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March 17 1970 hearing (pages 569-634)
CIA/DoD Phoenix Program:
Targeting non-combatants (civilians)
Also: Exit strategy, rigged elections, puppet government

CIS: 71 S381-2 SuDoc: Y 4.F 76/2:V 67/17

Vietnam: Policy and Prospects, 1970 {58.4mb.pdf, source}

 


HEARINGS


BEFORE THE


COMMITTEE ON FOREIGN RELATIONS


UNITED STATES SENATE


NINETY-FIRST CONGRESS SECOND SESSION


ON


CIVIL OPERATIONS AND RURAL DEVELOPMENT SUPPORT PROGRAM

______________________


February 17, 18, 19, 20, and March 3, 4, 17, 19, 1970 {appendix}


GPO mark


Printed for the use of the Committee on Foreign Relations


U.S. GOVERNMENT PRINTING OFFICE
44-706 WASHINGTON : 1970

COMMITTEE ON FOREIGN RELATIONS

J. W. Fulbright, Arkansas, Chairman

John Sparkman, AlabamaGeorge D. Aiken, Vermont
Mike Mansfield, MontanaKarl E. Mundt, South Dakota
Albert Gore, TennesseeClifford P. Case, New Jersey
Frank Church, IdahoJohn Sherman Cooper, Kentucky
Stuart Symington, MissouriJohn J. Williams, Delaware
Thomas J. Dodd, ConnecticutJacob K. Javits, New York
Claiborne Pell, Rhode Island
Gale W. McGee, Wyoming

Carl Marcy, Chief of Staff

Arthur M. Kuhl, Chief Clerk


Note.— Sections of this hearing have been deleted at the request of the Department of State and the Department of Defense. Deleted material is indicated by the notation “[Deleted].”



(II)

 

CONTENTS

{To come}

{March 17 1970 hearing, pages 569-634}

 

{p.569}

Vietnam: Policy and Prospects, 1970

___________________________

U.S. Economic Assistance Program in Vietnam

_______________

United States Senate, Committee on Foreign Relations, Washington, D.C.


Tuesday, March 17, 1970


The committee met, pursuant to notice, at 10:05 a.m., in room 4221, New Senate Office Building, Senator J. W. Fulbright (chairman) presiding.

Present: Senators Fulbright, Gore, Symington, and Aiken.

The Chairman. The committee will come to order.

OPENING STATEMENT

The committee is meeting this morning to continue its study of the operations of the U.S. programs in Vietnam.

Thus far in this series, the committee has heard testimony from U.S. officials in Vietnam responsible for the pacification and the military advisory programs. Today the committee will hear testimony concerning the economic assistance program.

By the end of this fiscal year the United States will have provided some $4.8 billion in economic aid to South Vietnam, including food-for-peace shipments.

I would like to emphasize that this does not include the military assistance or military expenditures; this is economic aid.

Aid to Vietnam in fiscal 1970 will absorb more than one-fourth of the total appropriation for economic assistance. The purpose of this hearing is to examine how these vast sums are being spent, the plans for further U.S. aid to Vietnam, and the assumptions on which those plans are based, including the prospective impact of the Vietnamization policy and the withdrawal of U.S. forces on Vietnam’s economy.

The witness today is Mr. Donald G. MacDonald, Director of the U.S. AID mission in South Vietnam, who is accompanied by a number of his associates. In keeping with the procedure followed in the previous hearings involving personnel brought back from Vietnam, I will ask Mr. MacDonald, and his associates to be sworn at this point.

SWEARING OF WITNESSES

Would you please stand and raise your right hand.

Do you solemnly swear that the testimony which you are about to give will be, to the best of your knowledge, the truth, the whole truth, and nothing but the truth, so help you God? {p.570}

Mr. MacDonald. I do.

Mr. Sharpe. I do.

Mr. Farwell. I do.

Mr. Ellis. I do.

Mr. Herr. I do.

The Chairman. Mr. MacDonald, I notice that your prepared statement is some 25 pages in length. Do you think it would be feasible for you to put the entire statement in the record for reference, but summarize it now, because I know you and members of the committee have limited time and much of this is not news. If you would pick out those points which you would like to stress, I think it would be more agreeable, if you are willing to do that.

Testimony of
Donald G. Macdonald, Director, U.S. Agency for International Development, Vietnam; accompanied by
Willard D. Sharpe, Deputy Director, Office of Economic Policy, Vietnam Bureau, AID, Washington;
A. E. Farwell,
Associate Director for Local Development, U.S. AID, Vietnam;
A. H. Ellis,
Associate Director for Programs,
U.S. AID, Vietnam;
and
Richard H. Herr,
Assistant Program Officer, U.S. AID, Vietnam

Mr. MacDonald. Yes, of course, if that is the Chair’s pleasure I had hoped to be able to—

The Chairman. It will take an hour to read it; will it not?

Mr. MacDonald. No, sir; I think I can skim it off in 29 or 30 minutes. It is triple spaced.

The Chairman. Go ahead, if that is what you prefer.

Mr. MacDonald. Thank you, Mr. Chairman and Senators. I am very glad to have this chance to tell you about the economic and technical assistance programs which my agency conducts in South Vietnam. I think they have been essential to the overall effort in the past, and are certainly important to the process you are now examining — as you indicated, Mr. Chairman — the process of Vietnamization.

Earlier witnesses have said that the problem in Vietnam is not exclusively a military one. It is a situation requiring a whole spectrum of activity — economic and social, political and psychological, as well as military. It is an unprecedented struggle and the nature and diversity of our efforts to deal with it have been, I think, unprecedented, too.

REQUIREMENT FOR NONMILITARY AID

Substantial nonmilitary aid has been required, just to cope with the consequences of the military conflict — to sustain the logistics apparatus of roads, ports, and harbors necessitated by the war; to enable a small economy to support a huge defense budget; to ease the burdens of a civilian population already living within very narrow means; to give special help to the refugee, the injured, and the other civilian casualties.

Substantial aid has also been required to help the GVN master problems of economic and social development. This has entailed an effort not just to moderate the hardships but to improve the circumstances of ordinary South Vietnamese despite the conflict and {p.571} despite the attempts of the Viet Cong and North Vietnamese to worsen their economic lot. It has also entailed the growing effort of the South Vietnamese to achieve rapid social change in the midst of war; to build their nation as a better place in which to live, not at some distant time, but today and tomorrow. Finally, it entails putting down economic foundations now for independence and self-sustaining growth of Vietnam in the years ahead.

 

I would like to talk first about the economic problems of stabilization and Vietnamization.

THREAT OF INFLATION

Most of the assistance AID has provided South Vietnam has been given to prevent runaway inflation. Without external aid to support the necessary expansion of South Vietnam’s national budget, its economy would have succumbed to a destructive inflation. The threat of such an inflation emerged in 1965 as defense spending rose, as U.S. base building began to put strains on manpower and as Vietcong interdiction of transport curtailed the distribution system.

Domestic production fell as farmers were drafted for military service, were driven from their land, or sought the security of the cities. Those who remained on their farms produced less, as their access to markets was cut. In all, over % million Vietnamese in the private sector who had been engaged in economic pursuits were mobilized to the public payroll and service in the nation’s defense.

The most costly declines in production were those in rubber, the nation’s leading export, and in rice, the foundation of the rural economy. By the end of the 1966-67 crop season, rice production had fallen by more than one-fifth, requiring South Vietnam to import more than twice as much rice that year as she had exported only 3 years earlier.

In addition to falling production, there were dangerous increases in money supply as Vietnam’s defense budget and spending by United States and other free world forces grew.

These three trends — falling production, the mobilization of manpower to the public sector, and rising expenditures — created a classic inflationary situation in which too much money competed for too few goods.

It was necessary to contain this inflationary threat, not just to avoid the kind of economic chaos which has stricken other countries in similar circumstances, but to preclude the human suffering, despair, and political instability which would have ensued. To have failed in this would probably have meant to have failed in the total effort, just as allied troops were arriving to help South Vietnam avert a military defeat.

STABILIZATION EFFORT: THE IMPORT PROGRAM

A major feature of the stabilization effort which was begun in 1965 has been a combination of United States and Vietnamese Government (GVN) financed import programs which eased the inflationary pressure of the growing money supply by making goods less scarce. At the beginning of the period, the volume of U.S. imports — that is. Public Law 480 food for peace and food for freedom, and {p.572} AID imports — was greater than that of GVN imports. These U.S. imports were substitutes for goods, such as rice, which could no longer be produced in sufficient quantities, and they met new and essential demands within the economy created by the war. They also generated revenues to finance the national budget.

United States financed commercial imports peaked in 1966 when AID and the Department of Agriculture provided $335 million in commodities. In succeeding years South Vietnam’s foreign exchange receipts rose with an increase in spending by free world forces. This was largely dollar spending by the U.S. Department of Defense for its piaster needs. As this occurred, AID import financing was cut back to shift more of the import bill to the Vietnamese to avoid unwarranted buildup of their foreign exchange reserves.

Total commercial imports financed under both programs rose from $282 million in 1965 to $659 million in 1969. During the same time, Mr. Chairman, government revenues derived from these imports which were needed to finance the wartime budget shot up eightfold, from about 6 billion piasters in 1965 to about 52 billion in 1969, the latter amounting to some 36 percent of the national budget.

A second major feature of the early stabilization effort was devaluation of South Vietnam’s currency in June 1966, to a new rate of 118 piasters to one U.S. dollar, roughly one-half of its previous worth. This increased the price Vietnamese importers were required to pay in piasters for the same amount of goods, lowered demand for imports, and reduced the need for foreign aid to finance them.

The Chairman. What is the black market rate?

Mr. MacDonald. Pardon, sir?

The Chairman. What is the black market rate?

Mr. MacDonald. The last quotation when I left last week was, I believe, 356 last week. I do not know what it is today. We can supply that sir.

(The information referred to follows:)

_________________________

BLACK MARKET RATE FOR U.S. DOLLARS (AID)

The black market rate as of Mar. 9, 1969, was 362 piastres to the dollar.

_________________________

STABILIZATION EFFORT: INTERNAL TAXATION

A third feature of the overall stabilization effort has been a continuing improvement in the administration of internal taxes, as distinct from revenues from imports. There have been improvements in collections and revenues have increased substantially from 11 to 37 billion piastres in the last 4 years, but most of this increase is attributable to inflation. Much obviously still remains to be done. The Ministry of Finance is introducing improvements and striving for better performance. A 35-percent increase of 13 billion in revenues from internal taxes is expected in 1970.

STABILIZATION EFFORT: DOMESTIC PRODUCTION

A final feature of the overall stabilization effort has been the series of measures which the South Vietnamese have undertaken with our {p.573} help to encourage domestic production, to restrain imports, and check their reliance on foreign aid. Imports financed under AID’s commercial import program include, in addition to essential consumer goods, basic raw materials and selected capital equipment to maintain and increase domestic production. Among the most important of these, as an example, has been fertilizer. It has been subsidized to induce farmers to use it, and during the last 3 years its importation and distribution have been transferred from less efficient bureaucratic hands to the private sector. The use has doubled in that time.

But Vietnamese policy actions have also been required to achieve domestic production increases. In 1967 and again in 1968 the Government of South Vietnam raised the price of rice, a politically difficult move, in order to provide incentives to farmers to grow more of it. These price incentives and — for the first time in history — the ready availability in markets throughout South Vietnam of agricultural inputs of all kinds, of fertilizer, pesticides, and pumps — combined to make possible in late 1967 a dramatic new program to increase rice production through the introduction of the now well-known miracle rice seeds from the Philippines. The ambitious goals the Vietnamese set for the rapid introduction of these miracle seeds, despite the substantially complicated cultivation procedures they require, are being met. Production of all kinds of rice for the current crop year is expected to be 5.1 million metric tons, the best since 1964, and the Vietnamese foresee self-sufficiency beginning in 1971.

RESULT OF STABILIZATION MEASURES

What has been the result of these stabilization measures?

The basic result has been to avoid the runaway inflation that was threatened and to slow the rate of price increases. From July 1966 to January 1970, a period of 3-1/2 years, the average annual rate of increase in the cost of living in Saigon was held to 27 percent. That is a lot of inflation, but it is strikingly less than the 150 percent annual rate of increase which occurred in Korea in the comparable period from 1950 to 1953, bringing with it in that country and at that time not just austerity, but widespread suffering.

In contrast, there has been no hardship from purely economic causes for most South Vietnamese families since 1965. If anything, price inflation has probably been exceeded by an increase in average family real income, as the old economy of traditional underemployment — which was further depressed by heavy migration to the cities at the beginning of this period — to one of full employment with jobs for all employable members of a family. I cannot pretend that good statistics are kept on all these things, but it is clear, I think, that more South Vietnamese are gainfully employed than ever before; they have a more varied and nutritious diet, and they have access to a range of producer and consumer goods which have expanded their social and economic horizons.

From the foregoing you might conclude, Mr. Chairman, that we are overly content that efforts we made to maintain relative stability in Vietnam’s economy have been successful. We are not. There have never been grounds for complacency in my time, at least, nor are there in the rime ahead. Fighting inflation in wartime is like running a high-hurdles race; there is always a new obstacle just ahead. The economic impact of Vietnamization is the next hurdle. {p.574}

ECONOMIC IMPLICATIONS OF VIETNAMIZATION

Decisions taken in June 1969, setting higher South Vietnam force levels, made possible the beginning of the reduction of U.S. troop levels. But they called for a projected increase in the GVN defense budget of almost 40 billion piasters, nearly a doubling of the defense budget, and this immediately intensified inflationary pressures. As a corrective measure, in October 1969 the Government decreed heavy increases in import taxes on less essential goods. In 1970 these austerity taxes will nearly double revenues derived from imports by raising an additional 30 to 35 billion piasters, and in so doing will be a major factor in financing the initial costs of Vietnamization. But, they will not be enough. As American servicemen leave, South Vietnam’s troop levels and its defense spending will necessarily continue to go up. The defense budget will grow further still as U.S. military base facilities, naval vessels, aircraft, and artillery are transferred to Vietnamese forces, introducing heavy new maintenance and operation costs to the budget.

We believe it is essential that the Vietnamese prepare to do as much as they can themselves to meet these rising costs of Vietnamization. They have been doing a great deal to cut least essential activities from their budget and to increase their tax collections; they can be expected to continue these efforts. And their success in reversing the decline in domestic production triggered by the war has already been remarkable, I think. But there should be renewed emphasis, despite the war, on the development of domestic production to begin to reduce the need for imports and for foreign aid in the time ahead. There are several opportunities to increase domestic output and some export potential as well, even in the relatively short run. Naturally, however, with 1.1 million men out of a population of some 17 million soon to be under arms — and I would interpose here, Mr. Chairman, that this is a defense force in the magnitude of 13 to 14 million people in American population terms — with such a force soon to be under arms and with the economy already in the condition of over-full employment, increases in domestic output and export expansion will come slowly.

A high level of U.S. economic assistance will be needed in the next few years to help finance the cost of Vietnamization. We have not yet determined the levels of assistance which will be required. When the conflict will end, how it will end, the rate at which U.S. forces will be withdrawn, the level of Vietnamese forces that need to be retained after the war, are all questions which have a bearing on these requirements and which we do not have answers to today.

EFFORTS TO ACHIEVE RAPID SOCIAL CHANGE

Let me turn now to another facet of the AID program, our assistance to the South Vietnamese and their efforts to achieve rapid social change.

Colonialism established economic and social patterns inadequate to the needs of an independent Vietnam. The French left a limited range of social services, established to support and perpetuate their position as the occupying power. They left a French-oriented school system providing French education to children of the Vietnamese elite: health services largely limited to the capital and province towns, {p.575} administered by French or by French-trained Vietnamese; a system of government administration geared to a colonial society, staffed by Vietnamese trained more to control than to serve. These Government functions had three things in common: They were highly centralized, preserving authority in a few hands; they were static, drawing on the experience of the occupying power, without the potential for self-evaluation or constructive change, and they were intended to perpetuate the privileged position of the elite.

With independence, South Vietnam was hard-pressed to maintain even these limited kinds and levels of administration. Partition had denied it most of the nation’s industrial base and much of its ability to school and train its manpower. Moreover, South Vietnam’s leadership came to the task of nation-building with a sense of aspiration, perhaps, but with few clear goals, and it tended to think in terms of continued centralization, autocracy and privilege.

Yet, that leadership sought foreign technical assistance to help begin a process of evolutionary change. And in 1965, even as the war intensified, the nation’s leaders consciously converted that process of evolutionary change to an attempt at social revolution. During a time of war, when government services are traditionally curtailed, the Government sought to create a system of universal free education. During a period when it was swamped by the problem of caring for refugees and the war injured, it nonetheless embarked on programs to develop a capacity to deliver health services to all Vietnamese. During a period of widespread insurgency when, on the evidence of history, the Government might have been expected further to centralize power, there was a restoration of constitutional authority and the delegation of governmental power to newly elected — not appointed — village officials.

During a period of budgetary deficit, the central Government chose to share with people in local communities control over national resources and the means to modify the environment in which they lived. All these efforts were undertaken as invasion and externally stimulated insurrection threatened the very existence of the nation.

I cannot, Mr. Chairman, in my opening statement, cover the full array of government services being developed in South Vietnam, so I will limit my comments to two key areas — education and land reform — and attempt to deal with other areas as you may wish later.

EDUCATION

Vietnam has adopted education as a vehicle of economic and social change, as a visible evidence of government responsiveness to public demand, and as a force for national unity. The full effort encompasses the training of teachers and the creation of a normal school system to accomplish that, the preparation and printing of Vietnamese textbooks, the revision of an old French curriculum to one based on the needs of today, and the construction of classrooms and schools.

As a result, the number of children enrolled in primary school has risen since independence from about 400,000 to 2.3 million today — or nearly 82 percent of the primary school age population of the country. These are obviously not only the children of the elite.

This revolution in education has received the support and active participation of the population at large. Since 1966, some 2,000 {p.576} Student-Parent Associations have been formed, with one-half million members. People in local communities are contributing their own resources — their money and labor — to the construction of additional classrooms. A threefold effort has been launched to further decentralize this national education. This effort is encompassed in a decision taken by the Ministry of Education last year to delegate to local communities administration of primary and secondary education, in efforts of the Government to revitalize the collection of local taxes by local communities, and in a delegation of authority for them to spend the revenues they collect, and finally, in the installation of a nationwide community school program involving participation by the school in the life of the community.

We realize that numbers alone do not tell the whole story. The system is numerically strong, but still qualitatively weak, inadequately staffed and struggling to handle its swelling tide of students. But it is also a system possessing a leadership capable of distinguishing between planning and dreaming, which has made a breakthrough in mass education that many countries at peace in the world are yet to begin. And it is a system already working on the next generation of problems — the problem of keeping children in school longer, of evolving a pattern of secondary education which matches the nation’s needs for skills; of modifying the university system further to produce the engineers, agricultural scientists, and business administrators who still largely seek their training abroad.

The Vietnamese have, of course, received a great deal of help from us in realizing these accomplishments, but I would stress very much that the end product is wholly Vietnamese. The primary school system is now a matter of some 40,000 Vietnamese teachers instructing 2.3 million Vietnamese children in 32,000 Vietnamese classrooms, using 16 million Vietnamese textbooks.

AID once had 20 primary school advisers working with the Ministry of Education. Now there are two.

LAND REFORM

Another matter of great economic, social and political importance is land reform. The Government of Vietnam has given increasing attention in the last 2 years to long-standing programs intended to transfer the ownership of more of the nation’s rice lands to those who till it. Of more recent vintage is President Thieu’s revolutionary land-to-the-tiller bill, which would abolish tenancy completely in Vietnam. This bill has been passed by the Senate and will soon be sent to the President for confirmation and promulgation.

The current emphasis on land reform is a logical extension of policies which have been carried out — sometimes vigorously, sometimes not — over the past 17 years. Prior to independence, most of the land in agricultural production was owned by the French or the Vietnamese elite. The first significant reforms were taken by decrees in 1953 and 1955 to protect the security of tenants under rental contracts and to limit rents to 25 percent of the value of the crop. These regulations were difficult to administer and were not uniformly applied. But they had a good effect, strengthening the tenant in his relations with his landlord and generally lowering rents, which had been {p.577} in the range of 45 to 55 percent of crop values, to an average of about 35 percent.

Next, in 1956, the Government, by expropriation, reduced to 250 acres the amount of rice land which any individual could retain, and in 1958 it acquired the rice land holdings of French citizens. In total, the Government took ownership of about 1.7 million acres. By 1961, the program of redistributing the cultivable portion of these lands — which had gotten off to a reasonably good start in the fifties — fell prey to maladministration, deteriorating security, and the preoccupation of successive national leaders with political survival. The distribution of these lands became painfully slow; only 6,000 acres were distributed annually from 1962 to 1967.

Then, as security improved in 1968, the Government gave renewed priority to land reform. With some technical and financial assistance from AID, it revamped its administrative machinery. Procedures were simplified; purchase payments by cultivators were waived, and a nationwide freeze on occupancy and rents was decreed by the President. In the ensuing 2 years, a quarter of a million acres were distributed. Distribution of the approximately 185,000 remaining cultivable acres held by the Government is planned to be completed this year. These programs will have reduced the percentage of rice lands tilled by tenants from 77 percent in the mid-1950’s to 58 percent at the end of this year.

However, the land-to-the-tiller bill just passed by the National Assembly calls for the redistribution of 3.2 million acres to at least 600,000 farm families comprising about 4 million of South Vietnam’s 17 million people. When enacted into law and if successfully carried out, it may eliminate tenancy in South Vietnam within 5 years.

