Foreign Relations of the United States, 1964–1968, Volume I, Vietnam, 1964

344. Memorandum From the Director of the Operations Mission in Vietnam (Killen) to the Ambassador in Vietnam (Taylor)¹

Saigon, September 9, 1964.

SUBJECT

• Proposed Economic Program of Next GVN

1. The Forrestal-Oanh talks in the spring of this year² envisaged a sharply increased level of expenditure by the GVN during CY 1964 and 1965 for the military, counter-insurgency, and developmental purposes. This increased level of spending would be financed by overdrafts at the Bank of Vietnam. It was agreed that excessive inflationary pressures which might be engendered thereby should be ameliorated by increases, as required by import demand, in AID-financed import levels. This policy would be pursued so long as the current emergency situation prevailed.

2. The Rand Report,³ submitted pursuant to an extended on-the-ground examination of the current politico/economic problems in Vietnam and the effectiveness of U.S. economic assistance in dealing with them, called attention to a number of needed revisions in the character of U.S. aid and made recommendations relating thereto.

3. During the past months, since the Forrestal-Oanh talks, expenditures for the cited purposes, while above the level of the previous year, have failed to meet the projected levels due to a number of factors endemic to the GVN administration. The failure of the GVN counter-insurgency effort to achieve the hoped-for success in the intervening period, plus the weakened structure of the GVN itself, heighten both the need for and the urgency of a renewed effort to make government more effective and to engender in the Vietnamese people a greater sense of confidence in the capacity of the GVN to be responsive to their economic and social needs.

4. The U.S. Government is prepared to vigorously support the efforts of the GVN to these ends. The USG is prepared to collaborate fully with the GVN in the formulation and financing of programs and activities which will readily contribute to these ends. At the same time, in order for these ends to be effectively served, such programs and/or activities must clearly appear as GVN-originated efforts, rather than as the product of U.S. conception and sponsorship. Further, the successful implementation of such programs requires a reasonable (but wholly possible) self-help effort of the GVN in certain current problems of budget management and economic policy, both of which impinge heavily on the opportunity to effectively marshal indigenous resources so essential to an accelerated input of U.S. resources.

5. The achievement of the interdependent U.S. security and political objectives in Vietnam requires vigorous and successful action by the GVN on both the “pacification” and socio/economic development fronts in both rural and urban areas. Actions are currently underway to greatly strengthen the U.S. support for pacification—in military, pare-military, and civilian activities. On-going programs in rural areas are directed towards both pacification and developmental targets, each of which seeks to associate the rural community with the GVN in action and attitude. Much less has been undertaken in urban areas with their greater potential for adverse political and social activities which thwart the ability and the determination of any GVN to carry out its normal and essential functions of government. (An exception to this generalization is the already initiated action to have the Doxiades Associates of Athens, Greece, and Washington, D.C. develop by the end of calendar 1964 an urban development plan for the Saigon metropolitan area which envisages a fully comprehensive and multi-year action plan for that community.)

6. Given the widespread unemployment and underemployment in both urban and rural areas, a major economic and political objective would be the creation of jobs, more jobs, and still more jobs. This underscores the importance of developing indigenous sources for materiel, e.g., cement, roofing, nails, lumber, glass, and all other goods for which basic raw material needs can be met from within-country sources. To have these materials provided from offshore sources would dissipate a major, if not the major, benefit that should accrue from the total effort. It is recognized that some time would be required to tool up for expanded internal production and during the interim recourse would necessarily be made to imports. But for the longer-term and maximum political benefit, local resources must be exploited soonest. This underscores again the importance of the second group of GVN actions mentioned in paragraph 7.

7. The USOM/VN therefore proposes to initiate with the GVN, during the immediate future, a series of talks looking towards agreement on a substantially expanded socio/economic action program which aims to induce a greater sense of popular confidence in both the GVN and the future of the country. An accompanying objective will be to obtain maximum possible public participation in both the planning and implementation of all components of such a program. It would envisage prompt action by the GVN on three main fronts: first, the construction of new and widely-desired social and economic facilities, e.g., low-cost housing, schools, public services, and industrial facilities; second, the removal or correction of present deterrents to popular support for, and confidence in, the GVN, e.g., excessively low government salaries; the failure of the GVN to pay promptly for goods or services provided by the private sector; the failure to make funds available promptly through Bank of Vietnam overdrafts, in the first instance, and through normal funding approval procedures, in the second; the excessive “control” actions which thwart private investment (this is particularly important where a critical need for the expanded production of building materials impedes the envisaged construction program); and the failure to utilize existing facilities in the Vietnamese private sector for functions critical to the war effort. Under this program the U.S. would provide maximum financial and technical support in any and all ways which would make effective contributions to success. The third area of GVN action would represent positive steps (in addition to those cited above) to induce greater popular support for this total approach, e.g., greater decentralization of authority to village and hamlet officials to utilize land taxes for paid public works or other useful purposes; the possible establishment of a system of student scholarships for both intermediate and university level studies; possible grants-in-aid to various politically influential groups for educational or other approved purposes; and other similarly motivated activities.

8. All these activities would be so carried out as to seek to the maximum degree a clear distinction between the benefits afforded people in GVN controlled (or nearly controlled) areas and those available (or not available) to people in areas where GVN control is not pervasive.

9. It is desirable, indeed almost imperative, that understandings on these matters be reached with the GVN soonest. The USOM proposes to utilize, in addition to its own staff, such other personnel in the joint USOM/GVN formulation of this program as may be available and competent to assist. Once the elements of agreement are reached, the general content of the program should be announced in a suitable context by the GVN as its own decision, plan and product. The U.S. role should be played in the softest key possible. The timing of the announcement should be determined against the background of political developments in Vietnam so as to maximize the popular support for and the political appeal of the program itself and its GVN sponsorship. Of particular importance in timing is the political decision as to whether we wish the current interim government to get the credit-or whatever successor government emerges.

James S. Killen⁴

1. Source: Johnson Library, National Security File, Vietnam Country File, Rand Report. Secret.
2. Forrestal transmitted a summary of his discussions with Oanh in telegram 2252 from Saigon, May 19. (Department of State, Central Files, DEF 19 US–VIET S) A summary of the results of the talks and a memorandum of understanding are in telegrams 2296 and 2297 from Saigon, May 27. (Ibid., AID(US)VIET S)
3. See footnote 6, Document 343.
4. Printed from a copy that bears this typed signature.