Foreign Relations of the United States, 1961–1963, Volume IV, Vietnam, August–December 1963

321. Memorandum of Discussion at the Special Meeting on Vietnam¹

Honolulu, November 20, 1963.

Item A 1—Country Team Review of the Situation (Political)

Summary of Discussion

Ambassador Lodge described the outlook for the immediate future of Vietnam as hopeful. The Generals appear to be united and determined to step up the war effort. They profess to be keenly aware that the struggle with the Viet Cong is not only a military problem, but is also political and psychological. They attach great importance to a social and economic program as an aid to winning the war. The Generals believe that:

(1) The requirements for the population to contribute what amounts to “forced labor” in connection with the construction of strategic hamlets must be drastically reduced, if not totally eliminated.

(2) The Strategic Hamlet Program has been pushed too rapidly and at too great a cost in human effort. More emphasis must be placed on the sociological aspects of the program. Existing strategic hamlets must be consolidated and improved. Any further wholesale expansion of the program should be deferred.

(3) Chinese racketeers and extortionists—the so-called “cailles”—must be eliminated.

(4) The procedure of arbitrary arrests and disregard of habeas corpus must end.

(5) Major efforts must be made to win over the Hoa Hao and Cao Dai sects to the side of the government. (Recent reports indicate some initial successes in this direction.)

Resumption of U.S. aid should improve the economic situation. The U.S. should for this first year avoid a situation in which it appears that the Diem regime received more aid than the new government.

As far as political institutions are concerned, the Generals talk of facilitating the growth of political parties and of creating more courts and judges, but much of this seems theoretical. Western-educated urban elements expect progress in political liberalization and perhaps the Council of Sages² will be able to do something to fulfill this need for political expression.

Ambassador Lodge doubted the wisdom of the U.S. making sweeping demands for democratization or for early elections at this time. He believed that in Vietnam the technique of changing governments by violent means is not yet ready to be displaced in favor of changing governments by election. He emphasized that if we can get through the next six months without a serious falling out among the Generals we will be lucky. However, the leading members of the Generals’ group are modern-minded men who are at least aware of conditions in the modern world other than in the strictly military field. They evince a desire to react intelligently to the social, economic and political factors, and their performance to date in this sphere has been good. Americans—whether in government or in the press—should not seek to guide them at every turn nor try to get them to act as though they were made in our image. As long as they follow the course they have set for themselves, we should not push them too hard for several months. Since coming to power, the new leaders of Vietnam have acted with restraint. They have held down on arrests, have been willing to correct errors, and have avoided any wholesale purges throughout the governmental administration. Their handling of press and public relations generally is a great improvement. They are trying to please the public—a rather new departure in Vietnam. Although the question of where the true power and influence lies will not become clear until the pulling and hauling of various personalities has made itself felt, the Generals appear to have really tried to have a big civilian element in the government.

In conclusion, Ambassador Lodge remarked that what we are really trying to do in Vietnam is to win the minds of the people. This includes not only the Generals and people who are currently living under RVN control, but also the Viet Cong. The problem is to convince the young VC soldier that if he continues to fight he will surely be killed, but that if he stops he will find that he and his family have an opportunity for a good life in peace and security. Problem thus is not only military, but economic, social and political as well.

For the first time in years the central government has the enthusiastic support of the urban population. However, in the final analysis the war will be won or lost in the country-side and to date the rural population is still apathetic.

The changed situation requires us to rethink our programs, civil and military. We must see whether and how our programs need changing. For example, with regard to our military programs, the question arises whether—with a real chain of command, an improved fighting spirit, the commitment of troops to fight the VC instead of to static non-military missions—present and proposed force levels are appropriate.

To take another example, in our economic programs aimed at the rural areas, we have developed procedures to deal directly with Province Chiefs. This was done largely because of the lassitude of the central bureaucracy and its apparent lack of interest in what happened in the countryside. Perhaps it is still wise to continue to by-pass Saigon so far as possible, but it would be well to review the question. We may be about to get a “new look” in the Saigon bureaucracy.

Finally, as regards all U.S. programs-military, economic, psychological-we should continue to keep before us the goal of setting dates for phasing out U.S. activities and turning them over to the Vietnamese; and these dates, too, should be looked at again in the light of the new political situation. The date mentioned in the McNamara-Taylor statement of October 2³ on U.S. military withdrawal had-and is still having-a tonic effect. We should set dates for USOM and USIS programs, too. We can always grant last-minute extensions if we think it wise to do so.

