CURRENT INTELLIGENCE WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000900100001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 30
• Document Creation Date: December 16, 2016
• Document Release Date: January 26, 2005
• Sequence Number: 1
• Publication Date: August 30, 1956
• Content Type: SUMMARY

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CONFIDENTIAL P%p
rEERE'T
CURRENT
INTELLIGENCE
WEEKLY
SUMMARY
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NEXT REVIEW DATE,'
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CLASS, CHANGED TO:
NO CHANGE IN CLASS, 0
COPY NO. 16
OCI NO.4.652/56
30 August 1956
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CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
DIA and DOS
review(s)
completed.
O
CONFID.NT1 c
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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
curren.t situations. Comments and conclusions represent
the immediate appraisal of the Office of Current Intelligence.
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 CONFIDENTIAL
/'lr.pnil JVGW I V1 sivacto= LVVJ/ VVJL/ VJVV IVVVV 1-J
30 August 1956
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SUEZ DEVELOPMENTS . . . . . . . . . . . . . . . . . . . Page 1
Nasr's Reaction: Egyptian president Nasr has agreed
to meet the five-power committee appointed by the London
conference majority. There are indications he fears the
effects economic sanctions might have on Egypt. He is
continuing military preparations--but these seem mainly
for psychological effect--and he seems willing to seek
a compromise formula. He is also continuing his efforts
to recruit canal pilots to prevent a breakdown of canal
operations, which might give an excuse for intervention.
Soviet Role: On 28 August the Soviet ambassador
in Cairo stated, after a conference with Nasr, that the
Indian resolution offered the best way to bolster peace
in the Middle East.
Anglo-French Preparations: The British and French
governments continue their precautionary" military
measures. French troops have reportedly arrived in
Cyprus. London is also studying possibilities of further
economic sanctions if present diplomatic approaches
fail. The British press has become more restrained,
while French agitation has returned to its earlier high
pitch.
CYPRUS . . . . . . . . . . . . . . . . . . . . . . . . . Page 4
An 11-day truce called by the Cypriot guerrilla
organization EOKA has ended and terrorist operations
have been resumed. The apparent British determination
to destroy EOKA before making further moves toward a
political settlement on Cyprus and the equally adamant
nationalist determination to force London to negotiate
promise a continuation of the stalemate and of violence
CONFIDENTIAL
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30 August 1956
GRAIN HARVESTING PROBLEMS
IN THE SOVIET UNION . . . . . . . . . . . . . . . . . . Page 1
Although the USSR may suffer losses in harvesting
its bumper grain crop this year because of heavy rain-
fall and poor organization of agricultural work, the
total of harvested grain will be greater than in 1955,
the highest postwar year.
ADDITIONAL SOVIET AIR UNITS
LEAVE EAST GERMANY . . . .
With the departure of a jet light bomber division
and a ground attack division on 26 and 27 August, a total
of three Soviet air force divisions have now been with-
drawn from East Germany. Because of the high degree of
mobility of jet light bomber units and the ground attack
capability of jet fighter units, immediate Soviet air
capabilities in eastern Europe will not be substantially
Page 2
CHINESE COMMUNISTS EXPAND
CONTACTS IN LATIN AMERICA . . . . . . . . . . . . . . . Page 3
The arrival of a Chinese Communist opera group in
Chile on 16 August marked the latest of a series of
efforts by Peiping to establish rapport with the people
of Latin America. While contacts of this sort may in-
crease prospects for general acceptance of China in
certain parts of Latin America, no Latin American state
appears to be contemplating recognizing Peiping at this
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JAPANESE LEADERS DIFFER
OVER NEGOTIATIONS WITH USSR . . . . . . . . . . . . . . Page 4
A conflict has arisen within the Japanese govern-
ment and ruling Liberal-Democratic Party over the action
Japan should take in the deadlocked negotiations with the
USSR. The Japanese have made no move to break off the
talks and apparently still hope to reach a compromise
which will maintain their territorial claims. The
present dissension centers on a proposal to send Prime
Minister Hatoyama to Moscow in an attempt to salvage
CURRENT INTELLIGENCE WEEKLY SUMMARY
CONFIDENTIAL
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30 August 1956
LAOS RECEIVES OFFER OF
CHINESE COMMUNIST AID . . . . . . . . . . . Page
Concluding his Peiping visit, Laotian premier
Souvanna Phouma declared that he was "deeply moved" by
a Chinese offer of aid and has requested the Communists
to send representatives to Laos to make firsthand
observations for future planning. Peiping will probably
follow the lines of its agreement with Cambodia and
offer a grant in aid. In Hanoi, on its return to
Vientiane, the delegation issued a joint statement with
the Viet Minh calling for the establishment of economic
and cultural relations and paving the way for an
eventual exchange of diplomatic representatives.
