CURRENT INTELLIGENCE WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000900060001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 23, 2016
• Document Release Date: June 19, 2012
• Sequence Number: 1
• Publication Date: August 2, 1956
• Content Type: SUMMARY

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I
CONFIDENTIAL
.EEeRET
CURRENT
INTELLIGENCE
WEEKLY
SUMMARY
COPY NO. 16
OCI NO. 4648/56
2 August 1956
DOCUMENT NO.
NO CHANGE IN CLASS. ^
0 DECLASSIFIED
CLASS. CHANGED TO' T S C~
NEXT REVIEW DATE:
REVIEWER:
PATE
lpr4
CENTRAL INTELLIGENCE AGENCY
III OFFICE OF CURRENT INTELLIGENCE.
CONFIDENTIAL
-Q-r T
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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 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
2 August 1956
T H E W E E K I N B R I E F
OF IMMEDIATE INTEREST
THE SUEZ CANAL NATIONALIZATION . . . . . . . . . . . . . . Page 1
Egypt's nationalization of the Suez Canal on 26 July
has led to a rising` concern among maritime countries for
maintaining undisturbed flow of traffic through the canal.
On 1 August, Great Britain France and the United States
called for an international conference on the future of the
canal to which the USSR, among other countries, will be in-
vited. Nasr is receiving enthusiastic congratulations
from the Arab and Asian world. The USSR has d its
desire for a peaceful solution. F 7
NOTES AND COMMENTS
SOVIET-JAPANESE NEGOTIATIONS . . . . . . . . . . . . . . . Page
The peace negotiations between Japan and the USSR
which began in Moscow on 31 July appear headed for an
early agreement. The Japanese negotiators will make a
strong bid for the return of the Southern Kurils. So-
viet rejection of their demands, however, would not pre-
clude conclusion of an agreement omitting controversial
territorial questions. The Japanese feel diplomatic re-
lations with Moscow are necessary to gain Japan's admis-
sion to the UN, to bring the'fishery pacts into force,
and to bring Japanese detainees home before winter.
TENSION HIGH
IN SOUTH KOREAN ASSEMBLY . . . . . . . . . . . . . . .
The attempts of the South Korean government to pre-
vent the opposition's candidates from registering for the
8 August local elections, together with the threat of
legislation to remove Vice-president-elect Chang Myon
from the succession to the presidency, have produced dis-
orders and increased tension within the National Assembly.
The use of strong-arm tactics by police in breaking up a
street demonstration by assemblymen on 27 July reflects
not only President Rhee's continuing reliance on his tra-
ditional means of control but also a decline in the in-
fluence of moderate elements within the government.
~oftID IAL
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THE WEEK TN RRTP.P
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CONFIDENTIAL
CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
CHINESE COMMUNIST INCURSIONS
INTO BURMA . . . . . . . . . . . . . . . . . . . . . . . Page 3
The incursion of Chinese Communist troops into North
Burma has led the Burmese government to bring into the
open its long-standing dissatisfaction with Peiping's at-
titude on the problem of the undemarcated border between
China and Burma. Having failed to get Peiping's consent
to early boundary talks by normal diplomatic means, Ran-
goon, through these public charges, may hope to bring
Communist China to accept its proposals for negotiations. 25X1
PROSPECTS IN BOLIVIA
UNDER THE SILES GOVERNMENT
. . . . . . . Page 5
Hernan Siles Zuazo takes over the Bolivian presi-
dency from Paz Estenssoro on 6 August at a critical time
in the country's political and economic development. The
party to which both belong, the National Revolutionary
Movement (MNR), which came to power by arms in 1952, will
attempt for the first time to rule with an elected con-
gress. Bolivia's economy, despite extensive American
grant aid and recently improved prospects for oil devel-
opment by US private capital, is still precarious, largely
because earnings from tin exports are inadequate to nay
even for the country's basic food requirements.
ARAB-ISRAELI SITUATION . . .
. Page 6
Prime Minister Ben-Gurion assured Ambassador Lawson
last week that the United States had no grounds for worry
that Israel will do anything to disturb the peace, but he
said he was not so confident about the "other side."
King Hussain of Jordan has stated that he is trying to
bring the current cycle of incidents to an end. Never-
theless, tension in the area remains high.
COMMUNIST PARTIES CONTINUE DEBATE
ON DE-STALINIZATION . . . . , . . . . . . ,, , . . Page 7
A number of Communist parties outside the Soviet
bloc now have responded to the 30 June Soviet central
committee resolution on de-Stalinization. Although all
of them have endorsed it--usually in glowing terms--sev-
eral have followed Italian leader Togliatti in maintain-
ing that Moscow has still left some important questions
unanswered. The effect of the resolution appears to
have been to limit the scope of discussions on de-Stalini-
zation by the foreign Communist parties. Nevertheless,
foreign party leaders are being left some freedom to
permit discussion if it serves the national party in-
CONFIDENTIAL
THE WEEK IN BRIEF
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
HO CHI MINH REBUKES
VIET MINH MILITANTS . . . . . . . . . . . . . . . . . . . Page 9
Ho Chi Minh, in an article written for publication
in Pravda, has supported the Kremlin's condemnation of
"national Communism" and has asserted that Viet Minh
strategy in Southeast Asia would be governed by what was
in the interest of the Sino-Soviet bloc as a whole. His
comments apparently served as an implicit rebuke to Viet
Minh militants whose.views on unification of Vietnam by
force are out of line with the.avowed Sino-Soviet bloc
policy of " e c ful`competition" with the West.
LAOS . s s Page 9
Laotian prime minister Souvanna Phouma is confident
he can "sell" the Pathet Lao on terms agreeable to the
West.in talks which began in Vientiane on 1 August.
Pathet conditions for a settlement, however, appear to
be virtual political and military control over Phong Saly
and Sam Neua Provinces. While Souvanna asserts he will
nbt compromise Laotian independence and sovereignty, he
may undermine the government's ultimate position by his
int
s
en
e desire to achieve a political settlement.
DISSENSION IN
INDONESIAN COMMUNIST PARTY . . . . . . . . . . . . . . . . Page 10
Dissension has been revealed in the Indonesian Com-
munist Party, and its national position has been weakened
somewhat by?President?Sukarno's public praise for the
United States. The party's top leadership, which has
strong Soviet and Chinese Communist support, is unlikely
to be replaced, however, and ponula.r support for the party
is still
i
grow
ng.
CHINESE COMMUNIST SHIPYARDS
LAUNCH NAVAL VESSELS . . . . . . . . . . . . . . . Page 11
Two submarines, the first produced in Communist China,
were launched at Shanghai in July, and the Chinese Commu-
nists have also launched at least seven and possibly as
many as ten 190-foot 300-ton Kronshtadt subchasers, and
two Riga-class escort destroyers. The Chinese naval ship-
building program has received extPnmivc, Soviet support
si
e
l . 1
nc
ear
95
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THE WRRX TN RA TV'ri
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1WW %W
CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
EAST GERMAN AIR FORCE
PROBABLY GETTING JETS . . . . . . . . . . . . . . . . . . Page 12
The USSR may have resumed a program of equipping the
East German air force with jet fighters.
ne nave reached a level of proficiency that would permit
rapid build-up of a modern air force.
Pilots and other person-
BULGANIN-ZHUKOV TOUR OF POLAND . . . . . . . . . . . . . . Page 13
Soviet premier Bulganin and Marshal Zhukov, during
their short tour of Poland which ended on 28 July, made
several statements regarding the Oder-Neisse boundary
which implied that the USSR is guaranteeing the perma-
nence of that border. While these assurances were wel-
comed by the Polish people, the Poles were less pleased
by Bulganin's warnings to their press against carrying
the de-Stalinization campaign too far and his failure to
refer to the legitimate worker grievances which touched
off the Poznan riots.
HARVEST PROSPECTS
IN EASTERN EUROPE . . . . . . . . . . . . . . . . . . . . Page 14
The 1956 harvest in the East European Satellites
will probably be slightly below that of last year's in-
adequate crop, according to preliminary information.
Until early September, when fall crops reach the con-
sumer, there may be localized food shortages more serious
than have yet occurred this year.
PATTERNS AND PERSPECTIVES
THE SITUATION IN ADEN . . . . . . . . . . . . . . . . . . Page 1
Arab nationalism has grown rapidly during the past
year in Aden, which consists of a British colony and
protectorate on the southwest coast of the Arabian penin-
sula. In the colony, Britain is confronted with polit-
ically inspired labor unrest and rising demands political reform.
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TUR WTi'.Ti'.w TAT DD TVt'
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3LLNG I %WY
CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
SOVIET SCIENTIFIC AND TECHNICAL EDUCATION . . . . . . Page 5
As a result of a major educational drive since the
war, the Soviet Union now has about 1,200,000 scientists
and technical personnel, a scientific manpower force as
large as that of the United States. If present trends
continue, the USSR will graduate about 155,000 science
students in 1960, compared with 126,000 in the United
States. The quality of Soviet scientific education is
generally high. The emphasis, however, is on accumula-
ting facts, and this hampers independent inquiry and
economic policies of the members.
recommend ways of more closely co-ordinating the domestic
ECONOMIC TRENDS IN WESTERN EUROPE . . . . . . . . . . . . Page 9
Western European governments are becoming increas-
ingly concerned over a persistent creeping inflation which
could disrupt intra-European trade, widen the dollar gap,
and lower levels of production and consumption. The dif-
fering degree of inflation in two main groups of coun-
tries--roughly typified by Britain and West Germany--has
caused sharp divergences in national policies which were
reflected in the meeting of the Ministerial Council of the
Organization for European Economic Co-operation in Paris on
17-19 July. The council appointed a special committee to
of the army with Soviet equipment is continuing.
