THE SITUATION IN VIETNAM
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CIA-RDP79T00826A001000010024-8
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Document Creation Date:
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Publication Date:
July 11, 1996
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State Dept. review completed,
ARMY review(s) completed.:
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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.
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No. 0381/66
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
THE SITUATION IN SOUTH VIETNAM
(5 July - 10 July 1966)
POLITICAL SITUATION I
General Thi's arrest and conviction;
Cabinet announcement delayed; Military-
civilian advisory council inaugurated;
Buddhist developments; Election.
REVOLUTIONARY DEVELOPMENT II
Hamlets pacified as of 31 May; Rural
security; Refugees; Viet Cong defectors
(Chieu Hoi).
ECONOMIC SITUATION III
Prices; Currency and gold; Official
prices; Import system; Wage increases.
ANNEX: South Vietnam Economic Indicators (graphs):
-Free Market Gold and Currency Prices
(Monthly and Weekly)
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Developments within, the government
last week focused on. the arrest and convic-
tion. of former I Corps commander General
Thi for his role in. the recent an.tigovern.-
ment movement. A few loyal supporters of
General Thi helped to create a flurry of
suspicion. among some army factions over
the real motives of those who were pressing
for Thi's prosecution.. Although the Civilian-
Military Advisory Council was inaugurated
early last week, the announcement of Premier
Ky's new cabinet was again. postponed, evi-
dently because an acceptable regional and re-
ligious balance was still lacking. Following
the announcement of a temporary truce with
the government by the Buddhist Institute,
chairman. Tam Chau began. exploring the limits
of government len.ien.cy towards supporters of
the "struggle" movement. Although a minor
coalition. of religious and political leaders
has announced it will boycott the September
election, the US Embassy believes that there
is still no sign.ifican.t opposition. forming to
the forthcoming constituent assembly contest.
General Thi's Arrest and Conviction
1. Following a decision. Of the ten military mem-
bers of the ruling Directorate, former I Corps comman-
der General Thi and two other generals, Dinh and Nhuan,
were arrested in Saigon. on. 5 July, allegedly to facili-
tate an investigation of their role in the recent anti-
governmen.t movement by a specially appointed disciplin-
ary board of 20 generals. Former I Corps commander General
Dinh and former First Division. commander General Nhuan
were similarly arrested and under investigation.. ..Al-
though the conduct of Generals Cao and Chuan was being
reviewed by the board, Cao and Chuan were not placed
under arrest.
2. Prior to his arrest, General Thi had been.
requested to supply written. answers to a comprehensive
and detailed set of 13 questions concerning the "struggle"
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movement. In his reply, Thi artfully dodged the
questions, and declared that his military honor
prevented him from supplying any information. which
might damage the reputations of other officers who
had yet to play an. important role in. Vietnam.
3. Thi's reply was reportedly drafted by
former National Police Director Lieu, a close asso-
ciate of Thi. Colonel Lieu, who was also active
in appealing to various groups on Thi's behalf, told
a US Embassy official that Thi had declared his
willingness to leave the country if it could be ar-
ranged. Lieu reportedly warned others, however,
that any moderation by Premier Ky on the issue of
Thi's future might be used by Deputy Premier Co--
who took the lead in urging the Directorate to arrest
Thi--to discredit Ky. Lieu himself had been sched-
uled to become ambassador to Thailand, but now may be
assigned as a military attache to Australia or the
United States.
4. A group of "baby turks" headed by Saigon
mayor Lt. Colonel Cua was also reported to be upset
by the arrest and the possibility of further public
disgrace of Thi. Cua's group reportedly accuse Gen-
eral Co's faction, of having ulterior motives in urging
that Thi be prosecuted, and has reportedly concluded
that it would have to get rid of generals who con.-
stantly engage in. such political maneuvers. Lt.
Colonel Cua once served under General Thi in the air-
borne brigade.
5. Despite this evidence of military unrest,
another high ranking Vietnamese officer reported that
he did not believe that "serious" trouble would re-
sult from Thi's arrest. In his opinion, a majority of
officers supported the Directorate's decision. How-
ever, the board of inquiry's decision with regard to
Thi's future may still be an important issue, since a
court martial or further public disgrace of Thi could
aggravate the situation.
6. All five generals were meted out what seemed
to be relatively light punishments by the disciplinary
council on. 9 July. All were sentenced to 60 days house
arrest and dismissed or retired from the army. Only
General Chuan. was demoted--to the rank of colonel.
