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Rh effective veto power over government action. This power they use to block reforms which might threaten their preferred military, economic, and political status. They will retain their power to threaten and harass the government until the National Army is strong enough to neutralize their forces.

d) : When I arrived in Vietnam the Government was terrorized by rebellious Chief of Staff, General Hinh. Hinh's departure and dismissal shortly thereafter cleared the way for steps to render the Army subordinate to the Government. Diem now has a fair measure of control over the armed forces. The Army is being deployed throughout the country to carry out a so-called "National Security Action" program designed to combat Viet Minh infiltration and restore civil government throughout the country. The Army's degree of effectiveness in executing this program will have a decisive bearing on the success or failure of the Diem Government. It is too soon to predict whether or not the National Security Action program will succeed but agreement by the United States to assume training responsibility and to grant financial aid to a reorganized and revitalized national army should have significant stabilizing effects.

e) : Free Vietnam is capable of maintaining a viable economy, at modest levels. The territory is now self-sufficient in food and formerly produced a substantial rice export surplus. Rice and rubber are traditionally the principal sources of Vietnamese foreign exchange. As security improves, export availability of these products should increase, thus contributing toward stabilization of the economy.

f) : There is still a serious question in my mind as to whether Diem will be able to establish broad popular confidence in, and support for, his Government. However, he has enjoyed some recent successes in his dealings with the sects. This and his retention of active U.S. support have tended to enhance his prestige. However, Diem has much yet to learn about practical politics and public relations . While at times he conveys the impression of being well over his depth, recently he has evidenced greater flexibility in handling people and increased self-confidence in dealing with his ministers and public issues. On balance I believe that Diem's integrity, strong nationalism, tenacity, and spiritual qualities render him the best available Prime Minister to lead Vietnam in its struggle against Communism.

2. In order to assist the Diem Government to capitalize Rh