SITUATION IN SOUTH VIETNAM (WEEKLY)
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Publication Date:
June 26, 1967
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IR
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Secret
DIRECTORATE OF
INTELLIGENCE
No Foreign Dirrem
USAID rel instructions on file
Intelligence Report
The Situation in South Vietnam
(Weekly )
Secret
144
26 June 1967
No. 0356/67
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'wA.RNY~~s
This document contains information af}'t:ctiug the nationa}
c}efense of the United States, within the rneanin~; of 1'itlc
18, SCCt10TIS 793 and 79~, of the US Code, y an unauthorised person is prohibited by }aw.
GRGUP 1
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2. Ky said that he also intends to hold a meet-
ing of all province and district chiefs in Saigon
on 26 June in order to explain the election mechanism
and the "absolute necessity" of a fair and free con-
test. In addition, he revealed--and subsequently
announced to the press--that he plans a meeting with
all presidential candidates in early July to ensure
that all have equal campaign opportunities--a re-
quirement of the election law. He will offer each
candidate government transportation and quarantee
equal time on radio and television, in addition to
adequate physical protection. As a further move,
although not yet publicly announced, Ky said that
he will allow the candidates to exercise some voice
in the press censorship process as well as equal op-
portunities to present their platforms via the press.
3. It remains to be seen how closely Ky will
adhere to this new tack. His expressions of con-
cern with campaign activities on his behalf were
generally limited to Loan and to the thus far one-
sided press coverage of his campaign.
4. Should Ky genuinely allow other candidates
a degree of control over press censorship, it would
be a complete reversal of recent policies.
I-2
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II. REVOLUTIONARY DEVELOPi~~ENT
General Thang has publicly an-
nounced his resignation from the army
effective in January 1968.
cording to Government of Vietnam s a is-
tics, 39 percent of all villages and 32
percent of all hamlets participated~in
recent local elections. Training of
Vietnamese Army battalions for their RD
mission has slowed somewhat, but all
maneuver battalions should complete their
training by August 1967. Veterans or
the dependents of deceased veterans may
receive increased employment opportunities
in the fields of social welfare, labor,
and education. The training of the
newly elected village and hamlet offi-
cials is reportedly being carried ~n in
almost all the provinces in the country.
'Recent RD cadre successes include the
formation of combat youth groups in Quang
Nam Province, improved leadership in
Phuoc Tuy Province, and the elimination
of the Communist hamlet cadre in Chau
Doc Province.
General Thang Resigns as Head of Revolutionary De-
velopment
1. Commissioner General of Revolutionary De-
velopment General Nguyen Duc Thang has publicly
confirmed an earlier report that he intended to re-
sign from military service. His public statement,
however, gives no indication of his intentions in
regard to his post in the cabinet. Thang was re-
ported to have wanted to resign from the army and
the cabinet after the 3 September national elec-
tions, but apparently he has been prevailed upon
remain in the arm at least until January 1968.
0
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Village and Hamlet Elections
7. The following chart compares the number
of villages and hamlets in which the Government
of South Vietnam (GVN) in early 1967 expected to
hold local elections this spring and the number of
villages and hamlets in which such elections ac-
tually took place during the period April to June.
The GVN considers this to have been merely phase I
of local elections, with voting in phase II to take
p-lace as security permits.
Projected:
I Corps II Cor s III Corps IV Corps TOTALS*
Villages
182
428
295
392
1,297
Hamlets
590
1,608
1,164
2,131
5,493
Actual:
Villages
154
285
204
341
984
Hamlets
545
1,252
869
1,810
4,475
*All figures are those reported by the GVN's Special
Commission for Administration (SCA) The SCA reports
II-3
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8. In February the government also decided to
establish interim administrative agencies in the fol-
lowing number of villages and hamlets not participat-
ing in this spring's balloting:
I Corps
II Corps
III Corps
IV Corps TOTALS
Villages
244
198
122
329 893
Hamlets
1,253
1,075
251
905 3,484
Presumably, as these villages and hamlets become more
secure and RD takes hold, they will be allowed to
vote for their own officials. Tentative provisions
have been made for some of these, and possibly some
newly cleared localities, to vote in "Phase II" of
the local elections from July 1967 on. With atten-
tions now directed toward the national elections in
September, however, it is possible that further vil-
lage and hamlet elections may not take place until
late this year or until the new national government
has "settled in"--which may not be until 1968.