The foregoing is not to say that a social revolution, American-style, has been accomplished or even that the end result can be fully discerned. But the leadership of South Vietnam has begun and is pursuing a process of enlightened social change.

PROSPECTS FOR DEVELOPMENT IN POSTWAR PERIOD

Mr. Chairman, I would like to comment briefly, last of all, about South Vietnam’s longer-range prospects for development in the postwar period. Whatever the uncertainties about when the conflict will end and what kind of peace will follow, there are several constants in this longer-range equation.

The first constant is the constant of facilities. Vietnam will need to reconstruct damaged facilities and repair others which have deteriorated from lack of maintenance. Secondary roads and bridges, irrigation canals, and salt water intrusion barriers will need early attention.

The problems of inadequate public utilities and housing in urban centers whose populations have doubled since 1965 are becoming urgent and will be difficult. Difficult, also, will be the traditional dislocations in the transition to peace, particularly the problem of unemployment.

On the other hand. South Vietnam is generously endowed with natural resources. The fertility of the rich delta soil is unsurpassed in Southeast Asia. Double cropping and extensive crop diversification practices are already under way and can be steadily extended when {p.578} peace comes. The forests in the highlands are largely unexploited and offer excellent prospects for timber and processed wood production. Rubber, once Vietnam’s leading export, could rather quickly, we believe, regain a position of importance. Fisheries offer another area of a known but as yet virtually untapped resource. I have already mentioned rice, which is approaching self-sufficiency in 1971 and may again become a significant export. These are only a few. The whole gamut of potential Vietnamese exports in the 1970’s is really very favorable. A study completed for AID just last December by David Lilienthal’s Development & Resources Corp. suggests potential export earnings in 1980 could be as high as $425 million compared to the meager $15 million in 1969, or prewar peak earnings of $84 million in 1961. And exports should be just the “top of the development iceberg,” supported by more extensive domestic production substituting for many of today’s imports and answering domestic consumption needs.

Moreover, South Vietnam will possess many excellent infrastructure assets for a country of her size and at her stage of development. First-class seaports, airports, warehousing facilities, and excellent major road arteries will be in place and in use.

And South Vietnam will inherit from the war years, also, a large reservoir of literate manpower, trained to comparatively high levels in diverse military-civilian technical and management skills.

Finally, the GVN is trying to put its planning house in order. The President of South Vietnam last fall appointed a Special Assistant for National Planning, who is now working up relatively short-term development projects. And the Vietnamese and we have already looked further ahead to a period when it will be possible to engage in projects of broader economic development. The committee has been furnished copies of the three-volume study of March 1969, entitled “The Postwar Development of the Republic of Vietnam: Policies and Programs,” prepared jointly by a group of Vietnamese Government and private American experts, which I would be pleased to discuss later, if the Committee wishes.

FOREIGN AID REQUIRED FOR POSTWAR DEVELOPMENT EFFORT

Foreign aid will be required by the Vietnamese in their longer range development effort.

I must not give you the impression, however, that only American help should or will be sought. The Vietnamese and we are in frequent consultation with the Asian Development Bank, the World Bank, the several technical assistance agencies of the United Nations, the Japanese and other governments about development and investment opportunities. We are very much encouraged by the interest others have shown recently in playing a role in the development of Vietnam when peace comes.

From a purely economic point of view, this should be an exciting decade for South Vietnam. Given a chance at peace, it could, I believe, be the transitional decade in which South Vietnam could attain a state of self-sustaining growth without the need for continuing, con-sessional aid thereafter. {p.579}

 

PRESENT U.S. ECONOMIC ROLE IN VIETNAM

Therefore, Mr. Chairman, I conceive of the U.S. economic role in Vietnam today not only as one of assistance to Vietnam to carry the burdens of a costly military conflict, but, simultaneously, to help Vietnam plan for economic self-sufficiency.

Mr. Chairman, there are many things about our aid to South Vietnam I have not mentioned. I have tried to spare you a too-long recital of facts and figures and confine myself to the main purposes and elements of the Vietnamese efforts we assist, in the expectation that members of the committee will have many specific questions, and I the opportunity to respond to them.

This concludes my statement, Mr. Chairman. I am very appreciative for having had the opportunity to make it.

The Chairman. Thank you, Mr. MacDonald.

BACKGROUND OF WITNESS

Tell me, Mr. MacDonald, how long have you been in the AID organization?

Mr. MacDonald. I joined it in 1952, Mr. Chairman.

The Chairman. How long have you been in Vietnam?

Mr. MacDonald. 1966, the late summer of 1966.

The Chairman. Where were you prior to that?

Mr. MacDonald. I served a very short tour in Nigeria, where I had been assigned, expecting to stay for several years, and then was asked to come to Vietnam.

Prior to that time, sir, I served as the AID Chief in Pakistan. I was in Pakistan about 4 years.

The Chairman. You have been approximately 4 years in Vietnam.

Where are you from in the United States, Mr. MacDonald?

Mr. MacDonald. I am a resident of the State of Vermont.

The Chairman. That is a coincidence. [Laughter.]

Senator Aiken. Now be careful.

The Chairman. I did not know you had been so successful in staffing the agency. [Laughter.]

U.S. OBJECTIVE IN VIETNAM

Mr. MacDonald, since you have been there 4 years, I wonder if you could tell me what do you think is the purpose of the U.S. efforts in Vietnam? What is the ultimate objective? Why are we there?

Mr. MacDonald. Well, in pursuit, Mr. Chairman, of national interests.

The Chairman. Whose national interests?

Mr. MacDonald. In pursuit of what the Administration conceives to be American national interest.

A shorter and more direct answer to your question is that in 1965, the beginning of the period that I am discussing, our great effort was to attempt to help the South Vietnamese avert defeat which seemed—

The Chairman. To do what?

Mr. MacDonald. To avert defeat in 1965 and 1966.

The Chairman. Defeat by whom? {p.580}

Mr. MacDonald. By their enemies, Mr. Chairman.

The Chairman. Who are their enemies?

Mr. MacDonald. Mr. Chairman, the North Vietnamese and those within South Vietnam externally stimulated by the North Vietnamese are their enemies.

The Chairman. I did not anticipate your going back to 1955, but were there substantial numbers of North Vietnamese in South Vietnam in 1955?

Mr. MacDonald. Mr. Chairman, my reference was not 1955.

The Chairman. You said 1955.

Mr. MacDonald. No, sir; I said 1965. I am sorry.

The Chairman. You do not have to lean over. Pull the microphones closer to you and it will be much easier to hear you. Both of them are movable and it will make it much easier for you to speak into the microphone.

This story you give of what you are doing there is, of course, a very appealing one. I still do not quite understand why my constituents have a vital interest in what happens in Vietnam. I wondered if you could enlighten me a little because they ask me all the time in letters and I find it very difficult to justify the taxes that they pay to support the Vietnam AID program. I wondered if you could give me an idea of what you would say to a farmer in the Ozarks as to his great interest in what takes place in Saigon.

Would you help me on that?

Mr. MacDonald. Well, Mr. Chairman, with your indulgence, I would recall that I am the Director of the U.S. economic and technical assistance program in Vietnam.

The Chairman. Correct.

Mr. MacDonald. This is my responsibility. It is also my competence and I am prepared to provide you all the information that I possibly can on that.

I would respectfully suggest, sir, that the questions that you are addressing to me are of a political nature that are not in my field of competence or responsibility.

The Chairman. That is a perfectly valid answer and I accept it.

I do not think it is in my competence either. I do not know of anyone who has been here who could explain it satisfactorily to me, but I thought you might give it a try. You have been there 4 years. You have observed it and you are better prepared than most of them.

AMOUNT OF FISCAL YEAR 1970 AID PROGRAM IN SOUTH VIETNAM

Coming to your statement, you say this statement is to give us what was within your competence. I do not believe you gave in your statement the amounts involved in the current fiscal year in the AID program in Vietnam. Is it in your statement?

It seems to me you carefully, or at least inadvertently, avoided giving any figures about our current amounts.

Mr. MacDonald. Yes. As I said in my conclusion, I said I had hoped to spare you too full a recital of facts and figures. I have these figures.

The Chairman. I wish you would give them. You might suspect that we would be interested in the amounts. Nearly all legislators are

Mr. MacDonald. Yes, sir.

I have come fully prepared. {p.581}

The Chairman. I wondered why you avoided that in any of your statements. There are no amounts about the current or past year. Would you read them now?

Mr. MacDonald. Yes.

The amounts that we estimate for the current fiscal year of 1970 broken down by—

The Chairman. What is the total?

Mr. MacDonald. The total is $498.5 million, excluding an allocation to my mission of about $1 million from agency-wide administrative appropriations.

The Chairman. $498 million in economic assistance. That has nothing to do with military assistance?

Mr. MacDonald. That is correct.

The Chairman. Does that include Pulbic {sic: Public} Law 480?

Mr. MacDonald. That includes Public Law 480.

The Chairman. Then if you wish to break it down, into what is it broken down?

Mr. MacDonald. The AID portion of that total figure is $352 million. I can break that further, Mr. Chairman. There is $132 million devoted to project activities of the sort that I referred to in my discussion of technical assistance in such fields as education and land reform, and an additional $220 million to finance the commercial import program that I cited in my statement as a major tool in the anti-inflation and budget revenue generation effort, for a total of $352 million under AID.

Under Public Law 480, there is $107.1 million for title I commodities which, as you know, are sold within the commercial community of the country, and another $39.4 million of title II commodities which are not sold but granted to needy people in South Vietnam.

It is a grand total of $498.5 million.

SPENDING BY UNITED STATES AND OTHER FREE WORLD FORCES

The Chairman. You say in your statement that the “spending by United States and other free world forces grew,” but you do not give the levels.

What was the level of spending by United States and other free world forces? What are the free world forces you are thinking of?

Mr. MacDonald. Well, I do not have every year at my fingertips, but this year our expectation is that U.S. spending will be $354 million, and if my memory is clear, about $45 million of these purchases will go for personal piaster purchases, and the remaining $309 million will go for official requirements to service American-based facilities, and things of that sort, $354 million this year.

The Chairman. Who are the other free world forces? I did not follow that.

Mr. MacDonald. The allied countries who have forces fighting.

The Chairman. Do you mean the Koreans?

Mr. MacDonald. I mean the Australians and the—

The Chairman. There are very few Australians. The Koreans are the only substantial force in numbers; are they not?

Mr. MacDonald. They are the largest.

The Chairman. Is that whom you mean? {p.582}

Mr. MacDonald. I mean all the allied forces who are there, the Koreans and the Australians and others.

The Chairman. You are counting this as the money they are spending, but all the money they are spending we are furnishing them; are we not?

Mr. MacDonald. Not all, Mr. Chairman, not all. Not the Australians.

The Chairman. No, not the Australians. Are we not furnishing the Koreans their expenses?

Mr. MacDonald. I have no competence in that.

The Chairman. OK.

Mr. MacDonald. I think that is a military question. I do not know the arrangements.

U.S. AGREEMENT CONCERNING KOREAN TROOPS IN VIETNAM

The Chairman. We have had evidence. I thought I would like to put it in here. We made an agreement with the Koreans to transport them to Vietnam, feed them and pay them.

I thought you knew that. The famous Brown letter has been widely publicized, but it is not directly your responsibility.

EXCHANGE RATE OF PIASTER

With regard to monetary reform you say in your statement that the piaster was devalued in 1966 to a rate of 118, and today the black market rate you said is 386.

Mr. MacDonald. I said 356 last week.

The Chairman. 356. Do you think there should be a further devaluation?

Mr. MacDonald. Well, the exchange rate is not a terribly complicated thing, but it is not quite that simple.

As a practical matter, the Government of South Vietnam has what can only be described as a multiple exchange rate system. There is not a single exchange rate against which all imports come into the country.

For instance, in my opening statement I made mention of the emphasis that we gave to the importation of fertilizer, and I think I added that it was subsidized to induce farmers to use it. Fertilizer enters the economy at the very, very low rate of 80 piasters to 1 dollar. That is even lower than the 118 which is legally the official rate.

I might as an aside say that the 80-to-1 rate is probably a little too low.

The other end of the spectrum, Mr. Chairman, will take you all the way to, for a car for instance, something on the order of 1,005 to 1,010 piasters to 1 dollar. They have a series of customs and austerity taxes which are applied over and above the basic 118 rate, so there is in effect a multiple system.

FISCAL YEAR 1970 ECONOMIC AID TO SOUTH VIETNAM IS A GRANT

The Chairman. Before I move away from it, the $498 million is not loans; that is a grant? {p.583}

Mr. MacDonald. Yes, all these figures, sir, that I have given so far are grants. In an earlier time there were a few dollar loans made.

PAYMENT FOR IMPORTS

The Chairman. Is the United States paid in piasters for the imports at all?

Mr. MacDonald. Not for AID; but Public Law 480 title I foods are sold by the United States to South Vietnam for piasters, 20 percent of which are returned for U.S. uses.

The Chairman. When you ship in televisions, are you paid for them or are they given to the people or the recipients?

Mr. MacDonald. AID does not finance TV sets in its commercial import program. All of the goods which enter Vietnam under import programs enter through normal commercial channels under businesslike procedures.

The Chairman. Do they pay at the official rate?

Mr. MacDonald. They pay at whatever the effective rate is for the article. As I have indicated to you the farmer will pay but 80 piasters for—

The Chairman. It is a variable rate; there is no definite rate.

Mr. MacDonald. There is an official basic rate of 118 per dollar.

The Chairman. What is the significance of that if it is not used in imports?

Mr. MacDonald. It is a base from which one can depart to subsidize a particular commodity which it is important to make available for widespread use, or to restrict the importation of other goods by putting on very high austerity taxes.

1971 BUDGET REQUEST

The Chairman. What is the estimate of next year’s budget? What is next year’s budget request?

Mr. MacDonald. 1971 has not yet been finally determined, Mr. Chairman. I believe that my superior, Dr. Hannah, is scheduled to make an appearance, if not tomorrow, early next week before the Subcommittee of the House Appropriations Committee. Decisions have not yet been made as to the levels that will be sought.

U.S. ECONOMIC ASSISTANCE NEEDED TO HELP FINANCE VIETNAMIZATION

The Chairman. You say in your statement that “a high level of U.S. economic assistance will be needed in the next few years to help finance the cost of Vietnamization.” What is your estimate of that?

Mr. MacDonald. Well, as I indicated, Mr. Chairman, it is not really possible to provide a single estimate. I need a whole series of givens in the first instance. I need to know the rate of U.S. force withdrawal to calculate the effect that that will have on foreign exchange earnings of South Vietnam. I would need to know the intentions of the enemy and what that implies for the size of South Vietnamese force levels in the years ahead.

These are unanswerable questions, Mr. Chairman. I am not avoiding your question. If I were given a series of hypothetical assumptions, I and my staff could come up with estimates. {p.584}

The Chairman. I based the question on only your own statement. I thought you had some idea of which that high level would be. It is quite all right if you haven’t made such an estimate.

AMOUNT OF U.S. AID TO EDUCATION

You talk about the help to education. You say the Vietnamese have received educational help. What amount have they received for education?

Mr. MacDonald. The dollar amount of our assistance, Mr. Chairman?

The Chairman. Yes.

Mr. MacDonald. If you will give us a moment I think we can probably supply that or would you prefer that we supply it for the record?

The Chairman. Yes, supply it for the record if you don’t have it.

(The information referred to follows:)

_________________________

A.I.D. EDUCATIONAL ASSISTANCE TO SOUTH VIETNAM

The total AID dollar obligations for assistance to South Vietnam in the field of education from fiscal year 1954 through fiscal year 1970 are $62.2 million.

_________________________

FINANCING OF SOUTH VIETNAMESE BUDGET

The Chairman. Can you give an estimate of the percentage of the Vietnamese national budget derived directly or indirectly from U.S. assistance or U.S. military spending?

Mr. MacDonald. Yes. Let’s see, it is something in excess of 50 percent. 53.4 or 53.6 percent of the total piaster budget of the Government of Vietnam is supported by American aid, whether that be denned as direct economic aid or as indirect economic aid, about 53 percent, sir.

If you would like a discussion on this point, I would be pleased to carry it further. I even have a chart.

Let me answer you by giving you the figures in this way: The way in which the 1969 budget was financed, if you will permit me to deal with 1969 rather than 1970 — I was reading the Wall Street Journal a couple of weeks ago with an editorial to the effect that projections of U.S. inflationary estimates are like snowflakes, they melt before they hit the ground — I would be more comfortable with the firmer 1969 figures.

There are five sources of funding of the South Vietnamese budget. The first is counterpart with which you are familier {sic: familiar}, I know, and also local currency—

The Chairman. Describe it. Counterpart are the funds generated by our imports; is that right?

Mr. MacDonald. In part. It is only in part the piaster generated—

The Chairman. As a practical matter it is no different from a direct grant; is it? They are not going to repay any of it.

Mr. MacDonald. This is very clearly an American contribution to the budget.

The Chairman. That is all I wanted to say.

Mr. MacDonald. Yes. Counterpart. {p.585}

The Chairman. Counterpart is a word generated years ago and it has a kind of a mystical feeling. It has a disguise so that people won’t understand how much we are throwing away.

Mr. MacDonald. Let me explain it. When a dollar’s worth of AID-financed commodities are imported into South Vietnam, counterpart to the extent of 118 piasters to a dollar are generated and put into a special counterpart account of the Government of Vietnam for their use with the concurrence of the United States. That is the first category of sources of budgetary funds.

The Chairman. That is about one-third of the going black market rate; isn’t it?

Mr. MacDonald. Yes.

The Chairman. About one-third.

Mr. MacDonald. Yes. I will come to the austerity taxes which will get the proceeds up to a level commensurate with the so-called black market rate.

In addition to counterpart there is also, Mr. Chairman, the local currency sales proceeds of Public Law 480 commodities, which come in at the same rate of 118 piasters to the dollar.

The second category of funds available for financing the Vietnamese budget are customs duties on commercial imports financed by U.S. aid, duties over and above the 118 piasters which are extracted and put into the counterpart fund.

The Chairman. Who pays the customs duty?

Mr. MacDonald. The importer who imports the goods. As I have said, in the case of a car, which we do not finance under the AID program, the customs duties would bring the rate to 1,000 piasters or something in that magnitude.

The third source of financing for the budget is customs on GVN financed imports, imports which they bring in with dollars from their own treasury.

The fourth is the generation of tax revenues from income taxes, direct taxes, excise taxes, the receipts of government agencies, such as the post office, these sorts of things.

The fifth, Mr. Chairman, is deficit financing to finance budget activities. This is in a very real sense a direct taxation of the people of Vietnam because it redeploys resources within the economy; it reduces their consumption of resources.

I would like, if you are interested, to show you a chart which lays this all out, I think it does it—

The Chairman. I think that is enough. I don’t believe we need a chart.

AID PROGRAMS IN SOUTH VIETNAM: PERSONNEL AND PAYMENT

I wonder, Mr. MacDonald, how many people are employed in the aid programs in Vietnam, direct hire, contract, and foreign nationals. Don’t you have that available?

Mr. MacDonald. Oh, yes, sir.

The Chairman. I have it here, but there are so many pages I can’t count them up. There are 10 pages in this booklet. I have not counted the numbers.

Mr. MacDonald. Well, let me give you the total at the outset and remind you in doing so that I am not talking just of Americans but of Vietnamese and other nationals as well. {p.586}

Our employment peaked last June at 10,272, including all categories. Now, of those—

The Chairman. Are they all on your own payroll? Those are not contract or do they include contract?

Mr. MacDonald. This is the universe: Vietnamese, American, third country nationals, direct hire, contract employees, personal service contracts, and employees of contractors whom we engage.

We had at that time 2,183 direct hire Americans of that 10,000 total.

The Chairman. In South Vietnam.

Mr. MacDonald. In South Vietnam. Plus 787 contract employees.

In addition to that the Americans—

The Chairman. Could I clarify one point? Is the upkeep of these people included in the figure of $498 million or is that in addition to that as a cost of the Vietnam program?

Mr. MacDonald. The $498 million figure that I gave you, sir, is a dollar figure, and it includes all of the dollar expenditures which we make.

The Chairman. Including the pay and support of all these people.

Mr. MacDonald. Including the dollar portion of pay for these people.

The Chairman. For example, is your salary paid out of that—

Mr. MacDonald. Yes; if you include the administrative allotment I referred to at the outset.

The Chairman. Out of that aid?

Mr. MacDonald. Yes; the only salaries not paid out of those dollars are the salaries of people who receive piasters, the Vietnamese. We have arrangements with the South Vietnamese Government under which we use counterpart funds to pay our local staff.

The Chairman. That is in addition to the $498 million.

Mr. MacDonald. No. It is this year’s manifestation of last year’s dollar input which generated those piasters. It is not additive, Mr. Chairman.

The Chairman. What do you expect to have a year from now? Do you have an estimate of that in personnel?

Mr. MacDonald. Let’s see, now, we are going down and we will be down in June of this year, a year since the high of 10,272, to about 9,410. I would expect, Mr. Chairman, that it would continue to drift down over the next 2 or 3 years.

The Chairman. The pacification program is quite apart from the aid program; isn’t it?

Mr. MacDonald. No, sir. One of my responsibilities is to provide the dollar, piaster, and staff resources that Ambassador Colby requires to conduct his several programs in the pacification field. These are gross figures for AID including the support we give Ambassador Colby’s program.

The Chairman. How much is that?

Mr. MacDonald. Well, let’s see. I have a breakdown. Do you want personnel figures? {p.587}

BREAKDOWN OF CORDS/AID PERSONNEL AND FUNDING

The Chairman. I want the personnel figures and the amounts in dollars to see how it breaks down between your and Ambassador Colby’s operations.

Mr. MacDonald. Somewhat less than half of the American personnel are provided to Ambassador Colby.

