THE SITUATION IN SOUTH VIETNAM - 1967/11/20

• Document Type: SPECIALCOLLECTION
• Collection: Tet Declassified
• Document Number (FOIA) /ESDN (CREST): 02983808
• Document Creation Date: July 27, 2018

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DIRECTORATE OF
INTELLIGENCE
Intelligence Report
The Situation in South Vietnam
(Weekly)
et
150
20 November 1967
No. 0377/67
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
THE SITUATION IN SOUTH VIETNAM
(13 November - 19 November 1967)
CONTENTS
Section
POLITICAL SITUATION
Thieu outlines organization of President's
office; Lower house politicking; Lower
house activities; Senate rules drafting
continues; New political party developing;
Revolutionary Dai Viet split continues;
Buddhist reconciliation efforts.
REVOLUTIONARY DEVELOPMENT II
Status of prisoners in South Vietnam;
Security in Quang Ngai and Quang Nam
provinces; Revolutionary Development
cadre; Vietnamese armed forces in
Revolutionary Development.
ECONOMIC SITUATION III
Prices; Currency and gold; New economic
administration; Import situation; Infestation
of stored US rice; Inflation - the cost of
More piasters.
ANNEX: Weekly Retail Prices in Saigon (table)
Saigon Free Market Gold and Currency
Prices (graph)
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I. POLITICAL SITUATION
President Thieu reportedly intends to
organize the office of the presidency under
a secretariat general with three subordinate
offices which will handle routine paper
work and serve as a channel between the
presidency and other government components.
The new Democratic Bloc in the lower house
has apparently got off the ground after
some initial difficulties and has reportedly
already attracted 50 deputies. The Movement
for the Renaissance of the South reportedly
intends to work as an opposition group in
the house, but will moderate its opposition
with a view toward possibly joining a pro-
government bloc in the future. The Senate
has established 12 standing committees and
has approved draft rules dealing with their
duties, but in general work on the rules
is proceeding slowly and may not be completed
until well into December. The question of
a status of forces agreement arose in the
Senate and will probably be much talked
about in future sessions.
Senator Tran Van Don, provisional president
of the assembly's Farmer-Worker-Soldier
group, has announced that another group
of which he is also the provisional head,
the Freedom Fighters' Association, intends
to establish itself as a political party.
Factional differences continue to split
the Revolutionary Dai Viet Party, and Senator
Nguyen Van Ngai is proceeding with attempp
to consolidate his position in order that
his faction can break away and form a new
party. A conglomerate of Buddhists and
politicians met on 12 November in an attempt
to resolve the charter dispute, but the
meeting proved largely inconclusive.
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Thieu Outlines Organization of President's Office
1. President Thieu outlined his plans for or-
ganizing the office of the presidency in a recent
meeting with his political advisers.
Thieu intends
to organize the office under a secretariat general
with three subordinate functional offices to handle
routine paper work and to serve as a channel between
the presidency and other government components.
The office will also include two advisory councils
and a staff of technicians and personal assistants.
2. Thieu apparently believes that such an or-
ganization will strengthen the power of the presidency
and will permit close liaison between himself and
the US. He told his advisers that the proposed or-
ganization should also help facilitate US technical
and advisory support to government programs. He
expressed confidence that closer collaboration with
the US was possible in light of the fact that the
US has recently expressed strong support for his
leadership.
Lower House Politickin.
3. Following a few unsuccessful attempts in
late October to get off the ground, the new Democra-
tic Bloc in the lower house now appears to be well
on its way--apparently with a little push from the
government--to becoming a significant force in the
house.
4.
On 2 November,
32 lower house deputies met with Vice Presi-
dent Ky and agreed in principle to form a progovern-
ment bloc in the house. They also pledged to support
the candidacy of deputy Nguyen Ba Luong for permanent
lower house chairman and to accept Luong as their
bloc's titular leader.
5. Hoa later
met with National Police Director Loan, who claimed
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he had received pledges from an additional 20 depu-
ties, thereby raising the bloc's membership to ap-
proximately 50. Several days later, Luong announced
the bloc's formation in a Saigon Post article and
described it as a 50-man body with plansfor further
expansion.
6. Some of these expansion plans apparently
involve offers of money to fence-sitting deputies,
and at-
tempts to lure deputies away from already established
blocs. Several deputies, many from the Farmer-Worker-
Soldier group, have reportedly been offered varying
sums of money, in addition to promises of full room
and board while they are in Saigon, if they will
join the bloc. The attempt has been unsuccessful
in a number of cases, including that of Duong Van
Be, interim secretary general who allegedly was
offered about $850, by Nguyen Ba Luong, but at least
two montagnard members of the Farmer-Worker-Soldier
group have reportedly defected to the Democratic bloc.
