INTELLIGENCE MEMORANDUM THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700030117-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 22, 2016
• Document Release Date: May 20, 2010
• Sequence Number: 117
• Publication Date: July 1, 1972
• Content Type: IM

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Confidential
DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Economic Situation in South Vietnam
CIA
DC!JMENT SERVICES BRANCH
FLE COPY
Confidential
ER IM 72-117
July 1972
Copy No - - -
I A R i0
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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.
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
July 1972
THE ECONOMIC SITUATION IN SOUTH VIETNAM
1. Economic activity reportedly has increased throughout much of
the countryside during recent weeks, and some revival of consumer demand
has been noted in Saigon.
2. Using his newly acquired emergency powers, President Thieu
issued a decree permitting the government complete flexibility in setting
exchange rates without legislative approval. He also changed mobilization
procedures by tightening up on exemptions and deferments and reversing
the order in which age groups are to be inducted. As a result, the threatened
draft of 39- to 43-year-old males probably will not take place.
3. Of the 845,000 refugees generated since the offensive began,
about three-fourths are still in government camps. Although same tax
increases already have been levied to help pay for the relief effort, more
revenue will be needed. In addition to providing temporary relief programs,
the government is moving refugees from the northern provinces to
permanent new homes in provinces nearer Saigon.
4. Agricultural production rose an impressive 10% in 1971 according
to official esti? gates.
5. Charts on foreign exchange reserves, money supply and prices,
gold and currency prices, and the government budget (Figures 1-4) follow
the text.
Note: This memorandum was prepared by the Office r f Economic
Research.
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Current Developments
6. All indications point to increased economic activity throughout
much of the countryside during the past several weeks and at least a limited
revival of consumer demand in Saigon where certain industries have been
in a serious recession. Despite shelling from the enemy, Hue is reported
to be calm and more active commercially than at the end of June. In Pleiku
and Qui Nhon (Military Region 2), Agricultural Development Bank
branches, which had closed in April, were scheduled to reopen this month.
Rumors of a shift in Military Region 2 regional military headquarters from
Nha Trang to Pleiku reportedly have stirred up hopes of an economic boons
in the latter city. Farther south, Gia Dinh businessmen are chafing at curfew
restrictions,' which limit their money-making activities. Delta farmers
apparently are marketing their produce more aggressively, although sporadic
fighting in Dinh Tuong and other provinces continues to cause short-term
transport problems.
7. In Saigon, retail prices dropped somewhat in late June, but rose
during early July as consumer demand for fresh food items increased. The
USAID index, however, was still only 3% above the pre-offensive level by
10 July (9% for the year). Demand for more durable goods probably will
be slower to revive. The price index for imported commodities, which better
reflects demand for durable goods, was still below the pre-offensive level
at the end of June. Nevertheless, US Embassy officials report that textile
sales increased in early July and that manufacturers were returning to more
normal production schedules.
8. The black market price of dollars, which fell below the legal rats
in June, moved up to 433 piasters per dollar by 10 July, or 8 piasters
above the legal rate. The major factor behind the increase reportedly was
concern that further devaluations would be forthcoming under President
Thieu's recently acquired emergency powers. The rate for MPC (scrip),
which had fluctuated from about 390 to 395 piasters per dollar since
January, also increased during the early part of July, reaching 4.10 on the
10th. The gold leaf price continued its month-long climb in line with the
price of gold in the international market.
Emergency Powers Decrees
9. Under the six-month emergency powers granted him by the
National Assembly in late June, President Thieu enacted decrees on 8 July
further simplifying the exchange rate system and clarifying mobilization
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procedures. The major purpose of the exchange rate measure was to tidy
up the legal complexities surrounding exchange rates and to allow the
government complete flexibility in making rate changes in the future.
Legislation to this effect had been submitted to the National Assembly
last fall but never passed. As a result of the decree the old official rate
of 118 piasters per dollar set in June 1966 - and still valid for a few
transactions - has been abolished. Also abolished was the system of
"parallel market" rates that was established in October 1970 to avoid the
legislative problems of changing the official rate. The government is now
free to set exchange rates for all kinds of transactions without legislative
approval.
10. The new rates put into effect on 10 July, however, represent
very few changes, and these affect only students and government officials
traveling abroad. As shown in Table 1, the new rate for student remittances
and Vietnamese government transactions more than triples the cost of
sending students and government officials (including legislators) abroad. This
added cost may provoke a protest from those affected, but they are
relatively few in number.
Exchange Rates
Piasters per US $
31 Dec 71
9 Jul 72a 10 Jul 72
Merchandise imports
South Vietnamese government
financed
400
425
425
US Commercial Import Program
275
290
290
Merchandise exports
410
500
500
Invisible transactions
South Vietnamese government
transactions and remittances
to students abroad
118
118
425
All otherb
410
425
425
a. During the first half of 1972, exchange rates were raised several times, the last
devaluation occurring on 18 June.
b. Except for US and other governments' piaster purchases for which the rate remained
at 118 piasters per dollar until 1 April 1972.