The Chairman. About a thousand?

Mr. MacDonald. About that, sir. Also roughly 90 percent of the counterpart budget that we Americans support in our project operations is turned over to pacification programs under Ambassador Colby’s purview. On a dollar basis a relatively small amount goes to CORDS. The great bulk of the dollar amount, of course, goes into our commercial import program, the Public Law 480 program and other nonpacification projects. Mr. Chairman, I can submit this for the record in full detail.

The Chairman. Could you indicate roughly without the details? I mean there is a substantial part of it and I thought you could indicate in round numbers about what it is.

Mr. MacDonald. I would like to submit the exact figures.

The Chairman. Yes, you can do both. That is right. Indicate roughly what this is and then correct it for the record so we will have it exactly.

The Chairman. What is the cost of what you contribute to the CORDS program?

Mr. MacDonald. Well, you will recall my saying that within the $352 million that AID proposes to spend in 1970, $132 million of it would be spent on projects. Of that $132 million, roughly $46 million will be administered by agencies to which Ambassador Colby is accredited. The remainder will be spent by other agencies of the Vietnam Government to which I am accredited.

(The information referred to follows:)

_________________________

USAID/CORDS BREAKDOWN

1. Personnel.— As of January 31, 1970, the breakdown of A.I.D.-funded American personnel was as follows:

 Direct hireContractTotal
USAID, in Vietnam 9434131,356
CORDS, in Vietnam 7993321,131
In training and processing (USAID and CORDS) 170
170
Total 1,9127452,657

 

2. Funding.— Estimated A.I.D. dollar obligations for the FY 1970 project program are broken down as follows:

 Millions
USAID $85. 9
CORDS 46. 1
Total 132. 0

________________

The Chairman. Do you supply any cover or money to the CIA?

Mr. MacDonald. Mr. Chairman. I have been instructed to say that all comment on such questions must be made in executive session and by other appropriate officials than myself, sir.

The Chairman. All right. {p.588}

AID PAYROLL AND ALLOWANCES IN SOUTH VIETNAM

What is the total cost of AID’s payroll, including allowances, in Vietnam?

Mr. MacDonald. I can supply that for the record, Mr. Chairman.

The Chairman. Could you indicate it roughly? Is it in the neighborhood of a hundred million or 50 million?

Mr. MacDonald. I can’t at the moment, but I can supply it. We believe it is in the range of $50 million in 1970.

The Chairman. $50 million. The Senator from Tennessee wishes to ask questions and I yield.

(The information referred to follows:)

______________________

A.I.D. fiscal year 1970 direct hire personnel costs for USAID/Vietnam and CORDS are estimated at $56.9 million.

_________________________

U.S. AID TO EDUCATION IN SOUTH VIETNAM

Senator Gore. Since I have another committee to which I must go, I found considerable interest in your statement with respect to the aid to education. How much money has the United States contributed to aid education in Vietnam in the past decade?

Mr. MacDonald. I can furnish that information for the record, Senator Gore.

Senator Gore. What were the expenditures last year for education?

Mr. MacDonald. Let me describe to you the componentry of expenditures by AID in such a field as education. Primarily we are talking of technical assistance which we provide to the Vietnamese in their efforts to modernize their educational system. This entails the recruitment of professionally qualified Americans to work with the Ministry of Education.

Senator Gore. I know what it is. I am trying to find out.

Mr. MacDonald. And at our peak, we had about 29. The total cost of aid for education from 1954 to 1970 was $62.2 million, Senator.

Senator Gore. Aid to education,

Mr. MacDonald. Yes.

Senator Gore. Is this an inclusive figure?

Mr. MacDonald. Is this what, sir?

Senator Gore. Is this an inclusive figure?

Mr. MacDonald. Yes, it is a gross figure of all costs to AID.

Senator Gore. That provides classroom aid, supplement to teachers’ salaries, textbooks.

Mr. MacDonald. This is the dollar figure, Senator Gore. The salaries of our advisers who have worked with the Ministry of Education, the cost of certain imports such as cement and reinforcing steel with which schools are built, the costs of contractors3 services who work with the Vietnamese in the development of a modern instructional materials center — things of this sort. These are dollar costs, Senator Gore.

QUALITY OF SOUTH VIETNAMESE EDUCATION

Senator Gore. Do you have an evaluation of the quality of education of the Saigon schools?

Mr. MacDonald. As I mentioned in my opening statement, we know that numbers don’t tell the full story. The quality of primary {p.589} education in South Vietnam is not good by modern standards. It is steadily improving.

 

Senator Gore. How does it compare with the District of Columbia standards?

Mr. MacDonald. I am not currently familiar with the District of Columbia standards, Senator, but in rough comparison I suggest to you that in level and quality, primary education in Vietnam today is something on a par with standards of 1890 to 1910 in our country where, typically, there was a small one-room schoolhouse, filled mostly by children in the primary grades, and taught by a young girl who perhaps the previous September had been a student at that school and then had been given brief training to become a teacher.

There is a very aggressive program being carried out by the Vietnamese, now that they have met their quantitative goals, to improve the quality of education.

I mentioned there were some 40,000 elementary school teachers. About 26,000 of these are 90-day wonders, to use the parlance of World War II military training in our country, or others who are less than fully qualified teachers. The remainder are graduates of 2-year normal school courses. Over the next 7 years, I think it is, Vietnam will be producing a sufficient number of graduates from the normal schools to place a fully qualified elementary school teacher in every classroom in the country.

Senator Gore. Some member of our audience sent me up a note that he lived in the District of Columbia and had to spend 15 percent of his annual income to send his children to a private school because of the inadequacy of the public schools in the District of Columbia, which suffer a lack of funds. I draw no parallel. I merely say we need funds for education everywhere.

Thank you, Mr. Chairman.

PERCENTAGE OF AID PERSONNEL ABROAD IN SOUTH VIETNAM

The Chairman. Mr. MacDonald, what percentage of the total AID personnel abroad are in Vietnam?

Mr. MacDonald. I will have to confirm the estimate I will give you for the record later but I believe it is on the order of 40 percent. I am speaking, sir, of direct hire professional people.

The Chairman. Are you now talking of the Americans or everyone?

Mr. MacDonald. Americans.

The Chairman. You don’t include in other words the 10,272. You are only talking about the 2,183.

Mr. MacDonald. That is correct; yes, sir. I have no knowledge off hand—

The Chairman. You think that 2,183 is approximately one-third of all Americans abroad in the AID organization?

Mr. MacDonald. Direct-hire Americans abroad, yes. This is my estimate and I must have the opportunity to correct it.

(The information referred to follows:)

_________________________

PERCENTAGE OF AID PERSONNEL ABROAD IN VIETNAM

The exact figure is 40.3 percent as of June 30, 1969. {p.590}

_________________________

IMPORTANCE OF QUESTION OF JUSTIFICATION FOR U.S. INVOLVEMENT IN VIETNAM

The Chairman. You see this is the sort of thing, Mr. MacDonald, that prompted my question. I respect your right to say that it is not your concern and you have no competence to give a reason why we are in Vietnam but when we have to be concerned not only with Vietnam, as you are, but with Arkansas and Tennessee and the United States, and Latin America and other places, whether or not what we are doing there is justified is a very important question. You take a third of the total AID personnel in the whole world in this little country of 16, 18 million people. This is why the question recurs, even though you don’t wish to comment on it, as to whether or not this effort is justified at all. You are very fortunate in not having to bother about that. If you can accept it and go along and do the best you can, it is all right. I don’t criticize you for it because obviously you didn’t make the decision to go in there, but you can see how it is a very important question to those of us who do have a responsibility for other areas than Vietnam, and especially our own areas in our own country.

Mr. MacDonald. Yes, sir.

The Chairman. What is bothering me and a number of others is that we are destroying our own country in order to go off after this will-o-the-wisp 10,000 miles away and it has no real relevance to our own country, our children, or our own lives. It is very difficult to find anyone, you see, who will take this responsibility other than the President of the United States. The military people have no responsibility because they only have military responsibilities. Yet I suspect very strongly that the military reports, your reports, Mr. Colby’s reports, all of them, converge to influence the President’s view because all of these reports, just as yours is, are quite optimistic about the success of your individual operations. This is not any criticism of you. I am quite sure you believe what you have said about the success of your program. We have heard for, I guess, at least 6 or 8 years how remarkably successful the land program is. It always is about to come to fruition and everyone is going to have his own garden. It never quite reaches that point, but it is about to and it’s been about to do that for 10 or 12 years. I don’t criticize you. I am quite sure you believe it will, but his does raise very serious problems. The purpose of these hearings is simply to emphasize just how deeply bogged down we are in Vietnam and whether or not it is in the national interest to continue it.

PAY AND ALLOWANCES OF DIRECT-HIRE EMPLOYEE

How much does the average direct-hire employee receive in pay and allowances in Vietnam?

Mr. MacDonald. We have that, sir.

Mr. Chairman. {sic: The} In order to save time your aides may interject. It isn’t so formal that you have to answer it all. Your assistants are quite free to give answers in order to save time.

Mr. MacDonald. The average wage would be somewhere within the range of $28,000 to $34,000 total average cost.

The Chairman. What is the highest?

Mr. MacDonald. $67,000 at the highest and $16.000 a the lowest.

The Chairman. Do you get $67,000 dollars a year? {p.591}

Mr. MacDonald. No, sir; I suspect that perhaps the Government spends that much maintaining me there, but that is not my salary.

The Chairman. What is your salary?

Mr. MacDonald. $38,000.

The Chairman. And the difference between that and $67,000 what — your perquisites?

Mr. MacDonald. Perquisites are housing and transportation of the few sticks of furniture I took with me.

The Chairman. Do they furnish you with a house?

Mr. MacDonald. I have a house; yes.

The Chairman. They pay the rent on it?

Mr. MacDonald. My house happens to be owned by U.S. AID.

The Chairman. They bought it?

Mr. MacDonald. It is one of the few cases in which that is so. We bought it back, I think, in 1953.

EARLY U.S. AID PRESENCE IN SOUTH VIETNAM

The Chairman. I didn’t know we had a presence there in 1953.

Mr. MacDonald. There was an AID mission to—

The Chairman. In 1953?

Mr. MacDonald. Yes, sir; in 1953, there was an AID presence. I believe it started in 1952, Mr. Chairman.

The Chairman. The aid to the French?

Mr. MacDonald. Yes.

The Chairman. Under the Truman regime, there was an aid program. I think we gave them about $2 billion in trying to retain control of Vietnam.

FORMER ALLEGIANCES OF WITNESS’ SOUTH VIETNAMESE ASSOCIATES

As a matter of fact, most of these government people that you associate with fought for the French; didn’t they?

Mr. MacDonald. I do not know that to be the case.

The Chairman. You don’t know that?

Mr. MacDonald. Mr. Chairman—

The Chairman. You don’t know Mr. Ky was an aviator for the French?

Mr. MacDonald. You said most of the people with whom I deal, Mr. Chairman. I am not sure that is the case. I know many who were on the other side during the earlier years. One of my counterparts, a man with whom I deal perhaps more than any other, the Minister of Economy, was a Viet Minh in those early years. He is a man of great courage and competence.

SOUTH VIETNAMESE REACTION TO CASE OF TRAN NGOC CHAU

The Chairman. Did vou ever meet Mr. Chau who has recently been imprisoned?

Mr. MacDonald. I have never met Mr. Chau.

The Chairman. Do you know about him?

Mr. MacDonald. I know of the case; yes.

The Chairman. Did that case attract any interest in Vietnam?

Mr. MacDonald. Yes, it did. {p.592}

The Chairman. It did?

Mr. MacDonald. It did, Mr. Chairman.

The Chairman. Was it favorable to the regime?

Mr. MacDonald. Mr. Chairman, I am not able, I am afraid—

The Chairman. You don’t wish to answer that. That is the safest answer.

Mr. MacDonald (continuing). To improve your knowledge or understanding of the case.

The Chairman. That is the safest answer, all right. I think you are quite wise in not commenting. I wanted to see what you thought.

SALARY DIFFERENTIAL OF U.S. PERSONNEL IN SOUTH VIETNAM

How much salary differential do U.S. personnel get for serving in Vietnam as against another country?

Mr. MacDonald. Oh, let’s see, the same as they do for serving in Nepal and half a dozen other places, a 25-percent differential.

The Chairman. As opposed to Washington — over Washington.

Mr. MacDonald. Pardon?

The Chairman. Over Washington or over, say—

Mr. MacDonald. Over the basic salary, 25 percent of one’s basic salary.

SOUTH VIETNAMESE INCOME TAXES

The Chairman. You mentioned income taxes. Do they have an effective income tax system? Do they have an income tax system?

Mr. MacDonald. Oh, yes. As a matter of fact, the income tax rates imposed under the Vietnamese system are in some cases stiffer than those called for in the United States. They don’t have as good a record of collections obviously as we do here. I think you will recall, Senator, that Vietnam after all is a country in a relatively underdeveloped stage and it faces all sorts of difficulties in the collection of its taxes.

In the first place the pattern of business there is markedly different from what it is in the United States. Private businesses are very small businesses there. For the most part they are family owned. Most of the transactions in the commercial community are made in cash. Many businesses literally do not keep books, not so much to avoid the payment of taxes as that they haven’t traditionally required them.

Vietnam has had additional difficulties in the administration of its tax system during the war. Mobilization has taken many of the staff of the Director of Taxation in Saigon and the provincial tax agencies. The fighting in the countryside has made it difficult and in some cases literally impossible to collect taxes in the less secure areas.

The Chairman. How much of the budget comes from income taxes?

Mr. MacDonald. Well—

The Chairman. Ten or 20 percent?

Mr. MacDonald. Well, let’s see. Mr. Sharpe would have it. About 20 percent of all domestic tax revenues are income tax revenues.

The Chairman. Twenty percent of domestic tax revenues. Does that include 20 percent of the revenues derived from customs, import taxes?

Mr. MacDonald. No, no, purely domestic. Only those that can be reasonably attributed to Vietnamese resources.

The Chairman. That is less than 50 percent of the budget. {p.593}

Mr. MacDonald. Yes.

The Chairman. It would be in the neighborhood of 10 percent, I guess, of the total budget; would it not?

Mr. MacDonald. Well, let’s see, only 4 percent, actually, of the total budget comes from income taxes. The remaining 44 percent, roughly, of the total budget borne by the Vietnamese is made up of other revenue — indirect taxes, government receipts for services, and deficit financing, which is a form of taxation.

The Chairman. Four percent. You said it is much higher than in America. What would a man with a $50,000 income pay in income tax, assuming he paid his tax?

Mr. MacDonald. We have a schedule on this, a comparative schedule, Mr. Chairman. Here I have it. A single individual who is earning 50,000 U.S. dollars in the U.S. system would pay, what, $23,700. A Vietnamese would pay $23,200. But a married man with two children would pay $22,650 in Vietnam; in the United States he would pay $16,900.

The Chairman. What percentage of those earning $50,000 pay any income taxes?

Mr. MacDonald. Pay; what percentage?

The Chairman. Yes; do you have any way of knowing that?

Mr. MacDonald. No, we do not really know that. We can furnish you the numbers of people actually paying income taxes.

The Chairman. It would be interesting. What is that number?

Mr. MacDonald. I don’t have it here.

The Chairman. Can you furnish it?

Mr. MacDonald. Yes, I can for the record.

The Chairman. It would be very interesting.

(The information referred to follows:)

_________________________

1969 PAYMENT OF INCOME TAXES IN SOUTH VIETNAM

In 1969 a total of 169,000 corporations, businesses, and individuals filed income tax returns or had income taxes withheld from their salaries.

_________________________

SOUTH VIETNAMESE PERCENTAGE OF TOTAL U.S. ECONOMIC AID BUDGET

The Chairman. Did I ask you what percentage of the total economic aid budget goes to Vietnam?

Mr. MacDonald. The worldwide aid?

The Chairman. Yes, the economic aid budget.

Mr. MacDonald. No, you did not. I don’t have that figure but I can have it furnished for the record.

The Chairman. If one of your assistants knows that, what is it?

Mr. Ellis. We do not, sir.

The Chairman. It isn’t difficult. You said it is $498 million and all you need to know is your total for 1970. The $498 million is what percentage of your total? Is it a billion, a billion and a half?

Mr. MacDonald. I think it is $1,600 million worldwide when you deduct military assistance, Mr. Chairman.

The Chairman. I meant economic. It is not too hard to figure that out. I have forgotten what your aid figure was.

(The information referred to follows:) {p.594}

_________________________

AID PROGRAM IN VIETNAM: PERCENTAGE OF TOTAL

The AID-funded program in Vietnam of $352 million in fiscal year 1970 represents 19 percent of total AID programs worldwide. The worldwide total, $1,878 million, includes use of estimated carryover and recoveries from prior years in addition to new fiscal year 1970 appropriations.

_________________________

PUBLICATION OF “VIETNAM, THE VIEW BEYOND THE BATTLE”

The Chairman. Here is a booklet. It is a rather unusual way of publishing it, but it is an AID booklet. Are you familiar with “Vietnam, the View Beyond the Battle”?

Mr. MacDonald. That is a booklet of 1966 vintage, I think.

The Chairman. The staff says 1967. Why do you print it without any attribution or any date? Is that deliberate?

Mr. MacDonald. I could not tell you that. I believe I saw that when I first came on the job, Mr. Chairman. I haven’t seen it since.

The Chairman. You haven’t seen it since. It is a slick paper job, a very good looking job.

Mr. MacDonald. Not produced by my mission. It is a pamphlet put out in Washington here.

The Chairman. A staff member who was recently in Vietnam brought this back. He told me it was an AID publication and he thinks it was published in 1967. It is rather strange that there is no attribution and no indication of when it was published.

Mr. MacDonald. To my knowledge, Mr. Chairman, it was not published by the AID mission in Vietnam. I can ascertain for you when it was and where it was published. It might be an AID publication; I assume it is an AID publication.

The Chairman. It is all about AID. I can’t imagine anyone else publishing it.

Mr. MacDonald. Well, the U.S. Information Agency does have certain responsibilities for publicizing these programs abroad. I am not suggesting that that is a USIA document, but it may be. It is only that I do not know.

The Chairman. For some reason the staff member thinks it was put out in 1967 although there is nothing to indicate that.

Mr. MacDonald. I am at a disadvantage, sir. I don’t have the document and there seems to be some question of how to identify it.

(The following information was subsequently supplied by AID:)

_________________________

PUBLICATION OF BROCHURE, “VIETNAM, THE VIEW BEYOND THE BATTLE”

The Brochure: Vietnam, the View Beyond the Battle was published at USIA Regional Service Center, Manila, in March 1967 at the request of USAID/ Vietnam. It was funded from JUSPAO Vietnam impression account. In total, some 100,000 copies were published in Vietnamese and 68,500 copies were published in English.

______________________

The Chairman. It says, “More men were coming and more American expenditures.” It doesn’t even have a page number; I didn’t know that but anyway—

Mr. MacDonald. I also provided your staff member, I think, a copy of the report I put out about the AID operation in Vietnam. I think it bears a date. {p.595}

PROPORTION OF U.S. ECONOMIC AID RECEIVED BY SOUTH VIETNAM

The Chairman. This doesn’t; I don’t know why. It says, “During 1966, Vietnam had passed India as the foremost recipient among 82 nations receiving U.S. economic aid.” Is that an accurate statement?

Mr. MacDonald. I do not have in mind the AID figures for India, Mr. Chairman. May I go back for a moment? You asked me to estimate the proportion of total U.S. economic aid around the world with reference to the $498 million in Vietnam.

The Chairman. Yes.

Mr. MacDonald. I cited to you my recollection about the total amount being available as would be $1.6 billion. I would recall that the $498 million that we were earlier talking about includes Public Law 480 in it; $1.6 billion does not include Public Law 480 and there are a series of other items.

The Chairman. Leaving out the Public Law 480, how does it break down?

Mr. MacDonald. Well, $352 million is the AID portion against $1.6 billion.

The Chairman. That is the figure I wanted in the record.

Mr. MacDonald. There are, I believe, however, other addons to the $1.6 and I will ascertain what they are and supply them for the record. I believe the Congress in the last session, Mr. Chairman, authorized the President to return payments on principal and interest, if my recollection is correct, on loans made in prior years for use in the AID program. So I think it is a higher total figure and, therefore, a lesser percentage that Vietnam commands.

PROPORTION OF U.S. AID RECEIVED BY SOUTH VIETNAM AND INDIA

The Chairman. I thought this was a very interesting statement. I wish you would comment on this if you will, not now but for the record, because I have never seen before that Vietnam passed India in 1966 as the foremost recipient among 82 nations, when you consider India has some 500 million people.

The Senator from Missouri is not here and I hesitate to speak in his absence, but he and others have been under the impression that India got the big end of our aid. I had never seen this statement before.

Mr. MacDonald. Well, could I put that into some context, Mr. Chairman, by recalling that there is a conflict taking place in Vietnam? I would like for the committee to understand that the people of Vietnam are producing at all time record highs despite the war; 1969 was a record year for agricultural production.

Second, the Government of Vietnam, through its various programs, is able to support from wholly and genuinely Vietnamese resources a civilian budget adequate to a country of her size at her stage of development were she not at war. The extraordinary assistance that we give Vietnam both on the military side and indeed on the economic side is occasioned by the fact of the conflict, by the fact that the South Vietnamese have found it necessary to have an army of 1.1 million people, the equivalent of a 13 or 14 million man force in U.S. terms.

I can assure you, sir, that the job of development which is my agency’s traditional job, could bo accomplished in Vietnam at much less cost were there not these nondevelopmental problems that afflict the country. {p.596}

The Chairman. I am quite sure the war does add to the difficulty and the cost.