9. The number of villages in which elections
have taken place or interim administrations have been
established is 1,877 or 74 percent of the total of
the villages in the country. The number of hamlets
in the same categories is 7,960 or 58 percent of the
country's total. (Using the HES figure for the number
of hamlets in the country, the percentage increases
to 67.) Actual voting, according to SCA statistics,
was carried on in 39 percent of all villages and 32
percent of all hamlets.
10. US officials in Saigon feel, based upon these
percentages and on the numbers of voters who partici-
pated--2.5 million in the village and 2.3 million in
the hamlet elections--that as many as seven million
people--or possibly 55 percent of the rural population--
the tota number of villages in the country as being
2,526, and the total number of hamlets as being 13,805.
The MACV Hamlet Evaluation Survey, however, has re-
corded only 11,830 hamlets in country. The Ministry
of Revolutionary Development has established 11,250
hamlets as the goal for development in the GVN's Rev-
olutionary Development program.
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live in villages or hamlets where the government ex-
erts a fair degree of control and has established
a modicum of security. This does not mean, however,
that holding an election is to be equated with hold-
ing the active allegiance of the people.
11. Although the government made a concerted
effort to provide as much security as possible dur-
ing the recent elections, the pattern of enemy anti-
election activity suggests that the Communists may
not have mounted as disruptive a campaign as they
are probably capable of doing. The reasons for the
Communists' relative acquiescence is not clear.
The Communists may have felt that the degree of in-
fluence or control they can exert even in relatively
secure areas sufficiently hinders the activities of
the newly elected officials, or that nonselective
terrorism--which almost certainly would have had to
be employed to hamper the elections--would have had
a regressive effect upon their image and long-term
goals. The Communists have hoped--in light of the
growing foreign presence, the xenophobic tendencies
of most Vietnamese and the drain on the Vietnamese
human and material resources caused by the years of
strife--that their position could be enhanced. through
the electoral system and that their anti-election
campaign, with certain exceptions, needed only to
be perfunctory.
12. According to the US Mission, few irreg-
ularities were noted in the village/hamlet elections
and most of those reported concerned alleged padding
of total voting figures in a given area, This appears
to have been done, so the mission believes, not to
change the outcome of the elections but to present
a more favorable impression of voter turnout.
13.
the g P n E? r a y 4W S~--vzzrzrg
hamlets adjoining and within urban areas--which are
more secure--appears to have been a result of the
facts that the population is more cynical, the gov-
ernment less personalized and the government's pres-
sure less felt. At the same time, however, local
officials in rural areas were apparently more able
to tamper with votes since there was less chance of
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their manipulations being brought to public atten-
tion. There are numerous indications that, in view
of the generally dull campaigning, the scant in-
terest evoked, and the widespread lack of public
understanding of the electoral process, most of the
people voted either by guess or in accordance with
the directions of their village elders. A large
percentage of the voters apparently went .to the
polls to avoid trouble from-district level mili-
tary or civilian officials. There are some notable
exceptions to these general judgments, however.
For example, self-interest caused certain religious
and political groups to work hard to ensure that
their adherents or supporters got to the polls to
vote for their candidates. There are also tenuous
indications that subtle pressures were exerted by
the government to ensure that both candidates and
those officials elected would be amenable to sup-
porting a military candidate in the September presi-
dential elections.
Military Forces in Support of RD
14. As of late April, the Republic of Viet-
nam had committed 53 army (ARVN) battalions, one
Ranger battalion and one Regional Force battalion
to the direct support of RD. After an inspection
of 49 of these battalions during April, representa-
tives from MACV and the Vietnamese Joint General
Staff (JGS} rated only six as inadequately support-
ing RD.
15. On 1 May, the total number of battalions
which had received the two-week RD training course
stood at 86, including 73 maneuver, seven combat
support, and six combat service battalions. It is
anticipated that the remainder of the 120 maneuver
battalions assigned in the corps areas will have
completed training as of October, and that the re-
maining support and service battalions may conclude
their training by the end of 1967. At the begin-
ning of the year it was anticipated that all the
manuever battalions would receive their RD orient-
ation by August; however, operational requirements
including the upsurge of military activity in I
Corps set back the training cycle.
