THE SITUATION IN SOUTH VIETNAM

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00826A001100010008-5
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USAID review completed
ARMY review(s) completed.
State Dept. review completed
1 August 1966
No. 0384/66
Copy No I
INTELLIGENCE REPORT
THE SITUATION IN SOUTH VIETNAM
DIRECTORATE OF INTELLIGENCE
SECRET
GROUP 1
F eluded from automatic
downgrading and
- declo ifirion _
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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 receipt by an unauthorized
person is prohibited by law.
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
THE SITUATION IN SOUTH VIETNAM
(25 July - 31 July 1966)
C O N T E N T S
POLITICAL SITUATION I
Election developments:
Devel-
opments within the Buddhist Institute;
"Struggle" force remnants in central
Vietnam.
REVOLUTIONARY DEVELOPMENT II
Premier Ky on revolutionary develop-
ment; Status of security situation
during June; Status of cadre groups
during June; Viet Cong defectors
(Chieu Hoi).
ECONOMIC SITUATION III
Prices; Currency and gold; Regional
economic situation; Wage problems;
Port operations; Foreign trade.
ANNEX: Weekly Retail Prices in Saigon (table)
Cost of Living Index and Money Supply (graphs)
Free Market Gold and Currency Prices (graphs)
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`Savannakhet
L..
\"~ VIETNAM
`.f
t.. *Pakse
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\...j" r Kontum-
Pleiku.
C A M B O D I A
Ban Me
Thuot
PHNOM
PENH,
SOUTH VIETNAM
CURRENT SITUATION
0 20 00 75 1o0 W.,
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Candidates for the constitutional
assembly elections in I Corps are predom-
inantly members of two traditional nation-
alist parties, with no known "struggle"
candidates on the lists. In Saigon, there
is some evidence that the government has
been smoothing the way for well-known in-
dependent candidates while discouraging
obvious election irregularities.
The Buddhist Institute has se-
ec e an acting chairman, Thich Thien Hoa,
who seems likely to be dominated by the
militant supporters of Tri Quang on the
Institute council, according to the US Em-
bassy. A few remaining supporters of the
"struggle" movement in central Vietnam
have apparently banded together in a new
organization, but are not considered a
threat to the government at this time.
Election Developments
1. Additional information was received from the
US Embassy last week on candidates in the Saigon area
and I Corps for the constitutional assembly elections
this September. In I Corps, some 87 candidates are
currently contesting the 17 seats at stake. The na-
tionalist VNQDD and Dai Viet parties are sponsoring
45 of the 87 candidates, with the remaining candidates
running largely on religious or independent slates.
Very few "struggle"-associated candidates apparently
filed in I Corps. One such slate, however, did file
in Da Nang, but was disqualified because of its "strug-
gle" orientation.
2. The political affiliations of candidates in
the Saigon area are more vague. Several of the lists
are grouped around well-known political independents,
including former chief of state Phan Khac Suu, munic-
ipal council head La Thanh Nghe, and Dai Viet leader
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Dang Van Sung. In nearby Gia Dinh Province, a
respected independent, Dr. Phan Quang Dan, is spon-
soring one slate in each of the province's two
electoral districts.
3. There also was some evidence last week that
the government was smoothing the way for well-known
candidates while discouraging obvious election law
irregularities. One of Premier Ky's advisers told a
US official that Ky recently interceded to prevent
candidate lists headed by Phan Khac Suu and Dang
Van Sung from being disqualified for procedural
shortcomings. Premier Ky also reportedly ordered the
disqualification of a deputy province chief who had
filed in violation of electoral regulations.
4. In a statement broadcast over Hanoi radio
on 25 July, the presidium of the Viet Cong's National
Liberation Front strongly condemned the forthcoming
elections. The statement exhorted the people in the
heavily populated towns not only to boycott the elec-
tion, but to "smash this deceitful bufoonery."
5. The Viet Cong had attacked VNQDD party head-
quarters in Quang Tin Province on 16 July, severely
wounding the party's leading candidate in the Septem-
ber election. The attack may represent the first
anti-election action by the Communists, although the
VNQDD's involvement with various government programs
in I Corps also makes it a natural target for the
Viet Cong.
