THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82S00205R000200010034-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 9
• Document Creation Date: December 20, 2016
• Document Release Date: August 25, 2006
• Sequence Number: 34
• Publication Date: June 16, 1969
• Content Type: IR

Approved For Release 2007/03/08 : CIA-RDP82S00205R0002
DIRECTORATE OF
INTELLIGENCE
Intelligence Report
The Economic Situation in South Vietnam
(Biweekly)
State Dept. review completed
USAID review completed
Secret
12';0I
16 June 1969
No. 0496/69
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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
receipt by an unauthorized person is prohibited by law.
CRQVP F
4'(`,I,UDED FROM AUTOMATIC
DOWNGRADING AND
UECI.AHSTFICATION
et
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
The Economic Situation in South Vietnam
-(Biweekly)
Summary
Vietnamese importers, speculating on a future
shortage of foreign exchange or a devaluation of the
piaster, continue to place orders in excess of current
demand.
There is considerable bad feeling among top Viet-
namese officials concerning the proposed wage increase
for government employees, and apparently no decisions
have been made about the size or form of the increase.
An attempt of the lower house of the National
Assembly to abolish the Ministry of Economy's author-
ity to levy one of the major revenue producing taxes
cannot succeed, but is symptomatic of the resistance
to government fiscal initiative.
During the two weeks ending 2 June the USAID re-
tail price index for Saigon continued to increase
slightly to a level 12 percent above that prevailing
on 14 April. In an effort to halt price increases,
the government has ordered all businessmen to submit
a list of their current stocks. All free market cur-
rency and gold prices increased during the two weeks
ending 3 June with the price of gold leaf reaching its
highest level since mid-March.
ANNEX: Monthly and Weekly Currency and Gold Prices
(Graph)
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F
Attitudes of the Import Community
1. Despite the extremely high level of import
licensing during the last half of 1968 and the increase
of tariff rates in February, Vietnamese importers have
continued to place a large volume of orders. According
to an embassy survey of various government officials
and importers, sluggish consumer demand and the large
inventories resulting from last year's orders have not
deterred importers who are speculating on the possibil-
ity of a rationing of foreign exchange, a devaluation,
and/or a reduction in US aid.
2. The value of import licenses financed both
by the government's holdings of foreign exchange and
by AID's Commercial Import Program (CIP) was at a high
level during the last half'of 1968 as business activity
resumed following the recession that occurred in the
wake of the Tet offensive. Consumer demand partly re-
covered and inventories were replenished. The level
of licensing continued high during the first quarter of
this year, as shown in the following
millions of US dollars):
1967
tabulation (in
1968 1969
Jul-Sep Oct-Dec Jul-S
ep Oct-Dec Jan-Mar
GVN 71 80 105
176 100
CIP 15 23 43
45 69
Total 86 103 148
221 169
Apparently new licensing still exceeds current market
demand, and several importers claim that orders will re-
main high. The reason for these high orders is apparently
speculation. There is growing expectation of a future
shortage of foreign exchange or a devaluation of the pi-
aster.
3. This speculation is based on uncertainty con-
cerning US intentions particularly on troop reductions
and economic aid. The personal expenditures of US troops
and the expeditures of the US Government to support the
troops are the major sources of South Vietnam's earnings
of foreign exchange. The 25,000-man reduction in US
troop strength recently announced by President Nixon will
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have relatively little effect on South Vietnam's earn-
ings of foreign exchange and no effect on US economic
aid, but many Vietnamese will be projecting a trend into
the future. The government has ample foreign exchange
reserves to offset any shortfall in US funds, but it is
unlikely to use its reserves for this purpose and the
Vietnamese business community is aware of this. For
example, in mid-April the government placed an embargo
on the use of Vietnamese foreign exchange for the im-
port of motorbikes and motor vehicle tires and tubes.
Motorbikes and parts accounted for about 10 percent of
the value of licenses issued during the last half of
1968 and 7 percent during the first three months of
1969.
4. At least part of the fear of a reduction in
US aid may result from the knowledge that the US re-
cently withheld CIP funds for several weeks in an ef-
fort to achieve an agreement with the Vietnamese Gov-
ernment on anti-inflation measures. According to a
joint agreement signed early in 1969 the release of
$40 million. for the CIP in the last quarter of FY 1969
was conditional on the signing of a US-Vietnamese sta-
bilization agreement by 1 April. No agreement could be
reached by 1 April, and USAID officials did not release
the $40 million. The funds were released in mid-May,
however, after a compromise was reached whereby the two
governments exchanged letters of understanding which
called for the revival of the joint economic committee
to review economic policies and which outlined US pro-
posals for specific measures to combat inflation. The
withholding of funds had little effect on the CIP, and
most Vietnamese became aware of the suspension only
after the funds had been released. Because of funds
still in the pipeline, there was only one week during
which no licenses were issued for imports under the CIP.