SOUTH VIETNAMESE BUDGET IN PIASTERS

Mr. Reporter, I will put in the record a table here with regard to the Vietnam budget in piasters just for our consideration here.

(The information referred to follows:)

______________________

In regard to the actual and estimated customs and austerity taxes for CY 1967, 1968, and 1969 on commercial imports, 34, 33, and 35 percent respectively are a result of duties on A.I.D.-financed imports. Total revenues derived from A.I.D. and Public Law 480 programs (import duties plus counterpart) were for CY 1967 and 1968, VN$28.12 and VN$21.77 billion, or 59 and 47 percent, respectively of budget revenues. For CY 1969, total revenues derived from U.S. sources are estimated at VN$44.3 billion or 50 percent of budget revenues.

GOVERNMENT OF VIETNAM BUDGET

[In billions of piastres, U.S. $1 = VN118 at import rate]

Line itemCalendar year 1967Calendar year  1  1968Estimated calendar year 1969
1. Expenditures 86.19105.19147.8
2. National revenues 47.5746.3588.9
a. Domestic revenue 32.4032.6436.9
Direct taxes (2.97)(4.17)(5.4)
Indirect taxes (4.94)(5.14)(7.4)
Excise taxes (6.25)(6.51)(8.3)
Registration and other (9.38)(7.48)(15.8)
Preequation and equalization taxes 2  (8.86)(9.34)—  
b. Custom duties and austerity tax 15.1713.7152.0
GVN imports (10.08)(9.15)32.0
U.S.-financed imports (5.09)(4.56)20.0
3. AID (counterpart) 23.0317.2124.3
Commodity improvement program (13.23)(4.11)(15.6)
Public Law 480, title I (9.8)(13.1)(8.7)
Net deficit –15.59–41.63–34.6

 

Includes only expenditures for the 1st 13 months chargeable to the budget for the fiscal year. Budgeted expenditures may be incurred up to 6 months after the end of the fiscal year. The influence of the remaining 5 months upon the magnitude of the deficit will be slight.

In calendar year 1969, the revenue from these taxes are inlcuded {sic: included} within item b (customs and austerity taxes).

______________________

Budgetary financing by the Government of South Vietnam for the deficit after foreign aid, by source, for CY 1967, 1968 and 1969 (est.), is presented below:

(VN Billion Piastres)

Line itemCalendar year 1967Calendar year 1968Estimated calendar year 1969
A. Net deficit –15.59–41.63–34.6
B. Sources of financing:
Advances from national bank14.9235.4530.0
Change in Treasury bonds outstanding .676.184.6
Total 15.5941.6334.5

 

The Chairman. Senator Aiken, do you want to ask any questions? {p.597}

EFFECT OF INFLATION ON AID COSTS IN SOUTH VIETNAM

Senator Aiken. Have you any idea to what extent the increasing amount of salaries, retirement and inflationary costs have increased the AID costs in South Vietnam? Has that been a major contribution to increased costs?

Mr. MacDonald. No, sir. On the contrary, inflation hits those one can least afford to have it hit. Inflation is quickly overcome by the private sector that has the opportunity to raise prices, raise salaries, and to whatever levels are necessary to command personnel.

Senator Aiken. I am referring to the $220 million worth of commercial imports. Don’t they cost more now than they did 2 or 3 years ago?

Mr. MacDonald. Within the country?

Senator Aiken. Yes.

Mr. MacDonald. I am sorry, Senator Aiken. Yes; oh, yes. Four years ago, those goods were sold at 60, 70, 80, 90 piasters for each dollar’s worth. Today they are being sold to the people of South Vietnam at something between 250 and 300 piasters per dollar for the same goods.

Senator Aiken. We also have increased costs of material and goods in the United States.

Mr. MacDonald. Oh, yes; there has been a distinct inflationary factor over the last several years, which averaged 4, 5, 6 percent.

Senator Aiken. I think at least that.

1969 SOUTH VIETNAMESE INVESTMENT IN PRIVATE ENTERPRISE

I understand that last year there were South Vietnamese themselves who invested some $40 million in private enterprise. Is that figure about accurate?

Mr. MacDonald. Yes, I believe it was $39 million, nearly $40 million of various industrial investments in 1969 alone which is, I think, an indication of a measure of confidence.

Senator Aiken. I asked a witness yesterday if that indicated that some, if not many, of the South Vietnamese investors found the war rather profitable?

Mr. MacDonald. Senator Aiken, obviously intense business activity, whatever its cause, provides the opportunity. I can assure you the management methods we have applied and the policies we have negotiated with the South Vietnamese have controlled the situation as far as it affects United States aid. Years ago there was an essentially monopolistic condition that existed in the import community of South Vietnam. There was a relative handful of importers. There was no competition. They could decide how much to bring in and how fast to sell it and how long to hold it and thereby realized very large markups.

As I recall the markup average prior to 1966 for imported goods was on the order of 70, 75-or-greater percent, and obviously that was exorbitant. We were able at the time that we were designing the present import program and negotiating with the Vietnamese whether there would be one or not to persuade the Vietnamese to introduce improved procedures and a liberalized import policy.

Today the American taxpayers’ goods go into Vietnam and there is a markup on the order of 15 percent, which is a legitimate business {p.598} markup. No one is becoming a millionaire, out of AID’s business, Senator.

Senator Aiken. Then this investment of $40 million in private enterprise in Vietnam would be made from normal earnings.

Mr. MacDonald. Yes.

Senator Aiken. Of the investors, we will say.

Mr. MacDonald. Yes.

EFFORTS TO CONTROL BLACK MARKET PROBLEM

Senator Aiken. Is the black market problem being brought under control at all?

Mr. MacDonald. There is no doubt that there is a black market in Vietnam in money. The chairman has cited the black market rate for the dollar. A great deal of attention has been given to the problem both on the American side and on the Vietnamese side. In 1967 I recommended to Ambassador Bunker — and he accepted my recommendation — that there be a U.S. missionwide committee called the Irregular Practices Committee in order to maintain a continuing surveillance over our operations to see if there were loopholes in our regulations or our practices or procedures that enabled people to circumvent them. Over the past 3 years we have had great success, I think, within the U.S. mission to tighten up, to limit the amounts of PX goods made available in the commissaries and the post exchanges to proper levels, a variety of things of this sort, including currency control procedures within the military banking system.

More importantly, I think, Senator Aiken, are the efforts of the Vietnamese themselves. It is sometimes little noticed that the constitution of South Vietnam calls not only for the traditional three branches of government, but for what in effect amounts to a fourth branch of government, the Censorate, which is somewhat akin to our General Accounting Office but has wider responsibilities. The Censorate is not fully organized or fully operative, but it does have the responsibility to develop controls to minimize and preclude corruption and irregular practice within the South Vietnamese Government itself.

Also, the South Vietnamese executive has recently set up an Irregular Practices Committee of its own chaired by the Minister of Finance. Its membership includes the Minister of Economy, the governor of the national bank, the national director of police, and two or three other positions. The two American and Vietnamese Irregular Practices Committees meet regularly to see what can be done to tighten up.

EFFECTIVENESS OF LAND REFORM BILL

Senator Aiken. I notice in this morning’s paper that the South Vietnamese Senate has passed the land reform bill. Are you familiar with the kind of bill they passed?

Mr. MacDonald. Yes.

Senator Aiken. Will it work?

Mr. MacDonald. I believe so, Senator Aiken. I was very pleased to see the paper today. As I indicated in my opening statement this is a truly revolutionary piece of legislation, it is a sweeping bill that {p.599} will abolish tenancy in its entirety. This means there will be no absentee landlords in Vietnam. Only people who till land can own it. I think it is an unprecedented bill in my somewhat limited knowledge of other situations in the world.

 

Senator Aiken. You are glad we don’t have that law in Vermont; aren’t you?

Mr. MacDonald. Yes, sir.

Senator Aiken. Or would you like to go home and start tilling? [Laughter.]

FINANCING OF LAND REFORM PROGRAM

You may recall that some time ago a suggestion was made in the Senate here in Washington that the United States finance the land reform program. Do you think we are expected to contribute rather heavily to that?

Mr. MacDonald. The Vietnamese and we both regard the problem of financing this program internally in South Vietnam as a Vietnamese problem. That is what it is and how it should be handled. The Government will pay landlords for the land it will take. However, Senator Aiken, to be quite clear, the injection into an already very large money supply of over 50 billion additional piasters — and that was the tentative price tag of the President’s bill, the minimum price tag — is going to generate additional inflationary pressure, which will have to be met in part by an increase in imports to generate additional piasters as customs and other payments are paid when they come in.

The United States has given every indication to the South Vietnamese that it realizes there is this exchange problem and that we will study in the years ahead what foreign exchange requirements the program will generate.

BORROWING CREDIT OF SOUTH VIETNAMESE GOVERNMENT

Senator Aiken. Does the South Vietnam Government have borrowing credit?

Mr. MacDonald. What?

Senator Aiken. Does it have borrowing credit from the banks?

Mr. MacDonald. In the world market, sir?

Senator Aiken. In the local market, any market.

Mr. MacDonald. Well, it has; yes. It can borrow from its national bank as it does each year. This year we are expecting it to borrow something on the order of 28.6 billion piasters.

U.S. INVESTMENT BANKERS IN SOUTH VIETNAM

Senator Aiken. Three or four years ago I notice there was some competition among our investment bankers here in the United States to see who could get over there and get located first. Have they done a pretty good business?

Mr. MacDonald. Oh, yes. The Bank of America and Chase Manhattan are doing rather nicely, I think, sir.

Senator Aiken. I don’t think I have any more. There isn’t much use in asking questions if you already have the answers to them, although I find it is a pretty good idea to know the answer yourself before you ask a question in this town. {p.600}

SOURCE OF COMPENSATION FOR LAND OWNERS UNDER LAND REFORM PROGRAM

The Chairman. You were speaking of land reform. How are the owners of the lands to be compensated? Are we going to pay them?

Mr. MacDonald. No, sir, that was my point. This is a Vietnamese problem. It would not be appropriate, we feel, for the United States to enter directly into that kind of a transaction between a tenant and a landlord.

The Chairman. How can we avoid it when we are paying 52 percent of their budget? It seems to me an illusion. If we are paying or supplying, as you have already testified, over 50 percent. I think it is 52 percent.

Mr. MacDonald. Well, Mr. Chairman, as I said—

The Chairman. How in the world can it be done without our having helped?

Mr. MacDonald. We start with the plain fact that something more than 50 percent of the national budget is financed from U.S. sources.

The Chairman. That is right.

Mr. MacDonald. There is no question about that, sir. I suppose it is possible from that point to proceed to attribute, in part, the U.S. contribution to the total budget to each expenditure of the Government. I didn’t mean to negate my having acknowledged the heavy share of financing that the United States puts into the budget. I merely meant to say, sir, that the Vietnamese Government will deal with the problem of paying landlords. The United States is not going to interfere in that process.

The Chairman. I didn’t phrase my question properly. I didn’t expect that you would give the check for the money directly to the landlord. I am sure some agency of the Vietnamese Government will be the paying agent, but the source of the funds will almost inevitably be the United States up to 50 percent.

Mr. MacDonald. There have been those who suggest a much more energetic American involvement in the land reform process. There have been those who suggested that we take the counterpart funds, funds which have already accrued to the Government of Vietnam accounts which cannot be spent without our approval, and use that to pay landlords. We are not certain that is appropriate.

SECTION 620(G) OF THE FOREIGN ASSISTANCE ACT

The Chairman. Dp you recall section 620(g) of the Foreign Assistance Act? I will read it. I think the record ought to show it. It says:

Notwithstanding any other provision of law, no monetary assistance shall be made available under this Act to any government or political subdivision or agency of such government which will be used to compensate owners for expropriated or nationalized property and, upon finding by the President that such assistance has been used by any government for such purpose, no further assistance under this Act shall be furnished to such government until appropriate reimbursement is made to the United States for sums so diverted.

I wonder if that would create an obstacle to your continued operations in Vietnam?

Mr. MacDonald. Two comments, Mr. Chairman: First, as I recall the legislative history of that particular provision it had to do with {p.601} the protection of American investments in countries abroad. Perhaps its application is broader and does pertain also to expropriation of non-American assets or indigenous assets. I don’t recall at the moment.

The second comment is that I am not, as I sit here, entirely clear as to whether the bill on President Thieu’s desk today does in fact entail expropriation. I honestly do not know this. As I understand it, the Senate in voting last week altered the provision having to do with the methodology of taking land from the landlord. It is quite possible that the procedure will be one where the landlord turns his land over to the tenant and the Government comes in and finances it. I don’t know whether legally and technically it constitutes expropriation in terms of the meaning of section 602.

The Chairman. 620.

Mr. MacDonald. 620.

The Chairman. The method of doing it would have something of course to do with it. I don’t think there is anything in the law to indicate it was intended for Americans. I rather thought that this was a prohibition against our paying foreign investors in a company. Supposing a government expropriates a telephone company of which the Americans own 60 percent and someone owns 40. I thought one of the principal objectives of this was that we were not going to pay the foreign national, for his expropriated property even though under our guarantee program which is designed to protect American investors.

Mr. MacDonald. I am quite sure, sir, there is a sufficiency of piasters in the national budget which come from non-U.S. sources to cover the costs of the land reform bill.

LOSSES OF AND ENEMY ACTIVITY AGAINST AID PERSONNEL

Senator Aiken. I omitted one question I was going to ask you. We have in the neighborhood of 10,000 Americans and native people engaged in the AID program in South Vietnam at this time.

Mr. MacDonald. That was the high last June. We are going down to something over 9,000 this year, sir.

Senator Aiken. What are the personnel losses, killed, wounded, and missing, and are they subject to continuous harassment? What is the situation? I think if we have that information we can tell whether the program is making progress in this field.

Mr. MacDonald. Well, since 1968 we have been very fortunate. We have not, to my recollection, had losses of AID people. I know we haven’t in 1969 as a result of conflict. We have other losses, Senator Aiken, lots of them.

Senator Aiken. Accidents?

Mr. MacDonald. My deputy, a young man of 46, suffered a heart attack 5 weeks ago. We have losses of this sort given the demands and strains put on people who work 7 days a week 12, 14, 16 hours a day.

But we have not had losses to the enemy since the year of 1968 of Tet.

Senator Aiken. What I meant was is what we call the enemy, the Vietcong, engaged in violence against our AID workers?

Mr. MacDonald. Oh, yes, yes, we have been targets. The year before last, as I was entering the building a grenade went off, for- {p.602} tunately for me, just around the corner. It injured 11, killed two, maimed three, and hurt the remaining six. Yes we are targeted.

Senator Aiken. Is it a premeditated attack on the AID workers?

Mr. MacDonald. Occasionally premeditated on the AID program, yes.

Senator Aiken. Is it as prevalent as it was 2 years ago?

Mr. MacDonald. Well, security has much improved, but there is no ultimate protection. There is no ultimate way to preclude terrorists coming at you from out of a crowd. We know that not only in South Vietnam, sir, but unfortunately in cities in our own country.

Senator Aiken. Is it as bad as New York, Washington, or Chicago?

Mr. MacDonald. Well, I had the very good fortune of having Mrs. MacDonald join me in Saigon for the last 8 or 9 months after 3 years alone. She is able to walk freely in Saigon. Security is, I think, much better, if I may make the invidious contrast, than it is in many of the American metropolitan areas, yes.

Senator Aiken. I see. Don’t let her walk too freely in Washington. That is enough, I guess.

1969 AID FUNDS EARMARKED FOR LAND REFORM

The Chairman. I was handed a note, Mr. MacDonald, that the Agency earmarked $10 million for land reform in 1969 fiscal year funds, but it was conditioned upon their passage of the legislation and satisfactory progress. I assume this passage comes too late for the $10 million this year, or does it?

Mr. MacDonald. No, it is a valid obligation. It is on the books, and assuming the law is signed and brought into being and put into operation, Mr. Chairman, these funds can be, and I believe certainly should be—

The Chairman. How would they be made available for this purpose?

Mr. MacDonald. As I was saying, the injection of large amounts of piasters into the economy through the process of the government saying the landlords for the land they are about to give up would increase inflation.

The Chairman. Yes, I heard that.

What would you do with the $10 million is what I meant.

Mr. MacDonald. We would make the $10 million available.

The Chairman. To the government?

Mr. MacDonald. To American suppliers to send American products through commercial channels, as ordered by Vietnamese importers, to the Vietnamese economy, and as they come through the Port of Saigon and go over the customs—

The Chairman. What is the significance of saying it is earmarked for that purpose? We give them more aid in the usual fashion. This is one of our own outlets. Why do you say it is earmarked if you are going to follow the same procedure?

Mr. MacDonald. Because it is earmarked, Mr. Chairman. On June 28, 1968, the date we executed the project agreement obligating those $10 million, we sought to estimate the foreign exchange requirements that we foresaw during 1969.

Now, we were very poor projectors. We had anticipated that the bill would pass in the late summer, in August or September, and it did not. {p.603}

The Chairman. I do not want to belabor the matter, but I do not see any difference whatever. You increase the amount of aid in the usual way — more imports. You did not allocate it and give it to someone to go buy land, if I understand you correctly.

Mr. MacDonald. It is a cost, it is a cost, Mr. Chairman—

The Chairman. It is one of the items on which you estimate what the level of the aid will be; is it not?

Mr. MacDonald. Oh, yes.

The Chairman. That is all I meant. I guess I am confused by the semantics. Earmarking has a different significance with us than it does with you, I would think. When we earmark something in a bill it can be used only for that purpose.

Mr. MacDonald. I do not know the language, Mr. Chairman, but we identify, Mr. Chairman—

The Chairman. That is all right. I did not want to belabor a particular point. I was not trying to make a point of it. The only point was trying to make of it was in relation to this legal requirement that you certainly could not do it directly. I suppose they could do it indirectly.

VARIETY AND EXTENT OF U.S. INVOLVEMENT IN SOUTH VIETNAMESE ECONOMY

I want to ask you a couple of questions about the variety or the extent of your involvement in the economy and the life of Vietnam. This is the Foreign Service list which has a number of pages. It is about four and a half pages of names and what they do and some of them to me are rather surprising. These are your people in AID and this is the list in Vietnam.

You have Mr. Henry R. Anderson, geologist, for example. What would a geologist be doing for you?

Mr. MacDonald. He is working on the national water program to identify sources of fresh water for municipal, province, and town requirements.

The Chairman. Then you have Miss Barbara J. Baden, nurse, administrative hospital nursing service. Is she setting up a nursing school or something?

Mr. MacDonald. She is working in a nurse teaching school in Saigon, helping the Vietnamese establish a capability of their own to run a nursing school, train nurses, and meet their own needs.

At the height of the crisis in 1965 and 1966, it was necessary, we felt, and there was much congressional interest, to meet this need for nurses. We brought in well over 100 American nurses to work in province hospitals throughout Vietnam.

But at the same time we have been providing a few people to furnish technical assistance to train Vietnamese nurses so that the American nurses can go home.

The Chairman. What would you pay a nurse to go out to Vietnam?

Mr. MacDonald. I do not know, but I can get that for the record, I am sure.

The Chairman. Would you supply it for the record?

(The information referred to follows:) {p.604}

_____________________

PAYMENT OF A.I.D. NURSES IN SOUTH VIETNAM

Most nurses in Vietnam serve in positions rated FSR-5, with a base annual salary of $14,132. This is augmented by the past differential of 25 percent, bringing total compensation to $17,665.

______________________

Mr. MacDonald. Most of our nurses come from the Public Health Service, so I imagine their salary scales are probably exactly the same as those serving here for the Public Health Service.

The Chairman. As you know, there is a great shortage of nurses in this country.

Mr. MacDonald. Yes, sir.

The Chairman. I did not realize this was one of the reasons.

Mr. MacDonald. Well, I think it no longer is, Mr. Chairman. We have only a handful of nurses.

The Chairman. You have Mr. John Byrnes, air traffic center specialist. What does that mean?

Mr. MacDonald. We have a team from the Federal Aviation Agency (FAA) under contract to us working with its counterpart agency in South Vietnam in the operation of the country’s airports.

The Chairman. Air Force?

Mr. MacDonald. Airports.

The Chairman. I thought all airports were under the military. Is Tan Son Nhut operated as a civil airport?

Mr. MacDonald. It is a civilian airport.

The Chairman. I thought it was military.

Mr. MacDonald. It has its military base operations.

The Chairman. It is primarily military; is it not?

Mr. MacDonald. Oh, yes, but Pan-American goes in and out, and there are international—

The Chairman. I see. You supply men to run the civilian side.

Mr. MacDonald. Not run it. We have advisers there. We used to have, as I recall, some 51 or 52. We have fewer than that now because some Vietnamese have been trained and they are taking over.

All our work, Mr. Chairman, is work of an advisory sort. We do not do things. We do not run things. We are helping the Vietnamese develop their own capabilities.

EXTENT AND VARIETY OF U.S. ECONOMIC INVOLVEMENT IN SOUTH VIETNAM

The Chairman. Here is another one: Willis W. F. Christine, traffic management adviser. Is that some other kind of traffic? Is that automobile traffic?

Mr. MacDonald. No. I think you are still on the FAA list.

The Chairman. It does not have that—

Mr. MacDonald. I know the man. I believe that—

The Chairman. It does not say air like the other one does.

Mr. MacDonald. In any case, he would be an adviser to the air traffic manager in the Vietnamese directorate for civil airport operations.

The Chairman. They forgot to mention air. I thought it was automobile traffic.

Don’t you have someone running the traffic? I hear Saigon has a terrible traffic problem.

