NIE 63.1-3-55

Probable Developments in Vietnam to July 1956

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PROBABLE DEVELOPMENTS IN VIETNAM TO JULY 1956

THE PROBLEM

To estimate the prospects for the development of a Vietnamese government with the capability to defend itself against internal subversion and uprisings and with sufficient authority and administrative ability to deal adequately with the many prob­ lems facing it, including those posed by the Geneva Agreements.

CONCLUSIONS

1. Since he became Premier in July 1954, direct consultations with the DRV con­ Ngo Dinh Diem has made considerable cerning elections, he would insist on con­ progress toward establishing the first ful­ ditions which he felt certain the Commu­ ly independent Vietnamese government. nists would be unable to accept. Aware Nevertheles~, the capability of the South that such a position will probably cause Vietnamese to develop an effective gov­ the Viet Minh to increase their efforts to ernment which can survive during the destroy his government, Diem will prob­ next few years is still in doubt. (Paras. ably seek to bind the US more specifically 9,12) to the defense of Vietnam. (Para. 49) 2. Assuming Diem survives and provided 4. The Viet Minh, despite their relative he continues to receive wholehearted US . quiescence, present the greatest potential support, we believe he will probably be threat to Diem. Should the Viet Minh able to cope with non-Communist dissi­ elect openly to invade the south with dent elements and to remain in office dur­ regular forces, they are capable of de­ ing the period of this estimate. More­ feating the VNA and any French forces over, providing the Communists do not (if committed) now present in South exercise their capabilities to attack across Vietnam. Moreover, with an estimated the 17th Parallel or to initiate large-scale 10,000 military personnel in South Viet­ guerrilla warfare in South Vietnam, Diem nam, the Viet Minh have the capability· will probably make further progress in to undertake local sabotage and terrorist developing a more effective government. actions, and small-scale but widespread (Para. 54) guerrilla warfare. The Viet Minh can re­ 3. Diem will almost certainly not agree inforce these forces by infiltrating into to hold national elections for the unifica­ South Vietnam. The Viet Minh appar­ tion of Vietnam by July 1956. Although ently exerts political influence in many Diem, under pressure from the Western areas scattered throughout South Viet­ Powers, might reluctantly agree to in- nam. (Paras. 24, 27-29)

1 2

5. We believe that the Viet Minh, at least and provided they estimate that such ac­ until July 1956, will probably continue tion would not provoke Manila Pact coun­ to concentrate primarily on a "political teractions. (Para. 30) struggle" designed on the one hand to 7. Should the Viet Minh initiate large­ exert pressure for implementation of the scale guerrilla operations supported by Geneva Agreements and on the other to substantial infiltration from the north, bring to power in the south political per- the South Vietnamese government would sonalities amenable to coalition govern- be hard pressed to do more than maintain ment with the Viet Minh. Their tactics control in the Saigon-Cholon area and in will probably be to maintain and in-, .a few other major urban centers. If the crease their influence in the villagesI' operation were prolonged, the govern­ hamper government administration, dis- ment probably could not survive without credit Diem and the government, to sub- military assistance from outside. (Para. vert the command elements in the VNA, 36) and to infiltrate and incite dissident 8. While the French will continue to seek groups - particularly elements of the to salvage as much as possible of French sects - to oppose the government. (Para. commercial and cultural interests, we be-, 31) lieve French interests and influence in 6. However, the Communists probably South Vietnam will progressively decline during the period of this estimate. Ex­ estimate that unless they effectively chal­ cept for training personnel, possible air lenge the position of the Diem govern­ and naval bases, and perhaps some token ment the latter will gradually strengthen forces, the French will have withdrawn and stabilize its position. They might de­ the bulk of the FEC by July 1956. cide, despite the presence of the Inter­ French forces remaining in South Viet­ national Control Commission, to initiate nam will almost certainly not be com­ small-scale but widespread guerrilla war~ mitted against the Viet Minh, except in fare in the south, provided such action self-defense or possibly as part of a mul­ was consistent with over-all Bloc policies tilateral Western action. (Paras. 40, 51)

DISCUSSION

