CURRENT INTELLIGENCE WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000600150001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 33
• Document Creation Date: December 16, 2016
• Document Release Date: March 22, 2005
• Sequence Number: 1
• Publication Date: October 27, 1955
• Content Type: SUMMARY

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CONFIDENTIAL
CURRENT
INTELLIGENCE
WEEKLY
SUMMARY
COPY NO. 20
OCI NO. 8199/55
27 October 1955
N ,GHQ IN CLASS:
13 gECtASSiPIED ?
Gl A5S CHANGED TO
NEXT I EVIEVr DATE?
At1' t~ ? - 25X1
DAreApin VIEWER"
CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
State Department review completed
CONFIDENTIAL
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10-11
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 Summary has been prepared
primarily for the internal use of the Central Intelligence
Agency. It does not represent a complete coverage of all
current situations. Comments and conclusions represent
the immediate appraisal of the Office of Current Intelligence.
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CONFIDENTIAL
CURRENT INTELLIGENCE WEEKLY SUMMARY
OF IMMEDIATE INTEREST
FOREIGN MINISTERS' CONFERENCE. . . . . . . . . . , Page 1
The USSR will probably attempt at Geneva to obtain support
for a nonaggression agreement between the NATO and Warsaw pact
powers as a preliminary to the dissolution of both defense pacts
and will try to bring about a modification of present Western
demands that agreement on German reunification precede a European
security arrangement. Molotov apparently expects a good portion
of the Geneva conference to be devoted to the question of East-
West contacts, the third item on the agenda. The USSR is still
pressing for a statement of American views on the disarmament
question as a whole rather than on t e inspection problem alone.
NEAR EAST SITUATION. .
Page 3
Egypt is continuing efforts to strengthen its position in
the Arab world. Within the past week, Cairo has announced a
bilateral military alliance with Syria and a military agreement
with Saudi Arabia. Israel has reacted to these events by
intensifying its efforts to obtain arras and by dispatching
Prime Minister Sharoct to Paris and Geneva to call i;rael'.
concern to the attention of the Big Four foreign ministers.
PREMIER FAURE ASKS
FOR EARLY ELECTIONS.
. Page 4
Premier Faure's proposal to hold National Assembly elections
in December was precipitated by pressure from conservative leaders
in his cabinet', who see an early date as favoring their parties.
The opposition is determined to block this move and has maneu-
ve
red Faure into c-llin of confidence for 28 October.
F__ I
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NOTES AND COMMENTS
Chinese Communist Activities in Middle East: Peiping, like
Moscow, apparently sees n e present situation in
the Near East an opportunity to establish closer contacts
between the Arab nations and the Sino-Soviet bloc. The
Chinese are using recent trade pacts with Syria and E pt
to forward this aim Page 1 25X1
French North Africa: The turnabout . of El Glaoui, Moroccan
pasha largely-responsible for the deposition of ex-sultan
Ben Y_'on.nssef in 1953, in demanding Ben Youssef's return to
Morocco, has strengthened Moroccan unity. The nationalist
Istiglal organization and the main settlers' organization
both have refused to participate in a government b
organized by Ben Slimane, Page 2 25X1
New Saar Negotiations Likely Soon: The Referendum Commission
of the Western European Union probably will continue to
supervise administration of the Saar territory pending
agreement on a substitute for the European statute rejected
by the Saarlanders on 23 October. Both France and Germany
seem eager to undertake new negotiations, and opinion in
the Saar territory.will probably be given considprAhl
weight in any decision that is made. Page 3 25X1
South Vietnam: Former premier, now president, Diem. has inter-
preted his impressive victory in the 23 October refer-
endum as signifying popular approval for his refusal to
agree to the Geneva schedule for unification. The fact
that the Viet Minh, who in advance denounced the refer-
endum as farcical, did not interfere with its conduct
suggests that the Communists preferred not to put their
strength to the test in a vote in which Diem's victory was
assured. They may regard forthcoming elections for pro-
vincial councils and for a South Vietnam national assembly
as presenting more attractive opportunities.
.
W . . . . . . . . Page 4
I .
Laos: The Laotian government is preparing to hold elections on
25 December in the 10 provinces under its control. Unless
the government reaches an agreement with the Pathet Lao
prior to the elections, the two provinces under the Pathet
Lao will not be permitted icipate in the elections.
? . Pag
e 5
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New Indonesian Elections: Election campaigning is again under
way in Indonesia, this time for 520 members of a constituent
assembly to be elected on 15 December. The constituent
assembly will draft a permanent constitution for Indonesia,
The Masjumi, which heads the present cabinet and now appears
to have a good chance for a slim plurality in the new parlia-
ment, hopes to poll a larger vote in December than it did in
the recent parliamentary elections by virtue of closer
control over the election machinery and more thorough cam-
paigning at the village level. Prime 11inister Harahap, a
Masjumi member, reportedly has the support of Indonesia's
third largest party, the Nahdlatul Ulama, in his effort
to remain in office until a new government can be d
early next year. Page 6
Largest Soviet Steel Mill Being Constructed in Khazakhstan:
under construction near Karaganda, in the Khazakh SSR,_~
The first blast furnace of the mill is due to be in
operation in 1958, but the plant will probably not be in
full production before 1965. Construction of this plant
is part of the announced Soviet program to develop a
heavy industrial base in Khazakhstan. Page 7 25X1
Soviet Maneuvers in Germany: The annual fall maneuvers of the
Group of oviet Fr)rces in Germany ended about 12 October,
bringing to a close the 1955 field training'program begun
in aid-May. Most of the participating divisions have
returtad to their usual winter stations in East Germany,
and the annual rotation of troops to nd from the USSR
is under way, F___ LT , . . . , . . . Page 8
The New Soviet Heavy Tank: The Soviet Union has apparently
developed a new heavy tank which is being received by
Soviet forces in .aa t Germ according to recent reports.
a . . . . , . . . Page 9
Tourism Encouraged Within Soviet Bloc: In recent months several
T
Communist ccountries ri7
;7o icled documentation require
ments to permit their people to travel more freely within
the Soviet bloc. These changes probably reflect Moscow's
confidence in its control over the Satellite populations
and suggest that Soviet leaders believe that increased
movement of people will foster a greater sense of ar-
ity in the Communist world.
Page 10 25X1
New North Korean Bid for Relations With Japan: North Korea is
.`
ma ing new overtures
cowar apan ;x-at obtaining
diplomatic recognition and at further undermining the Al-
ready difficult relations between Japan and South Korea.
The Hatoyama governnicr:.i has indicated that improved
relations with North Korea are not possible in the absence
of recognition of the Pyongyang regime by other
Communist countries.
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27 October 1955
Japanese Conservative Merger May Be Near: Japan's conservative
Democratic and Liberal Parties are making progress toward
unification, and top Democratic leaders have confidently
stated to American officials that the merger will take
place in early November. A successful unification would
assure the conservatives a working majority in the Diet.
I I . . . . . . . . Page
Afghan-Pakistani Dispute: Pakistani spokesmen in Karachi and
Labore are Ins st ng to American Officials that Afghanistan
is inciting violence along the Afghan-Pakistani frontier.
Afghan foreign minister Naim denies these allegations.
