THE CURRENT SITUATION IN LAOS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R00904A000400030013-3
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 23, 2016
• Document Release Date: June 13, 2013
• Sequence Number: 13
• Publication Date: October 24, 1958
• Content Type: MEMO

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C E N T $. A L INTELLIGENCE A G E N C Y
2!~ October 2958
MEMOR.'1NDUM ~'OR UI~.~TE'0 ST~TE.S INTELLIGENCE $Oi~RD
SUB~~CTs The CtArront Situation in Laos
Fi:rsuant to the Lirectar's request at the JSIB rae : ;i._^.~ of
21 Octcber 1958, the at~tachc:t is circulated to members of i;ha
USIB for infcrm~:.ticn.
SHEFtN~~N KELP?' .<
Assistant Directcr "y'
National Estimates
Distribution t'21'I
aT~
NC C~dC~GE E6V CL~,SS. ^
CECLf~3SE~tED
CLASSe C6a:~~'t~~D ~'C: 'rS S C
~EK"Y REV~~:`~ ~~t'S;~:
GU'~~&: i~a~ a~?Z
~k~E:A~R 1980 REYi'ddsR: Qt364S
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C E N T R A L I N T E L L I G E N C E A G E N C Y
2~ October 1958
MEMORANDUM FOR THE DIRECTOR
SU$JECTs The Current Outlook in Laos
1. The investiture of the cabinet of Prime Minister Phoui has
not as yet brought political stability to Laos or assured a halt in
the growth of Communist influence throughout the country. Phoui
has succeeded in promulgating monetary reform' in avoiding a no
confidence motions and in developing at least temporarily a surprising
degree of unity within the old guard p~xty~ the Rally of the Lao
People (RLP)e The basic problem of meeting the communist threat
still lies ahead however ands unless a sense of urgency and p~.rty
unity are ma.intained~ there is a less than even chance that this
government will be able to implement a sufficiently energet~e program
to win the next general electionsf
2? The monetary reform program was designed to eliminate much
of the graft and corruption within the Lao government and to contribute
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to a more effective US aid program. The decree issued on 9 October-
.provided for the elimination of licensing for all foreign exchange
transactions the establishment of single rates of exchanges and
the adoption of free convertibility for all kinds of foreign
exchange, In additions the Lao National Bank was authorized "to sell
and buy for kip I~merican dollars at a stabilization rate of $0 kip
to one dollar." To support this actions the US government through
CINCPiLC has transferred one half million dollars in the form of c~ sh
to the Lao National Bank.
3. In some measures the promulgation of monetary reform is a
symbolic victory for Phoui~ and a demonstration of his intention
and ability to implement a reform program: the monetary reform
measure was opposed nat only by the leftist Santiphab party and by
the Communist controlled NLHX but up until the final vote by several
factions within his own RLP? A-iowever~ his victory in this ease
was a narrow one and came only after the Santiphab motion of no
confidence on the substantive issue of monetary reform was treated
by the RLP as a procedural question. Subseque:~tly~ the i-ssembl.y
halted dobate on monetary reform by a 20 to 17 vote.
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~~ Since Phoui~s success in maintaining an unprecendented
degree of party unity on the monetary reform test was made possible
in part by the threat of continued suspension of US aid, there is
still no assurance of continued unity on the general range of
problems facing the government. Phoui~ who offendeC~ his party by
defaulting on a promise to keep the members informed ?t each stage
of the monetary negotiati~ns~ will face a continuing threat on
censure from opposition paarties and from minority groups within his
own party until the closure of the assembly now scheduled for
31 Octobers 1'~.fter that ho may have to overcome some adverse
economic and political effects arising from devaluation and free
eomrertibility. The two most imj~ort~nt dangers arc: in 'lation! which
could be used by the NLHX and Santiphab parties to discredit the government
and a "dollar shortage" which could result from a channeling of
dollars to Communist China by leftist groups or from hoarding of
dollars by speculators who might hope to profit from subsequent
depreciation of the kip on the freo market. Neither of these problems
h?s appeared in the first two weeks since the promulgation of
monetary reform on 10 Gctober~ but in the absence of adequate co~.nter-
measures they are likely to a pear radually as the RLG attempts to
live under free convertibility and the reduced dollar aid which
apparently is implied in the devaluation.
