Foreign Relations of the United States, 1964–1968, Volume III, Vietnam, June–December 1965

60. Memorandum of Conversation¹

Saigon, July 16, 1965.

PARTICIPANTS

• GVN:
  • General Thieu
  • General Ky
  • General Chieu
  • General Co
  • General Khang
  • General Thang
  • Tran Van Do
  • Truong Tai Ton
  • Bui Diem
• US:
  • Secretary McNamara
  • Ambassador Taylor
  • Ambassador-designate Lodge
  • General Wheeler
  • General Westmoreland
  • General Goodpaster
  • Ambassador Johnson
  • Mr. McNaughton
  • Mr. Sylvester
  • Mr. Unger
  • Mr. Cooper
  • Mr. Zorthian
  • Mr. Herfurt
  • Mr. Manfull

SUBJECT

• Meeting with GVN

Opening Remarks:

General Thieu welcomed Secretary McNamara and his party. Thieu said after three weeks of its existence the GVN has perhaps not succeeded in producing spectacular results; however, by the firm stand the GVN has taken, the religious and political groups appear to endorse the GVN program and are quiescent.² The GVN had first sought to make clear to the people that the new government would be resolute in prosecuting the war, in winning ultimate victory over the VC, and in bringing peace with freedom to South Viet-Nam. Secondly, the new government is attempting to push forward vigorously with the war effort in the countryside and to organize the people in the rear. In order to generate popular support emphasis has been placed on bringing to the people a greater measure of social justice. The GVN has attempted to do this by “cleaning up” the organization and administration in Saigon and the countryside, by applying an austerity program, and by focusing attention on corruption and taking measures to eliminate corruption. Further, the GVN believes that “it is time to think of North Viet-Nam and to creating a psychological situation there so that the Vietnamese people in the DRV can help themselves to fight communism.”

General Thieu noted that Secretary McNamara and other representatives of the U.S. Government would have an opportunity for fact-finding. For its part, the GVN would like to hear from Secretary McNamara and others an expression of U.S. policies so that the GVN and U.S. could coordinate their policies to better effect and win the war. General Thieu observed that up to now the GVN had tended to present its own point of view and had perhaps not sought an adequate degree of coordination with the Americans. He felt it was necessary to achieve better coordination in the future. To that end in the discussion to follow the GVN spokesman would try to be as honest as possible in presenting the GVN point of view.

General Thieu then called on Truong Tai Ton, Minister of Economy and Finance, to present a review of the economic situation and proposals concerning U.S. aid to Viet-Nam.

Economic:

Mr. Ton made the following presentation:

General Considerations.

1. We are in a total war. The Government of Vietnam endeavors to safeguard a sound and viable economy along with the ever-growing military efforts. It is essential that exertions in the military field do not impede economic stability. Galloping inflation could be as catastrophic as a military disaster.

Our objective is twofold: to win the war and not to lose peace.

2. The Government of Vietnam has already started to implement a series of measures designed to re-establish the national economy and put it on a war-basis: Organization of supply, rice marketing, formation of safety stocks, reorganization of the market, intensification of the tax efforts, budgetary thrift, etc.

Those efforts are nevertheless far from sufficient in view of the increasing burdens we have to face. A substantial increase of American economic aid is therefore necessary to the simultaneous carrying out of the war effort and the maintenance of economic stability.

3. According to reiterated statements of U.S. leaders, American economic aid to Vietnam is unlimited and unconditional.

From the Government of Vietnam point of view this aid must have the following characteristics:

a) It has to be proportional to the intensification of the military efforts, that is to approximately match the increase of our budgetary expenditures (from 1960 to 1965, this increase is only due to military burdens).

So our budget has more than trebled between 1960 and 1965, going from 15 to 47 billion whereas commercial aid (CIP-PL 480) has stood at the same level. Consequently, in spite of efforts aimed at increasing our own revenues, our budget which was still in equilibrium in 1961/62 has shown a deficit of 12 billion in 1964 and 23 billion in 1965.

b) It must enable us not only to continue the war somehow or other but also to keep ourselves in a fairly good position to face peace.

