INTELLIGENCE REPORT: THE SITUATION IN SOUTH VIETNAM

Created: 12/19/1966

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Intelligence Report

ituation in South Vietnam

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CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence

THE SITUATION IN SOUTH8

CONTENTS

Section

POLITICAL

Form of future government taking shape; New Constituent Assembly member approved; Official Assembly political blocs changing; Premier Ky still hesitant on revealingambitions.

REVOLUTIONARY

Ky reaffirms new role of GVNforces; Viet Cong concern about revolutionary development;warfare operations;development progress by corps; The refugee situationorps.

ECONOMIC

Prices; Currency aod gold; GVNon rice policy; Provincial economic developments during October; Discussion with Ky on port congestion; Industrial development io

ANNEX: Weekly Retail Prices in Saigon (table) Saigon Cost of Living Index (graph) South Vietnam Money Supply (graph) South Vietnam Foreign Exchange Reserves (graph) Saigon Free Market Gold and Currency Prices (graph)

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SITUATTfW

Constituent Assembly voted ln favorlan toresidentice president by universal, secret ballot under the constitution it is preparing. The elected chief executive would,rime minister to render himassistance. The assembly alsoew member to fill the seat vacated by the assassination of Tran Van Van.

There have been some shifts ln the alignment of the official political blocs in the assembly. The second and third largest blocs recently merged to form what is now the largest bloc, moreover, the Greater People's Bloc, which was previously the largest, Is reportedly losing some of its members who claim they want to avoid the "government" stigma that the bloc has allegedly acquired.

Meanwhile, Premier Ky is unwilling to reveal his presidential ambitions even to his closest advisers, accordingeliable Vietnamese source.

Form of Future Government Taking Shape

1. The type of government envisioned under the new constitution is beginning to take shape in the Constituent Assembly. Last week, tbe deputiesa modified presidential form of executive branchopularly elected president and vice president, and an appointed prime minister. the exact wording of the assembly proposals is not clear at this time, it appears that the prime minister and his appointed cabinet can be removed from office by the president acting alone or upon the demand of the national assemblyhe prime minister, however, will merely be anfunctionary in the proposed system in contrast to the relationship between the chief of

state and the prime minister in the present.

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orst ituc-rtcr Approved

theocember session, thea motIod that tho vacant assembly seatmember Tran Van Van be filled byKim Huu, who had.finlshed behind Van lnSeptember election on the same slate.outhern Catholic.

Official Assembly Political Blocs Changing

sources have indicated thatassembly blocs, which were formedelection of permanent assembly officers inare undergoing internal changesand shifts in membership. The formationDemocratic Alliance Bloc was formallythe assembly onecember. The new bloc is

an amalgamation of the heavily northernmember Democratic Bloc andraember Hoa Hao -CaoNQDD Alliance Bloc. With four other members picked up elsewhere in the assembly, it is now the largest bloc in the assembly, although it does notajority. The US Embassy has reported that the components of the bloc have been considered progovernment, and specifically in favor of Premier Ky.

According to one of the members of the new bloc, officers were electedolicy statement was drafted by bloc membersecember. The reported policy statement deals entirely with constitutional points. This suggests that thewas brought about by the change in basic issues facing the assembly from the election of assembly officers in October to the drafting of aat present. An earlier report did state, that at least some of the impetus for this merger came from Catholic political sources who had been working for the formationroad, religious-oriented group.

Another delegate has reported that sixof the Greater People'sthe assembly'swithdrawn from blocand have joined the ranks of independentdelegates. Anotherembers of the bloc

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reportedly areimilar withdrawal. One of the chief reasons for such action is that many delegates consider the Greater People's Blocup primarily of military. Catholic, and Dai Viet delegates from central and Northbe the "government bloc."

eliable medium-levela new bloc to be known as the Force ofWorkers, and Military will soon bein the assembly. This group, whichhas already obtained the legally requiredsupport ofssembly delegates, isto retired General Tran Van Don'spolitical front group. Both Don andTran Quoc Buu are to be listed as advisers

to the bloc.

precise status of assembly blocsof their orientation and membership isat present. Various factors, which haveabove and which have apparently playedin the shifts now under way, indicatechanges may neither be final norin terms of forming politicalnext year's national elections.

