CURRENT INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000200080001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 15, 2016
• Document Release Date: December 18, 2002
• Sequence Number: 1
• Publication Date: January 15, 1954
• Content Type: REPORT

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COPY NO.
2479
OCI NO.
15 January 1954
CURRENT
INTELLIGENCE
WEEKLY
DOCUMENT NO. -
DECLASS:FI D
AUTH F
DATE, REVIEWER: 25X1
CLASS. CLIAI'-43ED TO: TS
NEXT AEViEVV DATE:
CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
E
25X1
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 k ow
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THIS MATERIAL CONTAINS INFORMATION AFFECT-
ING THE NATIONAL DEFENSE OF THE UNITED STATES
WITHIN THE MEANING OF THE ESPIONAGE LAWS,
TITLE 18, USC, SECTIONS 793 AND 794, THE TRANSMIS-
SION OR REVELATION OF WHICH IN ANY MANNER TO
AN UNAUTHORIZED PERSON IS PROHIBITED BY LAW.
The Current Intelligence Weekly has been prepared pri-
marily for the internal use of the Central Intelligence
Agency. It does not represent a complete coverage of
all current situations. Comments and conclusions rep-
resent the immediate appraisal of the Office of Current
Intelligence.
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CONFIDIjINTIAL
SUMMARY OF CONTENTS
THE SOVIET WORLD . . . . . . . . . . . . . . . . . . . Page 4
FRENCH BRACE FOR HEAVY VIET MINH ATTACK IN WESTERN
TONKIN . . . . . . . . . . . . . Page 5
The French are uncertain of their ability to hold
Dien Bien Phu, their strongpoint in western Tonkin. They
believe that the Viet Minh will be ready to attack by
15 January but may merely contain the troops at Dien Bien
Phu and move south into Laos.
THE NEW BALANCE OF SINO-SOVIET INFLUENCE IN NORTH
KOREA
? ? . . . Page 8
The strengthening of China's position in North Korea,
an area which was formerly Moscow's exclusive preserve,
could create a basis for possible Sino-Soviet friction,
but Moscow and Peiping appear to be developing a coordi-
nated program of support and control.
PROSPECTS FOR THE JORDAN RIVER DEVELOPMENT PLAN . . . . Page 11
Israel and the Arab states remain as opposed to the
Unified Plan for the development of the Jordan River
basin as when it was presented to them in December.
MANEUVERING WITHIN THE TOP SOVIET LEADERSHIP . . . . . Page 14
Besides assuming public supremacy in the agricul-
tural sphere, Soviet party first secretary N. S. Khrushchev
has apparently increased his influence over top personnel
appointments. His continuing rise could seriously dis-
rupt the present collective leadership.
UNSATISFACTORY FOOD SITUATION IN EASTERN EUROPE
THREATENS NEW ECONOMIC POLICY . . Page 16
. . . . . . . . . . .
Two consecutive years of poor harvests in Eastern
Europe are posing serious difficulties for the Satellites'
"new economic policy."
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LANIEL'S REFORM MEASURES FAIL TO CORRECT BASIC DEFECTS
IN FRENCH ECONOMY . . . . . . . . . . . . . . . . . . . Page 18
Premier Laniel's reform decrees have failed to rec-
tify the basic defects of the French economy. A treasury
crisis early this year could lead to a left-center govern-
ment and a program for economic rehabilitation which could
involve drastic cuts in France's international commitments.
SPECIAL ARTICLE. THE IMPLICATIONS OF THE NEW SOVIET
ECONOMIC POLICY . . . . . . . . . . . . . . . . . . . Page 20
Efforts by the Soviet leaders to carry out the new
economic program will be accompanied by a leveling off
in defense expenditures in the period 1953-55.
