Commercial Import Program

The Commodity Import Program (CIP) was an economic arrangement between South Vietnam and the United States that lasted from January 1955 until the Fall of Saigon in 1975 that saw the dissolution of South Vietnam. The CIP was a trading scheme that was designed to inject large of amounts of American capital into the South Vietnamese economy to help fuel its industrialisation, growth and self-sufficiency, without incurring the high levels of inflation that would normally occur in such a drastic injection of money.

The program was created in January 1955, only three months after the Republic of Vietnam was proclaimed by Diem in October 1955, having won a fraudulent referendum on the future of what was then the State of Vietnam.

The method used for the program was import subsidisation. As part of the program, the United Stated pumped US dollars into the treasury of the South Vietnamese government, and the regime sold the US dollars to South Vietnamese businesspeople who had licenses that they could used to import American goods. The businessmen bought the US dollars from the Saigon treasury with their South Vietnamese piastres at half the official exchange rate, they then used these cheaply acquired American currency to import American goods. This meant that American manufacturers would still get the same amount of US currency that they would normally have received for selling their goods on the free market, while South Vietnamese importers could get twice as much goods for the same amount of their money. The piastres that the government collected from selling the US dollars that they received in aid were to be placed in a fund with the National Bank of Vietnam, which was to be used for funding the expansion and training of the Army of the Republic of Vietnam, the national police and the civil service. Since the extra money was not circulating in the South Vietnamese economy, inflation was mot stimulated. A similar fiscal device was employed in the Marshall Plan aid program for western Europe following the destruction of World War II. One American economist described the CIP was the "greatest invention since the wheel."

Although the plan was theoretically sound, in practice, it was ineffective in stimulating economic growth. During Diem's time, there was little meaningful economic investment or development in infrastructure. The businessmen mostly used the import subsidies to purchase consumer goods such as water boats, motorbikes, refrigerators, radios, music systems and other similar goods that were luxuries for their times. The program was thus effective in expanding the size of the urban middle class, but did not generate much economic investment, Only a minority of the purchases were spent in investing in capital goods such as manufacturing equipment and supplies for factory production. As a result, not much of the subsidies were channelled into the intended usage of setting up more economic production. The government funds generated from selling importing licenses was also a problem, with corruption a particular problem, in addition to explicit theft of funds. Some government officials would not sell the licenses to the businessmen until a bribe was paid. Another criticism of the Cip was that the funds that the government pocketed was not used for any significant amoun tof economic investment, but predominantly for funding the ARVN. Diem defended this by stating that national security was paramount.

In time, the ineffectiveness of the program began to concern the Eisenhower administration, who were worried about the lack of industrialisation brought on in the program. The corruption that permeated the program was also a problem. The rural peasants of Vietnam, who comprised more than 80% of the population were unaffected by the program, except for the resentment that it instilled in them when observing the affluence of their city counterparts compared to their impoverished state.

Over time, the economists in the Eisenhower administration became frustrated with Diem's refusal to devaluate the piastre once the Republic of Vietnam had become a stable nation. Diem refused to make the CIP exchange rate equivalent to the ideal free market exchange rate for the two currencies. Although the fixed exchange rate meant that Americans were heavily funding the south Veitnamese economy and that the importing firms could obtain more goods for their money, the rate also meant that whatever goods that were produced by South Vietnam would not be economically competitive on the export market. Diem was reluctant to cut the currency rate, arguing that it would diminish the value of US aid to South Vietnam and undermine the urban middle class support for his regime, since they would resent the loss of their cheap consumer and luxury goods.

In late 1963, the CIP was briefly suspended by the United States in the wake of the McNamara Taylor mission, a fact-finding mission to South Vietnam conducted by Us Secretary of Defense Robert McNamara and Chairman of the Joint Chiefs of Staff Maxwell D. Taylor to investigate the progress of the fight against the communist Vietcong insurgency. The report concluded that Diem was not concentrating on fighting the insurrection but instead were interested mainly on quelling Buddhist protests for equality, such as raiding pagodas and firing on Buddhists. Thus the CIP funding was frozen.

The funding was restored in early November, about a month later, after the deposal and assassination of Diem in a military coup.

The program continued until the dissolution of South Vietnam in April 1975 when the communist North Vietnam overran the country.