Premier Ky Still Hesitant or Rovtfaling Presidential Ambit ions

Ky recently has frequentlyhis political future with three ofadvisers, but has been unwilling thuscommit himselfefinite courseeliable Vietnamese sourceaccess to those involved in the Ky reportedly assesses hla chancesthehebut has ended every discussionhimself. Ky's advisers believe thatto run, and that his currentIs caused by his desire not to losewith them, by committing himself and"rebuffed."

to the source, Ky's hesitancy

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to take any action which might reflect his presidential

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ambitions could soon cause him difficulties. For example, Constituent Assembly delegates havebeen mullinginimum age requirement for the president, and thinking seems to be dividedyear minimum. Ky, whola so sensitive on the age question that he is dreading his scheduled briefing of the Assembly, with the attendant risk of possibly antagonizing any of the delegates while they are considering this question. On the other hand, he does not want to appear as If he Is fawning upon the delegates. Despite Ky's unwillingness tothe Assembly delegates in any way on this question, some of Ky's advisers may attempt to go ahead and take positive action to ensure Ky's eligibility for the presidency on the age basis.

Also central to the question of acandidate for president are the attitudes and actions of Chief of State Thieu, who withKy forms the basic alliance upon whichunity rests. General Thieu thus far has not committed himselfresidential candidate, and both Ky and Thieu appear to be waiting for the other to make the first move. Ky and his advisers somewhat naturally feel that heetter chance ofresidential campaign than would Thieu. They assess Ky as being more popular among the public at large, especially among Buddhists and northerners, and among tho relatively younger military officers, while Thieu is favored by aof Constituent Assembly delegates in relation to Ky, and Is preferred by the senior military officers.

Ky and bis advisers feel that the Ky-Thieu relationship, and consequently the military unity necessary for political stability, can best bein the future government by Ky running for president and by Thieusupreme" military commander. They reportedly admit that the reverse would not be feasible, since Ky would not be ancommander in chief to the senior military officers. In addition, Ky is not willing at this time to accept the post of prime minister under Thieu as lt has been outlined in tbe futuresince he feels that that he would be at the mercy of both Thieuational assembly, and subject to removal by either at any time.

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REVOLUTIONARY DEVELOPMENT

Premier Ky, onecember, once again affirmed that the primary mission of the ARVN7 will be toecurity screen for the revolutionaryecent communique' of the Central Committee of the National Front for the Liberation of South Vietnam indicates that the committee views revolutionary developmentajor threat anderious campaign probably will be mounted to reduce the program's The South Vietnamese budget for psychological warfare operations will como tond will support tho efforts of the Ministry of Information and Chleu Hoi, and the Psychological Warfare Directorate of the armed forces. Politics, professional jealousies, and the disinterest of officials charged with supervising the cadre at the local level aro at the root of problems still hampering the revolutionary development cadre program throughout the country. Since July of this year0 refugees have returned to GVN control inorps area, often in very large groups.

Ky Reaffirms New Role of GVN Military Forces

1. Premier Ky, onecember, stressed theof the military's role in recovering the rural areas from Communist control. Speaking at the graduation of the class of officers who will return to their parent military organizations to tooch the fundamentals of pacification, Ky maintained that ARVN mustpiritual as well as materialfor the people when it commences its primary task of providing the security screen for thedevelopment program He also restated his government's determination to press forwardwith the policy of defeating the Communists and reconstructing the rural areas.

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Viet Cong Concern About Revolutionary Development

5 December communique of the Centralof the Viet Cong's National Liberationtasks for the coming year, indicatesconcern among the Communist ranks overdevelopment program. Althoughclaims the US/GVN pacificationin the main beenne of theit cites to be accomplished in the comingthe "smashing" of GVN rural pacificationthe claim of victory and the call forover the revolutionary developmentthat the Communists view itajorViet Cong may be expected to make an expandedto disrupt the program and to negate anyIt has registered.

Psychological Warfare Operations

Funds budgeted by the GVN for psychological warfare activities during its fiscal year7 (which concides with the calendar year) are reported to amount to This budget, accordingSIS report, will support the combined activities of the Ministry of Information and Chieu Hoind the Psychological Warfare Directorate in the armed forces. The new budget, which is only slightly larger than thatill be divided as follows: for MICH,or the Psychological Warfare Directorate,.

