Summary: In the fall of 1956 representatives of our office, as part of our regular audit of ICA country programs, visited several countries in the Far East with particular concentration on Korea and Vietnam. Because of the past association of Vietnam, Cambodia and Laos as the Associated States of Indochina and because we were including a summary of past aid activities to Indochina in our report on Vietnam, we deemed it appropriate to include brief outlines of the Cambodia and Laos programs based on examination of ICA Washington records, as supplements of our report to the Congress on Vietnam. A draft of our report on the three countries was sent to ICA in July 1957 for its review. The agency's comments were not received until January 1958. During the intervening period information came to our attention from various sources concerning disturbing aspects of the program in Laos. In December 1957 we decided that in the light of our audit responsibilities it was necessary to make a special field examination of the program at the ICA mission in Vientiane. Arrangements were made to have such an examination made by our Far East Branch, and the Director of ICA was so notified. At the same time it was decided to issue separate reports to the Congress on each of the three Indochinese countries. The reports on Vietnam and Cambodia are in the final stages of processing and should be released shortly. The examination in Laos was made in March 1958, and a draft report thereon was received by us in late April.
ICA has informed us that for overriding political and military considerations the United States is committed to support a Lao army of approximately 25,000 men at a cost of over 25 million dollars a year. The level of aid has been based principally on the cost of maintaining the Lao military forces for which the United States assumed the full burden of support. More than 85 percent of the local currency resulting from United States dollar aid was programmed for this purpose. Military hardware for the Lao army is furnished under the military assistance program administered by the Department of Defense. This program is not included in this summary. ICA has intensified its activities for economic and technical development by financing various projects, of which transportation and public administration were the largest. The main objective of the ICA program has been to generate local currency (kips) for military support including troop pay, maintenance, housing, etc. According to ICA its established procedures for generating local currency, namely procurement authorizations for financing the import and sale of commodities, would have been too slow in obtaining the kips necessary to meet military payments. Also, the economy of Laos could not absorb imports in the amounts required to generate the needed kips. For these reasons the agency considered it necessary to provide the greater part of aid in the form of cash grants. Under this form of aid United States Treasury dollar checks are given to the Government of Laos which in turn deposits a corresponding amount of kips in a special counterpart account from which they are withdrawn for the intended purposes. The Government of Laos borrows the required kips from the National Bank of Laos. The dollar funds serve as currency backing until they are converted into kips by sale to importers; the kips thus produced are applied to repay the borrowings. Approximately 95 million dollars--70 percent of the total dollar aid for the three years 1955-57--have been in cash grants. Cash grants have been supplemented by financing of commodity imports under the regular procedures--about 25 million dollars in the 3-year period. The kips generated from these imports have likewise been deposited in the special counterpart account. Approximately 10.6 million dollars have been devoted specifically to economic and technical development, principally for improving and maintaining the country's road system, providing equipment and supplies for the civilian police organization, improvement of navigation An the Mekong rivers projects in the field of public administration and other smaller projects.