Pakistan's announced intention to retaliate has increased
tension on the border, . . Page 12. 25X1
PATTERNS AND PERSPECTIVES
THE WESTERN COMMUNIST LINE SINCE THE SUMMIT CONFERENCE . Page I
Western Communist parties are trying to cash in on the
appearanct:: of international relaxation to increase their influ-
ence at home. Their line on foreign affairs is characterized
by optimistic generalizations.
BRAZIL'S ECON IC SITUATION. . * . . . . . . . . . Page
Brazil's serious inflation and foreign exchange shortages,
which were largely overshadowed by the political maneuvering
in connection with the 3 October election, are now regaining
public attention. President-elect Kubitschek has announced
his intention to attack these problems through a broad program
of expanding the nation's production and distribution capacity,
for which he hopes to obtain American financial asststanna_
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COMMUNIST CHINA'S UNEMPLOYMENT PROBLEM . . . . * . . . * Page 13
One of the problems facing the Chinese Communist regime
is the shortage of employment opportunities both for rural
labor, which has been increasingly attracted to the cities, and
for the unskilled urban labor force. Although many visitors to
China have gained the impression that there is virtually full
employment, indications are that t is as serious as
ever*
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FOREIGN MINISTERS' CONFERENCE
Germany and European Security
Foreign Minister Molotov
told French ambassador Joxe"in
Moscow on 21 October that while
he believed the European se-
curity question could not be
solved at the Big Four foreign
ministers' conference in Geneva,
he felt progress was possible
there. In talking to some Aus-
trian journalists the same day,
Molotov also expressed much
more optimism about a solution
of the European security prob-
lem than of the German question.
Soviet propaganda has con-
tinued to hold out the prospect
of at least limited agreement
on the question of European se-
curity at Geneva. A Pravda ar-
ticle on 20 October gave new
attention to the Soviet plan
for an agreement between the
NATO and Warsaw pact powers not
to use force and to settle dis-
putes peacefully. This would be
a preliminary step to the dis-
solution of both defense pacts.
On the other hand, propa-
ganda references to the German
issue have been pessimistic and
have criticized the West for
trying to link the European se-
curity issue to German reuni-
fication. On 15 October, party
first secretary Khrushchev
bluntly told Italian Socialist
leader Nenni that progress on
both items was impossible be-
cause the West insisted on link-
ing European security to German
reunification.
The USSR's strategy at
Geneva, will probably be to seek
support for a preliminary non-
aggression agreement and try to
bring about a modification of
present Western demands that
agreement on German reunifica-
tion precede a European secu-
rity arrangement.
East-West Contacts
Molotov gave Joxe the im-
pression on 21 October that he
expected a, good portion of the
Geneva, conference to be devoted
to the question of East-West
contacts, which he described as
important not only for their own
value but as a contribution to
the reduction of tension.
Soviet propaganda has been
very optimistic about the possi-
bz]itis of increasing East-West
contacts, with one Moscow radio
commentator saying the foreign
ministers "have only to catch up
with events and help their speed-
ier and more fruitful develop-
ment?" Pravda, meanwhile) has
charged That some elements in
the West are trying to retard
the expansion of East West con-
tacts.
Pravda, editor Shepibv re-
centlytold a British official
that he had been studying BBC
broadcasts in Russian to the
USSR and had found nothin
criticize in them.
ov a divisive
attic at Geneva might be to
voice approval of the BBC while
criticizing Voice of America, and
Radio Free Europe broadcasts.
Regarding international
trade, the Soviet ambassador to
France recently said that there
would probably be little profit
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CURRENT INTELLIGENCE WEEKLY SUMMARY
in spending much time at Geneva
in discussing strategic con-
trols, but that there were many
other trade items to discuss.
This may indicate that the So-
viet delegation will not press
the trade control question
strongly.
Premier Bulganin's brief
reply of 20 October to Presi-
dent Eisenhower's,letter of
12 October was apparently de-
signed to create the impression
that the USSR holds the initi-
ative on disarmament, and that
the next step on this issue
should be a full statement of
American views on Bulganin's
original letter of 19 Septem-
ber. Bulganin expressed sat-
isfaction with the President's
"favorable attitude" toward
Moscow's proposals for control
posts to guard against sudden
attacks, but made no reference
to the President's proposals
on aerial inspection and the
exchange of military informa-
tion.
The Soviet UN delegate's
efforts on 21 October to open
a general debate in the UN Dis-
armament Commission and the
General Assembly were also cal-
culated to strengthen the Soviet
position on disarmament on the
eve of the Geneva conference.
He insisted that a General As-
sembly debate would assist the
foreign ministers in reaching
agreement and championed the
right of all states to express
their views on disarmament.
Soviet chairmanship of the Dis-
armament Commission in November
will give the USSR another op-
portunity to propose UN dis-
cussion.
Soviet propaganda has con-
tinued to argue that the USSR's
acceptance of certain key ele-
ments in the West's disarmament
plan has opened the way for an
immediate agreement on the basic
principles of a disarmament
convention.
Molotov echoed this line
in his 21 October interview
with Austrian journalists when
he declared that various details
on disarmament must be subordi-
nated to the chief aim of end-
ing the arms race. An indica-
tion of the USSR's probable line
of attack on the President's
aerial inspection proposals ap-
peared in the Soviet press
statement that the American
proposals cannot be effective
in ending the arms race because
they do not include concrete
measures for the reduction of
conventional forces and the
prohibition of nuclear weapons.
Soviet Delegation
The incausion of Sokolovsky,
chief of the General Staff, in
the Soviet delegation shows the
importance Soviet leaders attach
to the disarmament question.
Sokolovsky is, probably the
Soviet military figure best
qualified to consider and give
technical advice on the various
disarmament plans that may be
presented at the conference.
Recent events leave Molo-
tov's role at the conference
uncertain. Twice in the past
month Molotov has been referred
to in Soviet media as a deputy
chairman of the USSR Council of
Ministers and not, as usual,
by his full title of first dep-
uty chairman. Pravda on 1 Oc-
tober.- and Moscow Radio's Home
Service on 22 October delivered
this calculated insult, appar-
ently taunting Molotov as a
second-rater in much the same
vein as Khrushchev and Bulganin
taunted him at the summit con-
ference and during the nego-
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CURRENT INTELLIGENCE WEEKLY SUMMARY
27 October 1955
NEAR EAST SITUATION
Egypt is continuing efforts
to strengthen its position in
the Arab world. Within the past
week, Egypt has announced a
bilateral military alliance with
Syria and a military agreement
with Saudi Arabia. Israel has
reacted to these events by in-
tensifying its efforts to
obtain arms and by dispatching
Prime Minister Sharett to Paris
and Geneva to call Israel's
concern to the attention of the
Big :Four foreign ministers.
Pact With Syria
The initialing on 20 Octo-
ber of a draft military pact
between Egypt and Syria was
enthusiastically received in
Syria and was approved by Saudi
Arabia. According to the Amer-
ican embassy in Damascus, the
pact has an excellent chance
of being promptly approved by
the Syrian Chamber of Deputies.
The Egyptian-Syrian pact
is formally aimed at Israel but
also blocks any Iraqi attempts
for union with Syria. Apparent-
ly in an effort to mollify Iraq
and possibly to balance Egyp-
tian influence, Syria's chief
of staff on 24 October informal-
ly suggested a Syrian-Iraqi
pact to the Iraqi foreign min-
ister.
Rumors that Syria is con-
sidering bilateral pacts with
Lebanon and Jordan may be a
reflection of Syria's desire to
lessen its dependence on Egypt.