7. Another group in the lower house has also
been busy formulating its plans. Eight officers of the
Movement for the Renaissance of the South, including
its leader in the lower house, Ly Quy Chung, decided
at a meeting on 7 November that the movement would
work as an opposition group in the house
Its oppostion, however,
will be moderate, and it may eventually join with
a progovernment bloc. The officers further agreed
that, while the movement will never join a pro-Ky
group, it might consider joining a pro-Thieu group
at some time in the future if Thieu's actions prove
acceptable.
8. In the meantime, the movement wants to form
its own house bloc and avoid a merger with any other
groups in order not to be bound by decisions with
which its own members might not agree. To this end,
Chung agreed to work for the adoption by the house
of a 20-deputy minimum for the formation of an of-
ficially recognized bloc, rather than the 30-deputy
limit already suggested. The movement feels it can
attract enough additional members in the house to
supplement the 11 to 13 deputies who are already
members or are supported by the movement.
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Lower House Activities
9. Lower house plenary sessions during the
period 13-16 November have been largely concerned
with validating the election of its membership and
a debate over the resolution put forward by 30 mem-
bers regarding the 17 students drafted as a result
of their anti-election demonstration activity. So
far, the sessions of the lower house have been more
disorganized and livelier than those of the upper
house, due largely to the ineffectiveness of the
temporary chairman, Nguyen Ba Luong, and the unfa-
miliarity with parliamentary procedures of its mem-
bers. It also appears that opposition elements will
have an influential voice in this assembly judging
by their performance on the student resolution issue.
10. As of 16 November, the lower house had vali-
dated the election of some 100 of its 137 members.
Validation is a continuing process carried on by the
validation committee, with each case discussed indi-
vidually on its own merits and presented to the as-
sembly for its vote. To date, the committee has
recommended validation in each case and the assembly
voted to accept its recommendations. Remaining cases
will probably be disposed of in the next few days.
11. A rather lengthly debate was centered on
resolutions to intervene with the government in some
way on behalf of the 17 students who were arrested
and drafted for anti-election demonstration activity.
The issue was finally settled by deciding to appoint
a ten-man committee composed of two representatives
from each of the corps areas and Saigon and Gia Dinh
to "intervene for return to civilian life" of the
student demonstrators. The committee reportedly
will look into the whole matter of "illegal detainees."
Three of the committee members, Nguyen Trong Nho,
Nguyen Dai Bang, and Truc Vien, were strong supporters
of the original resolutions and are expected to play
a major role in the new committee. These three men
may be generally characterized as opponents of the
present government.
Senate Rules Drafting Continues
12. During its continuing consideration of draft
rules submitted by the rules committee, the Senate on
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9 November approved the establishment of 12 standing
committees and decided against having a secretary
general on its board of presiding officers. At sub-
sequent sessions on 11 and 14 November, nine articles
dealing with the duties of these standing committees
were approved.
13. The 12 committees are agriculture; educa-
tion, culture, and youth affairs; communications
and public works; economics; labor and social wel-
fare; budget, finance, and taxes; information and
foreign affairs; interior; defense; judiciary;
health; and internal affairs and rules. Each will
include between five and ten members, with the excep-
tion of the budget and finance committee, which may
have as many as 15. Each committee may form subcom-
cittees.
14. In discussing its presiding officers, the
Senate voted to forgo election of a secretary general
and establish instead the internal affairs and rules
committee. The position of secretary general was
one of considerable power in the Provisional National
Assembly, and the senators were apparently reluctant
to vest so much power in one man again. The committee
will probably be responsible for such tasks as con-
trolling the agenda and ruling on legislative pro-
cedures.
15. A major point of contention arose during
the debate on 11 and 14 November on articles dealing
with the standing committees' duties. Several sen-
ators attempted to have responsibility for defining
the status of allied forces assigned to either the
information and foreign affairs committee or the
national defense committee. In both cases, the move
was disapproved, although a provision was included
as an "annotation" to the defense committee article
by which the committee "examines and reports to the
upper house on regulations for allied military forces
on the territory of the Republic of Vietnam, when
such forces are here." Senator Tran Van Lam later
told an embassy officer that he expects the status
of forces question to rank high on the Senate's list
of priorities.
16. Work on the rules has begun to slow after
the Senate's energetic start earlier in the month.
Some 59 articles of the more than 200 have been ap-
proved thus far. The rules drafting process will
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probably continue well into December, contrary to
some earlier optimistic predictions that it could
be completed by mid- or late November.