CAMBODIA . . . . . . . . . . . . . . . . . . . . . . . . Page 6
Prince Sihanouk, recently returned from a three-
month trip to Europe, is having difficulty lining up a
new Cambodian government and may resume the premiership
himself. He seems satisfied that Cambodia's neutralist
foreign policy will protect the country from external
aggression but warns that "Communism will come to
Cambodia" unless internal social and economic. inequal-
ities are reduced. His recent moderate statements and
concern for internal reform suggest that a more re-
sponsible administration may be in the offing.
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SOVIET BLOC
OIL DELIVERIES TO EGYPT . . . . . . . . . . . . . . . . Page 7
Deliveries of petroleum products from the Soviet
bloc to Egypt have increased in August, but not neces-
sarily because of the Suez crisis. In past years, the
bloc has increased its oil shipments to Egypt in the
second half of the year, apparently to offset lagging
first-half deliveries. Despite increased deliveries,
Egyptian stocks of oil products have remained low.
ARAB-ISRAELI SITUATION . . . . . . . . . . . . . Page 8
No serious clash has been reported on the Arab-
Israeli frontiers since 24 August.
Israel
continues to hold to a "wait-and-see" policy pending
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
ment further toward the left
RIVAL ITALIAN SOCIALIST PARTIES
WORK TOWARD REUNIFICATION . . . . . . . . . . . . . Page 9
Public statements by Italian Socialist Party chief
Nenni and Democratic Socialist Party chief Saragat,
following their meeting in Savoy on 25 August, imply
that a basis of agreement has been reached for reunifi-
cation of their parties.. A stronger and more doctrinaire
Socialist party would eventually pull the Italian govern-
PATTERNS AND PERSPECTIVES
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FRICTION IN SPAIN'S RELATIONS WITH THE UNITED STATES . . Page
Friction has arisen in Spain's relations with the
United States over issues connected with American bases
in the country,' labor unrest, and the increased cost of
living. Madrid is reluctant to counter the popular be-
lief that the presence of Americans in Spain is re-
sponsible for'many of the country's difficulties.
PHILIPPINE-AMERICAN RELATIONS . . . . . . . . . . . . Page 4
Expressions of anti-American sentiment in the
Philippines, sparked by Senator Claro Recto, are in-
creasing among politicians and sections of the press.
Although no drastic reorientation of Philippine foreign
policy is likely in the near future, increasing numbers
of influential Filipinos are beginning to voice the
belief that their country deserves better treatment
PROGRESS IN THE TAIWAN ECONOMY .
from the United States
The.Taiwan economy is continuing to make gains this
year. Industrial production now stands 66 percent above
the prewar high of 1941 and is continuing to expand at
a steady pace. Agricultural production equals its pre-
war high, although a rapidly increasing population has
sharply reduced per capita output. Despite these gains,
however, the Taiwan economy cannot support the existing
military establishment and has other basic weaknesses
which will keep the island dependent on external aid.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
PART I
OF IMMEDIATE INTEREST
SUEZ DEVELOPMENTS
Nasr's Reaction
.Egyptian president Nasr
has agreed to meet the five-
power committee appointed by.
the London conference majority.