The military capabilities
of Egypt and Syria would not
increase immediately as a result
of the pact, though greater co-
ordination of activities against
Israel would be likely.
Israeli Reaction
Israel'.s concern over
Soviet 'arms reaching Egypt is
heightened by the military pact
Egypt has negotiated with Syria.
Tel Aviv, pressing for new
security guarantees, is making
a major bid for big-power atten-
tion by sending Prime Minister
Sharett to Paris and Geneva.
The Western powers have been
approached repeatedly during
the past. weeks on the subject
of arms aid and security
guarantees.
While pursuing its campaign
for Western guarantees, Israel
is also engaged in a large ef-
fort to build up its war machine.
An international loan drive for
arms is reportedly being launch-
ed.th_roughout world Zionist
circles. In Israel, the gov-
ernment's appeal for contribu-
tions for arms purchases is
meeting an enthusiastic re-
sponse.,
Israeli public opinion is
being prepared for a period of
great tension and sacrifice.
Chief of Staff Dayan has been
recalled from a European holi-
day to participate in drawing
up a new arms purchasing pro-
gram, while the cabinet is en-
gaged in trimming other.budget
allocations. Dayan's return
may also be followed by a re-
view of Israeli military tar_
New incidents are inevita-
ble as border forces are aug-
mented. The Israeli army's
raid into Syria on 22 October
was retaliatory, but it
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CURRENT INTELLIGENCE WEEKLY SUMMARY
27 October 1955
evidently also had the objective
of highlighting the threat
of war as Sharett arrived in
Paris to promote international
consideration of-the Middle
East problem. A minor Syrian
raid into Israel on 24 October
was followed by two Egyptian
attacks on Israeli police
posts in the El Au'a area on
26 October,
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PREMIER FAURE
ASKS FOR EARLY ELECTIONS
Premier Faure's proposal
to hold National Assembly elec-
tions in December was precipi-
tated by pressure from conserva-
tive leaders in his cabinet,
who see an early date as favor-
ing their parties. The opposi-
tion is determined to block this
move and has maneuvered Faure
into calling for a vote of con-
fidence for 28 October.
Elections must in any case
be held by June 1956. Faure
maintains that a new mandate is
necessary now to assure con-
tinuity in making vital deci-
sions on foreign policy, but
his opponents charge him with
wanting to evade responsibility
for unpopular decisions on in-
creased taxes, additional call-
ups of reservists, and renewed
unrest in North Africa.
Most of Faure's supporters
believe that time favors Mendes-
France's effort to organize a
left-center majority. They are
also apprehensive lest new
rightist movements such as the
Poujade antitax revolt and
renascent ex-Vichyite combina-
tions seriously cut into the
support of the traditional
right-wing parties.
There is general fear,
moreover, of an upsurge in Commu-
nist electoral strength, aided
by an increase in labor unrest
and Socialist-Communist co-opera-
tion on the local level. The
Popular Republicans believe
that early elections would give
them their optimum chance of
profiting from the disintegra-
tion of the Gaullist political
organization and also of pre-
venting Mendes-France from
excluding them from his pro-
jected left-center alliance.
On the other hand, while
few deputies dare oppose early
elections publicly because of
the ].ow public esteem in which
parliament is held, many are
not eager to shorten their
terms in office. They point
out that more time is needed to
permit adequate revision of the
electoral law in order to
achieve a more coherent majority.
The public in general is
skeptical that elections now
could improve the unstable gov-
ernment situation, or that con-
stitutional reform could be
accomplished in time to affect
the next election. Moreover,
Mendes-France--not Faure--con-
trols the Radical Socialist
political machine and has
succeeded in putting the party
on record as opposing elections
before the electoral law is
changed.
Faure demanded priority for
his bill to permit early elec-
tions, and is reported to have
cabinet approval to pose a vote
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CURRENT INTELLIGENCE WEEKLY SUMMARY
of confidence if the suffrage
committee demurs. The Popular
Republicans have already threat-
ened to provoke dissolution of
parliament if the bill is de-
feated. This would be possible
because a government has already
been overthrown within the 18-
month period called for by the
constitutional provision on this
point. Elections must be held
between 20 and 30 days after
dissolution, with the new parlia-
ment convening on the third
Thursday thereafter.
The 26 October assembly
debate on a Socialist inter-
pollation on Faure's budget
requirements for North Africa
indicated that the opposition
is determined to prevent early
elections even at the risk of
a prolonged government crisis
during the Geneva meeting.
If Faure--in the 28 October
or any subsequent vote of con-
fidence--is intent on forcing
an early dissolution, he could
bring into effect the 18-month
provision by getting enough
of his supporters to side with
the opposition to ensure his
overthrow by an absolute
majority. Dissolution under
these conditions, however,
would clearly preclude the
electoral law revision which
he says he desires.
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Chinese Communist Activities
Tn the Middle ast
Peiping,
like
Moscow, ap-
parently sees in the present
situation in the Near East
an opportunity for a co-ordi-
nated effort to establish closer
contacts between the Arab na-
tions and the Sino-Soviet bloc.
Although less spectacular
than the shipment of Czech arms,
the Chinese policy of conclud-
ing trade pacts and pushing for
recognition is meeting with
encouraging response from the
Near East countries. Trade and
cultural agreements with Egypt
have recently been concluded,
a trade pact with Syria is
pending, and some progress
seems to have been made in
winning recognition from these
and other Near East states.
If Chou En-lai's reportedly
planned visit to Egypt should
materialize in the near future,
it would be the strongest indi-
cation thus far of Peiping's
interest in winning Arab sympa-
thies.
The Sino-Egyptian trade
pact is the first Peiping has
concluded with a country which
does not recognize Communist
China. In previous cases, Pei-
ping has had to conclude such
agreements with private busi-
nessmen or other groups acting
unofficially.
Opportunity for expanding
Sino-Egyptian contacts, paving
the way perhaps for full dip-
lomatic relations, is provided
in the exchange of trade mis-
sions under the terms of the
agreement. The exchange of offer
personnel, under the terms of
a cultural agreement, is also
under way.
Aside from Egypt, Chinese
Communist activities are being
directed mainly at Syria. Trade
negotiations between the two
countries were recently con-
cluded and an agreement report-
edly now awaits signature by
Damascus. It is probable that
Chinese Communist trade repre-
sentatives visiting Syria this
month have been in communication
with Syrian officials and mem-
bers of parliament on the ques-
tion of recognition.
In conversation with the
American ambassador on 8 Oc-
tober, the acting prime minister
of Syria observed that the cur-
rent of opinion was running in
favor of the Communists and that
it would be difficult to oppose
those pressing for recognition.
The opinions of other Arab League
members will probably influence
Syrian action on Chinese rec-
o niition
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'~.. SPANISH
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The turnabout of El Glaouij
Moroccan pasha who was largely
responsible for the deposition
of ex-sultan Ben Youssef in
1953, and who is now demanding
Ben Youssef's return to Morocco,
indicates the futility of the
present French timetable for
that protectorate in the face
of a new Moroccan unity. Both
the nationalist Istiglal organ-
ization and the main settlers'
organization, the Presence Fran-
caise, have refused to partici-
pate in the Moroccan government
being organized by Premier-des-
ignate Ben Slimane.
El Glaoui's action suggests
he believes the French will
eventually accede to nationalist
demands for the restoration of
Ben Youssef. The improved
chances of Ben Youssef's res-
toration are likely to en-
courage the Presence Francaise
to greater violence, and this
in turn may lead to new nation-
alist terrorism.
