Secretary RUSK. That is correct, sir.

Senator MCCARTHY. The opposite point of view, I understand, has some rather strong support, also.

Secretary RUSK. Well

Senator MCCARTHY. In high councils of Government.

Secretary RUSK. Yes; I have heard the other points of view, and I was just expressing my disagreement with them.

Senator MCCARTHY. And you think your point of view is the one which has the greater weight in whatever decisions may be made in this area, or don't you want to answer that?

At least there is a counterweight to what you say.

Secretary RUSK. I think all of these points of view are taken into account. I would have to confess that I think my view as Secretary of State has some bearing on the problem. [Laughter.]

Senator MCCARTHY. We won't ask you to put it in quantitative terms. [Laughter.]

QUESTION OF LAND OPERATIONS IN NORTH VIETNAM

I would like to raise a question, pursuing a question Senator Pell just raised a little farther. He asked why it was that there was no countermove in North Vietnam by land forces either under orders or South Vietnamese who might do it on their own.

You said, well, this is escalation in a sense and you asked if he was against escalation and indicated you didn't think that was a good policy. I don't think that is a good answer.

What is the difference between that and bombing North Vietnam? Is there a diplomatic or a military reason that doesn't apply to one and does to the other?

Secretary RUSK. The South Vietnamese forces have had their hands pretty full with the task in front of them. I really feel I would rather get into this, I ought to get into this, in executive session rather than open hearing. This gets us into some difficult problems.

SALES OF MILITARY EQUIPMENT TO FOREIGN COUNTRIES

Senator MCCARTHY. Senator Symington inquired about the matter of armed sales to the United Arab Republic. I didn't get your answer, did you say you wanted to talk to him in private or in executive session?

Secretary RUSK. In the executive session with the committee or privately with the Senators who wish to have it, either way. I am at the committee's disposal. I don't think it would be wise to discuss this fully in open session.

Senator MCCARTHY. I know the State Department exercises consultation on sales made by the Pentagon.

Secretary RUSK. I beg your pardon, sir, I didn't

Senator McCARTHY. You are consulted with reference to the arms sales which are being pushed by the Pentagon.

Maybe I shouldn't say pushed, but

Secretary RUSK. No, we keep in very close touch with the Defense Department on the sales of arms. As a matter of fact, we have to approve, we must approve, those in the private field through munitions control, and in the public field through the military assistance and military sales.

Senator MCCARTHY. I wonder whether you exercise control over arms control all over the world.

Secretary RUSK. We have an arms munition controls procedures by which we regulate the license of the sale of arms in pursuance of policy guidelines established. We have a regular procedure to doing that.

Senator MCCARTHY. Did you clear the sales by the arms dealer in Alexandria?

Secretary RUSK. The arms

Senator McCARTHY. The international sales that he makes. Two Sundays ago I read a story which said he was modernizing the army of one of the Latin American countries and I wondered whether he could do this on his own or if he had to get clearance from the U.S. Government.

Secretary RUSK. It would be my impression that they are under the munitions control procedure but I would have to look into that particular case to see what the case is.

Senator MCCARTHY. The explanation as I heard it was that they could do the job cheaper through the Alexandria man than they could with Mr. Rusk.

DOLLARS LEAVING VIETNAM

Secretary RUSK. Well, there may be some differences in surplus equipment. I am not sure I just don't know the circumstances.

Senator MCCARTHY. Mr. Secretary, again in answer to a question from Senator Symington, I think you said only $2 or $3 million a month were going to France.

Senator PELL. Not to France, sir, to the black market.

Senator MCCARTHY. To the black market.

Senator PELL. In Hong Kong, most of it.

Secretary RUSK. That is fleeing Vietnam each month.
Senator MCCARTHY. Black market.

Secretary RUSK. Capital flight, if you like.

Senator MCCARTHY. Do you have an estimate as to how much of the money we put into Vietnam or how much we are going to put in is likely to be handled through French banking interests and therefore likely to have a bearing upon our balance-of-payments problem with reference to France?