Mr. MacDonald. Does it have a traffic problem? {p.605}

The Chairman. Yes. I have seen pictures of it which said it had a traffic problem. You would help them out with that if they had one; wouldn’t you?

Mr. MacDonald. We do not try to deal with every problem in sight, Mr. Chairman. We couldn’t begin to attempt to do that.

The Chairman. It is hard for me to think of one that you haven’t dealt with from this list.

You have here “agron adv seed inp.” What does that mean?

Mr. MacDonald. Would you give me those again?

The Chairman. Mr. Donald M. Coe, and it says “agron adv seed inp.”

Mr. MacDonald. He is an agronomist. He is an adviser of some sort. I do not recognize him.

The Chairman. I notice you have livestock and nutrition, equipment specialist, livestock again, assistant public health, rehabilitation and development, soils and something, medical supplies, highway training schools specialist, educational, elementary, vocational education, engineering materials.

Mr. MacDonald. If I may interject, Mr. Chairman—

The Chairman. Architects, engineers. I don’t know anything you have left out.

Mr. MacDonald. If I may interject, you are posing a USAID director’s classic dilemma, how much to do and how much not to attempt to do.

The Chairman. That is right.

Mr. MacDonald. We are much put upon from various sources to do more than we do. The Congress has not been slow on occasion to suggest the need that much more be done in South Vietnam, for the South Vietnamese people in their need, than we have felt it either possible or appropriate that the United States attempt to do. It is possible for you or anyone to run through that list and identify a range of skills that encompasses the entire spectrum.

The Chairman. That is right. That is the only point I was making.

Mr. MacDonald. We are in the business of attempting to enable countries to develop their own capacities so that they will not have continuing reliance on foreign aid or dependence upon the United States, and as quickly as we achieve our objectives, goal by goal, we back out.

I think the primary school program that I mentioned in my opening statement is, perhaps, the best illustration I can offer of that procedure of finishing a job, and leaving as quickly as possible.

IMPACT OF U.S. DEFOLIATION OPERATIONS IN VIETNAM

The Chairman. I know there has been considerable emphasis upon agriculture. What would you say has been the impact on Vietnamese agriculture of the American defoliation operations which, I have read in the paper, have covered an area in Vietnam as large as the State of Massachusetts. That has been published in the paper. In the first place, is that accurate? Has an area as large as Massachusetts been defoliated?

Mr. MacDonald. Well, sir, there are as many estimates of things of this sort as there are those who turn their minds to them.

The Chairman. Surely there is a better criteria than that. Don’t you have an estimate? {p.606}

Mr. MacDonald. I do not have at my fingertips the area of Massachusetts nor the range of estimates of destroyed tree and other negetative {sic: vegetative} areas in South Vietnam. But let me talk to the problem.

There have been economic losses due to the war, due to the deliberate defoliation of some parts of the forests, due to the deliberate cutting and destruction of trees 100 meters on each side of a lane that goes through a rubber plantation, so that American and Vietnamese soldiers won’t be shot from ambush.

The Chairman. Let me come back. I did not mean to entice you into that. I should not have used Massachusetts anyway. I do not know why I did. How many acres have been defoliated?

Mr. MacDonald. That is beyond my purview.

The Chairman. It is? You mean you would not know? Who would know how much is defoliated?

Mr. MacDonald. The Department of Defense.

The Chairman. And they would not tell you?

Mr. MacDonald. Mr. Chairman, I believe that the estimates of as much as 10 to 12 percent of the country’s surface having been subjected to defoliation are probably a fairly accurate estimate, 10 to 12 percent—

The Chairman. That is what I wanted — 10 to 12 percent of the total acreage.

Mr. MacDonald (continuing). With varying degrees of economic loss as a consequence of that.

The Chairman. How much of that 10 percent is agricultural land and how much forests?

Mr. MacDonald. Do you have that, Mr. Sharpe?

Mr. Sharpe. Nearly all the defoliation in Vietnam has been carried on over the forested areas and very little of it deliberately, at least, over cultivated areas.

The Chairman. I do not care what their motive was. What is the actual result, whether it is deliberate or not?

RESULTS OF U.S. DEFOLIATION OPERATIONS IN SOUTH VIETNAM

Mr. MacDonald. Let me speak to the results. The 10 to 12 percent is essentially denuded forests or forests that have been partly damaged, trees that will come back 2 or 3 years hence. I suppose it is possible to do some calculations and figure out there are 600 million metric tons of timber which could potentially be cut up into wood and sold and put to productive use. But it is a hypothetical exercise, I believe, Mr. Chairman, because the fact of the matter is that the stands of timber in South Vietnam are essentially virgin stands of timber. It is unexploited, so although there has been a real physical loss, there has not been an appreciable economic loss from the defolitation of the trees {sic: defoliation}.

Now, turning to another area where there has been real economic loss, the rubber trees; rubber used to be the principal export of South Vietnam. As I recall back in 1960, over half of South Vietnam’s $84 million worth of exports came from her sale of rubber.

Now she has lost some. I do not have an estimate of how much has been lost by defoliation, plus how much has been lost by deliberate cutting of the trees to preclude ambushes. I can tell you {p.607} that the $48 million of exports has declined until last year only $9 million worth of rubber was exported. This is economic loss partly from damage, partly also from the fact that laborers have been drafted and taken off the plantations and cannot work, and partly from the fact that there are still inadequate aspects of the exchange system for exports. There is a disincentive to export, given the exchange rate system as it works.

The point I am trying to make here is that the permanent economic loss, the real economic loss is not great, and that recovery, particularly in the rubber field, can be quite quick. And I will conclude with the recollection, sir, that this last year, 1969, set all-time highs for South Vietnamese agricultural production including commercial crops and timber.

The Chairman. You said a moment ago that these forests that have been defoliated will be back in 2 or 3 years. On what do you base that? I have read conflicting stories about the effect of poisons, chemical poisons in particular, and the persistence of some things in this area has been considerable. Some of our conservationists are very worried about what is used in this country. I mean the use of the poisons in the cotton fields and in our own agriculture. It accumulates in the irrigation ditches and the next thing you know it kills fish. I have been reading in several stories in connection with this pollution problem and conservation that they are very dubious now about the use of pesticides and also herbicides for crop control. Many of our people are dubious here. How do you know over there that if you go out and defoliate a forest that it is going to come back in 2 or 3 years?

Mr. MacDonald. I didn’t say that.

The Chairman. I thought you did.

Mr. MacDonald. A dead tree is a dead tree, and it needs to be replaced.

The Chairman. I thought you said it would come back in 2 or 3 years.

Mr. MacDonald. I said the Vietnamese rubber industry can come back very quickly. Most of the losses in rubber production in Vietnam are not attributable to the defoliation or the destruction of trees. Most of the loss is due to other considerations, lack of security, lack of labor.

The Chairman. I think you misspoke, because I think you first said the forests would come back 2 or 3 years. That is quite all right. We are going along pretty fast.

PERCENTAGE OF SOUTH VIETNAM’S INCOME DERIVED FROM U.S. PRESENCE

Tell me what percentage of South Vietnam’s income is derived directly or indirectly from the U.S. presence. I am shifting, from the AID program alone. I will restate the question. What is the percentage of South Vietnam’s overall income, direct or indirect, from all of the U.S. presence, including the presence of the Military Establishment with their expenditures and everything. What is your estimate of the percentage of the total income that is derived from that presence?

Mr. MacDonald. Well, I gather that you are not talking about the budget of Vietnam.

The Chairman. Not AID, not just AID.

Mr. MacDonald. My discussion of the budget — {p.608}

The Chairman. Not just the budget; that is correct. I wondered if you could estimate what the overall amount was.

Mr. MacDonald. Well, the gross national product of a country at war receiving military assistance and receiving also large numbers of foreign troops is very difficult to compute. I think I should ask Mr. Sharpe to take this question, but before I turn to him, my recollection is that the gross national product, as best we can calculate it, is on the order of $5.5 billion in dollar equivalent, and that something more nearly on the order of $4.25 billion of that is a truly Vietnamese product. I stand to be corrected by Mr. Sharpe.

Mr. Sharpe. Yes, Mr. Chairman.

The Chairman. Mr. Sharpe?

Mr. Sharpe. To give a short-cut answer, we estimate that the Vietnamese GNP per capita in real terms, and kind of brushing past the problem of exchange rate, is on the order of $150 to $175. The direct cost of U.S. aid this year per capita is about $30. I would guess, adding up all of the indirect types of U.S. aid, that you could say there is another $20 or $25.

The Chairman. Did you say aid? I didn’t want you to confine it to aid. All expenses, using everything.

Mr. Sharpe. Well, indirect types of assistance or indirect effects of the U.S. presence.

The Chairman. Your saying “assistance” is what put me off. I did not want you to confine it to what I call assistance. I don’t know that a GI going into a nightclub is assisting them in that sense. He is spending his money, and I wanted to include everything for which they spend it. All I want is to understand you.

Mr. Sharpe. Adding up all those types of U.S. expenditures, not assistance, I would say you would get up another $20 or $25 per capita, so that perhaps in grand total the American presence is amounting to something like $50 or $55 per capita.

The Chairman. About a third.

Mr. Sharpe. Well, nearly a third.

The Chairman. You said $150 per capita.

Mr. Sharpe. $150 to $175.

The Chairman. I see.

 

EFFECT OF U.S. TROOP REDUCTION ON SOUTH VIETNAM’S ECONOMY

The next question in this series would be if the American forces are reduced to 200,000, for example, and U.S. economic aid remains the same, what effect will the troop reduction have on Vietnam’s economy?

Mr. MacDonald. One of the sources of Vietnam’s dollar receipts, of course, is the American military presence.

The Chairman. That is right.

Mr. MacDonald. The great bulk of the dollars received from that presence are used to purchase piasters for the financing and the maintenance and operation of the facilities — an estimated $309 million of $354 million of piaster purchases in 1970. Only a very small portion is earned from piasters for personal uses, particularly those of combat troops, the man who is up on Razorback Hill in an artillery position who does not get to town. {p.609}

I think the average monthly piaster expenditure for the G.I. is about $6 or $7.50 a month. Many years ago it used to be much higher than that, but it is now that low.

We are talking about the reduction of American combat troops in the first instance. As combat troops leave the dollar effect of their departure will be relatively minimal.

Is that a responsive answer?

The Chairman. Yes; that is. You think the effect of their reduction to 200,000 would not be very great. If we cut down to 50,000, which would go far beyond the combat troops, would there be a substantial and serious impact on their economy?

Mr. MacDonald. Yes; it would. There is no question but what it would, assuming the necessity of maintaining the defense effort at the present level.

The Chairman. From the South Vietnamese point of view it is not so bad to lose the combat troops, economically speaking, but it would be bad to lose the other troops, the supporting or logistics troops. They spend their money more, being free.

NUMBER OF SOUTH VIETNAMESE WORKING FOR THE UNITED STATES

Could you tell how many Vietnamese work on U.S. bases, for U.S. contractors or for U.S. personnel directly?

Mr. MacDonald. I believe last month total Vietnamese employment by U.S. agencies of all sorts, plus their major contractors was 142,000.

The Chairman. 142,000.

Do you have any estimate of how many others hold jobs which are dependent upon Americans for their patronage and—

Mr. MacDonald. Of what sort, Mr. Chairman, the taxi driver?

The Chairman. I mean all sorts of things, personal service, cooks, and maids, all sorts of things.

Mr. MacDonald. I would not hazard a guess.

The Chairman. There is no calculation which has been made.

I will put in the record here a story by Mr. George Ashworth of the Christian Science Monitor from Saigon in September of 1969. It discusses this subject. If you wish you may comment on it; you do not have to. Here is one thing he says:

According to unofficial estimates, as many as two million Vietnamese may be directly dependent upon wages paid by the Americans.

Would you quarrel with that statement?

Mr. MacDonald. I think it is a grossly exaggerated statement.

The Chairman. He says:

In effect, the war has created a terribly artificial situation in which many depend upon employment that can’t last, a black market that must some day wane and thievery that will some day have fewer available victims.

This is a sample of the article. Do you know Mr. Ashworth?

Mr. MacDonald. No; I have not known him, but I knew his predecessors.

The Chairman. The Christian Science Monitor is a very reputable paper, if any papers are reputable any more. It certainly has a good reputation in my belief.

(The article referred to follows:) {p.610}

______________________

[From the Christian Science Monitor, Sept. 26, 1969]

ECONOMY FRAGILE — U.S. EXIT MAY ADD SAIGON WOES

(By George W. Ashworth)

SAIGON.— If a South Vietnamese Army captain with a family saved 10 percent of his salary, he could afford a Honda auto with the savings in about 30 years.

The sharp disparity between income and outgo for things Americans take for granted illustrates the plight of the Vietnamese wage-earner in a time of rampant inflation.

Actually, South Vietnam’s inflationary spiral isn’t so bad, considering the war, as it has been kept to about 30 percent a year.

But the inflation and the shaky state of the Vietnamese economy pose problems both for the government and the citizens under it. American withdrawal will intensify some of those difficulties. Officials here realize that some careful planning and strong action will be necessary if the economy and those dependent upon it are to avoid disaster.

If wages had kept up with inflation, of course, the problem would not be so severe for the typical Vietnamese. But income has not kept pace, particularly in the cases of Vietnamese civil servants and members of the military. Soldiers are so poor that stealing is common. Civil servants are so badly off that small bribes known as “tea money” are accepted as an economic necessity.

POLICE ACCEPT ‘TOKENS’

Police at roadblocks “accept” a small token of appreciation for letting trucks with perishable produce through with dispatch. Sometimes they demand more than a small token, which can be disastrous to truck drivers who must pay their own money.

But if the driver is an employee of someone who can afford the bribe, such as an American contractor, or some private concern, Vietnamese or foreign, he doesn’t mind so much. He can report the demand at double what was given and pocket the difference, which means a great deal to a poor man.

Desperation, of course, leads to dishonesty and thievery. Many poor Vietnamese adhere to the view that the Americans can afford to lose things now and then. So theft rings are organized and Americans lose traveler’s checks, cameras, and cash. Bank managers sigh as they report another check theft. And American insurance companies think darkly of Saigon. The black market thrives.

The American Government and armed forces now employ perhaps 150,000 Vietnamese. Other American firms employ about 50,000 more. Despite efforts to keep pay scales in line with prevailing rates, it hasn’t really worked out.

For one thing, Americans pay a lot of overtime. Neither the Vietnamese Government nor Vietnamese private employers do that. And to get good help, governmental agencies and contractors often get around the guidelines by giving unjustifiedly high job grades. Thus a simple guard becomes a well-paid guard/ interpreter. He may never interpret. Indeed, he may not know how. But he draws the pay.

INCOMES WILL DROP

According to unofficial estimates, as many as 2,000,000 Vietnamese may be directly dependent upon wages paid by the Americans. Officials believe that the shortage of skilled labor will mean that most wage earners will easily find jobs after the Americans go. Of course, officials admit these Vietnamese will be somewhat saddened at their sharply reduced incomes.

In effect, the war has created a terribly artificial situation in which many depend upon employment that can’t last, a black market that must someday wane, and thievery that will someday have fewer available victims. There are landlords now doing very well, indeed, with renting apartments and villas and buildings to Americans. Someday, there won’t be people around to pay those high rents.

Some knowledgeable sources here believe that the beginnings of troop withdrawal will not greatly affect the Vietnamese economy. Employment will remain fairly steady for a while. Major drops will only begin when major bases are closed or turned over to the Vietnamese.

Combat troops leaving do not present a great drain upon revenues. It is estimated officially that the typical American soldier spends about $5 a month on the Vietnamese economy. Unofficial estimates put his black market dealings at another 35. {p.611}

Of course, as the American pullouts become more extensive, Vietnamese employment will begin to drop. But officials believe that the economy can absorb many of these losers of jobs easily. Economic impact programs will further alleviate the problem.

But no one denies that there will be problems, many of them severe in the period ahead. Continuing inflation would complicate them.

But the typical Vietnamese cannot worry now about the future. He must occupy himself with the desperate fight for survival now. If he is fortunate enough to make an income of 10,000 piastres a month, and he has a family, he faces the prospect of spending a quarter of his income on rice alone. Then he must buy the things to go with the rice.

And those things are still going up. Medium-quality rice is up two thirds over prices last year, and refined sugar is up 118 percent over a year ago. Condensed milk prices have risen 30 percent since December, and stick beans have almost doubled.

There is solace, of course, in the fact that some few things, such as pork bellies, have stayed level in price or declined slightly. But, overall, the retail price index has risen from a January, 1665, base of 100 to the present level of 472.

Officials are, of course, trying to keep prices down. And some, such as rice, seem to have leveled off. But it is a great fight.

The Thieu government is talking now of austerity and the need to keep the government solvent and the economy from disaster.

This will mean belt-tightening for both government and people. It won’t be easy, particularly with so little precedent. But officials have made clear their intentions. Hard though it may be, many Vietnamese believe there is no other alternative.

 

_____________________

EFFECT OF U.S. PRESENCE IN VIETNAM ON U.S. BALANCE OF PAYMENTS

The Chairman. Mr. MacDonald, what will be the adverse effect this year on the U.S. balance of payments from the U.S. presence in Vietnam? Do you know that?

Mr. MacDonald. Yes, I have some information on that.

The Chairman. Would you give it?

Mr. MacDonald. The AID program here and elsewhere has really very little effect on the U.S. balance-of-payments problem. You will recall my saying that our program is divided into two parts.

The Chairman. I did not say the AID program. I don’t blame you for getting confused. I am speaking now of the overall presence as distinguished from AID alone.

Mr. MacDonald. Well, let me do as best I can.

The Chairman. You can do both if you would like, but I wanted it to be clear. I did not ask about AID alone; I asked about presence.

EFFECT OF AID PROGRAM ON U.S. BALANCE OF PAYMENTS

Mr. MacDonald. As far as the AID program, first, Mr. Chairman, is concerned, virtually all our commercial import dollars cause no balance-of-payments effect.

The Chairman. Because you buy the materials here.

Mr. MacDonald. Either buy them here or from PD 31 countries where the dollars in the next go-around come back to the United States; for our project program last year, we were required to spend only about $2,000 in other countries where there would have been an adverse balance-of-payments effect, for instance, a French part for a French machine, which was critical to a particular operation. It is practically nonexistent, on the AID side. {p.612}

GVN SPENDING OF U.S. DEPARTMENT OF DEFENSE FUNDS

The $354 million that we estimate the Vietnamese will receive this year from the United States, the U.S. Department of Defense, are dollars that they freely use to purchase goods wherever they choose to. I believe that we have in the last year seen them spend a proportionately higher amount of those free dollars in the United States than in the previous year, but the bulk is still spent outside the United States.

The Chairman. How many are there?

Mr. MacDonald. I can get you the figure.

The Chairman. I thought you said a figure.

Mr. MacDonald. No. I said the great bulk is spent outside the United States. The amount coming back to the United States is going up. I will have to supply that for the record.

(The information referred to follows:)

_____________________

GVN-FINANCED IMPORT LICENSING BY SOURCE COUNTRY,

CALENDAR YEARS 1965 THROUGH 1969

[Values in thousands of dollars]

{table to come}

_____________________

AID FOREIGN EXCHANGE EXPENDITURES

The Chairman. Also how much are we spending in foreign exchanges in countries other than the United States? You do not have that?

Mr. MacDonald. I am sorry, I could not hear that.

The Chairman. The amount of your foreign exchange expenditures to countries other than the United States. Do you have that figure or will you supply it?

Mr. MacDonald. Yes. In 1969 we spent $128 million in the United States. We spent $37 million in Taiwan; we spent $4 million in Korea, and these, as you will recall, are countries where dollar expenditures do not result in an adverse U.S. balance of payments.

The Chairman. Are you talking about AID’s expenditures?

Mr. MacDonald. At the moment I am. {p.613}

IMPACT ON U.S. BALANCE OF PAYMENTS OF U.S. PRESENCE IN VIETNAM

The Chairman. Yes. I asked about South Vietnam, overall. I am still trying to get these figures about the total impact of our presence, not only AID. Where do they spend their foreign exchange?

Mr. MacDonald. I can supply that for the record.

The Chairman. You do not have it?

Mr. MacDonald. I do not have it, but ] can assure you that the great bulk of their free foreign exchange is spent in other countries than the United States.

The Chairman. Other than the United States?

Mr. MacDonald. Yes.

The Chairman. That is what I meant.

Mr. MacDonald. Yes.

The Chairman. Can you estimate the volume of that?

Mr. MacDonald. Last year the Vietnamese purchases from the United States were approaching the magnitude of $40 million, $50 million. This year it may go somewhat higher than that, but $40 to $60 million from $350 million still leaves the great majority of free foreign exchange being spent in other countries.

The Chairman. Do they have $353 million in foreign exchange?

Mr. MacDonald. The $354 million we estimate will be realized by Vietnam this calendar year of 1970 from piaster purchases by the Department of Defense. They have additional—

The Chairman. By the Department of Defense. Then that will be free. There are no strings on it; is that correct?

Mr. MacDonald. That is correct. There are additional—

The Chairman. This is what I first asked you about the impact on our balance of payments. If the major part of that money is spent somewhere else, why isn’t that an impact upon our balance of payments?

Mr. MacDonald. Well, I have said—

The Chairman. Not yours.

Mr. MacDonald. I said the AID program has a miniscule {minuscule} effect.

The Chairman. That is what I was getting at a moment ago. It is the presence and not AID. I was trying to distinguish between them.

Mr. MacDonald. The remainder of their foreign exchange expenditures do constitute a serious balance-of-payments effect.

The Chairman. Would it be fair to say that you think it is as much as at least $300 million adverse effect on the balance of payments?

Mr. MacDonald. Something in that order of magnitude I would estimate.