I. INTRODUCTION The most significant articulate political senti~ ment of the bulk of the population was an 9. When Ngo Dinh Diem was appointed Pre~ antipathy for the French combined with a mier by Chief of State Bao Dai in July 1954, personal regard for Ho Chi Minh as the sym­ he faced a basically unstable and deteriorat~ bol of Vietnamese Nationalism. The small ing situation. In the area under the admin~ educated minority who were concerned with istration of the Vietnamese government, the national politics, were primarily power seek­ population of some 12 million was war~weary, lacked a sense of identification with the Na­ ing opportunists. The existence of armed tional government, and was divided by re­ politico-religious sects contributed to the dif­ gional loyalties and religious opinion. Their ficulties of establishing central government principal concern was to better their economic authority throughout South Vietnam. Many position and preserve their newly-found peace. French were still trying to preserve their --SECB~ SEQPil'f'-- 3 vested interest in the economic and political ment in South Vietnam is still in doubt. Al­ life of the country and the French govern­ though Diem has establ~shed control over the ment feared that the establishment of an apparatus of government, he has dealt only in effective anti-Communist government in the part with such fundamental problems as: (a) south might involve French forces in renewed the development of an, effective administra­ fighting with the Viet Minh. The prospects tion, particularly on provincial and local were made even darker by the ease with which levels; (b) the institution of a popularly­ the Viet Minh appeared to be consolidating its sanctioned constitutionhl basis for the re­ control of the north. gime; (c) the elimination of armed opposi­ tion and the extension of government authori­ 10. In this situation Diem was forced to move ty throughout all areas of South Vietnam; (d) slowly. Although possessing considerable na­ the suppression of Viet Minh military and po­ tional prestige as a patriot, he was inexperi­ litical capabilities remaining in South Viet­ enced in administration and was confronted nam; and (e) the restoration of the economy. at the outset by the intrigues of Bao Dai and other self-interested individuals and groups, II. THE INTERNAL POLITICAL AND SECURITY who in many cases benefited from French SITUATION support. Moreover, the loyalty of the army to the central government was in doubt and The Diem Government General Hinh, its Chief of Staff who also held a commission in the French Air Force, was 13. At present, Diem's greatest assets are his openly maneuvering for political power. The reputation for honesty and unsullied nation­ national police and security services were alism, his control of the Vietnamese National commanded by Bay Vien, the leader of the Army, and the moral and financial support of Binh Xuyen gang who had bought them from the US. In addition, Diem has gained con­ Bao Dai in April 1954 and who was hostile to siderable popular following, especially in ur­ Diem. Finally, Diem was handicapped by a ban centers and in recently pacified areas and lack of trained administrators at the national has the loyalty of the refugees from North and provincial levels. Vietnam. However, should he lose army or US support, his regime would probably col­ 11. In the difficult and confused situation lapse. confronting the national government, Diem concentrated on eliminating or neutralizing 14. Diem also has the sympathy and in many the most important groups and individuals instances the active support of the estimated challenging the authority of his government. 1,000,000 Catholics in South Vietnam (in­ He successively excluded General Hinh and cluding about 500,000 Catholic refugees from Bao Dai from the political scene, won the sup­ the north), who represent an anti-Communist port of the army, and established the inde­ core with considerable pOlitical potential. pendence of his government from French in­ However, in order to avoid aggravating the fluence. By bribery, persuaSion, and finally religious issue, Diem, a Catholic, has been force, Diem virtually eliminated the Binh careful not to appear to champion the Cath­ Xuyen and the most important elements of olic cause. the Hoa Hao sects as threats to his authority. 15. Diem is still in the early stages of organi­ At the same time, he maneuvered the Cao Dai zing a political machine. His cabinet is com­ - the strongest of the sects - into an uneasy posed primarily of loyal technicians who lack alliance. As a result of these successful ac­ political stature, Most well known political tions, Diem gained prestige and increased figures of the pre-Diem period have been al­ popularity as a symbol of Vietnamese inde­ ienated by Diem's unwillingness to trust them pendence. and by his insistence that unquestioned ac­ 12. Nevertheless, the success of Diem's efforts ceptance of his leadership is the only basis to establish a viable anti-Communist govern- for cooperation. Diem has depended heavily oS il e It E ,t"- 4 on his unpopular brothers for advice and en­ elect~ons by the end of 1955 for a national as­ trusts them with positions of great responsi­ sembly with limited powers. To what extent bility. His tendency toward "one man rule," this process will be carried through will de­ his dependence on his brothers for advice, and pend largely on Diem's judgment as to his his rejection of Vietnamese leaders whom he own appeal in the south and the extent of does not trust, has denied his government Communist influence. The formation of a many of the few trained administrators. representative body may be delayed into 1956. 