Nasr seems to be willing to
seek a compromise formula, and
has been impressed by the fact
that no country attending the
London meetings was willing
to support Egypt's position
in full.
While Cairo's
estimate of the possibility
of Western military action has
waxed and waned with reports
of French and British troop
and naval movements, the
Egyptians basically feel that
they are not likely to be at-
tacked directly.
Canal Pilots
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Nasr, or at least his
advisers, have also been im-
pressed by the effects Western
economic sanctions might have
on Egypt. He is reported
interested in finding a formula
which will express the inter-
national interest in the
operations of the canal--an
interest he has not denied--
but which will at the same time
leave Egypt's "sovereign rights"
intact.
Egyptian Moves
The Egyptian army has con-
centrated armor of various
kinds--T-34, JS-3 and Centurion
tanks, self-propelled guns and
other vehicles--a short distance
west and south of Cairo, in a
position to defend the city a-
gainst an enemy advancing from
the coast around Alexandria.
Along the coast itself, machine
gun emplacements have been dug
and armor deployed behind a
ridge paralleling the coast.
These activities still seem
to be mainly for psychological
effect.
Nasr reportedly recognizes
that one of Egypt's most im-
mediate problems is to maintain
a sufficient number of Suez
Canal pilots, since a halt or
an abnormal delay in the passage
of ships through the canal might
provide the British and French
with an internationally ac-
ceptable excuse for intervening.
Soviet propaganda has in-
dicated Moscow's sensitivity
to the effect on international
opinion of a breakdown in canal
operations. The Egyptian ambas-
sador in Moscow on 29 August
said publicly that a "number
of Soviet pilots" had volunteered
for service on the Suez Canal,
and that, together with those
from other nations, these would
be sufficient for Egyptian
operation of the canal.
Soviet Role
The Soviet role in the
Suez controversy continues to
be opportunistic. The USSR
seeks to identify itself with
Arab nationalistic aspirations.
At the same time, it continues
to denounce the use of force
and insists that a peaceful
solution can be found.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
The USSR apparently feels
confident the West will find
it increasingly difficult to
take military action against
Egypt. Moscow probably aims
at prolonging negotiations
between Egypt and the West.
Soviet spokesmen continue
to profess concern that the
Suez crisis might yet explode
into a conflict which would
spread beyond the Middle East.
The army newspaper, Red Star,
repeated Shepilov's statement
in London that the use of force
by the West would be a threat
to peace and that the conflict
might spread to other areas.
There are no indications
thus far that the USSR has
made a commitment of direct
military support of.Egypt a-
gainst the West. Khrushchev
revived the idea of Soviet
volunteers--which has been a
recurrent rumor in the Middle
East--but avoided directly
linking the USSR with the de-
fense of Egypt. At a reception
on 23 August he said the Arab
world "would not be alone" if
there were war over Suez, and
said he would give his approval
if his son volunteered for
service in Egypt.
Soviet propaganda has en-
couraged Nasr to reject the
proposal presented by the five-
nation committee, which was
established by "colonial powers
..to bring pressure to bear on
Cairo." It has also attempted
to line up Afro-Asian nations
behind the Indian resolution.
On 28 August, after a conference
with Nasr, the Soviet ambassador
in Cairo stated that the Indian
resolution offered the best way
to bolster peace in the Middle
East.
Anglo-French Preparations
Since the end of the con-
ference both Britain and France
have continued "precautionary""
A recent news report from
The Hague stated that the
Netherlands government had
granted Britain permission to
use Rotterdam as an embarkation
port for the transfer of troops
to the Middle East, and that
space was being prepared for
the reception of a British
division now stationed in Ger-
many. Press items in early
August had mentioned the 2nd
Infantry Division, one of the
four NATO-committed British
divisions now in Germany, as
being slated for possible use
in the Mediterranean. No con-
firmation of these reports has
been received. If a division
were withdrawn from Germany,
it might only be sent to Britain
to replenish the home garrison.