The Chairman. You cannot be precise on these matters. They are too big.

ECONOMIC AID FROM COUNTRIES OTHER THAN UNITED STATES

Do you know how much economic aid South Vietnam received this last year from countries other than the United States?

Mr. MacDonald. About $25 million from all sources, including multilateral agencies as well as individual countries.

It is $25 million in 1969. We see it moving up, we think, appreciably in 1970, Mr. Chairman, and, as I indicated in my opening remarks, there is a rather extensive display of interest by a number of {p.614} countries about getting involved in financing the postwar reconstruction and development effort that lies ahead.

1969 VALUE OF SOUTH VIETNAMESE BLACK MARKET CURRENCY TRANSACTIONS

The Chairman. A report of the Senate Government Operations Subcommittee estimated the value of Vietnamese black market currency transactions at $250 million last year. In your view is this a reasonably accurate estimate?

Mr. MacDonald. I think it is exaggerated, Mr. Chairman. I think it is very greatly exaggerated. Again I will ask Mr. Sharpe to comment on the difficulties of making estimations of capital flight, capital loss, in the situation that obtains there. I have heard estimates ranging from $50 million to much higher than the one which you cited.

Mr. Sharpe. I am afraid that the problem of estimating how much money is going into the black market is one of the most difficult of all that we have. My own estimate would be certainly much smaller than $250 million.

The Chairman. What would yours be?

Mr. Sharpe. $100 million to $150 million.

CURRENCY BLACK MARKET IN SOUTH VIETNAM

The Chairman. I will put in the record the article I have here from the New York Times of November 19, 1969, entitled “U.S. Diplomat Testifies in Capital that Currency Black Marketeers are Undermining War Effort.”

The article reads:

A United States diplomat formerly stationed in Saigon testified today that the Vietnam war effort was being undermined by a $150 million a year currency black market run by money manipulators from India.

Did you ever run into any Indian manipulators?

Mr. MacDonald. We don’t deal with them, Mr. Chairman.

[Laughter.]

The Chairman. I did not expect you dealt with them, but I thought if they were that prominent you would run into them.

Mr. MacDonald. I think I know the gentleman. It was Robert Parker, who was my special assistant for several years.

The Chairman. Do you know Mr. Parker?

Mr. MacDonald. Oh, yes. He was my special assistant. Because of the range and intensity of problems in this whole area of irregular practice in Vietnam I have a separate office, a special office, to help me see that our administration of the AID program is done well, and that the public’s resources are protected.

Bob Parker’s reference to $150 million was not a loss figure. It was his estimate of the total volume of monetary transactions taking place within the black market.

The Chairman. That is what I said. The question was the amount of money. It says black market currency transactions. It did not say a loss. These transactions indicate the volume of the business. The article says that Mr. Parker “told the Senate Permanent Investigating Subcommittee that U.S. banks, Americans in Vietnam, and deserters hiding in Saigon participated in the racket, which has been described by some as a billion-dollar operation.” It goes on and says: {p.615}

Mr. Parker said Moslems from India run the black market. The black marketeers are so well organized, he added, that they have a “legal services” department that promptly pays the fine of any money changer caught and sets him back up in business.

Mr. MacDonald. Reminiscent of the Mafia organization, Bob told me.

The Chairman. It says:

“‘The government’s official rate is 118 piasters to a dollar,’ Mr. Parker said. ‘But on the black market, a dollar is worth at least 200 piasters.’”

You said 328 or something like that It has gone up since he was there, since last fall?

Mr. MacDonald. Yes.

The Chairman. This is a very interesting article. It says:

A subcommittee spokesman said black-market currency transactions in Vietnam worked two ways, both based on the difference between the official exchange rate of 118 piasters to the dollar and the black market rate of 170 to 200 piasters a dollar.

In one, a check drawn for United States dollars on an American bank is given to a black market money changer in Vietnam, who pays the higher, illegal, exchange rate, then cashes the check himself for the dollars.

The second system, called a ‘lateral transfer,’ involves coded messages. An American in Vietnam sends a message to his bank at home, instructing it to transfer a certain amount of United States money to another account, also in the United States.

Unknown to the first bank, the second account is linked with a black marketeer in Vietnam.

Do you know about this sort of thing?

Mr. MacDonald. Oh, yes, I have read the transcript of the hearings of Senator Ribicoff’s committee.

The Chairman. Have you?

Mr. MacDonald. It was of natural interest to me.

 

(The article referred to follows:)

______________________

[From the New York Times, Nov. 19, 1969]

U.S. DIPLOMAT TESTIFIES IN CAPITAL THAT CURRENCY BLACK MARKETEERS ARE UNDERMINING WAR EFFORT

WASHINGTON.— A United States diplomat formerly stationed in Saigon testified today that the Vietnam war effort was being undermined by a $150-million-a-year currency black market run by money manipulators from India.

The diplomat, Robert R. Parker, told the Senate Permanent Investigating Subcommittee that United States banks, Americans in Vietnam and deserters hiding in Saigon participated in the racket, which has been described by some as a billion-dollar operation.

Mr. Parker was an embassy attache and assistant director of the United States aid program in Vietnam until last month. He also worked under Ambassador Ellsworth Bunker on a special investigation of black-market currency manipulation.

“Black marketeers and illicit money changers have built a racket which has been estimated over-all as running over $150 million a year in Vietnam,” Mr. Parker testified.

“They create an atmosphere of illegality and fraud, immorality and cynicism,” he said, and “give aid and comfort to the enemy. They undermine what we are trying to achieve in Vietnam.”

Mr. Parker said Moslems from India run the black market. The black marketeers are so well organized, he added, that they have a “legal services” department that promptly pays the fine of any money changer caught and sets him back up in business.

Mr. Parker was the first witness at the hearings, which come after a five-month subcommittee investigation. {p.616}

According to Mr. Parker, the black marketeers use code-named bank accounts in the United States and Hong Kong, in addition to currency investors in Saigon, to reap profits from the difference between the official and black-market rates of exchange for United States dollars and Vietnamese piasters.

“The Government’s official rate is 118 piasters to a dollar,” Mr. Parker said. “But on the black market, a dollar is worth at least 200 piasters.”

An aide to the subcommittee said its investigators had been in Vietnam for five months looking into the black-market situation.

Senator Abraham Ribicoff, Democrat of Connecticut, is chairman of the subcommittee. He said federal officials, economists, banking experts, businessmen and others would provide evidence of black market currency transactions through banks in the United States and Hong Kong totaling about $360 million during the last five years.

Senator Ribicoff said that the transactions were alleged to run much higher — over the billion-dollar mark. The black market “seriously harms the American economic effort in South Vietnam, severely damages the Vietnamese economy and hinders the struggle against inflation, and reduces the effect of the American aid program,” he said.

METHODS DESCRIBED

A subcommittee spokesman said black-market currency transactions in Vietnam worked two ways, both based on the difference between the official exchange rate of 118 piasters to the dollar and the black-market rate of 170 to 200 piasters a dollar.

In one, a check drawn for United States dollars on an American bank is given to a black-market money changer in Vietnam, who pays the higher, illegal, exchange rate, then cashes the check himself for the dollars.

The second system, called a “lateral transfer,” involves coded messages. An American in Vietnam sends a message to his bank at home, instructing it to transfer a certain amount of United States money to another account, also in the United States.

Unknown to the first bank, the second account is linked with a black marketeer in Vietnam. The contact administering the second account sends a coded message to the money changer, advising him the money has arrived, and the money changer pays the American in piasters under the black-market rate.

______________________

[From the New York Times, Nov. 21, 1969]

BLACK MARKETING IN WAR IS TRACED SENATE INQUIRY TELLS OF FLOW OF DOLLARS INTO GOLD

(By Peter Grose)

WASHINGTON, Nov. 20.— Senate subcommittee investigators today described the operations of international syndicates said to be engaged in black-market currency transactions and war profiteering in Vietnam, starting with the dollars of American personnel and ending up as gold acquired in a Persian Gulf Sheikdom.

Through a fabric of trading companies existing mainly on paper and New York bank accounts under false names, traffic in the Vietnam black market in currency was estimated at $250 million last year alone. Repeatedly expressing astonishment through two hours of detailed testimony, Senator Abraham A. Ribicoff, acting chairman of the Subcommittee on Investigations, called for tighter auditing by civilian and military government agencies and closer scrutiny by American banks over accounts with funds originating in Saigon.

“After examining these bank statements,” the Connecticut Democrat said, “I can’t conceive how any prudent banker could draw any conclusion other than that they were being used as conduits for black market funds by an international syndicate, to the detriment of the United States.”

The report on black market and profiteering operations was presented, after nearly a year’s investigation, by Carmine S. Bellino, an accountant who is a consultant to the subcommittee, part of the Senate Committee on Government Operations. {p.617}

BANK ACCOUNTS EXAMINED

Mr. Bellino’s report included an examination, with photocopy exhibits, of 13 bank accounts with total deposits averaging about $75-million yearly. These represented, he said, “only a few of the many throughout the world which are used to siphon currency from Vietnam.”

From these records, the Senate investigators identified American civilians holding Government contracts as suppliers to military installations. These suppliers, they said, engaged in illegal currency exchanges, gave and accepted kickbacks and charged excessive prices for goods sold to the Government and to military personnel at post exchanges.

“The 13 bank accounts he examined include four large accounts controlled by a group of Indian nationals in Hong Kong who have a syndicate for Vietnamese currency manipulation,” Mr. Bellino said. “The group is headed by B. S. A. Rahman, who is also a motion picture producer and a manufacturer of wire and rope. Rahman was born in 1928 in Madras, India. Four male relatives assist him in his various enterprises.”

The largest of these accounts was in the Manufacturers Hanover Trust Company of New York, Mr. Bellino said, under the code title “Prysumeen.” He reported that the authorized signatures for the account were those of two persons with a Hong Kong post office box address, whom the subcommittee investigators later identified as employes of some of Mr. Rahman’s companies.

$51-MILLION DEPOSITED

During the account’s existence, from February 1965, until early this year when it was closed, $51-million were deposited to Prysumeen — over half from Vietnam, Hong Kong and Singapore according to the investigators. The bulk — $42-million — was withdrawn and transferred to the credit of three banks in the city of Dubai a seaport on the Persian Gulf in the Trucial states of Oman, they added.

Some of these funds were transferred directly from Manufacturers Hanover and some went through the Morgan Guaranty Trust Company of New York, Mr. Bellino reported.

“The banks in Dubai do business in gold,” he explained. “Gold smuggling is prevalent in the states of the Persian Gulf and gold hoarders will pay $70 an ounce and sometimes as much as $85.” The United States Treasury’s price for gold is $35 an ounce.

Since one of the Dubai banks receiving the Prysumeen funds was reported to be a branch of New York’s First National City Bank, the subcommittee served a subpoena on that bank in New York to get the branch records.

“Attorneys for the bank, however, advised us that the ruler of Dubai had forbidden the production of records and had issued a general prohibition on such matters to all banks operating in Dubai,” Mr. Bellino said.

_____________________

PROTECTION OF AID RESOURCES IN SOUTH VIETNAM

I would like to say, Mr. Chairman, that these matters, while they are serious and of very specific interest to us, don’t relate to the AID program per se. Perhaps, it would be appropriate for me to mention the extent to which in our administration of AID resources we have been able to assure that there has been a maximum degree of immunity and protection from the vicissitudes of that kind of behavior.

It is frequently suggested in the press and elsewhere that our loss rates of American commodities paid for by the taxpayers are enormous. I still hear occasionally estimates that we are losing 20, 30, and 40 percent of our commodities in our CIP program.

In point of fact, sir. we lose less than one-half of 1 percent from every conceivable loss, including short shipments, inadvertent as they may be, by American suppliers, losses en route from Bayonne, N.J., perhaps, to the Port of Saigon, losses on spoilage, breakage, pilferage, thievery — less than one-half of 1 percent in our commercial import program. {p.618}

Our record is not quite that good in the commodity programs having to do with our projects — the goods we bring into the country on behalf of the Ministry of Education for construction of classrooms and equipment and supplies and other things for the Ministry of Health and their operation of provincial hospitals. I estimate we are losing, from causes, perhaps 2 percent of the commodities in our project program. I do not say this smugly, Mr. Chairman, as the amounts are still quite large if one multiplies one-half of 1 percent against an import program of some $200 million, but I can assure you, and this is my only point, that our AID program is run very carefully and, I believe, sir, particularly in this area very well. We do not lose in this area.

BLACK MARKET OPERATION IN COMMODITIES

The Chairman. How much of the black market operation in commodities do you estimate is due to the United States and other foreign military forces or from civilian employees acquiring PX goods and then selling them on the Vietnamese economy to get a more realistic rate of exchange?

Mr. MacDonald. Well, first, let me say virtually none from the U.S. AID programs; virtually none. There are some exceptions which would prove the rule.

Let me give you an exception to prove the rule. Bulgur is brought in under Public Law 480, title II, for needy people — given, not sold to them — given to people who are accustomed to rice and have no taste for Bulgur. Some trade it for rice. That is the kind of exception on the AID side.

The black market does traffic to a certain extent in commodities that come in unrelated to the U.S. AID program or the Department of Agriculture program — the post exchanges and the commissaries, for instance — one can see PX articles in the stalls on the black market in the streets. There are fewer and fewer cases of this, given the controls that General Abrams has instituted in the PX system, and given the increasing concern of the Vietnamese Government and its instructions to the police to clean this up.

Magnitudes I cannot estimate for you, Mr. Chairman. I do not know that anybody can.

The Chairman. Have any studies been made of the extent to which the PX and commissary goods end up in the black market?

Mr. MacDonald. I do not know how many studies of that kind have been made.

The Chairman. Do you know how many tons of PX articles are brought in each month?

Mr. MacDonald. These are things I don’t know, but the Department of Defense does.

The Chairman. It has been in the paper that about 36,000 tons a month are imported to the PX commissaries. Does that sound about right?

Mr. MacDonald. I really don’t have any idea, Mr. Chairman.

It is not an AID matter.

The Chairman. You are really not competent to comment on the PX’s.

Mr. MacDonald. Not at all. {p.619}

 

EFFECTIVENESS AND EFFECTS OF U.S. AID TO SOUTH VIETNAM

The Chairman. There is another article here from the January 29, 1970, Christian Science Monitor. I hope you don’t think I read nothing but the Christian Science Monitor, but it is a newspaper that is generally considered above politics and it is a paper that is a favorite of people who are trying to lean over backwards not to be biased and, hopefully, not to come within the purview of some of our leading officials who do not think well of other newspapers that report on these matters. That is one of the reasons why we are partial to the Christian Science Monitor. It has not been denounced as an effete snob or something of that kind.

On January 29, 1970, it quotes a report commissioned by the World Council of Churches as concluding that:

More aid is coming into Vietnam now than can be effectively absorbed.

What would be your comment on that?

Mr. MacDonald. I do not agree with that statement. I think that good use is being made of the aid that comes in under the AID and Public Law 480 program, sir.

The Chairman. Further in the article it says:

This massive infusion of aid “has also encouraged dependence on foreign aid to such an extent that many South Vietnamese have ceased to believe that the Vietnamese can solve their own problems.

What would be your comment on that?

Mr. MacDonald. I would say there is dependence upon the outside world for help occasioned by the fact that they are under attack from an enemy also from the outside. Without that need, sir, they would certainly not have as much dependence upon us.

The Chairman. Lastly on this:

The general effect of the aid to Vietnam has been to widen the gap between rich and poor.

Mr. MacDonald. I would take immediate and emphatic exception to that; immediate and emphatic exception to that.

The Chairman. You don’t agree with this?

Mr. MacDonald. Not at all, sir; not at all.

The diet, the ordinary economic circumstances of life for the average Vietnamese, tend to be somewhat better today than it was before. I think if one is going to put price tags on these things, one has to remember that there are 82 or 83 percent of the primary school-age kids in school. That is income, sir; that is income. I think, if anything, the gulf, such as it was, between a handful of the elite and the great mass of people today has narrowed very much.

 

(The article referred to follows:)

______________________

[From The Christian Science Monitor, Jan. 29, 1970]

WORLD COUNCIL OF CHURCHES REPORT —
U.S. AID TO SAIGON WIDENS GAP BETWEEN RICH AND POOR?

(By Daniel Southerland)

SAIGON.— A report commissioned by the World Council of Churches says that more foreign aid is currently coming into South Vietnam than can be effectively absorbed.

The report was prepared by two secretaries of the council, Don Luce and Nguyen Tang Canh, who were appointed to spend three months preparing a survey of the {p.620} needs of the people of South Vietnam. Their report is described as an “interim” report, with a final assessment yet to be made.

The 57-page document says that much of the $408 million in United States aid provided to South Vietnam in 1969 “has been caught in administrative bureaucracy and absorbed by corruption.”

This massive infusion of aid “has also encouraged dependence on foreign aid to such an extent that many South Vietnamese have ceased to believe that the Vietnamese can solve their own problems.”

“The general effect of the aid to Vietnam has been to widen the gap between rich and poor,” the survey says.

The report warns that pumping in large amounts of voluntary aid at this time in addition to the already existing United States Government aid could merely “complicate the situation.”

“More aid is coming into Vietnam now than can be effectively absorbed,” it says.

Don Luce, an agricultural specialist from East Calais, Vt., has spent more than 10 years working in Vietnam, most of them with the International Voluntary Service (IVS), a kind of private peace corps that works with the Vietnamese people, training refugees, working on agricultural projects, and teaching English among other things, Mr. Luce speaks Vietnamese.

In late 1967, Mr. Luce, then IVS director for Vietnam, and three other IVS executives in Vietnam, resigned in protest against U.S. policies in Vietnam. They sent an open letter to President Johnson calling the war “an overwhelming atrocity” and appealing for deescalation, an end to crop defoliation, an end to the bombing in both North and South Vietnam, and recognition of the Viet Cong’s National Liberation Front.

PEOPLE BEHIND REPORT

Mr. Luce was coauthor last year of a book called “Vietnam — the Unheard Voices,” published by the Cornell University Press. The foreword was written by Sen. Edward M. Kennedy (D) of Massachusetts.

Nguyen Tang Canh is an “economist who did graduate work at the University of Lausanne in Switzerland.

The Luce-Canh report contrasts sharply with an optimistic year-end report recently released here by the U.S. Agency for International Development (AID). It maintains that “American economic aid has changed and is changing for the better the everyday living of the people of Vietnam.”

The AID report says that over a period of 18 years the United States has spent or committed something less than $4 billion in economic aid to South Vietnam. It says this aid reached a high of $646 million in the fiscal year of 1967, dropped to $548 million in 1968, and to $408 million in 1969. It projects a jump back up to more than $514 million in 1970.

This has long been the largest American aid program in the world, the largest anywhere, in fact, since the Marshall Plan of more than 20 years ago. The greatest portion of the aid to Vietnam has been devoted to a commercial-import program aimed at curbing inflation.

The Luce-Canh report says the Vietnamese “have been overrun with foreign and technical experts, feasibility studies, relief goods, orphanages. ... Social order has broken down.”

“Too many Vietnamese have become dependent on handouts,” it says. “Television, motorbikes, air-conditioning have been showered upon Vietnam without concern for the social and economic effects.

“Moreover, many Vietnamese feel that many of these things were imposed on a (Saigon) government too weak to resist,” the report continues. “The overwhelming foreign presence has become a threat to Vietnamese manhood and nationhood.”

The report calls for the “Vietnamization” of economic programs in South Vietnam and a renewal of the traditional village community life which has been disrupted by the war.

The survey is not only critical of U.S. Government aid but also of foreign voluntary agencies: “The country has been oversaturated with foreign voluntary agencies,” it says. “Development of local groups has been at a minimum, partly because foreigners have allocated the resources to their own organizations rather than Vietnamese ones.”

Emphasizing community development and cooperation with private Vietnamese organizations, the Luce-Canh report takes a different approach from the lengthy economic report submitted to President Nixon last year by David E. {p.621} Lilienthal, former chairman of the Tennessee Valley Authority and the U.S. Atomic Energy Commission, and Vu Quoc Thuc, an economics professor and minister of state in the Saigon government.

DEVELOPMENT PLAN HIT

The Thuc-Lilienthal document, which took two years to prepare, amounts to the only major postwar development plan for South Vietnam.

It concludes that with a total of at least $2.5 billion in foreign aid, most of it presumably to be provided by the United States, South Vietnam could attain complete economic self-reliance — meaning freedom from dependence on foreign aid — within 10 years.

The Luce-Canh report does not directly criticize the Thuc-Lilienthal study except to say that it has been financed by the U.S. and Saigon governments and thus “reflects the Washington and Saigon political points of view.”

But when questioned in an interview, Mr. Luce said he felt the Thuc-Lilienthal plan was “too westernized.”

“Many Vietnamese feel the plan puts too much emphasis on projects that will require a large amount of capital from the West and that it is attempting to set up a Vietnamese economy modeled after the U.S. one,” said Mr. Luce.

Mr. Luce is convinced that South Vietnam will eventually have a government much less tightly linked with the United States than the present one and that economic planners should take this into consideration.

_____________________

PERCENTAGE OF SOUTH VIETNAM’S IMPORTS FINANCED BY UNITED STATES

The Chairman. Do you have any estimate there of the percentage of South Vietnam’s imports that are being directly or indirectly financed by the United States?

Mr. MacDonald. Oh, virtually all. There is no question about that, if you use the word “indirectly.” They imported roughly three-quarters of $1 billion in 1969. AID and Public Law 480 constituted something slightly more than one-third of that three-quarters of $1 billion. The slightly less than two-thirds remaining amount was financed by dollars of their own. But, as you suggest in your question, those dollars of their own came predominantly from the Department of Defense which purchased piasters with them.