Personnel currently assigned to theoperations and Chieu Hoi activitieshile the military personnel will. The bulk of the civilian personnel,ill be assigned to the field as Vietnam Information Service (VIS) personnel. The USIS report cautions that thereignificant amount of payroll padding In the case of the MICH.

Revolutionary Development Cadre Program

rooted in politics, religion, insecurity, and professional jealousy to restrict progress in the Revolutionary(RDC) effort in all corps areas during October.

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In all, onlyrovinces and Cam Ranh City reported progress in the program. Sixteen other provinces reported no significant progress in RDC activities, andthers reported no progress at all. There is reason to believe, on the basis of individualreports that some provinces reporting no progress may actually have regressed.

GVN aad US advisers are trying toproblems that have arisen. The onus forto rest with those provincial aad districtwho are either disinterested or lack anof what the objectives of the RDC The Ministry of Revolutionary Developmenttaken steps to replace some of the ineptove which may improvein some areas of the country. ummaryand problems by corps areas follows.

I Corps Zone

from this corps indicatemingled with disturbing signs of slippageprogram. In the northernmost province, Quangprovincial and district leadership hasprogress in some areas. ixture ofby the RD committee chief and inexperience ofappointed district chief has been citedsource of difficulty with the RD program in In Quang Nam and Quang Ngai provinces,technical teams (census grievance, civicNew Life Development elements) fresh fromTraining Center at Vung Tau have beenmelded withman Peoples Actionalready in place. Initial results withcombined teams Is reportedly verythe picture somewhat in Quang Ngaiare the activities of the Vietnam(VNQDD). This group is endeavoring tomembers on the RD committees in ao effort totheir own political positions. In Quanglack of organization plus an adversesituation have combined to hamper the RD

II Corps Zone

8. The RD effort in this Corps is suffering from inadequate leadership for the provincial programs.

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Also, lack of security in many areas has forced the RDC teams to devote most of their time to protecting themselves, and has given officials charged withthe programs an excuse for unproductive cadre operations. In Quang Due, for example,officials are reluctant to visit teams inareas and are therefore unable to provide guidance or observe results. In Binh Thuan Province, the falsification of pacification results is an even more alarming tendency. In this province, teams have been moved arbitrarily from hamlet to hamlet,without consideration for whether they have been secured or not. The problem may have beensolved by the replacement of the DeputyChief for Internal Security.

9. Montagnard cadre teams in Darlac Province are reported to be doing an effective job, and are seeking an expanded role in the RD effort. Although the dissident montagnard autonomy movement FULRO has been active in the area, it has not affected theof the montagnard cadres. In Kontumimilar favorable account is given of montagnard cadre activities. In this province, the Vietnamese RDCs are also functioning more effectively under the impact of good leadership and the introduction of better trained cadre groups from the Vung TauTraining Center.

Ill Corps Zone

10. ajor obstacle to the effective use of RDCs in this Corps zone is the reluctance of province officials to allow cadre groups adequate time totheir tasks. The controversial commander of theh Division, General Phan Trong Chinh, has stepped-up the tempo of hamlet construction to one month, and consolidation phases to one and one-half months. Chinh's order has been issued in an apparent attempt to make the pacification effort in his area look good. Only in Long An Province has the province chief resisted Chinh's order andore practical time limit foramlet. In Long Khanh Province, montagnard cadre groups are proving to be the strongest element in the civic action program. Their success is largely the result of the intensive effort of chief of montagnard services in the province.

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IV Corps Zone

sane generalofandin the otherzones are also present in IV Corps. InThien, Vinh Binh, and Vinhlack of adequate security to screen the workRDCs in the hamlets has boen cited as ato RD progress. The population lacksin the ability of the Regional ForcoForce to protect hamlets after thethe area, and covert Viet Cong penetrationhamlets isource of concern.

