Office of the Historian

211. Telegram From the Embassy in Vietnam to the Department of State1

Saigon, June 6, 1962—1 p.m.

1568. Task Force Vietnam. Embtel 15642 gives our considered recommendations for breaking local currency bottleneck which is beginning to impede total counter-insurgency effort in Viet-Nam.

In summary, position is as follows:

1.
Original GVN budget for CY 1962 has been increased and will probably go higher if GVN is to do the things “we and they” think necessary to win counter-insurgency.
2.
A shortfall in estimated absorptive capacity of SVN economy has developed, to extent of approximately $30 from original estimate of $165 million of US-financed imports for CY 1962.
3.
As result of these and other factors, GVN is faced with budget deficit substantially greater than that anticipated at time adoption Staley-Thuc report. There is developing a shortage of piasters despite available US commercial aid.
4.
In this situation, GVN is reluctant and slow to finance special counter-insurgency measures, including targets of opportunity, which are tremendously important (e.g. care and feeding of Montagnards who are coming over in increasing numbers, adequate provision for resettled people, pay for work on strategic hamlets, pay for newly elected village officials).
5.
While a good economic argument can, and has, been made that deficit financing by GVN (borrowing from National Bank) is way to meet problem, plain fact is that this will probably not be done in sufficient amount—or done soon enough—to keep momentum in civic-social-economic actions in “clear and hold” operations, rural rehabilitation, and Strategic Hamlet Programs.
6.
We propose to meet the problem by a combination of orthodox and unorthodox means—as set forth in last paragraphs Embtel 1564.
7.
Proposals do not require an increase in the total amount of US economic aid already approved for Viet-Nam for FY 1962.
8.
Would greatly appreciate your personal consideration of our proposals.

Nolting
  1. Source: Department of State, Central Files, 811.0051K/6-662. Secret; Priority. Designated for AID Director Hamilton, Assistant Secretary Harriman, McNamara, and Taylor.↩
  2. Document 210.↩