THE ECONOMIC SITUATION IN SOUTH VIETNAM MARCH 1973

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700050035-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 20, 2016
• Document Release Date: February 3, 2006
• Sequence Number: 35
• Publication Date: March 1, 1973
• Content Type: IM

108 : CIA-RD~i'~SR~ 17000507 T ~ ~ ~ ~ T O ~T
 Approved For Release 2007/02/08 : CIA-WDP'84 b6(8 R40 op~5Qd35 7-
DIRECTORATE OF
INTELLIGENCE
25X1
Confidential
Intelligence Memorandum
The Economic Situation in South Vietnam
March 1973
USAID review completed
06 NO1 DEZT
Approved For elease
CIA
DOCUME1 EVCES BRANCH
FILE C"'OplY
Confidential
ER IM 73-38
March 1973
Y. CIA-RDP85T00875RO017000 M-7NO
 25X1 Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
 Approved For Release 200700"jJ-gQ!~151TAQ?75R001700050035-7
The Economic Situation in South Vietnam
March 1973
Although major supply shortages resulting from road interdiction have been alleviated,
prices increased steadily during March and are now up 111/0 for the year to date. Further
government import restrictions have been imposed to curtail drawdowns of foreign
exchange holdings. Black market dollar prices dropped sharply in the latter part of the
month as importers were forced to come up with more piasters to fulfill the new import
financing requirements.
The Land-to-the-Tiller program marked its third anniversary on 26 March. It has
achieved its goal of distributing one million hectares of land to former tenant fanners.
Although actual business investment was practically nil during 1972, development
loan approvals increased notably as investors apparently continued to plan for future
projects.
Note: Comments and queries regarding this publication are welcomed. They may be
Approved For Release 2007(9@N rq[$ 7f "75 R001700050035-7
 Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
CONFI.D N'TIAL
March 1973
The Economic Situation in South Vietnam
March 1973
Although major supply shortages resulting from road interdiction have been alleviated,
prices increased steadily during March and are now up I V /o for the year to date. Further
government import restrictions have been imposed to curtail drawdowns of' foreign
exchange holdings. Black nwrket dollar prices dropped sharply in the latter part of the
month as importers were forced to come up with more piasters to fulfill the new import
financing requirements.
The Land-to-the-Tiller program marked its third anniversary on 26 March. It has
achieved its goal of distributing one million hectares of land to former tenant farmers.
Although actu,,,l business investment was practically nil (luring 1972, development
loan approvals increased notably as investors apparently continued to plan for future
projects.
Note: Comments and queries regarding this publication are welcomed. The ma y be
directed to
Approved For Release 200M -iff
Sj5A J 875R001700050035-7
I- I 25X1
 Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
CONFIDENTIAL
Recent 1)cvelopments*
I. South Vietnam's economic slunlh continuos, Willi only limited
signs of a pickup in activity appearing. The Iebruary supply shortages,
resulting primarily from road interdiction -- particularly serious in the
Central Highlands - have been alleviated, and shipments of' most
commodities are now at nearly normal levels. There are, nevertheless, I'm
signs of a recovery from the business recession, and spending by both
consumers and investors remains at a generally (depressed level. Two months
after (lie cease-fire announcement, political and military uncertainty remains
the major obstacle to a revival of business confi(Ionce.
2. Following a general decline in prices aficr the Tel holidays, price
levels during March began climbing again, with the Saigon retail price index
up by about 5.2% as of' the 26th of' the month. Since the beginning of
the year, prices have increased by some I1%, Willi foodstuffs rising 10/"
and non-food items about 141/1?. The recent price increases reflect not only
seasonal fluctuations in several perishable commodities, but also higher
transportation costs resulting from the February increase in the official price
of' petroleum products. In addition, reports of renewed Viet Cong tax efforts
along commerci::l routes and rumors that the government was soon to raise
military and civil service cost of living allowances served to exert upward
pressure on prices. More recently, upward movements in rice prices have
been a major factor in the increase in the price index.