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Cabinet Announcement Delayed
7. Premier Ky's new cabinet was again. Postponed
last week, and reportedly is now scheduled to be an=
nounced on 11 or 13 July. The delays appear to have
been. caused by difficulties in reaching a regional
and religious balance, compounded additionally by the
question of Buddhist Institute representation. The
postponements, however, may also be another indica-
tion that all is not going smoothly among the military
rulers. It is possible that Deputy Premier Co--who
was reported earlier to be questioning some appoint-
ments and who stands to lose considerable responsibility
in the cabinet reorganization--is balking at the pro-
jected transfer of several ministries under his control
to the new supraministry for revolutionary development.
Military-Civilian. Advisory Council Inaugurated
8. Premier Ky and Chief of State Thieu inaugu-
rated the Military-Civilian Advisory Council in. Saigon.
OD, 5 July with appropriate speeches. Among other
things, they urged cooperation. with the govern.men.t's
efforts to cope with economic problems, rural construc-
tion., and the building of democracy. The new council,
consisting of 59 civilians and 20 military person.n.el,
is to advise the cabinet on the political, economic,
social, and cultural aspects of nation. building. It is
to meet for about six days each month and may be dis-
solved by the ruling Directorate. One civilian. seat,
reserved for a Buddhist Institute representative, has
not yet been filled.
Buddhist Developments
9. After the Buddhist Institute's announced
truce with the government and the subsequent release
of nearly 300 persons under government detention,
last week Institute chairman Tam Chau began exploring
the limits of the government's announced policy of
leniency towards supporters of the "struggle" move-
ment. On. 6 July, Tam Chau publicly issued three
letters to government officials asking that all op-
pressive actions against compatriots in central Viet-
nam be stopped, that he be allowed to visit all Buddhists
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now under detention., and that the government release
all "strugglers" except for those few individuals
as stated by Premier Ky.
10. Although Tam Chau's letters were generally
mild in tone, the requests may add up to a little
more than. the government is willing to grant at pres-
ent. One of Tam Chau's moderate followers told a US
Embassy official that previously Tam Chau had privately
urged Police Director Loan. to release some 150 Bud-
dhists still under detention.. Loan reportedly agreed
to release some, but was determined to hold others for
another two or three months. Presumably, Loan re-
ferred to prisoners being held in the Saigon area.
There is no indication yet on the government's re-
sponse to Tam Chau's requests regarding central.Viet-
nam, where at least 200 "strugglers" have already
been. arrested with the government roundup of other dis-
sidents presumably continuing.
Elections
12. The "Front of Citizens of Various Religions"
issued a communique on 5 July which called for the
resignation. of Premier Ky and Chief of State Thieu,
and for boycott of the September elections. The most
prominent members of the Front are Roman Catholic
Father Hoang Quyn.h and Buddhist Institute deputy chair-
man. Thich Phap Tri. Father Quynh, however, has lost
much of his previous influence among Catholics, and other
Catholic groups are making plans to participate in the
elections. Phap Tri, a well-known Buddhist militant,
is apparently a member of the Front in a personal capacity
rather than as an Institute official. The US Embassy
has commented that there does not appear to be any sig-
n.ificant opposition, developing to the elections. The
Front's communique has been censored from Saigon news-
papers.
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Buddhist Institute chairman. Tam Chau does not be-
lieve that he will be able to persuade the Institute
to participate actively in the September elections.
However, Chau reportedly feels confident that the
Institute will not decide specifically to oppose
elections.
14. Central and southern factions of the VNQDD
(Nationalist) Party are apparently holding private
talks in. Saigon in an attempt to improve party unity.
Thus far, the VNQDD faction in Da Nang has not made
a final decision on, its list of candidates, but is
waiting to see who is being sponsored by other politi-
cal groups. A spokesman from the Da Nang faction re-
cently admitted to a US official that his party has
a "spotty" image, and indicated the willingness of
his group to form an alliance with other nationalists.
15. Viet
Cong cadre in Tay Ninh Province intend to carry out
an anti-e1ection.campaign in. September. Cadre there
are also planning to spread antigovernment leaflets
in new life hamlets as a means of organizing further
political resistance to the government.
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II. REVOLUTIONARY DEVELOPMENT
According to the US Mission, approx-
imately 72 percent of the 31 May goals
for pacified hamlets were met. A total
of 419 hamlets with a population: of
479,000 persons have been. brought under
GVN control since the beginning of the
year. Local security conditions and the
low-level quality of leadership among
Vietnamese provincial and district offi-
cials continue to pose the most serious
obstacles to over-all progress. However,
local security forces, including the revo-
lutionary development cadre groups, were
strengthened by about 12,000 personnel
during April and May. Over a million
refugees have come over to the GVN in.
the past two years; 36 percent of them
have been permanently resettled. The
Communist defector rate registered a
slight gain, during the week ending 1 July.