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16. Of the approximately 334 Regional Force
(RF) companies supporting RD, 214 have received
RD training. MACV observers do not feel that the
training received by the RF has been as good as
ARVN's because of the lack of command emphasis
and the absence of effective administrative and
logistical support.
17. Between May 1967 and July 1968, MACV an-
ticipates that 3,354 Popular Force (P F) platoons--
representing slightly less than the total number
of PF platoons in the country--will receive RD
orientation under the revised motivation indoctrin-
ation/RD training program prepared by the JGS.
18. In I Corps, .a battalion temporarily de-
ployed in support of RD in Quang Tri Province in
March has been withdrawn, and the security of the
primary RD area has thus been reduced to marginal.
US observers believe that, to establish and main-
tain minimum security for the RD area, at least
one additional ARVN battalion and two RF companies
must be committed to the direct support of RD. In
adjacent Thua Thien Province, US and GVN coordina-
tion is effective, but the security of the RD areas
remains a serious problem and no short term solu-
tion appears likely. In Quang Nam Province no
changes have been reported in the security of RD
areas since the fall of 1966, but.ARVN forces have
been attempting to resettle a large number of fam-
ilies in areas arou~.d Da Nang city in an effort to
establish a buffer zone between the enemy forces
and sections of. this National Priority Area. The
security of many areas undergoing RD in Quang Ngai
Province remains poor, although the introduction
of US troops of Task Force Oregon into the prov-
ince has apparently had a favorable psycholgocial
effect upon local government officials and the RD
teams. US forces in TF Oregon have succeeded, for
the first time in over two years, in opening Na-
tional Route 1 between Duc Pho, Quang Ngai Prov-
ince and Chu Lai, Quang Tin Province. The-only
province in which positive improvement in the se-
curity of RD areas has been reported is Quang Tin,
where reportedly progress has been recorded for
the first time since November 1966.
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19. In the II Corps area, South Korean troops
have succeeded in establishing a continuous tactical
area of responsibility (TAOR) from Phan Rang city
in Ninh Thuan Province to an area 24 miles north of
Qui Nhon city in Binh Dinh Province. With the
establishment of this continuous TAOR, US maneuver
forces have been moved out of Phu Yen Province. In
its April report, MACV noted that the security sit-
uation in Kontum Province had improved and that
ARVN had established better provincial relations
following the installation of a new Vietnamese com-
mander of the 24th Special Zone (Pleiku and Kontum
provinces). A step-up in enemy activity in Kontum
during June, however, now threatens the advances
which have been made in the last three months.
20. The ARVN 22nd Division in Binh Dinh con-
tinues to operate effectively in support of RD.
Elements of the division in an effort to eliminate
the Viet Cong infrastructure among the population
of the Bong Son Plain, are moving more than 12,000
people from areas east of National Route 1 to
temporary detention camps west of the road. The
people will be kept in these camps for 60 to 90
days and cared for by the 22nd Division while
National Police and ARVN forces screen them.
Afterwards, the division will help the people re-
settle in the area from which they came.
21. In the III Corps area, the success of the
Australian Task Force in Phuoc Tuy Province in open-
ing Route 23 between the district towns of Dat Do
and Xuyen Moc should create a more f avorable
economic situation in these areas. Elsewhere in III
Corps, Operation Fairfax--an RD security operation
in Gia Dinh Province--has been extended until at
least 1 September. In addition, the area of this
operation has been expanded to include portions of
Hoc Mon District, and now encompasses nearly the
entire province.
22. The ARVN forces in support of RD in Bac
Lieu Province of IV Corps have extended their TAOR
to include the salt flats along the coast. In order
to facilitate the transportation of salt and to
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stimulate the economic life of the area, an ARVN
unit has secured and improved waterways to the
salt flats. In Vinh Long Province the first opera-
tion conducted in several years along the Mang
Thit-Nicholai Waterway occurred in April, and this
initial government presence was reportedly well
received by the people living along the canal.
23. The CORDS Agriculture Liaison Office and
the Ministry of Revolutionary Development (MORD)
have held meetings concerning the possibility of
employing more veterans in agriculture programs at
the provincial level. In addition, USAID advisors
have suggested that representatives from MORD and
the Commission for War Veterans (CWV) contact pro-
vincial officials concerned with social welfare and
labor and encourage them to hire the widows and
orphans of deceased servicemen as workers or
trainees in their provincial programs.