Istiglal's refusal to co-
operate with Ben Slimane has
won increasing Moroccan support
and French efforts to separate
the organization from the peo-
ple have failed. The agreement
of the small nationalist Demo-
cratic Party of Independence to
participate in the government
is based on Ben Youssef's
alleged approval of the Council
of the Throne.
A split within the Istiglal
is :reported developing, however,
and a moderate faction of the
organization may later agree to
participate in the government,
especially if Paris carries out
its plans to bring Ben Youssef
to France on 29 October.
The nationalist ranks in
North Africa are increasingly
divided over whether to pursue
a political, moderate policy or
a revolutionary one. Moderates
are still generally pre-eminent
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CURRENT INTELLIGENCE WEEKLY SUMMARY
in Morocco and Tunisia, but ex-
tremists are in control in a 25X1
few areas.
French-Spanish tensions
remain high over charges of
Spanish aid to the rebels.
25X1
New Saar Negotiations
Likely-Soon
The Referendum Commission
of the Western European Union
probably will continue to super-
vise the Saar territory pend-
ing agreement on a substitute
for the European statute rejected
by the Saarlanders on 23 October.
Both France and West Germany
seem inclined to undertake new
negotiations, and opinion in the
Saar territory will probably
be given considerable weight in
any decision that is made.
French foreign minister
Pinay took a highly conciliatory
line in discussions with the
other WEU representatives on 24
October. While the French press
contained some caustic comment
on West Germany's role in the
referendum, several papers rec-
ognized the need for a more
objective reappraisal of the
Saar problem, particularly in
view of the large margin by which
the statute was defeated. This
relatively restrained reaction
suggests that only a few extreme
nationalists in the French as-
sembly will maintain an intransi-
gent attitude. In West Germany,
the Bundestag is adopting an
equally restrained attitude to-
ward the plebiscite's results.
American embassy officials
in Paris have found the Quai
d'Orsay outlook "relaxed," al-
though Premier Faure's personal
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diplomatic adviser, Armand Ber-
ard, referred privately to the
referendum result as the "worst
blow to French-German relations
in a long time." One official
commented that the referendum
may be a "blessing in disguise"
since "it cures by a drastic
surgical operation a sore which
would have otherwise continued
to trouble French-German rela-
tions for a long time."
The Saarlanders themselves
have accepted the referendum
results in matter-of-fact fash-
ion. Saar premier Johannes
Hoffmann's formal resignation
is expected to be accepted by
a special Landtag session on
28 October.
The American consul at
Strasbourg suggests that elec-
tions will not be held until
mid-January as a result of the
"universal desire" to allow
things to settle down. The
absence of violence during and
since the referendum and the ap-
parent French restraint may,
however, permit the holding of
elections early in December.
Some of the many pro-German
parties which were organized
during the referendum campaign
are already reported to be dis-
integrating now that their goal
has been reached. There are
hints that the rival pro- and
anti-statute Catholic parties
and similar rival Socialist
units are already negotiating
to coalesce their groups in
preparation for the electoral
campaign.
Prospects for the peace-
able working out of Saar in-
ternal politics under the new
conditions of freedom for pro-
German groups will depend
primarily on whether moderate
pro-German leaders can wrest
control fr'om?xtremists such as
Dr. Heinrich Schneider, the ex-
Nazi head of the Democratic
Party of the Saar. His claim
of "victory for Germany" has
already been rebuked publicly
by a prominent West German op-
ponent of the Saar statute.
The West German foreign minister
is privately concerned lest
new Saar elections lead to a
"pan-German" Landtag and forma-
tion of a government which would
embarrass Chancellor Adenauer
by demanding prompt reunion
with Germany.
South Vietnam
In the Bao Dai-Diem popu-
larity contest on 23 October,
Diem won approximately 98 per-
cent of the votes. Of the 2
percent, a little more than half
were for Bao Dai and the rest
were invalid. On 26 October
Diem proclaimed Vietnam a re-
public and designated the chief
of state, himself, as president.
In view of Bao Dai's un-
popularity and the government's
complete control of the pre-
referendum campaign, the sig-
nificance of Diem's triumph lies
more in the voter turnout
(over 90 percent of those regis-
tered) and the orderliness of the
voting than in the overwhelming
plurality he won. Bao Dai's
poor showing seems to destroy
his value for any future role in
Vietnam either on his own initia-
tive or as a tool of the Viet
Minh.
In an interview on 25 Octo-
ber, Diem interpreted his victory
as a popular mandate not to pro-
ceed with unification elections
until "true liberty" is estab-
lished in the north. The refer-
endum results set the stage for
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the adoption of a South Vietnam
constitution and the establish-
ment of a representative as-
sembly which will enable Diem
to speak from a more solid po-
litical base.
The Viet Minh denounced the
referendum in the strongest
terms from the time plans for
it were first announced. It
charged that Diem was imitat-
ing Hitler and Mussolini and
asserted the Vietnamese would
not be present at the polls
and the results would be made
in Washington.
The fact that the turnout
was impressive and that invalid
ballots numbered less than one
percent of the total suggest
that the Viet Minh did not
desire to reveal its strength
in a contest in which Diem's
victory was assured, possibly
preferring to keep it secret
until the forthcoming elections
for provincial councils and for
a South Vietnam national
as-sembly.
The Communists may have
abandoned any hope of getting
early South Vietnam participa-
tion in a conference'on all-
Vietnam elections as called for
in the 1954 Geneva agreement.
Some support is given to this
possibility by a conversation
Molotov had with the British
foreign secretary in New York
late in September. Molotov
implied that Diem's insistence
on the establishment of a
representative assembly as a
precondition to entering elec-
tion consultations with the
Viet Minh was a legitimate
position.
25X1
The Laotian government is
preparing to hold elections on
25 December in the ten provinces
under its control. Unless the
government reaches an agreement
with the Pathet Lao prior to the
elections, the two northern prov-
in c e s ender Pathet Lao control
will be excluded from the
elections.
A total of 235 candidates
have filed for 39 parliamentary
seats. Laotian officials main-
tain that few if any of the
candidates are Pathet sympa-
thizers. The two largest po-
litical parties have an agree-
ment to work jointly to bring
about the defeat of any candi-
date suspected of such leanings.
The deadline for candi-
dates to file for the election
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CURRENT INTELLIGENCE WEEKLY SUMMARY
27 October 1955
was 10 October. The Pathets
insist, however, that if a
settlement of differences with
the government is reached by
12 November, it must provide
them the opportunity to enter
candidates in all 12 provinces.
Premier Katay has indicated a
willingness to continue seek-
ing a political settlement only
until 31 October.
New Indonesian Elections
Election campaigning is
again under way in Indonesia,
this time for 520 members of a
constituent assembly to be
elected on 15 December. The
assembly will draft a permanent
constitution to replace the
present provisional instrument
under which the government has
been operating since Indonesia
became independent in 1949.
The new constitution will
probably fix the term of the
parliament that has just been
elected as well as prescribe
its powers. Similarly, it will
specify whether the president
will be popularly elected or be
chosen by parliament, as is
now the case.
The Masjumi, which heads
the present cabinet and now
appears to have a good chance
of attaining a slim plurality
in the new parliament, hopes
to poll a larger number of
votes in December by virtue of
closer control over election
machinery and more thorough
campaigning at the village
level.