17. There was a lively debate on 15 November
over the rules governing the establishment of blocs
within the Senate. The rules drafting committee
had proposed that the minimum number to constitute
a bloc should be 21--which would have insured the
creation of no more than two blocs in the 60-member
upper house. This course, according to the committee,
would facilitate the movement toward a two-party
system and would be in the spirit of Article 100 of
the constitution which states, "The Nation encourages
progress toward a two-party system." The committee
also argued that in its opinion any rules which do
not foster such progress would in a sense be uncon-
stitutional. Only ten senators, however, voted
for the committee's proposal.
18. The Senate than went on to approve its
own measure from the floor to set the minimum bloc
membership at 15, which will allow as many as four
blocs to be organized. The argument from the floor
against the committee recommendation was that while
the constitution commits the nation to "encourage"
progress toward a two-party system, it says nothing
about forcing such movement.
New Political Party Developing
19. Senator Tran Van Don announced in early
November that a group composed largely of retired
generals and formed originally in July as a veterans
association intends to become a political party.
During a subseqent conversation with an embassy of-
ficer, Don, who is the provisional chairman of the
group, known as the Freedom Fighters' Association,
clarified the association's objectives and plans.
20. He does not expect that the group can be
organized as a political party--a process which he
says requires the establishment of national, provin-
cial, and village structures throughout a large part
of the country--for at least a year and possibly two.
Don has already begun establishing contacts in some
areas with persons who will probably agree to or-
ganize local chapters, but little beyond this has
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yet been accomplished. He foresees a mass organiza-
tion which can successfully compete with the Communists'
mass appeal, but no platform or program outlining this
concept has yet been drawn up for the association.
Among those on the association's executive committee
are retired generals Ton That Dinh, Tran Tu Oai, Le
Van Nghiem, Mai Huu Xuan, Nguyen Van Chuan, and Thai
Quang Hoang. Former General Pham Van Dong is also
an association member, serving as chairman of the
group's Saigon chapter.
21. As for the association's relationship with
the Farmer-Worker-Soldier group, of which Don is
also provisional president, he told the embassy of-
ficer that the two groups would develop Independently,
while maintaining considerable liaison because of
their partially overlapping leadership. Although
it is not yet clear what Don's personal relationship
to the two organizations will be in the future, his
reference to the overlapping leadership--he and Ton
That Dinh are the only two Individuals who overlap--
indicates that he intends, at least for the time
being, to keep his hand in both groups. He may hope
that by doing so, he can attempt a merger of the
two groups if one appears to be foundering or can
save his own political skin by falling back on one
group if the other fails.
Revolutionary Dai Viet Split Continues
22. Another already established political party
is having factional difficulties and is apparently
heading for a permanent split. A rift in the Revolu-
tionary Dai Viet Party developed in early October
when party leader Ha Thuc Ky and a few of his followers
on the central committee refused to go along with
a decision of the majority, led by Senator Nguyen
Van Ngai, that the party should accept the assembly's
validation of the presidential elections
23. Since then
the two factions have collaborated on day-
o- ay party matters, but both Ky and Ngai have pro-
ceeded with efforts to consolidate their respective
positions. Ngai does, however, claim .control
of the party's publications and 700 of its 900 cadre,
including some 89 intellectual leaders. Ngai report-
edly feels that he has the advantage as the holder
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of a public office, but that he needs a little more
time to improve his image as a national political
leader and to expand his control of the party before
he can successfully break with Ky.
Buddhist Reconciliation Efforts
24. A mixed group of Buddhists and politicians,
calling themselves the "Committee Campaigning to
Unite Buddhism," met on 12 November to seek a resolu-
tion of the current charter dispute. Although repre-
sentatives of both the militant and the moderate
factions were present, the meeting apparently did
not have the blessing of either Tri Quang or Tam Chau.
This may, in fact, signal the beginning of the "third
force" reported to be emerging as a middle-of-the-
road grouping intended to work for the unity of the
church without reference to the extreme views of
either leader.
25. Some 30 people from various Buddhist sects
and organizations were present at the meeting, along
with acting lower house chairman Nguyen Ba Luong
and Senator Trinh Quang Qui of the Farmer-Worker-
Soldier slate. Thich Huyen Minh was the chief repre-
sentative of the moderate faction and Thich Phap
Sieu appeared to be the militants' sole delegate.
Both Minh and Sieu spoke at some length on the charter
problem, each professing his desire--and the desire
of his faction--for unity. Minh, moreover, expressed
the hope that the meeting's participants would work
to convene a Buddhist congress which would examine
both charters and decided on the retention of one.