Ambassador Lodge said all this is submitted in the belief that an American presence will be wanted-and needed-in Vietnam for some time in the future. But it should perhaps be a different kind of presence from what exists—and is needed—in Vietnam today.

Secretary Rusk asked whether we could expect to encourage the new government to move closer toward a true democracy without thereby reducing the main effort against the VC. Ambassador Lodge replied that as an example forced labor could be reduced although not entirely. He went on to say that while we can expect some progress toward democratic processes at the local village and hamlet level it is hard for him to imagine a sophisticated Western democracy emerging in Vietnam for some time to come.

Secretary Rusk asked if there was any way the U.S. could hope to prevent a future internal split between the Generals. Ambassador Lodge replied that this can best be accomplished by making sure that they understand what the U.S. considers would be best for their country. He noted that the Generals recognized the advantages of sticking together. In addition to other actions, the Ambassador said if we make it clear, for example, that we have confidence in General Minh it will materially help his position among his colleagues and probably will serve to retain him in his present position of authority. From his own conversation with Generals Minh, Don, and Kim, Ambassador Lodge is confident that they want to avoid any internal disputes among the members of the Military Revolutionary Council. These three key Generals believe that they can keep General Dinh under control. However, Ambassador Lodge is not too sure this is the case, as General Dinh, in addition to being Minister of Security, also commands the troops of III Corps.

General Taylor asked what were the present intentions of the military leaders with respect to the ultimate shape of the government. Ambassador Lodge replied that he believes that General Minh is sincere when he says that the Military Revolutionary Council is merely a provisional government. However, there is no political leadership emerging from the scene thus far and he doubts that it will come from any of the civilians who are now in the Cabinet. Ambassador Lodge re-emphasized his earlier recommendation that the U.S. not press the Generals too hard on political reforms and early elections. He would instead urge that the U.S. be patient and give the Generals a chance to get on with the war. Ambassador Lodge believes that they are sincere, that they have the good of their country at heart, and that they have a basically sound program.

Item A 2—Review of Situation (Military)

Summary of Discussion

General Harkins began by pointing out that despite what has appeared in the press, there is no difference of opinion between Ambassador Lodge and himself on the situation in Vietnam or on the conduct of the war against the VC. Ambassador Lodge expressed his complete agreement.

Turning to the military situation in Vietnam, General Harkins emphasized that the problem is one of people, not statistics. The problem is to win the people over to the full support of the war effort. Until the new government gets out in the field and talks to the people and reams their problems and true feelings, they can never hope to really win the war.

As for the statistics, after the coup VC incidents shot up to 300-400% of what they were before. However, after 6 November they dropped down to normal and have remained that way ever since. Similarly, the numbers of returnees under the Chieu Hoi program fell off markedly since early October. However, just this past week over 350 members of the Hoa Hao Sect have rallied to the government, as have a number of Cao Dais. At the same time, the Montagnard tribes are continuing to come out of the hills to seek the protection of the government. (About 220,000 had rallied to the government before the coup as a result of such programs as the CIDG. At present a total of about 400,000 Montagnards are under RVN control.)

The change of government has had a definite impact at the province level, where everything focuses on the Province Chief. These 42 key individuals have the real job of winning the people over to the support of the government. Perhaps even more important than the Province Chief is the District Chief, of whom there are over 253 throughout the country. As these officials are definitely associated with the old government insofar as the villager is concerned, we must expect that the new regime will probably want to reassign nearly all of them to emphasize the complete break with past policy.

As to the situation within the officer ranks generally, there is still much to be done. There remain a lot of deserving officers who should be promoted. General Minh is well aware of this point. The role of Generals Khanh and Tri in the II and I Corps, respectively, is still not clear although they have associated themselves with the objectives of the coup. General Minh intends to establish a more direct chain of command and insure that military orders will be carried out when received. This will be quite a change for the good as in the past a military order was seldom implemented until the responsible commander had checked it out through political channels back to the Palace.

The principal problems the new government faces are: first, the appointment of new Province and District Chiefs will inevitably complicate matters until these new officials are able to become acquainted with their areas of responsibility and get on top of the local situation; second, the establishment of a straightforward military chain of command will, of course, involve some high level negotiations among the Generals themselves; third, the people in the rural areas still remain apathetic to the government; fourth, the support of the man in the village and hamlet will depend on whether the government can assure him security and do something to improve his current marginal existence.