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5. Ifs under the most adverse circumstances foreseeable Phoui
or a successor were compelled to negate the monetary reforms and
subsequently suffered a loss or major reduction in US aids there
would be a chance that the Laotian government would feel compelled
to seek economic assistance from the Bloc
The Longer Term Outlook
6. t~~hether ~r not the Phoui government survives, the basic
problem of meeting the Communist threat thx~ughcut the country lies
ahead. RLG efforts to prcvicie the kind of political organization
and civil administration r~ eded to prevent an NLHX victory in the
general elections now scheduled for 1959 or 1960 will continue to
be hampered, althaugh to a lesser Extent, by the conflict between
the old guard conservatives who hold to their positions of privilege
and the young CDAJI leaders who are morn inclined to reform the
government. :although the present Phoui cabinet excludes the Communist
NLHX and includes four able civilian members of the CDNI who have
been given considerable leeway to date, the old board retains the
capability for dominating the cabinet at any time. The old guard
commands some 38 deputies in the 59 man National l~ssembl.,y, but has
made little or no progress in developing organizational and popular
support to maintain its position. The CD~FI~ which apparently commands
the support of the army leadership: has made some limited progress
toward establishing a grass roots organization. But these efforts
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are as yet no match for the NLHX which c 3~itinues t o make inroads
in the lower ranks of the army to organize the cot~.ntryside~ and
even in some cases to talcs over village a- ~~nista~c~7~s_~ne
'. If i;hs CUB?l's efforts to implement re._?~ ~iri 'ten oc ;peration
with the old guard or to displace the old.guard f:x_l, the OUIuI~ if
it is not to lose what influence it n^w has ~ w;..]. li,~.-;?e to ass?~une
greater rlSitis and atLe*ript 'co mount ~ ti1~r nl.;.~.:i.'G~:'_~~T C7iA~,' :ir tC form
an emergency cab~.net ?c i tl. tze ~.icl. of the; c~?owi.~ T+~ is t~ncert:~in
whether either the young conservative group or the cro*an, especially
the latter, has the :rcefu?ness to carter out these c[rastic actions.
In eithor case there would be a ~cssibility of ^ors~?ed P?L%~ insurgency
supported by the Dn"t~? l.nd even if the ;.Young con5er~rat~_ves do achieve
power without provolcirg renewed insurgency, they will ':Je lZard pressed
to implement a popular l:?ro.t;ram ral%idly en~ug'i t o r, o,et the A;LHY
threat in tY~.e com~~.ng ge~leral Bleution, Fa~11_n thl_s9 tht~vr would
probabl~Y be forced into strng repressive measures against the NLH%
wlxi.ch again raises the questian :?f Z~TLHX insurgency$
8. In shart~ although the recent successes of Phoui reflect
an improvement in the situ~tion~ the prosects for Laos are still
not good. If the general elections axe held in December 1959
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or 1960 and if present conditions continue, an NLHX victory seems
almost certain. If the governments come in time to recognize the
NL~ threat and attempt to take forceful action against the corrmiunists,
renewed NLIik insurgency with the support :~f the Di~V may result.
1\lthour;h Fhoui has semnstrated same ability to hold. his party
together on critical votes the best hope for a free Laos probably
continues to lie in the emergence :f a CDNI-dominates ~;overnm?nt of
s?~me kind, But this is only a hope, with sack a goveri~~nent ~ s
prospects ;,f success uncertain and with time meanwhile running out.
FOR THE BOARD OF NATIONAL ESTTt%t~TES
SHE Fu~;AN K~dT
Assistant :Director
Natior_al Estimates
# Articles 2 anti 2 of the present Lao constitution set the term of
office of :.leputies at five years, implying BLcember 19~. However,
the constitution in effect at the time of the ,general elections
in 1955 set the de~?uties ~ tern of office at four years, implying
December 1959. There is consi~3erable evidence that an attempt
will be made to delay the e~.ections until 1960 with the expectation
that the canservatives can mare better use ~~f the adsitional time
than can the NLHXe
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