As far as we are concerned the war effort must be total. It should not, however, bleed the country dry of all its financial resources so that we are completely unprepared to face the hour of peace.

But the tremendous deficit of our budget, the continuous decrease of our reserves in gold and foreign exchange (U.S. dollars 175 million in January 1964, US dollars 100 million in July 1965) plus difficulties of all sorts generated by the war, are about to jeopardize our economic security. This trend is on the increase and will inevitably lead us to an economic crisis, unless American aid adequately supplements our own efforts.

Proposals.

4. CIP 1965/1966.

a) The Commercial Import Program (CIP) for FY June 1965-June 1966 should be brought up to a minimum of US dollars 200 million. To make its absorption possible, more flexibility and greater eligibility are necessary (to be negotiated between the Ministry of National Economy and USOM).

b) The CIP is primarily aimed at securing piasters for our budget support. One million U.S. dollars generate roughly 80 million VN piasters. Ten billion piasters are needed to compensate entirely for the increase of military expenditures between 1964 and 1965 (from 17 to 27 billion). This would require an additional amount of 125 million US dollars, that is a total CIP of 125-135 (1964/1965 level) = 260 million in FY 1966.

c) The increase of CIP amount will also permit us to establish necessary safety stocks.

5. PL 480.

It is requested a total programmed at about 60 million US dollars, with the permission to buy between 100,000 and 150,000 tons of rice in order to establish a permanent safety stock in Saigon to supply the capital and central provinces with rice.

6. Direct Aid.

We entirely support the policy consisting of buying in-country all goods which can be produced locally. However, in terms of direct aid, we don’t agree with the in-country purchase of imported goods under the CIP program because such purchases will decrease the CIP amount.

7. Balance of Payments.

Our export situation has deteriorated because of security conditions. Export earnings decreased from 80 million US dollars in 1963 to 35 million in 1965 due to the suspension of rice exports and the lessening of other exportable surpluses. At the same time we had to spend our own foreign exchange stock in order to get piasters for the budget and not to disturb the market.

The amount of our reserves has lowered in an alarming way (100 million of gold and foreign exchange compared to 175 million in January 1964). At this conjuncture of intensive military effort as well as economic and political tension, a more accentuated decrease will run the risk of destroying confidence in our currency and creating a panic. This will, in a short time, be prejudicial to all military political and economic gains thus far obtained with so much struggle.

It is, therefore, suggested that American aid take emergency steps, put US dollars at our disposal to enable us to restore our reserves to the level of 150 million, a sum which we deem minimal to the protection of our currency.

8. Exchange of US Dollars.

The rush of US military men and their expenditures in US dollars have seriously disturbed our economy. The black market flourishes. Dollars introduced in the black market then feed illegal transactions (illicit trading of foreign exchange, smuggling, flight of assets, and, undoubtedly, even VC financial operations). The value and sovereignty of our currency are at stake.

On the other hand, those expenditures in US dollars are harmful to the American soldiers themselves: due to the absence of coins, they have to pay at the minimum price one US dollar for a glass of beer, a haircut or a taxi drive whereas the real price is only between VN piasters 10 and 30.

American authorities should help us stem the black market of dollars, make the exchange of dollars with piasters at the free market rate and not at the black market rate.³ This could be viewed as an increased contribution of the United States to the war effort and the strengthening of the Vietnamese economy.

9. The Presence of US Military Men and Economic Activities.

The presence of an important number of US military men has brought about a vertiginous rise in the cost of labor (100%) and the prices of some products. It is suggested that a joint-committee strive to study economic problems generated by the above US presence and that US officials agree with the Government of Vietnam about their wage-policy.