Secretary Rusk asked how Province and District Chiefs were selected-were they natives of the area to which they were assigned? General Harkins stated that the selection of these key officials was done by Generals Minh and Don in consultation with the Corps Commander concerned. He emphasized that those Province Chiefs who were being relieved would not be wasted; they would be reassigned to other positions where they could make use of their experience.

General Harkins emphasized again that we must expect that it will take a little time for things to settle down again after this change of administration. The new government is discovering a lot of things that it did not know. For example, some 50 tons of ammunition were found stored in the Presidential Guard barracks. Another problem the new government is considering, for example, is what to do with the gendarmerie. The question arises as to whether it is better to have these outstanding NCOs engaged in police functions primarily within the Capitol area, or whether they could better serve the nation by being reintegrated into the Army and sent out to fight the VC.

[Here follows a description of a slide show given by Harkins.]

Item A 3—Review of Situation (Economic)

Summary of Discussion

Mr. Brent took the lead on this item, noting the difficulties experienced with the Diem regime in its latter days and pointing out the opportunity which now existed for more effective collaboration between the U.S. and RVN under the new regime. The Generals are seeking means to improve government administration, to get the most out of U.S. aid, and to win the war as soon as possible.

Initial U.S. efforts in the economic field are directed toward encouraging the RVN to establish a central ministry for economic policy and planning, including all aspects of foreign aid. This idea has been well received by the Prime Minister and working level officials. The fact that the Prime Minister has already assumed direct responsibility for supervision of the Ministry of Finance and National Economy is a first step in this direction. The Prime Minister is well informed on the economic problems of his country. In an informal session with him on 7 November 1963, agreement in principle was reached on the following points, details to be worked out as circumstances permit:

a. All economic aid matters will be handled through the Prime Minister’s office.

b. All strategic hamlet matters will be handled through the Prime Minister’s office.

c. A mixed U.S.-Vietnamese group can be established to study the economic situation, isolate problems, and recommend solutions. The RVN team would include Dean Thuc; the Minister of Rural Affairs, Mr. Quang; and the Director General of Planning, Mr. Diem.

d. Budget matters, except military, will also be under control of the Prime Minister.

Areas of priority attention would be taxation; exploitation of farmers, fishermen, and small artisans by middlemen; inefficient government procedures; use of foreign aid; joint U.S.-RVN budgeting; and marketing policies for rice, fish, and fertilizer.

The total requirements for U.S. aid remain large. Defense expenditures (including MAP) equal nearly 1/4 of the country’s national income and substantially exceed the entire fiscal revenue of the central government. The Country Team recognizes the limitations on foreign aid funds imposed by Congress, but recommends maintenance of the FY 63 level in FY 64 and 65. Beside the economic rationale, it appears politically and psychologically necessary to extend at least the same measure of support to the new regime as was extended to Diem.

Upon U.S. recognition of the new RVN on 8 November, a commercial import and PL 480, Title I program were resumed to cover urgently required materials and items. An amendment to the PL 480, Title I program was negotiated to provide 4.3 million dollars worth of wheat flour and sweetened condensed milk.

Since the pipeline for essential commodities is refilled, our present posture is to carefully review specific requests of the RVN. Our intention is to maintain leverage and avoid the impression of giving a blank check. We are hopeful that a few months experience will allow negotiation of a more substantial installment of aid in return for RVN cooperation along lines desired by the U.S.

Two additional facts of the commercial import program should be mentioned. First, it was undoubtedly the realization that the U.S. could not be bluffed into restoring import financing that finally provided the spark that set off the coup. Second, there is no indication that the Vietnamese economy was harmed by the suspension in any fundamental respect. Prices of indigenously produced commodities pursued the usual seasonal patterns and price increases in imported commodities were anticipated with the notable exception of condensed milk and flour. Local production apparently was not seriously affected.

On the social side there are a number of encouraging signs. The new Minister of Security and the new Chief of Police both recognize that there must be an end to fear and hatred of the government. The police must be restrained and re-educated. This same concern for popular feeling has also been expressed by the new Minister of Information, the new Minister of Education, and by the new Minister of Labor. During Mr. Brent’s calls upon six of the new Ministers, all have been unanimous in expressing their beliefs that the future of Vietnam must be determined by the people of Vietnam themselves.