16. Although Diem has established firm con­ Non-Communist Opposition trol over the army and security forces, he has not established internal security. This fact, 19. The Cao Dai, the most powerful of the coupled with his failure to organize his gov­ sects, aspires to political control of South ernment effectively, has been largely respon­ Vietnam and is potentially Diem's most im­ sible for the delay in the implementation of portant non-Communist opposition. It con­ promised reforms in government procedure trols a sizeable rural area and has a relatively and agrarian policies. Projects for agricul­ cohesive religious following of some 1,500,000 tural development and land reform, under the Vietnamese, including a trained army of guidance of US advisors, are still largely in about 15,000. While the Cao Dai spiritual the planning stage. Even with US assistance leader, Pope Pham Cong Tac, has cooperated and its own best efforts, the Diem govern­ with other sect leaders opposing Diem, most ment has completed only about 47,000 hous­ Cao Dai military leaders have supported ing units accommodating approximately 40 Diem. General Phuong, the Commander-in­ percent of the 650,000 refugees from the Chief of Cao Dai forces and probably the sect's north. Diem has made some progress in in­ most influential political leader, has entered creaSing the number of villages under the into an agreement with the government to administrative guidance of the central gov­ integrate the bulk of his troops into the VNA ernment. Civic action teams, composed of and to disband the remainder. However, representatives of the various ministries, Phuong has continued to intrigue to obtain have been trained and sent out to villages in better terms and the agreement still has not about 10 provinces. ' been fully implemented. 17. Diem has made a considerable effort to 20. During the spring and summer of 1955, galvanize mass popular support behind his the Cao Dai sought to become the major po­ program. Initially, he concenfrated on ex­ litical force in South Vietnam by attempting ploiting popular antipathy for Bao Dai and to capture control of the Revolutionary Com­ the French; more recently he has sought to mittee (RC). This committee was formed develop strong anti-Communist sentiment. during the spring of 1955 at the time of the Although there have been instances of un­ Binh Xuyen crisiS. It resulted from a mer­ controlled manifestation of popular anger ger of followers of Diem's brother Nhu, Cao and xenophobia, Diem has on the whole suc­ Dai generals The and Phuong, and Hoa Hao ceeded in keeping popular passions within General Ngo, all of whom sought to use the bounds. force of nationalism to serve their own po­ litical ends. It is likely that much of the 18. Diem and his advisors are currently plan­ extreme nationalist activity of the Commit­ ning a three-phase program to obtain a pop­ tee during April and M~y of 1955 reflected ular mandate for his regime and eventually Cao Dai efforts to undercut Diem and to give to form a representative assembly in South the RC the political initiative. However, Vietnam: (a) an early referendum for a 'Diem's supporters have thwarted Cao Dai simple public choice between Diem and Bao efforts. Dai as Chief of State; (b) a referendum on a new constitution coupled with elections at the 21. During the period of this estimate, in­ communal and municipal levels; and (c) tegration of Cao Dai forces into the VNA will 5

probably continue. This process may be Communist Opposition marked by considerable political jockeying I .' and some local armed flare-ups may occur. 24. The Communists pose the ultimate threat '-'"' .. Because Phuong and other Cao Dai leaders to the independence of South Vietnam. The lack popular support, we do not believe they Communist regime in North Vietnam possess- will elect to resist Diem by force. Should es a far stronger army, a more experienced ad­ . they adopt such a course, we believe they ministration, greater cohesion of leadership, would not pose a major threat to the con­ and greater drive than the government of tinued existence of the government. How­ South Vietnam. However, we do not believe ever, the effort to suppress their forces would there will be a direct test of military and disrupt army training and divert attention pOlitical strengths during the period of this from other critical tasks including the sup­ estimate. Considerations of over-all bloc pression of the Communists. strategy and apprehension concerning possi­ ble US intervention will almost certainly pre­ 