Military:

General Co said that the military briefing would be in three parts: (1) Additional GVN force requirements for the remaining months of 1965 and early 1966; (2) a few considerations and recommendations concerning future strategy and conduct of the war; and, (3) a concept for organization of the “home guard” forces. General Co then turned the briefing responsibility to General Thang, who spelled out additional force requirements as follows:

For the ground forces—

• 3 additional airborne battalions
• 4 additional Marine battalions
• 7 Ranger task force headquarters elements

For the Air Force—

• 1 squadron of jet aircraft
• 1 squadron of A1H’s

For the Navy—

• 1 AKA
• 5 LSD’s
• 5 LSM’s

In explaining the background of this additional request, General Thang noted that the present general reserve consists of 11 battalions, of which 6 are airborne and 5 are Marine battalions. Six of the 11 have been deployed in I Corps and II Corps to meet the step-up in VC activity in the highlands; 1 airborne battalion suffered over 50 percent casualties in the Dong Xoai battle and is not combat ready. Therefore, only four battalions can be said to be available in the general reserve. In order to meet this critical situation U.S. support for formation of additional battalions as indicated above is urgently requested. The GVN realizes that this additional request is not part of the 85,000 increase previously agreed upon. General Thang believed the additional battalions could be recruited without running into the manpower problem because: (a) operational losses (casualties) are relatively lower with these types of units than in the regular ARVN battalions; (b) the desertion rate is lower; and, (c) recruitment to activate the additional battalions in Saigon and the other urban areas is generally easier for these units and should not prove too difficult. General Thang observed that there has been an evolution in regard to the Rangers, beginning with the formation of Ranger companies, then Ranger battalions, then a reinforcement of the Ranger battalions with heavy weapons, and now there is a need to operate the Rangers as 2-3 battalion task forces. This will require augmentation of the Ranger battalion headquarters elements.

With regard to present and future strategy, General Thang said that the situation in I Corps and IV Corps is relatively good. In IV Corps initiative rests with the GVN because of the aggressive spirit of the troops and a terrain adapted to helicopter and M-113 operations. In I Corps the situation was relatively good and could be improved if the U.S. Marines were committed more actively to search and destroy operations. II Corps he considered as critical because of the introduction of the entirety of the 325th PAVN Division. Thang said that the JGS had now confirmed all regiments of the 325th Division were now in South Vietnam. He therefore requested that the U.S. dispatch a U.S. Assault Division to help meet this critical situation. Thang noted that the situation in III Corps was not good. The 5th Division is low both in morale and effective strength because of the recent series of battles with the VC. The GVN would like to have the 1st U.S. Infantry Division assigned to this area after the U.S. Assault Division is in place in the highlands. Thang foresaw a series of large engagements and VC attacks in the immediate weeks ahead.

General Thang said that in the GVN’s view Hanoi had two general courses open to it:

(1) To make major effort during the monsoon season but eventually to realize that the VC victory was impossible and to sue for a cease-fire; and

(2) To increase their infiltration and recruitment and make an all-out effort to cut off the highlands from the rest of South Vietnam.

Thang believed that general objectives should be to (a) stop and destroy units coming from DRV into South Vietnam; (b) destroy all major VC main force units in the highlands and Central Vietnam; and (c) protect the Vietnamese manpower in South Vietnam to inhibit VC recruitment and exploitation of the manpower pool. Therefore, the GVN/US should continue bombing attacks against targets in the DRV and increase the tempo and intensity of the air strikes. With respect to (b) above the U.S. should commit an Assault Division to the highlands and other combat troops from third countries should be deployed there. With regard to (c) above GVN/US should think seriously concerning intensified pacification program to protect the manpower resources. The GVN should commit ARVN primarily to this task and deploy Vietnamese units along the coastal lowlands and in the Delta. Under this concept, there would be two general areas—one area, the populous areas where GVN would devote its primary efforts; the other, the relatively unpopulated areas where the US/allied forces would concentrate their efforts, it being understood in the latter case that administration for the large cities and district towns would remain with the GVN. The primary missions of the US/allied forces would be search and destroy operations and the protection of important bases. The primary mission of ARVN would be to engage in pacification programs and to protect the population.

