206. Memorandum From Michael V. Forrestal of the National Security Council Staff to the Presidentʼs National Security Adviser (Bundy)1
SUBJECT
- Times Article on South Vietnam, May 29, 19622
I have talked to Sterling Cottrell in the State Department about the Bigart article in this morningʼs Times.
Essentially the article discloses nothing new other than the fact that Bigart has discovered the dimensions of American effort with President Diem which has been going on for some time. For several months now we have been trying to persuade Diem to permit Americans (MAAG and USOM) to dispense economic and military assistance directly in certain of the most pressed provinces on an emergency basis.
Although Diem has refused to sanction this sort of operation generally because he feels it would undermine his political control, he has permitted some direct allocation of resources by Americans on a project-by-project basis in connection with Operation Sunrise and counter-insurgency activities in one of the provinces.
This is, however, only one of a number of programs suggested by us with which Diem has been slow to cooperate. He has not dug in his heels but is putting on the brakes. He has, for example, reluctantly permitted the assignment of American advisers to the province chiefs but has not in every case allowed them to occupy the same buildings. [Page 431] Cottrell feels that, at this point, Diemʼs resistance to most of our proposals is not so great as to require more forceful pressures from us; but he, Ambassador Nolting and General Harkins are watching the situation closely.
There is, however, one problem which may come up soon where we may have to take a tougher attitude toward Diem. This is the problem of generating sufficient local currency (piasters) to finance increased local cost of maintaining the para-military forces and other counter-insurgency operations.
The GVN has argued that it needs more gold or hard currency to back up any increase in piaster circulation. We have taken the position that the GVN should borrow from the central bank and to the extent that inflation became a problem, we would undertake an increased commodity import program.
Apparently last year we caved in on a similar request and provided the GVN with gold or dollar reserve. Both State and the Aid Agency do not favor a repetition of this approach.
My own very strong feeling is that cash grants to support the international convertibility of local currency is idiotic and dangerous. This is precisely what we have been doing in Laos with the painful results we know so well. I see absolutely no justification for subsidizing the convertibility of piasters, since without strict and effective exchange control, all this does is to increase the importation of nonessentials and does nothing to help get on with the problem of defeating the Viet Cong. If the money supply in Vietnam exceeds the supply of essential commodities, then we should provide the commodities to match the money supply, not free dollars. I sense from a few conversations with the President that he is inclined to agree with this position.