The naval build-up has
continued, according to the
British press, with the dis-
patch to the Mediterranean of
a destroyer depot ship, a light
cruiser carrying a royal marine
battalion, a tank landing ship
carrying vehicles, tanks and
landing craft, and a flotilla
of seven inshore mine sweepers
with a base ship. The amphibi-
ous warfare squadron based on
Malta has been increased by
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
vessels from the operational
reserve to give it a capability
of lifting more than 2.000
troops.
Somewhat more publicity
has accompanied French military
moves since the conference.
A Mediterranean Forces Head-
quarters was reportedly created
last week to command the armored
and paratroop units reported
being assembled in Algeria.
On 29 August a joint state-
ment announced that a contingent
of French troops will be sta-
tioned on Cyprus. According to
a French Press.Agency report,
the first elements arrived by
air on 30 August. Paris news-
papers stated that paratroops
and Foreign Legionnaires had
embarked from North Africa,
apparently as the advance guard
of two divisions to be under a
joint French-British staff.
One paper said a large naval
force left Toulon on 28 August.
Numerous liners, freighters and
tankers are reportedly being
requisitioned.
On 24 August the American
army attache reported that the
French air force was activating
a Middle East Command, consisting
initially of a fighter group
of approximately 50 planes and
two transport units, and that
ships at Marseilles have been
Public Attitudes
With the conference over,
public discussion in Britain
has increasingly stressed the
difficulties of using military
measures. In keeping with
the conciliatory trend, several
influential papers have echoed
Labor Party leader Gaitskell's
call for the government to
encourage the canal pilots to
remain at work. A few independ-
ent and Labor papers have even
urged the government to call
off its present economic sanc-
tions.
On the other hand, French
agitation over Suez has re-
turned to its earlier high
pitch. France's participation
in the conference is widely
viewed as sufficient demon-
stration of France's willing-
ness to be conciliatory. Since
Nasr is expected to reject the
conference proposals, the
search for means to protect
French interests, especially
in Algeria, continues to take
into account the possibility
of eventually using force.
Robert Lacoste, minister re-
siding in Algeria, has hinted
he might resign if attention
is not paid to his warning that
failure to check Nasr would make
the French position in Africa
impossible.
Those circles in both
countries seeking forcible
intervention look to a possible
transit breakdown to arouse
world opinion for such inter-
vention. The Suez Canal Com-
pany announcement on 26 August
that it could no longer be
responsible for its staff mem-
bers in Egypt appeared likely
to precipitate a breakdown-
loaded with materiel for them. E
Some other fighter groups are
on a combat alert status.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
The French Foreign Min-
istry has anticipated that
withdrawal of foreign personnel
could cause a transit break-
down within two weeks. In this
event, the ministry believes
a favorable majority could be
found in the UN General As-
sembly for an interim inter-
national administration of
the canal, which would place
Nasr in an "impossible dilemma."
The principal goal--shared by
London--is to destroy Nasr's
prestige in Egypt and the Arab
world.
For the present, the
British government is actively
exploring the possibilities of
imposing further economic
sanctions on Egypt in case
diplomatic approaches fail.
London is also considering
curtailing exports to Egypt,
making further efforts to gain
other nations' support for
economic sanctions, and, in com-
pany with the United States and
France, embargoing Egyptian
cotton. At the same time, Foreign
Secretary Lloyd is hoping that
a settlement can be worked out
allowing Egypt to take on cer-
tain operations that would not
result in a loss of face for
the West.
An 11-day truce on Cyprus
called by the Cypriot guerrilla
organization EOKA has ended
and terrorist opera-
tions have been re-
sumed. London appar-
ently intends to take
no significant steps
toward giving the is-
land self-government
until the EOKA organ-
ization is destroyed.