The others present, however, seemed unsure of exactly
what they should do--whether to establish a formal
organization to supersede both Tri Quang's and Tam
Chau's factions, convene a Buddhist congress, or
merely initiate informal contact between the two
factions.
26. The meeting ended on that inconclusive
note, but a group of six "representatives of Buddhist
organizations"--not including, significantly, the
one militant representative, Phap Sieu--remained
behind to draft a declaration. The declaration was
also rather inconclusive, pledging only to "promote
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the creation of an association to unite Buddhism."
The association, which would include "many" Buddhist
sects, would have a permanent office and a board of
directors rather than a single leader. The declara-
tion further calls for a congress, apparently to
consider specifics of the proposed association.
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II. REVOLUTIONARY DEVELOPMENT
A recent decree of the Vietnamese
government provides for clemency or a
reduction in the sentences of 6,327
prisoners. Another government decree
directs the destruction of a number of
criminal records; however, the number
of persons affected is unknown.
Security in Quang Ngai and Quang Nam
provinces sharply decreased in September,
and in Quang Nam, security continued to
decrease in October. The number of
Vietnamese RD teams continues to grow,
but the strength per team is declining.
The number of Vietnamese army battalions
in direct support to Revolutionary
Development remains around 53. US Army
battalions in RD have increased to six.
As of 3 November 25,329 persons had
rallied to the government under the
Chieu Hoi or "Open Arms" program. On
the same date last year only 15,220
persons had rallied; however, recently
the weekly returnee rate has been below
that of last year. Thus far, only III
Corps has been able to double the
number of last year's ralliers.
Status of Prisoners in South Vietnam
1. In conjunction with the recent National
Day celebration and the presidential inauguration,
the government of Vietnam (GVN) reportedly released
or reduced the sentences of approximately 6,327
prisoners. In addition, the GVN issued a decree
on 30 October which grants complete freedom and
erasure from all records of charges or convictions
of people detained under specific categories of
criminal acts. US officials in Saigon are uncertain
as to how many persons will be affected by the
latter decree. GVN officials have made only vague
statements, publicly or privately, concerning both
the decree and prisoner release.
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2. An official in the Vietnamese Ministry
of Justice recently informed US officials that the
prisoner release and sentence reduction was a
direct act of clemency from President Nguyen
Van Thieu to the individuals concerned. The
Director of the National Police General Nguyen
Ngoc Loan told a US official that he personally
had nothing to do with the matter, but that he
believed that the prime minister's office had told
the province chiefs to release a certain number
of prisoners on the occasion of National Day on
1 November.
3. The semi-official Vietnam Press on
31 October reported that, of the 6,327 prisoners
who received clemency, 5,482 were released--1,167
political detainees and 4,320 suspects--and 509
civilian and 336 military prisoners had their
sentences reduced.
4. Since the specific selection of persons
to be released was apparently left in the lands
of the local authorities, US officials feel that
it was possible that a number of Viet Cong were
included among the suspects and political detainees
released. This belief is somewhat substantiated
by a Vietnam Press report of 3 November which
stated that political detainees were released in
Thua Thien, Pleiku, Phu Yen, Dinh Tuong, and
Kien Hoa provinces after they had taken an oath
of loyalty to the government and promised to fight
against the Viet Cong.
5. The civilian prison population now totals
32,385. Of this figure almost 15,000 have been
sentenced and over 17,000 are still awaiting trial.
A breakdown by the category of offender shows
20,535 political prisoners (the largest number of
whom are probably Viet Cong or Viet Cong suspects),
5,793 criminal prisoners, 1,002 armed rebels (ethnic
minority group dissidents such as the Khmer Kamputier
Krom and FULRO), and 5,055 military prisoners. In
addition, there are approximately 1,000 prisoners
at any given time in interrogation centers throughout
the country.
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6. US military officials have reported that
as of the end of October approximately 8,260
military prisoners of war (POW) were in the custody
of the government of Vietnam. This total
included about 1,485 ethnic North Vietnamese,
224 regroupees, 5,938 southerners and about 612
persons whose origins are still unidentified.
All but about 385 of these prisoners have been
captured since January 1966 and about half of
the total number--some 4,981--have been captured
by US forces. There are an estimated 340 additional
POWs in allied medical facilities who are not
included in the prisoner total.
7. To house these POWs, US and GVN forces
have constructed five major detention centers,
one in each corps area and one on Phu Quoc Island.
Under normal conditions these centers have a POW
capacity of only 11,000; however, with minor
internal alterations, they can quarter about
14,000 POWs.
Security in Quang Ngai and Quang Nam Provinces
8. CORDS' report on pacification in South
Vietnam during September substantiates earlier
information which suggested a declining security
situation in some central coastal provinces.
