THE ECONOMIC SITUATION IN SOUTH VIETNAM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010013-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 22, 2016
• Document Release Date: May 17, 2010
• Sequence Number: 13
• Publication Date: April 1, 1971
• Content Type: IM

 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
DIRECTORATE OF
INTELLIGENCE
Secret
Intelligence Memorandum
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
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 re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
Cadudnd from oulomalic
downg,oding and
dedouircollon
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
SECRET
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
April 1971
INTELLIGENCE MEMORANDUM
The Economic Situation in South Vietnam
Highlights
1. Even though measures enacted by the govern-
ment on 5 March raised the prices of some goods,
the general retail price level in Saigon declined
slightly during the month, to a level only 1% above
that of last July. In another encouraging develop-.
ment, the money supply declined slightly in Feb-
ruary,, the first decline since last October.
2. Shipments of rice out of the Delta during
the first quarter of 1971 were well below the level
required to eliminate dependence on imports, indi-
cating producer resistance to reduced paddy prices..
The government currently has ample stocks, however,
and there are indications that Delta deliveries may
increase during the next few months. Thus it is
too early to predict whether additional imports of
rice will be needed this year.
3. President Thieu has proposed giving all
persons, not just government employees, a break on
income taxes. In a related move to boost his
chances for reelection, he also has ordered province
chiefs to postpone collection of land taxes from
farmers who have benefited from the land-to-the-
tiller program.
4. Charts on foreign exchange reserves, money
supply and prices, import licensing, and currency
and gold prices follow the text.
Note: This memorandum was prepared by the Office
of Economic Research.
SECRET
.25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
SECRET
Prices and Reaction to March Reforms
5. Retail prices' in Saigon have remained rela-
tively stable for the past eight months. The
monthly average USAID index declined slightly in
March for the second consecutive month to within
1% of the July 1970 level. Although prices'. of some
goods rose considerably as a result of the reform
measures announced on 5 March,* the overall price
level has remained remarkably stable. Public
criticism of the government's action has not been
severe, probably in large part because of the
limited number of particular price increases. Some
legislators have called for the ouster of Minister
of EconomyNgoc, but observers believe the legis-
lators were provoked more by resentment-against
Ngoc's personal treatment of them than by his
policies.
6. A bumper vegetable harvest in the Da Lat
area has kept vegetable prices down, and supplies
of other food as well as non-food items apparently
are ample. Depending on the variety, domestic rice
prices either have declined slightly or have re-
mained unchanged during recent weeks. The 31% in-
crease in the official wholesale price of imported
medium-grain rice had little effect on free market
prices, which already were considerably above the
new level, but it probably pushed up prices paid.
to farmers (see below) . In Saigon the free market
price of imported medium-grain rice rose only
about 2%. In GVN Military Regions 1 and 2, imported
rice prices increased 6%-10%, but by late March
had returned to the level prevailing before
5 March. Speculators in Da Nang, who tried to
take advantage of the situation by buying up a
large quantity of US rice, were burned when the
government immediately cashed their checks and
their local. creditors called for payment.
* The 5 March reforms consisted primarily of rais-
ing the official price of imported rice in order
to stimulate the domestic rice market, increasing
the perequation tax (a form of customs duty) on
imports of sugar, shifting freight and insurance
charges on many imports from the official exchange
rate of 118 piasters per dollar to the parallel
market rate of 275 piasters, and raising interest
rates on treasury bills.
- 2 -
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
SECRET
7. While the general price level declined
slightly during March, the monthly average USAID
price index for imported commodities increased
3%. This increase stemmed mainly from the 5 March
economic measures, which directly affected only
the prices of imported goods. Despite these in-
creases, import prices, which declined following
the opening up of import licensing last October
and the resultant squeeze on importers' profits,
are only about 3% above the October level.
Money Supply
8. The money supply, which increased a total
of 16% during December and January, declined 1%
in February -- the first decline since last October.
While savings and time deposits continued to in-
crease rapidly, deficit financing by the govern-
ment slowed considerably. Data are not yet
available on sales of treasury bills following
the setting of.higher interest rates on 5 March.
Currency and Gold
9. Black market currency and gold prices in
Saigon were relatively stable in March, as they
have been ever since the partial devaluation of
the piaster last October. On 6 April the price
of dollars was 400 piasters per dollar and the
rate for MPC (scrip) was 271 piasters per dollar,
four piasters below the legal exchange rate. A
dollar's worth of gold leaf sold for 502 piasters.
Rice Market
10. The outlook for adequately supplying the
northern rice-deficit areas from the domestic
rice market remains uncertain. The final official
1970/71 crop estimate, which should be out soon,
probably will confirm previous predictions of a
record crop, but deliveries of surplus rice from
the Delta during the first quarter of this year
were well below the average level that will be
required to eliminate dependence on imported rice.
In order for the domestic rice market to meet the
needs of the entire country, Delta deliveries will
have to average about 60,000 metric tons per month.