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11. Continuation of the favorable rate for exports is the most direct
method the government has chosen to promote exports. The Vietnamese
are trying to build up an export development center and increase commercial
representation at Vietnamese embassies abroad, but these processes are slow.
Stimulated by the more realistic exchange rate adopted in late 1971, exports
already have increased this year, and the government is determined to
provide additional incentives for investment in export-oriented activities.
12. The new mobilization decree considerably softens the
government's stance on draft procedures put forth in May. At that timk?
the government announced its intention, under the provisions of the 1968
mobilization law, to draft 39- to 43-year-old males and then the
17-year-olds. Induction of the former group almost certainly would have
caused critical personnel shortages in some economic activities. The new
decree, however, reverses the order in which these age groups will be
inducted and probably puts the older age group entirely out of reach of
the draft. Moreover, it is not clear at this point when or even whether
17-year-olds will be drafted, since the new law also tightens up on
exemptions and deferments for 18- to 38-year-old males. Most student,
religious, economic, and hardship exemptions and deferments have been
eliminated, although many of those previously exempt or deferred will be
mobilized in-place and thus be able to continue in their present occupations.
13. President Thieu's plans for further use of his emergency powers
reportedly include tax increases that would primarily affect upper income
groups. Higher taxes on some luxury-type commodities were levied in May
under Thieu's existing authority, but he apparently preferred to wait for
full emergency powers before taking further action. According to US
officials, new measures probably will include higher gasoline and motor
vehicle use taxes as well as revised schedules for income and property taxes,
which were submitted to, but not passed by, the National Assembly. The
government probably also will enact by decree the tariff reforms put into
effect last November but never ratified by the legislature.
Refugees
14. Several thousand refugees have returned home as fighting has
subsided, but the military situation still prevents the majority of them from
going back to their villages. US officials estimate that as of 13 July 845,000
persons had become refugees since the start of the offensive at the end
of March. Of these, 643,000 are currently in government refugee sites and
an unknown number are living with relatives and friends (see Table 2).
Although the number currently in camps represents a decline of about
50,000 from the peak of late June, the government still faces an eno;;nous
and persistent problem.
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Located in Government
Percent of Province Refugee Centers
Thousand Population (Thousand)
Quang Tri 250.0 78 -
Thua Thien 110.0 15 46.4
Quang Nam 34.0 3 237.3
Quang Tin 30.1 7 20.1
Quang Ngai 60.8 9 61.4
1
2
19
2
Negl.
it
Negi.
2
Negl.
Kontum 35.0 29 9.6
Pleiku 45.0 20 35.6
Binh Dinh 86.0 9 59.3
Phu Bon 3.7 6 3.0
Phu Yen 9.5 3 10.8
Darlac - - 9.0
Khanh Hoa - - 29.5
Ninh Thuan - - 1.6
Tuyen Duc - - 0.9
Lam Dong - - 0.7
Binh Long 45.0 57 -
Phuoc Long 7.9 16 4.4
Binh Duong 4.2 2 31.4
Tay Ninh 10.0 3 2.0
Hau Nghia 18.0 8 8.2
Bien Hoa - - 18.0
Phuoc Tuy 27.9 13 11.0
Long Khanh - - 4,8
Chau Doc 6.5
Kien Phong 9.9
Kien Tuong 9.5
Kien Giang 8.9
Vinh Binh 2.0
Chuong Thien 27.7
Ba Xuycn 2.5
An Xuyen 5.6
Dinh Tuong 2.5
6.3
3.7
1.8
20.0
2.3
2.5
1.0
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15. Government relief efforts continue to be adequate in most areas,
but the costs will put considerable strain on the budget. According to official
estimates, temporary relief (mainly food and miscellaneous services for
90 days) for 850,000 refugees and resettlement or return-to-village benefits
for three-fourths of that number would take up about 4% of the 1972
budget, or about 14 billion piasters ($32.9 million converted at
425 piasters per dollar). From 31 March to 15 June the government spent
an amount equivalent to one-third of the total 1971 refugee budget, and
this amount did not include the coat of shelter, services, and food from
existing stocks. Some financial relief will come from the tax increases levied
in May, and revenues from some of the new tax measures being planned
(see paragraph 13) also will be earmarked for refugee programs.
16. The government has begun to move some refugee families from
Military Region 1 to permanent new homes in Military Region 3. Known
as Land Development and Hamlet Building, this program got under way
on a small scz a in January but has taken on added urgency since the
offensive began. Already about 14,000 persons have been moved - most
since the offensive began -- from Quang Tri, Quang Tin, and Quang Ngai
Provinces down to Long Khanh and Phuoc Tuy in Military Region 3, where
the government has built new villages on unused land. Participation is
voluntary, and most of those involved have been in refugee camps for a
long time with no hope of ever returning to their own villages. Some 3,000
of them are former refugees who had found work at the US base at Chu
Lai (Quang Tin Province) but were left without jobs when the base cloned.
