowed
them to produce a surplus each year which can be used for capital
improvements or higher levels of consumption. The first noticeable
improvement occurred in the mid-1960s as paddy prices began to increase
much faster than the cost of living. This development, however, did not
affect the majority of families who produced only enough rice to feed
themselves. Not until the introduction of I R-8 rice seed and its
accompanying technology did most farmers begin to produce a surplus
enabling them to take advantage of the high prices. According co one group
of farmers, the price of paddy in 1971 was ten times the 1960 level, while
the cost of living rose much less. The price structure and the available inputs,
especially since the introduction of I R-8 in 1968, have interacted to
modernize agriculture. The water pun,r, made by adding a sleeve to
a long-shaft boat motor, allows for better w? ter control and has substituted
for improvement of irrigation systems. The water pump, therefore, has
permitted double cropping where none existed in 1960. Fertilizer is available
at reasona,le prices, and tractors and rototillers plow fields earlier, more
efficiently, and more cheaply than water buffalo. Thus, since
the mid-1960s, higher prices for paddy have allowed farmers to buy or
use some of the new technology that generated a much higher return, which
then allowed even more investment.
Much of the economic progress in My Thuan, especially in recent years,
has been the result of GVN- or US-sponsored programs and policies. IR-8
was introduced in 1968 by the GVN agricultural extension service, although
the US-sponsored Village Self-Development Program and the private market
were mainly responsible for the widespread use of the new seed. The
government's Agricultural Development Bank has helped some farmers
acquire the mor' expensive elements of the new technology. In addition,
the government policy of providing both luxury -goods for consumption
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and cheap inputs such as fertilizer has stimulated investment for increased
production. Finally, the government's decision to let the price of rice
increase permitted the trend of a higher return for agricultural investment
to continue, allowing the new prosperity to work its way down to the
poorer families.
The MSU report on My Thuan in 1960 concluded that little innovation
in agriculture could be expected unless security improved and land tenancy
ended. In My Thuan today, however, the security situation is roughly the
same as it was then, if not worse, and land tenancy has declined dramatically
only since the land reform law was passed in 1970. The village is at the
base of a famous VC staging area known as the "Y" in Sa Dec Province.
In 1960, people lived and farmed throughout the village, even though
officials rarely ventured far from the area along Route 4. At present, the
northern two-thirds of the village is more or less deserted except for some
Popular and Regional Forces outposts. The area planted to rice is 20%
smaller than in 1960, and between 1965 and 1969 it was smaller yet.
Economic progress has occurred only in the more secure part of the village
along Route 4. Yet, even in the secure area there is considerable VC
taxation.
The' concentration of population in the secure area of the village has
put a real premium on land. Landlords have rented land to refugees from
the northern hamlets on the condition that they do not ask for title under
the Land-to-Tiller law. Tenant farmers who have always lived in the secure
area, however, are asking for ownership, and 515 titles have been distributed
during the past year. It is cheaper to rent land in the secure area (20%-25%
of the crop) than to farm land under VC surveillance (30% and even more
for I R-8 growers). Most families who farm out where the VC can contact
them work only enough land to pay the tax and feed themselves. VC tax
policy is designed to keep the farmers at the subsistence level and thus
prevent them from acquiring bourgeois attitudes which will tie them closer
to the government.
After 11 years, My Thuan is not the same village. The economy, at
least, has been transformed even in the midst of war. Prosperity has become
general, not just for the few, and it has changed social attitudes and patterns
of behavior as well.
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Cam An Village
In striking contrast to the history of My Thuan during the past decade,
a return visit to the northern coastal fishing village of Cam An, Hieu Nhon
District, Ouang Nam Province, revealed that the standard of living has not
improved for most of the population. The impact of the war has been
heaviest in Military Region 1 and Cam An has not escaped its effects. One
of its four hamlets has been abandoned, curfews restrict the fishing, and
the influx of refugees has doubled the population. The only part of the
village where people's lives have improved is the island hamlet of Tan Hiep,
which is .17 kilometers out to sea. The mainland part of the village is located
on sand dunes at the mouth of the Thu Bon River about four kilometers
from the province capital of Hoi An. As in 1961, when the Michigan State
University group studied Cam An, 90% of the households are engaged in
fishing. The only farming in the village is conducted on a few hectares
of rice land on the island.