Deliveries averaged. only 33,000 tons during January
- 3 -
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
SECRET
and February, however, and fell slightly below
that level during the first three weeks of March.
11'. Traditionally, deliveries have been largest
during the early months of the year when the main
harvest is under way. In 1970, however, they
reached a high point (about 44,000 per month) dur-
ing the last quarter as farmers and merchants sold
off their abnormally large stocks to make room for
the new crop. As paddy prices (which had already
declined about 15% during June-November 1970)
dropped 9% between 1 December 1970 and 1 February
1971, farmers apparently decided a point had been
reached where sales were no longer profitable.
Most of the deliveries to Saigon this year have
resulted from government purchases and reportedly
have consisted largely of low-quality rice, in-
cluding a considerable amount of IR-8. Farmers
have been rebuilding their stocks and holding on
to the higher quality rice. Prices of hogs continue
to he high relative to paddy, and farmers probably
also are continuing to divert rice to livestock
feed.
12. There are indications, however, that de-
liveries may pick up in coming months. By 1 March,
paddy prices had regained the 1 December level'.
Although no data are available, paddy prices prob-
ably have risen somewhat more since 5 March, when
the government raised the official wholesale price
of imported rice to equal that of domestic rice.
Moreover, the Ministry of Economy reportedly has
decided to buy 40,000 tons of rice each month for
the next several months in order to insure that
adequate supplies reach the northern provinces.
Private merchants have begun some small-scale
shipments of Delta rice to Military Regions 1 and
2, but the government will continue to be the
major supplier for some time. Government stocks
of rice in Military Regions 1 and 2 currently are
ample and could be drawn down somewhat without
serious consequences. With no additional imports
scheduled to arrive this year, however, the rice
situation in the northern provinces will deterio-
rate if Delta deliveries do not increase.
- 4 -
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
tax receipts.
SECRET
Politics and Taxes
13. Protests from labor unions and businessmen
against President Thieu's recent proposal to exempt
government employees from income taxes have led the
cabinet to ask the National Assembly instead for a
doubling of income tax exemptions for all persons.
The effect on civil servants and the armed forces
will be much the same as that of the earlier pro-
posal because: (a) most government employees do
not earn enough to pay income taxes, and (b) the
increase in exemptions will eliminate most of those
who do. The cabinet refused to back Finance
Minister Hue's plan to submit a completely revised
income tax code to the National Assembly prior to
the elections. Legislative approval for a new code,
however, reportedly will be sought this winter.
14. In a related move to boost his chances for
reelection, Thieu recently instructed province
chiefs to extend the tax holiday for recipients of
land under the land-to-the-tiller program. The
land reform law exempted new owners from property
taxes for one year, but many of the early recip-
ients would have become liable for land taxes prior
to the presidential election.
15. Neither the increased income tax exemptions
nor the-continued suspension of land taxes will
have much immediate effect on national and local
government revenues. Income taxes provided less
than 5% of national revenues in 1970, and land
taxes,, which for rice land range from only 13 to
350 piasters per hectare per year ($0.05 to $1.27
at the parallel market exchange rate of 275
piasters per dollar), have gone largely uncol-
lected by local governments in recent years.
16. Nevertheless, the government's action
postpones domestic tax reform, which is necessary
to increase revenues and distribute the tax burden
more evenly. Neither of the government's two
recent economic reform packages included any
domestic tax measures, and legislation to overhaul
much of the domestic tax structure died in the
National Assembly last year. While the real in-
crease in revenues from import taxes has been
substantial during the past two years, the real
increase in revenues from domestic taxes has been
slight -- less than 4% in 1970. US officials
have urged the Vietnamese government to achieve
at least a 10% annual increase in real domestic
- 5 -
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
SOUTH VIETNAM
Foreign Exchange Reserves*
Million US Dollars
1965 1966 1967 1968 1969 1970 1971
*Excluding holdings of commercial banks
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
SOUTH VIETNAM
Indexes of Money Supply and Saigon Consumer Prices
1000'.
800 JANUARY1966
700:.:.;
600
1968 1969 1970 1971
*USAID monthly average retail price index for Saigon
*Data are for end of month
: I: I .I
FEB
.1 -1 1
MAR
1971
29 Mar
695
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14 : CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
IMPORT LICENSING
Million US Dollars
Commercial Import
Program
1965 1966 1967 1968 1969 1970 1971
Total
407
Total Total Total Total Total *Jan and Fob only
660 531 624 740. 641
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5
SAIGON
Free Market Gold and Currency Prices
Piasters Per US Dollar
~^nrrr ^ c 7, r. q r, :,
600 rrT,;:_?. ? .
JANE FED MAR
1971
GOLD Basis: gold leaf worth
$$5 per troy ounce
US $10 GREEN
US $10 MPC Military Payment
Certificates (scrip)
Declassified in Part - Sanitized Copy Approved for Release 2012/02/14: CIA-RDP85T00875R001700010013-5