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THE SOVIET WORLD
Recent Soviet propaganda suggests that the Kremlin will
take a rigid stand on the major issues at the Berlin confer-
ence. The Moscow periodical Kommunist states that no real
relaxation of international tension s possible except
through five-power efforts; that a German solution must be
based on the Potsdam agreement and the Soviet policy as out-
lined in. notes during the last 18 months; and that there can
be no effective international security system without Soviet
participation,
These three arguments have characterized Communist prop-
aganda on the conference. Chou En-lai's statement of 9
January included a demand for a five-power conference, par?.-
ticularly to settle Asian problems, and a leading Moscow radio
commentator devoted heavy emphasis to this "urgent and
essential" theme,
Another Moscow radio commentator reaffirmed Soviet
opposition to the sort of free, all-German election en-
visioned by the West, as "neither free nor an all-German
expression of the people's will," because it would be held
under foreign influence and with foreign interference. It
was further charged that Bonn actually wanted elections oily
in East Germany. Other propaganda on the German issue has
accused the West of not desiring German unity, and has de-
manded German representation at Berlin, two themes which re-
flect Communist concern over an adverse reaction to the
conference from the East German population,
The Kommunist attack on security systems which exclude
the USSR was an obvious reference to EDC, a frequent object
of heavy Soviet attack, which will probably again be under
fire at Berlin. Positive security proposals of the USSR
are likely to be limited to bilateral or multilateral pacts
to supersede EDC, because the establishment of any new, all--
European organization would threaten the Soviet Union with
loss of control of its Satellites without any assurance of
increased influence in Western Europe,
The return to Berlin of High Commissioner Semenov from
his long visit in Moscow suggests that the Soviet Union has
completed its preparations for the conference, and that it
will not deliberately use the negotiations on the meeting
site to delay the start beyond 25 January. In three pre-
liminary meetings, the Soviet representative insisted that
at least half of the meetings be held in East Berlin, but
abandoned his original demand that they all be held there,
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FRENCH BRACE FOR HEAVY VIET MINH ATTACK
IN WESTERN TONKIN
The'French are uncertain of their ability to hold Dien
Bien Phu, their strongpoint in western Tonkin, which is faced
with one of the largest concentrations of troops the Viet
Minh has assembled in seven years of the war in Indochina. They
believe that the Viet Minh will be ready to attack by 15 January,
but may merely contain the French at Dien Bien Phu and move south
into Laos (see map, page 7)o 25X1
I Dien Bien Phu's garrison of
12 battalions plus supporting artillery is encircled by 18
battalions of the 308th and 316th Divisions and the 148th In-
dependent Regiment. Advance elements of the nine battalions of
the 312th Division have been moving westward and six battalions
were expected at Dien Bien Phu by 12 January, Four battalions
of light artillery from the 351st Artillery Division are also
approaching and can probably be in position by 15 January.
The French can reinforce their outpost only at the expense 25X1
of other areas, particularly the critical Tonkin delta, where
the mobile reserve has already been reduced from some 40 to 19
Tbattalb0nso
The French, however, who originally hope to n is t a cost y
defeat on the enemy, have shown considerable apprehension as
the numerical superiority of the Viet Minh has increased to
about two to one.
Dien Bien Phu is supplied wholly by air, and transport
flights now number from 70 to 100 daily. The French have been
concerned over reports that the Viet Minh now has 37mm antiair-
craft guns, but thus far these reports have not been confirmed.
However, there are believed to be four enemy antiaircraft com-
panies, equipped with 12.7mm machineguns, in the Dien Bien Phu
area, and the Viet Minh during the past two years has been in-
creasingly effective with these weapons against low-flying
transport and fighter aircraft. An additional factor is the
imminent arrival of the "crachin," the annual period of approx-
imately two months of fog and drizzle which will hamper flights
from the Tonkin delta.
The Viet Minh, unwilling to accept the heavy casualties
among its best divisions which a determined attack on Dien Bien
Phu would involve, may attempt merely to contain the garrison
there while sending the bulk of its forces southward against
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the royal capital of Luang Prabang or the French military post
at Xieng Khouang, both in northern Laos. Enemy reconnaissance
and stockpiling of rice to the west and southwest of Dien Bien
Phu point to the possibility that at least one Viet Minh
division may move south.
The Viet Minh is stronger logistically than during last
spring's invasion of Laos and would also be aided in a penetra-
tion of that country by a new supply route from Ban Leng, China,
southward to Laichau, which is expected to be usable by light
vehicles by the end of January.
