THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82S00205R000100130006-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 15
• Document Creation Date: November 9, 2016
• Document Release Date: January 6, 1999
• Sequence Number: 6
• Publication Date: December 1, 1970
• Content Type: REPORT

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Intelligence Report
DIRECTORATE OF
INTELLIGENCE
The Economic Situation in South Vietnam
December 1970
CIA No. 6206/70
Co No.
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Background Use Only
WARNING
This document contains information affecting the national defense of the
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receipt by an unauthorized person is prohibited by law.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
.December 1970
INTELLIGENCE REPORT
The Economic Situation in South Vietnam
Summary
The results of the government's recent stabili-
zation measures continue to be favorable. Price
increases have been minimal; retail prices in
Saigon are only 3% higher than just before the
October reforms, and prices of imported commodities
are unchanged. The black market rate for dollars
has dropped below the pre-reform level, and the
money supply has declined slightly despite increases
in private credit and government spending.
Distribution of land under the Land-to-the-
Tiller program finally has begun to gain momentum,
and the first compensation payments to former land-
lords were made this month.
The harvest now under way probably will yield
the largest rice crop in South Vietnam's history.
Charts on prices and money supply, import
licensing, currency and gold prices, the government
budget, and foreign exchange reserves follow the
text,
Recent Trends
1. Economic indicators continue to be favorable.
Retail prices in Saigon declined 5% during the three
weeks ending 7 December; the USAID index is now
only 3% above the pre-reform level. The average
price level for November was 34% above that of
December 1969 -- the same increase that occurred
during January-November 1969. Vegetable prices,
which had been responsible for most of the increase
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in the index during October and early November, be-
gan to decline late last month. Prices of all
foodstuffs rose 6% during October and November,
but, excluding vegetables, the index of food prices
increased only 1%. Prices of medium-quality rice,
which were stable throughout November, declined
slightly during the first week in December and
are roughly 10% below prices of a year ago. Non-
food prices increased 4% during October and Novem-
ber, mainly reflecting higher prices for charcoal,
firewood, and cigarettes, Prices of imported
goods rose 3% in October, but declined by the same
amount in November,
2. Importers' windfall profits apparently are
being reduced as a result of the recent stabiliza-
tion measures. According to Embassy officials,
the average cost to importers of the products
reported in the USAID price index for imported
commodities rose 21%. Although few of the goods
ordered after the higher exchange and tax rates
became effective probably have arrived in South
Vietnam, importers' costs have been raised by the
new advance deposit system and higher interest
rates. And, since import prices have been stable,
the increase in costs so far has been absorbed by
importers rather than consumers. Moreover, with
the removal of most restrictions on import licens-
ing, importers' profits may be further cut back.
3. Demand for imports picked up in November.
Licenses issued for imports financed with GVN
foreign exchange reached a new high for the year
as importers began ordering goods for the Tet
holidays. As an inducement to buy American goods,
the government on 23 November eliminated advance
deposit requirements for US-source goods purchased
with GVN foreign exchange. In recent years, less
than 5% of imports financed by the GVN have come
from the United States..
4. Higher interest rates on savings and time
deposits and importer demand for piasters to meet
advance deposits and higher interest rates on loans
apparently have reduced demand for dollars on the
black market. The supply of dollars has continued
to decline as a result of the new exchange rate
for US personnel, which is causing a substantial
shift of funds from the black market to legal
channels. The decline in demand apparently has
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been greater than the decline in supply. Black
market currency prices fell steadily between
12 October and 7 December. The price of dollars
dropped to 392 piasters per dollar, or 8% below
the pre-reform rate, and the rate for MPC (scrip)
fell 5 piasters below the official rate to 270
piasters per dollar.
5. Advance deposits for imports and savings
and time deposits attracted by higher interest
rates have absorbed sufficient piasters to more
than offset the increase in private credit and in
government borrowing from the national bank to pay
for the government wage increase. As a result,
the money supply declined about 1% between 12
September and 14 November.