The unofficial count of
votes cast in the 29 September
parliamentary elections is
almost complete, and parliamen-
tary elections are under way in
bypassed areas. The official
result will not be known for
There is as yet no indica-
tion that a settlement can be
achieved. The cease-fire agreed
to in Rangoon by Premier Katay
and Prince Souphannouvong went
into effect on 21 October, but
the Pathets have already charged
the government with violating
it and with retaining a plan
for gradual occupation of the
two northern provinces.
several weeks at least. Accord-
ing to unofficial returns ac-
counting for over 30,000,000
votes, the National Party still
retains a slight numerical lead.
Its share of the total vote
amounts to 25.4 percent and that
of the Masjumi is 25.3. The
conservative Moslem Nahdlatul
Ulama follows with 21.1 percent
and the Communist Party with
19.6.
In the face of renewed Na-
tional and Communist Party de-
mands for his resignation, Prime
Minister Harahap told parliament
on 25 October that he planned
to stay in office until a new
government could be formed early
next year on the basis of the
Se t-ember elections.
e
a d.atul Ulama has firmly agreed
to support retention of the Hara-
hap cabinet until the new parlia-
ment convenes. Unless the Na-
tionalists can induce the numer-
ous small parties in the present
provisional parliament to join
the demand for Harahap's resigna-
tion, the cabinet should be
secure at least until after the
December elections.
Interparty discussions
dealing with the composition of
the next cabinet appear largely
to have halted as party leaders
have turned their energies to-
ward the constituent assembly
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 Approved F r Re ase 20055 . -RDP79-00927600150001-1
elections. Since the constit-
uent )ssembly will draft the
nation's permanent constitution,
many Indonesian leaders consider
the December vote of far greater
importance than the parliamen-
tary elections. The Communist
Party announced last year that
it hoped to expend its greatest
25X1
Largest Soviet Steel Mill.
Being Constructed in Kfiazokhstan
What may eventually be the
world's largest steel mill is
under construction near Kara-
ganda, in the Kazakh SSR.
energies in electing members of
the constituent assembly.
The Masjumi reportedly
hopes to reach an agreement
with the Nahdlatul Ulama that
the two parties will attack
the Communists and not each
other during the new campaign.
According to a Soviet an-
nouncement of 15 October, the
mill will have an ingot capacity
1.5 times that of Magnitogorsk,
1 Chelvabinak _
KC
Kustanal
' ~I..... n C, ~! AST
CASPIA N
TA i .
Steel Mill
`New .eel CO
_
\\ Under onskruction_.
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L .. A R A G A N 1) A
nrznnry
Pyandzh
(IBLA ST `\
Semipala i
.._..
l r/ K rA'~7_ A ki?I
Karaganda o B L
Coal KS IMIPAL. TINSK^=.
O9L ST
A L Y
K U G A N
I'??,,1 O B L A S T
L M A
A 1 A
O ]} L
S T
Alma Ata
KAZAKH STEEL
PRODUCTION
Railroad
Railroad, under construction
0- 200 400 600
Miles
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CURRENT INTELLIGENCE WEEKLY SUMMARY
presently the largest producer
in the USSR. On this basis the
plant will probably produce at
least 6,750,000 metric tons a
year, or 300,000 metric tons
more than the Gary Works of U.S.
Steel, now the world's largest.
Production on this scale would
be equal to about 15 percent of
current Soviet steel production
and probably would be 6 to 9
percent of total Soviet capaci-
ty in 1965.
The steel mill was first
planned in 1951, but very lit-
tle progress has been made to
date. According to the 15
October announcement, however,
work has been accelerated and
the first blast furnace of the
mill is due to be in operation
in 1958. The plant will prob-
ably not be in full production
before 1965.
This new construction rep-
resents the first known re-
activation of a major extensive
industrial development project
in the USSR since the review of.
investment projects undertaken
immediately after Stalin's
death in 1953. This review had
resulted in a general curtail-
ment of large-scale projects
Soviet Maneuvers in Germany
The annual fall maneuvers
of the Group of Soviet forces
in Germany ended about 12 Octo-
ber, bringing to a close the
1955 field training program be-
gun in mid-May. Most of the
from which immediate returns
could not be expected.
Construction of the plant
is part of the announced Soviet
program to develop a heavy
industrial base in the Khazakh
republic, This program, pro-
bably will be incorporated,ih
the sixth Five-Year Plan (1956-
1960) and would complement the
tremendous agricultural acti,
vii:y along the northern border
of the Khazakh republic in.
connection with the "new.lands"
agricultural program.
The location for the new
plant was probably based on new
discoveries of iron-ore de
posits in the Kustanai region
as well as the professed desire
to provide for "balanced pro-
portional development" of the
Asiatic USSR. The large
Kustanai deposits, together
with ample supplies of coking
coals nearby, seem to assure
adequate raw materials for the
new steel plant. The planned
Alma Ata-Peiping rail line
through Sinkiang, which is
scheduled to be completed in
1960, would provide a direct
link from this new industrial
base to potential consumers in
participating divisions have
now returned to their usual
winter stations in East Germany,
and the annual rotation of
troops to and from the USSR is
under way.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
In general, the maneuvers
were much like those of previous
years. Five of the six Soviet
ground armies in East Germany
participated, as was the case
last year. Most of the exercises
were by reinforced divisions
and consisted mainly of tactical
cross-country marches and river
crossings. There were at least
one interdivision and two inter-
corps maneuvers. The use of
signs marking imaginary radio-
active areas indicates that there
was some nuclear warfare train-
ing. In marked contrast to the
1954 maneuvers, there was con-
siderable air participation this
year, including parachute drops.
New Soviet equipment used
included T-54 medium tanks,
The New Soviet Heavy Tank
The Soviet Union has ap-
parently developed a new heavy
tank which is being received by
Soviet forces in East Germany,
according to recent reports. A
new medium tank, the T-54, was
NEW SOVIET HEAVY TANK
F__ I
SECRET
mortars estimated to be 240mm's,
150mm rocket launchers, and me-
chanical bucket-type diggers.
This mortar, first seen in a Mos-
cow parade in 1953 and not pre-
viously observed in the field,
is estimated to have a range of
12,000 yards. The rocket]aunch-
er is the 16-tube, truck-mounted
type first observed in Moscow
in November 1954.
Use of the mechanized
digging equipment duriu
maneuvers may indicate ex-
perimentation with techni-
ques for faster preparation
of earthworks, which assume
particular importance in nu-
clear warfare.
also first observed in East Ger-
many.
Several persons over the
past year have sighted a tank
of extremely low silhoulette and
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C
Mfiff
25X1
very smooth lines, often de-
scribed as resembling a. turtle.
this tank is believed to
be a successor of the JS-3
heavy tank of World War II. A-
mong the many designations for
such a tank which have been men-
tioned, JS-4 and T-10 appear the
most credible. It is not known
whether these are two designations
for the same vehicle or whether
they refer to two distinct
vehicles.
Cumulative production of the
tank through December 1955 is
estimated at 3,700.
uses.
ardize weapons for various
Since the JS-3 was con-
sidered underpowered and dif-
ficult to maneuver, the new
model is presumed to have an im-
proved engine and steering mech-
anism. It probably mounts the
same cabiber gun as the JS-3,
but probably uses the new 122mm
field and antiaircraft gun, since
it is Soviet practice to stand-
Tourism Encouraged
Within Soviet B16-c
In recent months several
Soviet bloc countries have mod-
ified documentation requirements
to permit their people to travel
more freely within the Soviet
bloc, These changes probably
reflect Moscow's confidence in
its control over the Satellite
populations.and suggest that So-
viet leaders believe that in-
creased movement of people will
foster a greater sense of sol-
idarity in the Communist world.