The British re-
sponse to EOKA?s
truce call on 16 Au-
gust, ordering EOKA
members to surrender
for trial or for de-
portation to Greece,
was rejected by the
nationalists. EOKA
then threatened to
resume its operations
if the British did
not reopen talks with
exiled Archbishop Ma-
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30 August 1956
NOTES AND COMMENTS
GRAIN HARVESTING PROBLEMS
IN THE SOVIET UNION
The USSR in 1956 will re-
portedly harvest the largest
grain crop in its history, per-
haps as much as 124,000,000*
metric tons. The 1955 harvest,
a postwar high, totaled 103,-
000,000 tons, while the prewar
high, on a considerably smaller
acreage, was about 105,000,000
tons in 1937. Recent informa-
tion reveals, however, that
the USSR may suffer consider-
able losses in harvesting,
both because of delays in
starting the harvest and be-
cause above-normal rainfall
may damage the crop.
On the basis of weather
data for the period through
July 1956, a harvest of 124,-
000,000 tons is a reasonable
expectation. In 1954, weather
in the New Lands was excellent,
but poor weather reduced yields
in the Ukraine. This situation
was reversed in 1955, when the
Ukraine had an above-average
harvest and the New Lands, a
poor harvest. In 1956, the
Ukraine. has had reasonably
good weather and the New Lands,
excellent weather. This, to-
gether with the almost completed
expansion of corn acreage and
of the New Lands, has produced
large increases in crops in the
field and created the potential
for an abundant harvest.
The actual amount of grain
obtained will depend on the
ability of the USSR to harvest
the crop promptly and to store
hie figures in this arti-
cle are based on "barn yield"--
the grain remaining after har-
vesting loss--rather than on
"field" or "harvest" yields.
it properly. Harvesting losses
during the gathering of unusual-
ly good grain crops in the past
have been abnormally large.
Such losses this year may be
further increased by the in-
adequacy of storage and trans-
portation facilities in the
New Lands.
Heavy Rainfall
This year's harvest is
being adversely affected by an
excess of rainfall in the month
of August, and particularly in
the last two weeks. This rain-
fall has delayed the beginning
of operations, and has wet the,
standing grain and the cut grain
awaiting threshing. Unless the
wet grain can be dried after
threshing,, it is subject to
spoilage. Grain in the New
Lands must normally be dried,
and the bumper crop will prob-
ably overtax available drying
facilities.
Although wheat harvesting
in the Ukraine has virtually
been completed, the bulk of the
New Lands harvesting remains to
be done. The harvesting'of
corn, concentrated principally
in the Ukraine and North Cauca-
sus, will not be in full swing
until September. If harvesting
losses are not much greater than
usual, a bumper crop on the
order of 120,000,000 tons is
assured. If the rains continue
and harvesting is still further
delayed, losses could become
serious, but in spite of this,
the total of harvested grain
will be greater than in 1955.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
ADDITIONAL SOVIET AIR UNITS
LEAVE EAST GERMANY
Two additional divisions
of the Soviet 24th Air Army
have left East Germany in line
with the Soviet announcement on
14 May that a, total of three
Soviet air force divisions
would be withdrawn. A jet
light bomber division left
Oranienburg on 26 August and
a MIG-15-equipped ground at-
tack division left Finsterwalde
and Alt Lonnewitz
airfields on the
following day. The
other ground attack
division of the 24th
Air Army, which was
equipped with obsoles.
cent IL-10 aircraft,
had left Brandenburg
on 20'and 21 June.
The departure
of these units
leaves one jet light
bomber division and
two IL-28 reconnais-
sance regiments in
East Germany. It is
estimated that im-
mediate Soviet air
capabilities in
eastern Europe will
not be substantially
reduced by the with-
drawal in view of
the demonstrated high
mobility of Soviet
jet light bomber
units and the ground
attack capability of
Soviet jet fighter
units.
