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Declassified per Executive Order 13526, Section 3.3 NND Project Number: NND 63316. By: NWD Date: 2011  The deterioration of the security and political situation has contributed to some deceleration in the pace of economic growth. Expansion in both the agricultural and industrial sectors has continued, however, and the South Vietnamese people remain, if not prosperous, at least relatively well-off in terms of Southeast Asian living standards. Nevertheless, the economy is still heavily dependent on US aid, and there is the growing fear that much of the economic progress achieved to date may be undone by the Communists whose efforts in this direction give testimony of a major objective.

In foreign affairs, the South Vietnamese government has sought to maintain its close ties with the US but, until recently, Diem and some of his top advisors have been critical and resentful of many urgent US recommendations and even doubtful of US political support for their regime. During the past few months, a clear and public reaffirmation of US support and increased US assistance, on the one had, and on the other, Diem's willingness to push ahead more vigorously with expanded measures to fight the Communists have provided a basis for a continuing close relationship between the US and South Vietnam. The South Vietnamese Government's most urgent concern, however, has been with the crisis in neighboring Laos. Communist insurgent forces and capabilities in South Vietnam have been appreciably strengthened by infiltration across the Lao frontier, and the South Vietnamese Government is extremely alarmed at the prospects of a Communist takeover of Laos. In the South Vietnamese Government' view, Communist activities in Laos are part of a broader and coordinated DRV offensive aimed at South Vietnam, and a Communist takeover of Laos would quickly result in a Communist encirclement of South Vietnam since neighboring Cambodia would be unable or unwilling to resist Communist encroachment. Rh