Training for Newly Elected Local Officials
24. Preliminary reports indicate that two-
thirds of the provinces commenced the training of
the newly elected village and hamlet officials dur-
ing April and May with most of the other provinces
scheduled to initiate training programs in June.
25. The final printing of the three-volume
booklet which will assist in training village and
hamlet officials is nearly complete and arrange-
ments have been made to distribute approximately
25,000 sets to the provinces. About 200 copies of
an English translation have been reproduced for
distribution to American advisors in the field.
Revolutionary Development Cadre Activities
26. The number of VC incidents against RD
workers. and teams in 1967 reached the 400 mark on
30 May with a total of 80 incidents reported during
that month. In May, I Corps continued to lead the
country in the total number of incidents with 33,
II Corps had 16, III Corps had 15, and IV Corps
had 17.
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27. In Quang Nam Province the RD teams con
strutting four hamlets in Hieu Nhon District hive suc-
ceeded in training approximately 250 combat youth.
Part of the credit for the organization and training
of the combat youth belongs to the acting district chief
who has shown interest in the activities of the RD teams.
28. Until late April, the RD team stationed in
Binh Gia Village in Phuoc Tuy Province--th~'scene of a
major battle in early 1965--lacked direction, leadership,
and enthusiasm. To correct these deficiencies the
provincial RD cadre adviser and the district adviser
began a program of constant guidance to the team leader
which has resulted in a gradual improvement in the team's
over-all performance. In the beginning of May an elected
village chief assumed his duties in Binh Gia and soon
thereafter called a meeting of hamlet chiefs and the RD
team leader in which plans were made to involve the
local residents in the RD program. The results to date
include the following:
On 20 and 21 May 300 villagers gave up their
days off to work on village roads,
On 24 May 150 children and teenagers worked
on the construction of a new school in one of
the hamlets in the village.
The RD team supervised and participated in both projects,
29. In the southern delta province of Chau Doc
an RD team --under the leadership of a newly appointed
team leader--uncovered four covert members of the Viet
Cong and 13 Viet Cong sympathizers in Binh Chanh Hamlet
where the team is working.
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III. ECONOMIC SITUATION
Retail prices in Saigon during the
week ending 12 June declined slightly
for the second consecutive week as rice
prices continued to fall. Currency and
gold prices were slightly higher on
12 June compared with the previous week,
after having risen sharply during the
period 7-9 June in response to the
Middle East crisis. US officials fore-
see no major declines in Saigon food
prices during the summer months and
estimate that prices for some items such
as pork and condensed milk probably will
rise while rice prices hold relatively
steady. A recent US study of the GVN
tax system concludes that a thorough re-
form is needed, but that only stopgap
measures can be taken until the war is
over.
1. Retail prices in Saigon during the week
ending 12 June declined slightly for the second
week in succession as rice prices continued to fall.
Exclusive of rice, the USAID index would have shown
an increase of less than one percent rather than a
decline of this magnitude. Rice prices went down
for the third week in succession, presumably re-
flecting continued sales of lower price remilled
American rice. Most rice prices are now only
slightly above the legal retail level for the first
time since February. The price of the type of rice
used by the working class declined to 24 piasters
per kilogram, down from the March high of 37, but
still 41 percent higher than at the beginning of
the year. Prices for pork and Chicken rose on
12 June, in part because of buying for a minor
Chinese holiday. Vegetable prices were generally
down, but the price of onion shoots rose for the
fourth consecutive week. Apparently a shortage of
onion seeds is producing high seed prices and, in
turn, high onion prices.
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2. Prices of nonfood items held steady except
for increases in the prices of charcoal and fire-
wood. During the week ending 12 June the price of
kerosene soared in a panic created by the Middle
East crisis, but by the end of the week the price
had returned to its normal level as GVN officials
gave assurance that local petroleum stocks were
adequate. (A table of weekly retail prices in
Saigon is included in the Annex.)
3. Prices of selected US-financed imported
commodities were only slightly lower on 13 June
compared with the previous week. Fertilizer prices
dropped somewhat in anticipation of the announce-
ment by the GVN of new lower official wholesale
prices that will pertain to all future imports of
fertilizer to be handled by the Agricultural De-
velopment Bank.
