Phase Thieu

For some time, South Viet Nam's Economics Minister Pham Kim Ngoc has been telling newsmen: "Phase I of Vietnamization, the military phase, has been successful. Now we will enter on Phase II, which will concentrate on making Viet Nam self-reliant and stable." Last week, South Viet Nam's President Nguyen Van Thieu launched that program with a crisp 40-minute speech to the Saigon legislature.

Phase II, which was so named long before Richard Nixon unveiled his similarly titled economic program for the U.S., involves some high-stake risks. It gambles that the fighting is substantially over, that a recalcitrant U.S. Congress will continue to fund some $560 million a year to ease Saigon's way through a rough "transitional" period, and that South Viet Nam's 17.3 million people will soon be both willing and able to earn their own way. That is, of course, a tall order. Even at the peak of the fighting between the French and the Viet Minh during the "first Indochina war," South Viet Nam derived some income from exports of rice and rubber. But now many of the plantations are in ruins, rice is imported from the U.S., and the leading export is scrap metal left behind by the departing U.S. military. Exports bring in a bare $16 million a year, while imports are running at an annual rate of $700 million.

First Priority. The plan is to double the country's meager agricultural income by 1975 and encourage foreign investment in order to provide more industrial jobs. That will become increasingly important as troops are mustered out of South Viet Nam's 1,100,000-man army when--and if--demobilization begins, perhaps as soon as 1973.

Saigon's first priority, however, is to get its people--especially those who swarmed into the cities in pursuit of U.S. dollars--accustomed to the idea that the days of easy money and easy goods are over. When the U.S. buildup was in progress, the regime encouraged massive imports (800,000 motorbikes came in during one two-year period) as one way of damping the inflationary effects of the massive influx of U.S. dollars. Two years ago, when the U.S. pullout began, Saigon tried to cut down the flow of goods through heavy import taxes, but the main effect was to increase smuggling and corruption.

Now, the government finally seems to be moving decisively against the import glut. The piaster, long ridiculously overvalued at a rate of 118 to the dollar, was pegged at a more realistic 275 last year; last week it was slashed further. For most transactions, the piaster would be pegged at 410 to the dollar --close to the black-market rate. Simultaneously, a system of varying exchange rates and customshouse taxes was imposed to make necessities like most foods and plant equipment cheaper to import while raising the cost of luxury items like caviar, Hondas and cars.

The monetary moves are expected to raise living costs by at least 15%, but the impact will be softened somewhat by pay raises for civil servants and combat soldiers. Another big cushioner is the fact that most of the 359,400 G.I.s who have been pulled out of Viet Nam so far have been combat troops from the boondocks, not the big spenders on the bases near the cities. Only when the still-substantial flow of Pentagon dollars is cut back to a trickle will Saigon begin to be able to tell whether Phase II will work.

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