The fishermen of Cam An appear to be on a treadmill. Motors and
nylon nets have allowed them to work longer, go farther out to sea, and
expand their catch, but the increase in the cost of living has held profit
margins substantially unchanged. In Cam An the price of rice has increased
almost 800% during the past ten years, while fish sells for only 200% more
than it did in 1961. The fishermen complain that they are more heavily
in debt than ever before and that the risk of motor breakdowns is very
serious, adding a major new element of anxiety. Boats, which should be
new every five years to avoid rot and worms, are old and worn and must
be bailed out constantly when sailed. The increase in the number of
fishermen also has kept profit margins down. In 1961 there were 369 boats
registered in the village, and now there are over 700. With so many fishermen
and an increase in the catch, middlemen are under no pressure to bid high
prices for fish. Moreover, the once major market of Da Nang now has a
large fishing community of refugees itself. Local demand, however, has
increased because of the refugee camps near Hoi An.
The people of Cam An believe the curfew restrictions on entering and
leaving the estuary are a major obstacle to improving their well-being. They
point out that fishermen on the island hamlet are not restricted by curfews
and are relatively well-to-do. Removal or reduction of the curfew, however,
probably would not help much, because the boats are so small that a few
more hours of fishing would not increase the size of the catch sufficiently
to increase profit margins substantially.
The stagnation in Cam An can be seen in many other ways. Most
houses are still thatch and very small. Schools have not been expanded,
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teachers have not been provided, and the wealthier families have moved
out. The boat builders who worked in Cam An in 1961 have all moved
to Da Nang. There are no buses between the village and the province capital.
The village office, destroyed in 1967; has not been rebuilt. A large fish
market, built at provincial insistence, is not used because of VC sniper fire
from across the canal.
Conditions on the island hamlet of Tan Hiep provide the one exception
to the story of Cam An's hardships. People who moved to the island to
avoid the fighting on the mainland have prospered in fishing. Since 1961
the population has grown from 325 to almost 4,000 and the number of
fishing boats from 14 to 250. Houses are substantial, many with concrete
floors and wooden walls. Radios and sewing machines are in abundance
(there are several generators), and people are better dressed. Ten large
trawlers work off the island, and buyers come to the island to purchase
the fish. There are many little shops handling a variety of goods and even
two new houses of ill-repute.
Other than on the island, the standard of living in Cam An has not
changed during the past decade. New prollits from technical innovations
have gone to maintain a low standard of living in the face of rising costs.
As in 1961, the people still aspire to a life with better houses, iess debt,
and more luxuries.
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SOUTH VIETNAM
Foreign Exchange Reserves*
Million US Dollars
!.r
+:iJl~Yi '~ ni '`R"~"Y
x ~ u M. ~'rG'~p11fn I'7~1~~%'Fe -1.r ~fr~V esvv..;w'..~ttht
t 1,t4~, (N \~~~P` f.~ Yet{ s v' ~P}F Y C 7. ye"~t T rit ..~ i r,!
w"',~.b.+.~:G1aLn'5+~.. ~
'~. 6?~ tic&.~w >
1965 1966 1967 1968 1969 1970 1971
'Excluding holdings of commercial banks
511697 7.71 CIA
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000 JANUARY 1966-100 I I I I Jun
goo I I
SOUTH VIETNAM
1000 Indexes of Money Supply and Saigon Consumer Prices
'USAID monthly average retail price index for Saigon
"Data are for end of month
12 Jul
706
.I ,I 11I I .I I III
MAY JUNE JULY
1971
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IMPORT LICENSING
Million US Dollars
Commercial Import
Program
GVN Finnncad
1965 1966 1967 1968 1969
Total
407
Total
660
Total
531
Total
624
Total
740
1970
Total
641
January through
May only
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SAIGON
Free Market Gold and Currency Prices
Piasters Per US Dollar
1965 1966 1967 1968 1969 1970
GOLD Basis: gold oat worth
$35 per troy ounce
US $10 GREEN
US $10 MPC Military Payment
Certificates (scrip)
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GOVERNMENT BUDGET`
Billion Piastors
Advnncoo from
National Drink
Forulpn Aid
Domontic Two
Import Tnxon
EXPENDITURES
Civil inn
M11110 "Y
1965 1966 1967 1968
1970 1971
Preliminary Plan
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