10. Memorandum From James Thomson and Donald Ropa of the National Security Council Staff to the Presidentʼs Special Assistant for National Security Affairs (Bundy)1


  • The New Year in Asia


The Program Front

Political Dynamics. South Vietnam, under the rule of a ten-man military Directorate, for almost seven months has experienced greater political stability than at any time since early 1963. However, the political rivalries and conflicts within the Vietnamese social fabric have not been resolved nor eliminated. Rather, the absence of serious political turmoil appears in large part a result of the assumption of authority by the one element currently strong enough to wield it—the leaders of the armed forces. Additionally, political improvement is the result of the more concrete U.S. military and political commitment of the past year, which has checked the previous prospect of accelerating internal collapse and Communist takeover.

The present military regimeʼs surface display of unity to date is largely the result of a diffusion of real power among four or five generals. None of these seems so far to have sufficient personal strength or motive to upset the balance. This alliance, however, clearly remains tenuous, and the strains among the ruling generals have resulted, in recent weeks, in [Page 27] renewed rumors of coup plotting. Kyʼs government is not in imminent danger, but an eventual coup attempt cannot be discounted. Our people in Saigon believe that Ky would step down if so requested by the Directorate, but he displays no obvious signs of discouragement and voices no concern over possible coup attempts.

To date Kyʼs government has been notably unsuccessful in developing significant popular enthusiasm or positive political support. Ky grasps the countryʼs problems in general, but his ambitious programs of political, social and economic reforms have made only marginal headway. Neither increased security nor government presence have been brought to any significant new portion of the rural population. Still, conditions have not deteriorated. Ky has demonstrated considerable adroitness in balancing competing pressures from Buddhists and Catholics and other factions. Civilian groups at present appear reluctant to take political initiatives without adequate power to assure the outcome. However, a greater test of the government may come as the war intensifies and demands on it increase, particularly in the economic and pacification fields.

Already, the government is under growing pressure from religious and political groups to broaden the area of civilian participation and to provide some legal framework toward the eventual restoration of civilian control. Although some generals, particularly Ky, are reluctant to open up any official channel for disruptive civilian tactics, the Directorate intends to establish early this year a council with some advisory authority. The advisory council will be tasked with drafting a permanent constitution.

Although Embassy surveys have so far uncovered little adverse popular reaction to the U.S. military role—including air-strikes—in intensifying the war, the Embassy has reported considerable public apprehension over growing civilian casualties. There is some danger that prolonged and more intensive fighting will generate resentment against the U.S. or the Saigon government, and pressure for peace-at-any-price by pacifistic elements such as the Buddhists. Currently, Saigonʼs ruling generals continue to express opposition to any negotiations under conditions of near-stalemate, or to any settlement in which the South Vietnamese would be forced to compete politically with the Viet Cong.

Economic Dynamics. The Economy of South Vietnam operated under considerable inflationary pressure during 1965, and this pressure is expected to intensify during 1966. A large deficit in the GVN budget, the increase in U.S. forces, and the increase of local spending for military and civilian construction placed new demands on the economy during 1965. Supply problems were exacerbated by port bottlenecks, Viet Cong interdiction of transportation routes, and a shortage of labor. The resulting imbalance between demand and supply generated price rises of at least 35 to 40 percent in Saigon and in areas where Viet Cong activity and the U.S. force buildup were intensified.

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During 1966, the GVN budget deficit could rise from 15–18 billion piasters estimated for 1965 to 20 billion piasters or more. U.S. and other foreign troops spending and local purchases for construction may jump from about 10 billion piasters in 1965 to an estimated 30 billion piasters in 1966. The total of 50–55 billion piasters for budget deficit and foreign spending (compared to about 29 billion piasters in 1965) is equivalent to about one-third of all goods and services available in Vietnam in 1965 and is substantially more than the present money supply of 42 billion piasters. Since these inflationary pressures will be working against a far smaller stock of idle resources in the economy, their impact will be more severe and more difficult to contain than during 1965.

The major factor restraining inflation has been the supply of AID-financed commercial imports and PL 480 commodities. A second factor has been the willingness of the Vietnamese to hold a part of additional income in the form of money. During 1965, there was some evidence that price rises have begun to discourage money holdings and to increase the demand for goods. This trend poses an added threat during 1966.

