DEVELOPMENT PROSPECTS FOR SOUTH VIETNAM THROUGH THE 1970S

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82S00205R000100120007-4
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 63
• Document Creation Date: November 9, 2016
• Document Release Date: March 1, 1999
• Sequence Number: 7
• Publication Date: October 1, 1971
• Content Type: REPORT

4
4ar
Approved For Release 1999/09/09 :WANIVIEWISA 100120007-4
DEVELOPMENT PROSPECTS FOR SOUTH VIETNAM
THROUGH THE 1970s
CIA Contribution
to
Vietnam Economic Development Fund Paper
OCTOBER 1971
Approved For Release 1999/09/09 ? I - 82S00205R000100120007-4
EM
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
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.
0 ROUP I
axeLtaan FACMI AUTOMATIC
DO% NI aNAIIIIICI AND
DICLABAIFICATIOM
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
Approved For Release 1999/09/09 : 6104WJAUNTRION11#00120007-4
CONTENTS
Summary and Conclusions .
O 0 0
O 0
I. The South Vietnamese Development
Case .
Epat
0 0 1
0 3
7
? . 8
15
21
II. Some Alternate Growth Possibilities .
A. Assumptions and Methodology
B. Cases ?. 0000000000 0
C. Results Drawn From the Examples
III. The Content of a Development
Program . 0 . 0 . . 0 0 0 0 0 0 0
0
27
Pre-Conditions to Successful
Development 0 . . 0 . 0 0 0
.
27
A. Development by Sector 0 0 0 o
o
29
B. Import Substitution . 0 0 0 0 0
0
29
C0 Export Development . 0 0 0
31
D. Alternative Development Pro-
grams 00000000000 o
0
33
82E2Ralaaa
Appendix A. Sectoral Growth Patterns
37
Appendix B. Import Requirements
for Growth . 0 0 0 0 0 0
0
39
Appendix C. Resource Balance and Support
Requirements: Summary Case
Tables 0 000 00
00 . 0
53
Appendix Do Sources 0 0 0 0 0 0 0 0 0
0
59
Approved For Release 1999/09/09 GONPRGIENZPIINI0100120007-4
Approved For Release 144-NagattGMS100205R000100120007-4
Tables
1. Projected Commodity Export Growth
for South Vietnam, 1970-80 . . . .
2. Projected Capital Requirements for
South Vietnam During 1970-80:
Three Growth Cases
3. The Cases: Aggregate, Sectoral, and
Export Growth Combinations . . ? ?
4. Imports and Foreign Exchange Require-
ments for South Vietnam, 1970-80 .
5. Imports and Consumption Patterns for
South Vietnam During the 1970s ? ?
6. End Use of GNP in South Vietnam
During the 1970s
? ? S ? C ?
7. Illustrative Sectoral Growth
Patterns: 1970-80
? 0 0
8. Case I: Import Projections by
Category, 1969-80 . ...
9. Case II; Import Projections by
Category, 1969-80 ..... . .?
10. Case III: Import Projections by
Category, 1969-80 ... .. .?..
11. Resource Balance and
ment, Case I
12. Resource Balance
ment, Case II .
13. Resource Balance
ment, Case III
Support Require-
and Support Require-
.
and Support Require-
....
14. Resource Balance and
ment, Case IV . . ?
15. Resource Balance and
ment, Case V
-
Support Require-
.......
Support Require-
13
16
17
18
19
24
38
40
41
42
54
55
56
57
58
Approved For Release 199COREFIDENFIBRAM205R000100120007-4
Approved For Release 1999/09/09 : CIAWFRANtatiOtil 00120007-4
Figure
1.
Illustrations
Page
Growth Rates: Investment Shares
and Incremental Capital-Output
Ratios 00000000 0000
11
Figure
2.
South Vietnam's Growth Rates:
Assumptions of the Three Growth
Cases .
22
Figure
.
Alternative Development Programs
for South Vietnam 0 0
34
Figure
4.
South Vietnamese Imports: Pro-
jections to 1980 . 0 . 0 . . .
50
Figure
5.
Per Capita Imports: Selected
Countries and Projections for
South Vietnam 0 . . . 00000
50
Figure
6.
Imports as a Percentage of GNP:
Selected Countries and Pro-
jections for South Vietnam .
51
Approved For Release 1999/09/09 : ebNEM-EKNONSVE100120007-4
Approved For Release 1999/09/00tIMIDUSTMOVED00100120007-4
No Foreign Dissem
Develo ment Pros ects for South Vietnam
The creation of a new development fund for South
Vietnam provides the opportunity for a fresh look at
that nation's development requirements and prospects
over the decade of the 1970s. Drawing from previous
surveys of production possibilities and historical
analogies, this paper characterizes the stage of
Vietnamese development, analyzes major economic
relationships under various growth assumptions,
and traces practicable development strategies.
Primarily because of security and institutional
problems, we do not believe South Vietnam could sus-
tain high rates of economic growth -- 8%-10% a
year -- until after 1975- An excellent average
performance for the 1970s would be annual growth at
a rate of about 7% comparable to that of South
Korea and Thailand in the first half of the 1960s.
Based on a wide range of assumptions about the
future scale and structure of the economy of South
Vietnam, our projections show that the total foreign
capital requirements (from all sources) during the
1970s will remain high whatever the rate of economic
growth. This is because many of the conditions for
success (or lack of it) are the same for exports as
for GNP, High GNP growth means high export growth
and also requires high import growth, Our projec-
tions yield external support requirements declining
during 1971-72, but then leveling off at about
$550-$600 million in all three growth cases The
high growth case, however, establishes a pattern
that, if continued- would reduce aid requirements
in the 1980s.
Without specifically relating development strat-
egies to any particular growth trajectory, it is
possible to block out roughly programs that might
be associated with growth paths, ranging from rel-
atively slow to fairly rapid_ Before any develop-
ment program can be effective; certain policy
Approved For Release 1999/090AVINNSMIR000100120007-4
No Foreign Dissem
Approved For Release 1999W6194:1GIIPW812I5J105R000100120007-4
changes -- such as devaluation and domestic tax re-
form -- will be needed to stimulate growth. Beyond
broad policy changes, the particular pattern of
development will depend on foreign exchange avail-
ability. With limited access to foreign capital,
the Vietnamese probably would be forced to concen-
trate on becoming self-sufficient in agricultural
products, and industrial growth would be focused on
import substitution for consumer goods. Exports
would tend to be restricted to unprocessed agricul-
tural and forestry products. If more foreign ex-
change were available, South Vietnam would be able
to advance beyond import substitution and primary
exports toward the rapid development of more proc-
essed exports. With considerable outside help, ex-
ports could include processed agricultural commod-
ities, finished consumer goods, and even components
for such things as electronic equipment and simple
machinery.
- 2 -
Approved For Release 1999/06)N m1 FtItS'A7Q295R000100120007-4
Approved For Release 1999/Or Co:MAIWN4011.W000100120007-4
I. The South Vietnamese Develo ment Case
The central question at this juncture in the
economic history of South Vietnam is to what extent
the energies and resources mobilized in support of
the war effort can now be redirected toward sUs-,
taming rapid growth of the private sector of the
economy. The performance of the South Vietnamese
economy during the past several years does not
provide a meaningful basis for predicting sustained
future growth in agriculture and industry. The
rapid growth of GNP during the 1966-69 period was
based on a surge in war-related services supported
by ample foreign aid and the presence of a large
US military contingent, both of which are certain
to be smaller (and declining) factors in the years
ahead.
The search for models in other countries of
Asia from which to chart the possibilities for
economic growth in South Vietnam is somewhat more
rewarding though, at best, these provide only rough
outlines of what may be expected. No completely
satisfactory analogy presents itself. One economy.
in roughly similar circumstances, South Korea,*
required a period of about 10 years with large-
scale US aid to establish a significant development
momentum after the cessation of hostilities.
Others -- such as the Philippines after World
War II -- have followed rapid reconstruction with
irregular bursts of moderate growth. Insurgency
on a much smaller scale than in Vietnam was a factor
in slow growth in Western Malaysia in the 1950s,
and annual growth there ran close to 6% in the
early 1960s. In Burma,. where ethnic warfare:has
been a fact of life for over 20 years, only a few
Taiwan is frequently mentioned in the same breath
as South Korea as an economy that started rather
quickly fromIscratch after war. It has been aptly
noted of Taiwan that in 1951 its economy "was the
product of a modern developmental process that had
already taken 43 years" [Neil H. Jacoby, "An Evalua-
tion of US Economic Aid to Free China, 1951-65,"
AID Discussion Paper No. 11, January 1966, UNCLASSI-
FIED]. Most observers would agree that the institu-
tional base developed under Japanese colonialism
was more relevant to independent economic develop-
ment than in typical French colonial administrations.
- 3 -
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
CONFIDENTIAL
Approved For Release 1994 00120007-4
occasional glimmers of economic vitality have been
observed despite experiments with a variety of
planning procedures and methods of social organi-
zation. The most conspicuous success story in
Southeast Asia (that is, real growth of 7%-8%) is
Thailand's, but that nation is also notable for
being the least damaged during World War II and
the least affected since then by internal dis-
sension.
Despite the obvious problems associated with
any attempt at forecasting from such analogies, a
catalogue of the similarities and dissimilarities
of the South Vietnamese experience with those of
Taiwan and South Korea provides some insights into
what may -- or may not -- be in the cards for South
Vietnam. These three economies have had much in
common at the early stages of their postwar growth
process. All three faced economic problems asso-
ciated with the maintenance of large armed forces.
Conversely, each has benefited from the technical
training received by former farmers during their
military tours. Each has had access to substantial
quantities of US economic and military aid and has
possessed a government generally receptive to US
technical and managerial advice/assistance. None
of the three enjoyed a very significant natural
resource endowment outside of that supportive of
agriculture. Like Taiwan in the 1950s, South Viet-
nam starts from a base of relatively undamaged
productive facilities and has a fairly elaborate
infrastructure in the form of good roads and ports.*
At the same time, South Vietnam faces some sub-
stantial obstacles that did not confront Taiwan or
South Korea. First and foremost, not all the terri-
tory of South Vietnam is accessible to the GVN or
secure from enemy military operations. Security
considerations also intrude heavily on the question
of GVN flexibility in devising income distribution
policies most conducive to rapid development, for
the government necessarily remains preoccupied with
* We need recognize that the rapid growth of the
infrastructure of South Vietnam since 1965 has been
largely war-related and that it may require signif-
icant elaboration for economic purposes.
- 4 -
Approved For Release 199MedtiRyffikr205R000100120007-4
Approved For Release 1999/00-EMAITOTCUBRO00100120007-4
assuring support in the countryside through rela-
tively high farm prices. Second, it does not appear
that business interests are as well represented in
or by the South Vietnamese government as was the
case in the other two countries. In part, this is
because one of the most dynamic elements in the
business community is the Chinese ethnic minority.
Third, the institutional framework for economic
development in South Vietnam does not yet look even
as strong as that in South Korea prior to its period
of rapid growth, let alone as strong as that in
Taiwan. Thus, in such areas as development banking/
agricultural extension services, and export market-
ing, the GVN and the South Vietnamese private sector
have some way to go before they reach a base ade-
quate to support rapid strides in economic growth.
Finally, South Vietnam still has no substantial
alternative to the United States as a'source of
long-term capital. Although an impressive showing
in economic growth for a few years could generate
more interest on the part of other potential cred-
itors and investors, there is not yet the prospect
of substantial inflows from Japan (as in the Korean
and Taiwanese cases of the late 1960s) or signifi-
cant contributions from the overseas Chinese (as
in Taiwan).
On balance, it would appear that South Vietnam
is not yet in a position to make as effective
use of US capital assistance as were Taiwan and
South Korea when they embarked on their periods of
rapid growth. Given the sorts of fundamental social
and institutional changes necessary to develop an
appropriate base for rapid private sector growth
in South Vietnam, it seems premature to think in
terms of the 10 percent growth rates that charac-
terized the better years in South Korea and Taiwan
and have eluded most other developing countries.
