Saigon's Backfiring Boom

With the war in a relatively quiet phase, the loudest boom in South Viet Nam these days is coming not from gunfire but from the economy. Where most nations at war--including North Viet Nam--endure rationing and self-denial, the South has spent the last few years on a prolonged shopping spree. There are no meatless Wednesdays, no food queues, few shortages of any kind. Shiny new appliances, from electric rice cookers to transistor radios, occupy conspicuous nooks even in the homes of unskilled laborers. Television antennas rise everywhere, even over tin-roofed huts. Saigon's greenery has suffered less damage from Communist bombs than from the choking exhaust fumes of Mercedes autos and Honda motorcycles.

But the boom is backfiring, with an impact that threatens major trouble for President Nixon's Vietnamization program. Unless Saigon can pay more of the bills--as well as do more of the fighting--South Viet Nam will never really be able to stand on its own. Last fall President Nguyen Van Thieu took some halting steps toward economic reform, imposing taxes as high as 280% on some 1,500 imported consumer items; Hondas, for example, doubled in price to $400.

Last week Thieu and Minister of the Economy Pham Kim Ngoc suffered a major defeat in their austerity campaign. In late February, Ngoc eliminated the favored tax status of imported newsprint. His order was designed to 1) stimulate production of newsprint, one of the few industries in the South capable of immediate expansion; 2) reduce imports; and 3) prevent publishers from buying more newsprint than they need, then selling it at a 300% markup on the black market. Fighting back, the publishers began organizing a general strike. At the last minute, Thieu reinstated the publishers' privilege. Said one Cabinet member: "This was our first test of economic Vietnamization, and we failed it."

Massive Infusion. South Viet Nam's economic problems gathered momentum in the mid-1960s, when the U.S. military buildup was pouring millions of new dollars into the national till. Inflationary pressures mounted, but the "swinging-door" regimes of those years were far too shaky to combat those pressures by the normal methods of taxation, price controls and enforced savings. Instead, the government was forced to keep prices low by keeping the supply of goods high.

With a relatively small skilled work force and nationwide mobilization, South Viet Nam produces almost nothing to trade for the vast array of imports that choke its harbors and shine alluringly on store shelves. Exports total barely $15 million, while imports exceed $850 million. The only thing that closes this incredible trade gap is the massive infusion of U.S. dollars. This year the South Vietnamese economy will absorb some $400 million in direct foreign aid from the U.S., another $400 million in Defense Department spending for local goods and services, and about $80 million in private spending by U.S. personnel and firms. The total is equivalent to about one-fourth of South Viet Nam's gross national product.

Secret Accounts. In recent years, prices have been increasing by an annual 30%, an enormous jump by U.S. standards but moderate compared with inflation in other Asian war economies: in 1951, for example, South Korea was convulsed by a 302% leap in prices. Nongovernment salaries have increased about 20% annually; unskilled workers and farmers now average about $75 a month, skilled laborers perhaps $100. Regular wages, together with the money earned by many wives and children who can now find jobs, have kept most families ahead of inflation.

Even so, the threat of a ruinous inflation is never far below the surface. Thieu's austerity taxes have so far had little effect in reducing the inflow of consumer goods. Many importers get away without paying the taxes because of bribery or inefficient administration. More important, buyers value even highly taxed goods more than the shaky piaster. The black-market rate for the dollar (350 v. the legal rate of 118) is climbing. Moreover, inflation has cut deeply into the buying power and morale of government employees, most notably the 900,000-man army and militia, whose salaries have suffered a real decline over the past two years.

Few doubt the long-range potential of South Viet Nam's economy. The country is richly endowed with timber, rubber, fish and fertile farm land. The war has brought roads and bridges that could be of enormous economic advantage in peacetime. While many businessmen still channel their profits into foreign bank accounts, a few are beginning to invest money at home. Thieu is trying to get foreign firms to build assembly plants in his country.

No Reason. Above all, however, it is the discipline of the South Vietnamese people that will make or break their economy in the short run. Since the Vietnamese pay only about half the amount of taxes collected from citizens of other developing Asian countries, Thieu's plan to enforce lax collections and reduce delinquency is not out of line. As one high official put it: "There is no reason why anyone should be driving a Mercedes in Saigon--no matter how much tax he's paid on it." Thieu's attempts to persuade his countrymen to agree may well prove a crucial test of their confidence in South Viet Nam's future.

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