In central Laos, meanwhile, the French have struck back at
the Viet Minh force of less than six battalions which reached
the Mekong River in late December. They claim to have inflicted
heavy casualties by ground and air attack on the enemy troops
now located some 20 miles northeast of Savannakhet.
The French have a preponderance of strength in this area
and the Viet Minh, even with perhaps three additional battalions
reportedly moving westward from Vinh, is not likely to attempt
a serious attack against the reinforced French positions. More
likely are attempts to continue the blocking of French lines of
communications along the Mekong, or a move north toward the Paksane-
Vientiane area, possibly in conjunction with an invasion into
northern Laos by the main Viet Minh force now in western Tonkin.
Combined with any of these moves, the Viet Minh could attempt
diversionary action in southern Laos, as suggested by an uncon-
firmed report of 11 January that six enemy battalions were moving
in the direction of Attopeu from the Annam coast.
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INDOCHINA
Viet Minh major
concentrations
(other areas acces-
sible to French)
13 January 1954
N. Ch.rr
Lang Son
Prey
Vang
International boundary
National capital
Selected railroad
Selected road
S.I. 1:7,500,000
0 20 40 80 120MIlen
0 2040 80 120 Kilometers
0000 - ,o Karnpyt ~i!
Rees>`'_ ~f -/
-- IIHa Tien
'ILE BI
PU ri QUO('
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uang Prabang
M S . . ;
ILE CAC BA
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.r Mr, Thr
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THE NEW BALANCE OF SINO-SOVIET INFLUENCE IN NORTH KOREA
A new balance of Sino-Soviet influence is developing
in North Korea. While the strengthening of China's position
in an area which was formerly Moscow's exclusive preserve
could create a basis for Sino-Soviet friction, Moscow and
Peiping appear to be developing in harmony a coordinated
program of support and control.
From its establishment in 1945 until late in 1950, the
North Korean regime was a model Soviet satellite, responsive
solely to Moscow. Since the Chinese Communist intervention
in the Korean war in November 1950, however, Chinese troop
strength in Korea has been maintained at a level of from
750,000 to 875,000 men, and the Chinese suffered an estimated
943,000 killed or wounded. The magnitude of the Chinese in-
vestment in Korea and indications in Peiping's propaganda
that some part of its forces would remain there indefinitely
suggest Soviet agreement to a substantial and continuing
Chinese role in Korea.
Within two months of the Korean armistice in July 1953,
both Moscow and Peiping made clear that they planned to
participate in the rehabilitation of North Korea. Malenkov's
announcement on 8 August that the USSR would allocate one
billion rubles for North Korean reconstruction was followed
on 15 August by Chou En-lai's promise of "active support and
assistance in repairing war damage." During October, Peiping
sent to North Korea a 4,000-man "delegation" which publicly
announced that the Chinese would maintain their military com-
mitment. until the Korean question was "settled peacefully."
Conclusive evidence of Peiping's intention to increase
its influence in North Korea was provided by the economic and
cultural pact signed on 23 November. The ten-year agreement
provides for cancellation of North Korean war debts to China
and for economic aid greater than that given by the USSR,
although spread over a longer period.
Moscow was quick to state that the 23 November pact had
"considerable political importance" and represented a "triumph
of proletarian internationalism." By sanctioning the pact
Moscow was in effect acknowledging China's expanded authority
in North Korea. The Soviet press now emphasizes the joint-
Soviet-Chinese assistance being given to North Korea and refers
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to the Sino-North Korean agreement as a complete understanding
in which the traditional friendly relations between China and
Korea "must be strengthened and developed." Kim I1-sung also
stressed the complementary nature of the pacts.
Peiping spokesmen, for their part, interpret the agree-
ment as contributing to the over-all strength of "the camp
of peace and democracy... headed by the Soviet Union." The
Chinese also are taking care to refute Western speculation
about Sino-Soviet rivalry in Korea. One of Peiping's spokes-
men has stated that "the strong unity of the whole camp of
peace and democracy headed by the Soviet Union can nevc-r be
broken by any slanders...by the imperialists."