The resettlement program has not in all cases enabled the refugees to escape
the war. The enemy has made a point of attacking the new villages, and
many of the settlers have been forced to flee once again to nearby towns.
People still are moving down from Military Region 1, but the resettlement
program clearly cannot fulfill its goal of making the refugees self-supporting
until security can be assured.
1971 Agricultural Production
17. For the third consecutive year, South Vietnamese agricultural
production registered an impressive gain. According to the official
production index,(1) output rose 10% in 1971, compared with increases
of 12% and 9% in 1969 and 1970, respectively. In contrast to previous
years, however, increased output was reported for almost all crops, and
the total cultivated area increased considerably - 5%. Although greater
double-cropping of rice accounted for a large part of the increase in
cultivated area, the area planted to other crops rose for the first time in
1. The index excludes forestry and fishing.
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CONFIDENTIAL
many years. Security conditions apparently were good enough in 1971 to
permit the re.ultivation of some abandoned land.
18. According to statistics available from the Ministry of Agriculture
(see Table 3), there were substantial increases in the output of vegetables
(12%), peanuts (16%), and rubber (15%). The latter increase was entirely
due to higher yields because the areas of trees tapped declined slightly.
Production of subsistence crops such as sweet potatoes and manioc, which
had declined steadily for several years, showed a surprising upturn. Improved
security probably was the major factor behind the increases for these crops,
which are grown mainly in the lowlands of Military Regions 1 and 2. Output
of sorghum - a relatively new crop to South Vietnam - rose dramatically
last year as the area planted increased from 1,000 to 14,000 hectares.
Sorghum production for animal feed is a high-priority program being
sponsored by US agricultural, advisers. There seems little doubt that livestock
production also rose substantially, but it is impossible to say how much.
The official index reflects only changes in the livestock population, not
the output of animal products.
19.. Despite losses from the enemy offensive estimated at 100,000
metric tons, the 1971 rice crop(2) still was up 9% over the previous year.
As was the case in 1969 and 1970, most of the increase was the result
of greater use of high-yielding varieties of seed. The new varieties were
grown on one-fourth of the total area cultivated to rice (including that
double cropped) and accounted for more than 40% of production.
20. Forestry and fishing also made rapid gains in output in 1971.
The Directorate of Fisheries reported an increase of 14% in the marine
and fresh water fish catch for another record high level. Production of logs
reportedly increased 62%. Some,. but not all, of this increase probably
reflects underrecording in the past.
2. The crop year ended 31 May 1972.
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Table 3
Output of Selected Agricultural Products
Thousand Metric Tonsa
1964
1969
1970
1971
Rice (paddy)
5,185
5,115
5,716
6,224
Sweet potatoes
301
226
220
230
Manioc
289
234
216
270
Corn
46
31
31
34
Peanuts
36
34
32
37
Fruits
526
440
473
498
Vegetables
1 08
235
218
244
Coconuts (million nuts)
141
98
118
125
Sugar cane
1,055
321
336
340
Tobacco
7
8
8
9
Tea
5
5
5
6
Coffee
3
4
4
4
Rubber
74
28
33
38
a. Except as noted,
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SOUTH VIETNAM
Foreign Exchange Reserves*
Million US Dollars
Figure 1
May
207
1966 1967 1968 1969 1970 1971 1972
'Excluding holdings of commercial banks
514052 7.72 CIA
SOUTH VIETNAM
Indexes of Money Supply and Saigon Consumer Prices
January 1965=100
Figure 2
10 July
872
*USAID monthly average retail price index for Saigon
"Data Pre for end of month
314053 7.72 CIA
MAY JUN
1972
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SAIGON
Free Market Gold and Currency Prices
Piasters Per US Dollar
Figure 3
300
100
1366 1967 1968 1969
GOLD Basis: gold leaf
worth $35 per troy ounce
US $10 MPC Military
Payment Certificates (scrip)
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SOUTH VIETNAM
Government Budget*
Billion Piasters
For ai[Io Aid ' d
1(1,13011 Tnan
130"1081 1, TOPS
OWN-
REVENUES
1971
Preliminary
1972
Plan
Figure 4
*Data include extrabudgetary revenues and expenditures.
"Residual. Financed primarily by borrowing from the National Bank.
""Includes customs duties and other import taxes, counterpart funds
generated by US-financed import programs, and profits from foreign
exchange transactions. A major result of the November 1971 reforms
was to make explicit a greater share of US aid to the budget that ear-
lier took the form of high customs duties on aid-financed imports.
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