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

Conference files, lot 59 D 95, CF 141

United States Minutes of a Meeting of United States and French Representatives at the Department of State, March 30, 1953, 3:30 p.m.¹

secret
LAT M–1

Washington, March 30, 1953, 3:30 p.m.

Present

• Department of State
  • Mr. Robertson² FE
  • Ambassador Heath
  • Messrs. Bonsal PSA
  • Rosenson³ MN
  • Hoey⁴ PSA
  • Beigel WE
  • Bane WE
  • Tyson PSA
  • Shaw PSA
  • Kattenburg DIR/DRF
  • Schmukler DIR/DRF
  • Blanchet S/S–S
  • DeSeabra TC
  • Miss Milne MN
• Office of the Director for Mutual Security
  • Mr. Paul
• Mutual Security Agency
  • Messrs. Hayes⁵
  • Clay⁶
  • Nason⁷
  • Bartlett (MSA, Saigon)
• Department of the Treasury
  • Messrs. Glendinning⁸
  • Wood⁹
  • Department of Defense
  • Dr. Kenny¹⁰
• French:
  • Messrs. Letourneau, Minister for the Associated States
  • Tezenas du Montcel, General-Director of the Ministry for Associated States
  • Pierre Millet, Counselor of the French Embassy Washington for Far East
  • Raymond Offroy, Diplomatic Counselor, Office of the High Commissioner, Saigon

Mr. Bonsal observed that the success of the discussions with M. Letourneau over the past few days had been gratifying. The previous talks had been primarily concerned with military matters, but political and economic factors were also involved in the problems of Indochina. The task before them at this meeting was to consider certain economic questions which attended the military effort in Indochina.

I. Exchange of views on the effect of the present franc piaster rate on the cost of the war in Indochina

Mr. Bonsal explained that the US was concerned with the existence of an exchange rate between the Indochinese piaster and the French franc which appeared to increase the financial burden of the war in Indochina on the French budget. The US recognized that local economic and political factors were involved in any decision looking to a readjustment of the piaster exchange rate. Nevertheless, we were anxious to hear M. Letourneau’s views on this problem.

M. Letourneau replied that the adjustment of the piaster exchange rate was a much discussed issue in France and that the Government had been repeatedly asked to devalue the piaster. He wished to make clear certain reasons which made devaluation extremely difficult. The rate of 17 francs to one piaster had been fixed shortly after the war and was set on the basis of the prewar rate with approximate adjustments for the comparative inflation of monetary circulation in France and Indochina. As result of the Pau accord, the French Government is unable to revise the rate of exchange without the consent of the three States of Indochina. These States had only recently become independent and were fearful of any diminution of their prestige. It was not clear that a readjustment of the rate would secure sufficient financial advantages to justify the protests which devaluation would provoke. The majority of the expenditures for the war in Indochina was made in France, and for this purpose francs were required. The benefit of devaluation would only be a short-run benefit because it would ultimately result in higher price levels in Indochina. Devaluation, moreover, would not result in an appreciable diminution in transfers. From September 1951 to August 1952 the total value of commercial transfers amounted in value to 125 billion francs, and the value of goods entering Saigon amounted to 115 billion francs—a difference of only 10 billion francs. This 10 billion francs would include expenses accessory to imports. Bank transfers and transfers of savings and capital amounted to 55 billion francs. Postal transfers amounted to 20 billion francs, of which 16 billion francs were attributable to the military. M. Letourneau said that he was prepared to give to Mr. Sprouse in Paris a copy of a staff study on this question. Mr. Bonsal said that this data would be most welcome.

Mr. Glendinning said that he appreciated the delicacy of the financial and political problem. The US Government knew, he said, that decision could only be made by the countries concerned in the first instance. He wished to know whether, if the exchange rate were left unchanged, other measures of an internal nature might be adopted to bring prices into line. If the rate were left unchanged, would the situation become worse? M. Letourneau explained that it was difficult to put restrictions on the volume of imports from France. Viet Nam was strongly opposed to such restrictions. French nationals would have to pay if tax measures were chosen as a solution. He also pointed out that when the expeditionary forces leave Indochina some day in the future, this will create grave economic consequences. It was necessary to keep this in mind in the formulation of current policy.