. The August with.,
drawals were an-
nounced in a Soviet
note inviting Western
military representa-
tives to witness the
departure of these
units.
The departure
of the jet light
T
Neubrandenburg
bomber division from Oranienburg
was marked by formal ceremonies
attended by Marshal Grechko,
Soviet commander in East Germany,
and other high-ranking officers
and civilians. The East German
foreign minister used the oc-
casion to commend the Soviet
action, suggesting that it
should prompt the Western powers
to withdraw all their occupation
EAST GERMANY
SOVIET AIR WITHDRAWALS
-1.20/21 JUNE 1956 -x.26/27 AUGUST
REGIMENTS
JB JET BOMBER
JA JET ATTACK
PISTON ATTACK
TRANSPORT
SECRET
1F
JF
JF
JF
Werneuchen
Leipzig Altlonnewitz
H JF
JF
JA
JA
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30 August 1956
troops. The East German press
reported that more than 70 IL-
28's were involved in the with-
drawal.
Farewell ceremonies were
also held at Finsterwalde air-
CHINESE COMMUNISTS EXPAND
CONTACTS IN LATIN AMERICA
The arrival of a Chinese
Communist opera group in Chile
on 16 August marked the latest
of a series of efforts by Pei-
ping to establish rapport with
the people of Latin America.
During the past year, there
have been several significant
trade, propaganda and travel
contacts made between Latin
American countries and Com-
munist China. While cultural
contacts may increase pros-
pects for general acceptance
of China in certain parts of
Latin America, no Latin Ameri-
can state appears to be con-
templating recognizing Peiping
at this time.
The opera troupe is re-
portedly slated to visit Uru-
guay after Chile. Most Latin
American governments are prob-
ably quite reluctant to re-
ceive the group, and officials
in several countries are op-
posed to granting visas. The
presence of Chilean president
Ibanez and his cabinet at a
performance in Santiago, how-
ever, may influence other
governments to accept the
troupe--particularly if it re-
ceives an enthusiastic public
reception.
Latin American contacts
with Communist China have been
field on the following day.
Approximately 90 MIG-15's and
U-MIG-15 trainers were counted
leaving the airfield.
limited. Chinese officials,
including Premier Chou En-lai,
have stated in interviews with
Mexican correspondents this sum-
mer that Peiping wishes to ex-
pand relations of "all kinds"
with Latin America. In addition,
the Chinese have expressed in-
terest in buying Chilean copper,
Peruvian sugar, Brazilian coffee
and Mexican cotton,
Trade--mainly Argentine
and Brazilian commodities--was
valued at less than $11,000,000
in 1954 and fell to nearly $8,-
000,000 in 1955. A Chinese
Communist delegation which
visited Argentina in 1955 failed
to increase trade with private
Argentine businessmen. Uruguay
a few months later appointed a
commercial agent to China with-
out diplomatic status, and the
two governments reportedly are
considering a banking agreement.
A rise in foreign visits
to China may have persuaded Pei-
ping to launch its present cul-
tural offensive, Latin American
visitors to Communist China in
recent months have included a
group of Argentine physicians
and a Brazilian parliamentary
delegation, in addition to the
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30 August 1956
usual Communists and fellow
travelers.
Chinese Communist cultural
groups have scored several
successes in free world tours.
A 75-member contingent junketed
through the Middle East and
Africa last spring leaving a
string of well-wishers and
cultural exchange agreements
behind. Another group was
well received in Western
Europe last winter.
Programs put on by these
troupes are a potpourri of
traditional Chinese theater
art interspersed with acts and
commentary with propaganda
themes. Performances are
skillfully tailored to the
JAPANESE LEADERS DIFFER
OVER NEGOTIATIONS WITH USSR
A conflict has arisen
within the Japanese government
and among ruling Liberal-Demo-
cratic Party members over the
action Japan should take in the
deadlocked negotiations with
the USSR. The Japanese have
made no move to break off the
talks and apparently still hope
to reach a compromise which will
maintain their territorial
claims. The present dissension
centers on a proposal to send
Prime Minister Hatoyama to Mos-
cow in an attempt to salvage
the situation.