CHINESE COMMUNIST MILITARY MANPOWER . . . . . . . . . . . Page 7
Communist China's military conscription program,
which was introduced in the fall of 1954 to replace what
was nomina l"y a "volunteer" recruiting system, has appar-
ently pro.:Needed with little difficulty. Peiping probably
intends to draft about 500,000 men annually and to de-
mobilize the same number, keeping armed forces strength
at about 2,600,000 men. Chinese Communist military capa-
bilities are likely to improve. A trained reserve capable
of rapid mobilization is being created, and modernization
SECRET
THE WEEK IN BRIEF
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SECRET
2 August 1956
OF IMMEDIATE INTEREST
The extremes of chauvinism
reached in Egypt immediately
ater Nasr's speech on 26 July
announcing nationalization of
the Suez Canal appear to have
passed fairly quickly. There
was an initial tendency to con-
tinue to breathe defiance a-
gainst Western pressures, but
the Egyptians subsequently
swung around to a policy of
avoiding any action which might,
in their view, be interpreted
as a violation of international
obligations with respect to the
canal. Thus Nasr issued a
statement promising that free-
dom of navigation would be
maintained, and his chef de
cabinet added that employees
of the company who desired to
resign would be allowed to do
so if they gave notice in a
regular manner.
Some Egyptians argue that
Nasr's seizure of the canal was
really the lesser of two evils,
since with the withdrawal of
the Western offer to finance
the Aswan High Dam his govern-
ment either had to obtain for-
eign exchange from the canal
tolls or accept Soviet aid in
order to undertake the dam
project.
Although the Egyptian tone
has become less strident, Cairo
has nevertheless made it clear
that it will resist with force
any attempt to reverse the
nationalization action.
British and French Reaction
The.sharp initial British
and French reaction to the
nationalization was followed
on 1 August by a joint decision
with the United States to call
an international conference on
the future of the canal to
which the USSR will be invited.
Britain sought to avoid
possible provocation of Nasr
by an order on 31 July that
four troopships'-due to transit
the canal sail the extra 4,000
miles around Africa instead.
Prime Minister Eden's parlia-
mentary statement of 30 July
that the Royal Navy could
"take care" of the two Egyptian
destroyers being fitted out in
British ports was reversed by
the announcement the following
day that they would in fact
be released.
London and Paris have
nevertheless displayed a readi-
ness to follow the financial
controls immediately imposed
on Egyptian assets and transac-
tions with more drastic measures
if necessary. Both governments
have publicly hinted at the
possible use of force. Some
British forces in the Mediter-
ranean and in England and also
some French forces have been
alerted in moves calculated to
impress both the Egyptians
and domestic opinion, which is
calling for effective counter-
measures. Actually, only very
limited forces are immediately
available to either France or
Britain in view of current in-
volvements in Algeria and
Cyprus.
French opinion remains
particularly incensed, however,
and the Mollet government is
supported by an enthusiastic
416-150 assembly resolution
calling for a "sharp riposte."
SECRET
PART I OF IMMEDIATE INTEREST Page 1 of 3
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SECRET
CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
The French evidently regard
the issue as a critical test
of US support of its NATO al-
lies.
There is no question but
that Egypt?s action is popular
in the rest of. the Arab world.
The nationalization of the
major channel for oil shipments
from the Middle East had par-
ticular significance for Lebanon,
whose government is currently
involved in a dispute with the
Iraq Petroleum Company over
pipeline payments formulae.
Western fears that a wave
of nationalization might affect
oil fields and pipelines appear
at least premature, however.
In a matter so close to their
pocketbooks, the rulers of
the other Arab states are like-
ly to await the outcome of a
Western-Egyptian struggle be-
fore committing themselves to
more than verbal hosannas for
the triumph of Arab nationalism.
Asian Reaction
Reactions from South Asia
indicated that India, Pakistan
and Ceylon, if not Indonesia,
face something of a dilemma.
In the South Asian
view, there was no
question of Egypt?s
right to take over a
vestige of imperial-
ism. But the pos-
sibility of a threat
to peace arising out
of the action and
the prospect that
one power, possibly
capricious, would
control a canal as
vital to South Asian
supply lines as itis
to the West's gave
rise to expressions
of concern. The Ceylonese
prime minister reportedly was
considering calling a. confer
ence of the Colombo powers;
such a meeting could also serve
as a preliminary to a second
Asian African conference. It
seems unlikely, however, that
the South Asians would initiate
any action unless Egypt acted
in such a manner as to jeopard-
ize their economies.
SECRET
,, Naval installation
PART I OF IMMEDIATE INTEREST Page 2 of 3
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SECRET NWO
CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
Soviet Reaction
Over the past week, the
USSR has made clear its desire
for a peaceful solution of the
canal dispute. Khrushchev in
a speech at a builders' rally
on 31 July advised a "quiet
approach" by the West, "soberly
taking account of the new cir-
cumstances and the spirit of
the times. There is no other
way out."
Khrushchev played down
the seriousness of the dispute
but warned the West that any
policy of pressure on Eygpt
""can bring only undesirable
consequences to the cause of
peace," and that "unwise voices"
are heard in Britain and France
asking for the application of
""some unspecified means of op-
pression,. almost of military
operations." He reaffirmed
Soviet support for the legal
and moral position of Egypt.
SECRET
PART I OF IMMEDIATE INTEREST
Soviet support for the. legal
and moral position of Egypt.
Moscow is expected to
welcome the invitation to par-
ticipate in the forthcoming
international conference on
the Suez dispute. Khrushchev
emphasized that the USSR is
directly interested in the
maintenance of the freedom of
shipping through the Suez
Canal--an apparent reference
to Czarist Russia's participa-
tion in the 1888 international
convention on freedom of navi-
gation of the canal--and he
took note of Egypt's affirma-
tion of support for its "in-
ternational obligations." On
30 July an.unidentified Soviet
bloc spokesman in London said
that the USSR would be willing
to join the discussions for
an international solution that
would permit unrestricted pas-
sage of the canal foreign
ships.
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INIv4
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
NOTES AND COMMENTS
SOVIET-JAPANESE NEGOTIATIONS
The formal negotiations
between the Japanese and Soviet
foreign ministers, which began
in Moscow on 31 July, appear
headed for an early settlement.
Shigemitsu's willingness to
head the Japanese mission,
knowing that his political
future and that of his party
depend on reaching a settle-
ment, suggests he expects to
conclude some sort of agreement.
His statement on arriving in
Moscow that he had come to
normalize relations between
Japan and the USSR, as well as
his previous public assertions
that he would not break off
the talks, lends further support
to this view.
At the first substantive
session of the negotiations,
the territorial problem, which
has been the major obstacle to
settlement, was raised. Shig-
emitsu, who believes a strong
S W R
pre-
boun
,or
cry
A~yil~ rK
HH'K0TAH
r f'~ \ de facto
__ i \ boundarie
`SIKHALIN
(under US 2
administr tion)
effort must be made to regain
the Southern Kuril islands of
Kunashiri and Etorofu, reas-
serted Japan's claim to them
and asked for the repatriation
of Japanese detainees prior to
the signing of a peace treaty.
However, he reportedly modified
Japan's previous stand that the
disposition of South Sakhalin
and the remaining Kurils should
be made by an international
Conference of World War II Al-
lied Powers by indicating that
Japan was willing, as in the
San Francisco peace treaty, to
renounce sovereignty over this
territory. Soviet foreign
minister Shepilov opposed the.
claim to the Southern Kurils,
but again offered to return
Shikotan and the Habomai Islands.
The Japanese, however,
appear willing to settle for
residual sovereignty over the
Southern Kurils, and probably
pre-1
boun
~ V.ywi? p
v ,, \\~~~~ ~SHIMUSHIRU
URUPPU
J
ETORRO U
HOKKAIDO-'
1 ~~ QeHIKOTAN
HABOMAI
ISLANDS
SECRET
Sakhalin
and
The Kurils
PART II NOTES AND COMMENTS Pa,?p 1 of 14
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? ._ ?` SECRET
CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
will appeal to the top Kremlin
leaders for an arrangement
along this line as a way out
of the impasse they anticipate
on the issue. While no re-
sponsible Japanese has indi-
cated what step might be taken
if Moscow rejects such an ap-
peal, Shigemitsu probably would
seek to avoid any formal re-
linquishment of Japan's ter-
ritorial claims.
Shigemitsu, like the
Japanese public, believes that
official relations with Moscow
are necessary to gain Japan?s
admission to the UN, to bring
the recently concluded fishery
pacts into force, and to assure
the return of Soviet-held Jap-
anese before winter. The pros-
pect of achieving these aims
would counterbalance a Soviet
rejection of Tokyo's territo -.
ri ,l demands and; the I Japanese
public probably could be con-
vinced that the agreement
reached was, under the existing
circumstances, the best attain-
able for satisfying national
aspirations.
Shigemitsu has emphasized
that he prefers a formal peace
treaty to a more limited agree-
ment restoring diplomatic rela-
tions by an exchange of ambas-
sadors. This could lead to a
treaty which omits any refer-
ence to territories, but which
might have an appended proto-
col in which the USSR agreed
to withdraw from Shikotan and
the Habomai Islands, since the
USSR at the London talks
offered to return them. Such
a settlement would in effect
defer indefinitely the prob-
lem of the remaining terri_
torieso
TENSION HIGH
IN SOUTH KOREAN ASSEMBLY
The attempts of the South
Korean government to prevent
opposition candidates from
registering for the 8 August
local elections, together with
the threat of legislation to
remove Vice-president-elect
Chang Myon from the succession
to the presidency, have pro-
duced disorders and increased
tension in the National Assem-
bly, The use of strong-arm
tactics by police in breaking
up a street demonstration by
assemblymen on 27 July reflects
not only President Rhee's con-
tinuing reliance on his tradi-
tional means of control but al-
so a decline in the influence
of moderate elements in the
government,
to extend the registration
period for the elections. Pre-
viously the Liberal Party had
made use of its majority in
the assembly to force through
a law extending the terms in
office of approximately half
of an estimated 1,500 local
officials up for re-election.