If this concept were approved the GVN would suggest that a US Air Assault Division be deployed to an area comprising Kontum, Pleiku and Phu Bon; another Division to operate against Zones C and D. This would require an additional Division for the Banmethuot-Phuoc Thanh area.

With regard to the organization of a home guard, Thang observed that all were agreed that the war cannot be won by military means alone, and that all Vietnamese must take part in the war. This implies that Vietnamese not on active military service be organized into groups. Thang alluded to efforts under the Diem regime to organize the Republican Youth and Combat Youth and under General Nguyen Khanh to create civil defense organization. The proposed home guard is conceived to be comparable effort and GVN intends to mobilize all males between ages 15-48 and all females between 18-30. Thang said that the chain of command for the home guard would be incorporated in that for the Regional Forces/Popular Forces down to the hamlet level. It is anticipated that the home guard would have special uniforms and insignia and that selected members would be armed. Thang requested the U.S. to assist the GVN in developing a realistic plan for the home guard and the necessary support to get it launched.

Questions:

General Thieu requested the U.S. representatives to study the GVN proposals and inquired whether there were any questions. Secretary McNamara inquired as to the approximate number of U.S. personnel which the GVN desired to have in South Vietnam. Thieu replied that the GVN proposal involved the 44 additional U.S. battalions previously requested plus one more infantry division. Secretary McNamara observed that we have approximately 75,000 U.S. personnel in South Vietnam at present and the GVN request would bring this figure to approximately 200,000 U.S. personnel in-country. Secretary McNamara inquired whether the Vietnamese people would readily accept an American presence of this magnitude. General Ky said he anticipated no real problems and General Thieu added that it would be necessary to explain carefully to the Vietnamese people that U.S. personnel were in South Vietnam only to help fight the war. Thieu believed that most Vietnamese did not consider the U.S. as having any colonialist aspirations but he thought the GVN should embark on an extensive propaganda program to explain U.S. presence. Thieu continued that if U.S. forces were concentrated in separate military zones away from the major population centers and areas of dense population that the impact of American presence could be minimized. He said that this consideration was fundamental in suggesting that U.S. forces operate in the highlands and against Zone C and D. Further, the terrain in these areas is difficult and U.S. availability of helicopter lift and mobility would be additional assets. Thieu observed that up to now the GVN had never had necessary military strength nor the time to conduct a really effective pacification effort in the populated areas. He believed that a concentration of GVN attention to this effort made good sense.

Secretary McNamara said that many Americans asked him whether, if the U.S. were to send up to 200,000 troops, we could count on a stable government in South Vietnam. General Thieu replied that in the past there were two general reasons for political instability: (a) previous governments did not have a clear policy and were not strong enough to carry out their announced policies; and (b) previous governments found that after 3-4 months they have been unable to sustain VC attacks and at the same time to bring social justice to the people. He believed that if U.S. troops were to relieve ARVN to work actively on a pacification program, the current government could demonstrate to the people that it is capable and qualified to govern. He added that he would intend under the new home guard organization to train good political and pacification cadres for the pacification program.

Secretary McNamara inquired as to possible VC actions particularly whether the VC might increase their strength substantially and what the GVN and U.S. should do in this event. General Thieu responded that he felt it was more difficult for the VC to increase its strength now than in the past. While VC ranks can be increased through infiltration, we can inhibit this through stepped up bombing of infiltration routes. However, at the present time, at least half of the manpower of South Vietnam is controlled by the VC. It is therefore essential that the GVN take steps to bring this manpower pool under GVN control.

