Dubious Proposition

At an American embassy dinner in Saigon recently, Presidential Aides H.R. Haldeman and John Ehrlichman dished out a few unappetizing warnings to South Viet Nam's Economics Minister Pham Kim Ngoc. Unless something was done about Saigon's faltering economy, Nixon's men said, an unhappy U.S. Congress might sharply curtail American aid. Congress has reason to be concerned. Unchecked inflation has reduced purchasing power in South Viet Nam by 93% in the past 21 months. The trade deficit, thanks to American import subsidies, has risen to $685 million. The piaster, officially valued at 118 to the dollar, draws a black-market price of 420.

To ease the situation, President Nguyen Van Thieu last week decreed a package of reforms aimed at cutting inflation to 15% next year--a dubious proposition. His most significant move was to devalue the piaster--sort of. He established a "parallel rate" structure under which his country's currency will still be valued at 118 piasters to the dollar rate for "necessity" imports, but 275 to the dollar for luxury imports. A canny political device, the parallel rate will increase prices--and government revenues--on such imports as TV sets and refrigerators, while keeping prices down on essential imports. It will also give American G.I.s a better exchange rate. Other reforms included sizable increases in interest rates on most loans and attempts to discourage hoarding and speculation. A 16% increase in civil servants' and soldiers' salaries will help cushion the effect of devaluation on their fixed incomes.

Thieu's reforms may well prove too little and too late, partly because a recalcitrant Senate blocked him from taking more substantial measures. If they do not work, the country's budget deficit next year could run as high as 75 billion piasters.

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