According to the CORDS report, there was a decided
decline in security during September in Quang Ngai
and Quang Nam provinces.
9. Quang Ngai's pacification effort suffered
a severe setback when the enemy occupied eastern
Tu Nghia District for 10 days following the 29-30
August attack on the provinbial capital. Eastern
Tu Nghia is the most important of the five RD
campaign areas in the province. The intensity of
the enemy offensive drove the Regional and Popular
Force (RF/PF) soldiers and the RD cadres from a
number of hamlets. The Vietnamese Army (ARVN)
reaction was delayed and cautious, even after their
forces were augmented by two battalions from
Quang Tin Province. ARVN forces, however, appear
to have been successful in at least temporarily
clearing the area, and the RF/PF and the cadres
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have reportedly returned to the hamlets. The
ARVN supporting units have been withdrawn from
Quang Ngai, and Vietnamese forces in the province
have returned to the security status prior to
September. US officials are skeptical of the
local forces' ability to preserve security and
feel that enemy forces could, and indeed may,
repeat their seizure of eastern Tu Nghia,
10,, During September, Quang Nam Province
experienced a reversal similar to that of Quang
Ngai. Enemy pressure caused a least a temporary
loss of security in coastal Hieu Nhon District
which includes the provincial capital of Hoi An.
At one point five RD teams had to be temporarily
withdrawn from their hamlets because of a lack
of security, During October the enemy continued
its offensive in Quang Nam and directed much of
its effort against the districts of Dai Loc
and Hieu Duc, Enemy forces seem to be attempting
to force government forces into enclaves in Hoi
An, Da Nang, and the district towns.
Revolutionary Development Cadre
11. On 1 October CORDS reported that 505
Vietnamese RD teams, with a field strength of
23,442, were deployed throughout South Vietnam.
While the number of teams has increased during
1967, the total field strength of the teams has
remained relatively constant and the strength per
team has decreased. A 59-man RD team is the
optimum size required to perform the tasks assigned.
A properly motivated and trained team, however,
can do the job expected of.it with considerable
fewer men under ideal security situations, For
example, in the relatively secure delta province
of An Giang, there are 38 teams of 20 men whose
function is primarily economic development.
They work one group to a village.
12, In addition to the Vietnamese RD teams,
there were also 106 Truong Son (montagnard)
RD teamsand 5,340 Static Census Grievance Cadres
in the field on 1 October, The total strengh
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on that date of the three cadre groups, the command
and control cadres, and trainees was about 45,295.
13. Despite a large number of graduates from
the Vung Tau National Training Center for RD
cadres, an attrition rate of about 34 percent has
prevented a quantitative increase in Vietnamese
RD cadres. Vung Tau graduated 1,585 students
from the basic course on 3 August, 2,373 students
on 2 October, and 2,322 students on 6 November.
With the approximately 2,675 recruits who started
basic training on 7 November, Vung Tau now has
about 6,000 trainees. In an effort to improve
the qualitative efforts of the RD teams, Vung
Tau now offers a number of courses to train
specialists or technical cadre. In 1968 a
Research and Intelligence training course will
be initiated. This course is scheduled to train
400 students in four classes of 100 students
each. Other specialist cadre courses at Vung
Tau include leadership and medical training.
14. The Truong Son program is expected to
level off at a strength of about 8,000. The
training center located in Pleiku had about
1,211 students in the basic cadre course during
October and, including trainees, had 7,477 persons
in the program.
15. Civil military teams are also under the
direction of the RD Cadre Directorate. There are
35 teams; 32 are in II Corps. Civil-military
teams are composed of technical service cadres
and Regional or Popular Force platoons.
16. For September CORDS reported that 99
enemy-initiated anti-RD incidents cost the
lives of 54 cadres and wounded about 142. Vietnamese
RD cadre losses for September were 597; this
figure includes killed, captured (11), discharged
(224), and deserted (308).
Vietnamese Armed Forces in Revolutionary Development
17. As of 1 October, 164 Vietnamese Army
(ARVN) battalions had completed their RD training
under the RD mobile training team program. To
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insure that there is no slippage in the program,
an RD refresher training course is scheduled to
begin in November.
18. Although the number of ARVN battalions
usually committed to the direct support of RD
averages 53, the units involved and the number
per corps has been fluctuating. A 17 November
MACV report shows only 52--14 battalions in I
Corps,10 battalions in II Corps, 13 battalions in
III Corps, and 15 battalions in IV Corps. On
17 November US forces had deployed two US battalions
in I Corps, one in II Corps, and three in III
Corps in support of RD.