The USSR still appears to play the dominant role in
North Korean political affairs. The Soviet-trained Koreans
continue to control the government and the party, and Soviet
advisers are present in all ministries. Neither the purges
of last August nor the recent presidium changes seem to
have affected the power of this faction. The Chinese do not
appear to have challenged Soviet political primacy despite
their leading role at Panmunjom.
Moscow and Peiping are complementing each other's efforts
to support North Korean reconstruction. Moscow appears to
hold the initiative and responsibility for rebuilding heavy
industry and has revived three of its joint-stock companies
dealing with transportation and oil in North Korea.
All of the East European Satellites except Albania have
also promised to send technical assistance. The presence
of Satellite personnel and materials will enlarge the Soviet
stake in North Korea and is another indication that the USSR
intends to maintain its high degree of influence even at
some sacrifice to the Satellite economies.
Communist China, for its part, has promised to send
large quantities of food and clothing and appears to be as-
suming the responsibility for supplying much of the manpower
for North Korea's rehabilitation. Presumably as a result
of China's particular experience and interest in Korean
railroad reconstruction, it has reportedly already begun
to supply locomotives, rolling stock, and construction
materials badly needed for Peiping's own industrial and rail
expansion program.
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The USSR, which during the Korean war preferred to
remain in the background and reportedly maintained only
about 10,000 military and technical advisers in North
Korea, probably prefers that the Chinese assume the major
defense role.
The Chinese army in North Korea includes sizable labor
units which have established themselves on a semi a anent
basis. large 25X1
numbers or Chinese laborers have entered North Korea in
organized units and Chinese "technicians" have been mentioned
in propaganda output, but there is no firm indication as
yet that they are actually "settling" there. In view of
the wartime decline in North Korea's population and China's
continuing surplus, however, some influx seems logical as a
means to relieve Pyongyang's critical manpower shortage.
The USSR's attitude toward the Korean political conference
also demonstrates a desire to maintain maximum power and in-
fluence in North Korea with minimum responsibility. Communist
spokesmen have consistently held that the USSR was neutral in
the Korean war and have rejected all United Nations proposals
which would label Moscow as a belligerent or bind it to any
agreements reached by the political conference.
While the Sino-Soviet condominium in North Korea appears
to contain some potential for Sino-Soviet discord, there is
no reliable evidence of its existence at this time. Some
observers have interpreted the statements of Chinese rep-
resentatives in the Korean peace talks as indicating that
Peiping does not desire Moscow to be represented at the talks
and regards Korea as none of Moscow's concern. These state-
ments, however, are consistent with a Sino-Soviet understanding
on the respective roles in Korea.
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PROSPECTS FOR THE JORDAN RIVER DEVELOPMENT PLAN
As the date of Eric Johnston's return visit to the Middle
East approaches, Israel and the Arab states remain as opposed
to the Unified Plan for the development of the Jordan River
basin as when Johnston explained it to them in December (see
map, page 13). Each side is considering it further only in the
hope that the other will bear the onus for rejecting it,
The Unified Plan was drawn up by the Tennessee Valley
Authority for the UN Relief and Works Agency in order to develop
the Jordan valley and provide an opportunity to resettle 200,000
of the 850,000 Arab refugees. The $121,000,000 plan aims to uti-
lize the waters of the Jordan basin without regard for political
boundaries. It emphasizes irrigation -- 122,555 acres in Jordan,
104,000 in Israel, and 7,500 in Syria -- and the production of
hydroelectric power. It involves Lebanon only as the source of
some Jordan River water. The necessary Arab and Israeli support
would be obtained through some neutral body rather than by means
of a more desirable, but politically impossible, direct collabo-
ration,
Only Lebanon, which has been less opposed than the other
Arab states to reducing Arab-Israeli tension, has shown and gen-
uine willingness to cooperate. Lebanon can do little for the
plan, however, unless it is accepted by Jordan and Syria.