The Refugee Situationorps

has been an influx of somefrom Viet Cong-controlled areas of Igovernment areas since July of this year. this influx hasass movement ofpersons fled from Quang Tri Province toProvince after large US/ARVN forces enteredjust south of the DMZ during OperationsPRAIRIE,0 persons from the Phu Kysouth central Quang Nam Province sought GVNoperations by the marines. All offrom areas of Viet Cong dominancea serious loss to the VC ln terms ofreserves for their armed forces,or other support roles. Additionally,evere propaganda blow whenof persons opt to go over to the GVNbelow on two recent evacuations in QuangQuang Nam provinces show some of the reasonsleave areas under Communist control and some

of the steps that have been taken by the Viet Cong to prevent the exodus.

Quang Nam Province

ersons recently resettledNong Son coal mining area in southamiliar story of Viet Congforced them to seek shelter in Originating in the village of Son PhuocDue district, the southernmost of thepeople took the first opportunity to flee from

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Communist control. This aroseS Marino Corps operation moved into their area early this month. This refugee group estimates that there areersons in the Son Phuoc area who would probably come out if given the opportunity.

Tbe Viet Congetermined effort to prevent the Son Phuoc refugees from fleeing their village. During the course of their flight.snipers gunned down four of the escapees,one. esponse on the part of the Viet Cong Is apparently almost unprecedented, and was done at considerable risk to themselves since allied troops were still operating in the area.

Further deterioration of the Communist popular base may be taking place in this particular area of Quang Nam Province. Commanders of US units in tho area say that there have been numerousof people in remote areas begging US troops either to stay in the area to protect them,or to evacuate them when the troops leave. One reason for the desire of villagers in these northern areas to leave Viet Cong-controlled zones is that theare being Increasingly denied rice from the major population centers along the coast; this is causing the Viet Cong to put more pressure on the population under their control. While the flow of rice to the Communists from coastal areas has not been stopped, there is evidence that the government's resources control efforts are becoming more effective. Increased logistical problems, particularly in the matter of food supplies, could possibly lead topolitical problems for the Communists.

Quang Tin Province

8 December,ilometers east ofcapital of Tarn Ky,S Marine unit participating inCORTEZ, and requested evacuation from thecarriedounds of rice withthe reasons cited by the group for fleeingwere: constant Communist harassment, heavytaxation, impressaent of their young menViet Cong ranks, and fear of air strikes.

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17. Accordingeport from clandestine channels, tho Viet Cong in tho general area ofCORTEZ havepercent tax on rice, as well as taxes on other agricultural produce, on boats, and on real estate. Recently, payment of all theso taxes has been demanded ingoodof the urgent need for this commodity. to the same report, this Viet Cong taxation in kind has had the effect of takingercent of the rice crop. In another area of Quang Tinthe agricultural tax of the Communists isto boercent.

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III. ECONOMIC SITUATION

Retail prices in Saigonew high during the week endingecember as rice and pork prices continued to increase. The currency and gold market, however,relatively steady. Prices in the provinces during October were generallyin spite of increased transportation difficulties causod mainly by adverse weather conditions. The GVN decided to raise the government buying price of rice. Otherof the new GVN rice policy are not yet clear, but the US Mission tentatively feels that the policy is workable. Ambassador Lodge has urged Premier Ky to take measures to solve the problem at the Saigon port. USAID reports that considerable progress was made in industrial development in Southduring

Prices

1. For the second consecutive week, retail prices in Saigon reached another high, second only to the peak reached at tho time of the6 elections. According to the USAID retail price index, pricesthe week endingecember rose four percent above the previous meek. Food prices were up five percent and non-food items rose two percent. As during the previous week, these Increases stemmed largely from soaring prices for rice and pork. Onecember the price of the type of rice used by the working class reached another6 highiastersilograms, orercent above the level prevailing Just prior to the June devaluation andercent above the price at the beginning of the year. The price of porkiasters per kilogram, or eight percent above the previous week andercent above the price during the latter half of November. Lower deliveries of these commodities to Saigon continue to be the major factor causing the higher prices. Pork prices, which in turn influence the prices of other protein food, are also being affected by an increase in the cost of feed. Prices of non-food items were generally unchanged with the

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exception of charcoal and firewood, both of whichbecause of lower deliveries to Saigon. able of weekly retail prices in Saigon is included In the Annex).

of imported commodities wereitems hold steady and constructionand chemicals showed slight Increases.