Mr. Hayes said that he recognized that there was a technical difficulty in estimating the burden put upon the French budget by this unrealistic exchange rate. In absolute terms, however, it seemed to the US that a sizeable sum of money was involved. It was his understanding that about 250 billion francs were used for piaster expenditures. M. Letourneau said that he thought that this estimate was very much too high. Mr. Hayes said that a recent MSA study had estimated that devaluation to a 10-franc rate might result in a saving to the French budget of $170 million to $200 million annually. He explained that the US Congress would be seriously concerned to judge the truth of this estimate. If there were not a clear financial case for devaluation, it was most important to be able to provide the Congress with a forceful statistical explanation why there was not. M. Letourneau again said that he was quite prepared to provide the necessary data. French experts were constantly working on this problem.

Mr. Rosenson asked whether it would be possible, after this data became available, to have a meeting with the French to consider this data at the technical level. M. Letourneau said that it could be discussed with the Paris Embassy.

Dr. Kenny asked whether local currency was used to pay French soldiers. M. Letourneau replied affirmatively but said that they also allotted a certain percentage of their salary in francs to their families at home.

Mr. Hayes asked whether he was correct in thinking that it was not merely a budgetary question which was involved but also a problem of the influence of devaluation upon the rate of capital investment and transfer. M. Letourneau said this was true. He said that the problem of transfers was a result of a lack of confidence in the future of the country. Contrary to the opinion of many, devaluation would not discourage transfers.

Mr. Bonsal said that the statistical information which M. Letourneau had said he would make available would be most helpful. He added that the US recognized that a delicate security problem was involved and that due caution would be used in dealing with this information.

II. Exchange of views on contributions by residents of Viet Nam, including businessmen, toward the increased cost of the war in Indochina

Mr. Bonsal invited M. Letourneau to comment on the possibility of increasing the local contribution to the war in Indochina through new taxation measures. He noted that the US recognized that the contribution from local taxation to the military effort had recently increased from 30 to 50 billion francs. It was apparent, however, that in certain quarters in Indochina extraordinary profits were being made as a result of the war. He asked M. Letourneau if he could specify certain types of taxation which would draw upon these profits.

M. Letourneau said that he agreed that there probably were certain new sources of revenue of which due advantage was not being taken. He agreed that current resources could be increased. He pointed out, however, that one difficulty in the creation of an adequate tax system in that country was the fact that the Ministry of Finance had only recently been organized and was only beginning to be abreast of the work. 1953 was the first year in which Viet Nam had ever had a proper budget providing accurate data on tax yields. M. Letourneau said that French experts were at the present time working with the Vietnamese to work out an adequate tax system. One difficulty was the fact that some of, the largest profits were irregular and difficult to trace for tax purposes. At present the large source of revenue was derived from customs duties. Some revenue also came from direct taxation. The French were now trying to persuade the authorities to enlarge direct taxation. Two bases of taxability are evident: 1. external signs (e.g. automobiles) and 2. fixed assessments, (“Imposts forfaitaires”) based on imposing an arbitrary tax assessment which would have to be paid unless the taxpayer proved it was too high.) He hoped that the tax system would be reformed by the fiscal year 1954. He observed that it might be possible to increase revenue from taxes by increasing customs duties. This, however, encouraged traders to raise their prices, and it was necessary to be cautious in this matter. A foreign exchange tax also held disadvantages since the savings of soldiers had to be exempted from such a tax, and any discrimination among kinds of taxpayers would be an invitation to fraud. Finally, M. Letourneau said that even if several million francs were raised by means of a good tax reform, this in itself would not solve the problem. He pointed out that he had financial experts working on this problem and that a tax specialist may be called to Indochina from the French Ministry of Finance.

M. Letourneau asked whether the US had encountered similar difficulties in taxing wartime profits in Korea. Mr. Bonsal replied that Korea differed in that there were no substantial export products and that the basic wealth of the area was much less. We had, however, encountered similar problems. M. Letourneau asked whether a foreign exchange tax had been put into use. Mr. Bartlett said that such a tax was in operation in the Philippines. Mr. Glendinning said that the US was sending a tax expert representing all agencies to advise the Korean Government. M. Letourneau said he would be grateful for relevant information on Korea.