These developments paral-
lel the recent relaxation of
bloc restrictions on Last-West
travel and contacts.. There has
been no announced change, how-
ever, in regulations covering
travel to restricted areas in
the Soviet bloc.
In order to foster tourism,
various Eastern European coun-
tries have established travel
agencies which have concluded
agreements for the exchange of
tours with Intourist, the So-
viet agency in charge of foreign
travele,?s in the USSR. For the
first time since before World
War I I , groups of Eastern Euro-
pean tourists, who have been
care:gully selected, are being
permitted to enter the USSR and
Soviet citizens are traveling
to the Satellites in tourist
groups. These tourist groups
differ from the cultural, educa-
tional, and youth groups which
in the past have frequently made
official trips within the So-
viet bloc.
Several Rumanian groups
have already traveled to the
USSR this year, and the number
of persons taking part in the
tourist-exchange program be-
tween Czechoslovakia and the
Soviet Union is scheduled to
reach 1,200 by the end of the
year.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
Inter-Satellite tourist
travel is also being encouraged.
For example, in order to ease
the documentation requirements
for such travel, Czechoslovakia
and Poland agreed in September
to relax regulations covering
tourist traffic in the Tatra re-
sort area and to allow travel
there by "special frontier per-
mits." The Hungarian tourist,
office recently listed the East-
ern European countries with which
negotiations for tourist-exchange
agreements would start shortly.
New North Korean Bid for
Relations with JaDan
North Korea is making new
overtures toward Japan aimed at
obtaining diplomatic recognition
and at further undermining the
already difficult relations be-
tween Japan and South Korea.
The most recent development
was a statement on 20 October by
Premier Kim Il-sung calling for
normalized relations between Ja-
pan and North Korea, including
diplomatic relations, increased
trade, negotiation of a fisheries
agreement, and the repatriation
of resident aliens...
In their attempt to inflame
Japanese-South Korean relations,
the North Koreans have contrasted
their own "reasonableness" with
the South Korean attitude, have
publicly repudiated the "Rhee
line" fisheries boundary, and
have indicated they are prepared
to recognize Japan's claim to
the Liancourt Rocks, long in dis-
pute between Japan and South
Korea.
The list included all the Sat-
ellites except Albania.
The USSR has signed a se-
ries of bilateral civil air
agreements with the Satellites
and the Communist countries of
the Far East this year, enabling
their civil air lines to fly to
Moscow for the first time. This
unprecedented policy of permit-
ting non-Soviet planes to fly
into the USSR on a scheduled
basis has recently been extended
to Yugoslavia and Finland
A recent protest by North
Korea concerning the treatment
of Koreans in Japan, which em-
phasizes that Pyongyang re-
gards them as North Korean cit-
izens, reflects the continued
Communist interest in the 600,0W
Koreans residing in Japan. Even
a partial repatriation of this
predominantly leftist group
would ease North Korea's crit-
ical labor shortage. Since
completion of the post-World
War II repatriation program,
however, few Koreans have re-
turned to either North or South
Korea.
25X1
While the Japanese have
been receptive to trade over-
tures from Communist China,
the :Hatoyama government has in-
dicated that improved relations
with North Korea are not pos-
sible in the absence of rec- 25X1
ognition of the Pyongyang
regime by other non-Communist
countries
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CURRENT INTELLI(ENCE WEEKLY SUMMARY
27 October 1955
Japanese Conservative Merger
May Be ear
Japan's conservative Demo-
cratic and Liberal Parties are
making progress toward unifica-
tion, and top Democratic lead-
ers have confidently told Amer-
ican officials that the merger
will take place in early Novem-
ber.
The formation on 27 Octo-
ber of a New Party Preparatory
Committee may in effect have
accomplished the merger "at
least in form" as suggested
by Prime Minister fatoyama,
since Democratic and Liberal
policy-makers will jointly com-
pile the government budget and
formulate government policies.
The desire of large num-
bers of rank-and-file members
of both parties for a unified
conservative party, as well as
pressure from influential busi-
ness interests, are strong
forces for unification. The
unity sponsors appear to be
using the strategy of agreeing
on noncontroversial issues to
accomplish a de facto merger,
thus making it difficult for
any opponents to refuse to go
along. In addition, Democratic
leaders may hope to use their
"commitment" to US officials-
that the merger is virtually
assumed as further pressure on
the Liberals to come to terms.
Policy differences in
respect to the negotiations
with the Soviet Union and
reparations to the Philippines
are being left for the new
party or a preparatory organiza-
tion to resolve.
Afghan-Pakistani Dispute
Pakistani spokesmen in
Karachi and Lahore are insist-
ing to American officials that
Afghanistan is inciting vio-
lence along the Afghan-Pakistani
The success of the merger
vial be primarily contingent
on the settlement of the ques-
tion of the head of the new
party. Prior to agreeing to
participate in the New Party
Preparatory Committee, the
Liberals strongly insisted on
a dissolution of both parties
and an open election of the
new party head. If, as the
Democrats have implied, the
Liberals have tacitly agreed
to accept Hatoyama as the new
party chief, they probably in-
sisted at the same time on a
commitment for his eventual
retirement and replacement by
Liberal Party president Ogata.
A successful unification
would assure the conservatives
a working majority in the Diet.
Should the sponsors of the
merger be unable to make good
on their promises with respect
to the head of the new party,
however, sizable defections
might cause any unity program
to founder. The Democrats
probably hope that even if the
merger plans collapse, their
maneuvers will gain them their
minimum objective of compelling
the Liberals to support the
Hatoyama cabinet outside the
government in the forthcoming
Diet.
frontier. Afghan foreign
minister Naim denies these al-
legations. Pakistan's an-
nounced intention to retaliate
has increased tension on the
border.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
Pakistani officials say
that Afghan troops in civilian
clothes are moving into the
tribal border area, that troops
in southeastern Afghanistan have
been reinforced, and that arms
and ammunition from India have
reached Kabul via the Black Sea
and the USSR.
American officials in
Kabul, however, report no evi-
dence of any Afghan activities
of this kind. Naim on 25 Oc-
tober assured the American em-
bassy that these reports were
not true.
The Afghans, embittered by
their defeat in the earlier
quarrel with Pakistan, may in-
cite an incident in.the always
volatile tribal area. Pakistan
also is unsatisfied with its
failure to force Afghanistan
to abandon demands for inde-
peridence for the Pushtoon areas
of West Pakistan. Governor
General Mirza, who has gone to
northwestern Pakistan to take
personal charge, says he intends
to "give a lesson" to the Af-
gha.ns if an outbreak occurs.
Pakistan may be deliberately
exaggerating reports of pend-
ing trouble to justify in
advance a strong counteraction.
The increase of tension
may result in a localized
tribal outburst. Neither side
is apt to launch a major at-
tack against the other, how-
ever, because of the inter-
national complications which
would follow.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
27 October 1955
PATTERNS AND PERSPECTIVES
THE WESTERN COMMUNIST LINE SINCE THE SUMMIT CONFERENCE
Western Communist parties
are adhering to a line of opti-
mistic generality toward the
international situation. Rather
than criticize, they avoid com-
menting on Western policies
which do not directly affect
their respectives countries.