Mr. BELL. I would not expect, Senator, that any substantial portion would be handled through French banking interests. The way this system works, the financing of imports is what you are talking about, I believe.

Senator MCCARTHY. Well, construction; $700 million for construction.

Mr. BELL. Construction is the Defense Department's business, and they have hired certain American construction firms to do that work. Those American firms normally all deal with American bankers and so on. I am not quite sure what the precise point of your question is, I must admit.

Senator MCCARTHY. Well, much of the money will be spent in Vietnam, it would be spent on labor, for example.

Mr. BELL. Yes, sir.

Senator MCCARTHY. Some of it would be spent on materiel.

Mr. BELL. Yes, sir.

Senator MCCARTHY. This would be spent in Vietnam?

Mr. BELL. Yes.

Senator McCARTHY. What becomes of the dollars that are set loose in this area?

Mr. BELL. Now, I understand.

Dollars earned by the Vietnamese Government, by their central bank, as in the case you are talking about where an American construction firm will hire some Vietnamese laborers-those dollars are used by the Vietnamese Government or released for payment for imports and some of those imports will undoubtedly come from France. That is right. Those aren't our AID dollars.

Senator MCCARTHY. I know they are not AID dollars. I am speaking about total expenditures of dollars, either AID or military. Mr. BELL. Right.

CONTROLS OVER IMPORTS AND EXPORTS

Senator MCCARTHY. What attempted control over the movement with these dollars is now being exercised, do you know?

Mr. BELL. Well, the Vietnamese Government and ours have a joint planning process controlling what is going to be imported to the country-the volume and the types and so on. We, as the United States, do not control the places where orders are placed, if they are financed by Vietnamese Government dollars other than by our economic aid dollars. They will be placed in general where prices and commercial considerations indicate. Some of them will undoubtedly represent purchases in Japan, some in Europe, some in the United States.

Senator MCCARTHY. You don't have anyone who can make an estimate as to what amounts, in what amount these dollars do become relatively free dollars passing through French financial circles?

Mr. BELL. I don't know. Can we make an estimate of that? Let us try to put something in the record for you on that, sir. (The information referred to follows:)

ESTIMATED AMOUNT OF U.S. MILITARY AND ECONOMIC EXPENDITURES IN VIETNAM WHICH PASS THROUGH FRENCH FINANCIAL INSTITUTIONS France has been an ineligible source for AID-financed imports since late 1960. There are, however, about six French-owned agencies or trading firms in Saigon which have represented United States manufacturers for many years.

For imports financed by the Government of Vietnam, French firms are limited to certain agricultural and industrial raw materials, capital equipment, and vehicles. French type foodstuffs and luxury items have virtually disappeared from the market.

The value of French imports financed with Vietnamese foreign exchange reached a level of $35.0 million in 1962 or 44 percent of Government-financed imports; and fell to $18.2 million, or 19 percent of these imports in 1964. It is believed to be even less in 1965; however, final 1965 statistics are not yet available.

USE OF SCRIP BY AMERICAN FORCES

Senator MCCARTHY. The second question had to do with the amount of scrip that is used and how it is handled.

Mr. BELL. The American troops in Vietnam are now receiving any funds that they want to receive in cash-not in greenbacks but in the form of so-called military payment certificates, scrip. They

can convert that scrip. The regulations under which they work require that they convert that scrip through official channels at a rate of 118 piasters to a dollar. If they do not so convert it, but instead convert it on the black market, that is a court-martial offense. There are undoubtedly some soldiers who do that but the number is believed to be quite small, and the evidence is that the introduction of the scrip a few months ago did in fact greatly reduce the volume of dollars that were going through the black market, and greatly improved the ability of the Vietnamese Government and the United States Government to control the financial and economic circumstances in the country.

PAYMENT OF VIETNAMESE TROOPS

Senator MCCARTHY. The payment of Vietnamese soldiers is made by the Vietnamese Government itself and you give the dollars to that Government.