A very respectable performance would be annual
growth in real output at a rate of about 7%, com-
parable to that of South Korea and Thailand in
the 1960s prior to the buildup in the Vietnamese
war.
- 5
Approved For Release 1999/0MWMEMORCER000100120007-4
Approved For Release 1999/09/13SOCWINVOMIN00100120007-4
II. Some Alternate ' Growth: Possibilities
Economic forecasting for South Vietnam is
shrouded with uncertainties and immeasurables.
Projecting the growth of less-developed countries
(LDCs) is always subject to a wide range of errors
stemming from such factors as political turmoil,
heavy economic dependence on weather- and disease
sensitive agriculture, erratic flows of foreign
aid, and a highly imperfect initial set of relevant
data. South Vietnam has all this and moreo too.
It is a nation whose internal security problem is
daily first-page copy, for the world's newspapers;
it is a nation whose recent economic history
mobilization, "growth" based on an enormous in-
crease in the size of the public sector, and
accommodation of a large allied military aid con-
tingent provides no guide. to normal peacetime
reconstruction and development; it is a nation that
has recently been wooed by major oil producers for
concessions whose true value is not even toughly
known; and, particularly, it is a nation whose re-
source endowment and current production levels are
known even less well than is the case in most LDCs.
Bearing in mind these limitations, what follows
is an effort to establish certain orders of magni-
tude (and the relations between them) as a basis
for analysis of the economic alternatives for Viet-
namese reconstruction and development. Based on
economic data broadly appropriate to recent Viet-
namese experience, three (of may possible) rea-
sonable growth paths are disadSsed and evaluated
for plausibility. Although these are not the
product, of a formal model, various checks have.been
made.for internal consistency and against: comparable
experience in other LDCs, Because there are so
many reasons to doubt that any one of these growth
paths would be lived out in detail) there has been
a,conscious effort to keep the results of this
section at arm's length from the discussion of
development strategies that followe. The reader
is well-advised to suppress the temptation to link
some particular growth path with one or another of
the shadings of development strategy.
Approved For Release 1999/09/5091tifmRTF5E000100120007-4
Approved For Release 199 CsWiFiaRittiDlisIg205R000100120007-4
A. Assumptions and Methodolour
Here -- and throughout this study -- certain
key assumptions have provided a basis for growth
projections. Foremost among these is that internal
security will not deteriorate between now and 1975,
and that slowly improving conditions thereafter
will release resources to the private sector and
attract some small amount of foreign private invest-
ment.* It is also assumed that the average rates
of growth of developed countries that would serve
as markets for South Vietnam's exports will not be
appreciably different from those of the 1960s. As
a note of political realism, the particular growth
paths explored also reflect the view that abrupt,
radical changes in income distribution (and, there-
fore, sector shares of output) are not open to a
government that must assure continuing countrywide
support for its very existence. In the absence of
any reliable demographic data, it is assumed that
the population of South Vietnam will increase at
the rate of 3 percent per year during the 10-year
period. As a final broad assumption, it is taken
as given that an enlightened exchange-rate policy
will result in an effective piaster/dollar rate
close to what obtains in the free market.
Beginning with such broad assumptions, the next
necessary step is the attainment of some common
ground on the dimensions of the South Vietnamese
economy. The analysis that follows takes 1970 as
a base year, and -- in lieu of guesstimating the
pace at which exchange policy will be altered --
proceeds to project with data in 1970 dollars, each
of which is worth 350 piasters. From a wide range
of recent educated guesses on the gross national
product (GNP) of South Vietnam, an indicative mag-
nitude of US $21/4 billion is chosen for the base
7-777-T7777Tinties deriving from significant
development of oil resources are not explored in
depth, and this eventuality is not incorporated
in the projections. Even if major oil reserves
were proved, the long lead time required for their
development would preclude their having a signifi-
cant economic impact in the next several years.
- 8 -
Approved For Release 19955pbffitceNn205R000100120007-4
Approved For Release 1999/09/0013WIRMINSIMMR000100120007-4
year. The sectoral origin of national output in
1970 is assigned as follows:
Percent
IMMIRIRImIGINCIII?4131.Mne
Agriculture
35
Industry
15
Services
50
National output
/00
As in a variety of instances, these data are based
on wide ranges set by Vietnamese statistics and
comparison to values from many other LDCs. In a
similar vein, the end use of GNP in 1970 is set as
follows:
Percent
Gross investment 12
Consumption 75
Public consumption 30
Exports (including net
factor income from
abroad) 18
Imports -35
GNP 100
The next question is how fast the economy should
be targeted to grow. For the three cases that follow,
it has been concluded that necessary changes in in-
ternal security and the institutional framework will
require some years to achieve. Thus, even in the
case of rapid growth, the economy "works up" toward
a 10% rate. Combined with lower growth that has
already occurred during 1970-71 and the time re-
quired to introduce the development fund and in-
ternal reforms, this process of acceleration results
in effective growth rates for the 1970s of from
4.5% to 6.7% per year, from the lowest to the highest
case surveyed. Each GNP growth rate was associated
with plausible patterns of sectoral growth (industry,
agriculture, and services).*
7--T57-77571T57?detail on sectoral growth see Appendix A.
9
Approved For Release 1999/09/8445RtffiFESAWAV000100120007-4
Approved For Release 1999c1tRV:GP&PlaiV205R000100120007-4
In order to determine what investment resources
would be required to achieve particular growth tar-
gets, it was necessary to select an incremental
capital-output ratio (ICOR) appropriate to South
Vietnam (see Figure 1). In the three cases treated
in this study, an initial ICOR of 3:1 is used, and
this value is reduced toward 2:1 at a rate in
keeping with the pace of growth in GNP and total
investment.* The choice of 3:1 reflects considera-
tion of ICORs derived or stipulated in other studies
of Vietnam and those for other countries over various
periods. Reduction of the ICOR reflects: (1) im-
proving security conditions**; (2) decreasing average
age and better coordination of plant and machinery
with accelerated investment; and (3) an initial
learning period to obtain maximum effective use of
new equipment. Most likely, the ICOR would not con-
tinue to decline beyond 1980, and the lower limit of
2.4:1 is notable in this regard as an approximation
of the South Korean case in a period of very rapid
growth.
A critical part of the analysis was the deter-
mination of South Vietnam's potential for increasing
commodity exports. By all odds, the recent totals
of about $11-$12 million annually are far short of
that potential. Beyond this, however, it is very
difficult to judge what should be normal as the rate
of investment and economic growth pick up. The ex-
perience of other countries in roughly similar cir-
cumstances is not very instructive. During the
1960s, exports from all less developed areas of
the world grew about 7% annually in dollar terms.
On the other hand, South Korea showed a unprece-
dented annual growth of exports of almost 40% for
the same period. Under any circumstances of
-7--T77777R75771W-tag of one year between investment
and resultant increase in output is used throughout.
" The relevance of this issue is manifold. War
losses and possible disruptions (as in electric
power transmission) make for unusually high public-
sector ICORs. The reduction of security problems
also would mean the release of labor to the private
sector in a way that preserved existing factor
proportions. Finally, improved security conditions
would mean a better environment for foreign private
investment, which would be accompanied by tech-
nical and managerial guidance likely to milk the
highest possible yields from an investment dollar.
- 10 -
Approved For Release 199tOMFTI5f9FME05R000100120007-4
Approved For Release 1999/01441AAREAUN5R000100120007-4
PERCENT OF FIXED INVESTMENT IN GNP
Figure 1
GROWTH RATES:
Investment Shares and Incremental Capital-Output Ratios
20%
15%
10%
5%
512096 8-71
10% Annual GNP Growth
5% Annual GNP Growth
3% Annual GNP Growth
1:1 2:1
INCREMENTAL CAPITAL-OUTPUT RATIO (ICOR)
3:1
SOUTH VIETNAM
Approximate Current Position
4:1
5:1
- 11 -
Approved For Release 1999/0e9t5M2NR5R000100120007-4
Approved For Release 1999/090.NAWIENtaR000100120007-4
vigorous export marketing, it seems likely that
South Vietnam could exceed the average performance
of LDCs by a fair margin. This judgment is based
on: (1) various rough surveys of available pro-
ductive facilities; and (2) recognition of the in-
creasing availability of labor resources with US
withdrawal and later improvement in security, In
particular, the $50-$70 million level of Vietnamese
exports in the late 1950s and early 1960s should
be reattainable within a fairly short period from
the onset of greater levels of investment in pro-
ductive facilities-
With these rough guidelines, three export
growth cases have been developed (see Table
In each instance, we build around a belief that
exports can be very rapidly increased to particular
levels in 1975 (ranging from $65 million to $100
million) and that export growth thereafter will
settle into somewhat slower rates (ranging from
15% to 35% annually) as ground is broken in selling
new products in unfamiliar markets. Although the
"slow" rates of the second period (1_976-80) are
considerably above the average LDC experience of
the 1960s, they are probably a fair guess on the
productive and marketing capabilities of an economy
in which exports have been an unusually small share
of national output in recent years, Even in the
most rapid growth case, we do not expect commodity
exports in 1980 to amount to more than about 12%
as a share of GNP, compared to about 0,5% today.
Determination of appropriate import magni-
tudes -- although easier than exports to base on
historical precedent -- proves somewhat more in-
volved. Two separate methods were used to arrive
at import projections. The first method (Method I)
viewed import requirements as the simple difference
between Vietnamese domestic production (GNP) and
the sum of estimated consumption (private and public)
exports, and investment,* This method is useful
to determine the imports needed for growth in total
* See the column entitled "Imports (Method I)" in
Table 5 and the identical series entitled "Resource
Balance" in Tables 11, 12, and 13, Appendix Be This
is essentially an accounting procedure, as GNP is
defined as: GNP = C (consumption) G 'government
spending) I (investment) 4- X (exports) M (im-
ports); and thus M (the residual) is equal to C
G I -4- X - GNP.
- 12 -
Approved For Release 1999/053fsWEATIORER000100120007-4
I
tri
ZI
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
?
Table 1
Projected Commodity Export Growth a/ for South Vietnam
Million US
b/
$ -
Export Growth Pattern
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
Slow
Recovery to $65 million by 1975
11
14
21
33
48
65
75
85
100
115
130
and 15% per year thereafter
(405)
(335)
(269)
(209)
(151)
(95)
(105)
(115)
(130)
(145)
(160)
Moderate
Recovery to $80 million by 1975
11
14
25
38
57
80
100
125
155
195
245
and 25% per year thereafter
(405)
(335)
(273)
(214)
(160)
(110)
(130)
(155)
(185)
(225)
(275)
Rapid
Recovery and growth to $100 mil-
11
14
30
50
70
100
135
180
245
330
450
lion by 1975 and 35% per year
(405)
(335)
(278)
(226)
(173)
(130)
(165)
(210)
(275)
(360)
(480)
thereafter
a. Data in parentheses represent exports of goo17-a-n3-lervices and net factor income. Besides commo 1,ty exports, the
stable component of this series was found to be about C30 million prior to the buildup of US forces. That amount is
carried throughout the 21-year period. The increment resulting from the large-scale US presence is scaled down on a
linear basis to reach zero in 2975. For the years 1970-75, that increment stream runs as follows: 364; 291; 218; 146;
73; and zero.
b. Data for years beginning with 1975 are rounded to the nearest 5.
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
rIVIINHUIANOD
Approved For Release 1999/g1WEiralkgSLM5R000100120007-4
resource consumption. We assume a 1% annual growth
of private consumption per capita (4% growth in
total private consumption) and no change in public
consumption to be the minimum required for political
stability. However, this method treats imports and
domestic production as if they were interchangeable.