Mr. Hayes asked whether there was a chance of improving the tax system in Indochina by means of better administration and collection. M. Letourneau said that the tax collection was sufficient in the large cities but that it was not sufficient in rural areas where there was military insecurity and the tax collectors encountered competition from religious organizations who collected their own taxes (CaoDai, Hoa Hao, etc.).

III. Questions relating to US current economic aid program

(a) Coordination of US economic aid program with French, UN, and Colombo Plan economic aid programs

Mr. Hayes invited M. Letourneau to comment on possible means of coordinating these programs. M. Letourneau said that at the moment there was no coordination among them at all. 1) As to the Colombo Plan, the Associated States had participated in the last meeting, but the French had not been informed of possible developments or advised of any concrete proposals. He said that the Colombo Plan currently had no effect on Indochina. He believed that the Colombo Plan now had only small credits at its disposal, and that the first countries to benefit would be within the Commonwealth. 2) UN assistance had been mainly through the loan of experts and through grants to trainees from FAO and especially from WHO. The contribution had been limited, however, and the fact that the Associated States were not members of the UN was a complication although they were members of the UN’s Specialized Agencies. 3) As to US contributions, which were the largest source of aid, there was not sufficient coordination between American and French personnel. The coordination of commercial aid was satisfactory, but better coordination was required for the utilization of counterpart funds and the application of French and US technical aid. He believed it would be useful to have talks so that each country might know the intentions of the other. 4) French aid had taken various forms. The French had assisted in the formulation of a foreign exchange program for all three states of Indochina under which France makes available dollars and pounds for the goods the Indochinese wish to buy. The French funds had also been used to finance reconstruction projects. A total of about three billion francs had been set aside for these purposes. He noted as an example of a reconstruction project the repair of the bridge at Hanoi. M. Letourneau said it would be desirable if the requirements of the Associated States could be ascertained in advance. He said he was open to any suggestions as to possible arrangements for coordination of French and US aid.

Mr. Hayes said that in other countries the US had found it profitable to arrange for discussions on two levels: at a level at which over-all development planning over a long period was considered, and at an operational level at which coordination on particular projects was considered. M. Letourneau said that he was prepared to arrange for consultation, whether official or unofficial to avoid competition between the US and France. He suggested that a more detailed discussion of means of coordination should be arranged when Mr. Bartlett returned to Saigon.

Mr. Bartlett said that there were two agencies now existing which might take up the problem of long-term planning: the Comité du Plan and the Effort de Guerre (Comité du Mobilisation). M. Letourneau said that the Effort de Guerre was the only agency which would be able to operate in cooperation with the three Indochinese states. He said that he would inform us what was being done in the Effort de Guerre. This would be discussed further in Saigon.

Mr. Bonsal suggested that ideally it would be the responsibility of the Viet-namese to coordinate the activities to be undertaken with external aid. Mr. Bartlett said that STEM was keeping Mr. Valls¹¹ informed of current US program activities. He thought, however, that since the form of French economical aid was now to be extended in a new form, the need for coordination would appear to be more imperative. M. Letourneau said that he would like to meet with Mr. Bartlett and M. Valls to consider what machinery might be appropriate.

(b) Examination of ways to increase the effectiveness of the US economic aid program

Mr. Hayes invited M. Letourneau to comment on US efforts to increase the effectiveness of the three States in the extension of services to their respective peoples. M. Letourneau replied that it had been the French experience over the past two and a half years that improvements could only be introduced very slowly. He referred to the undertaking to establish an Ecole d’Administration which began only in October of last year. The Viet-Namese had been anxious to create a school like the Ecole d’Administration in Paris. The French had advised them, however, that for the time being they should concentrate on the immediate goal of training good civil servants quickly. He believed that eventually there would be established three regional schools suited to this purpose like the one which already existed in Dalat. He noted that his government had sent numerous well-trained French civil servants to Viet-Nam who were now working exclusively under Viet-Namese authority. French policy had made considerable progress toward winning the good opinion of the Viet-Namese youth toward a career in the civil service. Some exceptional candidates were now being trained. While considerable administrative progress was being made in the south where a large body of personnel had been trained before the war, they had encountered great difficulty in the north where the administration had been destroyed by Viet Minh.