Shortages of construction materials and luxury items resulted in sharp price increases during 1965, and specific material resources will continue to be in short supply during 1966. Anticipated increases in 1966 U.S. expenditures for construction in Vietnam will have additional repercussions in the manpower sector of the economy. Wage rates for most categories of skilled construction workers have doubled during the last year. Wages for unskilled labor have not increased as sharply but are estimated to have increased by at least 50 percent in Saigon. With the exception of rural labor in isolated areas, Vietnamese manpower resources are now fully employed.

Control of the inflationary threat to economic (and hence political) stability during 1966 is clearly dependent on U.S. and GVN countermeasures. For example, the U.S. could meet the bulk of the requirements for skilled labor and critical commodities needed to expand port facilities and for military construction, from sources outside of South Vietnam. Additional measures to control in-country spending by foreign personnel are possible. Similarly, new GVN fiscal measures, such as increased taxes, are under consideration to soak up excess purchasing power. But even under the best of circumstances, the problem is to limit inflation to manageable levels in 1966, not to aim for price stability.

Pacification. Pacification on a nationwide basis made very little tangible progress during the past year. The pacification program in the Hop Tac2 area around Saigon, which was fairly active until May 1965, was one exception. Overall, however, much of the military manpower necessary [Page 29] to provide security as well as to clear areas in the initial phases of pacification operations was diverted to replace battle losses inflicted by the stepped up pace of Viet Cong military action. Moreover, assets devoted to pacification have been largely diverted to handling the large flow of refugees.

With the general deterioration of the security situation in many parts of I, II, and III Corps, pacification has largely been confined to areas immediately adjacent to centers of government control such as major urban areas and provincial or district capitals. At best, pacification efforts in these three Corps areas can only be termed minimal. In the IV Corps area, government control expanded somewhat. In this region, however, the Viet Cong still control large amounts of territory which have not experienced any government influence or presence for several years. The pacification effort has also suffered from the successive changes of government that occurred in 1965.

Advances have been difficult to measure. However, plans have been made and initiated which could have a beneficial effect on the pacification effort. The Ky government has decided to institute three high priority programs which will point the way for a greater overall effort in years to come. These areas are the Qui Nhon area of Binh Dinh Province, Quang Nam Province, and a showcase area near Saigon—located in the now dormant Hop Tac area. Other planned improvements include reorganization to effect more direct civilian control down to the province level, and the restructuring and consolidation of the various cadres now existing into a single national pacification cadre corps.

Much of the GVNʼs thinking is still in the formative stage, and it remains to be seen whether this can be translated into effective action. Some laudable steps have been taken to get the 1966 program underway on time, but many problems remain to be solved before an effective pacification program can be effected.

Land Reform. The Ky government is giving renewed emphasis to the land reform program begun under the Diem regime in 1955, and is making limited progress. The present program is still plagued by the dissatisfaction of expropriated landlords, numbering only about 2,000, and their political backers. The major obstacles to a psychologically and politically productive program, however, continue to be the lack of security in the countryside, which inhibits the work of surveyors and investigators, the slow trickle of funds from Saigon to the provinces, and a shortage of manpower resulting from the stepped-up military draft.

Under the new government policy, permanent titles are being granted to farmers who purchased land under the old ordinance, and the period of payment has been extended to 12 years. Additionally, former French lands, totaling 225,000 hectares, are being subdivided and sold to the farmers who till them. State-owned lands, totaling some 300,000 hec-tares, [Page 30] are also to be distributed to 180,000 farmers now occupying them as squatters. Changes have been made in the terms governing rental of farm lands, with all leases being extended to five-year contracts, and collection of back rentals has been eliminated in newly secured areas. Finally, competitive bidding for the rental of communal land—a procedure devised by the Diem regime to raise national and local taxes—has been eliminated, but new procedures for making this land available to landless farmers have not yet been worked out.

These recent changes are designed as short-term measures. A long-term program contemplates reduced retention of land by landlords, further extension of tenancy contracts, and further distribution of public land. A major unresolved problem is that of conflicting ownership rights resulting from land distribution activities by the Viet Minh during the Indochina War and by the Viet Cong more recently in areas under their control. The problem is under study, but the government program, with its provisions for farmer payments for the purchase of expropriated land and its collection of land rentals, has long been at some disadvantage vis-à-vis the Viet Cong program. Increasingly harsh Viet Cong taxation policies of the past two years, and increased Communist requisition of rice from the peasants, will probably help the government in this problem area.