But let us not give the Vietnamese no credit for export earnings. Their earnings have gone down precipitously in the years of war, but they still do earn some $15 to $17 million of their own. But the great bulk unquestionably is from U.S. taxpayer source. There is no question about that, sir.

COMPARATIVE EFFECTIVENESS OF AID PROGRAMS IN SOUTH VIETNAM AND PAKISTAN

The Chairman. How do you compare your present and your experience in the last 4 years with your experience in Pakistan as to the effect of the program on the local community? How effective has it been and what is the reaction of the people to it? You were 4 years in Pakistan?

Mr. MacDonald. Yes.

The Chairman. Before these 4 years in South Vietnam?

Mr. MacDonald. Well, almost immediately before. I had a brief interlude in another country before being asked to go to Vietnam.

The Chairman. Could you compare it and give us any lessons you learned? {p.622}

Mr. MacDonald. They are rather incomparable.

The Chairman. Are they? They may not be the same.

Mr. MacDonald. They are rather incomparable situations. Vietnam is a country at war. Pakistan was not.

The Chairman. They didn’t have the war with India when you were there?

Mr. MacDonald. It happened 2 days after I left, but it was not a war of a quarter of a century’s duration, Mr. Chairman. They are hardly comparable.

The Chairman. You left just in time.

Mr. MacDonald. I would like very much to respond to your question. I am not certain how I can approach it, however. The Pakistanis in those years, and I gather since, have been doing a very creditable job in developing their resources and their economy.

In the early 1960’s they were pretty much out in front among the developing countries of the world. They had a sense of discipline. They had a realization of the limited worth of external aid, an understanding that development entailed in the first place an enormous amount of self-help and a willingness to leaven their own self-help with aid, but not to depend entirely upon it.

I would say that the Vietnamese have no less an understanding that their future is dependent upon their own efforts across the board, not just in the economic sphere, but in the military area as well.

From an economic point of view I find them enormously attractive people, with great potential, great skill, great learning ability, with the determination, when they make up their mind to undertake a certain objective, to see it through.

They have had one success after another, if I may use that word to describe some of the things they have done in these last 4 years.

The Chairman. Would you say that our experience in Pakistan was a quite successful one and that AID made a real contribution to that country?

Mr. MacDonald. I think there is no question but that AID resources, the financial resources provided by Americans to Pakistan were important.

IMPACT OF AID ON UNDEVELOPED COUNTRIES

The Chairman. I ask you this because as you know, it was not too long ago that Mr. Ayub Khan was, in a sense, deposed by General Yahya Khan. There have been stories since that time that there was a very undue concentration of economic activity and wealth in the

hands of a very few people. It is sort of that old story of the 20 families, perhaps 50 families, but anyway a very high concentration.

The implication of the story I read did not really lay it to AID’s activities, but it prompts this thought. I wonder if the infusion of aid through a foreign government’s agency could not be subject to the criticism that it may distort the orderly — because it is so much easier and almost inevitable that you do business with those who speak English and know how to do business with the West. They know how to import; they know how to do business. The story I read described how these very rich families did practically all the importing of modern equipment all the way from automobiles to computers. They represented all of the major corporations in the West and they, of course, reaped all the benefits of import programs. {p.623}

They were also closely allied with Mr. Ayub Khan’s political organization and the article gave this as one of the principal reasons why there was in a sense this revolution in Pakistan.

It only raises again the question whether a foreign country, especially a very rich, big Western country, can go into a small or a large, for that matter, undeveloped country and do a job that is really to the benefit of the local people. I know you don’t feel competent to answer these questions.

Mr. MacDonald. I do feel competent to answer that one, sir.

The Chairman. Do you? I thought this fell in line with my first question as to why we were in Vietnam. You didn’t want to answer that one.

Mr. MacDonald. I think it is a different question.

The Chairman. I would like to have you have a go at it.

Mr. MacDonald. I think that traditional societies have generally been characterized as you just have, as societies with a small elite at the top enjoying a monopolistic position, certainly in economic terms and in many other ways. That has been the pattern of traditional culture and societies around the world.

But the whole idea of development and the effect of aid, is to alter that. It may very well be true that a country has 14 or 40 or 67 predominant families in a position to benefit by an increase in economic activity, but the net effect of the entire effort is to raise the living standards of the mass of people, not through aid alone. Aid is only a catalyst to enable a nation to meet its own needs, to increase output, the better to share national wealth with all its people.

I think there is no question but that the development efforts and the AID efforts in Vietnam have accomplished these things, and I believe in Pakistan also. There is a middle class in being that never used to be there.

The Chairman. It is very interesting and I am glad you gave your views about it.

QUESTION IS ONE OF POLITICAL JUDGMENT

As I am sure you recognize, there is a difference of opinion because the people in Pakistan didn’t like what was developing there. Whatever influence you had, you were there. I don’t mean you, personally, but the AID program was there for quite a while and we put quite substantial amounts of money in there. This raises a very serious question in my mind of whether a country, like ours can do what we think we are doing. I certainly don’t question the motives. I think our motives in AID were about as good as we could have. I don’t question that at all.

It is our judgment as to human nature and human psychology that is in question. It is like what is in question in Vietnam are not the motives of anyone past or present. It is the political judgment. Was it wise and is it in the interests of the country? That is still the question.

These are always legitimate questions in political circles. You are not responsible for our being there, so I certainly don’t hold you responsible. You are doing a job. {p.624}

CONTROL OF CORRUPTION IN SOUTH VIETNAM

Taking the old saw that no news is good news, I am bound to say that during the last couple of years there has been far less scandalous news out of Vietnam than any preceding 2 years I can remember. It used to be chronic. About every 6 weeks there would be a new scandal about speculation of one kind or another, and corruption and goods. There were even stories that most of the Vietcong supplies really came through our AID import program.

Whether you have improved it or have at least stifled the reporting, one or the other, I have not heard bad news like that very much in recent months.

Assuming that it is warranted, I will congratulate you on at least the appearances of having controlled what used to be a flagrant case of corruption. I do not know whether I would say bad management, but a situation which could not be controlled.

I will end by saying you apparently have done a good job, and I know of no reason to say you have not. I do not criticize you or mean to leave any implication or criticism for Vietnam on your being there. You are there to do a job and you think that apparently you have done a good job.

SUBMISSION OF ADDITIONAL QUESTIONS

It is getting late. I have a few more questions here but I have to go. I have another engagement. I wonder if the staff could submit the few other questions I have to you and your staff. They are really material for use in our consideration. I don’t want to detain you. I will just say thank you very much for coming here. I think you have been very informative and it is very useful indeed.

SCHEDULE OF HEARINGS

I want to announce that the committee will continue this series of hearings on Thursday, at 10 a.m., when we will have the testimony of the Director of the USIA program in Vietnam. Prior to the testimony from the USIA witness, we will hear Congressman McCloskey.

Thank you very much, Mr. MacDonald.

(Whereupon, at 12:50 p.m., the committee adjourned, to reconvene on Thursday, March 19, 1970, at 10 a.m.)

(The following are answers by the Agency for International Development to additional committee questions:)

_____________________

AID REPLIES TO SENATE FOREIGN RELATIONS COMMITTEE STAFF QUESTIONS OF APRIL 1, 1970

1. (a) What percentage of South Vietnam’s imports last year were financed directly or indirectly by the United States? What will the percentage be this year? Next year?

Answer. Earlier, I noted that virtually all of the three-quarters of $1 billion in imports into Vietnam in 1969 was financed “directly or indirectly” by the United States. The level of imports referred to was the value of commercial import licenses and PL 480 Title I purchase authorizations issued, which totalled $740 million in 1969. Besides this commonly used measure of import activity, a more detailed analysis can be made on the basis of actual payments on import {p.625} transactions, rather than licensing. Commercial imports on a payments basis totalled $686 million in 1969, and were financed as follows:

 Millions
AID commercial import program (CIP) $177. 2
Public Law 480 title I sales 87. 8
GVN-financed freight and insurance (on above) 18. 5
GVN-financed imports 402. 4
Total commercial imports GIF-value 685. 9

A.I.D. CIP and PL 480 imports represents direct U.S. financing by the Agency for International Development and the U.S. Department of Agriculture, respectively. Of GVN-financed transactions, about $15 million-worth were covered by South Vietnam’s foreign exchange earnings from visible exports. The remaining amount of $406 million was financed with dollars, also of the Government of South Vietnam, which it earned in 1969 and prior years from its invisible exports, virtually all in the form of dollars accrued in the sale of piasters to the United States for use by the Department of Defense in purchasing goods and services in South Vietnam necessary to the United States presence. Considering the latter amount as “indirect” financing by the U.S., the total percentage of commercial imports financed directly or indirectly by the United States was 98 percent.

In addition to commercial imports, the value of non-commercial imports in 1969 was approximately as follows:

 Millions
AID project commodities $85. 0
Public Law 480 title II grants 28. 5
Non-U.S. foreign assistance grant commodities 10. 0
GVN-financed imports 402. 4
Total noncommercial imports 123. 5

Total commercial and non-commercial imports are thus estimated at $809.4 million on a payments basis, and the percentage financed directly or indirectly by the U.S. at 97 percent.

We expect this percentage will continue at well over 90 percent in 1970 and 1971.

(b) What was the cost to the United States of the import program for each of the last three years?

Answer. On a payments basis, the A.I.D. Commercial Import Program totalled $104.3 million in 1968, $177.2 million in 1969, and is estimated at about $200.0 million in 1970. (On a gross obligation basis by fiscal year, the amounts are $160 million in FY 1968, $130 million in FY 1969, and are estimated at $220 million in FY 1970.)

(c) When do you think U.S. aid for commodity imports can be ended if the war continues at the present level?

Answer. As long as the war continues at the present level and South Vietnam must divert over one million men from economically productive pursuits to its armed forces, there will be a need for some substantial level of commodity import assistance.

2. Has the Government of Vietnam asked the United States for additional aid to help feed the South Vietnamese Army?

Answer. A.I.D. itself has received no such request. However, the Government of Vietnam has made a proposal along these lines which is being considered by the Department of Defense.

3. Has the United States made any commitments to the Government of South Vietnam regarding the future level of U.S. aid? If so, would you provide the Committee with a copy of that agreement?

Answer. The U.S. has made no such commitment.

4. How much economic assistance did South Vietnam receive last year from other nations? What nations and what amounts from each? How much is expected for 1970?

Answer. Economic and social assistance extended to Vietnam in 1969 from countries other than the U.S. totalled $25.8 million, as follows: {p.626}

 Millions
Germany $6. 1
Japan 4. 9
France 4. 8
Korea 3. 4
Australia 2. 2
Canada 1. 9
United Kingdom 1. 0
New Zealand .6
Switzerland . 4
Thailand . 2
Others . 3
Total 25. 8

A slightly higher total is expected in 1970 unless there is a significant diminution of hostilities, in which case we would expect other countries to plan for substantially increasing their aid.

5. Is AID financing any organized programs of study concerning Vietnam at U.S. colleges or universities? If so, please describe the scope and objectives of the assistance.

Answer. An institutional development grant of one million dollars was made to Southern Illinois University on June 30, 1969, for a five-year period. The purpose of the grant was to increase the University competence for establishing studies and programs geared to postwar economic and social development of Vietnam. Such competence will become available to A.I.D., other agencies of the U.S. Government and for program planning, personnel training, and other related needs.

The grant was made under the provisions of Section 211(d) of the Foreign Assistance Act of 1966 as amended, which authorizes such grants “... to research and educational institutions in the United States for the purpose of strengthening their capacity to develop and carry out programs concerned with the economic and social development of less developed countries.” The 211(d) grants are for strengthening on-campus capabilities; they do not provide for direct services to A.I.D. (such as overseas technical assistance contracts) which, if any, would be carried out under separately financed contracts.

Under the terms of the grant, the objectives and scope of the studies and programs of the Center include:

1. The University will expand its permanent, full-time professional core staff, of Vietnamese and U.S. scholars under a Director of the Center for Vietnamese Studies and Programs. Activities will include organizing interdisciplinary courses of study about Vietnam in the related disciplines at the graduate, undergraduate and special short-course levels for both U.S. and foreign graduate and special students. This will involve the development of new courses and the restructuring of some existing courses.

2. The University will expand its library and public information services on all aspects of Vietnam.

3. The University will expand its research into economic and social development technology as related to the purpose of this grant.

The expanded full-time Vietnamese-American professional core staff, courses of study, library and information program will enable the University to respond more adequately to requests for assistance on economic and social development problems in Vietnam from A.I.D., other U.S. universities, Vietnamese governmental agencies and universities, international and regional agencies, various private businesses and interested private citizens.

In addition, A.I.D. is also financing programs of study concerning Vietnam through a contract with The Asia Society, New York, N.Y. While The Asia Society is not itself a college or university, under the terms of the contract, it has organized the South East Asia Development Advisory Group — a group of professors from various academic disciplines and from different universities who are interested in development assistance to the South East Asia countries — including Vietnam. In 1969 research grants were provided to six scholars for the following studies on Vietnam:

The Changing Composition of the Political Elite in South Vietnam as Reflected in Persons Holding National Office since 1954. ($11,400) (Wesley R. Fishel, Michigan State University); {p.627}

The Current and Future Role of the 1967 Lower House as an Emerging Political Institution and its Membership as an Emerging Elite. ($9,803) (Allan E. Goodman, Harvard University);

The Effects of Long Term Viet Cong/Viet Minh Control on Rural Vietnamese Social Structure and Attitude and Value Orientations of the Delta Peasantry. ($19,820) (Neil Jamison and A. Terry Rambo, University of Hawaii);

The Relationship between Economic Change and Peasant Organizations in Vietnamese Villages. ($22,670) (Samuel L. Popkin, Harvard University); and

Planning Study on Research on Village Development in Vietnam. ($18,426) (Ithiel de Sola Pool, M.I.T.).

6. How much has South Vietnam’s population increased in the last ten years? What is the current birth rate? Does the United States provide family planning assistance to South Vietnam? If not, why not?

Answer. The GVN National Institute of Statistics estimates that South Vietnam’s population has increased by approximately 4.1 million in the last ten years, to a 1969 total of 17,867,000. The annual estimated population growth rate during those years has varied between 2.6 and 3.0 percent. The annual crude birth rate is estimated at 4.4 percent (live births surviving 24 hours).

Because of a 1933 Vietnamese law prohibiting the practice of contraceptive techniques and dissemination of family planning information, U.S. assistance in family planning has been limited to a Ministry of Health research project. In this research project the U.S. has provided medical equipment, vehicles, audio visual training equipment and contraceptive supplies for the establishment of Family Planning Clinics within the Ministry’s Maternal and Child Health system. At present there are nine of these clinics and one family planning training center for national midwives in operation. The U.S. has also provided training opportunities for 47 community health and population studies workers.

The limited direct U.S. assistance has been coordinated with the work of the following international family planning organizations:

(a) The International Planned Parenthood Federation, which has provided in-country training for national midwives, training at the IPPF regional center in Singapore for doctors and nurses, and financial support for the establishment of a private Vietnamese family planning organization.

(b) The Population Council’s observational tours for GVN officials have acquainted them with successful Asian family planning programs.

(c) The Pathfinder Fund has provided assistance for GVN participation in international family planning conferences, salaries for family planning clinic clerical personnel, and contraceptive supplies.

7. (a) What is the outlook for future U.S. private investment in Vietnam? Answer. The GVN, the Vietnamese private sector and AID are cooperating in identifying potential postwar private investment opportunities in Vietnam. While results of this work are tentative, areas of greatest attraction for investors will probably be the following: fisheries, wood products, sugar refining, fertilizer, chemicals, textiles, machinery and metal products. The extent to which U.S. private capital takes advantage of these opportunities will depend largely on the availability of investment guaranties, and the existence of an efficiently implemented, attractive Vietnamese investment incentive law. The security situation, of course, must show steady improvement over a period of time before any substantial increase in U.S. or other foreign investment can be expected.

(b) Is AID devising any special incentives to attract potential investors to South Vietnam in the postwar period?

Answer. AID Advisors are working closely with the GVN in drafting a new investment incentive law that will be competitive with those of other countries in the area. It is anticipated that such a law will be put into effect during 1970. In cooperation with the Asian Development Bank, AID is also advising the GVN Industrial Development Center on restructuring itself to become more attractive to foreign lenders. The AID investment guaranty program will be an essential element in fostering postwar U.S. investment.

8. What is the estimated total for foreign investment in Vietnam at present? How much is the U.S. investment and how much of that is covered under the investment guaranty program?

Answer. As of the end of 1969. foreign private industrial investment was estimated at US$108 million, of which U.S. investment was approximately $8.8 million. The balance was principally French investment.

AID political risk insurance coverage in effect is as follows: {p.628}

American Trading Investment Corp $135, 354
Intl. Dairy Eng. Co. (Foremost) 395, 293
Caltex (storage tanks) 294, 000
Subtotal 824, 647
Chase Manhattan Bank 30, 000, 000
Bank of America 30, 000, 000
Total 60, 824, 647

It is most unlikely that the two American banks would ever have claims for the insured amounts.

{There’s no question 9. (a)}

9. (b) What portion of Vietnam’s spending of foreign exchange is in the United States? What other countries get sizable shares of GVN spending?

(The information referred to appears on p.612)

10. The Lilienthal report on post-war reconstruction stated that in the next 10 years, South Vietnam’s economy will require an investment of $5 billion to achieve a satisfactory growth rate and that half of this will have to come from external sources. How much of that do you expect to come from U.S. private resources? How much from U.S. foreign aid?

Answer. The Lilienthal report postulated not just the possibility of South Vietnam attaining a “... satisfactory growth rate ...” following a decade of development, but rather that she could in that time attain a state of self-sustaining growth in which she would have no need for further concessional aid. That achievement would require satisfactory growth rates during the decade of development.

Given the uncertainty of future events, it is difficult to establish meaningful investment requirements for the next ten years. If the Lilienthal report’s prospectus and figures are correct, and assuming a U.S. share in financing the 2.5 billion dollar investment which the report says may be derived from external sources over the next ten years, it is probable that most U.S. assistance would come from public sources. U.S. private business has only recently expressed interest in investing in Vietnam. The prospects for increased aid, both public and private, from other nations (notably Japan) are brighter, and should materialize quickly as hostilities diminish.

11. The General Accounting Office recently reported that the United States Government had paid directly or indirectly between $28 million and $34 million in rental taxes on leased facilities in Viet-Nam between 1966 and 1968 and the GAO recommended that steps be taken by the U.S. Government to obtain relief. Is anything being done to correct this situation?

Answer. Since receiving the GAO report, the U.S. Mission in Viet-Nam has determined to seek an exemption from the rental taxes on facilities leased to the U.S. Government, and steps to obtain this relief are now being discussed with the Ministry of Finance.

Since this question was put to the Director USAID/Viet-Nam, it should be noted that this problem has virtually no applicability to A.I.D. operations as virtually all piaster financing in support of them is derived from the GVN counterpart account and not from U.S.-purchased piasters as in other areas.

12. What proportion of the total cost of the land reform program will be paid by the United States — directly or indirectly? What will be the total cost to the United States?

Answer. Cost of the new “Land-to-the-Tiller” Law to the GVN is estimated at VN$75-$110 billion (US$640-960 million equivalent), 1  depending on land valuation. This amount would cover landlord compensation at 20 percent cash down-payment with the balance in bonds redeemable over an eight-year period. The U.S. does not contemplate making any direct financial contribution to these payments, which are a local currency cost. In recognition of the inflationary impact on the economy of these payments, however, we intend to assist the GVN to meet the resulting increased import demand, as we do with respect to total import requirements. Our financial assistance would be applied through the A.I.D. Commercial Import Program. We have been planning to earmark US$40 million for this purpose over the first three years of the program, through specific project agreements tied to progress in land transfers. US$10 million of this amount has already been obligated. Additional support over the life of the program will be considered as part of our overall economic stabilization assistance.

Since the level of this subsequent support will depend on a great number of economic factors besides land reform payments, an estimate of that portion of the total cost of the program which the U.S. might bear cannot be predicted now.

_____

Converted at 118:1. {p.629}

 

13. (a) What is the total for all U.S. spending in Viet-Nam — government and private?

Answer. U.S. spending affecting the Vietnamese economy is estimated at approximately $730 million in 1969. This includes all A.I.D.-financed and PL 480 commodities, and official and troop spending. Other private spending is negligible.

(b) How much of South Viet-Nam’s national income is derived, directly or indirectly, from the United States presence, including the U.S. aid program?

Answer. The computation of the Vietnamese GNP is complicated by the war situation and the exchange rate problem. At a realistic exchange rate, GNP per capita is estimated at roughly US$150-175, of which US$50-55, or about one-third, is the direct and indirect contribution of the American presence, including American aid.

(c) What effect will the continued reduction of U.S. forces and spending have on South Viet-Nam’s economy and on the level of U.S. aid?

Answer. The reduction of the number of combat troops will have little direct effect on the economy, though certain dislocations in urban economies may attend the reduction of the number of support troops. Indirectly, the reduction of forces will decrease the amount of dollars available to the GVN to finance imports. A compensating increase in economic aid will probably be required to mitigate the effect of economic dislocations caused by personnel withdrawals, to help finance the increased burden shouldered by the GVN, and to supply investment capital.

14. (a) Has the United States encouraged the Government of Vietnam to devalue the piaster? If not, why not?

Answer. The United States has strongly encouraged the GVN to take a series of stabilization measures of which monetary reform is one important element.

(b) What magnitude of devaluation would be required to stem the present capital flight and reduce black market activities to insignificance?