3. Although rice shipments from the Delta have been slow for several
months, rice prices remained stable throughout February and the first part
of March. While government stocks of' imported rice were adequate, stocks
of domestic rice were declining. Therefore, on 6 March the Ministry of'
Economy acted to stimulate shipments from the Delta. especially to the
northern rice-deficit provinces. Official wholesale prices of' imported US rice,
most of which is sold in the north, were increased 201,7c. The result has
been that retail rice prices in Saigon increased about 8i%% during March.
Because it is likely that the government will continue to adjust selling prices
as a mains of ensuring movement of' (domestic rice out of (lie Della, further
price increases can be expected.
* Charts showing major economic indicators and the government budget follow the text.
Approved For Release 200 ?NFIZOIRMI] Q"75R001700050035-7
 Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
CONFIDENTIAL
Further Import Ilcslriclions
4. In view of increased import requirements for reconstruction and
business recovery combined with uncertainty concerning future foreign
exchange availabilities, (lie government in early March took further steps
to ration its declining reserves and to ling;t commodity imports to those
items considered most essential. Advance deposit requirements, raised
initially in late February, were increased again in early March on imports
financed by both the United States and South Vietnam. Additional advance
deposit requirements were also placed on a number of luxury items including
air conditioners, television sets, radios, and refrigerators and on some
foodstuffs such as beverages. For US-financed imports, the retention period
of deposits by the government was extended from three to six months.
The most significant move, however, was an increase of the exchange rate
for US-financed imports from 330 to 360 piasters per dollar. Although the
net effect of these measures is not yet apparent, it is probable that the
demand for imports, particularly luxury items, will be curtailed.
Currency Markets
5. Currency and gold black markets have fluctuated widely during
the past several weeks, reflecting the world monetary situation, the dollar
devaluation, and domestic speculative activity. The black market price for
dollars jumped during the first week of March, reaching a peak of about
580 piasters per dollar, more than 100 piasters above the official exchange
rate. By 26 March, however, the rate had fallen to 540 piasters per dollar.
The price of gold leaf followed a similar pattern, reaching a peak of 45,600
piasters per troy ounce (about $96) and dropping off to 37,700
(about $79). The declines are at least partly attributable to a cash and
credit squeeze in the private sector resulting from both the government
measures on imports mentioned above and a decrease in bank loan/deposit
ratios that has reduced funds available for loans. The black market for
Military Payment Certificates (MPC) was abruptly halted on 15 March when
this means of payment was discontinued. An increased strl,ply of' dollars
resulting from the demise of MPC may also have been a factor in the fall
of black market dollar prices.
Land Reform Program Meets Goal
6. The Land-to-the-Tiller pro`,,r'rn, which marked its third
anniversary on 26 March, has achieved the original goal of distributing one
million hectares (about 2.5 million acres) of land free to new owners. As
of 26 March, titles had been issued to 650,000 farm families, for just over
one million hectares of land. Although distribution of land titles has been
moving along according to schedule, government compensation to former
Approved For Release 2007FO8 fNiJ1175R001700050035-7
 Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
CONFIDENTIAL
land owners has been slower. Despite efforts to increase the pace of
compensation, payments made to date still cover only about 50% of the
total land distributed.
7. The attainment of the government goal of land distribution does
not signal the end of farmland allocation. Preliminary government
agricultural development plans call for a large expansiDn of cultivated land
which will be distributed to new settlers over the next five years. From
a base of' 2.5 million hectares now under cultivation, the goal is to reopen
about 500,000 hectares of abandoned lands and to bring into production
an additional 1.2 million hectares of' previously uncultivated land. The
mechanics for distribution of these new lands are as yet unclear. Although
such a program will probably be fashioned alter the Land-to-the-Tiller
program, the current limits on plot size of 1-3 hectares per family probably
will have to be increased because of' the hilly terrain and type of soil found
in Military Regions 2 and 3, where much of the new land is located. Some
new land already has been opened up in connection with refugee
resettlement, but a large-scale program, which could stimulate movement
back to the countryside and significantly increase agricultural output, will
have to await an improvement in security.
Development Loans
8. Although actual business investment was practically nil during
1972, investors apparently continued to plan for future projects. Recent
reports on the activities of government-sponsored development financing
institutions during the past year indicate a notable increase in loan approvals,
particularly since the passage of' the new liberalized investment law of June
1972. Once security conditions improve, this increase in loan commitments
could provide the basis for substantial increases in the level of' private sector
investment.