The Jordanian government fears that popular opinion w-.11
not tolerate Arab-Israeli cooperation, however subtly disguised
by neutral control. Public opinion is now so bitter toward
Israel as a result of the Qibya massacre that the government is
afraid to hold high-level armistice talks with Israel. Moreover,
Israeli insistence on pushing the talks will further restrict the
government's ability to act constructively. In this situation,
Jordan stands fast on the virtual rejection it gave Johnston in
December.
Syria drives a hard bargain on the plan as on other dealings
with the United States. Syrian president Shishakli has consist-
ently rejected the Point IV Program as inadequate, has refused to
implement his agreement to resettle 80,000 refugees, and wants a
military aid program patterned on that for Turkey.
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As a condition for acceptance of the Unified Plan, Shishakli
insists on the carrying out of the UN resolutions for the parti-
tion of Palestine, the repatriation of Arab refugees, and the
internationalization of Jerusalem. His suggested modification
of the plan is opposed by the United States. Finally, his un-
equivocal rejection is likely if Israel pushes its attempted
diversion of the Jordan River in the Israeli-Syrian demilitarized
zone.
There is growing dissatisfaction among some Arab leaders with
the policy of outright rejection of Western proposals concerning
Israel, and the Arabs may offer counterproposals to Johnston.
Such proposals are not likely to meaningful, however, if the
Jordanians, Syrians, and Lebanese as a whole are not genuinely
cooperative, and if the Egyptians, because of their growing
neutralism, and the Iraqis,
offer any opposition:
While the Arab states oppose the plan chiefly for political
reasons, Israel opposes it as inadequate for its own needs. Con-
ceived as the quickest and most economic way to resettle the
Arabs and develop the region as a whole, the plan conflicts with
Israel's aim to divert the waters from the Jordan River watershed
to its own Negev desert. Hence, Israel, not wanting to appear to
obstruct a constructive approach to area development, probably
hopes the Arabs will relieve it of the necessity of rejecting the
plan.
To that end, Israel has assumed'a provocative attitude
toward both Syria and Jordan. Arab rejection of the plan, or
endless discussion of it, will leave the Israelis in a position
to continue construction of their Jordan River diversionary canal
regardless of UN requests, Western pleading, and Syrian threats.
Even if the Arab states and Israel accept the principles of
the plan, the intense bitterness between the two sides may pre-
vent its implementation.
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UNIFIED PLAN FOR
JORDAN VALLEY
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MANEUVERING WITHIN THE TOP SOVIET LEADERSHIP
The Soviet leadership continues to operate behind a facade
of strict collectivity, but events of past months suggest con-
siderable maneuvering within the ruling group.
Since Stalin's death, Soviet propaganda has been carefully
emphasizing that important policy decisions are being made col-
lectively by the more than two hundred members of the central
committee of the Communist Party. Actually there appears to be
a degree of joint leadership only among the top five or six mem-
bers of the Soviet hierarchy, with Malenkov clearly enjoying the
most influential position. Reports of the activities of Soviet
leaders suggest that each of the top men has responsible execu-
tive autonomy in his own sphere within the limitations of the
policy line agreed to by the group as a whole.
Past months have seen a striking rise in the stature of
party first secretary N. S. Khrushchev within this group, a rise
which might eventually disrupt the balance achieved since
Stalin's death. Whereas Khrushchev was only number five in the
list of the top-level party presidium published in May 1953,
having fluctuated between seventh and ninth in the last months
of Stalin's regime, he had risen to the number three spot by
August 1953, following Malenkov and Molotov. At present, his
prestige has apparently outstripped Molotov's, for he now re-
ceives treatment in Soviet propaganda comparable to that ac-
corded Malenkov, and leading Soviet officials have been careful
to mention both men equally in connection with the new economic
program.
The principal source of Khrushchev's strength is his posi-
tion as first secretary of the Communist Party, a title acquired
early in September 1953. This presumably places him at the
head of the party apparatus, which checks on the execution of
policy by administrative organs throughout the USSR. It also
should give him a major voice in state and party personnel mat-
ters, since the central apparatus is the clearing house for all
such appointments. Both Stalin and Malenkov originally rose
to power through their leadership in the apparatus.