In addition, the National Police
embarked on a campaign of ar-
resting opposition candidates
and detaining them until after
the 19 July registration dead-
line. Official government
figures reveal that over 3,500
persons, including independent
and opposition candidates, were
jailed by police for minor of-
fenses during the registration
period.
Opposition assemblymen
decided to resort to demonstra-
tions following the refusal of
the government-dominated assembly
Assembly business has been
at a standstill since 27 July,
and opposition. assemblymen,
aided by about 30 Liberals,
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PART I I NOTES AND COMMENTS Da ao 9 , .P I A
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
have demanded the release of an
assemblyman arrested during the
demonstrations. A new crisis
loomed when on 30 July the
police served summons on four
other assemblymen, who have
thus far failed to respond.
A possible move to nullify
the result of the vice-presi-
dential election of May by con-
stitutional amendment is an-
other subject of contention.
This amendment, which has been
proposed by two members of
minor opposition parties in the
assembly, would remove Demo-
crat Chang Myon from the pres-
i:dent.ial. succession by pro-
viding that the vice president
succeed the president only when
both are members of the same
political party. The amendment
also provides for a modified
form of parliamentary govern-.
ment, restoration of the
office of prime minister, and
cabinet responsibility to the
assembly, features long desired
by opposition elements.
Adverse publicity result-
ing from': the assembly
CHINESE COMMUNIST INCURSIONS
INTO BURMA
Small-scale Chinese Com-
munist troop incursions into
Burma, at widely scattered
points along almost the entire
length of the Sino-Burmese
frontier, have led Rangoon to
bring out into the open its
long-standing dissatisfaction
with Peiping's attitude on
border problems. Having failed
to get China to withdraw these
troops or enter into early
boundary talks by normal
demonstrations, however, may
lead the administration to
postpone any action on the
proposal to amend the consti-
tution.
Opposition assemblymen
have expressed a willingness
to stimulate popular demon-
strations on their own behalf,
and widespread hostility to-
ward the administration could
lead to such demonstrations
at any time. A Democratic
Party assemblyman who saw
President Rhee on 31 July has
stated, that their interview
was possibly the first time
Rhee had been informed of the
gravity of the situation.
Assembly speaker Yi Ki-
pung has told American offi-
cials that he is powerless to
influence administration policy
and that the home minister, who
was responsible. for the drastic
police action against the
assemblymen, had taken things
into his own hands. The fact
that the police appear to have
a free hand in dealing with
the crisis reflects Rhee's
reliance upon the police and
the absence of a restraining
influence on administration
policy.
diplomatic means, Rangoon may
hope to embarrass Peiping into
accepting its proposals for
negotiations.
It is not clear when, or
over how long a period, these
incursions took place, but
they seem considerably more
serious than earlier periodic
Chinese violations of territory
claimed by Burma.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
Chinese troop dispositions
pose no immediate threat of
large-scale invasion. Only
limited military forces are
maintained in Southwest China
in the vicinity of the Burmese
,border. There are no air units
near the border and the nearest
serviceable airfield is at
Kunming, 250 miles away.
Chou En-lai has consistently
reserved Peiping's position on
the actual location of the
boundary line, even to the ex-
tent of refusing to accept the
definition of the boundary in
the Wa States agreed to by
Britain and Nationalist China
in 1941.
The Burmese government un-
questionably "leaked" informa-
tion about the latest Chinese
move to the Rangoon newspaper
Nation, apparently in an effort
to bring the force of world
opinion to bear on Peiping so
as to induce it to withdraw its
troops and agree to definitive
boundary talks.
Burma's public airing of
the incident marks a complete
reversal of its previous
policy of relying solely on
normal diplomatic channels to
complain to Peiping while
keeping public comment on
frontier problems to a minimum
Kunlong''
Lashio ? 1.
In view of the Sino-Soviet
bloc's campaign to court neu-
tral countries like Burma, the
extensive publicity now attend-
ing Chinese incursions into
Burma will be embarrassing to
Peiping and may be sufficient
to persuade it to agree to
early boundary talks.
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PART I I NOTES AND COMMF VTG
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
Should Burma fail to gain
satisfaction from Peiping by
means of bilateral negotiations,
Rangoon may well take the prob-
lem before the United Nations,
as it did in the case of the
Chinese Nationalist irregulars
in 1953, when other remedies
seemed to have been exhausted,
PROSPECTS IN BOLIVIA
UNDER THE SIZES GOVERNMENT
Hernan Siles Zuazo takes
over the Bolivian presidency
from the popular Paz Estenssoro
on 6 August at a critical time
in the country's political and
economic development. The
party to which both belong, the
National Revolutionary Movement
.(MNR), which came to power by
arms in 1952, will attempt for
the first time to rule with
an elected congress. Bolivia's
economy, despite extensive
American grant aid and recently
improved prospects for oil
development by US private capi-
tal, is still precarious,
largely because earnings from
tin exports are inadequate to
pay even for the country's
basic food requirements.
The 43-year-old Siles, who
was vice president prior to his
easy victory in the elections
of 17 June, is.a respected
right-wing leader but has
neither Paz' financial adumen
nor. his ability, as the MNR's
acknowledged leader, to cope`
effectively with the party's
turbulent left wing. Paz,
moreover, ruled by decree,
whereas Siles must deal with a
newly elected congress which is
almost certain to be jealous of
its prerogatives. While nearly
all seats in both houses are
held by the MNR, 40 of its 63
lower house seats are occupied
by men who also belong to the
Bolivian Workers' Confederation,
which is the center of left-
wing influence. Much will de-
pend on the co-operation Siles
receives from Vice President
In any event, this latest
episode constitutes another
step in the loosening of
close Burmese ties with the
Sino-Soviet bloc established
during the latter part of U
Nu's premiership.
Nuflo Chavez, a left-wing
leader who has now apparently
reversed his unfriendly atti-
tude toward the United States
following a recent visit here.
Siles' Program
Siles' basic goal, like
his predecessor's,will probably
be the raising of living stand-
ards for the mass of the popu-
lation, primarily Indian, in
the general pattern set over
a generation ago by the govern-
ment party in Mexico. Land
reform and nationalization of
the tin mines, though politi-
cally effective in breaking
the power of the opposition,
resulted in declining production
in both instances, and the MNR's
program of economic diversion
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
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is still far from paying divi-
dends despite promising long-
term prospects.
Bolivia is almost a classic
example of the economically
underdeveloped country. The
sixth largest nation in Latin
America and possessed of great
potential wealth in minerals,
timber and agriculture, it is
heavily dependent on the single
export of tin ore and is still
not even self-sufficient in
basic foods. Its 1955 per
capita gross national product
was estimated at only $66, the
lowest in Latin America. Under
US government guidance, Bolivia
is attempting a long-term pro-
gram of improving agricultural
production, but meanwhile is
dependent on grant aid which
for fiscal 1956 approximated a
fourth of the country's export
earnings.
Economic Prospects
Bolivian tin production
difficulties have somewhat eased
as compared to last year, and a
temporary fillip has been given
to tin prices during the past
few days by the possible effects
of the Suez crisis on Malayan
shipments. Even in 1955, how-
ever, Bolivia's import expendi-
tures exceeded export earnings
by 50 percent.
ARAB-ISRAELI SITUATION
Prime Minister Ben-Gurion
assured Ambassador Lawson on 27
July that the United States had
no grounds for worry that Israel
will do anything to disturb
the peace, but he said he was
not so confident about the
"other side."
King Hussain of Jordan
also assured the United States
last week that his government
was doing its best to bring
the current c cle of incidents
to an end .
Bolivia's continuing infla-
tion has been accentuated by
the Paz government's expansion
of currency to pay for new
social legislation and higher
wages so that the boliviano,
which stood at 720 to the dollar
in 1953, was quoted at 9,200
in July 1956. The first im-
portant task of the new govern-
ment will probably be the insti-
tution and operation of apro-
posed Monetary Stabilization
Council made up of high-ranking
Bolivian officials and several
high-ranking American advisers.
The country's chief pros-
pect for any early improvement
in its basic economic situation,
however, lies in oil production,
which increased 59 percent last
year. In addition to supplying
Bolivia's rising domestic re-
quirements for most petroleum
products, the national. Bolivian
company now exports to Brazil,
Paraguay, Argentina and Chile.
The government is also en-
deavoring with some success to
attract foreign private invest-
ment. A subsidiary of the Gulf
Oil Company is already established
in the country and several
other American oil concerns are
actively interested. In addi-
tion, Bolivian negotiations with
two American gold-dredging firms
are repprtedlv in the final
phase.
while, tension remained igh
time.
along the Israeli-Jordanian bor-
der, and the observer, corps, which
has suffered several recent
casualties, fears the outbreak
of new incidents there at any
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2 August 1956
COMMUNIST PARTIES CONTINUE DEBATE
ON DE-STALINIZATION
A number of Communist par-
ties outside the Soviet bloc
now have responded to the 30
June Soviet central committee
statement on de-Stalinization,
and although all of them have
endorsed it--usually in glowing
terms--several have followed
the lead of Italian leader
Togliatti in maintaining that
Moscow has still left some im-
portant questions unanswered.
In some cases, this criticism
may reflect continuing disa-
greement within the national
parties.
The effect of the Soviet
resolution appears to have
been to limit the scope of
discussions on de-Stalinization
by the foreign Communist par-
ties. The basic "Marxist
analysis" presented by Moscow
has been accepted by the for-
eign parties, particularly the
axiom that the fundamental
democratic and socialist char-
acter of the Soviet state has
not been changed by Stalinism.
the circumstances in which the
cult of Stalin's person was
able to develop."
The French party is the
only one which has taken so
flat a stand, presumably be-
cause Thorez wanted to cut off
further debate. The party con-
gress of 18-21 July gave con-
crete evidence that the party
considered that the discussion
of Stalin was over.
