REVIEW OF THE WORLD SITUATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000500080006-2
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 9, 2016
• Document Release Date: October 10, 2000
• Sequence Number: 6
• Publication Date: August 17, 1949
• Content Type: REPORT

Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
'SECRET
COPY NO. 007
FOR THE-CHIEF,CIA LIBRARY
REVIEW OF THE WORLD
SITUATION
Published 17 August 1949
CENTRAL INTELLIGENCE AGENCY
SECRET
Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
 Approved For Release 2001/08%01 : CIA-RDP67-00059AO00500080006-2
This document contains information affecting the na-
tional defense of the United States within the meaning
of the Espionage Act, 50 U.S.C., 31 and 32, as amended.
Its transmission or the revelation of its contents in any
manner to an unauthorized person is prohibited by law.
Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
 Approved For Release 2001/08/01 : CIA-RDF67-00059AO00500080006-2
SECRET
1. This copy of this publication is for the information and use of the recipient
designated on the front cover and of individuals under the jurisdiction of the recipient's
office who require the information for the performance of their official duties. Further
dissemination elsewhere in the department to other offices which require the informa-
tion for the performance of official duties may be authorized by the following:
a. Special Assistant to the Secretary of State for Research and Intelligence, for
the Department of State
b. Director of Intelligence, GS, USA, for the Department of the Army
c. Chief, Naval Intelligence, for the Department of the Navy
d. Director of Intelligence, USAF, for the Department of the Air Force
e. Director of Security and Intelligence, AEC, for the Atomic Energy Com-
mission
f. Deputy Director for Intelligence, Joint Staff, for the Joint Staff
g. Assistant Director for Collection and Dissemination, CIA, for any other
Department or Agency
2. This copy may be either retained or destroyed by burning in accordance with
applicable security regulations, or returned to the Central Intelligence Agency by
arrangement with the Office of Collection and Dissemination, CIA.
DISTRIBUTION:
Office of the President
National Security Council
National Security Resources Board
Department of State
Office of Secretary of Defense
Department of the Army
Department of the Navy
Department of the Air Force
State-Army-Navy-Air Force Coordinating Committee
Joint Chiefs of Staff
Atomic Energy Commission
Research and Development Board
Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
 Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
SECRET
REVIEW OF THE WORLD SITUATION AS IT RELATES
TO THE SECURITY OF THE UNITED STATES
1. The Labor Government in the UK has
not yet produced a comprehensive policy for
meeting a threatening financial-economic
trend. The stop-gap measure of cutting dol-
lars imports by 25 percent will have its effects
concentrated in North America. There are
a few signs that the seriousness of the prob-
lem has been felt by the rank-and-file of Labor
electorate.
2. The economic condition of Western Ger-
many is developing significant instabilities.
Their correction is unlikely except in terms of
expanded foreign and domestic trade and ex-
tensivee long-term credits. The atmosphere
in which the federal elections were prepared
and took place were unfavorable.
3. The Papal Decree excommunicating Com-
munists has joined battle on a fundamental
issue. The ramifications of this conflict can
now become complex and widespread. While
the Decree will probably not affect the out-
come of the Communist attack on the Church
in Eastern Europe, it unquestionably brings a
very powerful factor into play in the over-all
East-West struggle.
4. Yugoslav-Greek relations are in process
of changing. No very tangible results have
yet emerged, but the intricate maneuvers be-
tween Tito and the Cominform and the West
and Tito and the US and the USSR are begin-
ning to have some slight effect.
5. In the Near East, there is little significant
change. The new Egyptian coalition govern-
ment should have a stabilizing effect. Iranian
demands for US aid are coming from all quar-
ters within the government, and a lack of co-
ordination is showing.
6. In the Far East, the first proposals for a
Pacific Union have undergone change. Most
important has been the freezing out of Chiang
Kai-shek. The Chinese Communists, still
achieving military successes, are running into
economic difficulties in large cities and into
some peasant resistance in the countryside.
The Indonesian problem has good chances of
being brought to a reasonably satisfactory
conclusion. The Japanese political scene is
beginning to boil and the Occupation authori-
ties will be faced with increasingly difficult
problems.
7. In Latin America, two areas of instability
have developed-Guatemala and Bolivia.
Note: This review has not been coordinated with the intelligence organizations of the Depart-
ments of State, Army, Navy, and the Air Force. The information herein is as of 12
August 1949.
Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
 Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
SECRET
REVIEW OF THE WORLD SITUATION AS IT RELATES
TO THE SECURITY OF THE UNITED STATES
1. United Kingdom.
No fundamentally curative policy has yet
been publicly proposed by the government for
checking the increasingly threatening finan-
cial-economic trend. There is a likelihood
that no such policy has yet been conceived and
that neither the government nor the Labor
Party is agreed on the basic causes of the
crisis or of the action to be taken to meet it.
Nothing more fundamental has yet been sug-
gested than to note some remedial measures
that might be taken by the US, although it is
to be expected that more comprehensive plans
will be presented at the Washington Confer-
ence in September.
A stop-gap measure, a 25 percent reduction
of dollar imports, has been announced. It
will be supported by the Commonwealth mem-
bers of the sterling bloc. Of the six commodi-
ties selected for reduction in 1949-50, Canada
was the main supplier in 1948-49 of three-
timber, paper and wood pulp, and non-ferrous
metals. The US was the main supplier of
two-raw cotton and tobacco. The sixth
item, "dollar" sugar, was largely supplied by
Cuba. The effect of the reduction will accord-
ingly be concentrated in North America. The
tobacco cuts will probably be passed in part
to the British consumer. Soft currency sources
exist for maintaining, in considerable part,
timber, wood pulp, and non-ferrous metal
stocks. It is unlikely, however, that a full 25
percent cut can be made in raw cotton pur-
chases for more than a very short time, without
injury to the British textile industry. When it
is recalled how closely the UK has already
restricted its dollar imports to necessities, it
is likely that a further cut of this magnitude
will, if maintained for long, lead to a lower
standard of living, fewer incentives to labor,
and specific raw material shortages.
There are few signs, in spite of warnings
from the Labor Party and Trade Union lead-
ers, that rank-and-file members recognize and
are prepared to act on the fact of crisis. There
have been demands for wage increases, and
some threats of strikes. While the notorious
Dock Strike arose from other circumstances,
its conduct provided an indication of the ex-
tent to which the Labor Party leadership is be-
coming detached from its labor base. An un-
dertone of irresponsibility and defiance is be-
ginning to show among the rank-and-file.
The alternatives in the over-all situation are
being defined with increasing sharpness. Short
of a marked increase in US loans, grants, or
other devices for making dollars available,
painful economic and political adjustments
within the UK will almost certainly be re-
quired. Though Labor has been losing ground
politically, it can still be assumed that the
Labor Government has enough political
strength and authority to call for a considered
policy of readjustment. There is, neverthe-
less, no sign as yet of an agreed intent to do
so. No alternative source of political strength
and authority has clearly developed in the Con-
servative Party. The situation remains,
therefore, uncertain and subject to sudden in-
terim changes of direction. Prolonged in-
ternal uncertainty will have adverse external
effects with respect to relations with Western
Europe, to the capacity of the UK to maneuver
diplomatically, and to the general security po-
sition of the US.
2. Germany.
Partly for indigenous reasons, and partly in
relation to more general economic develop-
ments, the Western Zones of Germany are be-
ginning to show signs of instability. The
weakening of the economic position has been
gradual and its main features now are un-
certain 'employment, reduced sales, and a de-
cline in the production of capital goods. Im-
provement is unlikely except in connection
with an expansion of foreign and domestic
trade and the provision of considerable long-
term credits. The budget for FY 1949 has
SECRET 2
Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
 Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
SECRET 3
serious weaknesses. No account is taken of
the subsidies needed to stabilize the cost of
living; deficiencies in breadgrains, fertilizers,
and fodder will require additional imports;
and the unanticipated deterioration of the
economy of Western Berlin will lead to an
added claim. Industrial areas remain in a
poor state since capital is not available for
rebuilding or for replacing obsolete equipment.
The situation has created an unfavorable at-
mosphere for the federal elections. The Chris-
tian Democrats seem to be losing strength to
groups of the Right. This can be partly put
down to the identification of the Christian
Democrats with a "free-economy" and with
the present economic decline. The Socialists
are the most likely beneficiaries of this develop-
ment. Their emergence as the dominant
group in a new West German Government
would probably result in a trend toward a
socialized welfare state, and probable friction
with US and particularly French occupation
policies. Generally, the new West German
Government will be faced with such complex
economic and fiscal problems that, regardless
of its political color, it will tend to evade re-
sponsibility and to blame the Occupying
Powers.