Secretary McNamara noted his surprise at the elimination of the Chieu Hoi ministry in the current government and inquired whether the GVN had a program comparable to the Chieu Hoi program. Thieu replied that the Chieu Hoi program continues but that the Directory believed that it belonged more properly under the PsyWar Ministry than as a separate ministry. By bringing Chieu Hoi within the PsyWar Ministry, the GVN had not intended in any way to denigrate its importance. General Ky underlined these remarks, stating that all agree on the importance of Chieu Hoi and the need to put more emphasis on this program. However, he believed it was more important to have the Chieu Hoi program as part of a more general program to bring the people back under GVN control. With regard to governmental stability, General Ky stated that the Vietnamese also long for a strong, stable government. He said that the current government would do its best to maintain stability. The GVN desired more U.S. troops not because the Vietnamese were unwilling to continue the fight but that it would relieve ARVN for important pacification tasks. He added that the GVN did not like to lose terrain to the VC, therefore it was suggested that the US/allied forces help hold terrain while the GVN “reorganized the rear”. General Ky said the reason for government instability in the past has been primarily the lack of social justice. At present corruption exists everywhere, the rich get richer while the mass of the poor Vietnamese see little hope for improvement. The mass of Vietnamese are therefore very vulnerable to VC propaganda. In his view previous governments had based their support primarily on the promises of support from minority groups, such as the religious sects and groups of politicians. In contrast, the current government intends to emphasize support of the mass of the Vietnamese, particularly of the poor Vietnamese, and to give them a sense of hope and confidence in the future. Ky said the GVN would ask for more sacrifices from the people and the members of the government were prepared to make their individual sacrifices. The GVN considers the political and religious groups as being merely individual Vietnamese citizens and not as groups which could validly claim a controlling voice in government policies. It was necessary for the Vietnamese to unite on one road to victory. In this connection none of the Ministers in his government represented any particular group or faction and they were deliberately chosen for this reason. Ky said the GVN hoped to satisfy U.S. public opinion concerning governmental stability by making the government strong and stable enough to carry out this announced policy.

In conclusion Secretary McNamara thanked the GVN participants for their frankness. He said that the discussion had been most helpful and that he looked forward to further discussions in the succeeding days.

1. Source: Department of State, Central Files, POL 27 VIET S. Secret; Limdis. Drafted on July 24 by Manfull. Transmitted as enclosure 1 of airgram A-66 from Saigon, July 27. The meeting was held in the Prime Minister’s office. The McNamara party arrived in Saigon on the morning of July 16 and returned to Washington on the afternoon of July 20. Members of the party included McNamara, Lodge, Wheeler, Goodpaster, McNaughton, Sylvester, Unger, Cooper, and Colby. Unger replaced William Bundy, who withdrew from the trip because of illness.
2. In telegram 164 from Saigon, July 16, the Embassy reported that Buddhist leader Tri Quang had informed the Embassy that he could not support the Ky government and was considering what course of action to take. (Ibid., POL 15 VIET S) The Department responded, in telegram 166 to Saigon, July 17, with concern that Quang’s attitude might presage renewed Buddhist unrest, and instructed the Embassy to call on Quang and inform him that additional political turmoil in Saigon could only serve to aid the Viet Cong and undermine the will of the South Vietnamese to resist the Communists. (Ibid.)
3. In a later meeting between McNamara and Ky on July 16, Ky singled out the black market currency question and the supply of rice as the two most important economic problems that his government faced. (Telegram 167 from Saigon, July 17; ibid., FN 17 VIET S) In telegram 168 to Saigon, July 17, a joint State/AID/Treasury/DOD/Agriculture/BOB message, instructions were sent to the Embassy concerning exchange rate negotiations designed to bring the black market problem under control. (Ibid., FN 10 VIET S) After lengthy negotiations, the Embassy reported on August 18, in telegram 521 from Saigon, that tentative agreement had been reached with the South Vietnamese Government on diverting dollars out of the black market into legal channels. (Washington National Records Center, RG 84, Saigon Embassy Coordinator Files: FRC 68 A 5612, FN 17)