With few exceptions, Communist
spokesmen have not credited the
United States, Great Britain, or
France, but have repeatedly
praised the USSR and the World
Peace Movement for bringing
about the relaxation of tensions.
They have left the way open to
renew attacks on the West
through repeated warnings that
"certain circles" there wish to
continue,the cold war.
anti-Western agitation in most
cases has been confined to ap-
propriate local situations--
for example, the Italian Com-
munist campaign against station-
ing of American troops in Italy.
Communist parties in the
western hemisphere continue to
attack United States economic
imperialism within their re-
spective areas,while repeating
the general line on Geneva.
The secretary general of the
Brazilian party pointed out to
his followers that a positive
gain for Latin American Com-
munists might result from re-
newed diplomatic and commercial
relations with Orbit countries.
Western Communists are try-
ing . to cashiu on the appearance
of international good will in
the hope of breaking out of
domestic political isolation
and extending their influence
at home. They are urging the
governments in their countries
to shift to an "independent"
foreign policy, generally in-
volving troop withdrawals, arms
reductions, and withdrawal from
NATO--arguing that such a pro-
gram is feasible as a result of
Geneva. They point out that
consequent reductions of defense
budgets would lead, in turn, to
alleviation of local economic
stresses. American officials
in Greece, France, Italy, and
Brazil report that this cam-
paign has a potential for at-
tracting non-Communist support.
Stress National Self-Interest
Softened criticism of the
policies of Western governments
is now largely phrased in terms
of national self-interest, while
The Communists' emphasis
on domestic and nationalistic
considerations as reasons for
foreign policy changes, togeth-
er with Soviet efforts to con-
vince the West that the USSR
constitutes no military threat,
represents an attempt to
strengthen the Communist Party's
appeal and encourage division
among; the Western allies.
American Communist leader
W.Z.Foster made the clearest
statement of what Communists
expect to happen following an
end of the cold war. He pre-
dicted the breakup of internal
and external unity among capi-
talist states and a "freer and
sharper expression to the natural
competition among the capitalist
powers." An end to the'cold war
"with, its hysteria and attacks
on civil liberties," Foster
added., "would also result in
a more active defense. of their
class interests by the workers."
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Emphasize "Peace Movement"
The World Peace Movement
has gained a new significance
in Communist tactics as a result
of Geneva. It must prevent,
according to Foster, "atom war
crises." Leading Western Com-
munists assert that unique con-
ditions now exist to influence
Western peoples and governments
through regimented mass opinion,
for which the World Peace Move-
ment is the main vehicle. This
belief was pithily expressed by
French Communist Pierre Courtade,
who observed, "A hundred million
Americans have seen Ike smile at
Bulganin. They can no longer
hear with the same ear the proph-
ets of destruction who announce
the 'red invasion' every day."
Peace activity is also
being directed at specific inter-
national negotiations, such as
those of the foreign ministers
and the UN Disarmament Subcom-
mittee.
Communist Cautions
Communist ideology sets a
limit on how far party members
may go in practicing the spirit
BRAZIL'S ECONOMIC SITUATION
Brazil's critical economic
problems, largely overshadowed
in the last six months by polit-
ical, maneuvering in connection
with the 3 October presidential
election, have again come to
prominence,
President Cafe Filho's
refusal to accept the responsi-
bility for immediately carrying
out Finance Minister Whitaker's
sweeping reform of Brazil's tan-
gled foreign exchange regula-
tions led to Whitaker's
SE"c*r
of Geneva. Authoritative party
leaders in France and the United
States--Marcel Servin and W. Z.
Foster--have reminded Communists
that the differences between
capitalism and socialism remain.
Servin warned on 30 August that
"the capitalist regime, which is
a reality in the United States,
England, France, and elsewhere,
represents by its very nature a
perpetual danger of war,"
In add it ion, Communist
spokesmen nave insisted on free-
dom of action for non-Orbit Com-
munists and have refused to ad-
mit that their activities are
subject to international diplo-
matic bargaining in a forum such
as the foreign -ministers' con-
ference, Courtade, the French
Communist foreign affairs author-
ity, argued in L'Humanite on 30
September that "the action of
Communists in capitalist coun-
tries for the defense and eman-
cipation of the working class,
and the support Communists give
to the movement of liberation of
colonial peoples, has no connec-
tion with the problems posed by
peaceful coexistence, that is
to say, with establishment of
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whatever their regime."
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resignation on 10 October.
This was the fourth resignation
of a competent financial expert
from that post in the past two
and one half years. The new
finance minister, again a compe-
tent economist, is expected to
propose no major reforms for
the remaining three months of
the current administration.
Since Brazil's twin problems
of foreign exchange shortages
and rising inflation are acute,
the preparations president-elect
Juscelino Kubitschek is making
for action after he is inaugu-
rated on 31 January 1956 are
being giver prominent play.
Kubitschek's program apparently
will contrast sharply with the
austerity measures suggested by
the finance ministers of his
predecessor. Kubitschek has
repeatedly, indicated his belief
that the stimulation of economic
development will be his chief
line of approach.
He clearly hopes and
apparently believes that his
program, which will require
considerable quantities of
capital equipment, can be
financed in large part through
financial aid from the United
States, perhaps amounting to as
much as half a billion dollars.
In a confidential interview with
Ambassador Dunn on 20 October,
RAZILIAN
INDUSTRIAL PRODUCTION
BRAZIL
COST OF LIVING INDEX: JAN 48=100
3
-
75
350-
-
-
-
325-
1954 1
1955
300-
275
211J F M A M J J A S O N D J F M A M J J
Kubi.tschek stated that the
United States was the only
country which could be of
assistance to him in furthering
his economic plans.
Background of the Crisis
The present inflationary
trend began just prior to World
War II and has accompanied
Brazil's rapid economic ex-
pansion since that time. During
the war period the trend was
stimulated by the accumulation
of substantial foreign exchange
surpluses, which Brazil was
unable to convert into consumer
goods. After 1947, domestic
factors such as government
deficits and the expansion of
credit fostered inflation.
Illustrative of this continuing
inflation is the rise in the
cost-of-living index, which has
more than trebled since 1948.
The late president Vargas
tried to offset this situation
by decreeing the doubling of
the minimum wage scale in July
1954. This led to a redistri-
bution. of income, which helped
create additional demand, The
continuing rise in living costs
has,in some occupations, more
than wiped out the gain, how-
ever, and strikes are now re-
ported looming throughout Brazil
unless wages are again raised.
With Brazil's population
increasing by over one million
a year, an expansion of productkn
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is clearly necessary if even
present standards of living are
to be maintained. The consider-
able expansion achieved since
the war has been insufficient
to keep pace with growing needs.
Since foreign loans and
voluntary savings at home did
not cover the capital require-
ments of the country, the Vargas
government undertook to finance
investment by credit expansion
and paper currency issues. The
government also sought to en-
courage a trend toward self-
sufficiency by entering the
field of public investment. As
a result, the government's share
of total investment rose from
8.2 percent in 1948 to 25.6 per-
cent in 1953.
Although Brazil can produce
nearly all its present food
needs except wheat, scarcities
and high prices are still the
rule in most large Brazilian
cities because of woefully in-
adequate storage, transportation
and distribution facilities.