As the second strongest figure in the collective leadership,
Khrushchev is in the best position to compete with Malenkov for
primacy, and, although Khrushchev is considered a long-time
Malenkov associate, there have recently been some suggestions,
as yet inconclusive, of a developing rivalry between the two
men,
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In the vital agricultural sphere, Khrushchev gave the
presidium's definitive report before the'party central committee
in September 1953. Although subsequent speakers on economic
policy all paid homage to Malenkov's 8 August speech which out-
lined the new economic policy as a whole, Khrushchev notably
failed to do so. Since September Khrushchev's name has been
the one most frequently associated with agricultural policy.
In the personnel field, a number of Khrushchev's known
associates have recently been promoted or reinstated. In con-
trast, two men who publicly criticized Khrushchev's agricultural
policy in 1951, and who were also Beria associates, have lost
important jobs which they held for 14 and 20 years respectively.
Other personnel shifts in which Khrushchev has been involved
appear inimical to Malenkov's interests. Khrushchev attended
the Leningrad party plenum which removed V. M. Andrianov, long
considered a Malenkov protege, from his post as first secretary
of the Leningrad provincial party committee. The two minis-
ters appointed in agriculture since Khrushchev.publicly assumed
leadership in that sphere had both received demotions at the
1952 Party Congress in which Malenkov played a leading ro.le.
Khrushchev's party position, influence in personnel matters,
and primacy in the agricultural program lend added significance
to the possibility of rivalry with Malenkov within the context
of collective leadership.
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UNSATISFACTORY FOOD SITUATION IN EASTERN EUROPE
THREATENS NEW ECONOMIC POLICY
Two consecutive years of poor harvests in Eastern Europe
are posing serious difficulties for the Satellites' "new
economic policy." Although the 1953 harvest, particularly
of bread grains, was somewhat better than that of 1952,
which saw the worst crop failures since the war, it was again
below prewar and postwar averages.
A widespread drought during the early spring and late
summer of 1953 decreased yields of spring-sown grains, vege-
tables, and root crops. In East Germany and Poland, potatoes,
which are of primary importance as both a food staple and
fodder, are at least as seriously short as in 1952. In Hungary,
the corn harvest was somewhat better than the disastrous crop
of last year, but in Rumania the production of corn, the basic
foodstuff for both humans and livestock, fell 50 percent short
of plans for the second year in a row.
In addition, below-normal precipitation for the past
six months will probably seriously reduce the bread and fodder
grain harvest next spring. As a result of the poor fodder
crops and insufficient livestock, the shortage of meat and
dairy products is still serious and expected to become critical
by spring unless enough can be imported from the West to meet
the shortage, The Soviet Union is not in a position to in-
crease its livestock imports to cover the Satellite deficiency.
Over and above the poor weather, inefficiency in har-
vesting operations, a manpower shortage, and peasant resistance
were responsible for heavy losses and lagging crop collections.
The incentive programs initiated during the past summer and
fall by the Satellite regimes appear to be doing little to
raise food supplies. In fact, expectations of further con-
cessions have apparently strengthened many peasants' resolve
to hold their crops until prospects for the 1954 grain harvest
are clear. There is no evidence, however, that the Communist
regimes are considering a return to coercion as a means of
forcing crop deliveries.
The food shortage, which is likely to worsen toward
spring, will probably prevent the Satellites from fulfilling
their export commitments with non-Orbit countries. Poland.
for example, has already failed to fulfill its promise to
deliver grain to Norway, which in turn has indicated that it
will not send Poland the 250 tons of aluminum provided for
in the 1953 trade agreement. Similar trade difficulties will
probably be met by the other Satellites, particularly Hungary.
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The Satellites also face the prospect of having to
increase food imports from the West at the expense of other
consumer goods and industrial materials. Inability to in-
crease imports of industrial raw materials will complicate
the problem of raising domestic consumer goods production.
This will interfere with the efforts to improve the standard
of living of urban workers and with the program of attracting
more agricultural products to urban markets.
The adverse effect of the continued shortage of agricul-
tural products on worker morale and efficiency is bound to
handicap the "new course," whose ultimate aim is increased
industrial productivity. Failure to improve livj.ng standards
will in turn increase skepticism, apathy, and possibly passive
resistance among the Satellite populations.