22. Although the Binh Xuyen and some ele­ vent an open Viet Minh attack. On the other ments of the Hoa Hao sect still retain the hand, Premier Diem will almost certainly not power to wage guerrilla warfare in limited agree to a test of relative popular strengths in areas, the government by force and bribery national elections. has drastically reduced the potential of these groups to challenge its authority. The fol­ 25. The struggle, therefore, will be indirect. lowing is the disposition of the four principal On the Viet Minh side it will be carried out forces of the Hoa Hao: Ea Cut's unit is be­ by their agents now in South Vietnam, by the lieved to be reduced to about 1,000, who are combined resources of Bloc diplomatic and scattered and in hiding after evading VNA en­ propaganda facilities, and possibly by troops circlement; Soai's group has been badly disor­ infiltrated across the 17th Parallel. ganized as a result of VNA operations and 26. Since the cease-fire and the subsequent probably does not now total more than 1,500; evacuation of most Viet Minh military units Nguyen's force of some 2,500, though osten­ to the north, the Commuhists in South Viet­ sibly rallied to the government, is in fact nam have concentrated on methods of "politi­ neutral; and Ngo's unit of some 3,000 is co­ cal struggle" designed on the one hand to operating with the government. The Binh exert pressure for nationwide elections accord­ Xuyen have probably ceased to be an effec­ ing to the Geneva Agreements, and on the tive force following the recent VNA operation other to infiltrate and subvert the institutions against their swamp hideout. However, the of Free Vietnam with a view to bringing to remaining forces of Bay Vien, Ba Cut, and power in the south political personalities who perhaps Soai will probably continue to oppose would be amenable to a coalition government the government during the period of this esti­ with the north. mate and may be tempted to cooperate with 27. We have little intelligence on Viet Minh the Viet Minh. strength, activities, and intentions in South 23. Most of the other. political groupings are Vietnam. We estimate, however, that in opposed to Diem and are composed primarily South Vietnam there are about 10,000 armed of intellectuals and political opportunists. Viet Minh military personnel in addition to They have little popular following. While an unknown number of political cadres and several Communist front groups. Military these groups will continue to maneuver for personnel are probably organized as skeletal position in an effort to secure power, we be­ units. Unit locations are not fully known, lieve the majority will gradually come to nor is the identity of their leaders. However, terms with Diem as they become convinced the strongest groups and most extensive activ­ that he cannot be removed by political ma­ ity appear to be centered in the coastal moun­ neuvers. tains of Southern Annam, the interior moun- 6 tains of Central Annam, the Plaine des Joncs tively challenge the position of the Diem gov­ area. adjacent to Cambodia and the Laotian ernment the latter will gradually strengthen borders, and in the Ca Mau region of Cochin­ and stabilize its position. Moreover, they have China. These elements are probably engaged probably concluded that Diem will not agree in intelligence activity, organizational and to elections or unification schemes which training functions, and in protecting local would favor the Communists. Under these headquarters and base areas. They are also circumstances the chances for a Communist probably encouraging and perhaps assisting take-over of the south by.means short of open those Binh Xuyen and Hoa Hao forces in con­ force might decline. On the other hand, the. tinued opposition to the government. Avail­ Communists also probably realize that the use able information indicates that the Viet Minh of force against South Vietnam - either in South Vietnam retain a continued capabili­ through open invasion or by infiltrating suffi­ ty for armed action and for a campaign of cient troops across the 17th Parallel to insure mass intimidation, assassination, sabotage, a successful "liberation" - would jeopardize and terrorism. current Bloc peace policies and risk provoking US intervention. In addition, the Commu­ 28. The Viet Minh probably exercises effective nists may not presently have sufficient political control only in areas which are un­ strength in South Vietnam quickly to over­ derpopulated and in which the government throw the Diem government and may there­ has made no attempt to establish its own ad­ fore estimate that to undertake widespread ministration. These include pockets in the guerrilla warfare without substantial infiltra­ plateau and foothill areas of South-Central tion from the north might lead not only to Vietnam, the Camau peninsula in the extreme the weakening of their exposed organization southern part of Vietnam, and the Plaine des in the south but also to a drastic loss of public Joncs in