THE ECONOMIC SITUATION IN SOUTH VIETNAM (BIWEEKLY)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82S00205R000200010006-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 20, 2016
• Document Release Date: August 25, 2006
• Sequence Number: 6
• Publication Date: August 24, 1970
• Content Type: IR

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DIRECTORATE OF
INTELLIGENCE
Intelligence Report
The Economic Situation in South Vietnam
(Biweekly)
State Dept. review completed
USAID review completed
Secret
ii?
24 August 1970
No.' '0429/70
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WARNING
This document contains information affecting the national defense of the
United States, within the meaning of Title 18, sections 793 and 794, of the
US Code, as amended. Its transmission or revelation of its contents to or
receipt by an unauthorized person is prohibited by law.
GROUP I
EXCLUDED FROM AUTOMATIC
DOWNGRADING AND
DELL AASIF ICA'RON
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
The Economic Situation in South Vietnam
Summary
The Vietnamese Government plans to institute
new procedures for marketing imported rice in Mili-
tary Regions I and II where rationing and price
controls have caused complex administrative prob-
lems and resulted in inequitable distribution of the
rice. Abolition of rationing and price controls
will mean higher rice prices for many urban con-
sumers, who have long been paying less than Saigon
residents.
The Viet Cong, as well as the government, are
having difficulty collecting rice from farmers in
government-held areas in the delta. Anticipating
greater inflation or a devaluation, "contributors"
to the Viet Cong prefer to give cash rather than
rice.
Retail prices in Saigon increased 28 percent
during the first seven months of the year, while
the money supply increased only eight percent. On
17 August the black market rate for dollars reached
400 piasters, the highest since late April.
ANNEX: Monthly and Weekly Currency and Gold Prices
(Graph)
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New Rice Policy for MR I and II
1. Vietnamese officials, with US urging, have
decided to change marketing procedures for imported
rice in Military Regions (MR) I and II in order to
eliminate subsidies, rationing, and abuses by prov-
ince officials and rice merchants in their financial
dealings with the central government. Management of
the rice market in these rice deficit provinces--
especially in urban areas where imported rice has
become a significant part of total supply--has been
characterized by excessive controls and inequities.
2. Although there is relatively little infor-
mation on the rice market in MR I and II, the new
regulations provide some indications of the way the
market has functioned for the past several years.
One new regulation already in effect, which applies
to MR III as well, requires all province representa-
tives and merchants to pay the central government
for the imported rice upon delivery rather than tak-
ing it on consignment. Previously, officials and
merchants had taken advantage of this free credit
extension by the government as indicated by the
fact that last February they owed the government
1.8 billion piasters ($15.3 million at the official
exchange rate). The government tried to impose a
cash-and-carry policy in 1967, but was forced to
back down. The Ministry of Economy reportedly again
has been deluged by protests from the provinces, but
US officials think the new policy will remain in ef-
fect this time.
3. The government also has decided to elimi-
nate the current rationing system in MR I and II
and allow free sale of imported rice to all persons
at retail prices to be determined by market forces.
The government, as the sole importer of rice, will
continue to set the official wholesale price. The
rationing system now in effect entitles holders of
family ration cards to purchase about 15 kilograms
of imported rice per person per month at a price
set by the government. Rationing apparently has
been in effect only in the urban areas, where all
permanent residents are entitled to cards. Refu-
gees and persons living in outlying areas have not
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been able to buy at the official price, which re-
portedly is 28 to 29 piasters per kilogram while
the free market price is about 40 piasters and
the market price of locally grown rice is even
higher.
4. Along with the abolition of rationing the
government will raise the official wholesale price
for imported rice to the Saigon level, a move that
US officials estimate will raise the price by about
one third to those who have been using ration cards.
Official prices for imported rice in MR I and II
have been maintained at a lower level than those in
Saigon for several years in order to cushion the
impact of inflation on this poorer section of the
country. Now, however, the government apparently
believes that higher prices to many urban consumers
there are less undesirable than a continuation of
the rationing system, which has been almost impos-
sible to manage and has resulted in great inequities.
Moreover, officials have been concerned that the
artificially low price of imported rice acts as a
disincentive to local rice producers, discouraging
the flow of domestic rice from surplus areas in the
delta and maintaining too great a reliance on im-
ports. The new price for imported rice still will
be below the price of domestic rice, but the gov"
ernment believes the political impact of raising
the price of imported rice any further would be too
damaging at this time.
5. In order to meet the upsurge in demand for
imported rice that could result from removing re-
strictions on sales, the US has agreed to provide
another 150,000 metric tons of rice, most of which
is scheduled to arrive this year. This additional
rice would bring imports this year to about 580,000
tons compared with imports of 341,000 tons in 1969--
a development difficult to explain in view of the
fact that the domestic rice crop already harvested
this year was the largest in five years. But the
rice market has been affected by a series of develop-
ments during past months that caused delta farmers
to hold domestic rice off the market and reduced gov-
ernment stocks of imported rice to extremely low
levels.
