Foreign Relations of the United States, 1964–1968, Volume XXVIII, Laos

372. Telegram From the Embassy in Laos to the Embassy in France¹

Vientiane, June 20, 1968, 1106Z.

7349. For Ambassador Sullivan from Hurwitch. Subj: Situation in Laos.

1. The general situation in Laos in one of comparative calm.

2. Both wars have assumed their customary rainy season pattern of relative inactivity. FAR military reorganization has proceeded smoothly to date. FAR-FAN integration is similarly moving along. There may be an ambitious colonel or two who is dissatisfied with the pace and manner of events, but the power is not there. To improve the security of Vientiane some forty arrests were rather arbitrarily made (with Souvanna’s approval) and such champions of fair play as Justice Minister Impheng have made a few unpleasant noises about high-handed procedures. The military/security situation is clearly manageable.

3. Politically, Souvanna remains as strong as ever. The main power elements continue to regard him as the “only answer” to the current situation. The Assembly, the Sannikones particularly, will have some fun with Sisouk and the budget, but should not become recalcitrant to the point of threatening the government.

4. You are well aware of the dimensions of the financial crisis. The psychological spin-off effect of this crisis, however, has not been adequately reported yet. The virtual disappearance of the gold market has brutally laid bare to the Lao the true extent of their dependence upon factors beyond their control.² Although they have known how dependent they are upon us politically, militarily and economically, they have taken some pride in the progress they were making in the economic area. To discover that the stability of their currency resides in such unknowns as the security of Saigon (for smuggling) and/or the world price of gold has been shattering. It is noteworthy how frequently the word “fictif” has crept into their vocabulary. They are beginning to wonder if indeed they are a fictional people living in a mythical kingdom, an attitude similar to a stage in adolescence sometimes known as “who am I?” A helpful and related antidote to this depression has been their series of diatribes against the North Vietnamese led and encouraged by King and Prime Minister. Our little Lao friends seem to walk a little taller each day as Lao Presse carries a new attack. For many, neutralism is not a manly posture, and they seem to be working off some of their frustrations through these verbal jousts, believing (correctly) that thereby they can with pride, at least help, albeit not control, their cause in Paris.

5. Medically, Souvanna was pronounced in “good shape” by Ludwig today. His stomach and diabetes problems have improved markedly. Although weary, he remains remarkably alert and energetic.

6. On international affairs, especially Vietnam, you will find him hawkish as ever. As to his domestic problems, I judge that he will either genuinely manifest the psychological malaise or use it to seek a political solution to his financial problems (increased US contribution to FEOF justified on political rather than economic grounds). In this connection you should know that FEOF sales have been running nearly half a million the past two weeks and our projection is that the funds remaining in FEOF may stretch through October.

Hurwitch

1. Source: Department of State, Central Files, POL 2 LAOS. Secret. Repeated to the Department of State, which is the source text, Bangkok, Saigon, and CINCPAC.
2. A sharp decline in tax receipts from gold imports complicated Lao fiscal problems. Laos, one of two major gold importing nations in Southeast Asia, was the source for much of the gold smuggled into South Vietnam. The Tet Offensive disrupted smuggling routes during the first half of 1968. In addition, the decision in March 1968 to create a two-tiered world gold market and attending price fluctuations in gold meant that gold imports to Laos dropped 50 percent in the first half of 1968 as compared to the same period in 1967. The drop caused a $1.8 million shortfall in Lao tax revenues. (Intelligence Memorandum ER IM 68–119, September 1968, prepared by the CIA; Johnson Library, National Security File, Country File, Laos, Vol. XVIII, Memos 1/68–1/69)