The economic situation in Berlin adds noth-
ing except further problems. Unemployment
is rising in the western section. One-third of
the population exists on marginal incomes
drawn from public funds. Industrial activity
is handicapped by high production and trans-
portation costs. The municipal budget falls
from one point of unbalance to another. In-
creased personal hardship and lowered morale
is almost a certainty as winter sets in.
3. The Vatican-Communist Showdown.
The recent Papal Decree excommunicating
Catholics who profess, defend, or spread Com-
munism is a final joining of battle on a funda-
mental issue. The challenge, which has been
offered with vigor by the Communist regimes
of the Satellite States, has been accepted with-
out reservation by the Holy See. By this de-
cision, the two most powerful organizations
for moving men to act on behalf of a doctrine
are brought into open and basic conflict. The
possible long-term ramifications of this con-
flict cannot be easily or comprehensively de-
fined. The decree will be a very powerful
factor in the East-West struggle. In Eastern
Europe it implies a struggle to the bitter end;
a struggle in which the Communists admit-
tedly have superior material force at their dis-
posal and which they will win; but also a
struggle which may possibly result in creat-
ing an effective basis for a "resistance move-
ment" in some areas of Eastern Europe. In
the West, it clearly defines the lines of battle.
In many other areas in the world the decree
will exert a powerful and prolonged indirect
pressure on both policy and action. Com-
munist governments and Communists gener-
ally will have to accept the issue as now posed.
Although the Communist governments would
obviously have preferred to carry on their anti-
church campaign at their own pace, the power
of decision has now been taken away from
them. The conflict can be pressed on them
with a speed and comprehensiveness that may
well affect the satisfactory development of
other Communist policies.
For the moment, Czechoslovakia is the focal
point of the struggle. The Communist tech-
nique is, under cover of separating State and
Church, to secure control of clerical appoint-
ments, education, and Church income. It
seeks to do this with the minimum of religious
reaction by discrediting the Catholic hierarchy
and setting up national Catholic groups with
which it can officially deal. The objective of
a National Church will certainly be reached,
and government control established. In Po-
land, on the other hand, the issue may be con-
siderably more difficult to handle.
In the West, the immediate point of interest
will be Italy. It is considered that the Papal
Decree will have definite repercussions in
Italian politics. Primarily it will reduce Com-
munist voting strength, but it will also ac-
centuate long-existing clerical and anti-cleri-
cal differences.
4. Yugoslavia-Greece.
There is little doubt that Tito's policy with
respect to Greece and the Greek guerrilla
forces is in process of changing. There is also
evidence that this change is taking place in
the context of growing heat in Tito's relations
Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
 Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
SECRET
with the Cominform and the USSR. The game
is one of very complex maneuvers, delicate
balancings, and double-talk; each move taking
place in relation to both internal and external
factors. The stake is Tito's survival. His
main strategy is to avoid final and irrevocable
commitment to the West until the West is
both able and willing to guarantee the life of
his particular regime and thus support his
vote as the foremost exponent of "National"
versus "Soviet" Communism. Such a guar-
antee is politically remote.
No very tangible benefits have yet emerged
from the sealing of the Greek-Yugoslav border.
Neither that action nor the loss of Yugoslav
material support will finally check guerrilla
effectiveness. The more recent propaganda
activities in Macedonia may, however, begin to
cut into guerrilla manpower and introduce
serious schism into their councils. A consider-
able guerrilla reaction has developed in the
form of violent attacks on Tito as the betrayer
of "the cause"; and the situation seems to be
producing a genuine lowering of guerrilla
morale.
Full implementation by Yugoslavia of a
policy of rapprochement with Greece is, how-
ever, not yet in sight. At the moment, the
policy probably represents little more than a
short step acknowledging that there is nothing
more to be gained from the guerrilla campaign
and that there is danger from the infiltration
of pro-Cominform guerrillas into Yugoslav
Macedonia. The strength with which longer-
range considerations will operate to build up a
positive policy of cooperation between the two
countries is debatable. The most important
of these considerations is probably an estimate
of what the West will demand in return for
economic concessions.
