Foreign Relations of the United States, 1961–1963, Volume II, Vietnam, 1962

212. Telegram From the Department of State to the Embassy in Vietnam¹

Washington, June 8, 1962—7:22 p.m.

1425. Task Force Viet-Nam. Ref: Embtels 1564 and 1568.²

1. Department understands that this is a crucial time in Viet-Nam war, that it is of capital importance (a) to supply quickly the strategic hamlets being set up all over country and show villager GVN offers him more than VC, and (b) to show GVN can meet minimum needs approximately 100,000 Montagnards now seeking protect themselves from Viet Cong, that prompt action now will increase momentum these and other programs with good chance taking initiative from Viet Cong during next six months. Is this correct?

2. Commend reftelʼs basic approach of attempting convert GVN pressure for cash grants into a useful and constructive lever for more effective counter-insurgency support. Presume reftel proposals are part of integral package along with subject of counter-insurgency PA discussed Toaid 1077 and 1095.³ Recognize need promptest possible response reftels for your current negotiations with GVN. Final interagency action requires following information:

a. Results June 10-11 Saigon discussion with Fowler reftels and points raised in this message.

b. Does urgency situation require FY 62 funds in June (which would require use MAP transfer funds) or could situation be met through AID FY 63 funds (which can be assured in July for approved requirements)? Also, as real extent of GVN CY 62 budget crisis probably not precisely known for several months, could final consideration of proposed piaster purchase be deferred on some basis of U.S. contingent assurances until September or October without serious effect?

c. Could a reduction in rate of counterpart deposit on limited number key U.S. source commodities effectively substitute for waiver of limited worldwide procurement by putting cost of U.S. source items to VN consumer on parity with procurement from presently excluded sources such as Japan? Reduction counterpart deposit is corollary measure envisaged for certain cases in U.S. policy on limited worldwide procurement. Would not wish press this if it would psychologically unduly undercut GVNʼs exchange rate reforms.

d. What is rationale for amount $10 million at this time to purchase piasters?

e. What will be relationship of piasters purchased with $10 million to proposed counter-insurgency stockpile to be created with $10 million PA proposed Toaid 1077 and 1095?

f. It would be helpful to know the composition, rate of return and location of Vietnamese reserves.

3. What would be best negotiable arrangement with GVN to give U.S. most desirable degree control over piaster counter-insurgency fund? How would release procedure differ from present counterpart procedure? How define “remainder” essential expenditures (last para your 1564) which GVN would finance from own resources? Would closer joint budgetary review on continuing basis be necessary to assure GVN not deferring expenditures which we regard as important?

4. While we sure you keenly aware factors in following paras, your comments would be helpful in meeting your requests.

5. We hopeful that reftel concessions, if made, would lead to increased GVN assumption its own financial responsibility. There is Washington concern lest extraordinary U.S. aid measures create substantial disincentives for GVN to pursue the social, economic and fiscal measures sought by the U.S. which also very much a part of counter-insurgency, the lack of which in longer run might create pressures or disorder counter to our counter-insurgency efforts. Illustrative concerns are:

a. Understand war burden already falls most heavily on rural populace while richer urban groups contributing relatively little. Better tax administration could help shift burden.

b. Understand current piaster shortage not only result of shortfall of AID-financed imports below $165 million (which U.S. expected when that figure set as target), but also results from shortfall tax collection which appears be actually declining despite GVN pronouncements increased tax rates. Request comment on measures GVN might be induced undertake.

c. Feel budget gap probably even larger next year due limited absorptive capacity imports and counterpart generation which expanding domestic industry may reduce further. At same time, counterinsurgency budget costs likely increase sharply. What is outlook for more specific GVN action help fill gap?

6. As US making strong play get more aid to VN from other countries (see Circular Aidto X-552⁴), we concerned lest waiver of limited worldwide procurement undercut these efforts. Realistically, impact of any such other aid arrangements probably not realizable until next year. However, request refined estimate as to amount waiver actually usable during remainder CY 62. This estimate is not precondition to 730 million piaster purchase recommended para numbered 2 (Embtel 1564). For processing waiver request, need specific examples types machinery to be imported from now-excluded sources that not available from U.S. procurement, and rationale as to specific level of waivers requested.

Rusk

1. Source: Department of State, Central Files, 811.0051K/6-662. Secret; Niact. Drafted by Stoneman, Furst (AID), Wood, and Spurgin (State) and cleared in DOD, Treasury, and BOB. Forrestalʼs name had been typed in as clearing officer for the White House but was crossed out. Designated for the attention of James Fowler of AID, then in Vietnam. Repeated to CINCPAC for Polad.
2. Documents 210 and 211.
3. Neither found.
4. Dated June 5, not printed. (Department of State, Central Files, 851K.0000/6-562)