Hamlets Pacified as of 31 May
1. One of the most difficult tasks confronting
revolutionary development (RD) planners, both GVN
and US, is establishing a realistic measurement of
progress. Uncritical reliance on statistical re-
porting was one of the pitfalls which befell the
Diem regime's strategic hamlet program, resulting
in overoptimistic "paper" progress. Moreover, there
has been some tendency by provincial administrators
in the current RD program to accept substandard con-
struction and inadequate cadre performance in order
to meet their monthly goals. This tendency, how-
ever, has been noted by US officials monitoring the
GVN figures, and has been taken, into account in. their
statistical presentation to Washington as a gauge of
how the pacification effort is progressing.
2. A basic yardstick used to measure the degree
of GVN control over the rural population, is the
number of hamlets that are "pacified" from one month
to the next. In. the official monthly RD reports,
the hamlets are separated into either a "constructed"
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or a "consolidated" category. The former hamlets
are those undergoing pacification for the first
time. The latter are being "repacified" with the
application of more stringent criteria; many of
them have slipped back under some degree of Viet
Cong influence since Diem's overthrow.
3. The following data, reported by the US
Mission and based on US statistics, show the num-
ber of hamlets "pacified" (constructed and consoli-
dated) as of 31 May in comparison to the number
programmed (in parentheses):
Hamlets Within Na-
tional Priority Hamlets Out-
Area (NPA) side NPA
pacified planned
I Corps 0 (0) 24 (77)
II Corps 14 k(27) 74 (127)
III Corps 71 (86) 62 (59)
IV Corps 42 (34) 132 (168)
TOTAL 127 (147) 292 (431)
4. Of 578 hamlets scheduled for pacification
from the initiation of the 1966 program, through
31 May, 419 met the US criteria. This is a 72-percent
accomplishment of the goals. The population of these
419 hamlets is estimated to be 479,000. US officials
caution, however, that the increase in hamlets paci-
fied during the period represents primarily the "con-
solidation" of less-secure hamlets to a more-secure
status rather than new territorial and population
gains extracted from the Communists.
Rural Security
5. Another important measure of pacification
progress is the degree to which local security can
be provided on a continuing basis to the RD cadre and
the hamlet populace. This aspect of the program, how-
ever, is difficult to present statistically, although
increases in Regional and Popular Force strength and
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increases in. the number of cadre groups provide a
rough indication. Of progress. Local insecurity is
still considered one of':Ithe. primary'.obstacles:to the
success of the over-all program. The difficulty of
providing security has been complicated by the in-
filtration of North Vietnamese regulars, and by
their movement from infiltration corridors and base
areas into provincial areas previously free of mili-
tary activity.
6. According to MACV, the present-for-duty
strength of the GVN's Regional and Popular Forces
during April and May increased by 5,900 and 2,600,
respectively. In, the first five months of 1966, 33
additional Regional Force companies were activated.
With the graduation of the first class of RD cadre
groups, the strength of local security forces in-
creased by approximately 12,000 during April and May.
US, other free world, and ARVN troops have also con-
tributed significantly to revolutionary development
in. all of the corps areas, not only by conducting
major operations but also by following up small
search-an.d-clear operations with short-range civic-
action projects in. contested villages and hamlets.
7. As evidence of the continuing Viet Cong re-
action. to the pacification. effort, two Peoples Ac-
tion. Teams (PATS) were attacked on. 1 July in Quang
Ngai Province by an. estimated enemy company. The
PATS lost five members killed and three wounded.
Refugees
8. The GVN's Special Commissariat for Refugees
reports that the total influx of refugees for the
two-year period ending 30 June 1966 has exceeded
1,000,000 persons, or about six percent of the
country's total population. Slightly more than
half of the refugees have remained in temporary
shelters rather than return to their native vil-
lages, while 360,574 of them have been permanently
resettled. Only 140,502, about 14 percent of the
refugees, have returned to their original homes.
They apparently fear possible subsequent Viet Cong
coercion and proselytism.
9. This large group of displaced persons is
in part a direct result of the intensification. of
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military contacts and the resultant fear by the
villagers of being caught in a shooting battle.
The Viet Cong, especially the indigenous South
Vietnamese among them, have traditionally relied
upon the rural populace for housing and basic sup-
port. As the enemy has been increasingly sought
out in contested, populated areas, the villagers
have apparently become more reluctant to suffer the
consequences of supporting..the,_local:.VC.
