216. Telegram From the Embassy in Vietnam to the Department of State1
1605. TF/VN. Deptel 1425.2 Your statement of problem correct. Objective our proposals is to invigorate and accelerate counterinsurgency programs to maximum extent. Obstacles to this are varied. On one hand there is essentially psychological problem on Vietnamese side represented by prospective budget deficit and drop in foreign exchange holdings. On other hand there is practical problem of getting in hands US Mission sufficient dollar and piaster resources for application to counterinsurgency program in countryside. Our premise is that by bringing in “new money” and by making concessions on limited worldwide procurement to meet second problem we will obtain leverage to overcome psychological obstacles represented by former and, secondarily, to relieve to some degree the budgetary and foreign exchange problems themselves. It is important, however, to keep the two problems conceptually distinct, even though we must work on them together.
GVN (and Diem especially) is overwhelmed by size projected budget deficit this CY. As a result, it has been focusing most of its fiscal attention on ways of trimming ministerial budgets; rather than finding excess funds in those budgets for application to counterinsurgency. Of course, neither we nor GVN knows exactly what budget deficit will be at end CY. They now claim 4.8 billion piasters—it will probably be materially smaller. In any event important point in our proposal to buy piasters is not related to budget deficit except to extent GVN unable or unwilling fund counterinsurgency in face of potential deficit. Whether deficit is entirely manageable in financial terms without extraordinary aid is thus beside point; point is GVN doesn’t believe it manageable.
PA procedure proposed in other telegrams should be viewed in similar light. We not addressing ourselves to balance of payments problem or GVN exchange reserve position. Rather, we are trying to develop system through which US can inject itself into counterinsurgency operations through procurement, stockpiling, distribution, etc. In the process, it is essential that we develop procedures which will sharply reduce GVN bureaucratic entanglements and procedural bottlenecks. We are not, however, going to bypass the Saigon Ministerial machine completely. This is simply not acceptable to GVN, and [Page 455] there should be no illusions that this is what we expect to obtain. We do believe that we can develop procedures for prompt and effective use of piaster and dollar resources made available to US.
To summarize, our basic argument for extraordinary actions at this time is not need for dollars to correct fall in reserves nor need for piasters to correct deficit problem as such. Our objectives are (a) to cope with Counterinsurgency Program, (b) to provide psychological carrot which will relieve GVN preoccupation with deficit and exchange position, and (c) to avoid situation in which US-generated local currency is bound into existing counterpart system which is not satisfactory for needs war situation. US strategic interests in SEA demand, in my opinion, that we find a way to achieve these objectives on an urgent basis.
As for amount needed initially to meet these objectives, our proposals call for $10 million on dollar side and $10 million for piaster generation. Basis for these figures is set out in next following telegram3 (together with answers other questions raised reftel). We would like authority to commit ourselves to expend full amount both categories in CY 1962. If fund availabilities do not permit these amounts in FY 62, it will be satisfactory to commit during this month whatever funds are available, if we can give firm assurances that balance can be committed July from FY 63 funds.
Fowler has not seen this message, although he and we have discussed the problem thoroughly. He agrees that extraordinary approach is justified on political/psychological grounds as experimental measure to break present impasse counterinsurgency program. He also agrees that type of extraordinary approach we have proposed is sound one. Believe, however, that he would prefer see smaller amounts committed initially, with expectation they could be augmented if device proved successful. While this approach is certainly understandable, in my judgment to go below the figures proposed would jeopardize chances of achieving psychological breakthrough on GVN side and hence would risk our chances of success.
- Source: Department of State, Central Files, 811.0051K/6-1462. Secret, Priority. Repeated to CINCPAC for Polad.↩
- Document 212.↩
- Not printed. (Department of State, Central Files, 811.005K/6-1462)↩