Mr. Hayes asked whether there was any on-job training program for civil servants. M. Letourneau replied that there was. Mr. Hayes asked what provision there was for training outside of Indochina. M. Letourneau replied that they had given up trying to push this since the students selected for such training tended to refuse to return to their country. The training had to be local. General de Lattre had similarly insisted on this policy for the army.

Mr. Hayes asked whether it was desirable that the US should contribute to this kind of activity. He asked whether the Pau Agreement would constitute a barrier to such participation. M. Letourneau replied that it would not, but he thought that since the Viet-Namese had been accustomed for such a long period of time to French methods of training, it was from the human point of view and from the point of view of language preferable for the French to assume this responsibility. Mr. Hayes said that he wondered whether it might not be fruitful for the US to enter into contracts with French-speaking firms or institutions to expand their curriculum and training facilities. M. Letourneau said that perhaps it might. Mr. Bartlett said that the MSA was considering giving equipment to the medical school in Saigon. He noted that the school of agriculture had not been reactivated and that the MSA had for this reason been unable to give help to it. M. Letourneau said that help in the form of supplies and equipment might be desirable. The University of Hanoi, for example, is suffering from lack of material. The question generally was another instance in which better coordination between France and the US would be fruitful. He suggested further discussion at Saigon. Mr. Hayes asked whether it was only a technical problem of coordination which was required. He asked whether the Pau Agreement did not establish a monopoly excluding MSA activities. M. Letourneau denied that any such monopoly obtained. He said that on all questions discussion was possible. He wished to make clear, however, that it would have unfortunate consequences if the US were to launch projects unilaterally and without previous consultation with the French.

Mr. Hayes asked how M. Letourneau viewed the provision by the US of technical personnel who were already fully trained. He commented that the Pau Agreement had in the past limited the use of US technicians in Indochina. He asked whether this limitation had to continue in the future or whether it would not be possible in special circumstances where no technicians were available from France to draw upon personnel who were not of French nationality. M. Letourneau replied that this was a question of mutual confidence and candid cooperation. He said that the use of French experts was preferable. Where these were lacking, it would be possible to use US technicians. Mr. Hayes said that it might be possible, as had been done in some other countries, for MSA to finance contracts between US firms—as in the case of engineering concerns, for example, and the government of Viet-Nam. Ambassador Heath said that the firms might be Belgian or Swiss.

M. Letourneau then raised certain questions concerning MSA financial policy in Indochina:

1. Credits for tobacco imports had been available in 1951–2, but had subsequently been withdrawn. This was unfortunate, Indochina was a regular customer for United States’ tobacco. In 1949 imports had amounted to 961 tons and in 1951 they had amounted to 1,055 tons. Tobacco was of great importance to local budgets, yielding in 1952 some 20,000,000 piasters in revenue on imports and 400,000,000 on “regie” sales.

2. The U.S. have refused to accept French proposals in the past to finance imports of raw silk on the grounds that it was a deluxe item. He wished to point out that this was not the case in the Indochinese States. Silk was used for clothing in the villages, and the processing of this silk was an important village industry in which large numbers of people were now unemployed because of the dearth of raw silk.

3. He expressed the hope that sugar imports from Cuba, the Philippines or Formosa might be financed by MSA. He estimated that Viet-Nam needs amounted to about $1½ million.

Mr. Hayes said that it might be possible to make some administrative assistance on the basis of the probable response of Congress to a proposal regarding tobacco and raw silk. In the case of sugar, however, MSA was clearly prevented from a change in policy so long as a Puerto Rican surplus persisted. However, Puerto Rican sugar might be financed.