Viet Cong Defectors (Chieu Hoi)
10. The defector total for the week ending
1 July registered a slight rise to 313, of whom
223 were military returnees. Even, with this rise,
the preliminary cumulative total for the five weeks
from 28 May to 1 July of 1,571 represents a decline
from the high influx during February and March.
Monthly totals for 1966, however, have been, sig-
nificantly higher on the average than. the respective
monthly tallies during 1965. While the total in all
of 1965 was 11,124 defectors, US officials report
that 9,839 returnees have already been registered
at Chieu Hoi centers during the first six months of
th.is:.year. The defectors for the week ending 1 July
rallied?by:, corps. ~ar.eas as :follows
I Corps
30
II Corps
147
III Corps
46
IV Corps
90
I I
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III. ECONOMIC SITUATION
Although prices of most commodities
continue to rise, there still is no clear
over-all view of post-devaluation price
movements. The prices of some foodstuffs
--especially meat and fish--have risen
substantially, whereas increases in the
price of rice have been moderate. Sim-
ilarly, the prices of some imported com-
modities have risen as much as 45 percent,
but prices of other imported goods have
actually declined. In. the Saigon. free
market the prices of gold and dollars
continue to fluctuate, apparently because
of a general fear that the GVN may not be
able to meet the public demand for gold.
The GVN has agreed to new procedures
for the use of commercial import program
funds and has extended additional time to
importers for clearance of their goods
through customs at the special rate of 90
piasters per US $1. Raymond-Morrison-
Knudsen, has been authorized by the US Mis-
sion. council to grant an average 15-per-
cent wage increase to the Vietnamese con-
struction workers who were on strike last
week.
1. The prices of most imported and domestic
commodities continue to rise. On. 27 June, the USAID
index of Saigon retail prices was five percent above
the previous week and 17 percent above a month ago.
By 5 July, prices had increased further. Although
the increase in the price of rice has been moderate,
prices of meat and fish have risen substantially.
2. Higher meat prices stem largely from the
sharp fall in. the arrival of hogs in Saigon.. On 5
July, the price of pork bellies, which were avail-
able only on the black market, was 170 piasters per
kilogram compared with an official ceiling of 70
piasters per kilogram and an estimated actual price
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of 90 piasters per kilogram on. 20 June. According
to GVN estimates, the arrival of hogs at the Saigon.
slaughterhouse during the week ending 24 June was
only about 60 percent of Saigon. requirements, and
arrivals during the following week apparently were
even. lower.
3. The US Embassy reports that seasonal fac-
tors and official price ceilings are responsible for
the shortage of hogs. Official price ceilings have
led to a withholding of shipments by suppliers, who
expect these prices to be raised in. the wake of the
general price increases associated with devaluation.
On. 20 June, the US Mission. suggested importing hogs
and lifting official prices. Minister of Economy
Thanh believes, however, that the importation of
hogs would.be a poor use of foreign exchange and that
official prices are no longer a problem because they
are not being observed or enforced. (See Paragraph 8).
The US Mission reports that, contrary to Thanh's
statements, official prices are observed and en-
forced at the Saigon slaughterhouse.
4. Wholesale price movements of imported com-
modities during the week ending 2 July were mixed;
the prices of some items declined while prices of
other goods rose by as much as 45 percent. Compared
with a month ago when, prices already were beginning
to rise in. anticipation of devaluation., the median.
increase in the price of US-fin.an.ced imports was 40
percent, which is within the range of the increase
in piasters that importers must pay for their goods
being cleared through customs at the present time.
The prices of foodstuffs, however, were relatively
steady--reportedly because of special efforts to
speed distribution.
5. The two weeks that have elapsed since de-
valuation. have not provided an adequate time period
for price adjustments to be worked out. The US Em-
bassy reports that the prices of some commodities un-
doubtedly will rise further before leveling off. At
the same time, some of the price increases already
noted may be inflated because dealers are testing
the market. Among the most important factors that
will determine the eventual level of prices are
readiness of importers to apply for licenses up to
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the amount of foreign exchange being made available,
the outcome of wage negotiations, progress in, re-
lieving port congestion., and political stability.
Currency and Gold
6. In the Saigon free market, the prices of
gold and dollars, which had declined steadily in the
week following devaluation, rose from 28 through
30 June and then declined slightly on 1 July. Prices
on 1 July were the same as those on. 24 June: 320
piasters per dollar for gold, 200 piasters for green
dollars, and 119 piasters for MPC (scrip). On 5
July, however, gold rose to 332 piasters and MPCs to
121 piasters--the same rates as on 21 June. Green
dollars held steady at 200 piasters. The following
day,, gold fell to 303 piasters per dollar and green
dollars rose slightly. The US Embassy still feels
that these fluctuations in the prices of gold and
dollars stem from a general fear that the GVN may
not be able to meet the public demand for gold.