19. Despite the difficulties imposed by
operational requirements, RD training for Regional
Force (RF) companies is continuing. Through
September, 513 companies had been trained;
approximately 219 of these companies are in direct
support of RD. Throughout the country there
are 745 Popular Force (PF) platoons in direct
support of RD.
20. In northern I Corps, 80 of the approximately
115 RF companies in the Corps have received their
RD training. In addition, 672 Popular Force (PF)
platoons have completed their combined Motivation/
Indoctrination and RD training. To further enhance
their over-all military posture, Vietnamese
forces in I Corps are reportedly in the process
of activating an additional 15 RF companies and
41 PF platoons.
21. Since August, elements of the ARVN 22nd
Division in the II Corps province of Binh Dinh
have been conduction an operation in the Bong
Son Plain and Duong Lieu Valley to prepare the
area for pacification. The general concept of
this operation has been to increase the number
of small unit and ambush operations in the
vicinity of the Cay Giap mountains and, with
cordon-and-search techniques, to ferret out the
enemy infrastructure in the village and hamlets
in the area.
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III. ECONOMIC SITUATION
Retail prices in Saigon declined
one percent during the week ending
6 November because of lower prices for
domestic rice and other foods. Free market
currency and gold prices increased. Most
economic posts in the new cabinet are
occupied by relative unknowns, and Minister
of Economy Ton's record during his previous
terms in the position was undistinguished.
Import orders during the first nine months
of 1967 were smaller than anticipated as
the result of existing large inventories of
goods in the hands of importers. USAID
personnel recently found substantial insect
infestation in PL-480 rice stored by the
South Vietnamese Government. The relation-
ship between the price level and the in-
creasing supply of piasters has tightened
since 1965, and future additions to that
supply will place greater pressure on
prices.
Prices
1. Retail prices in Saigon declined 1 percent
during the week ending 6 November after having risen
sharply the previous week. The food price index
dropped 3 percent as prices of most varieties of
domestic rice as well as of pork, fish, and chicken
declined. The price of the type of rice used in
calculating the USAID index declined to 22.5 piasters
per kilogram, the lowest since mid-February, as de-
liveries of new crop rice continued to arrive in
Saigon. Prices of nonfood items increased slightly
as the price of laundry soap rose aciain as a result
of the high cost of coconut oil. Firewood and
charcoal prices also rose, the latter for the first
time since early September. (A table of weekly re-
tail prices in Saigon is included in the Annex.)
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2. The USAID index for wholesale prices of
US-financed imports also declined slightly because
new arrivals of wheat flour and galvanized iron
sheet resulted in lower prices for these items.
The price of wire rods, however, rose sharply be-
cause of low stocks and lack of new deliveries.
Currency and Gold
3. Free market currency and gold prices in-
creased on 6 November. The prices of green dollars
and MPC (scrip) rose two piasters to 155 and 115
piasters per dollar, respectively. The price of
gold leaf increased four piasters to 201 piasters
per dollar, the highest rate since mid-August. (A
graph on monthly and weekly currency and gold
prices is included in the Annex.)
New Economic Admisnistration
4. The key portfolio of minister of economy
in the new cabinet has once again gone to Truong
Thai Ton, while most of the related ministries will
be headed by less well known figures. Ton, an
agricultural engineer, previously served as minister
of economy from June 1965 to February 1966 and from
February 1967 to mid-March 1967, but his record was
undistinguished. He has had wide experience in
government and at the time of his appointment was
serving as an economic adviser in the prime minister's
office. US officials consider him capable and hard
working, but lacking in administrative ability.
Judging by past experience, they do not expect any
strong leadership on economic matters to come from
his office.
5. The scope of Ton's post apparently will be
smaller than it was under his predecessor, Nguyen
Huu Hanh, who at present retains his position as
governor of the National Bank of Vietnam from which
he could still wield considerable influence. Under
Hanh the ministry, called the Ministry of Economy
and Finance, had direct supervisory responsibility
for commerce, industry, finance, and transport and
communications, but the latter two have now become
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separate ministries. The departments of commerce
and industry are now headed by under secretaries--
Nguyen Chanh Ly for commerce and Vo Van Nhung for
industry. Ly has been a junior official in the
commercial credit section of the National Bank and
Nhung is an electrical engineer.
6. As minister of finance, Luu Van Tinh will
continue in the general field in which he has been
working for many years. He served as minister of
finance under Tran Van Huong and in Ky's government
as director of the budget and foreign aid as well
as an assistant to Hanh on tax policy. The new
minister of transport and communications is Luong
The Sieu, who has been technical director of the
government-owned Nong Son coal mine near Da Nang,
where his predecessor as minister also worked before
serving in the cabinet. The other major economic
ministries, agriculture and labor, are headed by
Ton That Trinh, who worked with Ton as an advisers
to the prime minister, and by Pho Ba Long, a de-
feated senatorial candidate who has been teaching
political science and business administration at the
University of Da Lat while on leave from Esso where
he worked in public and employee relations.
