Commercial Import Program
The main effect of the aid package was a rapid expansion in the urban middle and upper class, while life remained mostly unchanged for South Vietnam's rural majority.
US officials were aware of the failure of the program to propel economic development, but did not try and divert the spending to investment as they regarded the solidification of urban support for the government to be very important.
During World War II, Imperial Japan attacked Indochina and wrested control from France, but when they were defeated by the Allies in 1945, a power vacuum resulted.
[5][6] The State of Vietnam received support from the US and other anti-communist countries in the midst of the Cold War, which saw it as a partner in a fight against the spread of communism.
In October, Diem proclaimed himself the president of the newly formed Republic of Vietnam after he won a fraudulent referendum,[7] and the aid continued as the US wanted to build a strong and stable anti-communist state in Southeast Asia.
From the end of 1955, when Diem took full control of the country after ousting Bảo Đại and declaring himself president, until 1961, the US provided Saigon with USD1.447 billion in aid, mostly through the CIP.
The businessmen bought the US dollars from the Saigon treasury with their South Vietnamese piasters at half the official exchange rate; they then used this cheaply acquired American currency to import US goods.
A similar fiscal device was employed in the Marshall Plan aid package for the rebuilding of Western Europe following the destruction caused during World War II.
[18] The government funds generated from selling importing licenses also became a problem, with corruption and explicit theft dogging its effectiveness as a means of bankrolling the military and civil service.
The rural peasants of Vietnam, who comprised more than 80% of the population, were unaffected by the aid package except for the resentment that it instilled in them when they observed the relative affluence of their city counterparts compared to their own impoverished state.
"[20] One of the political impacts of the massive infusion into the South Vietnamese economy was to expand the urban middle-class and ease the pressure on the government to collect taxes.
[15] The effective income taxation rate was no more than 5%,[17] and the South Vietnamese president privately told an adviser from the Michigan State University Group that he was happy that the CIP had allowed him to build a large support base among the newly created middle and upper class.
[13] A 1959 report concluded that if the CIP was absent or diluted to equilibrium economic levels, the resulting fall in living standards would create "serious political problems" due to erosion of the government's support among the urban minority.
[13] As the CIP allowed licensees to import goods at half price, it was regarded as a virtual guarantee of business success, regardless of entrepreneurial skill.
Diem and Nhu claimed that the paperwork involved in the applications for imports made the process was too slow and hindered the development of an emerging economy where the market situation changed rapidly.
[19] Nhu and Diem felt that the regulations that the Americans put on the use of the piaster fund obtained from Vietnamese importers were stifling their ability to accelerate development, especially as the planning and approval reviews took a long time.
[23] This proved to be a large hindrance in several areas, as the South Vietnamese government had a policy of having majority ownership of any industry deemed to be of vital national importance, as well as banning foreigners from having a stake in such ventures.
Diem was reluctant to cut the currency rate, which was fixed at 35 piasters to the US dollar, arguing that it would diminish the value of US aid to South Vietnam and undermine the urban middle class support for his regime as they would resent the loss of their cheap consumer and luxury goods.
[16] In 1963, the US Ambassador Frederick Nolting and his economic advisers exhorted Diem to spend more of the CIP funds on rural development in an attempt to shore up peasant support in the face of increasing communist pressure, but were rebuffed.
[24] On October 5, 1963, the CIP was briefly suspended by the United States in the wake of the McNamara Taylor mission, a fact-finding expedition to South Vietnam conducted by Secretary of Defense Robert McNamara and Chairman of the Joint Chiefs of Staff General Maxwell D. Taylor to investigate the progress of the fight against the communist Vietcong insurgency.
[1] Kahin said that "together with other elements of U.S. economic support...substantially expanded South Vietnam's middle class and helped purchase its political loyalty to both the Saigon regime and its American sponsor"[27] and that it "provided the means for a way of life that was as artificial as the economy upon which it rested".