As for the students and the Buddhists, both groups feel that as originators of events that led to the coup, they deserve special treatment. The Buddhist associations are being listened to by the new government and are exerting a calming influence. The students on the other hand, except in Hue, are demanding dismissals of governmental and educational officials and a number of other changes. They are organizing into associations with definite political objectives and may continue to be a problem. The new government hopes that they can be developed as a constructive force. In this connection, General Minh is working with a group of students for the establishment of a Vietnamese Peace Corps so that the younger generation can channel their energies into worthwhile civic action type activities.

Mr. Brent concluded that there is an entirely new spirit in Vietnam; that the new government is confident, but not overconfident; that it is warmly disposed toward the U.S., and, that we have opportunities to exploit that we never had before. The Vietnamese are soberly aware that if this present experiment fails there will probably be no second chance.

Secretary Rusk asked if the former Secretary of State at the Presidency, Mr. Thuan, was usable in the new government. Ambassador Lodge stated that Thuan would probably prefer some post outside of the country, and that Generals Minh and Don may well use him later as an Ambassador.

Secretary Rusk then asked to what extent the U.S. officials shared offices with Vietnamese compatriots. Mr. Brent replied that at the province level they do, but very little at the government level. Secretary Rusk stated that this might be desirable if the Vietnamese would agree.

Mr. William P. Bundy asked if the RVN had purchased milk and flour from France following the suspension of the CIP. Mr. Brent replied they had since U.S. supplies were not available for delivery in time to meet the government’s requirements and since France was prepared to divert a ship for the purpose. However, after conversations with the Prime Minister, the RVN agreed to reduce these orders by 50% since the U.S. can now supply these commodities on the desired schedule. Secretary McNamara then inquired as to the estimated size of the rice crop, to which Mr. Brent replied that they hope to have a 300,000 ton export this year, and that due to improved seed and fertilizer it could be approximately 30% more by next year. Secretary McNamara said it would be worth considering the diversion of a substantial amount of U.S. aid to provide more fertilizer and thereby increase rice production. For a relatively small dollar outlay for fertilizer we could raise the RVN’s income from its rice exports appreciably. As it will probably not be possible for the new government to raise taxes, the only solution to its economic problem is to increase its exports. This means an increased requirement for fertilizer and seed. He asked the Group 1 subcommittee⁴ to look into this further. Mr. Bell then asked if the new government would have to relax economic controls, or if it could take steps to raise additional taxes or to improve tax collection. Ambassador Lodge replied that it was too early to give an answer to this and Minister Trueheart added that while the RVN can improve tax collection, it would not be feasible to increase direct taxes on items in heavy demand such as milk, for example. Admiral Felt stated that there were some cases where the people were subjected to double taxation by both the government and the VC. Perhaps as the areas of VC control were reduced, the government might be able to increase its tax collections. Secretary McNamara said that we must be realistic. The new government cannot be expected to establish a standard of austerity too soon, nor can it count on much increased revenue from improved tax collection procedures. The only solution seems to be greater emphasis on increasing productivity in the export sector of the economy.

[Here follows discussion of agenda item A4, “Review of the Situation (Province Summaries),” given by Harkins. Harkins stated that while the Country Team considered all provinces critical, they singled out 13 which were “particularly critical because of their current problems.” Those provinces were Quang Ngai, Binh Dinh, Phuoc Thanh, Binh Duong, Tay Ninh, Hau Nghia, Long An, Kien Tuong, Dinh Tuong, Kien Hoa, Chnong Thien, and An Xuyen. The state of this last province on the Ca Mau peninsula occasioned the more general discussion printed below.]

An Xuyen, on the extreme tip of the Ca Mau peninsula is safe in the cities, but the VC really own the province. They have been in control since the early forties. There is considerable production of rice and of charcoal, amounting to some $10 million a year. Much of this revenue is siphoned off by the VC. Some of the produce goes to Thailand and some to Singapore as well as to Saigon. MACV is investigating the feasibility of a combined naval-economic blockade to cut off the flow of revenue to the VC.

General Harkins emphasized the need for the RVN to get trained intelligence personnel into the strategic hamlets to identify the VC and keep them from forming Communist cells. Security of the informer is the key to the problem. Thus far there have not been sufficient military forces at the village level to make it safe for people to report on the VC. Secretary McNamara asked if the reason that so many strategic hamlets were not considered successful in the Delta was for security, economic, or political reasons, or all three. Mr. Fraleigh stated that they were unsuccessful in all three. However, in the northern areas of Vietnam 60% of the hamlets were considered successful.