This is obviously not so. South Vietnam will prob-
ably be able to produce the bulk of its needs for
foods and finished consumer goods, but it lacks the
natural resources, skills, and technology to produce
a substantial part of its needs for industrial mate-
rials and capital goods.
To account for these production limitations,
imports were also projected using another method
(Method II). Imports of various categories of
goods (i.e., industrial materials, investment goods,
agricultural inputs) were related to the growth
of pertinent GNP components (see Appendix B).
Considerable import substitution is allowed for,
particularly in 1971-75. The import projections
are probably on the conservative side. In partic-
ular, projected imports of industrial materials
and investment goods grow more slowly than indus-
trial production and investment respectively,
while they have grown as fast or faster in the
most comparable Asian countries. In spite of
using assumptions that are more likely to under-
state than to overstate import requirements, this
second method yields much higher import projections
than does the first, except in the early 1970s.
The two methods for determining imports yield
two series for consumption. As stated above, the
first method takes the growth of consumption as
given and the resource gap is filled by imports.
In the second method, import requirements are
calculated first and consumption is derived as the
difference between available resources (GNP + im-
ports) and other specified uses of these resources
(exports + investment). Because of the limited
possibilities for producing investment goods, part
of the growth of GNP goes to raise private and
public consumption (C + G). Consequently, accel-
erated GNP growth leads to acceleration of con-
sumption growth.
In order to make a realistic projection of
import requirements for any year, we must use the
higher of the two import series because this is
- 14 -
Approved For Release 1999/0:9NRULW/4932195R000100120007-4
Approved For Release 1999/09/6?0NRIMISTWiftk000100120007-4
the only figure which takes into account the con-
ditions of both analyses -- that is, a politically
acceptable level of consumption and the limited
capabilities for import substitution. When this
is done, we find that, for the next few years, the
resource gap exceeds imports for production re-
quirements? This has, of course, been the case
for years as the war disrupted production, leaving
imports to maintain or raise consumption. As pro-
duction recovers, this gap (between resources pro-
duced and resources consumed) will diminish while
imports needed to support production will increase,
In our projections, required imports will exceed
the resource gap by 1972 or 1973.*
Bo Cases
On the basis of the general assumptions
and methods described above, three growth paths
were laid out in detail. This required year-by-
year specification of plausible growth rates and
ICORs and determination of required investment,
as shown in Table 2. Once these combinations were
determined, they were paired with patterns of
sectoral and export growth? The way in which the
sectoral and export growth patterns were combined
with the aggregate growth cases is shown in
Table 3,,
With these cases specified, attention was
focused on determining foreign exchange requirements
based on import Methods I and II discussed above?
The results for the three principal cases areshown
in Table 4, The difference in import series thus
clearly isolated, it then proved possible to re-
assign some domestic resources to faster growth in
private and public consumption (C + G), as shown
in Table 5.
Case 1: This case was built around a rel-
atively slow growth in GNP of 4% rising to 5% in
the later part of the period. Perhaps it might be
associated with a continued high-level absorption
of domestic resources in the war, accompanied by
The factors involved in the calculations sum-
marized here are demonstrated in the case tables
of Appendix C.
- 15 -
Approved For Release 1999/09ebRplyeeinR000100120007-4
'Aiipitived-riterkelleiiiT9491097119":"CIA: 13/32Sa026500t1T0012000724-
Table 2
Projected Capital Requirements for South Vietnam During 1970-80: Three Growth Cases
Million US $, Except as Otherwise Noted
Case I: Slow Growth
Annual Values
0
1
2
3
4
5
6
7
8
9
10
11
GNP growth (percent)
4
4
4
4
4
5
5
5
5
5
5
GNP
2,250
2,340
2,434
2,531
2,632
2,737
2,874
3,018
3,168
3,327
3,493
3,668
GNPt+1 - GNPt
90
94
97
101
105
137
144
150
159
166
175
()
ICOR (ratio)
3.0:1
3.0
3.0
3.0
3.0
3.0
3.0
2.9
2.9
2.8
2.8
CD
Required investment
270
282
291
303
315
411
432
435
461
465
490
1_1'1
071
'Case II: Moderate Growth
tri
I-, GNP growth (percent)
crl
4
4
4
5
5
6
7
7
8
8
8
1 GNP
2,250
2,340
2,434
2,531
2,658
2,791
2,958
3,165
3,387
3,658
3,951
4,267
1...i
GNPt+1 - GNPt
90
94
97
127
133
167
207
222
271
293
316
5:
r"
ICOR (ratio)3.0:1

3.0
3.0
3.0
2.9
2.8
2.7
2.6
2.6
2.5
2.5
Required investment
270
282
291
381
386
468
559
577
705
733
790
Case III: Rapid Growth
GNP growth (percent)
4
5
5
6
6
7
7
8
9
10
10
GNP
2,250
2,340
2,457
2,580
2,735
2,899
3,102
3,319
3,584
3,907
4,298
4,728
GNPt+1 - GNPt
90
117
123
155
164
203
217
265
323
391
430
ICOR (ratio)3.0:1
3.0
3.0
2.9
2.9
2.8
2.7
2.5
2.5
2.4
2.4
Required investment
270
351
369
450
476
568
586
662
808
938
1,032
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
'IVI,LNaCEIJNOD
rIVIINHCIIANOD
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
Table 3
The Cases: Aggregate, Sectoral, and Export Growth Combinations
Case
I: Slow
Growth
Aggregate Growth
4%/yr. rising to
(Effective rate f
4.5%/yr.)
Pattern
5%/yr.
or period:
II: Moderate 4%/yr. rising to
Growth (Effective rate f
5.8%/yr.)
E,
Rapid
Growth
(Subcase IV:
Covered in
Appendix C)
(Subcase V:
Covered in
Appendix C)
5%/Yr. rising to
(Effective rate f
6.7%/yr.)
(5%/yr. rising to
(Effective rate f
6.7%/yr.))
(4%/yr. rising to
(Effective rate f
4.5%/yr.))
8%/yr.
or period:
10%/yr
or period:
10%/yr
or period:
5%/yr.
or period:
Sectoral Growth Pattern
1970-75
Agriculture:
Industry
Services
Agriculture:
Industry :
Services
Agriculture:
Industry
Services
(Agriculture:
Industry :
Services :
(Agriculture:
Industry :
Services :
5%/yr.
6%/yr.
3%/yr.
6%/yr.
6%/yr.
3%/yr.
6%/yr.
8%/yr.
4%/yr.
6%/yr.
8%/yr.
4%/yr.
5%/yr.
6%/yr.
3%/yr.
1976-80
Agriculture:
Industry
Services
Agriculture:
Industry
Services
Agriculture:
Industry
Services
Agriculture:
Industry
Services
Agriculture:
Industry
Services
4%/Yr.
8%/yr.
4%/yr.
Export Growth Pattern
Commodity exports rising to $65 million
by 1975; increasing 15%/yr. thereafter
5%/yr. Commodity exports rising to $80 million
12%/yr. by 1975; increasing 25%/yr. thereafter
7%/yr.
5%/yr. Commodity exports rising to $100 million
14%/yr. by 1975; increasing 35%/yr. thereafter
8%/yr.
5%/yr. (Commodity exports rising to $65 million
14%/yr.
8%/yr.)
by 1975; increasing 15%/yr. thereafter)
4%/yr. (Commodity exports rising to $100 million
8%/yr. by 1975; increasing 35%/yr. thereafter)
4%/yr.)
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
coNTFTDNT
Approved For Release 1999/0/ F.
0-91CIAIRUP8R45R000100120007-4
Table 4
Imports and Foreign Exchange
Requirements for South Vietnam
1970-80
Million US $
Year
.1976
Non-
Imports Imports Military
(Method I) a/ (Method II) a/ Exports
Foreign
Exchange
Requirements12/
Case I -- Slow Growth
1970
788
665 41
747
1971
708
654 44
664
1972
627
644 51
593
1973
555
645 63
582
1974
483
652 78
574
1975
497
645 95
550
474
623 105
518
1977
429
647 115
532
1978
408
678 130
548
1979
361
706 145
561
1980
331
741 160
581
Case II -- Moderate Growth
1970
788
663 41
747
1971
708
649 44
664
1972
631
638 55
583
1973
638
637 68
569
1974
537
650 87
563
1975
515
676 110
566
1976
542
672 130
542
1977
464
717 155
562
1978
488
772 185
587
1979
378
831 225
606
1980
288
897 275
622
Case III -- Rapid Growth
1970
788
680 41
747
1971
777
671 44
733
1972
691
666 60
631
1973
670
674 80
594
1974
563
696 100
596
1975
527
738 130
608
1976
460
742 165
577
1977
450
805 210
595
1978
484
881 275
606
1979
469
964 360
604
1980
388
1,060 480
580
a. For derivation of methodology, see Appendixes B and C.
b. Consists of the higher figure between import columns less
non-military exports.
- 18 -
Approved For Release 1999/MisgeptIREN8MH95R000100120007-4
Approved For Release 1999/0900/9/1199ENSMIM000100120007-4
Table 5
Imports and Consumption Patterns
for South Vietnam During the 1970s
Million US $
Year
Minimum Private
Consumption (C)
and Government Imports
Spending (G) (Method I)
Imports
(Method II)
Import
Difference
(Column 3 -
Column 2) 2/
Augmented
C +G
(Column 1 +
Column 4)
Case I
-- Slow Growth
1970
2,363
788
665
- -
2,363
1971
2,431
708
654
2,431
1972
2,501
627
644
17
2,518
1973
2,574
555
645
90
2,664
1974
2,649
483
652
169
2,818
1975
2,728
497
645
148
2,876
1976
2,811
474
623
149
2,960
1977
2,897
429
647
218
3,115
1978
2,985
408
678
270
3,255
1979
3,078
361
706
345
3,423
1980
3,174
331
741
410
3,584
Case II --
Moderate Growth
1970
2,363
788
663
2,363
1971
2,431
708
649
2,431
1972
2,501
631
638
7
2,508
1973
2,574
638
637
2,574
1974
2,649
537
650
113
2,762
1975
2,728
515
676
161
2,889
1976
2,811
542
672
130
2,941
1977
2,897
464
717
253
3,150
1978
2,985
488
772
284
3,269
1979
3,078
378
831
453
3,531
1980
3,174
288
897
609
3,783
Case III
Rpid Growth
1970
2,363
788
680
2,363
1971
2,431
777
671
2,431
1972
2,501
691
666
2,501
1973
2,574
670
674
4
2,578
1974
2,649
563
696
133
2,782
1975
2,728
527
738
211
2,939
1976
2,811
460
742
282
3,093
1977
2,897
450
805
355
3,252
1978
2,985
484
881
397
3,382
1979
3,078
469
964
495
3,573
1980
3,174
388
1,060
672
3,846
a. A dash indicates that imports determined by resource balance
I) are larger than imports determined by technology and stage of
trralization (Method II); therefore, there is no domestic saving
ment to be reassigned to private and public consumption (C + G).
- 19 -
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
CONFIDENTIAL
(Method
indus-
incre-
Approved For Release 1999/6WWAIWargign
_5R000100120007-4
vigorous efforts at economic reform and stimulation
of production. This sort of GNP growth seemed to
pair most plausibly with the comparatively slow
export growth because limited expansion of output
constrained the rate at which goods could be
diverted from domestic consumption and because
small increments to investment suggested difficulty
in meeting world market prices and marketing
products abroad. Consistent with slow growth and
a relatively slow rate of increase in exports, the
ICOR is assumed to change very little over the
period. In this case (as in those that follow),
the rate of growth of private and public consump-
tion (C + G) begins to increase before 1975 pri-
marily because of the exhaustion of import sub-
stitution possibilities and the concommitant re-
assignment of domestic resources in line with our
import methodology. The result is an average
annual increase in this variable of 4.2% (or 1.2%
per capita) during 1971-80.