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8. The Viet Cong's Liberation Radio also broad-
cast a warning to IV Corps commander Quang and II
Corps commander Loc that they were the next targets
in a government purge. Quang, who is a close as-
sociate of General Co, has also been recently rumored
for replacement
The
mmunis s aware-
Viet Cong commentary reflects the Communists-7-
ness of friction within the military government and
points up the continuing Communist efforts to exploit
potentially divisive issues which might weaken the
government's effectiveness.
Developments Within the Buddhist Institute
9. Thich Thien Hoa, a relatively nonpolitical
religious leader, was selected as acting chairman of
the Buddhist Institute on 23 July. Thien Hoa will
retain this position in the continued absence of
chairman Tam Chau, probably for about two months. The
US Embassy has commented that although Thien Hoa is
relatively nonpolitical, he is likely to be dominated
by the militant followers of Tri Quang on the Institute
council.
10. No major Institute policy statement immediately
followed Thien Hoa's appointment, although he has called
for the release of all monks still under detention. The
only Institute communique signed by Hoa as chairman,
however, calls upon Buddhist followers to refrain from
protest suicides against the government. A young Bud-
dhist monk had died recently as a result of burns he
sustained on 21 July, but police have claimed that the
incident was murder, citing the monk's statement that
he had been set afire against his will. The Institute
communique was probably intended to refute indirectly
the government's claim that the monk's death was not
a bona fide suicide.
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I
11.
the government is tightening restrictions on access
to militant leader Tri Quang, who is continuing his
fast in a Saigon clinic. Thich Phap Tri, militant
deputy chairman of the Institute, was recently turned
away by government guards. However, Tri Quang him-
self was allowed to attend Catholic Father Quynh's
antigovernment reception on 21 July.
"Struggle" Movement Remnants in Central Vietnam
12. A few remaining "struggle" movement leaders
still at large in central Vietnam have apparently
banded together in an organization known as the "Hung
Viet" party.
25X1 this group is based in Hue
and is pro - Viet Cong in addition to being pro-
"struggle." The party has apparently printed some
leaflets and distributed some banners, and has a
membership of 15 or 20 persons, although these figures
may include only its executive committee. While the
"Hung Viet" name has been applied loosely to designate
all remaining "struggle" elements still active, there
is another group known as the "Ky Con," apparently
made up largely of military deserters and reportedly
located outside Hue.
13. American officials in Hue have reported
that there is not too much concern over these groups,
and that it is probably too soon for "struggle" ele-
ments to reorganize and mount any meaningful effort.
The US officials warned, however, that there did seem
to be some tendency among local authorities to dismiss
the effectiveness of these organizations, perhaps to
demonstrate to higher authorities the effectiveness
of the clean-up job already done.
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II. REVOLUTIONARY DEVELOPMENT
Premier Ky submitted a cautious re-
port on the status of pacification in a
speech to foreign and domestic newsmen on
27 July. The premier's judgment of prog-
ress to date was that the government is
"encouraged." During June, 42 hamlets were
secured, raising to 54.3 the percentage of
the population considered by MACV to be un-
der GVN control. MACV also estimates that
those people live on 11.3 percent of Viet-
nam's 66,000 square miles of land. Initial
reports on the recently assigned cadre groups
indicate that, as expected, they are suffer-
ing "growing pains," although the problems
are not considered as serious as recent news-
paper articles imply. The total number of
Communist defectors for all of 1965 is ex-
pected to be roughly equaled by early August
this year.
Premier Ky on Revolutionary Development
1. In his state-of-the-nation speech on 27 July,
Premier Ky presented to a large gathering of Vietnam-
ese and foreign newsmen a cautious summary of paci-
fication developments since the beginning of 1966. The
fact that Ky himself, rather than General Thang,
chose to comment on the program suggests that the
premier desires to impress both US and domestic
audiences with the high priority his government has
been giving to the program since the February Hono-
lulu conference.
2. According to Ky, the number of hamlets "built"
in 1966 is 110 percent ahead of the comparable period
in 1965. Referring to USAID-supported programs, he
cited significant gains in the training of teachers,
the construction of roads and bridges, the provision
of irrigation systems for 17,500,000 acres of farm-
land, and the establishment of several hundred wells.
Ky said that the number of pacification cadres had
almost doubled, but pointed out that the cadre-team
concept is new and that qualitative improvements must
be stressed in the future. Ky also indicated aware-
ness that over-reliance on statistics as a measure
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of progress could result in merely "paper achieve-
ments." In summarizing pacification progress dur-
ing 1966, Ky went no further than to say that the
government is "encouraged."