Answer. It is difficult to say what magnitude of devaluation would stem capital flight and reduce black market activities. Any arrangement short of a freely fluctuating rate would involve limiting access to the exchange and thus insure a continued black market demand. The short-run consequences of a free rate would be too disruptive to contemplate. Of much greater importance in stemming capital flight is the matter of basic confidence in the economy, which goes beyond adjustment of the exchange rate.

15. (a) What percentage of South Vietnam revenues last year was derived from taxes? How much from income taxes?

Answer. The composition of GVN revenues in 1969 was as follows, in billion of piasters:

Customs duties and related collections VN$52. 0
Domestic taxes 26. 0
Receipts for services, lottery proceeds, etc 110. 9
Counterpart releases 24. 3
Deficit financing 29. 6
Total revenues 142. 8

Customs and domestic taxes represent 55 percent of the total. Income taxes represent a relatively small proportion of domestic taxes, the bulk being derived from indirect, excise, and registration taxes. Income taxes amount to about 4 percent of total revenues. Domestic taxes and receipts as a whole account for 26 percent of the total; and if domestic borrowing (deficit financing) is added, the percentage of the budget financed solely by the GVN and unrelated to external assistance amounts to 46.6 percent. It is important to note that this self-financed level, the equivalent of US$562 million, substantially exceeds expenditures for the civilian portion of the budget for such areas as education, health, agriculture and public services, which totalled US$317 million equivalent in 1969. A chart giving additional detail on budget receipts and expenditures follows.

(b) Have United States officials recommended in the past that South Vietnam reform its tax structure, especially with regard to income taxes?

Answer. The U.S. has stressed the need to increase domestic revenues, including receipts from income taxes, as a necessary part of an effective economic stabilization program. Specific tax policy advice is provided by a resident United Nations advisor. The USAID/IRS tax advisory team is concerned with improving tax administration and has made many recommendations for administrative reform, including the administration of income taxes. {p.630}

{table to come}

EXPENDITURES RECEIPTS

16. (a) How much were South Vietnam’s exports last year compared with imports? What is expected for 1970?

Answer. In 1969 South Vietnam exported an estimated $15 million worth of goods. This may be compared with commercial imports of $686 million, or with total commercial and non-commercial imports of $809 million. (See tabular material, Question 1 a.). In 1970, exports should remain about $15 million and total imports are estimated in the range of $750 million.

(b) How much potential is there for export expansion, assuming that the war continues? To what extent can the South Vietnamese reduce their level of imports?

Answer. As long as the war continues at its present level, prospects for substantial export expansion are relatively slight. Increases in domestic production despite the war and a significant reduction of imports are possible and are being sought.

(c) Do you think the gap can ever be closed as long as the war goes on?

Answer. The gap between imports and exports is not at all likely to be closed as long as the war continues at its present level.

17. (a) When will South Vietnam regain self-sufficiency in rice production? Answer. South Vietnam will regain self-sufficiency in ride production by the end of 1971, assuming there is a continued economic incentive for farmers to raise rice. Rice import and marketing policies must be such as to sustain this incentive. There is every expectation of self-sufficiency in 1971.

(b) What has happened to South Vietnam’s traditional rice markets since the war began? What are prospects for her regaining these markets?

Answer. Vietnam’s traditional rice exports consisted first of relatively small quantities shipped to Hong Kong and Singapore. Vietnam can probably recapture some of these markets by exporting her very high quality rice as she did when last an exporter, and by adjusting her monetary rate of exchange to encourage export sales. Additional small amounts moved to France and other European countries, but Vietnam’s command of these markets was primarily the result of cheap backhaul freight rates. Finally, the majority of South Vietnam’s rice exports in the past went to North Vietnam.

(c) Are the new “miracle rice” varieties of adequate quality to compete in the world market?

Answer. The original “miracle” rice strains, IR-8 and IR-5, are meeting the quantitative needs for rice in Vietnam, but they are not considered suitable for {p.631} export by Vietnam or other surplus producing countries. New improved varieties, however, such as IR-20 and IR-22, have milling and table qualities suitable for international trade. IR-20 has been distributed to all the primary rice-growing provinces in small amounts to begin the build-up of seed stocks. IR-22 is being tested and will be released in the near future if it continues to prove to be satisfactory for Vietnam’s conditions. Other promising varieties are in the development stage. These improved strains are, of course, available to other rice producing countries as well as Vietnam.

18. Given the prospects for continued fighting under the Vietnamization policy, what are the prospects for reducing the imbalance between GVN spending for military purposes and for economic and social purposes?

Answer. As long as the country is under military attack by North Vietnam and subjected to harassment by local insurgents externally stimulated by the North Vietnamese, and through the North Vietnamese equipped by other foreign Powers, the present priority given military spending should and must continue. Nonetheless, GVN spending for economic and social purposes which has been large and growing the last three years will probably continue to increase absolutely in the next several years despite the war. This should bring a continuation of the rapid and unprecedented growth of public and social services being provided the South Vietnamese people by their government, in marked contrast to the situation in North Vietnam.

Given a cessation of the external aggression by North Vietnam and their aid to the Viet Cong, but a continuation of Viet Cong insurgency, a substantial reduction in the “imbalance” could be effected.

19. What is the state of South Vietnam’s foreign exchange holdings now, compared with a year ago? Two years ago? What do you expect them to be a year from now? What will happen to her foreign exchange holdings as U.S. forces are withdrawn, assuming that U.S. economic aid is not increased?

Answer. Vietnam’s foreign exchange holdings in millions of U.S. dollars are as follows:

 As of year end
 196719681969
Official GVN holdings 325319260
Commercial bank holdings 132630
Total 338345290

 

Total foreign exchange reserves as of the end of 1970 should be about US$255 million. Future foreign exchange earnings would decline more or less sharply, depending on the pace of U.S. force withdrawal, and holdings would probably be reduced. The level of reserves, however, will be determined by a combination of GVN import, fiscal, and domestic production policies and by the magnitude of direct and indirect foreign aid, which cannot be forseen precisely now.

29. Approximately 100,000 to 300,000 South Vietnamese women are living as prostitutes, bar girls, and “temporary wives” of American servicemen, according to a report put out in October 1969 by the World Council of Churches. What, if any, steps are being taken to integrate these women into productive economic activities as American forces are withdrawn?

Answer. The figures in the referenced report were offered without substantiation. Since statistics on this subject are not kept, one could do no more than speculate whether the wide-range “guesstimate” made in the report is high, low or reasonably accurate. The American military, in a major effort to lessen the incidence of this kind of problem began over two years ago to place cities off limits to servicemen and this has doubtless had a pronounced effect.

The Ministry of Social Welfare is attempting to deal with the problem of prostitution in Vietnam through programs of vocational training and education at a few rehabilitation and detention centers, and has plans to expand this work. But the impact of these programs has been limited and it seems unlikely that the problem will be eliminated here much more quickly than it has in comparable situations in other nations suffering from war-time conditions.

21. (a) What has been the inflation in South Vietnam since 1965? What is expected for 1970?

Answer. From 1965 through 1969, the cost of living as measured by costs for the Saigon working class rose about 35 percent a year. If taken from June 1966, the {p.632} annual rate of increase through 1969 is in the order of 27 percent. Something less than that is being attempted for 1970.

(b) Have any steps been taken toward easing the impact of inflation on the poor through stateowned stores selling rice and other essentials, subsidizing the price of rice, or similar measures?

Answer. Imported U.S. rice is sold at prices below the price of domestic rice, and below the free market price for U.S. rice, to groups of people hard-hit by inflation, such as refugees, soldiers and their families, civil servants and a variety of needy persons.

22. (a) How many Vietnamese work at U.S. government installations, for U.S. Government contractors, or for U.S. personnel in a private capacity?

(b) How many Vietnamese jobs are dependent, directly or indirectly, on the United States presence?

Answer. In early 1970, some 142,000 Vietnamese were employed by all U.S. agencies and major contractors. There is no way to estimate reliably the number of Vietnamese who may be privately employed by Americans, nor how many jobs may be indirectly dependent on the U.S. presence in Vietnam.

23. Why were “austerity” taxes on imports of luxuries not imposed long before last Fall?

Answer. The “austerity” tax had its origin in 1961, and so was indeed imposed long before last Fall. As to the last two years, however, the political and economic disruptions of Tet 1968 effectively postponed additional economic austerity measures until 1969. Some were introduced in the spring, and more far-reaching measures in the fall of 1969. The result of the measures taken at that time was to increase by 65 percent the average effective cost of those imports on which additional taxes were imposed. (Twenty-seven percent of imports, considered essential, were exempted from the austerity tax increases).

24. (a) How much of the black market operation in commodities do you estimate to be due to U.S. military forces, foreign military forces, or civilian employees acquiring PX goods and then selling them on the Vietnamese economy in order to get a more realistic rate of exchange?

(b) Have any studies been made of the extent that PX and commissary goods end up in the black market? If so, what do they show as to the total value of the goods so diverted?

(c) What was the total value of all goods imported into Viet-Nam last year for use in PX or commissary operations? How much does this come to per soldier?

(d) Are any reports kept, or have any studies been made, of the amount of PX sales made to persons other than U.S. military personnel? What do they show?

[These questions asked at Hearings, pp.617-618 of transcript {sic: 618-619}, Mr. MacDonald indicating this is a DOD matter in which he has no competence.]

25. Can the United States give a more realistic rate of exchange to its employees or servicemen with the piasters it owns, if it chooses to do so?

Answer. Yes, but doing so would entail the diversion of U.S.-owned piasters which the U.S. presently uses to finance essential activities.

26. How does the GVN select the importers who will be permitted to bring in goods financed by the United States under the commodity import program? How many people were arrested and convicted last year of fraud or other corrupt activities in connection with the import program?

Answer. The GVN has an “Open General Licensing System”, with established pre-qualification criteria against which commercial importing firms, dealers, and industrial enterprises apply for registration or authorization to act as importers. A large number of importers are qualified under the system and substantial competition results. During a recent 14-month period, 837 importers were issued one or more AID-financed import licenses. There were no arrests or convictions last year directly connected with the AID-financed import program. A.I.D. controls and procedures have succeeded in keeping the loss rate low on A.I.D.-financed commodities — less than one-half of one percent in the commercial import program. This includes losses from all causes including theft, breakage, spoilage, and short shipments.

Considering GVN Customs operations as a whole, there are of course many arrests for avoidance or attempted avoidance of GVN regulations by smuggling or other illicit practices. In 1969 the GVN Customs Service collected fines and penalties totalling US$ 1.8 million equivalent for violations of customs and import regulations. Over 3500 customs cases were instituted, and 2807 cases settled through administrative proceedings. Court convictions resulted in 192 of these cases. {p.633}

27. Is pay adequate for GVN civil servants and is there a relationship between low pay and corruption in the ministries?

Answer. Pay increases for GVN civil servants have not kept pace with rises in the cost of living, and civil service salaries are generally lower than those in the private sector. The inadequacy of GVN civil service salaries is partially alleviated by fringe benefits such as family allowances, a rice allowance and medical benefits.

Low pay is a contributing factor to corruption. Petty officials often require “speed” money of a nominal amount as their price for processing a document, for example, a practice which some say has come to be tolerated in Vietnamese society as an unavoidable evil, a form of enforced tipping for service. Major instances of corrupt practices probably occur most often among officials, irrespective of their salary, in positions in which they can control large amounts of money. Control of the problem of corruption is being attempted through the institution of tighter audit controls, wider publicity on contract awards and similar transactions, and heavy penalties imposed for those caught in malpractices. Higher salaries would probably have a helpful effect on reducing corrupt practice. {p.634}

______________________

{Page 634 is blank} {p.635}

 

 

Source: The printed hearings (cited below).

By CJHjr: Photocopied at 141%, scanned, converted to text (OCR: FineReader 6.0), formatted (xhtml/css), links, text {in braces}, text beside a green bar |, text in yellow boxes, bold-face, bold-italics, highlighting, added paragraphing (for ease of reading) marked with this trailing paragraph symbol: ¶ .

This document: March 17 1970 hearing (pages 569-634, Vietnam: Policy and Prospects, 1970 {58.4mb.pdf, source}, “Hearings on Civil Operations and Rural Development Support Program” (U.S. Congress 91-2, Senate Committee on Foreign Relations, Hearings, February 17, 18, 19, 20, and March 3, 4, 17, 19, 1970, and Appendix, 7+750 pages) {SuDoc: Y 4.F 76/2:V 67/17, CIS: 71 S381-2, OCLC: 119418, LCCN: 76610214 pf, DL, WorldCat}.

Previous: March 4 1970 hearing (pages 509-568) {250kb}.

Next: March 19 1970 hearing (pages 635-700) {280kb}

See also:

The second Phoenix hearings: U.S. Congress, House Hearings: U.S. Congress, House Hearings, U.S. Assistance Programs in Vietnam (U.S. Congress 92-1, House Committee on Government Operations, Subcommittee on Foreign Operations and Government Information, Hearings, July 15 {a.m., p.m.}, 16, 19, 21, and August 2 1971, 4+362 pages) {SuDoc: Y 4.G 74/7:V 67/4, CIS: 72 H401-3, OCLC: 235387, LCCN: 71616178 pf, DL, WorldCat}. Ensuing report: U.S. Assistance Programs in Vietnam (U.S. Congress 92-2, House Report No. 92-1610, House Committee on Government Operations, October 17 1972, 5+107 pages) {SuDoc: [Y 1.1/8:]92-2:H.RP.1610, Serial Set: 12976-6, CIS: 72 H403-19, OCLC: 540690, LCCN: 72603272 pf, WorldCat} {Full text: pages 1-46 2.4mb.pdf, pages 47-97 2.8mb.pdf, pages 99-107 501kb.pdf, omitting page 98 and repeating page 107, instead, at the start}.
The third Phoenix hearings: Nomination of William E. Colby to be Director of Central Intelligence (U.S. Congress 93-1, Senate Armed Services Committee, Hearings, July 2, 20 {a.m., p.m.}, 25, 1973, 3+186 pages) {SuDoc: Y 4.AR 5/3:C 67/3, CIS: 73 S201-27, OCLC: 800312, LCCN: 73603022 pf, DL, WorldCat}. Witnesses: William E. Colby, Robert F. Drinan, Samuel A. Adams, Paul Sakwa, David S. Harrington, Kenneth B. Osborn.
Vietnam Policy Proposals: Hearings on nine proposed items of legislation to end the U.S. war in Vietnam (U.S. Congress 91-2, Senate Committee on Foreign Relations, Hearings, February 3, 4, 5, and March 16, 1970, 5+405 pages) {SuDoc: Y 4.F 76/2:V 67/16, CIS: 70 S381-7, OCLC: 78825, LCCN: 74606991 pf, DL, WorldCat}.
National Veterans Inquiry on U.S. War Crimes in Vietnam (Citizens’ Commission of Inquiry on U.S. War Crimes, Washington D.C., December 1-3 1970), transcript, 117 Congressional Record 4238-4271 (U.S. Congress 92-1, March 1 1971, Permanent Edition (red bound)) {SuDoc: X.92/1:117/PT.4, ISSN: 0883-1947, OCLC: 05058415, LCCN: 12036438 pf, GPOCat, LL: paper, microfiche, DL, WorldCat}. Witnesses: Robert Bowie Johnson Jr., Mike McCusker, Daniel K. Amigone, Greg Motoka, Kenneth Barton Osborn, Norman Kiger, Gail Graham, Steve Noetzel, Edward Murphy, Daniel Alfiero, Louis Paul Font, Robert Master, Peter Norman Martinsen, T. Griffiths Ellison, Ed Melton, Chuck Hamilton, Lee Meyrowitz, Gordon S. Livingston, Greg Turgeon, Richard Altenberger, Bob Connelly, Robert Lifton, Chaim Shatan, Donald Engel, Gary Thamer, Steven Hassett, Kenneth Campbell, Sam Rankin, Phillip Wingenbach, Tod Ensign, Larry Rottmann, Robert Osman.
Winter Soldier Investigation (Vietnam Veterans Against the War Inc., Detroit Michigan, January 31, February 1-2, 1971), transcript, 117 Congressional Record 9947-10055 (U.S. Congress 92-1, April 6 1971, Permanent Edition (red bound)) {SuDoc: X.92/1:117/PT.8, ISSN: 0883-1947, OCLC: 05058415, LCCN: 12036438 pf, GPOCat, LL: paper, microfiche, DL, WorldCat}; 117 Congressional Record E 2825-2936 (U.S. Congress 92-1, April 6-? 1971, Daily Edition (green bound)) {SuDoc: X/A.92/1:117/???-???, ISSN: 0363-7239, LCCN: 80646573 pf, OCLC: 02437919, GPOCat, LL: paper, microfiche, DL, WorldCat}.
American Prisoners of War in Southeast Asia, 1971 (U.S. Congress 92-1, House Committee on Foreign Affairs, Subcommittee on National Security Policy and Scientific Developments, Hearings, March 23, 24, 25, 30, 31, April 1, 6, 20 {vvaw}, 1971, 9+583 pages) {SuDoc: Y 4.F 76/1:P 93/4/971/PT.1, CIS: 71 H381-9, OCLC: 15634210, LCCN: 77612471 pf, WorldCat}, witness: Larry Rottmann (volunteer coordinator, Vietnam Veterans Against the War), April 20 1971 hearing, pages 353-423 {3.2mb.pdf}, at pages 406-423. CIS: “Description of charged mistreatment of prisoners in South Vietnam by American forces; report of receiving Officers Candidate School instruction on the use of torture.”

link

Legislative Proposals Relating to the War in Southeast Asia {44.14mb.pdf, source} “Hearings before the Committee on Foreign Relations, United States Senate, Ninety-Second Congress, First Session, on S. 376, S. 974, S.J. Res. 82, S.J. Res. 89, S. Con. Res. 17, S. Res. 62, and S. Res. 66” (U.S. Congress 92-1, Senate Committee on Foreign Relations, Hearings, April 20-May 27 1971: “April 20, 21 and 22, 28, May 3, 11, 12, 13, 25, 26 and 27, 1971,” 7+726+12 pages) {SuDoc: Y 4.F 76/2:AS 4/13, CIS: 71 S381-18, OCLC: 198272, LCCN: 79614140 pf, DL, WorldCat}, witness: John Kerry (VVAW: Vietnam Veterans Against the War), Thursday April 22 1971, 11:05am-1:00pm, pages 179-210 {3.1mb.pdf}.
House Ad Hoc Hearing for Vietnam Veterans Against the War (U.S. Congressmen Jonathon Bingham and Paul Findley, presiding, Friday, April 23 1971, Venue: U.S. Congress, House of Representatives), transcript, 117 Congressional Record 13104-13118 (U.S. Congress 92-1, May 3 1971, Permanent Edition (red bound)) {SuDoc: X.92/1:117/PT.10, ISSN: 0883-1947, OCLC: 05058415, LCCN: 12036438 pf, GPOCat, LL: paper, microfiche, DL, WorldCat}. Witnesses: Larry Rottmann, Forest Lindley, Les Johnson, Arthur Egendorf, Kip A. Kypriandes, Phillip Lowley, Vinny Giardina, Michael Paul McCusker, William W. Lemmer, Alex Prim, Robert McLaughlin, Jack Smith, David B. Maize.
Senate Ad Hoc Hearing for Vietnam Veterans Against the War (U.S. Senator George McGovern, presiding, Friday, April 23 1971, Venue: U.S. Congress, Senate, Room G-103 New Senate Office Building), transcript, 117 Congressional Record 15392-15405 (U.S. Congress 92-1, May 17 1971, Permanent Edition (red bound)) {SuDoc: X.92/1:117/PT.12, ISSN: 0883-1947, OCLC: 05058415, LCCN: 12036438 pf, GPOCat, LL: paper, microfiche, DL, WorldCat}. Witnesses: Scott Camil, Vinny Giardina, Melville L. Stephens, Basil Paquet, Joe Nielsen, Dale Granata, Everett Carson, Forrest Lindley Jr., Samuel Miller, David A. Lamenzo, Jon Bjornson, Ken Provan.
Ad Hoc Hearings on Command Responsibility for War Atrocities in Vietnam {copy} (U.S. Congressman Ron Dellums, presiding, April 26, 27, 28, 29, 1971, 9:30 a.m.–12:30 p.m., Venue: U.S. Congress, House of Representatives, Caucus Room, Cannon House Office Building), transcript, The Dellums Committee Hearings on War Crimes in Vietnam: An Inquiry into Command Responsibility in Southeast Asia (New York, Vintage Books, 1972, 13+355 pages) {LCCN: 79039897 pf, ISBN: 0394717678, WorldCat}. Witnesses: Five West Point graduates (Fred Laughlin, Gordon Livingston {Iraq, copy}, Robert B. Johnson, Greg Hayward, Ron Bartek, Michael O'Mera), five former military intelligence special agents and POW interrogators {omitted from the linked source}, ten former Americal Division members (Gary Battles, Charles David Locke, Terry Mullen, Steve Padoris, Daniel S. Notley, John Beitzel, Guadalupe G. Villarreal, Daniel Barnes, Thomas Cole, William Toffling), overview of air war, pacification, and forced urbanization (John Sack, Kenneth Campbell, Randy Floyd, Elliot L Meyrowitz).
Bertrand Russell Tribunal, “International War Crimes Tribunal” (Stockholm Sweden, May 2-10 1967; Roskilde Denmark, November 20 – December 1 1967).
Tiger Force: “Buried Secrets, Brutal Truths: Tiger Force, an elite fighting unit in Vietnam, left a trail of atrocities in that country that have been concealed from the public for three decades.” (The Blade, Toledo Ohio, October 22 2003, February 15, March 28, April 6, May 2, May 12 2004).

This document is not copyrighted and may be freely copied.

CJHjr

Charles Judson Harwood Jr.

Posted June 3 2004. Updated May 10 2009.

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