9. One of the major funding mechanisms for these loans is the
National Economic Development Fund (NEDF) established in March 1972
to provide medium-term and long-term credits to intermediate credit
institutions for private investment projects. The NEDF, initially set up with
10 billion piasters ($21 million) from US aid counterpart funds, is
administered by the National Bank of Vietnam, but functions autonomously
with its own board of directors. It is also authorized to accept grants or
loans from foreign governments in any foreign currency and could be used
as one of the primary means of channeling foreign aid to productive
investments in South Vietnam. Intermediate financial institutions that
receive a major share of their loanable funds from the NEDF include the
government-owned Industrial Development and Agricultural Development
Approved For Release 2007 j1&$I 'SjA(A75R001700050035-7
 Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
CONFIDENTIAL
Banks (IDB and ADB) and the joint government/private bank-owned
Financial Society for the Development of Industry in Vietnam (SOFIDIV).
10. Reports on activity of the IDB during 1972 indicate that
70 medium-term loans totaling some 5.5 billion piasters were approved,
compared with loans of only 1.3 billion in 1971. Of the loans authorized
in 1972, about 25% were allocated to industries processing ?oodstuffs and
marine products; 20% for the textile industry; 19% to the metal, equipment,
and electronic industries; and the remainder to water, electric power, and
transportation projects. Credit approved by SOFIDIV in 1972 totaled about
3.2 billion piasters for some 27 investment projects in a variety of industrial
undertakings. In the agricultural sector, the ADB increased loans from a
total of 10 billion piasters in 1971 to 18.9 billion in 1972.
11. With the exception of ADB funds, only a small proportion of'
the approved credit was actually disbursed last year. Furthermore, there
is little evidence to suggest that any of the projects approved by the
intermediate institutions have got of," the ground during the year. For
example, funds committed by the NEDF to intermediate institutions in
1972 were estimated to be around 8 billion piasters, while actual
disbursements were only about 1.3 billion piasters. Even if disbursements
during 1973 increased significantly, the Mission in Saigon estimates that
most projects would not be completed until some time in 1975.
4
Approved For Release 20QZ/Q2/Q$ CCIIENTIAL 875RO01700050035-7
 Approved For Release 200 Q.3ftr ftN" AQ0875ROO1700050035-7
Jan
207
1967 1968 1969 1970 1971 1972 1973
January 1965=100
2000 r- ------- - - --- - -
South Vietnam: Economic Indicators
Foreign Exchange Reserves'
Million US $
400x _--_.- _...-- ---------..
300
200 -
100 -
0
500
400
100 l- 1 --- -------. ----1----------1 -- -------J
1967 1968 1969 1970 1971 1972 1973
'USAID monthly averagn retail price index for Saigon.
"Da, are for end of month,
Free Market Currency Prices
Piasters Per US $
700
600
500
400
3C0
200
100
0
Free Market Gold Prices
Thousand Piasters Per Troy Ounce Gold Leaf
50,
20
10
0
I I I I
1967 1968 1969 1970 1971 1972 1973
Approved For Release 2007e6 -1jLA -12 Q,$" TT?875 R001700050035-7
DE a
 CONFIDENTIAL
Figure 2
South Vietnam: Government Budget*
Billion Piasters
CtOtr~rn?f'r`~ s'~~
Mrllta,Y IMF?_r?o91,twos
Gvluan LJO Dom` VES
EXPENDITURES R6-v`N 274
200
72
L1
1di
1972
Projected
'Data include extrabudgetary revenues and expenditures.
"Residval. Financed primarily by borrowing from the National Bank.
1973
Plan
includes customs duties and other import taxes, counterpart funds generated by
US-financed import programs, and profits from foreign exchange transactions.
A major result of the November 1971 reforms was to make explicit a greater share
of US aid to the budget that earlier took the form of high customs duties-on aid-financed
imports.
6
Approved For Release 2007/02/08 : CIA-RDP85T00875R001700050035-7
CONFIDF.NTT A T .