Secretary McNamara said that he believed there were three things to do in the Delta: first, get the Chieu Hoi Program moving; second, get the fertilizer program going to increase output of rice; and third, and most important, improve the security of the strategic hamlets by arming the trained militia and increasing the number of militia.

General Harkins added that the leaders of the new government must get out of Saigon and talk to the people in the Delta area.

General Taylor remarked that this discussion points up the fact that the war is different in each province. Perhaps we need joint U.S.-Vietnam province teams to attack the problem at the province level. He asked if the criticality of the thirteen provinces was based purely on military assessment. General Harkins said it was not; that it was across the board.

Ambassador Lodge then gave a political summary of the current situation throughout the provinces making the following points:

a. Most of the population is aware of the coup.

b. Most of the population is reserved in their opinion of the coup and are waiting to see what effects it will have on their daily lives.

c. Major programs are now stalled at the province level awaiting instructions from the central government.

d. Numerous changes and impending changes of province chiefs have contributed to the uncertainty and inactivity at the province level.

e. The death of Diem is regretted; the death of Nhu is not.

f. Public opinion concerning U.S. involvement in the coup is mixed. Cooperation between RVN and U.S. personnel is closer than ever before.

Item B 1—Prospects and measures proposed by Country Team for improved prosecution of the war under the new government (Political, including possibility of improved relations with neighboring States)

[Here follows discussion of Vietnam’s relations with Cambodia, Laos, Thailand, and France which developed into a general discussion of the situation in Cambodia.]

Item B 2—Prospects and measures proposed by Country Team for improved prosecution of the war under the new government (Military, including a report on progress in accomplishment of tasks assigned as a result of the McNamara-Taylor Mission, and outlining plans for control of infiltration and special requirements for the Delta Campaign)

[Here follows Harkins’ presentation, including slides, of the actions that the Republic of Vietnam’s Armed Forces were taking to increase pressure on the Viet Cong. This presentation led to a more general discussion printed below.]

Secretary McNamara stated he assumed that the first effort would be made to protect the hamlets that have already been built. General Harkins said the whole Strategic Hamlet Program was under intensive review. Secretary McNamara asked how long this would take. Minister Trueheart estimated that it would be two to three months before the revised program could get under way. General Taylor recommended that any new plans that are prepared should establish firm target dates for various phases, so that tangible check points on RVN progress would be available.

Item B 3—Prospects and measures proposed by Country Team for improved prosecution of the war under the new government (Economic)

Summary of Discussion

Mr. Silver reviewed the economic situation in South Vietnam noting that the RVN expenditures have risen about 60% in the period 1960-1964 while U.S. aid, which amounts to about 40% of the central government’s revenue, has declined somewhat. This increase in expenditures is nearly entirely attributable to an increase in defense expenditures, a 100% increase from 1960 to 1964. In addition, the increase for civil expenditures included non-military costs for counterinsurgency, and as a major item, support for the strategic hamlet program.

Turning to the 1964 budget, the Diem government estimated the total budget deficit in 1964 at approximately 9.0 billion plasters. After adjustments to his figures, USOM believes that the deficit will more likely be in the order of 7.0 billion plasters. This 7.0 billion plasters represent about one third of the total money supply; about 8% of the GNP; and an equivalent deficit in the U.S. budget of close to $50.0 billion.

South Vietnam is primarily agricultural, with a small industrial base. This is significant since the economy does not have the capacity to expand and meet the increasing demand for goods. Although prices have not gone up appreciably despite increased defense expenditures during the past years, it is not believed this situation will continue through 1964 unless the projected deficit is neutralized.

A previous backlog of U.S. economic aid and a pump-priming operation to get the strategic hamlet program started has had the effect of reducing central government expenditures in the past. In addition, the RVN has reduced its foreign exchange holdings from about $200.0 million in 1961 to about $155.0 million in 1962. Fortunately, these holdings have been rising in recent months because of stepped-up rice exports.

USOM’s proposal is that U.S. and RVN personnel should sit down together and discuss these problems with a view toward developing agreed joint solutions. In general, USOM’s recommendations would be to improve the efficiency of tax collections, increase taxes on selected items (e.g., gasoline), reduce the civil budget by 1.0 billion plasters, maintain the 1964 military expenditures at the 1963 level if this is consistent with the war effort, and introduce attractive savings programs, including increased use of the national lottery, rural banks, war bonds, etc. Also, USOM believes that the economy can stand an increase in money supply of 1.0 to 1.5 billion plasters without serious effects.