Import Situation
7. Orders for imports this year have been
smaller than anticipated as the result of existing
large inventories of goods in the hands of importers.
The monthly value of goods ordered by commercial
importers in Vietnam during the first nine months
of 1967 (measured by letters of credit opened) was
20 to 25 percent below the monthly average for 1966.
The level in 1966 was quite high because of the re-
moval of import quotas and restrictions and the
entry of new firms into the importing business. Ac-
cording to a joint Embassy/USAID study, the main
concern now is the size of inventories and the effect
it will have on the market for imported goods next
year. By the end of June 1967 both bank and nonbank
financing of importers' inventories was estimated to
total roughly 25 billion piasters, or about 60 per-
cent of the expected value of orders for all of 1967.
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The large inventories have allowed consumers access
to ready supplies of imported goods at stable prices
thus providing a dampening effect on domestic price
increases. The danger, however, is that importers
may be wary of placing large new orders until in-
ventories have run down and prices start moving up.
Then a big increase in orders would not only have an
unsettling effect on prices but also on port opera-
tions and bank liquidity, such as was experienced
in 1966.
8. US officials in Saigon expect that the
large inventories will discourage any increase in
new import orders through the end of this year, but
anticipate that orders will pick up early in 1968
as stocks approach more reasonable levels. They see
two major problems confronting the import sector of
the economy--how to reduce the lag between the time
orders are placed and the time the goods arrive and
are paid for by the importers and how to get importers
to maintain adequate stocks of imported goods and
rapidly replace them. There is currently a lag of
about seven months between orders and arrivals, down
from about nine months early this year. Importers
should be able and willing to react quickly before
shortages Of goods appear. In order to make this
possible, the time lag must be reduced somewhat and
sufficient credit must be available to finance the
arrival of goods that are running short. US officials
hope to tackle the former by streamlining licensing
procedures, particularly for the goods financed by
the US. Credit conditions will be continually re-
viewed with South Vietnamese officials in the hope
of easing current bank pressure on importers to repay
outstanding loans.
Infestation of Stored US Rice
9. USAID personnel recently found substantial
rodent and insect infestation in PL-480 rice stored
in warehouses rented by the Vietnamese Government.
The condition apparently exists in warehouses both
in Cholon and Thu Duc, which have a combined capacity
of 108,000 metric tons, or about two-thirds of the
government's stock of imported rice in the Saigon
area at the end of September. The infestation
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reportedly is worst in the Cholon warehouses, and
.plans are under way to move these stocks into USAID-
controlled storage space. USAID, on an emergency
basis, has already hired a private firm to fumigate
and protect the rice in the Thu Due warehouses until
the government can contract for such services. AID
officials reported about 1,500 tons of spoiled rice
as of 10 October, but said future losses would be
considerably greater and much more costly than
fumigation. The survey team also recommended that,
if feasible, future contracts for shipment of PL-480
rice and other foods to Vietnam include provisions
for improved inspection of ships prior to and dur-
ing loading and dusting of foods with insecticides
during loading to inhibit or eliminate insect
growth during voyages.
10. This recent survey is reminiscent of a
similar study made in August by USDA technicians
and private American rice millers. At that time
they recommended a different system of piling to
allow for good ventilation and urged frequent fumi-
gation.
Inflation - The Cost of More Piasters
11. Under certain circumstances changes in a
country's money supply (currency plus checking
accounts) can have a direct and substantial impact
on the prices of goods and services available in
that country. If the supply of money increases at
a more rapid pace than the available supply of goods
then the price of those goods is very likely to
rise as buyers are forced to bid more vigorously
against each other. Suppliers rather quickly per-
ceive the situation and accommodate the buyers by
raising prices. Further, as the purchasing power
of money falls (because of the rising price level)
no one is particularly anxious to hold money for
very long as its purchasing power will decline even
further. Consequently, most individuals attempt to
spend their money income as soon as they receive
it thus further increasing the pressure on prices.
This process seems to best explain the severe in-
flation that began in South Vietnam in 1965. In
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any event, mid-1965 marked the end of the ability
of the South Vietnamese economy to absorb substantial
increases in the money supply while maintaining
relative price stability, During that year the money
supply increased by 54 percent while prices responded
by rising 30 percent. In 1966 the money supply in-
creased by 28 percent and the price level jumped by
44 percent.