Better soil management and im-
proved agricultural techniques
would also help reduce the cost
of foodstuffs and help supply
keep pace with demand.
The Cafe Filho government
attempted to stem the tide of
inflation by imposing economic
austerity measures when it as-
sumed power after Vargas' sui-
cide in August 1954. During the
eight-month term of office of
Cafe's first finance minister
Eugenio Gudin, a strong effort
to restrict credit was partially
successful. Gudin's successor,
Jose Whitaker, loosened credit
restrictions to some extent but
maintained severe import re-
strictions and abandoned the
inflationary price support pro-
gram for coffee which had been
instituted under Vargas.
Foreign Exchange Difficulties
Brazil's economy is to a
great extent conditioned by its
capacity to import necessary
capital goods and raw materials.
This capacity is limited by the
volume of exports, which has
not expanded in proportion to
the increase in population.
Domestic industry is therefore
turning to the manufacture of
many goods which are now im-
ported.
BRAZIL'S FOREIGN TRADE
1953 1954 1955
1 -1 51024-3A
Brazil's effort to maintain
its rate of industrial expansion,
even at the cost of severe in-
flation, is reflected in the
fall'. of the cruzeiro on the
free market and in recurrent
foreign exchange shortages.
In order to permit domestic in-
dustry to purchase its needed
imports cheaply, the official
rate for the cruzeiro has been
maintained at an artificially
high level. This overvaluation
of the cruzeiro weakened the
competitive position of Bra-
zilian exports and contributed
to a concurrent loss of foreign
exchange.
The net deficit on invest-
ments has also added to Brazil's
foreign exchange problem. New
capital entering the country in
1954 totaled $69,000,000 and
capital withdrawals $76,000,000,
according to the Bank of Brazil.
In addition, remittances of in-
come on investments were $141,-
000,000 while income remittances
to Brazil were somewhat over
$6,000,000. The total deficit
on investment account, therefore,
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27 October 1955
I IAN BRAZIL EXCHANGE RATES
30
40
50
(Cruzeiros per US dollar)
Free Rate
60
70
80
90
100
1953 1954 1955
At present, however, for-
eign petroleum companies are
restricted to distribution and
marketing operations. Petroleum
exploration and development
are by law the monopoly of a
mixed government-private capi-
tal corporation known as Petro-
bras, in which native Brazilians
alone--not even Brazilians lnar-
ried, to foreigners--may invest
as minority stockholders. State-
ments by Kubitschek have implied
that he will resort to other
means to develop Brazil's petro-
leum if Petrobras has not proved
itself in another year's time.
Nome of Kubitschek's sup-
porters, however, are nation-
alists and Communists violently
opposed to any foreign partici-
pation in Brazilian petroleum
development. This view is shared
by an important segment of the
military. It is thus believed
that Kubitschek would have great
difficulty in pushing any such
measures through Congress, and
that he would be running the
grave risk of providing the
military with a popular pretext
for ousting him.
To a considerable degree
because of Brazil's unrealistic
petroleum policy, total exchange
obligations rose to about $2
billion dollars by-the end of
1954. Dollar loans, particularly
those from the US Export-Import
Bank in 1953 and 1955, coupled
with a program by the Cafe ad-
ministration to raise exports
and reduce imports, have averted
further crises for the present.
service of these obligations,
however, adds yet another burden
to Brazil's strained economy.
Kubitschek's Economic Approach
Kubitschek's long-range
solution to the problem of in-
flation is likely to be a step-
ped-up expansion of production
rather than any program of eco-
nomic austerity. His tenure as
governor of Minas Gerais from
1951-1954 was marked by extensive
construction of power facilities
was about $141,000,000. This
fact has served as the basis
of charges by xenophobic editors
and congressmen that foreign
investors bleed more out of the
Brazilian economy than they
transfuse into it.
The exchange deficit is
further aggravated by the de-
mand of existing industries for
imported equipment and supplies,
particularly fuels. The out-
standing example of this is the
petroleum problem.
The Petroleum Problem
The ever-increasing demand
for petroleum is one of Brazil's
major economic problems. Con-
sumption in 1954 averaged nearly
160,000 barrels a day, an 84-
percent rise over 1950. Domes-
tic output, however, met less
than 2 percent of demand. Bra-
zil therefore had to spend a-
round a quarter of a billion
dollars for oil imports in 1954,
or about one third of its dollar
exchange earnings.
It is estimated that at
least $1 billion would be needed
to develop Brazil's potential
petroleum resources to meet
present demands. Of this, over
$700,000,000 would have to be
spent abroad. Brazil alone can-
not afford such an expense, and
even if foreign investment cap-
ital participated, volume output
would probably not be reached
for another five to ten years.
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27 October 1955
COMMUNIST CHINA'S UNEMPLOYMENT PROBLEM
One of the problems facing
the Chinese Communist regime is
the shortage of employment op-
portunities, both for rural
labor, which has been increasing-
ly attracted to the cities, and
for the unskilled urban labor
force.
Although many visitors to
China. return with the impression
that there is virtually full
employment--the absence of
beggars is commonly cited as
evidence--Communist population
and labor policies indicate that
unemployment is nearly as seri-
ous as ever.
Reduction of Urban Population
Since 1952, Peiping has
periodically issued directives
that the millions of unemployed
peasants in the cities return to
their farms. These directives
have been relatively ineffective,
however, and the regime recently
began taking coercive measures
to accomplish this objective.
Figures released by Peiping
disclose that from April through
August 1955 more than 425,000
peasants were forced to leave
Shanghai, where the unemployment
problem is exceptionally acute
because of the depressed in-
dustrial and commercial activity
there. In addition, "thousands"
of skilled workers are being
sent to inland areas such as
Sinkiang. The present popula-
tion of Shanghai is over
6,000,000 and the regime plans
"gradually" to move out of the
city the 1,000,000 persons,
80 percent of them peasants,
said to have moved in since
the beginning of.1950, according
to a. Shanghai newspaper.
Nevertheless, the tendency
of destitute farmers to migrate
to the cities will grow as the
comparative standard of living
of state workers rises follow-
ing official efforts to improve
their morale and efficiency,
This tendency is apparently to
be combated. not only by forcible
movements but also by the new
food rationing system which will
go into effect in all cities by
the end of November.
Rural Unemployment
Some unemployed farm work-
ers have found work in large
government projects such as
those for water conservation and
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27 October 1955
road and railroad construction,
and a small number have been
resettled in new agricultural
areas. The forced return from
the cities of refugees and of
the large number of recently
demobilized veterans to their
rural homes, however, helps
to create a surplus of farm
labor well in excess of rural
employment opportunities,
particularly following serious
shortfalls in agricultural pro-
duction, as in 1954.
Urban Unemployment
Mea.nwhile,employment
opportunities in the cities are
limited as a result of the
regime's attacks against over-
staffing in government and its
efforts to increase labor pro-
ductivity and limit expansion of
consumer goods industries, which
employ more than half of China's
industrial workers.
According to Five-Year Plan
estimates prepared last February
China '.s "workers and clerical
staff"--apparently all wage and
salary earners--are to increase
only 4,220,000 during the plan
period (1953 to 1957). The a-
vaila.ble urban labor force prob-
ably will rise by at least this
much. The Five-Year Plan report
admitted that it will be impos-
sible by 1957 to eliminate un-
employment, a problem it is
claimed will be solved in the
second and third Five-Year Pl.n
25X1
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