Britain: The British Com-
munis PT arty statement, pub-
lished on 16 July after a dele-
gation returned from Moscow,
also strongly endorsed the
Soviet resolution, although
it did express the assurance
that as a result of continuing
Marxist analysis in Moscow,
"further light will be thrown
on some issues which are not
fully clarified." The London
Daily Worker, however, has
stoppea-p-u-b-lishing letters to
the editor containing sharp
criticisms and embarrassing
questions.
Moscow has provided a
standard of orthodoxy which is
valuable for foreign party
leaders trying to keep their
rank and file in line. It has,
however, left other Communist
parties free to raise further
questions. Moscow may think
this is desirable in order to
maintain the appearance of in-
dependence of the parties or
that it is necessary because
of continuing dissension with-
in some of the Christian par-
ties.
- France: The French Com-
munisy issued a state-
ment on 7 July, following the
return of its delegation from
Moscow, which described the
Soviet resolution as giving
"a profound and completely
satisfactory analysis of all
Italy:, The Italian party,
in a statement published on 19
July after a visit of some
leaders to Moscow, also implied
that there would be further
discussions, as it called the
Soviet resolution an important
and valuable contribution "to
the frank and open debate which
is being carried on" with
Italian Communist participation.
Togliatti has never re-
tracted his 16 June statement
referring to the "degeneration
of certain parts" of the Soviet
"social body," which brought
him a rebuke in the Soviet
resolution. Subsequently he
called for a continuing frank
discussion and said that "dif-
fering opinions are possible,'.'
while he endorsed the Soviet
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
resolution.. The semiautonomous'
Trieste party stated on 6 July
that the Soviet resolution was
not satisfactory.
US and Canada: The Ameri-
can communist arty.on 26 July
and the Canadian Communist
Party newspaper e.arlyin. July
both welcomed the resolution
but raised specific questions
for further study and discus:-
sion. Both mentioned excesses
against Jewish cultural in-
stitutions and their leader--
ship. The American party
asked about "bureaucratic dis-
tortions," and the C.anadia.n .
paper said that present Soviet
leaders accepted.Stalin's er.
roneous theory about, the in-
tensification of the class
struggle
The American party pledged
its "firm adherence to the
principle of international
working--class solidarity,"
but it also endorsed "the de-
veloping relationship: of in-'
dependent and friendly criti-
cism" among Communist parties.
The American party statement
was probably a compromise
document, in view. of reported
differences in the party
hierarchy.
Austria . The Austrian'
CommunTs-f-Party on, 17 .July
welcomed the Soviet resolution
and reaffirmed unity with
Moscow., but it did complain
that the Soviet leaders-,`in
raising the de-Stalinization,
question at the 20th party,
congress,, did not sufficiently
consider its impact on.Com-
munist countr-ies.outside,the
Orbit. Moscow radio'omittdd
this complaint from its sum-
mary of the Austrian state-
ment.
Sweden: The most pointed
and extensive questions raised
.by foreign Communists following
the 30 June Soviet resolution
were voiced by Gunnar: Oehman,.
a member of the Swedish i ow--
munist Party executive commit-
tee, in an editorial in the
party newspaper on 12 July.
While calling the resolution
an "important contribution,"
he called for a "thorough
study of the whole development
of Soviet society.". The res-
olution, he said, left the
impression that an attempt was
being made to "circumvent the
core of the problem" of Stalin-
ism. He asked why the present
Soviet leaders had joined in
promoting the cult of Stalin,
had, acquiesced in the.practice
of holding central committee
and party congress meetings
infrequently,. and had permitted
Stalin to gain control of the
state security organs.
India: In Asia,,.where
the de-SStalinization 'issue
:appears. to have. caused much
less commotion, the Indian
Communist Party on.12 July
endorsed the Soviet resolution,
asserted that Stalinism was a
'deviation from Marxism-Leninism,
and urged ideological unity in
the face of imperialist divisive
tactics. On the,other hand,
the party for the first time
called for "a fuller analysis
of the causes which led to
the arbitrary acts and excess-
es" in the USSR, a point
Moscow omitted from its broad-
cast.'summary.
Latin America: The only
formal Communist party reac-
tion reported from Latin Ameri-
ca was a statement by,the
Argentine party whicli' welcomed
it and. said that it would
undermine American efforts to
exploit the Soviet struggle
against the cult of the in
.dividual.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
HO CHI MINH REBUKES
VIET MINH MILITANTS
Viet Minh president Ho
Chi Minh, in an article written
for publication in Pravda sup-
ported the Kremlin's con emna-
tion of "national Communism"
and voiced strong approval of
Moscow's attacks on the "cult
of the individual." In con-
trast to Peiping's treatment
of the subject, Ho's article
did not balance criticism of
Stalin's character with acknowl-
edgment of his achievement.
Implying that de-Stalini-
zation would not induce the
Viet Minh to disregard Moscow's
guidance, Ho stressed that the
Viet Minh is bound to the "gen-
eral struggle" of the bloc and
rejected the notion that Viet
Minh problems are a '."personal
affair,' which no longer eon-
cerns the international prole-
tariat." His remarks apparently
served as an implicit rebuke
of Viet Minh militants, whose
views on unification of Vietnam
by force are out of line with
the Sino-Soviet bloc policy of
"peaceful competition" with the
West.
Viet Minh Disappointment
Despite this reaffirma-
tion of continued adherence to
the Sino-Soviet bloc line, the
current policy may become in-
creasingly frustrating to the
Viet Minh, whose primary success-
es have been military. The
After considerable polit-
ical parrying by both sides,
ae,otiations between the Lao-
tian government and the Pathet,
Lao began on 1 August in Vien-
tiane., Prime Minister Souvanna
rnouma is highly confident he
can "sell" his half-brother,
Pathet Lao leader Prince Sou-
PART II
Viet Minh leaders know they com-
mand overwhelming military supe-
riority over South Vietnamese
forces and are capable of creat-
ing serious internal strife in
South Vietnam. On the other
hand, their propaganda efforts
to force SoutY- Vietnam into
pre-election consultations, or,
as an alternative, to obtain a
new Geneva conference, have so
far proved unfruitful.
The failure to obtain uni-
fication elections this July,
as originally scheduled by the
Geneva conference, combined
with the growing strength of
the Diem government, probably
has depressed Viet Minh morale.
A recent editorial in the Viet
Minh party newspaper Nhan Dan
acknowledged that some peop
have "become pessimistic and
disappointed. "
With Vietnamese unifica-
tion the primary goal of Viet
Minh policy,, lack of polit-
ical )rogress in the future
may tend to foster increasing
frustration in Hanoi and re-
newed demands from the Viet
Minh militants for the use of
more.forceful methods azainst
South Vietnam.
phannouvong, on terms that will
prove an "agreeable surprise"
to the West.
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NOTES AND COMMENTS PAD'A a , ,A
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CURRENT INTELLIGENCE WEEKLY SUIQ ARY
2 August 1956
The Pathets will probably
modify their stand in the in-
terest of achieving a solution
but will undoubtedly insist on
retention of de facto control
in northern Laos while nominally
acceding to Vientiane's author-
ity. For his part, Souvanna
has a great personal stake in
the outcome of the talks. De-
spite his assertion that he. will
accept no compromise which can
derogate Laotian independence
and sovereignty, his concilia-
tory attitude in initial talks
with his half-brother may es.
tablish an atmosphere favorable
DISSENSION
IN INDONESIAN COMMUNIST PARTY
Dissension has been re-
vealed in the Indonesian Commu-
nist Party, and its national
position has been weakened some-
what by President Sukarno's
public praise for the United
States. The party's top leader-
ship, which has strong Soviet
and Chinese Communist support,
is unlikely to be replaced,
however, and popular support for
the party is still growing,.
Attack on Secretary General
In early July an anti-Com-
munist newspaper, Indonesia
Raa_, published a le ter written
last March by Alimix), a deposed
leader of the Indonesian Commu-
to the Communist negotiators
in subsequent working-level
discussions.
The Communists hope to
achieve a neutral Laos on the
pattern of Cambodia with the
Pathets fully integrated and
recognized as a legal political
party. Considerable sentiment
for neutrality already exists
in the Laotian government-
nist Party who is still a party
member, accusing Secretary Gen-
eral Aidit of opportunism,
rightist deviationism and mis-
direction of national-front
policy. Two other anti-Communist
Djakarta dailies have also taken
up the subject. One of them, the
Masjumi organ Abadi, claims there
have been a number of Communist
defections and a wave of pro-
tests to the central committee
over party tactics.
At the time he letter was
written, Secretary General Aidit
was in Peiping and there is some
reason to believe that the letter
was part of a larger effort to
overthrow him.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
The party's central com-
mittee in reply charged Alimin
with left-wing opportunism and
failure to realize that Indo-
nesia is in.a stage of national
and democratic revolution re-
quiring :collaboration with bour-
geois groups. The central com-
mittee also released a statement
from Alimin withdrawing his crit-
icism.. Indonesia ~RRaa~y'_a~~, however,
claims that in a subsequent
interview, Alimin repeated his
original charges and attacked
Khrushchev for the denigration
of Stalin.
Impact of Aidit's Policies
The actual extent of the
opposition to present party
leadership has not been ascer-
tained, but reports of it appear
to be exaggerated. Disagreement
is believed to have existed in
the Indonesian Communist Party
for several years over the ap-
plication of national-front
tactics. Some members of the
central committee, although not
disagreeing to the extent Alimin
does, reportedly have felt that
Communist co-operation with
and support of nationalist
forces need not have gone so
far. It is also generally be-
lieved that the denigration of
Stalin has created considerable
confusion,
National-front tactics,
however, as employed by Aidit,
have significantly increased
the party's following and in-
fluence, and there is no strong
indication of a change of policy
in the near future.
CHINESE COMMUNIST SHIPYARDS
LAUNCH NAVAL VESSELS
Reported new developments
in the Chinese Communist naval
shipbuilding program, which has
been marked by extensive Soviet
support since early 1955, include
the launching at Shanghai in
July of two submarines, the first
produced in Communist China.