Case II: In contrast to the first case,
there is a conspicuous acceleration after 1975 in
GNP growth, a faster growth in exports, and a
greater decline in the ICOR in Case II. This case
might be associated with an improvement after 1975
in internal security conditions and a consequent
inflow of some foreign private investment in export
industries. The resulting support requirements
are remarkably similar to those of the earlier
case. In essence, then, we are describing a sit-
uation in which the step-up in growth above that
of Case I has led to higher gross foreign exchange
requirements, and these in turn have been offset by
faster export growth in a faster growing economy.
In this case, again, the imports necessary
to support growth quickly come to exceed those
determined by the resource balance; and consequently
the growth of consumption and/or government spending
(C + G) accelerates before 1975. Over the entire
period it averages 1.8% per capita annually.
Case III: The distinctive feature of this
case is the attainment toward 1980 of rates of GNP
and export growth similar to those of South Korea
in the late 1960s. We do not believe, however,
that GNP growth can be stepped up very much before
- 20 -
Approved For Release 199tEr:1134FMERTVer_205R000100120007-4
Approved For Release 1999/11TW,;Tcpta5R000100120007-4
the mid-1970s. The level of required external
support (see Table 4) remains above those of Cases
I and II until near the end of the period, when
the fast-falling share of consumption in GNP and
the unusually rapid growth of exports take hold,
In this case, the growth Of per capita consumption
(C G) averages 2% a year during 1971-80o
Co Results Drawn From the Exam les
Inspection of a few fairly realistic cases*
has yielded some sense of probable aid magnitudes
and likely changes therein over time. These showed
a cumulative support requirement (including foreign
assistance and any foreign private investment)
clustered closely around $6.5 billion for 1970-80,
as compared to over $8,2 billion if the 1970 level
were simply continued throughout the period. In all
three cases, aid requirements fall markedly during
1971-72 and subsequently remain in or near the range
of $550-$600 million a year through 19800 The time
path of aid requirements does vary among cases, how-
ever, and although the differences are small in the
1970s, they would become large in the 1980s if the
respective growth patterns continued. In.particular,
aid requirements would continue to increase in the
1980s under the slow growth case, but they would
steadily decline under the high growth case.
That the projected aid requirements cluster is
largely the result of the way in which aspects of
the growth scenarios have been combined. Thus
fast GNP growth (which requires faster import
growth) is associated with rapid export growth,
and slow GNP growth (which means slower import
growth) goes with slow export growth. Aid require-
ments would be much smaller if Vietnam could obtain
7--T77-0-J777-e?precisely what has (and has not)
been done in this set of growth examples, the
underlying assumptions of the three cases are
graphed in Figure 2. Here it can be seen that the
attainment of higher growth rates presupposes com-
bined changes in the investment ratio and the ICOR,
both of which are assumed in our examples. Con-
trary to the usual expectations, the basic assump-
tions of this study include some improvement in
ICORs over the pertinent time period,, and this
might bias our results toward less costly growth
gains. Similarly -- and this shows up very clearly
in graphic form -- the initial consumption con-
straint allows quite substantial improvement in
the investment ratio in Cases II and III.
- 21 -
Approved For Release 1999/09/019 : CtA=RDP82.800205R000100120007-4
CONFIDENTIAL
Approved For Release 1999/06):IikilWitaithUR000100120007-4
PERCENT OF FIXED INVESTMENT IN GNP
SOUTH VIETNAM'S GROWTH RATES:
Assumptions of the Three Growth Cases
25?o
200
15'e
5"0
5l2110 alt
10?. Annual GNP Growth (1980)
8". Annual GNP Growth (1980)
CASE Ill
CASE I
5?. Annual GNP
Growth (1980)
Assumed Initial Position
For 1970-80 period
1:1 2:1 3:1 41
INCREMENTAL CAPITAL-OUTPUT RATIO (ICOR)
5:1
- 22 -
Approved For Release 1999/09M?. cliS;RDP82,900gr000100120007-4
CAJ1N P
Figure 2
Approved For Release 1999/09/121061Tia&Eitai1ith000100120007-4
rapid export growth even though its GNP grew slowly,
and they would be much higher in the reverse case.*
Such combinations appear highly unrealistic, however.
In non-Communist countries rapid GNP growth has re-
quired the same sorts of adaptations in institutions,
technology, resource allocation, and productive
facilities as would support rapid export .growth.**
This is just another way of saying that, in broad
terms, the international market provides an appro-
priate standard of relative prices at home. Thus,
the plausible scenarios should be couched in terms
of how South Vietnam responds to the resource al-
location signals it receives from the international
market. On this basis, the three cases'discussed
represent strong Vietnamese responses given oppor-
tunities ranging from modest to exceptional. Beyond
this, there seems little point to speculating on
how poorly they might use the foreign aid at their
disposal.
The three growth cases appear to yield reason-
able results for the distribution of resources and
GNP (shown in Table 6). In particular the share
of public and private consumption .(C G) in GNP:
(1) remains near the original 105% the slow
growth case; (2). declines to roughly 95% in Case
II; and (3) declines to ,about 90% in the rapid
growth case. These patterns fit rather well the
original descriptions invoked for the three cases.
The continuation of approximately the same share
in the slow growth case could combine some gain
in the share of private consumption and corre-
sponding decline in the share of public spending.***
See Appendix C for elaboration of these points
in Cases IV and V.
" Taiwan and South Korea are only the most
striking LDC examples of this phenomenon. The same dy-
namic has operated in such major developed countries
as Japan, Italy, and West Germany.
'"* It should be emphasized that reduction in the
share of the public sector (and in per-capita
government spending) is strong medicine in an LDC
that requires more spending on health, education,
welfare facilities, maintenance of infrastructure,
and a variety of other public goods and services.
Such reduction as takes place in South Vietnam will
depend on significant security improvements.
- 23 -
Approved For Release 1999/090tAlpfSVINTI2M000100120007-4
Approved For Release 1999/69VENTSIOMO5R000100120007-4
Table 6
End Use of GNP in South Vietnam
During the 1970s
Percent
1970
1975
1980
Case I
Consumption and government spending
105.0
105.1
102.6
Investment
12.0
15.0
14.0
Exports of goods and services
18.0
3.5
4.6
Non-military commodity exports
0.5
2.4
3.7
Less:
Imports of goods and services
-35.0
-23.6
-21.2
GNP
100.0
100.0
100.0
Case II
Consumption and government spending
105.0
103.5
95.7
Investment
12.0
16.8
20.0
Exports of goods and services
18.0
3.9
7.0
Non-military commodity exports
0.5
2.9
6.2
Less:
Imports of goods and services
-35.0
-24.2
-22.7
GNP
100.0
100.0
100.0
Case III
Consumption and government spending
105.0
101.4
89.5
Investment
12.0
19.6
24.0
Exports of goods and services
18.0
4.5
11.2
Non-military commodity exports
0.5
3.4
10.5
Less:
Imports of goods and services
-35.0
-25.5
-24.7
GNP
100.0
100.0
100.0
- 24 -
Approved For Release 199gThltDblinEtkbMAII205R000100120007-4
Approved For Release 1999/01tN1AllaWakidi5R000100120007-4
This scenario would, in any event, be in keeping
with the original description of a continuation of
the war in its present course, accompanied by vig-
orous efforts at economic reform and stimulation of
domestic production. The moderate growth case rep-
resents a successful diversion of goods and services
toward investment rather than consumption and mili-
tary uses. The decline in this instance of about
10 percentage points in the combined share of C G
in GNP is in keeping with the experience of other
rapidly growing LDCs that have made strenuous efforts
at stimulating domestic saving. The rapid growth
case -- a decline in the combined share of C G
of over 15 percentage points -- exceeds the unusual
South Korean performance during 1959-69. For this
reason -- and considering the radical institutional
changes dictated by these sorts of changes in
spending and saving patterns -- Case III is probably
a limiting case for South Vietnamese growth paths
during the 1970s.
In general, then, based on rather optimistic
assumptions about institutional changes, export
growth rates, and import substitution possibilities,
we have found need for large-scale external assist-
ance to South Vietnam at near present magnitudes
during the 1970s irrespective of domestic growth
efforts.
- 25 -
Approved For Release 1999/09tj43142MEMOIOACAR000100120007-4
Approved For Release 1999/091PiaggonaiR000100120007-4
III ? T-11.9?S2LitTJ-it-af?a-REMIarnant-IERZE.E1
Pre-Conditions to Successful Develo ment*
Certain changes in major government economic
policies clearly will be necessary if any develop-
ment program worthy of the name is to succeed. In
order to stimulate industrial growth, it may be
necessary to adjust prices of agricultural products
downward relative to those for industrial goods,
Interest rates should be flexible -- determined by
market forces -- in order to increase savings, To
control inflation, the government must increase
taxes to cover its expenditures without continually
having to increase the money supply. Government
borrowing from the public -- as through sales of
treasury bills -- should be held to a minimum in
order to encourage the use of private savings for
investment. An attempt must be made to tax rural
inhabitants in order to spread the tax burden more
evenly. In addition, reduction of the trade deficit
will require radical changes in foreign economic
policies. Since most Vietnamese goods are not now
competitive in world markets, a higher exchange
rate is essential if South Vietnam is to increase
its exports. An exchange rate in line with the
free market rate would help balance export earnings
with import demand. Private foreign investment
must be encouraged by the adoption of laws giving
privileges and incentives to foreign businessmen.
The 'growth paths" presented in the preceding
section are intended to demonstrate in very general
terms some overall growth patterns for the Viet-
namese economy and what would be needed to achieve
the rates set forth. The present section sets out
in greater detail the specifics of such growth,
sector by sector. However, no attempt has been
made to relate the "paths" of the preceding section
with any development strategy of the present section
for the reason that no single development program
can be said to match best with any given rate of
economic growth. At the very most, the reader
should derive from the two sections a general idea
of the constraints to growth facing Vietnam in the
years ahead and some appreciation of the types of
industrial and agricultural development which could
be carried out under such constraints.
- 27 -
Approved For Release 1999/09MSTIMIMprinr000100120007-4
Approved For Release 1999M/M-RWSM05R000100120007-4
Elimination of excessive bureaucratic controls
should stimulate activity by both domestic and
foreign investors as well as reduce opportunities
for corruption.
Given these necessary policy changes, the
scope of development programs adopted by South
Vietnam will be constrained primarily by the
ability to increase domestic saving and by the
availability of foreign exchange. For Vietnam,
securing foreign exchange adequate to rapid de-
velopment will depend on both a radical increase
in exports and maximum effective use of foreign
aid and investment. Much of what is considered
"waste" in foreign aid programs is the result of
choosing the less efficient means of procuring
capital equipment or of directing resources into
sectors where the payout is overlong in coming.
We have no way of judging how much of this "waste"
will occur in South Vietnam. We also have no way
of determining at the outset to what extent social
and political goals at variance with rapid growth
may preempt particular projects or sectoral growth
targets.
Further, we have no way of judging what "in-
efficiencies" will be imposed on South Vietnam by
the manner in which aid is presented. Although it
is frequently forgotten that the most efficient
use of any given amount of aid is procurement on
the international market through the lowest bidder,
this fact makes for substantial difference between
tied and untied aid. Another facet of aid-giving
that is sometimes overlooked is the long-term con-
sequences of particular means of administering aid
programs. For example, we know in broad terms
that aid given as balance-of-payments support can
more readily be used in ways that benefit small
businesses and the private sector than aid given
in support of particular development projects.
This is because balance-of-payments support can
be used quite flexibly to underwrite small-scale
purchases of machinery and equipment.