All of this leaves the RVN about 2.0 billion plasters short in their budget. USOM would recommend that this be met by drawing down on their foreign exchange reserves which amount to about $170.0 million at present.

Secretary Rusk then asked for comments on the export/import status. Mr. Silver said that in 1960 the foreign exchange earnings were $88.0 million. In 1961 it dropped to $70.0 million due to a drop in price of rice and rubber on the world market. In 1962 earnings dropped further to $47.0 million due to floods which wiped out the usual rice exports. The estimate for this year comes to about $80.0 million with the projection for 1965 hopefully at $95.0 million. Present imports are about $250.0 million. This figure does not include MAP or strategic hamlet inputs, but does include CIP. In response to a question from Mr. Bell, Mr. Silver pointed out that this analysis only relates to government and not to the private sector.

Mr. William P. Bundy asked why a 2.0 billion plaster deficit in 1964 was considered important when there had been 3.0 to 4.0 billion plaster deficits in 1962 and 1963. Mr. Silver replied that prices have risen 15% in the last three years and this, plus cumulative deficits of this magnitude could well become serious.

Secretary McNamara stated that one of the charts showed a 20% increase in the money supply during the first part of this year and asked how this was to be absorbed. Mr. Silver said apparently much of this money was cash hoardings. There were also reports that quantities of cash were being held by the VC as a precaution against the day when the strategic hamlet program would cut them off from their current sources of revenue from the countryside.

Secretary McNamara expressed concern that this huge increase in money supply in combination with a deficit of 7.0 billion plasters could lead to price increases which in turn could create such serious political problems that the present government might not be able to survive. It will be hard enough for the new government to consolidate its position as it is. It is absolutely essential that we help it maintain economic stability over the next 12 to 18 months. Under the best of circumstances the hoped for transfer of power from the military to some form of civilian government will be a very difficult political operation. Under conditions of economic instability it will be almost impossible.

Secretary McNamara stated he was of the opinion the U.S. should lean over backwards to help the Generals avoid economic unrest. With a tremendous deficit lying ahead, this is going to be very difficult. The United States should not try to push this new government too far to raise taxes, tighten up administration, reduce budgets, and so forth. Economic stability is really the foundation of military security in the long run. He would be prepared, therefore, to take a calculated risk and cut some of our safety factors on the military side if this were necessary to insure economic stability.

Mr. Bell agreed that the RVN was facing a very difficult and dangerous economic siutation which could be extremely serious to the whole war effort. Our first objective should be to get together with the Vietnamese to be sure we understand one another. Toward this end, plans are being made to send out a prominent figure in the economic field as head of a U.S. economic mission which would tackle these problems jointly with the best Vietnamese economists. This is clearly what must be undertaken in the next couple of months.

Mr. Janow then commented further on the import level. He said that in 1962 imports were about $280 million. This year the estimate (including our aid) is about $238 million and for 1964 the planning figure is about $255 million. If this commercial import level is compared with their exports of about $100 million, there is a gap of about $150 million. This deficit does not include such costs as MAP, the counter-insurgency program which the US is supporting, or capital investment. If these are added the figure is increased by another $250 million. A gap of this kind, built into the RVN economy is obviously against their best interest.

Major General Timmes then spoke about the military budget. Using charts he showed that the RVN regular forces would require about 11.2 billion plasters. 75% of this would go to military pay, allowance, and subsistence. General Timmes emphasized that this is the Vietnam plaster budget. The MAP budget amounts to about $175 million. He then showed a comparison of this year and last year’s RVN military budget. This showed that the current budget is only 358 million plasters larger than last year’s and the forces are much larger. MAAG believes that this budget has been reduced to the minimum figure.

General Timmes showed the figures for the Civil Guard and SDC. He pointed out that 86% of the Civil Guard and 95% of the Self Defense Force budgets were for pay and allowances. His final chart showed how the total defense cost of 14.5 billion plasters for CY 64 was made up. He noted that perhaps this figure could be reduced by 100 to 200 million plasters as a result of force reorganizations which might take place under the new government.