The Refugee Problem. This has expanded to tremendous proportions during the past year, particularly since July. At latest report, a cumulative total of 745,800 persons has been processed by the government. More than half of the present refugee population—463,000—is still living in temporary refugee shelter areas at what is little more than a subsistence level of existence.

The large influx of refugees has been caused by a combination of circumstances: natural disaster, a decline in security which has resulted in mass movement of people to safer areas, and the increased level of large-scale friendly operations. At the present time over ninety percent of the current refugee population is concentrated in the coastal lowlands area of I, II, and III Corps zones and is a serious strain on the refugee relief machinery.

Although the refugee situation remains serious, it had not reached the proportions by the end of 1965 that GVN and U.S. officials had anticipated. However, most of the effort that would have been devoted to pacifying and developing the countryside has had to be diverted to care for refugees. This situation will prevail until refugees can either be relocated to permanent settlements or returned to their home areas. Moreover, the large refugee population remaining in temporary shelters is fertile ground for the Viet Cong to sow discord. It may be expected that the refugee problem will intensify if the tempo of military operations, particularly in the central coastal lowlands, continues to increase.

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Chieu Hoi.3 The Chieu Hoi program has shown signs of improvement in techniques of exploitation and programming in the past several months with several significant and successful psychological warfare operations being mounted against the Viet Cong. This has been especially true in rapid follow-up action to ground operations. However, the program still has several glaring weaknesses, especially in processing and providing for the Chieu Hoi returnee. Crowded returnee centers, a shortage of administrative personnel, and a lack of facilities to rehabilitate the returnee have hampered the total effectiveness of the effort. Some first steps have been taken by the government to correct these inadequacies, but much work remains to be done.

During 1965, according to government reports, a total of 42,552 persons returned to the government side. Although the majority were civilians, there were a total of 10,391 military personnel who also “rallied” to the government cause. In 1964, there was a total of 14,465 returnees, of whom only 1,903 were military defectors.

The Montagnards. Although an uprising by dissident tribesmen in the central highlands area in mid-December was promptly quashed, there is little prospect of an early resolution of the problem of tribal unrest and loyalty. Mutual antipathy and distrust between ethnic Vietnamese and the approximately 500,000 ethnic Malayan tribesmen inhabiting the highlands has deep historic roots.

The appeal among the Montagnards of FULRO, the tribal autonomy movement, is traceable not only to long-standing tribal aspirations for autonomy and preservation of tribal customs, but to a series of grievances with the Vietnamese governments of the past 10 years. These grievances range from ethnic Vietnamese encroachment on their communal lands during the Diem regime, to lack of fulfillment by Diemʼs successors of promises of increased aid and political representation in Saigon. Although the current Saigon officials apparently plan to deal leniently with most of the rank-and-file FULRO sympathizers, the execution of four FULRO leaders, and the sentencing of about 30 others, have probably stirred new tribal resentment and anticipation of harsh government treatment. There is evidence that Montagnard leaders previously supporting the government are increasingly sympathetic to FULRO.

There is no evidence to date that FULRO leader Y-Bham Enoul or his top lieutenants are cooperating with the Viet Cong. On the contrary, reports indicate that propaganda attacks, and a few minor clashes, have occurred between FULRO and the Communists, who have long sponsored their own tribal autonomy movement. There are nevertheless reports of some Communist penetration of FULROʼs second-level hierarchy. [Page 32] Such elements may be deliberately seeking to harden FULROʼs demands and force a final break with the government.

At present, even a renewed government determination to carry out reforms and aid programs for the Montagnards seems likely to have little prospect of banishing tribal suspicions—or Vietnamese snobbery—in the early future. The reliability and effectiveness of the numerous tribal paramilitary units will thus probably remain uncertain for the next year or so, and the opportunities for the Viet Cong to exploit the situation, or to win increasing cooperation from the tribes, may be enhanced.

[Here follows discussion of Northeast Asia, the “two Chinas,” the Southwest Pacific, and Southeast Asia.]

  1. Source: Johnson Library, National Security File, Country File, Vietnam, vol. XLV. Secret.
  2. A program initiated in 1964 to pacify six provinces around Saigon.
  3. The Government of South Vietnamʼs amnesty program designed to win back the allegiance of Viet Cong.