Status of Security Situation during June
3. According to MACV, 31 provinces registered
over-all gains in the number of hamlets, population,
and territory secured during June. Eight provinces
showed no change in their security status, and four
provinces reported greater local insecurity.
4. Nationwide, 42 hamlets were added to the
secure or "pacified" list during June, bringing the
cumulative total of such hamlets to 4,054. (It is
estimated that there are over 13,000 hamlets in South
Vietnam.) The addition of the 42 hamlets to govern-
ment control raises to 54.3 the percentage of the
total population considered by MACV to be firmly
under the government's protection.
5. MACV's initial estimate of the amount of
land on'which the GVN-controlled population lives
(a newly reported category) is 11.3 percent or
7,458 of the country's 66,000 square miles. MACV
has not estimated the percentage of land (as opposed
to the percentage of people) controlled by the Com-
munists.
6. The US Marines in I Corps continued during
June to expand their area of operation, helping to
create a favorable security environment in which
the rural cadre groups could function. In II Corps,
with the exception of one province, the operations
of South Vietnamese and free world forces were re-
ported to have provided a similatly favorable en-
vironment. Troops in III Corps, however, made little
contact with the enemy in June during the course of
sporadic search-and-clear operations. In IV Corps,
the US Navy indirectly benefited pacification by con-
ducting increased resources-control missions to inter-
dict the movement of Viet Cong supplies and troops.
The enemy's major source of transportation in the
delta is the complex river and canal system. Recent
US efforts have been targeted more heavily against
delta waterways in an effort to deny the Communists
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what has been their most useful transportation and
resupply route.
Status of Cadre Groups during June
7. It was approximately mid-June when the first
newly trained class of revolutionary development cadre
groups was finally deployed for field assignments.
Initial reports of the groups' performance to date are
not particularly optimistic, but it is too early to
pronounce any realistic judgment on their future. Some
of the problems they are reportedly having, however,
had been predicted and steps are being taken to rectify
them. In II Corps, for example, some Vietnamese teams
assigned to work in strictly montagnard villages have
demonstrated a lack of motivation, reflecting the
traditional enmity between the ethnic Vietnamese and
the culturally different peoples who inhabit the coun-
try's central highlands. In Kontum Province, one of
the newly graduated groups refused to spend the night
in the village to which they were assigned. This team
is reported to be back in business, however, after
being threatened with a tour in the army. In Pleiku
Province, meanwhile, groups consisting of both Viet-
namese and montagnard personnel are reportedly func-
tioning without difficulty.
8. The over-all performance of cadres operating
in III Corps during June was satisfactory. Several
of the provincial teams, however, were poorly moti-
vated as a result of ineffective leadership, while
some others were improperly deployed and used as se-
curity guard troops. Similar problems have been noted
in IV Corps. Revolutionary development officials
there are in the process of re-educating provincial and
corps government functionaries in an effort to stimu-
late interest in the correct implementation of cadre
programs as originally planned.
9. In spite of the anticipated procedural prob-
lems of introducing new cadres to a dangerous and
delicate task, local successes to date are indicative
of the sound foundation upon which the program is
based, especially in comparison to past efforts. For
example, in the delta province of Chau Doc, which
borders Cambodia and the strategic Bassac River trans-
portation corridor, a cadre group was assigned to
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operate in an insecure village in the mountainous
region near Cambodia, an area long known as a Viet
Cong sanctuary. That particular area is inhabited
by Vietnamese and a minority group of Khmers (ethnic
Cambodians). The cadre group assigned to the village
was similarly composed of a mixture of native Viet-
namese and Khmers. The group's contribution to the
contested village included the construction of an
entire hamlet complete with a school and teacher.
The payoff for the group's work came mainly in the
form of information furnished to census-grievance
cadres, who managed to identify families in the
village with Viet Cong relatives. By the applica-
tion of judicious social pressure on those families,
the cadres have induced several Viet Cong to defect
with their weapons.