Mr. BELL. No, sir; we don't give any free dollars to the Vietnamese Government. The import letters of credit which we give Vietnam are sold by the Vietnamese Government to their importers who pay piasters therefor, and those piasters are applied to the Vietnamese budget. So that the Vietnamese Government receives piasters. We control the dollars and pay the dollars to the exporters, in the United States, in Korea, Thailand, Taiwan, and a few other less developed countries. We do not finance any imports into Vietnam from Europe.

Senator MCCARTHY. The payment of their troops for military expenditures?

Mr. BELL. The Vietnamese troops are paid in piasters by the Vietnamese Government as part of their regular budget.

Senator MCCARTHY. And the Vietnamese Government gets its own money how?

Mr. BELL. Well, there was an earlier question about this, Senator. But let me summarize it: the Vietnamese Government budget for 1966 is about 55 billion piasters. They will obtain of those piasters, 21 or 22 billion from their own internal taxes. About 10 billion will come from deficit-financing, credit-creation, and the other 24 roughly will come from the piasters that are made available as counterpart for our economic aid.

U.S. INVOLVEMENT IN A LAND WAR IN ASIA

Senator MCCARTHY. Mr. Secretary, I have one question, I think we accepted for 5 or 6 years the ideas expressed by General MacArthur, General Eisenhower, General Gavin, General Ridgway, and others that a land war in Asia was unthinkable.

Is that theoretical position still held or do we have among the military figures in America today a changed point of view?

Secretary RUSK. Senator, the nature of a struggle of this sort, where the initiative is not ours, where we did not start it, and where we didn't want it to begin with, and where the aggression comes from the other side is, of course, substantially determined by the other side. At the present time the situation in South Vietnam does not take the form of armies, land armies, locked in combat with each other. It continues to be basically a guerrilla operation. The overwhelming

part of the problem is terror and sabotage. The fixed units that the other side has-battalions or regiments-occasionally engage in combat.

But the great mass of the problem is the guerrilla action by smaller groups, intimidating villages, blowing up highways or bridges, assassinations and kidnapings, and techniques of that sort.

One cannot say with complete confidence what the future will hold, but I would just point out that, at this stage in the situation, the other side is still operating chiefly on a typically guerrilla basis. They are doing so both as a matter of practice and apparently also as a matter of doctrine.

Senator MCCARTHY. I know that to be the case.

Secretary RUSK. The fire power that is available to the government and allied forces out there is very large indeed, and the other side has found it very difficult to sustain battalions or regiments in action for any protracted period.

Senator MCCARTHY. Well, I don't think that quite answers my question.

Secretary RUSK. I know it didn't, sir.

Senator MCCARTHY. Thank you very much, Mr. Secretary, I have Do further questions.

The CHAIRMAN. Senator Aiken?

PRIVATE ENTERPRISE IN VIETNAM

Senator AIKEN. I have a couple for Mr. Bell to answer.

Are we insuring any type of private enterprise in South Vietnam? Mr. BELL. There is an agreement between the Vietnamese Government and ours which authorizes the normal kind of investments guarantees for American investments. But none have been issued

over the past 12 months. There were some previously.

Senator AIKEN. We have not insured any type of private investment in South Vietnam over the last 12 months?

Mr. BELL. That is my understanding.

Senator AIKEN. Is that what you say?

Mr. BELL. Yes, sir.

Senator AIKEN. Has any private investment from the United States been made in the last 12 months?

Mr. BELL. I am not sure that I know of any, Senator.

Senator AIKEN. None at all?

Mr. BELL. I would be glad to check the point for the record. (The following material was subsequently furnished for the record:)

U.S. PRIVATE INVESTMENT IN VIETNAM DURING 1965

During calendar year 1965, the United States issued two specific risk guarantees to Caltex for investments totaling $722,000. In addition, there is underway an expansion of a paper and pulp manufacturing company in which Parsons & Whittmore are equity participants. The value of the equipment required for the expansion is estimated at $2 million.

Discussions are being held between the Government of Vietnam and a number of banking institutions regarding the possible establishment of an American branch bank in Saigon.

We have no further information immediately available here as to whether other American firms operating in Vietnam are expanding their investments.