Aidit has followed the tac-
tical line set by the Soviet 20th
Party Congress, and is believed
to have the support of Moscow and
Peiping. His statements on Sta-
lin, which are similar to the
line taken by Peiping, have been
publicly parroted by other Indo-
nesian Communist leaders. This,
plus the fact that the challenge
to his leadership was unsuccessful
even when he was out of the coun-
try, indicates that he continues
to control the party.
National Political Fortunes
Regardless of dissension,
party membership is believed to
be increasing, and an effort pre-
sumably is under way to organize
and indoctrinate the 6,000,000
persons who voted for the Commu-
nists in the 1955 elections.
The party's national polit-
tical fortunes, however, ap-
pear to be reduced for the im-
mediate future as the result of
an increased awareness by na-
tionalist forces of the danger
of co-operation with the Com-
munists. The National Party,
which heads the cabinet and
which accepted Communist
support from 1952 to 1955,
in July elected to party of-
fices moderate leaders who
hope to take action to counter
Communist activity. This
leadership has already ad-
vised its members to with-
draw from the Communist-dom'-
nated All-Indonesla le's
Congress.
Shipyards in Shanghai also
launched two Riga-class escort
destroyers, in April and June
respectively, and five and pos-
sibly eight 190-foot 300-ton
Kronshtadt subchasers in recent
months. A shipyard at Whampoa
on the South China coast has
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2 August 1956
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also completed two and is
building two more Kronshtadt
subchasers,
The continuance of the
major shipbuilding program at
Shanghai is evidenced by re-
ports of four and possibly five
additional submarines at Kiang-
nan and at least one more es-
cort destroyer being built at
the Hutung Shipyard.
In addition to Shanghai,
the Communists have apparently
developed Whampoa in South China
as a major facility for naval
construction. The presence of
Soviet shipbuilders in Whampoa
was reported as early as June
1955,
Peiping's present limited
naval strength was built up by
transfers of vessels from the
USSR. These consisted of 13
submarines--of which four were
long-range, four medium-range,
four short-range, and one in-
active used for training--four
prewar Gordyj-class destroyers,
six Kronshtadt-class and six
Artillerist-class subchasers,
two T-43 mine sweepers, and at
least 50 motor torpedo boats.
In addition, the navy has ves-
sels of Chinese Nationalist,
Japanese, British and American
origin, the largest operational
units of which are frigates.
Modernization of many of these
frigates has been noted during
the past few years and is still
continuing.
Thus far the Chinese
Communist navy has been en-
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gaged primarily in training 25X1
programs and defense, but with
the addition of modern long-
range submarines and surface
vessels it could assume amore
aggressive role. Escort de-
stroyers and subchasers are well
suited for operations along
the entire China coast and for
use in offensive measures
against Taiwan.
Actual integration of
the newly built vessels into
the Chinese Communist fleet,
which will follow fitting out
and shakedown trials, probably
will take a number of months.
EAST GERMAN AIR FORCE
PROBABLY GETTING JETS
The USSR may have resumed
a program of equipping the East
German air force with jet fight-
Flight training with jet
aircraft had been in progress
for about two months prior to
the June 1953 riots. After the
riots, the USSR withdrew all
aircraft, and returned only
the piston types a few months
later. _By 1 April 1956, the
air force had acquired an esti-
mated 105 piston trainers.
The stage was set for de-
velopment of an East German air
force in January 1956, when the
East German military forces were
formalized. At that time, Main
Administrations for Air and
Air Defense were established
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2 August 1956
under the new Ministry of
Defense.
BULGANIN-ZHUKOV TOUR OF POLAND
Soviet premier Bulganin
and Marshal Zhukov, during
their short tour of Poland
which'ended on 28 July, made
several statements regarding
the Oder-Neisse boundary which
implied that the USSR is guar-
anteeing the permanence of
that border. The satisfaction
the Polish people almost cer-
tainly derived from these
statements, however, was some-
what offset by Bulganin's
warnings to the Polish press
against carrying the de-Stalini-
zation campaign too far and his
failure to refer to the legiti-
mate worker grievances which
touched off the Poznan riots.
Bulganin and Zhukov told
the people of Silesia: "The
Western frontiers and Silesia
are now forever Polish. The
guarantee of this will be the
friendship of the nations of
our Socialist camp, the friend-
ship of the Polish and Soviet
nations."
They evidently thought
that such a commitment now,
in contrast to previous re-
luctance to commit the USSR
to the present boundaries,
would be one of the most ef-
fective ways of achieving the
purpose of their tour--to boost
the prestige of the Polish
regime after the Poznan riots.
The statements also served in
part to balance. the economic
with re-eat the pment program.
some air force personnel are
politically unreliable, a
factor which may cause the-
regime to proceed cautiously
It is believed, however, that
concessions given East Germany
when its leaders visited Mos-
cow in mid-July.
While these assurances were
welcomed by the Polish people,
other aspects of the Bulganin-
Zhukov visit were less pleas-
ing to them. Bulganin's
speech in Warsaw on 21 July
placed far greater emphasis
on the role of provocateurs
and enemy agents as the cause
of the Poznan riots than did
First Secretary Ochab's speech
two days earlier. Ochab had
emphasized to the central com-
mittee the role of the low
standard of living, wage cuts,
poor working conditions, unduly
high taxes, and the indifference
of the trade unions in causing
the riots.
Anumber of sources of-the
American embassy in Warsaw
have reported that many Poles
were disappointed and angered
because Bulganin spoke as if
he were a member of the regime,
thereby implying Soviet in-
terference in internal Polish
affairs. In addition, press
circles were depressed at his
warnings to the press to stop
allowing itself to be used by
hostile elements who were
seeking to confuse the people
under cover of attacking the
cult of the individual. -
Despite the tone of Bul-
ganin's speech, however, the
SECRET
PART I I NOTES AND COMMENTS papa In r,f 1A
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
28 July resolution of the
Polish central committee reaf-
firmed the regime's intention
to proceed with a liberaliza-
tion program and even made
several additional concessions
to the populace.
The plenary meeting of the
central committee of the Polish
United Workers Party, held dur-
ing Bulganin's visit to Poland,
elected three new men to full
politburo membership and two
others to candidate status. Of
the men elected to the polit-
buro, two are members of a
moderate group among the leader-
ship while the third appears to
be a member of the orthodox
Communist group.
HARVEST PROSPECTS
IN EASTERN EUROPE
The 1956 harvest in the
East European Satellites will
probably be slightly below
the harvest of 1955, according
to preliminary information.
The Satellites as a group at-
tained the prewar dietary level
during the past year only with
the help of large imports of
grain, vegetable oil, and fish.
The current outlook promises no
improvement in the average
worker's diet for the crop year
beginning 1 July 1956. Unless
imports are substantially in-
creased, food shortages seem
destined to remain a major cause
of popular discontent in the
Satellites.
The grain and vegetable
crops probably will be below
last year's level, due to an
unusually cold winter and a
late spring. As of early July,
cold and dry weather was also
adversely affecting growth of
the potato crop. The present
shortage of potatoes in Poland
and East Germany will therefore
probably continue through 1957
unless more favorable weather
prevails during August.
Another shortfall in the
potato crop will seriously
jeopardize production of meat
products by reducing the feed
supply for hogs. This, in turn,
would be extremely detrimental
to the morale of industrial
workers in Poland, East Ger-
many, and Czechoslovakia, who
have been promised more meat.
In addition, the late
spring will delay the harvest
in the Satellites this summer,
and may cause serious, though
temporary, food shortages in
urban centers in August, even
more serious than have yet oc-
curred this year. From now un-
til early September, when the
new harvest is under way, even
such staples as bread and po-
?tatoes will be in shorter than
normal supply. (Pre- 25X1
pared by ORR)
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PART I I NOTES AND COMMENTS Pn s*?p '1A r P 1A
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SECRET
2 August 1956
PATTERNS AND PERSPECTIVES
Arab nationalism has grown
rapidly during the past year
in Aden, which consists of a
British colony and protectorate
on the southwest coast of the
Arabian peninsula. In the
colony, Britain is confronted
with politically inspired
labor unrest and rising der
mands for political reform.'
Aden Colony, lying within
the protectorate, is located
on the main line of communica-
tions between the Mediterranean
and the Indian Ocean and on the
tanker route from the Persian
Gulf to western Europe and
North America. It consists
essentially of a good natural
harbor and two flanking pen-
insulas, with a total area of
75 square miles and a popula-
tion of about 150,000. Since
its occupation by the British
in 1839, Aden has served as a
military outpost, a major re-
fueling station and, more
recently, the site of a 120,000-
barrel-a-day oil refinery.
Aden is the base for the
small British military force
which supports Britain's
interests locally and in the
Persian Gulf where the British
stake is much greater. In
addition to the British-led
native security forces in the
colony and the protectorate,
Britain presently maintains
one squadron of jet fighters
and 1,200 British troops there.
The only British.colo.ny
in the Arab world, Aden has
been the object of political
attack by Nasr's Egypt. Cairo's
"Voice of the Arabs" radio,
probably the most potent in-
fluence in developing political
consciousness in the Arabian
peninsula, treats local griev-
ances as phases of the struggle
against imperialism. Another
instrument of great potential
may develop from the Egyptian-
sponsored pan-Arab labor organi-
zations. In addition, Egypt
and Saudi Arabia have recently
signed military treaties with
Yemen, the Aden Protectorate's
neighbor to the north, providing
Yemen-with a 150-man Egyptian
military training mission and
a large Saudi loan.
The Colony
The British themselves
provided the spark which fired
local political imagination
when they permitted elections
for four out of the 18 seats
in the legislative council of
Aden Colony last year. The
elections, under a limited
franchise, had scarcely been
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PART III PATTERNS AND PERSPECTIVES Page 1 of 13
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
completed when even moderate
elements began to demand self-
government and an indigenous
military establishment.