- 28 -
Approved For Release 199Mthpt5tRpfiRE205R000100120007-4
Approved For Release 1999/0gaigi-Pg*VAAR000100120007-4
A? atEEL202aLlaitata
Nevertheless, no matter what the type or
level of aid and investment, the Vietnamese still
must choose whether to pursue development mainly
through more rapid expansion of agriculture or
industry or to try to strike a balance between
them. Most foreign observers of the economy favor
a development program emphasizing agriculture,
which is by far the largest sector of the economy
both in terms of employment and contribution to
GNP. Agriculture probably can provide -- through
import substitution -- a large savings of foreign
exchange in a relatively short time, and it appears
to be potentially the greater source of growth in
exports. Moreover, growth in agriculture during
the past two years shows that much can be accom-
plished by small, private entrepreneurs without
large public investment as long as government
policies are relatively enlightened,
Industrial growth, however, cannot be
neglected. Although South Vietnam has relatively
little industrial capacity, all of the most.impor-
tant branches of industry have comparatively modern
plant and equipment -- either newly built or re
equipped since the early 1960s. Industrial de-
velopment could follow two basic paths: (1) con-
centration on small-scale plants to replace imported
consumer goods; or (2) emphasis on fewer, large-
scale plants to produce goods for export as well
as for the domestic market, Although -- other
things being equal -- the first of these courses
generally represents a less efficient use of re-
sources, foreign exchange constraints will probably
dictate some mix of the two strategies. It should
be remembered, however, that even a policy directed
solely at import substitution would require large
quantities of imports of capital goods and raw
materials given South Vietnam's stage of develop-
ment and its resources endowment.
13" port Substitution
Under even the least ambitious development
program there will almost certainly be a major
effort to replace imports with domestic production
in those areas in which South Vietnam has a readily
- 29 -
Approved For Release 1999/0t910ArR000100120007-4
Approved For Release 1999/WV:U/PagaMb5R000100120007-4
identifiable comparative advantage over the long
run. More than $200 million worth of imports in
1970 (or more than one-fourth of total imports)
fall into this category. These include rice
($101 million), fertilizer ($41 million), animal
feed ($17 million), sugar ($12 million), cement
($14 million), tobacco ($4 million), wood pulp
($8 million), vegetable oil ($6 million), and
prepared meat and fish ($6 million). In addition,
there are possibilities for sensible import sub-
stitution in such industries as pharmaceuticals,
chemicals, flour milling, textiles, and possibly
even steel, for which scrap metal will be avail-
able for some time. The pharmaceutical industry
could effect considerable savings of foreign ex-
change by processing imported bulk materials.
Besides producing fertilizer, South Vietnam's
chemical industry could also greatly expand produc-
tion of plastics. Vietnam imported $17 million
worth of wheat flour in 1970, but milling of
imported wheat could be done in-country. The
textile industry, South Vietnam's largest, un-
doubtedly could expand output of cotton and
eventually synthetic fabric to replace imports.
In many of these cases (fertilizer and cement,
for example) considerable imports of capital equip-
ment will be needed to start up or expand domestic
production. (Capital equipment for all types of
projects will always have to be imported, since
it is assumed South Vietnam will not produce them
in any significant quantity in the foreseeable
future.) For fertilizer even the raw materials
would have to be imported, since South Vietnam has
few natural resources that can be used in the pro-
duction of fertilizer. Thus, a given amount of
import replacement would lead to a considerably
smaller savings of foreign exchange.
The Vietnamese already are committed to
pursue certain other types of import substitution
that some observers think are not suitable for
South Vietnam. Although assembly and partial
fabrication of imported semimanufactures can often
be most economic in an LDC amply endowed with
trainable labor and short on foreign exchange,
there is increasing concern that the government
may thoughtlessly mortgage future resources by
wholesale acceptance of any assembly operation
- 30 -
Approved For Release 1999EM9iFdEt-EMSFitd205R000100120007-4
Approved For Release 1999/09/COR:RANT01451R000100120007-4
that handles goods now imported in finished form.
During the past year the government has authorized
the construction of joint Japanese-Vietnamese
assembly plants for radio and TV sets, sewing
machines, pick-up trucks, and farm machinery.
There is a widely-held suspicion that several of
these projects are designed solely to secure an
import monopoly and that the plants will never be
built. Government regulations for establishing
assembly plants in fact encourage such a develop-
ment by allowing the investors the exclusive right
to import the product approved for assembly.
C. Export Development
If South Vietnam is ever to become self-
sustaining, it must go beyond limited import re-
placement and energetically develop its exports.
A large increase in exports will be needed not
only to cover the increased imports of necessary
raw materials, semimanufactures, and capital equip-
ment but also to cover the probable decline in
foreign aid. Rapid export growth will require
both a conscious effort to direct resources into
areas in which South Vietnam has a conspicuous
comparative advantage and greatly increased export
marketing activities. In many less developed
countries, there is an aversion to concentrating
exports on primary products. This stems from a
conviction that the terms of trade continue
to move against these goods and that their exports
are peculiarly vulnerable to trade fluctuations.
Most serious research in recent years has con-
cluded, however, that fluctuations in export
earnings among primary producers are more a func-
tion of LDC problems in sustaining production
than of varying international market demands.
Even over the longer term, much of the apparent
vulnerability of exporters of primary products
can be averted by substantial diversification
within agricultural exports, by some extension
into processing of the primary products, and by
the encouragement of foreign investment in rele-
vant export industries or the conclusion of long-
term export contracts to assure continued market
access.
- 31 -
Approved For Release 1999/090DNIFI4 EWI1?INR000100120007-4
Approved For Release 1999 WAMAKCSAMm5R000100120007-4
Greater attention to the development of
export markets will have to be a prominent feature
of Vietnamese economic strategy over the coming
years. Although reattainment of earlier export
levels for rubber is likely to be favored by tra-
ditional ties with major French companies, there
are few other instances of countries or commodities
in which South Vietnam will be able to fall back
on recent experience in expanding sales abroad.
At some point the United States might want to
guarantee the Vietnamese a market for certain of
their exports. For the greatest share of export
growth, however, the principal dynamic will be the
rate of growth of Japanese industry and the attendant
demand for raw materials and semi-finished goods.
In this case (and for other developed countries),
the Vietnamese will have to make inroads on the
markets of established suppliers and show the
ability to deliver steadily and on schedule. Par-
ticularly in the Japanese case, they will be faced
with the challenge of gaining ground against trade
ties based on large-scale, long-term contracts.
On the other hand, efforts to increase their trade
and to encourage otherwise sound Japanese invest-
ment are likely to bear the fringe benefit of
access to the marketing skills of the major Japanese
trading firms, which are unrivaled in acquiring
market information and general merchandising on
a global scale.
Among goods that are now imported some of
the most promising candidates for self-sufficiency
and then export are animal feed, wood pulp, vege-
table oil, and rice. There is general agreement
that the production capability as well as a strong
external market exist for most of these goods.
(South Vietnam exported some animal feed and vege-
table oil as well as rice during the early 1960s.)
Self-sufficiency in rice probably will occur this
year or next, but world rice trade is diminishing
as other countries attain self-sufficiency from
the same new technology used in South Vietnam.
The Vietnamese, therefore, may not be able to
market as much rice as they did before the war.
Exports of rubber, which accounted for almost 80%
of total exports in 1970, probably can be increased
substantially over the medium term with increased
security in the plantation areas. There apparently
- 32 -
Approved For Release 1999e6RtitipliniSAVO5R000100120007-4
Approved For Release 1999/000N1MMIDACER000100120007-4
is a relatively good market for Vietnamese rubber,
and with substantial investment rubber production
and exports might return to prewar levels. South
Vietnam formerly exported many products that could
once again be exported, such as sand, beer, fruit,
peanuts, and duck eggs. These, however, probably
will not be major foreign exchange earners.
Besides rubber and rice, products that now appear
likely to be among South Vietnam's major exports
during the next ten years are feed grains, fish .
and fish products, and lumber and wood products.
Providing sufficient investment is forthcoming,
South Vietnam in time may also be exporting
processed foods, consumer goods, and light indus-
trial products.* It is worth noting, however,
that recent studies of LDC trade growth have
emphasized the paramount role of rapid growth in
minor categories in the cases of countries with
outstanding export successes. Certainly no one
would have considered canned mushrooms and
asparagus as prospective major export growth cate-
gories for Taiwan in 1950.
D. Alternative Development Programs
Assuming energetic efforts to make the most
effective use of resources in export development,
a wide variety of development programs for the
period through 1980 can be visualized Three il-
lustrative programs -- whose content varies with
the availability of official foreign aid and pri-
vate foreign investment -- are shown in Figure 3.
The programs range from one that would go with
minimum aid and limited investment to one with
moderate aid and moderate private foreign invest-
ment. The programs vary in speed and scope of
development, but not in direction or nature of
projects to be undertaken.
Development Program I, with minimum aid
and limited private foreign investment, is charac-
terized by emphasis on import substitution in
both agriculture and industry with some effort to
develop exports of unprocessed agricultural, fish,
and forestry products. Under Program I South
*
it is, of course, possible that exports of crude
oil could ultimately be large. Because of the nec-
essary lead time for development, however, even the
most optimistic estimates in this area would have to
preclude substantial effect on exports 1,2r most of
the period under consideration.
- 33 -
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
CONFIDENTIAL
--Arilir-o-v-ed-F61--Refels-e'1999109I09 '.*CIA:ROP82S00205R000'100126007:4-.. "-- "
Alternative Development Programs for South Vietnam
SECTORS
Agriculture
Industry
Other
;
II
(Minimum aid and limited private foreign (Moderate aid and limited private foreign
investment) investment)
Focus on self-sufficiency; modest increase in
agricultural exports especially after 1975.
11 I ;. I
Focus on import replacement for consumer
goods and some agricultural inputs.
I
Develop fish and forestry products for
export.
512221 9-71
,
Work toward self-sufficiency through 1975,
with increasingly rapid development of ex-
ports of unprocessed agricultural products.
I
I' ;Ill it; I. III' 1 11 1 t II I IL "II
1
Go beyond import replacement to export
of consumer goods. Also develop domestic
production to replace imports of interme-
diate goods used to produce consumer
goods.
'
,,I I I II II II
Rapid development and increasing exports
of fish and forestry products, including
processed goods.
; I
11
i I
Figure 3
[.;
(Moderate aid and moderate private for-
sign investment)
Rapid attainment of self-sufficiency; then
rapid development of exports of unproc-
essed, and then processed agricultural
goods.
I ; II I
t
;
Same as II along with import replacement
of some heavy industrial products; exports
of intermediate goods.
Same as
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
IVIINgGIANOD
Approved For Release 1999/09WWINJFE)(12t1R000100120007-4
Vietnam might become self-sufficient for all food
requirements except wheat and some dairy products
and by 1975 begin exporting -- in addition to
rubber and rice -- products such as fruit, live
animals, and vegetable oils. Import replacement
in industry would be focused on consumer goods and
agricultural inputs such as plastics, textiles,
apparel, fertilizer, and farm tools. Development
of the fishing industry would involve modernizing
the fishing fleet and constructing refrigeration
facilities. Shrimp would initially be the most
likely export prospect. Exports of forestry prod-
ucts would consist of logs and sawn wood.
Development Program II, with moderate aid
but still limited private foreign investment,
focuses on import substitution during the early
years and then on rapid development of exports
from agriculture, fishing, and forestry. In in-
dustry there would be an attempt to export some
consumer goods, such as rubber and plastic prod-
ucts, as well as extension of import substitution
into intermediate goods. For example, as technical
ability improved and markets expanded, there would
be an effort to manufacture the parts needed to
assemble such things as farm machinery and small
motors. Under Program II, South Vietnam would
become virtually self-sufficient in food by 1975,
going on to rapid growth of exports of unprocessed
products such as feed grains and fresh and dried
vegetables in addition to those mentioned under
Program I. Rapid development and increasing ex-
ports of the fishing industry would require con-
struction of processing plants as well as new
fishing equipment and refrigeration facilities.
With the amounts of aid and investment postulated
under Program II wood pulp, plywood, and paper
production facilities could be expanded or con-
structed with an eye to the export market.
Moderate aid and moderate private foreign
investment, as assumed for Development Program III,
would allow the South Vietnamese to speed up import
substitution in both agriculture and industry and
concentrate more effort on export development.