10. This mountainous area of Chau Doc, in
August 1965, was the scene of one of the most sig-
nificant mass defections to the GVN, involving the
inducement of nearly 900 Khmers and their families
to leave their inaccessible mountain retreat for
government villages. The Khmers, many of whom were
armed, had a long history of nominal allegiance to
Cambodia and, at times, support to the Viet Cong;
all had demonstrated considerable hostility to the
Vietnamese prior to their defection. Their decision
to return to the government was partially due to a
pacification "drama" team, including several Cam-
bodian dancers and singers, who had ventured to the
insecure Khmer village to perform pro-GVN "plays"
designed to influence the target audience to rally
to the government.
Viet Cong Defectors (Chieu Hoi.)
11. Returnees during the period from 9 to 15
July numbered 256. From 16 to 22 July, 322 Commu-
nists defected, of whom 237 were military personnel.
Defectors during the 16 to 22 July period are listed
by corps areas as follows:
I Corps 77
II Corps 71
III Corps 64
IV Corps 110
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The cumulative total of defectors from 1 January
1966 through 22 July has risen to 10,756. At the
present rate, the total 1965 figure of 11,124
returnees should be surpassed by early August of
this year.
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For the first time since early June,
the steady price rise associated with devalu-
ation has broken, with prices of most domestic
and imported commodities declining slightly
in the week ending 18 July. Although prices
had edged up again by 25 July, they were still
below the levels prevailing during the first
half of July. This encouraging development
could prove to be temporary, however, unless
the port bottleneck is broken and the GVN and
US Mission are able to resist demands for fur-
ther wage increases. Recently available trade
data for 1965 show a continued decline in
South Vietnam's exports and an increase in
imports.
1. The steady price rise associated with devalua-
tion was broken for the first time in the week ending
18 July when the USAID retail price index was two percent
below the previous week. By 25 July,. however, the index
had moved up three percent. Nevertheless, the index is
still below the levels prevailing during the first half
of July. Prices have now risen about 18 percent since
the 18 June devaluation, and slightly more than 30 per-
cent since the beginning of June.
2. The slight decline in the over-all index on
18 July was caused mainly by lower pork prices, which
followed the announcement of an increase in the official
price of live hogs and an expectation of increased de-
liveries. Although these expectations were only partly
realized in the following week, the price of pork bellies
held steady at 150 piasters per kilogram. The main
reason for the four-percent increase in food prices in
the week ending 25 July was a rise in the prices of
beef and fish, reportedly caused by Viet Cong destruc-
tion of a bridge between Saigon and the delta. In ad-
dition, the price of rice continues to rise: on 25 July,
the cheapest variety of rice was priced at 1,350 piasters
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per 100 kilograms compared with 1,300 piasters on
18 July. The non-food index, which had increased seven
percent in the week ending 18 July, remained steady as
of 25 July.
3. The prices of most imported commodities, which
had been increasing sharply in recent weeks, also de-
clihed in the week ending 18 July and were generally
stable or slightly lower in the following week. Con-
sumer resistance to the recent excessive price levels
and the importers' need for cash appeared to be the
major reasons for this decline.
Currency and Gold
4. On the Saigon free market the prices of
dollars and MPC (scrip) on 18 July were 210 and 126
piasters, respectively, four piasters each above the
previous week. Gold rose three piasters to 306. By
25 July, however, dollars had fallen back to 204 piasters
and gold had dropped to 289 piasters, the lowest level
since 6 June. The decline in the price of gold was ap-
parently caused by smuggling rather than by official
sales. In Hong Kong, the piaster-dollar cross rate
jumped 19 piasters to 188 on 22 July. The reasons for
this increase are not yet clear. (Graphics on monthly
and weekly free market gold and currency prices are
included in the ann.ex.)
Regional Economic Situation
5. During the month of June, food prices were
generally steady in II Corps and the southern part of
I Corps. In the two northern provinces of I Corps,
however, prices rose because of a shortage of supplies.
The III and IV Corps areas reported significantly higher
prices, primarily because of the devaluation. Labor
unions and labor-management relations have now become
part of the economic life of II Corps. In IV Corps,
competition is increasing for skilled and semi-skilled
labor; pirating and job-jumping are common practices.
Transportation difficulties exist in all four regions
because of insufficient commercial trucking, interdic-
tion of highways as a result of road and bridge destruc-
tion, VC taxation, and poor GVN highway maintenance.
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Wage Problems
6. The policy of wage restraint, which is essential
for the success of the recent economic reforms in South
Vietnam, shows signs of weakening. The US Embassy reports
that the over-all wage increase recently granted by the
private US construction combine, RMK-BRJ, is in excess
of the 15-percent limit ordered by the Mission Council.