No changes were noted ln tho prices of condensed milk and wheat flour. Sugar declined slightly as the market continued to be well supplied. Iron and steel products, on the other hand, roseosult ofdemand caused by the start of the newseason. Fertilizers and chemicals also were higher because importers did not receive any new shipments.

Currency and Gold

the cost of Living continuesthe currency and gold market romains During the week endingecember,MPC (scrip) moved down to the level of two Gold, however, rose because of lowergold and increased demand for Jewelry forprice quotations forecember havebeen reported. (Graphics on monthly andmarket gold and currency prices are includedAnnex).

GVN Decision on Rice Policy

ecember the GVN finally decidedthe government buying price of rice. Thethe producer for paddy is to bepiasters per kilogram, or roughly doubleprice. This new GVN price is below thatrecommended by UStarget pricepiasters per kilogram with governmentupport priceiasters It is estimated that the new pricewill resultetail price in5 piasters per kilogram for thetype of rice as compared with the present pricepiasters. Thus, the GVN is, in effect, settingprice which is the same or only slightly above

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the existing price. Imported rice will be sold at aroundoiasters per kilogram, as comparedecent price50 piasters.

On the controversial issue of provincial buying stations, the GVN has decided to ask theAgricultural Credit Officeorking together with the province chiefs, to act as aagent. The exact role of NACO in the provinces and its relationship to the Ministries ofand Commerce is unclear.

Premier Ky has requested that there be no publicity in the cities for the new rice policy. Moreover, actingS recommendation, the GVN willigorous program in urban areas of rice distribution from trucks. Tho new price policy will be widely publicized in the rural areas, however, by means of nationally printed information leaflets lo order to inform delta farmers of the true priceand prevent the merchants from again takingof the farmer.

Although the GVN price increase is less than that proposed by the US, US officials believe that the new GVN rice policy will work out and intend to give all possible assistance to get the program launched. Several aspects of the program, however, remain The questionredit policy for rice, for example, has not been determined. Moreover, although National Bank Governor Hanh and Acting Minister of Industry Ton apparently intend to play significant roles in implementing the program, it remains to be seen who will really be in charge of implementation and what role the province chiefs will play.

Provincial Economic Developments During October

developments in the provinceswere highlighted by greatly increaseddifficulties which resulted from thein the northern part of the country andof the Mekong in the southern area. Viet Cong also contributed to transportationthe exception of the provinces affected by theprovincial prices were generally steady. Rice

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prices and supplies were satisfactory in Region I, but higher rice prices wore noted in both Regions II and IV,irect or indirect result of the floods.

9. Althoughxperienced transporta tion difficulties because of the monsoon rains, prices were generally steady throughout the region, and no shortages of construction materials were noted. There were, however, such seasonal price fluctuations as higher seafood prices because of shortages caused by heavy rains. Plentiful rice supplies, which stemmedood local harvest and ample imported stocks, resulted in lower prices for this commodity in almost allof the region. These lower rice prices prevailed even though Viet Cong rice levies were stepped up in some provinces, such as Quang Tri and Quang Tin. ice protection plan in Quang Tri province wastoo late toarge quantity of rice from falling into Viet Cong hands,

in most provinces of Region IIgenerally steady, although transportationwere caused by the rains and Viet CongNinh Thuan Province, the Viet Cong destroyedon temporarily blocking traffic to

Da Lat. Viet Cong interdiction on the Daaigon road in Tuyen Due Province reduced farmers' income because their crops could not be shipped to Saigon, but resulted in lower prices for vegetables in the province. Rice prices were higher in some areas of Region II even though the rice harvest had been completed. Theseapparently resulted partly from the psychological effect of the flood in the Mekong Delta, partly from lower rice production caused by farm labor shortages. It was reported, for example, hortage of field workers in Ninh Thuan Provinceoss of about tonof the recent rice crop. hortage of farm labor also is adversely affecting vegetable production in Tuyen Due Province.

Region III prices were relativelyeight out of therovinces. Pricesowever, in both Bien Hoa and Tay Ninhprice rise in the former province apparentlyanticipation of food shortages caused by thewhereas the increased presence of troopsmovement of goods to and from Saigon explained

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the rise in Tay Nlnh. Although there was some easing of Viet Cong interdiction of roads in Region III, Viet Cong taxation on commerce increased.