Agricultural exports could include processed goods
such as canned fruits and vegetables, spices,
- 35 -
Approved For Release 1999/09e19/c*MNSIOTnER000100120007-4
Approved For Release 199cf64W.UASiitk205R000100120007-4
prepared meats, and sugar. Industry would develop
as under Program II with additional effort focused
on producing such things as electrical machinery
and equipment and small ships. With foreign firms
investing in Vietnam because of the availability of
relatively cheap labor, there also would probably
be exports of intermediate goods such as electronic
components and parts for simple machinery. The
development of fishing and forestry would be much
the same as under Program II.
- 36 -
Approved For Release 19961?3ictilfiM,qF18RT205R000100120007-4
Approved For Release 1999/09W:WAMPYIAR000100120007-4
APPENDIX A
Sectoral Growth Patterns
Sectoral growth was projected for South Vietnam
for the period 1970-80 as a basis for checking the
plausibility of particular aggregate growth assump-
tions and to support the study of import require-
ments described in the next Appendix. The patterns
projected, which we judge to be realistic, are
shown in Table 7. These patterns were based on
appraisal of South Vietnamese production possibil-
ities as described in a variety of other sources
and on comparison to experiences in other LDCs in
similar circumstances. The beginning and ending
sector shares are shown in Table 7, as are the raw
values derived from advancing the original weights
at the projected sectoral growth rates. The raw
values for all sectors are added for comparison to
the result that would be obtained simply by applying
the aggregate growth assumptions to GNP (identified
as the "actual" in parentheses).
A notable feature of all three projections is
that the increase in agricultural and industrial
output must come from directing resources toward
these sectors that might traditionally have been
applied to the services sector. Comparatively
small change in agriculture reflects both the slow
pace at which factors of production can be moved
out of it and the likely heavy export dependence
on it. The opening position for the industrial
sector takes account of a consistent tendency of
LDCs to understate the share of national output
derived from industry.
- 37 -
Approved For Release 1999/0MNWIDERMQ105R000100120007-4
IVIINJOIANOD
Org'.11A711DP82S-00205R0004001
Table 7
Illustrative Sectoral Growth Patterns: 1970-80
Annual Values Final
Initial Sector Shares
Growth Rates
0 1
2
3 4
Case I: Slow Growth a/
Agriculture
35%
1970-75:
5%
35.0 36.8
38.6
40.5 42.5
1976-80:
4%
Industry
15%
1970-75:
6%
15.0 15.9
16.9
17.9 18.9
1976-80:
8%
Services
50%
1970-75:
3%
50.0 51.5
53.0
54.6 56.3
1976-80:
4%
National
output
100%
(actuaZ:
Case II: Moderate
Growth
b/
Agriculture
35%
1970-75:
6%
35.0 37.1
39.3
41.7 44.2
1976-80:
5%
Industry
15%
1970-75:
6%
15.0 15.9
16.9
17.9 18.9
1976-80:
12%
Services
50%
1970-75:
3%
50,0 51.5
53.0
54.6 56.3
1976-80:
7%
National
output
100%
(actual:
Case III: Rapid Growth c/
Agriculture
35%
1970-75:
6%
35.0 37.1
39.3
41.7 44.2
1976-80:
5%
Industry
15%
1970-75:
8%
15.0 16.2
17.5
18.9 20,4
1976-80:
14%
Services
50%
1970-75:
4%
50.0 52.0
54.1
56.2 58.5
1976-80:
8%
National
output
100%
(actual:
a. Increase
b. Increase
c. Increase
in GNP
in GNP
in GNP
of 4%
of 4%
of 5%
per year,
per year,
per year,
rising
rising
rising
to 5% per
to 8% per
to 10% per
year.
year.
.year.
Effective
Effective
Effective
5
6
7
8
9
10
44.7
46,5
48.3
50.3
52.3
54.4
20.1
21.7
23.4
25.3
27.3
29.5
58.0
60.3
62.7
65.2
67.9
70.6
122.8
154.5
121.6)
(actual:
155.2)
46.8
49.1
51.6
54.2
56.9
59.7
20.1
22.5
25.2
28.2
31.6
35.4
58.0
62.1
66.4
71.1
76.0
81.3
124.9
276.4
124.0)
(actual:
275.6)
46.8
49.1
51.6
54.2
56.9
59.7
22.0
25.1
28.6
32.6
37.2
42.4
60.8
65.7
70.9
76.6
82.7
89.3
129.6
191.4
129.3)
(actual:
191.8)
Sector
Shares
35.2
19.1
45.7
200.0%
33.8
20.1
46.1
100.0%
31.2
22.2
46.6
100.0%
growth rate for the period: 4.5% per year.
growth rate for the period: 5.8% per year.
growth rate for the period: 6.7% per year.
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
IVIINACIIANO0
Approved For Release 1999/09C3/SIE-M1(Wit12A113000100120007-4
APPENDIX B
IEE2EL_EtaBiE2pents for Growth.
Projections of import requirements for growth
have?in.general been determined by tying disaggre-
gated import categories to the sectoral growth
rates outlined in Appendix A- Since the growth
rates vary according to the three cases, three
different total import series are consequently
generated. In general, however, the series are
similar in that each declines somewhat during the
first five years, reflecting the occurence of im-
port substitution in the period, Then, toward the
end of the 1970s, each series increases as more im-
ports are required for inputs to increased domestic
production. These series, disaggregated to nine
general categories, are shown in Tables 8, 9, and
10. The methods used in calculating these figures
are briefly described, by category, below,
Raw and-Semi-Finished Materials
This category is increased from the 1969 base
of $167 million to an assumed 1970 level of $175
million (an increase of 5%), The $175 million is
increased through 1980 according to the rate of
industrial growth of the particular growth case,
with the total decreased by 15% after 1975, as an
allowance for a decline in Vietnam's dependence on
imports for production,
Agricultural IllEits
Imported inputs to agriculture are assumed to
increase at the rate of growth of the sector, By
1975, it is assumed that some $25 million in this
category can be replaced by domestic fertilizer
production and that this amount will increase to
a total of $50 million in fertilizer import sub-
stitution in 1980.
Petroleum
Imports of petroleum are expectedto increase
by about 6% per year (the minimum rate of industrial
expansion among the three growth cases) until 1975.
Although perhaps more closely tied to growth in
services than industry, petroleum requirements will
probably continue to be affected by levels of mili-
tary action and probably will increase at about the
past rate (some 7% annually from 1960 to 1970).
After 1975, it is assumed that more normal conditions
- 39 -
Approved For Release 1999/09/tibRMIpplyeR000100120007-4
IVIINHCIIANOD
AAifbiie'd-rOFReTei"Ie""Tg591097tf9TC1AzRDP"828"0"O2OSROOOT 1260074
Table 8
Case I: Import Projections by Category
1969-80
Million US $
Year
Industrial
Investment
Other
Investment
Raw and Semi-
Finished Goods
Petroleum
Construction
Inputs
Agricultural
Inputs
Consumer
Goods
Food
Services
Total
1969 2/
32
25
167
22
79
58
145
191
50
769
1970
30
13
175
22
78
61
73
163
50
665
1971
33
13
186
23
75
64
75
135
50
654
1972
35
14
197
25
72
67
77
107
50
644
1073
36
14
208
26
69
70
80
92
50
645
1974
38
15
221
28
67
74
82
77
50
652
1975
54
15
234
29
64
53
85
61
50
645
1976
59
16
215
31
59
51
87
55
50
623
1977
63
16
232
33
64
49
90
50
50
647
1978
69
17
251
35
69
48
93
46
50
678
1979
74
18
270
37
74
46
95
42
50
706
1980
80
18
293
39
80
45
98
38
50
741
a. Actual.
IV 4
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
INaGIANOD
IVIINHCHANOD
4
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
.41
Table 9
Case II: Import Projections by Category
1969-80
Million US $
Industrial
Year Investment
Other
Investment
Raw and Semi-
Finished Goods
Petroleum
Construction
Inputs
Agricultural
Inputs
Consumer
Goods
Food
Services
Total
1969 a/
32
25
167
22
79
58
145
191
50
769
1970
30
13
175
22
78
61
73
161
50
663
1971
33
13
186
23
75
65
75
129
50
649
1972
35
14
197
25
72
69
77
99
50
638
1973
36
14
208
26
69
73
80
81
50
637
1974
38
15
221
28
67
78
82
71
50
650
1975
81
15
234
29
64
57
85
61
50
676
1976
92
16
223
31
61
57
87
55
50
672
1977
102
17
250
33
68
57
90
50
50
717
1978
114
18
280
36
77
58
93
46
50
772
1979
128
20
313
38
86
59
95
42
50
831
1980
143
21
350
41
96
60
98
38
50
897
a. Actual.
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
IVIINaGIANOD
IVIINHCITANO0
'-AjijiloVed-roi--Retedie-19'9 91091097 IA:RDP82SOOYOSRODOTCfG 1-2 000 7
Table 10
Case III: Import Projections by Category
1969-80
Million US $
Industrial
Year Investment
Other
Investment
Raw and Semi-
Finished Goods
Petroleum
Construction
Inputs
Agricultural
Inputs
Consumer
Goods
Food
Services
Total
1969 2/
32
25
167
22
79
58
145
191
50
769
1970
41
18
175
22
79
61
73
161
50
680
1971
44
19
189
23
77
65
75
129
50
671
1972
48
19
204
25
75
69
77
99
50
666
1973
51
20
220
26
73
73
80
81
50
674
1974
56
21
238
28
72
78
82
71
50
696
1975
105
22
257
29
72
57
85
61
50
738
1976
119
24
249
31
70
57
87
55
50
742
1977
135
26
284
34
79
57
90
50
50
805
1978
155
28
324
37
90
58
93
46
50
881
1979
177
30
369
39
103
59
95
42
50
964
1980
201
32
421
43
117
60
98
38
50
1,060
a. Actual.
4 ?
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
IVIINaCIMNOD
Approved For Release 1999/09CinsTalibEsti&MIR000100120007-4
will exist and, therefore, petroleum imports will
increase through 1980 in step with the rate of
growth of services.
Construction Inputs
Imported inputs to the construction industry_
are expected to be reduced by the slackened need
for metal roofing with decreased war damage, and by
an increased ability of the Vietnamese to produce
their own cement. Imports of these items are
assumed to decline to zero by 1975, with the re-
mainder of the construction imports increasing from
the 1969 level in accord with rates of industrial
expansion in each of the three cases. After 1975
a 15% reduction in these imports is made, following
the assumption that the construction industry be-
comes increasingly reliant upon domestic inputs.
Food Imports
Imports of rice are assumed to cease after
1971, with US-supplied duty-free food items de-
clining to zero in 1972 (for Cases II and III) or
1973 (for Case I). The remaining food imports are
assumed to decline to the 1963 level of total food
imports by 1975, and then to continue to fall by
10% per year through 1980.
Cons umer Goods Irnorts
Consumer goods imports in 1970 are assumed to
be reduced to the average level of per capita con-
sumer imports that existed during the period
1960-65 (about $4 of imports per capita per year).
They are assumed to remain at this per capita level
through 1980.
Investment ImEaLs_
Imports of investment goods for industry are
assumed to increase generally in accord with in-
dustrial expansion. Since, however, investment
materials should really be viewed as required in
periods preceding increased industrial output, a
ratio of imported investment goods to industrial
- 43 -
Approved For Release 1999/09eb:RNMNSIORTR000100120007-4
Approved For Release 1999/6WEMANTS3MO5R000100120007-4
output was calculated.* This imported capital
"ICOR" was then applied with appropriate lags to
rates of growth of the industrial sector to yield
a series of imported capital requirements for each
case. Other investment imports, as they contain a
large amount of transportation equipment, are
assumed to increase from a modified 1969 base with
the rates of growth of services for each of the
cases.