Tokyo apparently is not as
convinced as Foreign Minister
Shigemitsu, who has been con-
ducting the negotiations, that
Moscow's proposed treaty terms
are final.
level of audience sophistication
and include a few numbers in
the local language. Both-on
and off stage the activities
of the troupes show a well-
organized effort to win
friends for Communist China.-
Two senior cultural of-
ficials are leaders of the
troupe in Latin America, evidence
of the importance Peiping
attaches to the tour. These
men are. probably empowered to'
conclude cultural exchange
agreements on the spot and can
be expected to invite leading
Latin American intellectuals
and government officials for
visits to the "New China."
by ORR)
(Concurred in
Japanese. government lead-
ers initially favored sending
Hatoyama and Minister of Agricul-
ture and Forestry Kono to Moscow
to present Japan's minimum terms
on the disposition of the south-
ern Kurils and to determine So-
viet intentions. They believed
that if tbe,USSR still refused,
to modify its demands, the Japa-
nese people would be convinced
of the futility of further nego-
tiations and the government could
either break off,the talks or
accept the Soviet terms without
serious criticism.
Shigemitsu's agreement with
Soviet foreign,minister Shepilov
to suspend negotiations during
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30 August 1956
September set back plans for the
Hatoyama trip. Kono, who
strongly supported the visit,
was also put on the defensive by
Soviet allegations that he had
admitted Soviet sovereignty over
the southern Kurils in his con-
ference with Bulganin in May.
Opponents of the Hatoyama
faction within the government
Liberal-Democratic Party, aware
that the prime minister hoped
to obtain concessions which
would strengthen his domestic
political position, have become
increasingly distrustful of the
proposed trip. There have also
been increasing rumors that when
Shigemitsu returns to Japan
there will be a major political
showdown involving both Japan's
future course in the treaty
negotiations and rivalries for
LAOS RECEIVES OFFER OF
CHINESE COMMUNIST AID
Laotian premier Souvanna
Phouma has apparently endorsed
a Chinese Communist offer of
economic aid, despite prior
statements that he planned to
make no commitments during his
"courtesy" visit to Peiping.
At the close of his visit, the
premier declared he was "deeply
moved" by a Chinese offer of
aid and said he had requested
the Communists to send represent-
atives to his country to make
firsthand observations for future
planning, and draw: up proposals
to help Laos with its five-year
plan.
Chinese Offer
Details of the Chinese Com-
munist offer have not been pub-
licized, and the Laotian govern-
ment may withhold formal approval
of an aid agreement until nego-
tiations with the Pathet Lao
have been concluded. Peiping
control of the government. The
situation probably will be fur-
ther complicated by the report
that an authoritative Soviet
government source had stated on
27 August that Moscow hoped
Tokyo would determine its posi-
tion toward continuing the nego-
tiations within two weeks.
The Japanese cabinet has
decided to send an emissary,
whose advice Shigemitsu values,
to meet the foreign minister
at San Francisco and brief
him on the political situation.
This apparently is an effort
to prevent Shigemitsu from
taking.a stand against further
talks which might precipitate
a split
in the Liberal-Demo-
cratic Party.
25X1
has very likely offered a grant
in aid. The Chinese may request
that a mission be permitted in
Vientiane to oversee the aid
program. Following the Cambodian
pattern, most of the aid will
probably be concentrated on
programs with a popular appeal,
such as educational institutions,
small industries and rural develop-
ment.
Acceptance of Communist aid
may evoke significant opposition
in Vientiane. The president of
the National Assembly told the
American ambassador on 20 August
that the assembly would overthrow
Souvanna if he accepted any aid
from the Chinese.
