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. 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? Senator MCCARTHY. What becomes of the dollars that are ad hun in this area? Mr. BELL. Now, I understand. Dollars earned by the Vietnamese Government, by their content bank, as in the case you are talking about where an American com dro tion firm will hire some Vietnamese labores thom dollars are in by the Vietnamese Government or released for payment for importa and some of those imports will undoubtedly come from France is right. Those aren't our AID dollars Senator MCCARTHY. I know they are not AID dollars ing about total expenditures of doliars, athap All on trukimeg Mr. Br. Light. 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 Icould 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. 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 construetion. 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? 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 pilasters, 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 |