There are two general
political groupings in the
colony. A relatively moderate
group, the Aden Association,
wants Aden to remain within
the British Commonwealth, but
to control its internal affairs,
including local military forces.
It also desires all members of
the Legislative Council to be
elected.
The second grouping is
made up of ultranationalists,
who are principally Arabs of
Yemeni or protectorate origin
or descent. Their attitudes
are expressed in two political
organizations, the United
f Airfield
......???? Protectorate Boundary
dda
MECCA
N
m
S A U D I A R A B
SECRET *ftftw
oEMP~~ o'
ADEN COLONY AND PROTECTORATE
National Front Party and the
League of the People of the
South.
The United National Front
Party is the Aden Association's
most vocal political opposition
in the colony. It preaches
affiliation with the Saudi and
Yemeni people--although not
under their present rulers--and
its ultimate aim is to force.
the British out of South Arabia
by any means at its disposal.
Its leaders are extreme nation-
alists, admirers of Egypt, and
sympathetic to Yemen's territo-
rial claims on Aden.
The Front wields consider-
able influence in labor circles
and its members have been active
since the first of the year in
a series of strikes. The
A
ADEN PROTECTORATE
-~.+
AWES TERN ADEN
E T H I O P I A _\,j \'%! PROTE TORATEG U L F o
ADEN
ADEN COLONY
(UK)
SECRET
SOCOTRA
~PROTECTORATE)
PART III PATTERNS AND PERSPECTIVES . . Page 2 of 13
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
strikes contributed significant-
ly to the development of local
political consciousness, and
Arab leaders became aware 'of,
the colony's vulnerability to
concerted action by the local
population.
The League of the People
of the South, the other pan"
Arab organization in Aden and
the larger of the two, emphasizes
primarily the destiny of.-the
protectorate. Last March, it
publicly accused the British
of scheming to separate Aden
from South Arabia, declaring
that the treaties between Britain
and the local rulers did not
bind the inhabitants. The
League called for an independent
federation of Aden Colony with
the states of the protectorate
which would be "part of the
people of the greater south."
Because of Aden's stra-
tegic and economic importance
to the Commonwealth, London
has declared that no changes
can be made in the colony's
constitution during the remaining
two and a half years of the
present Legislative Council.
Meanwhile, London is likely to
proceed cautiously toward local
self-government.
The. Protectorate
The status of the protec-
torate is intimately. connected
with the future of Aden Colony
itself. Following the estab-
lishment of Aden ColQny, the
hinterland area of the protec-
torate grew as Britain concluded
treaties with individual tribal
rulers in an effort to forestall
any attempts to outflank the
colony.
The protectorate, with a
total area of about 112,000
square miles, is divided for
administrative purposes into
the Western and Eastern Protec-
torates, which together have a
population of 650,000. Britain
pays each local ruler a cash
subsidy, supplemented by small
economic aid projects, and pro-
vides defense and political ad-
vice.
The difficulty over the
protectorate's border with
Yemen dates from the collapse
of the Ottoman empire in 1918.
The newly,indppeadent Yemenis
refused to recognize the old
Anglo-Turkish frontier line
with Aden Protectorate. Thus,
Yemen claims that its borders
extend to the Gulf of Aden and
include the territory of Aden
Protectorate and the colony.
As in the colony, a recent
British plan for political re-
form appears to have backfired.
In 1954, the British government
of Aden Colony was unsuccessful
in promoting a federation of the
states of the Western Protector-
ate designed to increase British
authority and administrative
efficiency. In bringing up the
plan again at the. end of March
1956, Aden's governor indicated
that further progress toward
federation would depend on the
initiative of the local sheiks.
The current impetus toward
federation does come.chiefly from
some of these rulers, but their
aim is to decrease British
power, with federation merely a
preliminary step to creation of
an independent South Arabian
state. There;remains a diver-
gence of opinion among the local
rulers as to the wisdom of
cutting loose from Britain at
present. The matter is further
complicated by rivalries among
the rulers, some of whom fear
to offend Yemen, while others
favor British protection.
Yemeni and Saudi Activities
While gunrunning and law-
lessness in the protectorate's
undema,cated border areas is
not new, the problem has at-
tained new dimensions since the
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PART III PATTERNS AND PERSPECTIVES Pacra .,4~ "1'2
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2 August 1956
25X1
25X1
summer of 1953 when the imam
of Yemen began a campaign of
harassment and subversion in
the Western Protectorate.
Since March, skirmishes
have taken place near Aden-
Yemen border posts,
Supplementing
direct pressure, Cairo's
"Voice of the Arabs" and Yemen's
Radio Sana have called the
people-,of Aden to armed revolt,
and leaflets have been circu-
lated throughout Aden Protec-
orate urging the population to
SECRET
rise against their rulers and
end British protection.
Another dispute between
Britain and Yemen is the own-
ership of Kamaran Island,
which lies within Yemen's
territorial waters 200 miles
north of Aden. The island is
populated by about 3,000 Arabs.
The British have occupied
Kamaran since its seizure from
the Turks in 1915, and now ad-
minister it under Aden Colony.
In 1928, Yemen unsuccessfully
attempted to obtain British
recognition of its claim to
the island. The British
quarantine station for Moslem
pilgrims is no longer in use,
but Britain operates an air-
field and has recently granted
petroleum. exploration rights
to a British company.
The imam of Yemen has re-:
cently revived his claim to
Kamaran, and last February Brit-
ain rejected his protest against
the oil concession. Yemen has
threatened to take the case to
the International Court of
Justice.
PART III PATTERNS AND PERSPECTIVES Page 4 of 13
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SECRET
CURRENT INTELLIGENCE WEEKLY 6U1MRY
2 Augugt.1956
SOVIET SCIENTIFIC AND TECHNICAL EDUCATION
Soviet efforts since World
War II to produce large numbers
of scientific and technical
personnel have been highly suc-
cessful. Today both the Soviet
Union and the United States have
scientific-technical manpower
forces of about 1,200,000. The
USSR has only about two thirds
as many scientists in research
and teaching as the United
States but has'a larger pro-
portion in practical work.
The term "scientific and
technical personnel" includes
theoretical scientists, mathe-
maticians, practical engineers,
agronomists, physicians, and
other technical experts, who
have graduated from a college-
level institution. Although
the United States turned out
about 10 percent more college
graduates in 1955 than did the
Soviet Union, the USSR grade,
ated 47,000 more than the
United States in these cate-
gories. Last year, 60 percent
of Soviet full-time` students
graduated in scientific-techni-
cal fields as compared to only
25 percent In the United States.
If present trends continue, the
USSR will graduate about 155,-
000 science students in 1960,
some 30,000 more than the
United States.
Basic Schools
The Soviet educational
system is designed mainly to
train scientists, technicians,
and skilled labor for the
nation's economy. At the lower
levels are trade schools, fac-
tory schools, specialized
secondary schools, and seven-
year and ten-year general
schools. Under the Sixth Five-
Year Plan, ten-year schooling
is to be made universal by
1960. The ten-year general
schools provide most of the
students who enter higher edu-
cational
In the Soviet Union, science
is stressed even in elementary
grades: By the time he gradu-
ates from a ten-year school, a
student has taken five years of
physics, five of biology, four
of chemistry, one of astronomy,
and ten of mathematics. Less
than 10 percent of American
high school graduates, on the
other hand, have had as much
as a year of physics and chem-
istry, and even fewer have
taken advanced' mathematics.
About one third of the
ten-year school graduates have
been admitted to higher edu-
cational institutions in recent
SECRET
P.ER YEAR, IN ALL SCIENTIFIC
years. Honor students
are admitted without
taking entrance ex-
aminations, but all
others must pass stiff
comprehensive exams
in Russian language
and literature, mathe-
matics, physics, chem-
istry, and one for-
eign language.
Advanced Schools
Future scientists
and engineers are
trained in three types
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
of higher educational insti-
tution:
(1) Engineering and tech-
nical institutes offer four- to
six-year courses in specialized
fields such as machine building,
construction, medicine, and
agricultural mechanization.
There are about 350 of these
institutes throughout the USSR.
(2) Polytechnic institutes
offer five-and-one-half-year
courses in broader engineering
fields. There are now 25 such
schools whose graduates are
production engineers.'
(3) Universities, of which
there are now 33; of-
fer five-year courses
in fundamental sci-
ences. The better
graduates enter re-
search and the rest
normally become
teachers.
. In these high-
er educational insti-
tutionp, discipline
is strict and at-
tendance at lecture
and laboratorv ses-
sions is compulsory.
Poor students are
weeded out, while
those who do well are
rewarded with in-
creased stipends.
The average student
spends about 90 per-
cent of his time on
technical subjects.
prescribed for a mechanical
engineering student at M.I.T.,
less than 80 percent of the
time is spent on scientific-
technical subjects.
Quality of Training
The quality of training in
the Soviet Union compares
favorably with that in the
United States. Standards are
kept high, since there are
often 12 to 14 applicants for
each vacancy in the better
higher-educational institu-
tions. Classes are quite small;..
and allow for informal contact
between students and profes-
sors. The ratio of students
1955 CURRICULUM REQUIREMENTS FOR MECHANICAL ENGINEERING
STUDENTS MAJORING IN "MACHINE CONSTRUCTION, METAL CUTTING
MACHINE TOOLS AND TOOLS" AT BAUMAN HIGHER TECHNICAL SCHOOL.