Services
It is assumed that roughly $50 million in im-
ports of services, primarily official South Viet-
namese expenditures, will continue as a stable
component of total imports throughout the period.
Import Requirements Compared with Resource
Balance Figures
Figures 4, 5, and 6 compare the magnitude of
the import projections for Case I (low) and Case
III (high) to the simple resources balance calcu-
lated as a residual in Tables 11 and 12, Appendix C,
below. Figure 4 compares the projected yearly im-
port totals while the other two figures compare the
implied Vietnamese per capita imports (Figure 5)
and imports as a percentage of GNP (Figure 6) to
similar numbers for Thailand, Korea, and Taiwan.
The conclusion reached in these comparisons is
that the import levels determined as requirements
for our assumed production growth are much more
reasonable in view of the recent experiences of
other Asian LDCs than are the low "resource balance"
figures.
* This ratio was calculated by a linear regression
of the equation:
t-1
Qt = A 4- 1 v I where Qt = domestic industrial
F output
A = a constant
I = imported capital
= incremental imported
capital-output ratio
- 44 -
Approved For Release 1999/M9MC912/95R000100120007-4
Approved For Release 1999/GgeNPARDIPMDSMR000100120007-4
SOUTH VIETNAMESE IMPORTS: Projections to 1980
MILLION US $
1200,
900
600
300
Figure 4
Imports Required for Growth
CASE III
CASE I
Resource Balance
. CASE III
CASE:
0
1963 64 65 66 67 -68 69 70 71 72 73 74 75 76 77 78 79 80
SOUTH VIETNAM PROJECTIONS
512154 9-71
IMPORTS AS A PERCENTAGE OF GNP:
Selected Countries and Projections for South Vietnam
IMPORTS as a SHARE of GNP (%)
40% -
30%
10%
SOUTH VIETNAM
TAIWAN
Figure 5
Imports Required for Growth
CASE III
THAILAND
CASE I
Resource Balance
SCA E III
KOREA
CASE I
1960
512156 9-71
61
62 63
64 65
66 67 68 69 70 71 72 73 74 75 76 77 78 79 60
- 45 -
SOUTH VIETNAM PROJECTIONS
Approved For Release 1999/06MME\FMER000100120007-4
Approved For Release 1999/0MINRIA-EFENNOAC?R000100120007-4
PER CAPITA IMPORTS: Selected Countries and Projections for South Vietnam
120
US $ PER CAPITA
100
80
60
40
20
0
1957 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80
TAIWAN
Figure 6
KOREA
SOUTH VIETNAM
Imports Required for Growth
CASE III
THAILAND
CASE I_
----- - - ----- -
Resource Balance
CASE III
CASE I
512155 9.7
- 46 -
SOUTH VIETNAM PROJECTIONS
Approved For Release 1999/093OjCM-BIMOBTRO00100120007-4
Approved For Release 1999/06A0NtRiabita1baR000100120007-4
International Comparisons: Implications of Import
Assumptions in the Three Growth Cases
Further rough analysis of imports in other
Asian LDCs substantiates our projections for Viet-
nam. Specifically compared to South Vietnam in
this Appendix are the economies of Korea, Taiwan,
Thailand, and the Philippines. The nature and
general magnitudes of these comparisons are briefly
outlined below.
As a first observation, the ratio of total im-
ports to GNP (shown in Figure 6) has been generally
increasing over time, even though GNP itself has
been growing in these economies. In current prices
the percentage of imports to GNP in Korea, Taiwan,
Thailand, and the Philippines has gone from 10%-
20% in 1960 to over 20% in 1968. Calculated in
constant price data, this percentage increase has
been even greater. Although there is no "normal"
percentage of imports (as the necessary relation
of imports to GNP would depend upon the specific
economy), a declining ratio over time seems to be
unusual, and our end-of-period projections for
Vietnam might, therefore, be criticized more for
being low than high.
As another rough comparison, a ratio has been
calculated using imports loosely defined as "im-
ports used in production" as a proportion of GNE,
In this categorization, finished consumer goods
and foodstuffs have been subtracted from the im-
port total. This ratio seems to have been in-
creasing over time in the countries observed, and
recently has been roughly 15% to 20% of GNP. For
example, this category of imports accounted for
the following percentages in the late 1960s:
Percent
Taiwan 19
Korea 23
Philippines 14
Thailand 16
- 47 -
Approved For Release 1999/09eibicIMIMNSM2LR000100120007-4
Approved For Release 1999/60VEWCO41?41105R000100120007-4
Our import projections result in South Vietnam
having similar ratios during the 1970-80 period*:
Percent
Case I
Case II
Case III
1970
16.8
16.8
17.6
1975
16.4
17.2
18.6
1980
15.9
18.0
20.3
Comparisons become more difficult with more
disaggregation, although calculations were still
made to permit rough analogies. Indices of manu-
facturing output and imports of raw and semi-
finished materials demonstrate that generally in-
dustry's reliance upon imported materials has been
maintained or increased over the past decade in
the compared countries.** Taking 1960 as a base
year, the index figures calculated were as follows,
circa 1968:
* Imports in this calculation are investment
imports, raw and semifinished imports, petroleum,
construction inputs, and agricultural inputs.
*A Further evidence of such a reliance in these
economies was suggested by analysis done as back-
ground for a study on Thailand by this office
(ER IR 70-22, "Thailand: Recent Economic Perform-
ance and Prospects", SECRET). A linear regression
relating imported raw materials to manufacturing
output suggested that in Thailand imports increase
relative to output growth and that on the margin
make up about one-third of the value of manufac-
turing output. In millions of Thai baht this
equation took the form of: Raw Imports = -694
.34 (Manufacturing Output) [R2 = .986, D-W = 1.79]
- 48 -
Approved For Release 1999eMFINAINIWASO5R000100120007-4
Approved For Release 1999/09/606TXM:E$M)M5h000100120007-4
Industrial out-
1960
= 100
Taiwan
Korea
Thai-
land
Philip-
pines
put
305
380
225
150
Raw and semi-
finished im-
ports
305
440
270
175
(Ratio)
(1.00)
(1.16)
(1.20)
(1.17)
Using 1970 as a base period, our Vietnam projec-
tions yield the following through 1980:
Case I
Case III
1970
1975
19 80
1970
1975
19 80
Industrial
output
100
134
197
100
147
284
Raw and semi-
finished im-
ports
100
134
167
100
147
241
(Ratio)
(1.00)
(1.00)
(0.85)
(1.00)
(1.00)
(0,85)
The reduced dependence in our projections thus
forces against what appears (in the four compari-
son countries) to be a tendency toward increased
reliance upon imported materials with time and
with the growth of industrial output.
Further comparisons can be made between imports
and total investment taking place in the economy.
Imports contributing to total investment in each
sector of the Vietnamese economy would include the
categories of investment imports, construction in-
puts, and agricultural inputs (with certain chem-
icals and non-fixed farming equipment being con-
sidered as forms of investment in land). This
summation, in our Vietnamese projections, forms
the following percentages of total investment:
- 49 -
Approved For Release 1999/0943NIfft9pN3tq2V000100120007-4
Approved For Release 1999/64EL4aNagdiliO5R000100120007-4
Percent
Case I
Case II
Case III
1970
67
67
74
1975
45
45
45
1980
45
41
40
In the late 1960s, similarly computed percentages
for comparable economies are: Korea, 41%; Taiwan,
42%; Thailand, 33%; and the Philippines, 37%.
Total fixed investment has also been compared
to imports specifically identified as investment
goods for manufacturing. For our Vietnam projec-
tions the import category "Industrial Investment
Imports" divided by total investment gives the
following percentages:
Percent
Case I
Case III
1970
11
15
1975
13
18
1980
16
19
For the comparable countries, a similar category
of imports to total domestic investment yields
percentages between 15% and 30% (circa 1968).
Current petroleum imports per capita have been
roughly as follows in US dollars:
Thailand Korea Taiwan Philippines
Circa 1969 3 4 3 3
At the end of the period 1970-80, our Vietnam pro-
jections for petroleum imports total something
- 50 -
Approved For Release 1999/MkneItIFIR8I91j95R000100120007-4
Approved For Release 1999/09010NiIKIFIdkNkd2tiiR000100120007-4
between $2 and $2.50 per capita and are, therefore,
probably conservative.
Finally, projected consumer food and non-food
imports were compared on a per capita basis to
similar figures for other economies. Per capita
figures of these imports have been rising over the
past decade to approximately the following levels,
circa 1968:
US $
Taiwan 9.20
Thailand 5.80
Korea 8.40
Philippines 6.10
For our projections, however, the per capita figures
for South Vietnam decline significantly over the
period:
Cases I, ,II and III
mome..,,??????InwacoPeamgPm.monvinnsemPoe,??1?eraamennr.--soul,am?
1969 $18.80
1970 12.80
1975 6.80
1980 5.50
- 51 -
Approved For Release 1999/09MRIffigteiVN2M5000100120007-4
Approved For Release 1999/09710MAIREPMODAOBRO00100120007-4
APPENDIX C
Resource Balance and sup.22Et
EaallIaM2aLe2. Summary gease Tables
Summaries of the quantitative assumptions and
computations involved in each of the three growth
cases are presented in this Appendix as Tables 11,
12, and 13. The first five columns of each of these
tables are initially assumed according to the nature
of the growth cases (as discussed in Section II), and
the eighth column results from the import analysis
contained in Appendix B. The remaining columns are
then calculated from these initial series.
In addition, this Appendix shows in Tables 14
and 15 the results of modifying the export growth
rates of the previously discussed Cases I and III.
Case IV considers the possibility that, even with
the high GNP growth assumed in Case III, difficulties
in production and marketing might restrict exports
to low levels (specifically, to the quantities
assumed in Case I). Alternatively, as discussed
earlier, although a high export growth rate would
logically occur along with high GNP growth, Case V
considers the outcome of high exports being coupled
with slow GNP increases (Case III exports and Case
I growth).
These two final cases illustrate the importance
of export growth in relation to Vietnam's assist-
ance needs. Under the Case IV assumptions the com-
puted foreign exchange support requirement rises
significantly, reaching $900 million annually by
1980. In Case V, however, this requirement drops
to a level of about $250 million in 1980. In the
first of these extreme cases, therefore, high growth
in domestic production leads (without high export
growth) only to greater future support requirements.
The other example demonstrates that if exports can
grow somehow, say by optimistically high Vietnamese
efficiency and US guaranteed markets, a low- GNP
growth will permit reduction in foreign exchange
requirements. These cases thus point up the fact
that Vietnam's future requirements for external
assistance will depend primarily on the rate of
growth- of Vietnamese exports
- 53 -
Approved For Release 1999/TONCTIt3M2RWR000100120007-4
IVIINHUIANOD
''ClIA:1413Pg2S002050001-001'2D007:4' ? ? ?
Table 11
Resource Balance and Support Requirement, Case I
Million US $
Year
Consumption (C) Non-
Total and Government, military Total
_
GNP Investment 'A/ Spending (G) 12/ Exports Exports c/
Total
Resource Resource
Consumption Balance
Import Require- Foreign Ex- C + G
ments for growth change Support (Alter-
Case I H/ Requirement e/ nate) f/
1970
1971
1972
1973
2,250 270 2,363 41 405
2,340 282 2,431 44 335
2,434 291 2,501 51 269
2,531 303 2,574 63 209
3,038 788
3,048 708
3,061 627
3,086 555
665 747 2,363
654 664 2,431
644 593 2,518
Ci
645 582 2,664
1 1974
2,632 315 2,649 78 151
3,115 483
652 574 2,818
U11975
2,737 411 2,728 95 95
3,234 497
645 550 2,876
1 1976
2,874 432 2,811 105 105
3,348 474
623 518 2,960 ttri
1977
3,018 435 2,897 115 1153,447
429
647 532 3,115
1978
2,985
3,168 461 130 130
3,576 408
678 548 3,255
1979
3,327 4653,078 145 145
3,688 361
706 561 3,423 r"
1980
3,493 4903,174 160 160
3,824 331
741 581 3,584
1981
3,668
a.