7. Commercial banks are selling gold to dealers
at 249 piasters per dollar, which results in a total
price to the buyer of 310 piasters when the dealer's
allowance for tax, profit, and workmanship are in-
cluded. According to Governor Hanh of the National
Bank, gold sales by the GVN had totaled 845 kilo-
grams (1,863 pounds) by 25 June. (Graphics on,
monthly and weekly free market gold and currency
prices are included in the annex.)
Official Prices
8. Minister of Economy Than.h has said that
official prices eventually will be abandoned. Re-
cently, however, the GVN director of external com-
merce said that these prices would instead be revised
upward. Last week there were some arrests of mer-
chants for exceeding official prices. This action,
however, appears to be only the usual low-level
harassment, and there is no special concern on. the
part of merchants, most of whom are obviously ex-
ceeding official prices.
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Import System
9. Importers have been. given. until 19 July to
clear their goods from customs at the rate of 90
piasters to US $1, rather than, at the new rate of
118 piasters to US $1. Originally, it had been. an-
nounced that only those goods withdrawn from cus-
toms by 4 July would receive the special rate of 90
piasters to US $1.
10. The series of meetings held last week with
Minister of Economy Thanh have resulted in. Thanh's
agreement to a memorandum of understanding between
the US and GVN on new procedures for the use of com-
mercial import program (CIP) funds. As stated in.
this memorandum, which Than.h signed on 30 June, the
objectives of the new procedures are to accelerate
the importation of commodities in. order to prevent
shortages, to create a responsible private importing
community in. South Vietnam, to lower prices to the
consumer by increasing competition and by con.solida-
tin g procurement of certain bulk commodities, and to
ensure that funds are not diverted for private profit.
11. In, order to accomplish these objectives the
GVN has undertaken to establish a system of open
general licensing and procedures to consolidate pro-
curement of rice, fertilizer, cement, galvanized
iron. sheets, tin plate, jute bags, and newsprint.
The system of open. general licensing will be estab-
lished by abolishing quotas on. most commodities im-
ported under the CIP, and by allowing importers to
import different groups of commodities. In addi-
tion, the formation of new importing firms will be
encouraged and each importer will be able to obtain
up to three licenses per quarter for less than.
$10,000 in. order to quickly meet changes in, market
demand.
12. This memorandum, which has not yet been
signed by the US, states that, subject to Congres-
sional appropriations, the US will make available
at least $170 million to finance CIP and Food for
Peace imports between. 19 June and 1 October. Of
the $150 million. to be provided for CIP finan.cin.g,
at least $65 million. will be made available im-
mediately.
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Wage Increases
13. The US Embassy reports that the reaction
of GVN employees to their recently announced 20-
to 30-percen.t pay raises ranges from derision, to
quiet bitterness. Moreover, this reaction. could
become worse if Vietnamese employees of US contrac-
tors are given a larger percentage increase.
14. It appears, however, that the average pay
increase for the Vietnamese construction. workers
who were on. strike last week will fall within the
limits set by the US Mission council--a 10- to 15-
percent wage increase, which is about half of the
workers' original demands. On 2 July, the director
of Raymond-Morrison-Knudsen. (RMK) pointed out to the
US Mission. that adherence-: to the wage schedule of
US forces would result in, an. unequal distribution
of pay increases with more than. 60 percent of the
workers getting an. increase of only eight percent
although the average increase would be close to 15
percent. As a result, the mission. council decided
that RMK would be authorized to deviate from the
wage schedule of US forces, provided that the
aggregate payroll increase of RMK does not exceed
15 percent.
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SCUVIIIJ_~ JII uu
UCQa iss
Monthly Free Market Gold and Currency Prices
JANUARY 1964 - MAY 1966
Weekly Free Market Gold and Currency Prices
3 JANUARY 1966 - 21 JUNE 1966
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GOLD (Saigon) - Piaster price per US dollar of gold calculated on
the basis of gold leaf as worth $35 per troy ounce.
US $10 GREEN (Saigon)
PIASTER-DOLLAR CROSS RATE - Piaster-dollar exchange rate in Hong
(Hong Kong) Kong calculated by reference to the
exchange rates of these two currencies
to the Hong Kong dollar.
US $10 MPC (Saigon) - Military Payment Certificates (scrip).
Approved For Release 2007/03/06 : CIA-RDP79T00826AO01000010024-8