5. Near East.
The recent formation in Cairo of a coalition
cabinet has given Egypt the most representa-
tive government in over a decade, strength-
ened the country's internal stability, and pos-
sibly opened a way to better relations with
the West. Egypt's major political parties are
represented in the new government, which
now includes the largest and the opposition
party, the WAFD. King Farouk, in engineer-
ing the formation of the present government,
may have been motivated by his desire to
strengthen his declining prestige both at home
and abroad. He was undoubtedly aware of a
growing popular demand for a broader-based
government, and he may have felt that such
a government would improve relations with
the UK. Since the new government is more
representative, it may be able to deal more
effectively with terrorist activities-Com-
munist or Moslem Brothers. Even more im-
portant is the probability that it will be able
to prepare for reasonably impartial elections.
And, though the cabinet-because of its in-
terim nature-may not be able to make actual
agreements with the West, it may lay the
groundwork for a succeeding government to
conclude such accords.
The Iranian Foreign Minister has now
added his voice to that of the Prime Minister
and the Shah in levying a claim upon the US
for direct assistance. The lack of consistency
between these various individual official re-
quests suggests at least a lack of coordination,
which may in turn seriously delay the execu-
tion of much-needed economic measures. It
also suggests the possibility that various
Iranian leaders are separately developing in-
dividual solutions to Iranian problems and
aspiring to personal credit for any US aid that
may be forthcoming. Certainly the multipli-
cation of proposals reflects uncertainty,
anxiety, and dissatisfaction with US attitudes
and actions.
6. Far East.
The proposal for a Pacific Union to contain
Communism, which was coldly received when
co-sponsored in July by Philippine President
Quirino and Chiang Kai-shek, may be viewed
more favorably by Southeast Asia countries
following its revision by Ambassador Carlos
P. Romulo, Philippine representative to the
UN, and as a result of President Quirino's
presentation of the idea in the United States.
Romulo, who has now assumed leadership of
the project, has apparently persuaded Quirino
to drop Chiang from his plans and to place
the union on a non-Communist, rather than
an anti-Communist basis. The union as
presently conceived would be predicated upon
the independence of Southeast Asia countries
Approved For Release 2001/08/01 : CIA-RDP67-00059AO00500080006-2
 Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
SECRET 5
and dedicated to the maintenance of peace
and democracy through political, economic,
and cultural cooperation.
It is anticipated that Ambassador Romulo
will initiate informal regional consultations
perhaps by visits to India and other Southeast
Asian countries during August and early Sep-
tember. However, he is unlikely to schedule
the anticipated conference of interested na-
tions in the Philippines until after the con-
vening of the UN General Assembly in Sep-
tember, and until the attitude of the US
towards the revised proposals is clarified.
The Communist military program in China,
which will probably envelop Canton within
the month, continues to outrun the political
and economic capabilities of the Communist
regime. The situation in Shanghai offers an
illuminating test case. Local Communist
authorities are unable to remedy the eco-
nomic confusions of a great metropolis. Al-
ternatively, they encourage anti-foreign senti-
ment and plunder foreign investments, deriv-
ing what small and temporary political and
economic advantages they can. The US and
UK are the principal victims. There is some
evidence that the pressure of an unsolved
problem is straining both the tempers and the
solidarity of the new authorities. In addi-
tion, at least for the period of the fall har-
vests, rural problems will take precedence over
the economy of big cities and programs of
industrialization. Unpleasant facts exist in
the countryside; a growing peasant opposi-
tion to Communist methods-in some areas
in the form of armed revolts, and a problem
of food supplies.
In Indochina, reactions to, the newly in-
stalled Bao Dai government have ranged from
the mildly favorable to the definitely skeptical.
The new government has actually accom-
plished nothing tangible as yet. Official op-
timistic statements concerning the coopera-
tion of French and Vietnamese troops are not
supported by detailed or convincing evidence.
The new strategy of operations against Ho
Chi Minh, initiated by General Revers, seems
impossible of execution unless the French
can dispose of a larger contingent of troops
than is now available.
An eventual settlement of the Indonesian
problem is now within the range of possibility.
A cease-fire order has been agreed. The Re-
public has been able to establish order in its
area of responsibility in Central Java. Re-
publican leaders have obtained from the Cab-
inet and Parliament approval of the agree-
ments entered into with the Netherlands
authorities. An accord has apparently been
reached with non-Republican groups on the
future of Indonesia, and a single agreed posi-
tion will probably be presented at the Hague
Conference. Several developments on the
Dutch side also suggest the likelihood of a
satisfactory conference. Reactionary Dutch
officials have been sidetracked in Batavia.
Political and military considerations in the
Netherlands make a rapid solution desirable.