Currency and Gold
4. Currency and gold prices jumped sharply
during the period 7-9 June in response to the
crisis in the Middle East, but by 12 June had
almost returned to the levels of the previous week.
Prices for dollars and gold were up by two piasters
to 157 and 199 piasters per dollar, respectively.
The rate for MPC (scrip) rose by one piaster to
112 piasters per dollar. (A graph on monthly and
weekly currency and gold rates is included in the
Annex.)
Outlook for Food Prices in Saigon
5. The number of factors affecting the retail
market in Saigon makes it difficult to estimate the
level of food prices this summer, .but US officials
in Saigon foresee no major declines and estimate
that prices for items such as pork and condensed
milk probably will rise while rice prices will hold
relatively steady. Even in recent years of politi-
cal and economic disturbances, the three-month
period from February to May has been one of relative
price stability, and May has been the month in which
price increases begin. This same pattern has been
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true in 1967, if the rice crisis in early March is
discounted. The major reason for this pattern is
that the supply of domestically produced foodstuffs
is generally largest during the February to May
period and then falls off during the summer months.
6. This year, in addition to the normal slow-
down, there may be special factors involved. The
embassy believes that hog deliveries, which are
traditionally low during the summer, may be lower
than usual. Deliveries have been abnormally high
since February, including more than the usual
number of young pigs and sows, and there are fears
that farmers may be unloading their stock because
they no longer find pig production profitable.
During the last year the cost of feed, mainly rice
bran, has risen much faster than the retail price
of fork and production will not be profitable
unless the selling price of pork rises substantially.
If deliveries decline considerably this summer,
pork prices will rise, but renewed large deliveries
of hogs to the market will follow only after a long
lead time.
7. Another unsettling factor in the retail
market is the prospect of further wage increases
for the Vietnamese as a result of the recent 200
piaster rice bonus granted to GVN employees and
dependents. The Saigon market is very sensitive to
any increase in GVN spending and quickly anticipates
future inflation. Embassy officials feel that the
rice bonus probably was the minimum they could
expect to see granted to GVN employees at this time,
but fear that private employers will now be under
increasing pressure to raise wages. A case in
point is that the US Government and US civilian con-
tractors are now considering a pay raise for their
Vietnamese employees.
8. One positive factor in the market this
summer is the rice situation. Stocks of imported
rice should continue to grow. The recent and suc-
cessful commencement of sales of remilled American
rice at 19 piasters per kilogram should allow
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imported rice to take over a large share of the
Saigon rice market during the last half of the year
and thus prevent the price of the more expensive
domestic rice from rising further. The embassy
foresees no sharp increases in the price of rice
unless the GVN proves itself administratively in-
capable of dealing expeditiously with a spot price
panic.
9. It is difficult to analyze the largely un-
organized markets in food items such as fish and
vegetables. Prices of these foodstuffs vary with
the seasons, and during the summer fish usually is
in good supply while many vegetables are not. The
price of Nuoc Mam, however, a fish sauce used by
all Vietnamese with almost every meal, can be
directly related to the prices of its two major
ingredients, fish and salt. Traditional process-
ing time for Nuoc Mam is 8 to 10 months, and the
price increases for fish and salt in the last
seven months of 1966 probably are being reflected
in the current price for Nuoc Mam, which is 67
percent higher than at the beginning of the year.
The exceptionally high price probably also reflects
higher transportation and labor costs. Based on
these factors, the embassy staff estimates that
the price of Nuoc Mam will not increase notably in
the coming months.
10. The joint USAID/Embassy economic staff in
Saigon notes that they do not have the means to
restrain the increase in prices of many of the''
commodities forming part of the daily diet of the
average Vietnamese and that they must be cautious
about restraining price rises even where they do
have some influence, as in the case of imports.
If the U5 were to try to lower the prices of com-
modities that are produced locally and also
imported, there is the risk of a long-run depres-
sion of local production. In fact, the staff would
like to see a moderate increase in price for some
foodstuffs, such as pork, to encourage local pr
duction. In order to reduce GVN subsidies, the
would also like to see an increase in ~.he price of
sweetened condensed milk and, in I and i2 Corps,
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an increase in the price of rice. The GVN already
is considering dropping the subsidy on imported
condensed milk, which amounts to about 6 piasters
per can. Were this subsidy eliminated, the result-
ing price increase probably would be equivalent to
the subsidy, but it would not occur abruptly be-
cause present stocks are large.