Cochin-China. The Viet Minh also support. probably exerts influence in rural areas where government administration is present but still 31. We believe that until July 1956 the Com­ ineffective. In urban areas where national munists will follow a course of action which is government control is greatest, the Viet Minh primarily pOlitical. They did not seize upon are working primarily through front organi­ the crisis of last spring to ini tia te guerrilla zations, such as labor unions, social service, warfare and their propaganda pronounce­ and "peace" groups. ments from Hanoi appear to direct their 29. There appears to be little Communist in­ followers in the south to continue their politi­ filtration in the higher echelons of the Viet­ cal actions. Their objective appears to be the namese National government or the army, but preservation of their pose as thy defenders of Vietnamese unity and independence and as there are indications of fairly extensive pene­ tration of lower units of the administration, the supporters of the provisions of the Geneva possibly including regional and provincial Accords. In the south, they will probably governments, and almost certainly the village work in both the villages and urban centers councils. With respect to the South Vietnam to exploit local grievances, to hamper and sab­ politico-religious sects, recent information otage government administration and reform, to subvert the command elements in the VNA, from Vietnamese sources suggests growing to discredit Diem as a nationalist, to encour­ and probably successful Communist efforts to age dissident groups in armed opposition penetrate the factions of these sects which re­ against the government, and to increase sup­ main hostile and in armed opposition to the government. port for plausible Communist proposals for unification. By these measures, which may 30. The Communists are confronted with a involve terrorism and violence short of con­ serious dilemma in their campaign to estab­ certed guerrilla action, the Viet Minh could lish Viet Minh control over South Vietnam. seriously hamper government efforts to ad­ They probably estimate that unless they effec- minister the rural areas. They would prob- 7 ably hope by this tactic to force a change in 35. The morale of the VNA has risen sharply the government of South Vietnam or to de­ as a result of its operations against the Hoa velop widespread antipathy toward Diem. Hao and Binh Xuyen dissidents. This factor, together with the halt in demobilization and 32. H~wever, the Communists might, despite the firm nationalist stand of the government the presence of the ICC, decide to initiate against the French, has given the VNA a new small-scale but widespread guerrilla warfare sense of independence and confidence. in the south, provided such action was con­ sistent with over-all Bloc policies and provided 36. Despite the VNA's lack of experience and they estimate that such action would not pro­ training, it probably has the capability of voke US counteraction. The Communists maintaining the government in power against presumably would be less fearful of US inter­ potential armed opposition now located south vention if they believed that they could con­ of the 17th Parallel, and of maintaining con­ duct successful guerrilla operations with suffi­ trol of major urban centers and lines of com­ cient support from the south to make unnec­ munication. Should the Viet Minh initiate essary obvious and extensive support from the a major guerrilla operation supported by sub­ north. stantial infiltration from the north during the period of this estimate, the government would III. VIETNAMESE MILITARY AND SECURITY be hard pressed to do more than maintain SERVICES control of Saigon-Cholon and a few other major urban centers. If the operation was 33. The Vietnamese National Army (VNA) prolonged, the South Vietnamese government has an estimated strength of 147,000, exclu­ probably could not survive without military sive of some 8,000-10,000 sect forces in the assistance from outside. Provided US assist­ process of integration. The VNA is composed ance is continued, and conditions permit the of 159 combat battalions, including 148 in­ implementation of planned reorganization fantry-type, 2 armored, and 9 artillery battal­ and training programs, the VNA in another ions. As a result of recent reorganization two years should be able to maintain a large most of the battalions have been regrouped measure of internal security even in the event to form 4 field infantry divisions; 6 light of considerable infiltration of guerrillas from infantry divisions; 13 territorial regiments; the north. Moreover, against external aggres­ and 3 independent infantry regiments. The sion, it should be able at that time, with out­ remainder of the battalions are independent. side naval and air support, to provide a 60 day The larger elements generally are still in the delay in withdrawing to the general vicinity formative stage, and are not yet operational. of Ban Me