NUMBER OF HOURS SPENT ON
SCIENTIFIC SUBJECTS OF INSTRUCTION SUBJECT OVER SYEAR'PERIOD
HIGHER MATHEMATICS .............................................................................................................. 388
PHYSICS ................................................................................................................................ 245
GENERAL CHEMISTRY ................................................................................................................. 120
DESCRIPTIVE GEOMETRY ............................................................................................................. 90
MACHINE CONSTRUCTION DRAFTING AND DRAWING ...........???????????????????????????????????????????? .............. 188
THEORETICAL MECHANICS .......................................................................................................... 214
STRENGTH OF MATERIALS ..........................................................................................................232
THEORY OF MECHANISMS AND MACHINES .........??????????????????????? ....................................................198
MACHINE DETAILS ....................................................................................................................215
GENERAL ELECTRICAL TECHNOLOGY AND MEASUREMENTS OF NON ELECTRIC MAGNITUDES .................. .?190
HYDRAULICS AND HYDRAULIC MACHINERY ?.?..?????????.?????????.??.? ................................................ ........: 84
GENERAL HEAT ENGINEERING ......................... ........................... 78
PHYSICAL METALLURGY AND HEAT-TREATMENT OF METALS ..............................................................?? 96
TECHNOLOGY OF METALS (METALLURGY AND HOT FABRICATION) .....................................................118
SHOP TRAINING .......................................................................................................................204
INTERCHANGEABILITY AND TECHNICAL MEASUREMENTS ...............???????????????????????????????????????????????.?..... 6B
MATERIAL HANDLING MACHINERY AND MECHANISMS ......................................................................116
METAL WORKING MACHINE TOOLS AND AUTOMATICS .............................???.........??.........................337
HYDRAULIC EQUIPMENT IN MACHINE TOOLS ...........................................?.?...........?.??????...?.?............56
ELECTRICAL EQUIPMENT IN MACHINE TOOLS ............................................?..................................... 65
METAL CUTTING ........................................................................................................................ 80
METAL CUTTING TOOLS .............................................................................................................221
MACHINE CONSTRUCTION TECHNOLOGY ......................................................................................208
CONSTRUCTION OF MECHANICAL EQUIPMENT ................................................................................ 39
PLANNING OF MACHINE BUILDING SHOPS AND ELEMENTS OF STRUCTURAL ENGINEERING .................?.?. 65
THERMAL TREATMENT OF MACHINE DETAILS -? ..................................................................................39
AUTOMATION OF INDUSTRIAL PROCESSES ....................................................?................................. 65
INDUSTRIAL ECONOMICS AND ORGANIZATION AND PLANNING OF ENTERPRISES ................................... 91
HISTORY OF ENGINEERING .......................................................................................................... 39
SAFETY ENGINEERING AND FIRE PROTECTION ENGINEERING .............................................................. 39
FOREIGN LANGUAGE ................................................................................................................ 134
TOTAL NUMBER OF HOURS SPENT ON SCIENTIFIC SUBJECTS ..................................... 4322
NON-SCIENTIFIC SUBJECTS
FOUNDATIONS OF MARXISM-LENINISM ...............................................??........................................252
POLITICAL ECONOMY. ........................................................................................................... 140
PHYSICAL EDUCATION AND SPORTS .............................................................................................134
TOTAL NUMBER OF HOURS SPENT ON NON-SCIENTIFIC SUBJECTS ............................ 526
At the Bauman Higher Tech-
nical School in Moscow, the
best of its kind in the Soviet
Union and comparable to the
Massachusetts Institute of Tech-
nology, 39 percent of the typi-
cal mechanical engineering
student's time is devoted to
scientific-technical subjects
or to foreign languages con-
sidered necessary to his
scientific; education. The stu-
dent must take more physics
courses than normally required
of engineering students in the
United States, and he must also
prepare a scientific disserta-
tion before graduation. By
comparison, in the curriculum
to teachers in Soviet higher.
educational facilities in 1954
was 12.6 to one, not?.appreci-
ably different from the ratio
in the United States.
by OSI)
The major weakness in
Soviet scientific training is
that emphasis, particularly in
the engineering and polytechnic
institutes, is on accumulating
facts rather than on gaining
understanding. Such spoon-
feeding probably limits the
curiosity and questioning at-
titude so essential to scien-
tific investigation and may
hamper independent ry and
originality. Prepared 25X1
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
CHINESE COMMUNIST MILITARY MANPOWER
Communist China's military
conscription program, launched
in the fall of 1954 as a ptereq-
uisite for'a modern military
establishment, has apparently
proceeded with little difficulty.
Backed by the Communist police
and military organizations, the
program has benefited from an
intensive press campaign to
educate the public on conscrip-
tion matters.
The new system is more
efficient than the former one,
which nominally relied entirely
on "volunteers." In practice,
however, the voluntary nature
of recruitment was a fiction.
Local civil authorities re-
sponsible for filling quotas
customarily used a wide variety
of social, political and econom-
ic pressures to force individu-
als to enlist. There were no
specified terms of service
and discharge was normally only
for physical disability.
One purpose of the new
military program, as official=
ly stated, is to.permit a re-
duction in the size of the
active military establishment
and, according to Peiping's
statistics, the number,of men
released from active service
since 1954 has exceeded the
number conscripted. It is
probable, however, that armed
forces strength remains at
about 2,600,000 men. There
are indications that Peiping
intends to conscript and re-
lease annually about 500,000
men.
The military service law
provides for the establishment
of a sizable reserve force,--
China's first. This will
greatly enhance Peiping's capac-
ity for rapid mobilization as
ex-soldiers enter the reserve
over the next several years.
Establishment of this reserve"
will be accompanied by
continued modernization with
Soviet equipment.
Conscription
The conscription law states
that all males upon reaching
18 years of age must register
for military service. The
annual draft is carried out
from the first of November to
the end of the following Febru-
ary.
The draftee's term of serv-
ice is three years for the
army, four for the air force,
and five for the navy. The
press indicates that youth in
China, as in other countries,
tend to slight the army in
favor of the air force and
navy.
Peiping is drawing for
military manpower on a popula-
tion of almost 600,000,000.
Because of a liberal deferment
policy, however, and the rejec-
tion of possibly 35 to 40 per-
cent of all applicants for
physical reasons, only about
six or seven percent of the
youth registered are drafted.
In 1954 the Chinese Commu-
nists announced a conscription
figure of 450,000 men. An-
nouncements since then, while
vague, have suggested a similar
annual conscription rate. The
figure represents roughly 20
percent of the total armed
forces, a proportion consistent
with replacement rates in the
military forces of other nations.
During 1955, youths between 18
and 22 were called, and in 1956,
those 18, 19 and 20 years of
age. By 1957, 18-year-olds
will probably be the only group
called.
Most if not all of the 1955
draftees came from rural areas.
Peiping may have been reluctant
to draft the better educated,
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CURRENT INTELLIGENCE W i + L'ei'.` SUMMARY
2 August 1956
more skilled workers from the
urban centers. In 1956, how-
ever, Peiping began drafting in
urban areas, and has stated its
intention to conscript on a
nationwide basis.
The Communists are care-
ful not to draft political "un-
reliables." Citizens under
arrest or surveillance, or
charged with being counterrevo-
lutionary or linked with "feudal
landlords" or "bureaucratic
capitalism," are "disfranchised,"
which among other things makes
them ineligible for military
duty.
Demobilization
In announcing their plans
for conscription in 1954, Chinese
Communist leaders emphasized
that demobilization was re-
quired in order to pursue "peace-
ful construction," pare defense
costs, and create a strong re-
serve backed by a nucleus of
trained war veterans. Defense
Minister Peng Te-huai has said
that an "oversized peacetime
standing army...is of limited
military significance" unless
strong active units and strong
reserves are both available.
Peng claimed a year ago
that 4,500,000 persons had been
released from the services be-
tween 1949 and 1955. Although
no details as to the type of
personnel and manner of release
were given, this would mean,
over a seven-year period, an
average annual release rate of
more than 600,000 men. When
the former Nationalist troops
who surrendered in 1948-49 are
taken into account, as well as
Korean war casualties and the
many loosely organized militia
groups which may have been dis-
banded, a figure closer to
500,000 is indicated.
Peng's announcement at the
same time that 1,570,000 men
had been demobilized in 1954
and 1955 is not supported by
other information. The figure
probably includes 500,000
Public Security troops known to
have been transferred from
military to civilian control
in 1955.
Statements by party of-
ficials acknowledge difficul-
ties in absorbing veterans into
the economy. Those assigned
to work in rural areas--reported-
ly 90 percent--are dissatisfied
with the drab, menial farm
tasks and accuse cadres and
farm administrators of being
unsympathetic with their lot.
The dumping of veterans on
industrial regions is being
avoided, however, to prevent
the growth of unemployment in
these areas. These difficul-
ties are expected to result in
a decision to have conscription
keep pace with demobilization.
Reserve Program
The Chinese Communists
this year are registering all
males between 18 and 40 and all
females in this age group with
special technical skills. Those
not conscripted but meeting the
physical requirements will be
assigned to a military reserve.
Described as the "central
link" in the "modernization"
of the armed forces, the re-
serve could encompass as many as
60,000,000 individuals. It is
to consist of two categories, a
"First Reserve" of officers and
men with prior military service,
and a "Second Reserve" of men
and women eligible for military
service but exempted or deferred.
The reserve program is new
to Communist China. Service
replacements previously came
from direct drafts of "volun-
teers" or in some cases, during
the Korean war, from the mil-
itia--a poorly trained, part-
time home guard organized on
local levels. The militia,
Peiping says, will still retain
its mission of "preserving
local security and protecting
production and nnns+ruction."
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PART III . PATTERNS AND PERSPECTIVES Papa g n+ IQ
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WESTERN EUROPE
CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
ECONOMIC TRENDS IN
Western European govern-
ments are becoming increasingly
concerned over the persistent
creeping inflation which could
disrupt intra-European trade,
widen the dollar gap, and lower
levels of production and con-
sumption. The differing degree
of inflation in two main groups
of countries--roughly typified
by Britain and West Germany--,
has caused .sharp divergences
in national policies which
were reflected in the meeting
of the Ministerial Council of
the Organization for European
Economic. Cooperation (OEEC) *
in Paris on 17-19 July. The
council appointed a special
committee to recommend ways of
more closely co-ordinating the
domestic economic policies of
the members.