Government Employees' Wage Increase
5. There is considerable confusion and dissatis-
faction within the Vietnamese Government concerning the
wage increase for government employees announced by
Prime Minister Huong on 27 May, Top officials in both
the ministries of finance and labor told US Embassy of-
ficers that they had not been consulted on the decision
to increase salaries. Huong's assistants have indicated
that, contrary to earlier reports, the pay increase will
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be granted to military personnel as well as civil serv-
ants but that there have been no decisions about the
size or form of the increase. The sum to be allotted
for the pay increase during the last six months of this
year reportedly ranges from six to ten billion piasters,
or five to eight percent of the government's original
budget for all of 1969. The increase apparently will
be granted in one or more of the following ways: a
1,000 piaster monthly payment to each employee, free
distribution of certain foodstuffs, distribution of
equity in government-owned industrial enterprises, an
increase in the "rice bonus" granted in 1967, or a
larger income tax exemption. Unfortunately, none of
these proposals will alleviate one of the basic prob-
lems in the government's wage structure, which, be-
cause of the various allowances based on the size of
one's family and the failure to change base pay rates,
allows for too little differential in total pay be-
tween junior and senior level officials. Since it of-
fers little reward for improved performance or an in-
creased level of responsibility, the government loses
senior officials to the private sector where pay dif-
ferentials and salaries are larger.
Executive-Legislative Hassle Over Taxation
6. The lower house of the National Assembly has
struck back at the executive branch for what it con-
siders usurpation of legislative powers over taxation.
In retaliation for the recent executive action revising
the tariff schedule and increasing the perequation tax
on imports of cement, wheat flour, and sugar, the lower
house approved a bill on 27 May to abolish the 1964 de-
cree law giving the Ministry of Economy authority to
impose perequation taxes. Second in importance to
customs duties as a source of government revenues, the
perequation tax, a special levy on various imports and
domestically produced goods, provided almost 20 percent
of total tax revenues in 1967 and 1968. There is no
prospect of the bill gaining senate and presidential ap-
proval, but the lower house action indicates how diffi-
cult it will be for the government to gain legislative
approval for the revenue measures needed to combat in-
flation.
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Prices
7. During the two weeks ending 2 June retail
prices in Saigon increased slightly. On 2 June the
USAID index was 12 percent above the level of 14 April--
an increase due almost entirely to higher food prices.
Prices of all grades of domestic rice increased eight
to ten percent during the seven-week period because of
higher farm prices and because delta merchants, aware
that stocks of imported rice in Saigon are dwindling,
reportedly are holding their stocks as long as they can
in order to get higher prices in Saigon. Prices of
nearly all vegetables and most protein foods, except
for lean pork and shrimp, also have increased consid-
erably since mid-April. Embassy officials attribute
part of this increase.-to-the-prolonged period of hot,
dry weather since mid-April which has increased the
amount of spoilage. The price of beer rose ten percent
during May reportedly because of increased demand dur-
ing the hot weather combined with an apparently chronic
shortage of bottles. The price index for nonfood items
rose only one percent between 14 April and 2 June.
USAID Retail Price Indexes for Saigon
(1 January 1965
All Items
= 100)
Food Items
Nonfood
Items
2 Jan 1968
308
344
241
6 Jan 1969
400
443
319
19 May 1969
425
483
318
26 May 1969
429
486
322
2 Jun 1969
435
499
318
8. The USAID price index for selected imported
commodities increased five percent between 15 April and
3 June but still is only 16 percent above the level of
January 1968. Fertilizer prices rose as demand increased
during the rice planting season. The price of US medium
grain rice also increased slightly as stocks dwindled
and new shipments had not arrived. The price of motor-
bikes increased 11 percent during May as the result of
the government's recent embargo on imports of motorbikes.
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9. Although there is as yet no evidence of a
sharp rise in retail prices since the announcement on
27 May of a pay increase for government employees, the
government is concerned about this possibility. On
1 June Prime Minister Huong announced a price control
program and ordered all firms to submit declarations of
their inventories of raw materials and finished goods
to local authorities by 12 June. In Saigon and other
cities troops reportedly will be on hand to guard
against attempts by merchants to avoid compliance by
moving goods from one warehouse to another. Police are
to check warehouses and shops to see that actual and
declared inventories are the same. Deputy Prime Min-
ister Khiem is chairing a central government committee
to oversee the inventory control program, and local
government committees are headed by mayors and prov-
ince chiefs. It seems doubtful that the government
will be able to control price movements by such means.
For years the government has set official prices for
imported and essential domestically produced goods but
has been unable or unwilling to enforce them. Moreover,
the readily apparent opportunities for graft in this
new price control effort do not bode well for its
success.
Currency and Gold
10. Free market currency prices moved up during
the two weeks ending 3 June, but still were below the
level prevailing on 8 April. The prices of gold leaf,
however, increased sharply, reaching its highest level
since mid-March. On 3 June the price of dollars was
189 piasters per dollar, or eighht~piasters above the
price of.20 May, and the rate for MPC (scrip) was up
nine piasters to 148 piasters per dollar. The price of
a dollar's worth of gold leaf jumped 21 piasters to 284
piasters during the two-week period. (A graph on monthly
and weekly currency and gold prices is included in the
Annex.)
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~Id aad Currency Price
I
PIASTERS PER US DOLLAR
OWN
' , gb w aafworth $3; r o
11319ND WORK
3JUN
2841f
189
rVH148
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