12. By contrast, during the previous decade
South Vietnam demonstrated a capacity to absorb
large annual increases in the money stock while
maintaining a modest 1.4 percent average annual rise
in prices. In this respect South Vietnam seems to
have outperformed several other developing nations
in the Far East. As shown in the table below, be-
tween 1956 and 1965 the increase in the price index
for South Vietnam was closer to that of Ceylon,
Pakistan, and the Philippines while the percentage
increase in the money supply was nearer to that of
Taiwan and Korea, both of which experienced fairly
severe inflation.
Money Supply and Price Indexes for
Selected Countries, 1956 = 100
Money Index
Price Index
1960
1965
1960
1965
Ceylon
107
152
104
113
India
122
193
119
159
Pakistan
126
195
116
129
Philippines
126
204
108
137
South Vietnam
138
391
95
134
Taiwan
189
460
149
167
South Korea
181
468
133
271
13. Until 1965 price stability and a rapidly
increasing money supply were compatible largely be-
cause of the US Commercial Import Program and ac-
companying imports from the US under the Food for
Peace Agreements. Goods imported by South Vietnam
under these agreements were, in large part, enough
to absorb the large annual increases in money, i.e.,
the increase in the available supply of goods kept
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pace with the money supply. A second but significant
factor was the absorption of piasters by the agricul-
tural sector of the South Vietnamese economy. This
sector had traditionally relied on barter, i.e.,
goods exchanged for goods, instead of currency.
Thirdly, and apart from the first two factors, more
money is normally required in the course of a country's
growth and development. As South Vietnam's national
income increased, more piasters and piaster checking
accounts were required to facilitate the greater
number of transactions and the larger piaster amount
of these transactions.
14. In 1965, when the US began sending large
numbers of troops to South Vietnam, it quickly be-
came evident that there was little slack left in the
economy which would allow substantial additions to
the money stock without inflation. The remainder of
the subsistence sector became rather quickly mone-
tized. And the additions to the money supply were
of such magnitude that additional piasters required
because of economic growth were even of lesser im-
portance than they were before 1965. Consequently,
the commercial import and Food for Peace Programs
were left with almost all of the burden of prevent-
ing inflation in South Vietnam. To a lesser extent
the growing black market in currency and gold acted,
and still acts, as a deterrent to further inflation
by providing South Vietnamese with a source of con-
stant value currency to hold as idle balances. If
piasters were used, then holding idle cash balances
for purposes of future transactions would be costly
because the purchasing power of the piaster is con-
stantly declining.
15. The South Vietnamese budget deficit is
largely responsible for the growing money supply and,
consequently, for the upward spiral in prices. Print-
ing more piasters appears to be the method employed
by the government to raise necessary revenue as tax
collections are wholly inadequate. According to re-
cent estimates the prospects for price stability in
1968 are not good. Estimates of price increases,
based on the possible budget deficit (which provides
the net addition to the money supply less borrowing
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from the National Bank), go as high as 75 percent
for 1968. Former minister of economy and finance
Hanh, however, is conservatively predicting about
a 35-percent increase.
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TABLE
Weekly Retail Prices in Saigon a/
13 Jun 3 Jan 16 Oct 23 Oct 30 Oct 6 Nov
1966 b/ 1967 1967 1967 1967 1967
Index for all Items
Index for Food Items
Of Which:
(In Piasters)
173 225 291 290 304 30C
190 242 326 324 336
Rice-Soc Nau (l00 kg.) 1,250 1,700 2,300 2,300 2,300 2,250
Pork Bellies (1 kg.) 90 130 200 200 230 220
Fish -Ca Tre (1 kg.) 130 150 220 220 270 260
Nuoc Mara (jar) 70 90 150 150 150 150
Index for Nonfood Items
140 191 227 228 230 233
Of Which:
(In Piasters)
Firewood (cu. meter) 360 560 500 500 520 530
Cigarettes (pack) 10 14 14 14 14 14
White Calico (meter) 27 33 45 45 46 46
Kerosene (liter) 7.8 10.5 9 9 9 9
a. lInta are from USAID sources. For all indexes 1 January 1965 = 100.
b. Price level just prior to the 18 June devaluation.
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Nue
Saigon Free Market Gold and Currency Prices
500
400
300
200
100
PIASTERS PER US DOLLAR
310CT
- 197
153
6 NOV
\+""�40.........""��������
201
155
15
1964
1965
1966
1967
GOLD: Basis gold leaf worth $35 per troy ounce
US $10 GREEN
US $10 MPC Military Payment Certificates (scrip).
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AUG SEP OCT NOV
1967
68690 11-67
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tiorF
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