GVN Tax System
11. A study prepared recently by the US
joint economic staff in Saigon recommends a thor-
ough reform of the GVN tax system, but concludes
that such a reform probably will have to wait un-
til the war is over. For several years the GVN
has been running a substantial budgetary deficit,
financed by foreign aid and inflationary borrowing
from the National Bank of Vietnam. The GVN, the
U5, and international agencies have been seeking
ways to raise GVN revenues, but have been greatly
hampered by the existing complex and outdated tax
structure. The present tax system is largely a
legacy of the French colonial period, but the
Vietnamese substituted a variety of measures which
made it unnecessarily complex and difficult to
administer. The system is also fragile because of
its excessive dependence on a small group of com-
modities such as tobacco and beer, and because it
relies too heavily on import duties.
12. There are some interim steps that could
be taken within the existing tax structure to in-
crease revenues. The study recommends raising
tax rates on sources with the ability to pay--some
war-inflated sources are not paying taxes at all.
An important source that now bears a relatively
light tax burden in comparison with other countries
is petroleum. In addition, there are too many
firms exempted from paying the production tax. In
the case of such products ~s ice and meat,. where taxes
are levied on a per unit basis, the taxes should be
shifted to an ad valorem basis in order that
receipts rise commensurately with prices. Earlier
this year, the GVN adopted a withholding system in
order to increase revenue from personal income taxes,
but the effect of this system may be negated by its
accompanying new schedule of exemptions.
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SECRET
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13. Other problems requiring immediate atten-
tion are decentralization of taxing powers and the
schedule of customs duties. US officials believe
that the tax system should be redesigned to pro-
vide more regional autonomy in order to strengthen
local government and limit extra-legal taxation in
the provinces. As for customs, no real tariff re-
view accompanied the economic reforms in mid-1966,
and a review of customs rates is long overdue. In
addition, customs procedures must be revised because
revenues are subject to gross fraud, and importers
are often granted long deferrals of payments.
14. Military operations have also adversely
affected the collection of revenues. The war has
cut off the central government from many rural tax
sources, with the result that more than 90 percent
of total revenues now come from the Saigon area.
The military draft has taken trained personnel,
severely limiting the operations of the Directorate
of Taxation, whose efficiency is now very low.
15. Some of the proposed remedies for the tax
system involve simple changes in tax rates, while
others, such as the transfer of central government
taxing powers, pose complex political problems. US
officials do not expect any major changes in the
tax system, but feel that some minor rate changes
are mandatory in order to achieve the desired 40
percent increase in domestic tax revenues this year.
III-6
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Weekly Retail Prices in Saigon
13 June 3 Jan. 22 May 29 May 5 June 12 June
1866 b/
1867
1967
1867
1867
1867
173
225
276
276
~
269
Index for Food Items
190
2~+2
310
311
300
295
Of Which
(In Piasters)
Rice-Soc Nau (100 kg.)
1,250
1,700
2,750
2,650
2,550
2,x+00
Pork Bellies (1 kg.)
90
130
150
160
150
160
Fish-Ca Tre (1 kg.)
130
150
170
170
160
160
Nuoc Mam (jar)
70
90
150
150
150
150
Index for Nonfood Items
1~+0
195
21~+
210
217
221
Of Which:
(In Piasters)
Firewood (cu. meter)
360
560
550
530
550
600
Cigarettes (pack)
10
l~+
l~+
l~+
1~+
l~+
White Calico (meter)
27
33
33
32
32
32
Kerosene (liter)
7.8
10.5
10
10
10
10
a. Data are from USAID sources. For all indexes 1 January 19 5 = 100.
b. Price level just prior to the 18 June devaluation.
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Saigon Free Market Gold and Currency Prices
30 APRIL
201 _ _ _
199
157 ~~"`~~?~,,
. ~-
15 7
~~~ -~. ~-----
112
GOLD: Basis gold leaf worth $33 per troy ounce
US $10 GREEN
US $10 MPC Military Payment Certificates (scrip).
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Secret
Secret
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