Mr. Hayes asked for M. Letourneau’s views on the Tonkin pacification program, such as Dong Quan. M. Letourneau replied that both French administrators and Viet-Namese authorities appeared to be pleased with this program. He said that Premier Tam was at first dubious. He thought that the people would not consent to move to the new villages. His doubt, however, had proved to be unfounded. It was clear to M. Letourneau that it would be impossible to pacify large areas in which the population was dispersed among a large number of very small villages. He believed that additional aid for new villages next year would be valuable. Mr. Hayes asked whether this program was not sufficiently successful to warrant careful consideration of the possibility of financing in the future a large number of these villages, possibly 50. M. Letourneau said he thought this possibility should be considered and that the enlarged village programs should be given a high priority.

Mr. Hayes asked what possibilities there were of increasing the local production of para-military items. M. Letourneau said that he believed Bao Dai and his government would not favor this although Ex-Minister of Defense Tri had been anxious to start such production. It was M. Letourneau’s personal opinion, however, that a program to achieve this would be useful. It was apparent that the Viet Minh had found such activity feasible and useful. If they can make hand grenades, he saw no reason why the same thing might not be accomplished on our side. He would give a considered reply to Mr. Hayes’ question after he had had consultation with his national defense colleagues in Paris.

Mr. Hayes asked M. Letourneau to what extent it was possible and desirable for the US to support the reform program of Premier Tam. M. Letourneau replied that this program was a desirable one, but that only that part of it concerned with agricultural reform could be helped financially. It might be worthwhile to provide dollars for tenant farmers to buy land. Ambassador Heath said that MSA could not provide money for them to buy land but could only offer short term credit to enable them to operate their land. Mr. Hayes observed that MSA had given technical help in conducting cadastral surveys in the Philippines. He said that he believed that it was most important for the US and the French to give moral support to this program and possibly some kind of leverage to put the program into effect. M. Letourneau said that he thought that Premier Tam knew that he had warm French and US support.

Dr. Kenny said that he was particularly concerned with the question of local manufacture of para-military supplies. He said that M. Letourneau had already commented on this question. Dr. Kenny wished to state, however, that he would be most interested to hear of M. Letourneau’s decisions on this matter after his consultations in Paris.

(c) Possible increased contributions to effectiveness of Associated States governments in technical fields

Mr. Bonsal said that he thought that enough had been said on this subject in the foregoing discussion. He would only observe that French accomplishments in educating and training the peoples of Indochina to assume their new responsibilities would be the most important element in solving the problems of these countries. He wished to reassure M. Letourneau that the US had no intention of pressing these governments and the French administration to accept the service of a large number of US technicians and experts. We had no desire to multiply demands upon our pool of experts who were already in short supply. M. Letourneau replied that he accepted Mr. Bonsal’s assurances and agreed that the surest basis for progress in Indochina was a good partnership between France and Viet Nam.

In concluding the meeting, Mr. Bonsal said that he wished to thank M. Letourneau for his kindness and his cooperative attitude throughout these talks. The American participants had found the discussions most rewarding in the agreement and understanding achieved. M. Letourneau thanked Mr. Bonsal for his remarks and expressed his gratitude for a cordial reception in Washington. He had enjoyed making new friendships and renewing old ones. He had found the exchange of views stimulating and fruitful, and he was leaving Washington with fresh confidence in the cooperation of France and the United States.

1. Circulated as document LAT M–l, Apr. 6, 1953.
2. Walter S. Robertson was appointed Assistant Secretary of State for Far Eastern Affairs on Mar. 27, 1953, succeeding John M. Allison. Robertson entered into office on Apr. 8.
3. Alexander M. Rosenson, Chief of the Monetary Affairs Staff.
4. Robert E. Hoey, Officer in Charge, Vietnam–Laos–Cambodia Affairs.
5. Samuel P. Hayes, Jr., Assistant Director for the Far East, Mutual Security Agency.
6. Eugene H. Clay, Assistant to Hayes.
7. John B. Nason, Indochina Officer, Mutual Security Agency.
8. C. Dillon Glendinning, Deputy Director Office of International Finance, Department of the Treasury.
9. James E. Wood, Chief of the European Division, Office of International Finance, Department of the Treasury.
10. Norris G. Benny, Deputy Director, Office of Foreign Economic Defense Affairs, Department of Defense.
11. André Valls, French economic and financial expert in Indochina.