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LANIEL'S REFORM MEASURES FAIL TO CORRECT BASIC DEFECTS
IN FRENCH ECONOMY
Premier Laniel's reform decrees of last summer resulted
in a slight improvement in France's economic and financial
position, but fell far short of rectifying the economy's
basic defects of high-cost production and distribution and
extensive government protection of special interests. The
continuing lag in industrial production has raised fears of
uncontrolled deflation, and a treasury crisis in the next few
months could lead to a left-center government and further
cuts in France's military expenditures.
France held its foreign trade deficit for 1953 to less
than half the 1952 figure of $652,000,000, but only through
a policy of special benefits to exporters and strict limita-
tion of imports. A reduction in the trade deficit with the
United States, coupled with dollar aid from off-shore.procure-
ment orders, American military spending and aid for Indochina,
has enabled France to replenish its foreign currency reserves
and make its dollar payments to the European Payments Union.
The trade balance with the sterling area has continued to
deteriorate, however, and fundamental internal factors
continue to weaken the over-all French trade position.
Year-end financial commitments were met with the help
of the five-percent treasury loan offered on 7 December. The
economic stability of the past 18 months and an upsurge ii
confidence in the franc have helped to encourage private
saving, and the current slump in the world gold market is
expected to lead to widespread demand for government bonds.
The government's ability to finance the 1954 budget will
depend on this expected revival of the private capital market,
and there are indications that an attempt will be made to
obtain the estimated 85 billion francs still needed by float-
ing a long-term loan by April. The benefits of a successful
loan, however, can be nullified if sufficient American off-
shore purchases and other dollar aid do not materialize to
meet 'budget demands as they arise.
While the government's.financial.position thus gives
some cause for optimism, the stagnation of the French economy
during 1953 has intensified fears of deflation in early 11.54.
The index for industrial production has been running about.
seven points below the 1952 figure of 145, and no general
pickup is likely in the normally slack winter months. Despite
Laniel's endeavor to facilitate expansion through credit and
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tax concessions, the general economic sluggishness, now
aggravated by the fear of a recession in the United States,
has continued to hold down credit demands.
Government efforts to lower prices and thereby assuage
labor's demands for increased wages have had more success.
Aided by good crops and a beef surplus, Laniel's price pro-
gram has lowered the cost of living about 2.1 percent since
last August. The Minimum Wage Commission's recommendation
of 28 December for a. raise in basic wages has not been
agreed to by the employers group, however, and there has
already been some new labor agitation for bonuses and higher
wa.ges. If such pressure becomes widespread at a time when
credit is readily available, it could provoke another in-
flationary spiral and increase the demand for devaluation.
Laniel's use of the decree power granted by the National
Assembly in July has been limited by the need to reconcile
the effects of both deflationary and inflationary currents
in the French economy. This plus the conflicting pressures
in the National Assembly has prevented an effective attack
on the basic weaknesses of the economy. In particular, the
disparity between French and world prices is still a brake
on any over-all increase in production and a lasting correc-
tion of the chronic trade imbalance.
The French economy is now at a point where any one of
a number of normally small factors could either strengthen
or weaken it. An adverse trend would quickly affect the
political balance. The government's tactic of handling a
large part of the 1954 investment program through "guaranteed
loans" raised on the private capital market rather than
through direct appropriations has already brought criticism
from the left,. There is a strong possibility that the decline
in profits will severely limit private investment, and the
Socialists in particular will be quick to attack any govern-
ment failing to make up these deficiencies in investment
capital out of public funds.
The more immediate danger is that if a search for a new
premier should coincide with a treasury crisis early this
year, the political balance might tip in favor of a left--
center coalition headed by Mendes-France. His program for
economic rehabilitation would involve drastic reductions in
France's international. commitments and would affect not
only the French stand on Indochina, but also, if production
and trade continue to lag, France's NATO obligations.
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Efforts by the Soviet leaders to carry out the new
economic program will be accompanied by a leveling off in de-
fense expenditures in the period 1953-55. Despite strenuous
attempts by the government, however, the new goals for consumer
goods are not likely to be fully attained because of basic
economic difficulties within the USSR. Prospects of success;
are poorest in agriculture, the most important phase of the new
program.