Secretary McNamara pointed out that the difference between these figures and Mr. Silver’s program came to 750 million plasters. Secretary Rusk then asked how much of a limiting factor was money as far as finishing the war at an early date. Secretary McNamara said that in his opinion the RVN is going to be right on the ragged edge of running out of the money needed to win the war. The situation in the Delta and strategic hamlet program itself are both serious, immediate problems. Furthermore, we must improve the output of the country. This means more fertilizers, additional expenditures to raise the economic base and increase productivity. He stated that all this requires money. The RVN has this tremendous deficit; the new government is sitting on top of a keg of political dynamite. Secretary McNamara doubts that enough money has been budgeted under AID and MAP to handle the situation. This is very serious problem which must be watched extremely carefully.

Mr. Bell shared Secretary McNamara’s concern. More money may be required to finance what ought to be the heaviest action year of the war. If things move successfully, it might be possible to taper off after the next 12 to 15 months. However, we must be careful not to give the RVN any more of a “fiscal hangover” from the war than necessary. He agreed with Secretary McNamara that it is a serious problem which could blow up on us if we are not careful in the next six months. But, we must also keep the RVN’s feet to the fire, keep their resources fully committed, and not let them saddle themselves with an economy and military establishment that is larger than circumstances require.

Mr. Fraleigh then discussed the advantages of increased use of fertilizer on rice production. Vietnam uses very little fertilizer on rice as compared to other countries. As a result, its per hectare yield of rice is i/2 that of Taiwan or Japan. Mr. Fraleigh recommends that we think in terms of doubling the use of fertilizer in 1964. For every $70 spent on a ton of fertilizer delivered in Vietnam, $110 worth of additional milled rice is produced for export. Mr. Bell wondered what was holding it back. Mr. Fraleigh replied it was the credit system, since fertilizer is handled commercially. Secretary McNamara observed that unless an adequate credit system is devised to improve the distribution of fertilizer, the productivity will not rise and this productivity is needed to build political stability. Ambassador Lodge remarked that South Vietnam could be one of the richest rice producing areas of the world.

Secretary McNamara said he was afraid a certain euphoria had settled over us since the coup. True, the Generals are friendly to us, but the situation in Cambodia is deteriorating and the VC showed they have a tremendous reserve capability by trebling their rate of incidents week before last. He wondered if current U.S. programs put enough power behind our objectives.

Secretary Rusk noted that the Japanese might be able to work something out with the RVN on a rice-fertilizer barter basis. This would be a matter that could be explored during his forthcoming trip.

Secretary McNamara summarized the present situation as follows. South Vietnam is under tremendous pressure from the VC. The VC are as numerous today as they were a year or two years ago. The surrounding area is weaker. The Cambodian situation is potentially very serious to the RVN. The input of arms from Cambodia before the recent developments was very worrisome in the Delta. The Generals head a very fragile government. The United States should not try to cut the comers too fine. We must be prepared to devote enough resources to this job of winning the war to be certain of accomplishing it instead of just hoping to accomplish it.

Decisions Made and Actions To Be Taken

Exploratory discussions would be held with the Japanese government to determine if a mutually advantageous rice-fertilizer barter arrangement could be worked out between Japan and the RVN. (Action: State.)

Item B 4—Prospects and measures proposed by Country Team for improved prosecution of the war under the new government (Strategic Hamlet Program)

Summary of Discussion

Minister Trueheart led the discussion. He stated that the Strategic Hamlet Program is sound. It separates the VC from supplies, intelligence information, and from the general population. In the longer term, the program holds out prospects for social and economic changes throughout the country.

However, under the Diem regime implementation of the program has been faulty, particularly in the Delta region, primarily due to over-extension. The Strategic Hamlet Program represents a large dollar investment by the U.S. Government and a large labor investment by the Vietnamese people. Minister Trueheart believes the new government in RVN will continue the program since they cannot default on what was promised the people under this program by their predecessors. The Generals will seek to disassociate themselves from past errors by providing for closer military and civil cooperation, reduced forced labor, relocation of poorly placed hamlets and improved training and arming of the militia. Most importantly, they must, sooner or later, establish meaningful priorities. Primary emphasis on hamlets must be in the Delta area and progress reporting should focus on this strategic region as well as on the thirteen critical provinces discussed earlier by General Harkins.

In the future additional hamlets will be required, maybe as many as one thousand, and some poor hamlets will need relocation. This will be expensive. Seventy percent of the hamlets in the Delta are not up to the standard required to make them truly effective. Economic and political progress must be made to improve the people’s standard of living. New educational facilities are required and distribution of fertilizer to the inhabitants of the strategic hamlets is needed. The new government has established an inter-ministerial committee to supervise the Strategic Hamlet Program. Minister Trueheart stated that as far as the Country Team could determine, the one billion plasters already budgeted by the RVN for support of strategic hamlets will cover current costs. No additional MAP funds are foreseen.