Moreover, a spot check of combine employees indicates
considerable disappointment with the increase, which
probably amounts to more than 20 percent, and RMK of-
ficials believe that new work stoppages cannot be ruled
out.
7. US Mission employees were granted a 7.5 per-
cent pay increase effective 3 July. In. addition, al-
though pay increases of 20 to 70 percent have already
taken place for many workers in the private and municipal
sectors, South Vietnam's leading labor union, the CVT,
is reportedly preparing a drive for increased wages in
the private sector.
Port Operations
3. The US Embassy reports that USAID cargo con-
tinues to move through the port of Saigon at an accel-
erated rate. General Lan., the newly appointed director
general of the port, has formed a series of subcommittees
to study port problems and recommend solutions by 27 July.
Meetings also are being held to work out ground rules
for customs administration. by the GVN under ARVN and
MACV control.
9. In. spite of these developments, however,
recently revised port tonnage figures show disturbingly
little change in the capacity of the port during the
first half of 1966. Moreover, current estimates of the
increase in Saigon port capacity by the end of the year
suggest that not enough commodities will be cleared
through the port to yield the amount of anti-inflationary
offset that the International Monetary Fund expected
from the recent devaluation..
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Foreign Trade
10. Recently available data on South Vietnam's
foreign trade in 1965 show a continuation of the trend
evident in the past few years--a decline in exports,
an. increase in imports, and an ever-widening foreign
trade deficit. Exports from South Vietnam in 1965
amounted to only $36 million, the lowest level of the
past decade. During 1960-64 the annual average level
of exports was roughly $70 million. The sharp decline
in 1965 stemmed primarily from a reduction in exports
of rubber, South Vietnam's major earner of convertible
currency.
11. Imports in 1965 reached an all-time high of
$357 million, 20 percent above the 1964-level. The
most striking characteristic of South Vietnam's imports
in. recent years has been. the increasing importance of
imports from the US in. the total--from roughly one quar-
ter in 1959 to more than half in 1965.
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ANNEX
Weekly Retail Prices in Saigon J
(In Piasters)
3 Jan
20 Jun
27 Jun
5 Jul
11 Jul
Perc
Chan
fro
ent
ge
m
Percent
Change
from
1966
1966
1966
1966
1966
Mo.
Ago
Yr. Ago
Index for all Items b/
160
185
193
217
220
+ 2
5
+ 119
Index for Food Items J
169
196
206
234
237
+ 2
7
+ 130
Of which:
Rice/Soc Nau (100 kg.)
800
1,350
1,350
1,400
1,450
+1
6
+ 53
Pork Bellies (1 kg.)
70
go
110
170,
170
+ 8
9
+ 278
Fish/Ca Tre (1 kg.)
110
130
11+0
170
180
+3
8
+260
Nuoc Mam (Jar)
50
80
85
85
85
+ 2
1
+ 70
Index for Non-Food Items bJ
124
14+5
147
157
160
+ 1
6
+ 79
Charcoal (60 kg.)
110
500
500
550
550
+ 2
0 + 112
Cigarettes (pack)
10
10
10
10
11
+ 1
0 + 38
White Calico (meter)
27
32
36
1+0
39
+ 4
4 + 77
Laundry Soap (1 kg.)
30
35
37
1.o
40
+ 1
8 + 90
a/
Data are from USAID sources.
For all indexes, 1 January 1965 = 100.
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Cost of Living Index* (For Working-class Family in Saigon)
JANUARY 1963 - MAY 1966
Money Supply
JANUARY 1963 - JUNE 1966
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NNW ililllr
Monthly Free Market Gold and Currency Prices
JANUARY 1964 - JUNE 1966
Weekly Free Market Gold and Currency Prices
3 JANUARY 1966 - 18 JULY 1966
GOLD (Saigon) - Piaster price per US dollar of gold calculated on
the basis of gold leaf as worth $35 per troy ounce.
US $10 GREEN (Saigon)
PIASTER-DOLLAR CROSS RATE - Piaster-dollar exchange rate in Hong
(Hong Kong) Kong calculated by reference to the
exchange rates of these two currencies
to the Hong Kong dollar.
US $10 MPC (Saigon) - Military Payment Certificates (scrip).
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