6. Indeed, it is unlikely that advance deposits
could have been financed without reducing the money
supply even. further, unless funds formerly leaving
the country..via the black market had not been re-
patriated. As of 14 November, advance deposits
for imports amounted. to almost 11 billion piasters;
yet between 12 September and 14 November the
decline in demand deposits and the increase in bank
loans amounted to only about half that amount.
In the same period, savings and time deposits in
commercial banks increased 5 billion piasters, or
29%. Because withdrawals from these deposits have
been another source of import financing, increased
savings resulting from higher interest rates
certainly were much larger than 5 billion piasters.
7. The government's financial. reform program
thus has been quite successful. Speculation and
black market demand have been dampened, importers'
excess profits have been reduced, and savings made
more attractive. Public expectations about economic
developments apparently have been positive. This
change in expectations combined with the monetary
benefits of the interest rate reform, the advance
deposit system, and the partial devaluation has
resulted in price stability despite the government
pay increase. Nevertheless, basic forces causing
inflation and inequities in income still exist,
and US officials in Saigon have begun talks with
the GVN in an effort to formulate the additional
stabilization measures that will be necessary to
ensure the continuation of recent favorable
economic developments.
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Progress In. Land Reform
8. Distribution of land under the Land-to-
the-Tiller program, which became law in March 1970,
began in late August and has gained momentum since
then. This momentum probably will continue for
several months as-undisputed cases are processed.
Once the easy cases have been completed, however,
the backlog of disputed claims, of which a sizable
number is anticipated, probably will slow distri-
bution considerably.
9. The Land-to-the-Tiller program is expected
to involve the transfer of roughly one million
hectares of farmland to more than 500,000 new
owners. -By the end of October, landlords had de-
clared 714,.000 hectares available for transfer and
523,000 hectares for their own retention. Under
the new law, landowners may retain up to 15 hectares
providing they or their families cultivate the land
themselves. Initially, GVN officials had hoped to
transfer ownership of 200,000 hectares during 1970,
but the first land titles, which were presented to
new owners by President Thieu, were not distributed
until 28 August. As of 30 October, new titles had
been issued for only 8,000 hectares, but by the end
of November the total had jumped to 27,800 hectares.
The government believes 400,000 hectares can be
transferred in 1971.
10. Titles have been printed -- by a computer.
in Saigon -- for about 17,000 farmers, but the very
limited information available on the number of
titles actually-in the hands of the new owners
indicates that there is a considerable lag. between
the issuance of titles in Saigon and their distri-
bution to farmers. An effort is being made to
shorten this interval, however, in order to maxi-
mize the political impact of the land reform, on
the basis of. the. number of hectares and farmers
involved thus far, the average plot size for the
new. owners is 1.6 hectares (4 acres). According
to the land reform law, the maximum holding for a
new owner is three hectares in Military Regions
III and IV and one hectare in Military Regions I
and II.
11? It appears that, the greatest source of
delay in. the land distribution process occurs at
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the village level. Applications for land owner-
ship by tenants and others must be presented to
and approved by village administrative committees.
At the end of October, 74,000 applications had
been received by village officials but only 15,000
had been approved. About 4,000 village officials
and Revolutionary Development cadre, who will act
as land registrars, have completed initial train-
ing courses on how.to administer the new law, and
the rate of-.approval is expected to increase as
they gain experience and receive additional train-
ing. Nevertheless, disputed or unclear claims,
which now are being shunted aside, probably will
pile up, resulting in lengthy delays and dissatis-
faction among recipients. Many disputes are bound
to arise, for example, in cases where an owner of
a small plot, who was forced to leave the land
either to join the army or-because of insecurity,
could have his land expropriated and given to a
squatter because he cannot return to cultivate it.
US officials now estimate that distribution under
the Land-to-the-Tiller program will not be com-
pleted before the end of 1973.