Secretary Rusk asked how much medical contact did the people in the hamlets have? He was answered that this varies, USOM has one group that dispenses some medical assistance and the U.S. Army has an on-the-job medical training program. General Harkins added that there are only 700 doctors in RVN, 450 of whom are in the armed forces.

Mr. McGeorge Bundy asked where does the responsibility for the Strategic Hamlet Program now fall? Minister Trueheart replied that there was no change on the U.S. side, and that the inter-ministerial committee is responsible on the RVN side. Mr. Bundy then asked how do we communicate our recommendations concerning this program to RVN now that Mr. Nhu is dead. Minister Trueheart replied that we utilize all available means of communication through MAAG, USOM, MACV, etc.

Admiral Felt stated we are dealing with development of a new campaign plan with priority emphasized on areas south and southwest of Saigon. General Harkins replied the first priority of effort would be in this part of the country although attention would also be given to the problem areas in the north.

Mr. McGeorge Bundy then asked to whom the province chiefs report. Minister Trueheart replied that this varies between Corps, but in most cases to Corps Commanders. Admiral Felt then asked if this put the division commanders on the same level as the province chiefs. Mr. Colby replied in the affirmative, but noted that the division is an operational command subject to movement to any part of the country.

Mr. McGeorge Bundy asked how the strategic hamlets are financed. Minister Trueheart replied that they were originally financed through an emergency purchase of ten million dollars worth of plasters by the U.S. Government. Now they are being financed by the Vietnamese Government, although some $35 million of U.S. assistance has gone into the hamlet program this year. Minister Trueheart stated that there is an advantage to the village inhabitants contributing reasonable amounts of labor to the hamlets as it serves thereby to identify the peasants with their own hamlets and with the program as a whole.

Minister Trueheart emphasized that when he said 70% of the hamlets in the Delta were not considered up to standard, he did not mean that they are under VC control. General Taylor asked if there are any hamlets under control of the VC. General Harkins responded that although some hamlets have been over-run and some subverted by the VC, he did not know of any that were actually under the control of the VC.

[Here follows discussion of Item C 1, “Revision of Military Comprehensive Plan;” Item C 2, “Status Report on FY 64 MAP;” Item D, “Outline in terms of forces, timing and numbers involved, the projected program for reduction U.S. military forces by end FY65;” and Item E, “Country Team suggestions for revision of current reports to develop a consolidated country team reporting system.”]

1. Source: Washington National Records Center, RG 334, MAC/VM Files: FRC 69 A 702, 204-58 Policy and Precedent Files (1963). Secret. No drafting information appears on the source text. An attached copy of the press release describing the work of the conference is not printed.

   Felt sent this summary of the discussion at Honolulu to McNamara under cover of a memorandum of November 22. The agenda for the meeting is not printed. Items E and G. of the agenda, “CIA-MACV Relations” and “Review of Special Funding”, did not have memoranda of discussion. On November 19, Rusk and McNamara agreed to address certain items on the agenda in subcommittees which met on the morning of November 20 and then reported to the principal participants in the afternoon. Another copy of this memorandum is ibid., RG 84, Saigon Embassy Files: FRC 67 A 677, 350. Honolulu Conference.

   In a November 13 memorandum, Forrestal briefed McGeorge Bundy on this meeting. The memorandum reads in part as follows:

   “From what I can gather the Honolulu Meeting is shaping up into a replica of its predecessors, i.e., an eight-hour briefing conducted in the usual military manner. In the past this has meant about 100 people in the CINCPAC Conference Room, who are treated to a dazzling display of maps and charts, punctuated with some impressive intellectual fireworks from Bob McNamara.” (Kennedy Library, National Security Files, Vietnam Country Series, Honolulu Meeting, Briefing Book, 11/20/63 A)

2. According to telegram 1092 from Saigon, November 20, the Council of Sages was formally established by the Provisional Government as a smaller Council of Notables, still intended to be advisory and broadly representative of Vietnamese society. (Department of State, Central Files, POL 15-1 S VIET)
3. Document 167.
4. Group 1 was the subcommittee dealing with economic problems. It included as members Janow, Brent, Trueheart, Forrestal, Stoneman, William Bundy, Major General Timmes, Silver, and others.