Investment series from Table 2, Case I.
b.
Private consumption increased at C7, per annum from a base-ear
value of $2,686 millton; government spending held constant at
$67.5
million.
c.
d.
Exports of all goods and services plus net factor income from abroad; Taii.e 1, "Slow" growth.
Import series from Appendix B, Table 6.
e.
f.
Consists of the higher figure between columns 8 or 9 less exports, column .5.
This column results from adding the original values for : and 3 in the fourth column to the domestic saving increment avail-
able
if foreign capital inficws eaual the data in t;:e next-to-t;:e-laet column.
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
ob
IVIINHGIANOD
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
411,
Table 12
Resource Balance and Support Requirement, Case II
Consumption (C) Non-
Total Total
Total and Government military Resource Resource
Year GNP Investment a/ Spending (G) h/ Exports Exports c/ Consumption Balance
1970 2,250 270 2,363 41 405 3,038 788
1971 2,340 282 2,431 44 335 3,048 708
1972 2,434 291 2,501 55 273 3,065 631
1973 2,531 381 2,574 68 214 3,169 638
1 1974 2,658 386 2,649 87 160 3,195 537
'
0 1975 2,791 468 2,728 110 110 3,306 515
Ln
1976 2,958 559 2,811 3,500 130 130 542
I
1977 3,165 577 2,897 155 155 3,629 464
1978 3,387 705 2,985 185 185 3,875 488
1979 3,658 733 3,078 225 225 4,036 378
1980 3,951 790 3,174 275 275 4,239 288
1981 4,267
Million US $
Import Require- Foreign Ex- C + G
ments for Growth change Support (Alter-
Case II d/ Requirement e/ nate)f/
663
649
638
637
650
676
672
717
772
831
897
747
664
583
569
563
566
542
562
587
606
622
2,363
2,431
2,508
2,574
2,762
2,889
2,941
3,150
3,269
3,531
3,783
IVIINHUIANOD
a. Investment series from Table 2, Case II.
b. Private consumption increased at 4 per annum from a base-year value of $1,688 milli-on; government spending held constant at
$675 million.
c. Exports of all goods and services plus net factor income from abroad; Table 1, "Moderate" Growth.
d. Import series from Appendix B, Table 9.
e. Consists of the higher figure between columns 8 or 9 less non-military exports, column 5.
f. This column results from adding the ori,?inal values for C and G in the fourth column to the domestic saving increment avail-
able if foreign capital inflows equal the data shown in the next-to-the-last column.
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
IVIINHUMNOD
-AtiiifFisifilereaie-I59910910.9-"CFA:RDP-82S0020"5140110100912000724---
Table 13
Resource Balance and Support Requirement, Case III
Million US $
Year
Consumption (C) Non-
Total and Government military Total
GNP Investment a/ SpendingCase
(G) b/ Exports Exports c/
Total
Resource Resource
Consumption Balance
Import Require-
ments for Growth
III di
Foreign Ex- C + G
change Support (Alter-
Requirement 2/ nate) f/
1970
2,250 270 2,363 41
405
3,038
788
680
747 2,363
1971
2,340 351 2,431 44
335
3,117
777
671
733
2,431
1972
2,457 369 2,501 60
278
3,148
691
666
631
2,501 n
1973
2,580 450 2,574 80
226
3,250
670
674
594
C)
2,5781-7
AL,
1974
2,735 476 2,649 100
173
3,298
563
696
596
2,782171
1975
2,899 568 2,728 130
130
3,426
527
738
608
2,939
tri
1976
3,102 586 2,811 165
1653,562
460
742
577
3,093 /7.
,c_o
1977
3,319 662 2,897 210
210
3,769
450
805
595
3,2521j,
1978
3,584 808 2,985 275
275
4,068
484
881
606
3,382>
1979
3,907 938 3,078 360
360
4,376
469
964
604
3,573 t"
1980
4,298 1,032 3,174 480
480
4,686
388
1,060
580
3,846
1981
4,728
a.
Investment series from Table 2, Case III.
b.
$675
Private consumption increased at 41 per annum from a base-year
million.
value of 81,688 million; government spending held constant at
c.
d.
Exports of all goods and services plus net factor income from abroad; Table 1, "Rapid" Growth.
Import series from Appendix B, Table 20.
e.
Consists of the higher figure between columns 8 or 9
less non-military exports, column S.
f.
This column results from adding the original valuer for C and G in the fourth column to the domestic saving increment avail-
able
if foreign capital inflows equal the data shown in the next-to-the-last column.
,
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
rIVIINaUIANOD
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
Table 14
Resource Balance and Support Requirement, Case IV
Consumption (C) Non-
Total
and Government military Total Resource Resource
Spending (G) 12/ Exports Exports c/ Consumption Balance
2,363 41 405
3,038 788
2,431 44 335 3,117 777
3692,501 51 269 3,139 682
4502,574 63 209 3,233 653
2,649 78 151 3,276 541
2,728 95 95
3,391 492
2,811 105 105
3,502 400
2,897 115 115
3,674 355
2,985 130 130 3,923 339
9383,078 145 145 4,161 254
160 160 4,366 68
Year
GNP
Total
Investment a/
1970
2,250
270
1971
2,340
351
1972
2,457
1973
2,580
1974
2,735
476
1975
2,899
568
1976
3,102
586
1977
3,319
662
1978
3,584
808
1979
3,907
1980
4,298
1,0323,174
1981
4,728
Million US $
Import Require- Foreign Ex- C + G
ments for G;owth change Support (Alter-
Case IV a/ Requirement e/ nate) f/
680 747 2,363
671 733 2,431
666 615 2,501
674 611 2,595
696 618 2,804
738 643 2,974
742 637 3,153
805 690 3,347
881 751 3,527
964 819 3,788
1,060 900 4,166
IVIINaUTANOD
a. Investment series from Table 2, Case III.
B. Private consumption increased at 4% per year from a base-year value of $1,688 million; government spending held constant at
$675 million.
c. Exports of all goods and services plus net factor income from abroad; Table 1, "Slow" Growth.
d. Import series from Appendix B, Table 10.
e. Consists of the higher figure between columns 8 or 9 less non-military exports, column 5.
f. This column results from adding the original values for C and G in the fourth column to the domestic saving increment avail-
able if foreign capital inflows equal the data shown in the next-to-the-last column.
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
"IVIINaUIANOD
Year
1970
1971
1972
1973
1974
I
01975
OD
1976
1977
1978
1979
1980
1981
--Af3proveZIF-cir Release 1999/09/69TCIA:RDP82S90205R80-011101200-074-
Table 15
Resource Balance and Support Requirement, Case V
GNP
Total
Investment a/
Consumption (C)
and Government
Spending (G) 12/
Non-
Military
Exports
Total
Exports c/
Total
Resource
Consumption
Resource
Balance
Import Require-
ments for Growth
Case V d/
2,250
270
2,363
41
405
3,038
788
665
2,340
282
2,431
44
335708
3,048
654
2,434
291
2,501
60
278
3,070
636
644
2,531
303
2,574
80
226
3,103
572
645
2,632
315
2,649
100
173
3,137
505
652
2,737
411
2,728
130
130
3,269
532
645
2,874
432
2,811
165
165
3,408
534
623
3,018
435
2,897
210
210
3,542
524
647
3,168
461
2,985
275
275
3,721
553
678
3,327
465
3,078
360
360
3,903
576
706
3,493
490
3,174
480
480
4,144
651
741
3,668
Million US $
Foreign Ex-
C + G
change Support (Alter-
Requirement e/ nate) f/
747 2,363
664 2,431
,...
584 2,509
Li
565 2,647 (...)
,...,
552 2,796 71
1'21
515 2,841 0.....1
l../
458 2,900 tri
437 3,020 2"1
1-e
403 3,110 L,..._
p?P'
346 3,208 r....
261 3,264
a. Investment series from Table 2, Case I.
b. Private consumption increased at ,r; Fer sear from X base-year value of $1,688 million; government spending held constant at
$675 million.
c. Exports of all goods and services plus net factor income from abroad; Table 1, "Rapid" Growth.
d. Import series from Appendix B, Table 8.
e. Consists of the higher figure between columns 8 or 9 less non-military exports, column S.
f. This column results from adding the original values for C and G in the fourth column to the domestic saving increment avail-
able if foreign capital inflows equal the data shown in the next-to-the-last column.
le ?
Approved For Release 1999/09/09 : CIA-RDP82S00205R000100120007-4
?
Approved For Release 1999/0tOONFIAMENTROAR000100120007-4
APPENDIX D
Sources
A wide variety of sources was used in assembling
the necessary background information for this study
and in considering particular development options.
In no instance was any one of these sources the
exclusive basis on which projections were made or
by which they were guided. Because the full range
of official Vietnamese publications available to
us was used in establishing a reasonable data base,
there is little point in listing each of these
separately. Certain major studies that were help-
ful in organizing our thoughts are discussed briefly
in the paragraphs below.
In the first section of the paper and in the
determination of plausible sectoral growth rates,
some use was made of a recent article in the
Economic Bulletin for Asia and the Far East en-
titled "A Brief Review of Structural Development
in the Developing ECAFE Countries." In these areas
and for export growth, the World Bank publication
International Financial Statistics and various
studies done on contract for AID dealing with Taiwan
and South Korea were also applied. Central bank
reports and various statistical publications for
other Asian countries provided additional basis
for underlying international comparisons. In each
case, these data were used with a caution born out
of the experience of one of the analysts having
done economic research on a total of about a dozen
Asian LDCs over a period of some six years? Thus
data from other countries were used almost entirely
to help establish credible ranges or to check the
plausibility of particular results for South
Vietnam.
In laying out the possible growth paths of the
second section of the paper, we considered the
approaches used in a number of studies completed
by the Institute for Defense Analysis (IDA) under
contract to AID. Work done by this organization
on national accounts and development prospects and
strategy formed a useful background for determining
how we might approach assumptions about major
- 59 -
Approved For Release 1999/09/6bRMWITAR000100120007-4
Approved For Release 1999/6QNEV-IfbN3T14105R000100120007-4
economic aggregates and macroeconomic policies
during the next ten years, but we did not directly
apply the conclusions of IDA studies in these
areas. A draft of an IDA paper on an input/output
model for South Vietnam and a subsequent conference
with one of its authors sharpened our understanding
of difficulties in presenting Vietnamese resource
requirements over the next ten years. The IDA
estimates of input/output coefficients quantifying
inter-sectoral dependence in Vietnam were of use
in judging plausible import requirements for growth.
Because the paper and model were undergoing exten-
sive review and editing at the time of our work,
we did not approach the problem with their metho-
dology. We also do not focus exclusively on the
combination of a slow GNP growth rate with rapid
export growth, as was true of the simulation they
report.
The section dealing with the content of develop-
ment programs benefited from the Joint Development
Group study on postwar development policies and
programs, a source that also proved useful in eval-
uating sectoral and export growth rates in Section
The Development and Resources Corp reports on
export prospects for South Vietnam were particularly
helpful. We used various feasibility studies as
guides to sensible industrial projects that the
South Vietnamese could undertake. In this section
and others we also relied on a study recently com-
pleted by this Office* which dealt, among other
things, with import requirements, possibilities
for import substitution, and prospects for the
growth of exports.
* See ER IM 71-122, South Vietnam: Some Aspects
of Economic Growth, July 1971, CONFIDENTIAL.
- 60 -
Approved For Release 199WMF4004121?41B05R000100120007-4
Approved For Release 1999/09/60bIEMMISTU144513A00100120007-4
NO FOREIGN DISSEM
Approved For Release 1999/09eb?Vkffin,Zi.,SFIRLR000100120007-4
NO FOREIGN DISSEM