All member countries, as
well as associated countries--
the United States and Canada--
agree on the, common goals of
freer trade and payments and
convertible currencies. They
have generally worked co-opera-
tively toward these ends in the
OEEC since it was established
under the aegis of the Marshall
Plan in 1948. Differences arise
primarily from the differing
national economic situations
and focus on the question of
what is feasible at a given
time in shaping national
policies toward common objec-
tives.
National Variations
Adoption of common policies
has been made more difficult--
and at the same time more
necessary--by the differing
impact on the countries of the
1953-56 boom, by the varying
17 members of the
OEEC are: Austria, Belgium,
Denmark, France, West Germany,
Greece, Iceland, Ireland, Italy,
Luxembourg, Netherlands, Norway,
Portugal, Sweden, Switzerland,
Turkey, and the United Kingdom.
development of shortages with
consequent inflationary pres-
sures, and by the subsequent
adoption of disinflationary
measures. Differences between
the British and West German
situations are particularly
striking and, in a broad sense,
typify general divergences
between important groups of
gountries.
Like Britain, the Scandi-
navian countries encountered
shortages, inflationary pres-
sures, and declining dollar
reserves relatively early in
the boom and soon resorted to
disinflationary measures.
RETAIL PRICE INDEX
1953-100
In West Germany, as in the
Benelux countries and Switzer-
land, shortages and inflation-
ary pressures appeared rela-
tively late, gold and dollar
reserves were not seriously
affected, and disinflationary
measures also came later. These
countries are frequently labeled
chronic creditor countries
because of large credits ac-
cumulated in the European Pay-
ments Union (EPU) through
surpluses in their intra-Euro-
pean trade, while Britain
and most Scandinavian countries
are chronic debtors in the EPU.
France, having entered
the boom phase after most other
countries, and able, like Italy,
to draw on previously unused
capacity, has only recently
found it necessary to adopt
disinflationary measures,
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PART III PATTERNS AND PERSPECTIVES
Page 9 of I R
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2'August 1956
M.11 S_9!:. D
although France and Italy are
often large debtors in the
EPU.
Short-term Policy Differences
West Germany, the Benelux
countries and Switzerland want
the general move to convertible
currencies relatively soon.
They take this position not
only because they prefer dollars
or other convertible currencies
to credits in the EPU, but also
because they believe their
economies, and Western Europe
as a whole, would benefit from
the resulting competition with
the United States. They argue
that countries chronically in
debt in the EPU because of
unfavorable trade balances
should solve these problems
by lowering domestic costs and
expanding exports, thus hasten-
ing the general move to con-
vertibility.
The chronic debtor coun-
tries find that debts, adverse
trade balances, and inadequate
gold and dollar reserves pre-
clude making their currencies
convertible and have repeatedly
urged a slower pace in the OEEC.
Underlying problems of the
chronic debtor-creditor rela-
tionship, with the resulting
obstruction to the OEEC's
program for convertibility,
are particularly evident in
recent experiences of Britain
and West Germany.
Britain's Situation
+BALANCE
zjALM
+55
JANUARY
*MONTHLY AVERAGE
MAY, JUNE, AND JULY FIGURES ARE INCOMPLETE
2 AUGUST 1956
Because of Britain's key
international trading and
financial role, it is generally
agreed in the OEEC that the
United Kingdom should make its
currency freely convertible
into dollars before other
member countries do; occasional
West German intimations that
the mark might lead sterling
have evidently been intended
to prod Britain. Interest in
Western European economic
trends has accordingly focused
since mid-1954 on the United
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PART III PATTERNS AND PERSPECTIVES Page 10 of 13
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
EUROPEAN PAY N~ UNIO al POSITION
AND GOM.b, AND DOLLAR RESERVES
00
+001 ovally ,
GOLD a DOLLAR
.I,
DGb -1,000
196, S 1954 1455,? J F M M J
& 1956
1
.
77
3,50C
,000
A
3,000
0goo
soo
V
-
2,500
1,000
500
1
50
0
,
.
oo0
1,000
500
500
0
0
-Soo
Rl (ES
IIiiL~ _i-
Kingdom's developing inflation
and its trade, payments and
dollar reserve problems.
to rebuild reserves
at an adequate rate
after' the $600,000,-
000 decline in 1955.,
especially since the
second half of the
year is seasonally
unfavorable.
In reviewing Britain's
economic situation in the light
of developments in 1956, an
OEEC committee of experts
characterized the outlook as
"somber," The improvement in
the balance of pay-
ments is insufficient
It was pointed
out in the committee
that the modest im-
provement in the
balance of payments
and reserve position
appears to have taken
place at the cost
of some stagnation
in production, which
Britain can ill
UNITED KINGDOM
1600
TGER
NY
SECRET
P`U NETCUMULATIVE POSITION
EXPRESSED IN UNITS OF ACCOUNT
UIVALENT TO ONE. DOLLAR
IA L OE
RM,ANY
UNITED KINGDOM
afford. This slowdown occurred
notably in consumer durables,
particularly automobiles and
electric appliances, which had
been syphoning off resources
from export production in
response to an excessive
domestic demand.
Curtailment of excessive
demand continues to be a key
element of British policy, but
labor and materials are appar-
ently not yet being diverted
to the vital export industries
as intended. Trends in prices
and wages are still unfavorable
for Britain's future trading
position. Furthermore, worker
productivity was last reported
as rising only one half as fast
as wage rates.
The United Kingdom delegate
at the committee meeting took
a less gloomy view than these
facts suggest, but admitted
there was little tangible
evidence to support him. His
optimism was based on "the
country's recent more general
understanding and appreciation
of the needs of the inflation-
ary situation." Subsequent
agreements by major employer
groups to hold the line on prices
lend some support to this view,
but the test will come on their
resistance to wage demands.
UNEMPLOYMENT
(MONTHLY AVERAGE IN THOUSANDS)
J
j
JAN F>
1953 1954 1955
B MAR APR
1956
PART III PATTERNS AND PERSPECTIVES Page 11 of 13
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CURRENT INTELLIGENCE WEEKLY SUMMARY
2 August 1956
West Germany's Situation
Most economic indicators
highlight the advantages West
Germany has enjoyed over
Britain 'since 1952 in the common
effort to remove trade and pay-
ments controls and to make cur-
rencies convertible. Not only
is the Deutschmark less vulner-
able to world trade and price
fluctuations than sterling
because it is used much less
extensively, but West Germany's
production has also increased
relatively more than twice as
much as Britain's, and the
rise in exports is nearly four
times as large.
The resulting cumulative
surpluses in its intra-European
trade have made West Germany
such a large creditor in the
EPU that there has been recur-
rent controversy with debtor.
countries--notably Britain--
over the settlement of credits.
The pressure by West Germany
for increasing proportions of
gold in the settlements--in
the context of its drive for
general convertibility--has
from time to time appeared to
jeopardize the basic inter-
national co-operation essential
for continued functioning of
the EPU. West Germany has
usually been able to anticipate
and exceed OEEC goals for
liberalization of intra-European
trade, except in the case of
some politically protected
agricultural products.
West Germany's gold and
dollar reserves grew from less
than $700,000,000 at the begin-
rnng of 1953 to approximately
$2.5 billion by the end of 1955,
exceeding Britain's by $254,000,-
000. This has made it possible
for Bonn to move toward converti-
bility by removing a large
measure of control from its
dollar imports. Furthermore,
the resultant growth of such
imports gives West Germany
an additional advantage in the
struggle against inflation by
relieving domestic shortages
which began to appear late in
1955. Manpower shortages exist
in West Germany, particularly
in the building trades, and
there has been a substantial
rise in wage rates and some
increase in retail prices;
but the extent of inflation
25X1
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PART III PATTERNS AND PERSPECTIVES Page. 12 of 13
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CURRENT INTELLIGENCE WEEKLY.SUMMARY
2 August 1956
is moderate compared
with that in Britain
and Scandinavia.
Immediate Problems
In recent weeks
differences have be-
come acute among
responsible economic
experts in the OEEC
over West German
financial policy and
its effect on debtor
countries and the
convertibility pro-
gram. Sharp criti-
cism is directed
against disinflation-
ary measures, espe-
cially the increase
in the West German
INDUSTRIAL PRODUCTION AND WORLD TRADE
(PERCENTAGE 1!,4q
EASE 1454-1951i)A
0 INDUSTRIAL VOLUME OF VOLUME OF
PRODUCTION E] IMPORTS ? FYPCIDT?
ITALY NETHERLANDS NORWAY
A CHANGES IN WEIGHTED
2 AUGUST 1956
bank rate on 19 May to 5.5 per-
cent.. It is contended that in-
ternal inflationary pressures
donot require such strong
measures and that these measures
are already producing even
larger payments surpluses, thus
weakening sterling, and being
out of. line with "good creditor"
practice.
West German representatives
contend, on the other hand,
that the disinflationary measures
are actually warranted `by special
circumstances in their domestic
economy. Aside from the need
? of 'a conservative financial
policy to preserve the phenom-
enal, gains of the past several
years, the, Germans point to the
additional strains that will be
incurred with rearmament,
though conceding the arms build-
up will not be extensive in 1956.
They also cite Germany's his-
toric.vulnerability to an in-
flationary psychology, which
they see as already developing
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and necessitating the rise
in the bank rate to discourage
it.
These differences have
become more acute during recent
weeks and are an increasing
obstruction to further progress
in the OEEC's central program.
Responsible representatives
of the OEEC have warned member
governments that closer,co-
ordination of their domestic
economic policies is necessary.
The Ministerial Council on 19
July adopted a resolution
creating a special working party
at the ministerial level to
examine the current economic
situation in member countries
and to. exchange views on ways
of harmonizing national policies..
This group will meet in October
to consider future policy meas-
ures in the light of analyses
to be made by their deputies. -
PART ITT PATTERNS AND PERSPRPP T VTq n..... ,
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