Foreign Relations of the United States, 1952–1954, Indochina, Volume XIII, Part 1

751G.00/2–453: Telegram

The Ambassador at Saigon (Heath) to the Department of State

confidential

Saigon, February 4, 1953—3 p.m.

1534. Re Deptel 1381, January 6.¹ This is joint Embassy and STEM message supplementing Embtel 1469, January 23 [25] and referring specifically to economic and social reforms proposed Embtel 2218 May 10, 1952.

Since middle May 1952 military developments vis-à-vis STEM projects have been:

1. No change generally in peaceful Laos.

2. One or two irrigation projects in Cambodia have had to be held up because of worsened local security conditions and generally STEM has not been able to extend field activities due continued lack security other than along main routes.

3. STEM has been able to enter certain areas in South Vietnam where it had not been able to operate before, but in North Vietnam it has had to withdraw from certain areas particularly in Thai country and in the southern delta. One American X-ray apparatus, several minor pieces of equipment and some medical supplies have been lost to the Viet-Minh.

In the economic and social fields, greatest weakness in all three governments is weak administration. In Vietnam it is true that Tam has:

1. Under French expert, established public administration school but with enrollment of only 50 to be graduated in two and one-half years.

2. Segregated administratively the Ministry of Finance and Reconstruction and the Ministry of Economic Affairs for greater efficiency and to lessen burden of responsibility which formerly weighed on the one minister of the combined organization (Lai).²

3. Passed labor code and trade union law permitting existing unions to freely engage in union activities (formerly restrained by Ordonnance 10) and the formation of new unions. No union yet officially registered but period allowed for existing unions is three months from promulgation of law. Several new unions reportedly organized. Membership of Confederation Vietnamienne du Travail Cretien considerably expanded.

4. Under French expert set up agricultural credit institution, but no loans will probably be made for several months.

5. Under French expert published first national budget.

6. Taken measures to control rice speculation by: imposition of export embargo; lifting of military blockade of Trans-Bassac; requiring semi-monthly declarations of stocks held by individuals; proposing export tax on rice at inter-governmental conference (blocked by Cambodia); rice stock cumulation by government to prevent future market shortages and price spiralling.

But Tam has still not:

1. Really instituted land subdivision features of agrarian reform, although ordering census of free communal lands and non-utilized land for eventual distribution.

2. Revamped fiscal system to ensure greater receipts for military budget upon basis of progressive taxes, but has imposed national defense tax and constituted National Committee for Fiscal and Tax Reforms.

3. Taken thorough-going action to curtail corruption and impose austerity on officials at least, through affecting changes in personnel.

4. Developed fully detailed national budget, nor published existing regional ones, nor issued any post-year accounting statement.

5. Due to financial hegemony of French, has been unable to do anything effective to encourage investment of local capital—French generally prefer transfer profits to France (to extent permitted by Office des Change) rather than reinvest in risky Indochina market.

6. Prepared any basic investment plan. In this respect Laos and Cambodia have been more progressive and French have still not:

1. Given Embassy or STEM sufficiently detailed data on vitally important BIP or on activities of French-Associated States total war mobilization committees works.

2. Sufficiently curtailed transfer heavy profits of French to France.

3. Encouraged thorough-going tax reform largely because French fear that tax reforms might be so administered that burden of payments would fall on French but not on Chinese or Vietnamese.

4. Adopted any program toward encouraging increased Associated States nationals participation in local French societies which dominate economy.

5. Assumed initiative in encouraging utilization MSA and MDAP fund for development local military or para-military industries. Only today the Vietnamese Minister of Public Works, Le Quang Huy, told chief of STEM he had discussed this question with Pleven during his recent visit to France and that Pleven was decidedly unenthusiastic. Huy believed that French would not voluntarily permit Vietnam to manufacture its own small arms since France wished to hold this monopoly itself for control purposes. However, questions of economic feasibility and justifiable end result must be primary considerations which have not yet been studied adequately. On the other hand the French have:

1. As indicated above, assisted Vietnam with experts in the fields of public administration training, agricultural credit institutions and national budgeting.

2. Indicated that they would establish a social and economic mission to the Associated States and, if Parliament voted credits, would appropriate approximately two or three billion francs for public works and other projects.

3. Continued to staff most key technical positions in Laos and PMS and, to a large extent, in Cambodia.

Perhaps economic and social administration governments can best be summarized as having shown some improvement but not enough in comparison with need for reforms and speed in implementing them. As in French and Vietnamese business circles in government circles attitude of “business as usual” appears more prevalent than “victory first”. This would be serious even if the US were not contributing largely to the governments of Indochina, but under present circumstances it means that the US taxpayer is having to pay more than he would be called upon to do if the Associated States and French public and civil administrators could be inspired to greater effort and austerity.

The program of action suggestion for American economic aid as outlined in May still appears valid with the following exceptions:

1. Effort in north should be concentrated toward civil pacification with STEM activities largely decentralized. Inauguration this program will be greatly aided by presence of Mr. Hendrick in Hanoi.³

2. During this next six months US should attempt clarify, if necessary at highest levels, question of circumstances, if any, under which French would welcome Associated States requesting technical assistance.

3. US should push more strongly than in the past for (a) land reform (b) tax reform. Up to the present entrenched interests appear to discourage progress in these fields. As long as US unwilling insist on reasonable assignment technical experts to Associated States and upon reasonable program land redistribution, it is fighting in the economic field at a disadvantage.

4. Attempt secure integration MSA-financed program with that financed by local governments, i.e., joint planning of projects on basis of total joint funds available.

5. Consider, if possible under two above, educational assistance in training doctors, engineers and agricultural experts. Competent local professional personnel woefully inadequate and unless they can be quickly trained at college level full value other investments under American aid cannot be realized. Hospitals and irrigation systems do not run themselves.

6. Continue encourage Associated States utilize STEM technical assistance in public administration field.

7. Encourage long-range development of export industries and assistance to artisanal industry although clearance with French at highest levels may be necessary.

STEM has not been and is not satisfied that it is achieving as much benefit as possible for each dollar allocated to Indochina. Unless the Associated States and particularly French are willing accept US technical assistance with as disinterested good faith as it is being rendered, our range of possible economic assistance will continue to be limited and therefore cannot be expected obtain maximum results. But, even if maximum results possible it should by now be clear that Indochina war cannot be won thereby. In the final analysis military and political action are more indispensable than any economic program.

Heath

1. See footnote 2, p. 354.
2. Nguyen Huy Lai, Minister of Finance.
3. James Hendrick, Special Representative in Hanoi of the Special Technical and Economic Mission (MSA) in Indochina.