Thuot - Dalat - Nha Trang, and The Vietnamese government hopes to increase to conduct a defense for some months of the the VNA to a strength of 200,000, whereas Saigon-Cap st. Jacques area. current US-approved force levels, including air and naval forces, call for a total strength of 37. Vietnam has a small air force with an about 150,000 by July 1956. over-aU personnel strength of about 3,000 (in­ cluding 78 trained officer and enlisted pilots, 34. In recent operations against sect forces, 90 pilot trainees, and approximately 1,100 the VNA displayed major weaknesses in staff other skilled and semi-skilled personnel), and work, particularly in logistiCS, and the tactical an aircraft strength of about 100 liaison/train­ control of units was poor. Since October 1954, ing and transport types. The Vietnam Air several key VNA officers have been purged, Force (VNAF) has minor capabilities for per­ and much of the present army leadership is forming artillery observation, target spotting, new. Time will be required for the new team battle area liaison, and air evacuation mis­ to "grow" into their positions, but with experi­ sions. No significant increase in VNAF capa­ ence and the scheduled training of VNA offi­ bilities is expected during the period of this cers in US service schools, the army leader­ estimate although a larger and more effective ship should improve gradually. VNAF is planned for the next 2-3 years. Any 8 substantial increase in air force capabilities mand the withdrawal of all French forces, will depend primarily upon the training the French may continue to maintain some and re-equipment programs of the US spon­ token forces in South Vietnam. In particu­ sored Training Relations Instruction Mission lar, the French will probably seek to retain (TRIM) and MAAG. naval and air bases in South Vietnam. The principal missions of the' FEC at the present 38. The Vietnam Navy is under operational time are to protect the ICC in Vietnam and control of the Chief of Staff of the VNA and French nationals and property. Only some under the administrative command of a sen­ token forces now remain in the vicinity of ior naval officer. Its naval component con­ the 17th Parallel. The FEC will almost cer­ sists of 1,618 men, with a Coast Guard of 82 tainly not be committed against the Viet men and a Marine Corps of 2,470 men. In Minh, except to protect itself or as part of a addition, 550 Vietnamese serve with the multilateral Western action. The French will French Naval Forces, Far East, on a con­ continue to provide training facilities for VNA tractual basis. The naval component pos­ personnel in France and will also probably sesses 1 submarine chaser (PC), 3 coastal continue to participate, although reluctantly, minesweepers' (MSC (0», 7 amphibious ves­ with the US in training the VNA in Vietnam. sels (1 LSSL, 2 LSIL, 4 LCU), and 49 smaller In addition, the French will probably com­ amphibious and patrol craft. The Vietnamese plete the turnover of depots and installations Navy has limited effectiveness, but is capable to the VNA. of undertaking river patrol, and minor coastal and amphibious operations. Both the navy IV. ECONOMIC and marines depend upon foreign logistiC sup­ port, and will require considerable additional 41. Vietnam's economic position has not im­ training before they can perform effectively. proved in the past year. Formidable basic economic problems still confront the govern­ 39. The Vietnamese National' Police, under ment. The country is dependent on foreign new and apparently more effective leadership, aid to finance imports and the defense budget. consists of about 4,500 men, at least half of Acreage under cultivation is still far below whom are in the Saigon-Cholon area. Con­ prewar levels and the position of the peasant siderable improvement in the morale, equip­ needs to be improved. There are also serious ment, and effectiveness of these forces is likely immediate problems. Despite adequate pro­ during the period of this estimate. A Civil duction of rice for domestic consumption, Guard is currently being organized through a merger of former provincial guards, local distribution and marketing difficulties have militia, and suppletif elements under the cen­ forced a dramatic rise in the price of this tral direction of the Minister of Interior. commodity in the large urban centers. Un­ This organization with an estimated 65,000 employment is rising as a result of the closing men still lacks cohesion, skills, and necessary of the French enterprises and military in­ equipment. Of these, 25,000 will be trained stallations and is aggravated by the demo­ under a US program now being instituted. bilization of VNA and sect armed forces. These problems may come to have significant 40. The French Expeditionary Corps (FEC) political effects and add to instability in the has been reduced to a strength of about 45,- months to come. 000, because of concern for the North African situati9n, a general loss of interest in South 42. Rice output, Vietnam's principal resource, Vietnam, and Vietnamese pressures. Nego­ is roughly 2,100,000 metric tons for the cur­ tiations are now proceeding between South rent crop year, representing virtually no gain Vietnam and France concerning the future over recent years and little more than half role and status of the French military in of pre-World War II production. This level South Vietnam.' Unless the Vietnamese de- should provide a small export surplus of 150,- 9