12- Flood recovery operations dominated the economic scene in five 'provinces of Region IV* Reports from the flooded provinces indicated that rice crop damage, although severe, was less than originally estlmated. In Chau Doc and Kien Tuong provinces,as much asercent of the rice crop probably was lost. Kien Giang Province, on the other hand, lost onlyercent of its rice crop. Secondary crops also were hard hit by the floods, with some areasomplete loss of crops. The floods also damaged roads and slowed transportation of esult of these factors plus Viet Cong interdiction, prices rose in some provinces of Region IV. These transportation problems, however. benefited the consumer in some areas where increased supplies of goods normally shipped to Saigon resulted in lower local prices.

Discussion With Ky on Port Congestion

8 December. Ambassador Lodge calledKy to discuss the Saigon port problem. pointed out that US officials feel thehas stemmed from three major factors: (a) adequate credit for importers to finance removalgoods from the port, (b) inability towith the location of their cargo in the port

and to clear the goods promptly through customs, and (c) use of the portarehouse by importers. Bank Governor Hanh's recent relaxation of credit has solved the credit problem, and some progress ismade in locating and clearing cargo* The majortherefore, is the unwillingness of importers to move their goods out of the warehouses.

Lodge informed Premier Ky thatdecree ofuly, which called forof goods left in the port more thanays,yet been implemented. esult, the portand this congestion is interfering withto halt inflation. Moreover, the largeof imports scheduled to arrive in Decemberwill further aggravate the problem. To solve

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this problem. Ambassador Lodge presented Kyist of goods that have been in the port much longer thanays and urged Ky to begin confiscation of these goods. In addition, the ambassador asked Ky to deny further import licenses to those importers who do not withdraw their cargo from port warehouses afterays. US officials believeuspension of these importers for six to nine months will make clear to the Vietnamese Importing community that only those importers whotheir goods froa the port promptly will be allowed to import.

15. Although Ky approved of blacklisting importers who do not remove their goods, he felt that wholesale confiscation was not the solution to the problemthe GVN would lose taxes and would not know what to do with most of the confiscated goods. Ky then said that the GVN Intended to make examples of several big importers by at least Imposing heavy fines on them. Ambassador Lodge explained that the US was not advocating wholesale confiscation, but rather selectivebasod on the US list of gross offenders. Ky finally said he would take action on these matters promptly. In closing, Lodge pointed out that if the port congestion continues, the US would have to consider halting the shipment of goods to Vietnam.

Industrial Development ln6

ID considers progress in Industrialto be one of its five most significantin South Vietnam during Othercited by USAID were: implementationeconomic reforms of last June, improvement inof water and electric power, and progressilliteracy. ignificant indicator ofprogress is the amount of USAID approvalsof industrialillion during

r almost half of the total for the past five years.

textile industry is one of the mostindustries in the development effort,machinery accounting for almost half of the

illion. USAID estimates that when all the approved

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textile equipment is in full operation, South Vlotnam will be able to satisfy more than four fifths of Its requirement for textiles. Progress also is being made in tho paper industry. Two major paperand Cong Ty Giapheavy equipment valued at about S3 million. This equipment is being imported toajor expansion program, which will resultotal output0 metric tons annually. This amount represents an increase ofercent above current output of paper and will sati about three fourths of South Vietnam's requirements for paper.

18. Another important step toward industrialduring6 was tho installation offirst steel rolling mill. Duringhis mill will begin producing steel ingots from scrap by the converter process and production of rolled products is expected to reach0 metric tons annually.

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TABLE

Weekly Retail Prices ln Saigon a/

3 Jan. ov. ov. ov. ec. 1

Index for All Items

Index for Food Items b/

Which:

Plasters)

0 kg.)

Belliesg.)

Treg.)

Naa (Jar)

for Non-Food Items b/

Which:

Plasters)

g.)

(pack)

Calico (meter)

Soapg.)

are from USAID sources.

all.

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Saigon Cost of Living Index

(For Working CUst Family)

300

130

hq

100

Vietnam Money Supply

x

BJLUONS Of PUS

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5.2

f

Vietnam Foreign Exchange Reserves

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Saigon Free Market Gold ind Currency Prices

Original document.

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