12. The first cash payments to owners whose
land has been expropriated were made by the Prime
Minister on 5 December in Go Cong Province. The
government had a strong incentive to begin compen-
sation before the end of this year because the US
agreed to release $5 million in additional funds
for the Commercial import Program (CIP) if the GVN
made at least one payment before 1 January 1971.
Now that the deadline has been met, the remainder
of the $40 million earmarked for support of the
land reform program, all of which will go to the
CIP to help offset the inflationary effects of the
land payments, will be released in tranches of
$2.5 million for each 65,000 hectares of land
distributed-to new owners.
13. According to preliminary information, the
compensation received by the former landlords in
Go Cong amounted to roughly 100,000 piasters per
hectare ($364 at the parallel market rate of 275
piasters per dollar). They received 20% of this
amount in cash and will get the remaining 80% in
the form of an 8-year bond bearing 10% interest,
which will be issued during the next few months
when the compensation system has been automated.
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The procedure for calculating the price per hec-
tare has.not been clarified, but according to the
law it is to depend on past yields and the price
of paddy at the time of expropriation, or March
1970. The price of land in Go Cong seems pretty
much in line with this formula. At 100,000
piasters per hectare the cost to the government
of compensation for 1 million hectares would amount
to 100 billion piasters (excluding interest on the
bonds),. or more than two-thirds of total government
expenditures last year. For 1971, the government
has budgeted :10 billion piasters for land reform
compensation, an amount sufficient to cover the 20%
cash payments and the interest payments on the
bonds for about 350,000 hectares. The expense of
land reform plus an even larger amount for veterans'
benefits will. be built into the budget for many
years and is-especially burdensome now that the
GVN's share of the cost of the war is increasing
as a result of Vietnamization?
Rice Crop 1970/71
14. According to official estimates, the South
Vietnamese currently are harvesting the largest
rice crop in their history. Paddy production is
expected to increase 10% during the crop year end-
ing 31 May 1971 to 5.7 million metric tons, as
shown in the following tabulation.
1960/70
1970/71
Paddy production
(Thousand metric tons)
5,115
5,651
Cultivated area
2,430
2,520
(Thousand hectares)
Yield per hectare 2.105 2?242
(Metric tons)
This estimate may be reduced somewhat as a result
of the losses caused.by the late October floods in
the northern coastal provinces, but since three-
fourths of the crop comes from the rice surplus
areas of Military Region IV and Long An Province
in Military Region III, where the weather was
generally good, the reduction in estimated output
probably will be small.
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15. As was the case last year, most of the
increase is due to the use of the "miracle" seeds
IR. 8, IR 5, and now IR 20, which is more disease
resistant and more palatable than the earlier
varieties. Yields from the improved seeds
apparently are averaging three to six tons per
hectare, and the average yield from the entire
1970/71 crop is estimated at 2.242 tons per hec-
tare, up 7% from the previous year. The area
under cultivation increased 4% to 2.5 million
hectares. Most of the increase in areas reportedly
is due to increased double cropping, especially
of the "miracle" seeds, but some abandoned lands
were reclaimed in areas where improved security
allowed peasants to return to their farms. "Miracle"
rice was to be planted on 500,000 hectares, or one-
.fifth of the cultivated area, and early indications
are that this goal will be achieved.
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SOUTH VIETNAM
Foreign Exchange Reserves*
Millions of US Dollars
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SOUTH VIETNAM
Indexes of Money Supply and Saigon Consumer Prices
'USAID monthly average retail price index for Saigon
510231 12-70
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SAIGON
Free Market Gold and Currency Prices
Piasters per US dollar
1965 1966 1967 1968 1969 1970
GOLD Basis: gold leaf worth
.635 per troy ounce
US $10 GREEN
US $10 MPC Military Payment
Certificates (scrip)
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Foreign _Aid
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IMPORT LICENSING
(Millions of Dollars)
Program
ffl Commercial Import
PL-480, Title
GVN Financed
Jan-Jun Jul-Dec
267 264
1965
Total
407
Total
660
Total
531
Total
624
Total
740
*July through October only
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Secret
Secret
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