000 to 200,000 metric tons. The dislocations 46. Improvement in economic conditions in of war and the continued lack of security in South Vietnam will depend largely on the many rural areas have left one-third of the success of government efforts to deal with prewar rice acreage uncultivated. Rice, rub­ such problems as unemployment, land tenure, ber, and other exports earn $94,000,000 a year, rural credit, currency reform, foreign com­ which pays roughly for only one-third of mercial relations, and the recreation of a rice South Vietnam's imports. US aid is now the surplus for export. The Diem government major source of foreign exchange for the area. has recently established a new central bank, initiated independent control over foreign ex­ 43. Local resources are expected to cover change resources, and undertaken develop­ about 30 percent of the estimated 1955 nation­ mental planning. The government probably al budget of $521,0{l" ,vOO. US military and will be successful in permanently settling size­ economic assistance is programmed at about able numbers of refugees, in initiating effec­ $325,000,000 'which will cover most of the bal­ tive import policies, and in regularizing its ance. The French now provide only about trading relations with Cambodia and Laos. $34,000,000 in foreign aid and this will prob­ However, institutional reforms and other pro­ ably diminish as their military forces are with­ grams designed to alleviate the economic sit­ drawn. uation will not pass beyond preliminary stages 44. France continues to be the chief source of during the period of this estimate. imports and French capital still controls the 47. Despite economic stagnation in Vietnam, bulk of manufacturing and plantation agri­ the situation is unlikely to become critical so culture. However , Franco-Vietnamese eco­ long as US aid continues. On the other hand, nomic ties are weakening because of mutual there is little prospect of sufficient improve­ mistrust and suspicion and the shift to direct ment in economic conditions to provide a US dollar aid. Vietnam's Foreign Exchange strong stimulus to popular support for the Office has limited franc imports and has cur­ government. tailed the flow of remittances to France. The new Vietnamese tariff schedule continues the V. EXTERNAL FACTORS traditional preferential rates for France, but 48. Recognizing that his regime is dependent at sharply reduced levels. Under these con­ on US aid and support, Diem will probably ditions, French enterprises will curtail the continue to follow a foreign policy marked by scale of their operations and general trade re­ cooperation with the US. At the same time, lations between France and South Vietnam Diem's foreign policies will bear the mark of will not improve. strong independence of action, and may fre­ 45. Vietnam is also losing its traditional trade quently lead him to misunderstandings with within Indochina. Cambodia, which formerly his closest allies. Diem will continue to urge used the port of Saigon to channel its imports the development of effective defense mechan­ and exports, is becoming increasingly oriented isms under the Manila Pact, while seeking toward Thailand as the result of new rail and diplomatic support through wider recognition ferry facilities. Moreover, trade with Cam­ of his government, particularly in Asia. bodia has been curtailed since the dissolution 49. In stubbornly refusing to recognize or ad­ of the Indochinese customs and monetary here to the terms of the Geneva Agreements, unions at the end of 1954. Relations between Diem has shown little sensitivity to world these countries have also been troubled by the opinion. He is probably concerned by Indian, failure of South Vietnam to turn over Cam­ British, and French pressures, with which the bodia's full share of the custom receipts col­ US has been to some degree associated, to hold lected by the Indochinese customs. Tradi­ election consultations and publicly declare his tional trade with North Vietnam has also been cooperation with the ICC. But he is fearful disrupted primarily because of Vietnam's self­ of the possible effect that consultations might imposed restrictions. have on public opinion and on his public sup- 10 port. He clearly believes that any recogni­ 52. India's principal objectives toward Viet­ tion of the DRV as a "government" in the nam will be dictated largely by its concern to north would have adverse political conse­ prevent the outbreak of hostilities in the area. quences. Consequently, although Diem will To effect this, India will attempt