The doubtful success of the police action and
external pressures upon the Netherlands Gov-
ernment work to the same end. The issues
that are still unsettled are: the withdrawal of
Dutch forces from the archipelago, the degree
of autonomy to be exercised by the future In-
donesian government, and the control of for-
eign exchange. These issues are as vexatious
as they are vital, but the atmosphere in which
they will be taken up will generally be good.
7. The Japanese Political Scene.
The Occupation program has
from the establishment of democratic reform
to the problem of economic rehabilitation.
This problem will naturally be tackled in the
political context created by the first stage of
Occupation policy. The political context can-
not be regarded as very satisfactory. In spite
of civil and political reforms, the Japanese
people are relatively passive with respect to
democracy and its political traditions. Re-
version to familiar Japanese patterns will be
easy.
Political groupings since the war range
from the extreme right (Democratic Liberals)
to the extreme left (Communist Party). The
Center Groups (Democrats, Socialists, and
People's Cooperative) have no sure common
ground. The election of January 1949 rele-
gated the Center Groups, which had been the
basis of the two previous coalition govern-
ments, to the status of a minor opposition
group. The partial disintegration of the
Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
 Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
SECRET
power of the Center led to a well-defined
polarization in politics, with the major shift
of power taking place to the right. The Dem-
ocratic Liberals now have a firm working ma-
jority. The Communists, though relatively
weak in comparison, nevertheless made suf-
ficient gains to give them a psychological
authority among opposition groups out of all
proportion to their numerical strength. The
decline of the Center reflects the inability of
a string of coalition cabinets to solve economic
problems, and an absence of public confidence
in the discipline and harmony of a mixed
group. More serious is the possible interpre-
tation that, since Occupation policy favored
the Center Groups, their collapse represents
a vote against the Occupation.
The Democratic Liberal Government, now
in possession of political authority, is in the
difficult position of being caught between the
desires of its constituents, the demands of the
Occupation authorities, and the requirements
of a presently unviable economy. It will
probably proceed by combining a recalcitrant
attitude toward SCAP direction, a pronounced
anti-Communist tone, and an increasing use
of authoritarian controls.
In opposition, the Communists will proba-
bly develop several lines simultaneously:
nationalism, trade with Communist China,
and demands for an early peace treaty. Com-
munist strength is derived from labor, and
there is nothing in the economic picture to
indicate the sort of improvement that would
reduce this support. The present temper of
the electorate is not such, however, as to sug-
gest a marked drift to Communism in reac-
tion to repressive measures on the part of the
government.
8. Latin America.
The most important developments of the
month have occurred in Guatemala and
Bolivia. In Guatemala, the assassination of
Colonel Arana removed a moderating and gen-
erally pro-US force. An abortive uprising,
which followed Arana's murder, was put down
by the Arevalo Government which used, in
addition to regulars, armed civilian leftist
groups for the purpose. The government's
local stability and its leftist orientation have
both been strengthened. The Arevalo Govern-
ment uses Communist sympathizers in im-
portant positions, has shown itself distinctly
unfriendly to US business interests, has ag-
gravated the question of European dependen-
cies in the Western Hemisphere, and has dis-
turbed Caribbean affairs by aiding the revolu-
tionary attempt against the Dominican Re-
public. While the government certainly does
not have the ability-and probably does not
have even the inclination-to side with the
USSR in an actual conflict, it will probably
continue and may intensify its opposition to
certain US policies during the present "cold-
war" period.
In Bolivia, it has recently been reported that
an agreement has been signed between the
MNR (Movimiento National Revolucionario)
and the PIR (Partido de la Izquierda Revolu-
cionaria). The former is strongly nationalist,
authoritarian, and generally anti-US; the lat-
ter, in which the Communists have recently
extended their control, has a party line that
does not now differ in any important degree
from orthodox Moscow doctrine. These two
groups control Bolivian labor and have con-
siderable influence within the country. They
are to some extent unnatural allies, but they
are quite capable of maintaining a common
front until the present government-which
depends on a slim congressional majority and
the not too reliable support of the Bolivian
Army-is overthrown. The government will
be able to maintain itself against this strong
opposition only if it finds means to ensure
economic stability and to retain the loyalty
of the armed forces. Its own resources may
be insufficient to provide these means.
Approved For Release 2001/08/01 : CIA-RDP67-00059A000500080006-2
 SECRET
U. S. GOVERNMENT PRINTING OFFICE
Approved For Release 2001/08/01 : CIA-RDP67-00059A00050000b`fE-'949