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6. Ultimately, the objectives of Vietnamese-
US rice policy are to free the market of government
controls and eliminate imports, possibly by mid-1971.
These objectives cannot be achieved easily, and prob-
ably not so quickly, but US officials are convinced
that changes in the rice market in MR I and II, des-
cribed as the biggest rice management problem in the
country, are a first step in the right direction.
President Thieu has agreed to the new rice policy
for MR I and II, but has decided to delay enactment
of higher prices and abolition of rationing and an-
nounce them as part of a series of economic reforms,
including a government wage increase and changes in
the exchange rate. Thieu still is hoping that the
Senate will pass the "program law" he requested to
enable him to act by decree in economic matters, but
has indicated that, he intends to move without their
approval if the Senate does not take action by early
next month.
VC Also Have Rice Problems
7. The Viet Cong (VC), as well as the Govern-
ment of Vietnam (GVN), apparently are having diffi-
culty getting rice from farmers in government-held
areas in the delta. Because of inflation, the VC
have had greater success in collecting "contributions"
in the form of cash rather than rice. According to
a VC report, during an unspecified period ending in
August 1970 the VC collected "contributions" amount-
ing to more than 90 million piasters ($763,000 at the
official rate of exchange) and only about 1,600 metric
tons of paddy rice valued by the VC at about 21 mil-
lion piasters. "Contributions" in both paddy and cash
generally account for roughly 20 percent of VC reve-
nues; the remainder consists of taxes on agriculture
(usually paddy), transportation, and business. "Con-
tributions" generally are collected from businessmen
and other residents in areas outside VC control.
8. Five VC provinces, which include most of the
GVN provinces in the lower part of Military Region
IV, were singled out for their successful collection
efforts. One "compatriot"--probably a businessman--
in the city of My Tho reportedly contributed 250,000
piasters (about $2,000). These provinces form parts
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of VC Military Regions 2 and 3, the latter being the
largest source of VC revenues within South Vietnam.
The 1970 budget for MR 3 reportedly totals about 2.7
billion piasters, and the budget for ER 2, although
unknown, perhaps amounts to about two thirds of that
for MR 3. Using MR 3 revenue goals as a basis for
comparison, the cash and paddy "contributions" re-
ported for MR 2 and MR 3 indicate that paddy collec-
tions are falling far behind while cash collections
are progressing satisfactorily. The cash "contribu-
tions" recently reported amount to 90 percent of the
goal for MR 3, but paddy "contributions" amount to
only four percent of the 1970 goal (see Table).
1970 MR 3
MR 2 and 3
Collections
as Percent-
age of MR 3
Budget Collections Goals
million piasters
Total
2,700
NA
NA
NA
Taxes
2,100
NA
18
Contributions
600
111
4
Paddy*
500
21
90
Cash
100
90
Valued by-the VC at about 13,400 piasters per ton.
The VC allow "contributors" the option of paying
either in paddy or cash and have been crediting paddy
payments at the rate of only 13,400 piasters per ton
whereas the market price of paddy in the delta has
been averaging about 25,000 piasters this year. Thus,
there has been an obvious incentive for payments to
be made in cash. Captured documents indicate, how-
ever, that the Viet Cong recently readjusted the price
of paddy to equal the current market rate.
.9. The difficulty reported by the Viet Cong
in collecting paddy tends to reinforce the belief of
GVN and US officials that farmers have been holding
rather than selling their paddy in expectation of
greater inflation or a devaluation of the piaster.
Deliveries of rice from the delta to Saigon during
the first seven months of 1970 were five percent
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below the 1969 level despite the fact that production
in the delta was 18 percent above the level of the
previous year.
Prices
10. According to the monthly average USAID in-
dex for Saigon, the over-all retail price level in-
creased 28 percent during the first seven months of
the year. Food prices rose 28 percent and nonfood
prices increased 26 percent. During the same period
the index for prices of imported goods rose 21 per-
cent. Money supply, however, increased only eight per-
cent during January-July.
11. On a weekly basis, the USAID retail index
declined each week during the three weeks ending 10
August, but then increased slightly the following
seek. As of 17 August, however, the index still was
slightly below the average price level for July.
Currency and Gold
12. On 17 August the black market price of
dollars in Saigon rose to the highest rate since
late April--400 piasters per dollar compared with
the official exchange rate of 118. During May-July
the price of dollars was relatively stable averaging
382 piasters per dollar. The prices of MPC (scrip)
and gold leaf also increased slightly on 17 August
to 208 and 472 piasters per dollar, respectively.
Embassy officials attribute the higher rates to
growing rumors that the government plans to change
the exchange rate soon after the 30 August Senate
elections. (A graph on monthly and weekly currency
and gold prices is included in the Annex.)
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00LD Basis gold leaf worth $35 per troy ounce
US $10 GREEN
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Secret
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