to imple­ attempt to moderate the disfavor of the ICC ment the terms of the Geneva Agreements. and the Geneva powers, he will probably con­ This policy may lead India into conflicts with tinue to resist external pressures to hold con­ the Diem government and may lead India to sultations. However, under pressure from the propose the dissolution of the ICC in Vietnam. Western Powers and Asian neutralists, Diem However, India's policy toward Sou,th Vietnam might reluctantly agree to some form of indi­ is likely to be moderated to the extent that rect consultations, but in such circumstances Diem succeeds in establishing a strong and he would vigorously press for conditions popuiar regime and replacing Ho Chi Minh as which he felt certain the Communists would the symbol of nationalism in Vietnam. be unable to accept. Aware that his' position 53. Canada, though a member of the ICC will probably cause the Viet Minh to increase along with India and Poland, has consistently their efforts to destroy his government, Diem supported US efforts to establish a strong will probably seek to bind the US more specif­ anti-Communist government in the south and ically to the defense of Vietnam. may be expected to continue to follow a policy 50. Because he recognizes that the continued generally parallel to that of the US in the area, presence of the International Control Com­ even in the event of the break-up of the ICC. mission in Vietnam exerts some deterrent The UK, on the other hand, has had pro­ force on possible Communist designs, Diem found misgivings as to the strength of the will probably continue a grudging and re­ Diem government and the wisdom of Diem's luctant cooperation with that body. How­ policies. Because of its position as co-chair­ ever, he will reject any.efforts by the ICC to man of the Geneva Conference on Indochina inject itself into the question of elections in and because of its deep fears of a renewal of Vietnam, even if his refusal should lead to the hostilities in the Indochina area, the UK has departure of the ICC from Vietnam. consistently urged upon Diem a technical compliance with the Geneva provisions. The· 51. The French have decided to withdraw the UK will continue to press Diem to urge gen­ bulk of their forces from South Vietnam and uinely free elections in an effort to take the to reduce their financial contributions to the initiative away from the DRV and force it to Vietnamese government because of commit­ accept the onus of rejecting adequate election ments in North Africa, popular sentiment in guarantees. Indications are that if Diem France, and Vietnamese pressures. While continues to refuse even indirect consulta­ the French will continue to seek to salvage tions, the UK will probably not join in provid­ as much as possible of French commercial and ing Diem with external protection should cultural interests, we believe French interests South Vietnam be attacked from the north. and influence in South Vietnam will progres­ sively decline during the period of this esti­ VI. OUTLOOK FOR THE DIEM GOVERNMENT mate. The French will probably continue to give no more than lip service to the imple­ 54. Assuming Diem survives and provided he mentation of the Geneva Agreements. In continues to receive wholehearted US sup­ any case, they will attempt to avoid involve­ port, we believe he will probably remain in ment of French forces in renewed hostilities office during the period of this estimate. or internal disorders. While the French gov­ Moreover, provided the Communists do not ernment will give its verbal support to the exercise their capabilities to attack across the Diem government, it will in fact cooperate 17th Parallel or to initiate large-scale guer­ with the latter and with the US in Vietnam rilla warfare in South Vietnam, Diem will only grudgingly. probably make further progress in developing 11

a more effective government. His position would almost certainly follow. Such cir­ will probably be strengthened as a result of cumstances might produce a successor more increased popular support, the continued amenable to a rapprochement with the Viet loyalty of the VNA, and a deterioration in the Minh. strength and cohesiveness of his non-Com­ munist opposition. The national government 55. Viet Minh elements in South Vietnam will will probably increase the number of rural continue to control or influence remote areas communities under its control, particularly in and to hamper government action in the pro­ areas now held by the sects. However, Diem vinces. The Viet Minh capability to infil­ . will probably have advanced little beyond the trate personnel and arms into South Vietnam, preliminary stages in his social and economic and to reinforce Communist and potential dis­ reform programs. . Moreover, should Diem sident elements will remain the most serious for whatever reason be eliminated from the threat to the establishment of a viable and scene, a period of extreme political instability stable national government in the south.