In 1954 and 1955 military expenditures probably will rise
2 to 3 percent annually in contrast to an annual increase of 23
percent from 1950 to 1952. There may be selective cutbacks in
the production of conventional armaments, many types of which
are already stockpiled in great quantity. Nevertheless, the
Soviet government is expected to continue military procurement
at a rate which will permit the maintenance of the armed forces
at present high levels and allow a continuous qualitative im-
provement in weapons and equipment.
The present and immediately foreseeable international at-
mosphere evidently appears not to require any extensive growth
in the size of the military establishment. In the long run,
however, the impact of the new economic measures is not expected
to impair Soviet economic capacity to support war, since imrre?
diate sacrifices of such growth must be weighed against improve-
ments in labor productivity stemming from new material incentives
for workers and farmers and increased popular support for the
government.
Essentially the program contemplates a leveling off of mili-
tary expenditures and heavy industrial investment, paralleled by
rising investments in agriculture and light industry. The rate
of growth of the economy as a whole for the next two years ap-
parently will be about 6.5 percent annually, the same as esti-
mated under the original plan.
Transitional adjustments in 1953 had some adverse effect on
expansion of the gross national product. These occurred
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principally in the fabricated metals industries, which were re-
quired to change the composition of their output, and in defense
industries, which markedly reduced their rate of growth in 1953.
There also was a rapid temporary decline in the rate of new
investment as a result of the reformulation of the whole con-
struction program,
The Soviet effort to carry out the new policies will be
sufficient to arrest past declines in the percentage share of
the gross national product allotted to consumption, and to per-
mit a small increase in this share.
The largest relative increases in production are slated for
consumer durables, which have been conspicuously scarce. Special
attention is given to increased output of higher quality consumer
goods. In
the
textile industry the emphasis is on the better
grade items
of
apparel. Similarly, the major emphasis in food
products is
on
greater availability of meat, dairy products,
vegetables,
and
canned goods.
The Soviet government has adopted far-reaching measures to
increase agricultural production. These include higher prices to
farmers, lower delivery quotas and tax rates, larger investments
in equipment and fixed facilities, higher priorities for the
output of machinery and chemical plants and for transportation and
construction services, and a transfer of skilled labor back to the
farms. Despite these measures, shortages of fertilizers, equip-
ment and trained personnel probably will prevent full achievement
of the agricultural production plans.
Chances of success are much greater for increased production
of manufactured consumer goods. Within this category prospects
are better for consumer durables than for such nondurables as
clothing and processed foods, which are more closely dependent
on agricultural output.
The revised goals for retail sales are significantly larger
than the goals for consumer goods output. In addition to domes-
tic production, the retail trade program is dependent on imports,
on channeling of a larger proportion of agricultural produce
from consumption on the farms to retail marketing channels, and
probably on some withdrawals from stockpiles.
The recent sharp increase in Soviet purchases of consumer
goods from non-Communist countries is designed to supplement the
distribution program, although imports are small in relation to
Soviet goals. Gold sales are only one of several means the
Soviet Union may employ in increasing export volume to pay for
expanded imports of both consumer and capital goods.
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 The new program necessitates a change in the pattern of
investment, for example, a transfer from heavy industrial equip-
ment to light and medium industrial equipment, but does not im-
ply a reduction in total investment. Compared with the orig-
inal Five-Year Plan, investment in heavy industry is being
diminished to allow substantially greater investments in agri-
culture and light industry.
Performance in 1953 under the new plan has been lagging
considerably behind Soviet hopes. Internal trade minister
Mikoyan admitted in October that retail sales of consumer goods
in the first three quarters of 1953 had not even reached the
goal set in the original Five-Year Plan, which was later raised
by 37 billion rubles. There is also evidence of construction lags
in consumer goods industries, and the Soviet press has sharply
criticized the slow rate of movement of specialists and techni-
cians to agriculture where the level of achievement will be the
primary factor in determining the success of the consumer goods
program as a whole.
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