Sino-Laotian Communiqud
Both the Chinese and Laotians
endorsed the five principles
of peaceful coexistence in the
joint communiqud of 25 August.
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30 August 1956
The Laotian prime minister re-
affirmed previous assurances
given the Pathet Lao that Laos
would adopt a foreign policy of
"peace and neutrality," allow
no new foreign bases on its
territory, and join no military
alliances "as long as its secu-
rity is not menaced." Commenting
on the communique, Souvanna spe-
cifically stated, "We cannot
subscribe to SEATO." indicating
SEATO was the chief target of
the "no alliance" provision in
the communique.
Hanoi Statement
The joint Lao-Viet Minh
statement on 29 August during
the delegation's 48-hour stop-
over in Hanoi marks a further
step in the evolution of Souvan-
na's neutralist policy. Paving
the way for an eventual diplo-
matic exchange, both parties
agreed on the "necessity" of
establishing economic and cultural
relations, as well as the exchange
of "friendly delegations." The
statement further provides that
the Geneva agreement "be strictly
implemented in Laos and Vietnam,"
thereby adding support to the
Viet Minh position on elections
to unify Vietnam.
The Hanoi visit is apparently
part of an over-all settlement
with the Pathet Lao.'. In return
for his concessions, Souvanna
probably was offered private
"assurances" that the Viet Minh
would no longer intervene in
Laos' internal affairs through
its control of the Pathet Lao.
Such a deal was alluded to in the
joint statement, which expressed
mutual: joy over the "settlement"
between the Laotian government
and Pathet Lao, and called on,
Vietnamese and Laotians living
in each other's countries to
respect local laws and customs.
CAMBODIA
Crown Prince Sihanouk,
recently returned from a three-
month trip to Europe, is having
difficulty lining up a new gov-
ernment to replace the Khim Tit
regime which resigned in July,
and may resume the premiership
himself. He appears distressed
by official corruption, and has
expressed an intention to attempt
to improve the economic and so-
cial lot of his people in order
to counteract the appeal of Com-
munism. On the other hand,
Sihanouk seems well satisfied
that his recent visits to the
.USSR and European Satellite
countries have resulted in a
general recognition of Cambodia's
strict neutralism between the
two opposing world blocs.
Sihanouk's immediate choice
for premier appears to be Penn
Nouth, capable senior adviser
.to the crown. There is, however,
strong opposition to Penn. Nouth
in the National Assembly, and
Cambodian political leaders
generally feel that only Sihanouk
can run the government at this
time. Under these circumstances,
Sihanouk has indicated there may
be no alternative but to become
premier again. This possibility
is supported by Siha.nouk's recent
statement that "without me, Cam-
bodia would cease to exist." In
any event, Sihanouk feels that
a new cabinet will not be formed
for at least two weeks, allowing
the Sangkum Congress time to
"ventilate" the corruption of the
Khim Tit administration and to
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30 August 1956
settle political differences
in government circles.
Sihanouk's popularity seems
to have been enhanced by his
trip abroad, which he claims has
reinforced Cambodia's sovereignty
and security by winning univer-
sal recognition of its neutral-
ity. He has cautioned, however,
that Cambodia's political vic-
tories will be lost unless cor-
ruption is curbed and the people's
living standard raised by in-
creased domestic production.
In this connection,. he has again
stressed preference for capital
goods assistance from the West
in lieu of "luxury" imports,
which he says spawn venality.
In the social field, Sihanouk's
recent remarks foreshadow intense
fied application of his social-
ist reform program, which is
SOVIET BLOC
OIL DELIVERIES TO EGYPT
Deliveries of petroleum
products from the Soviet bloc
to Egypt in the first three
weeks of August were about
double the 65,000 tons delivered
in July. This does not neces-
sarily mean, however, that
deliveries have stepped up
because of the Suez crisis.
In past years, the bloc has
increased its oil shipments to
Egypt in the second half of
the year, apparently to offset
lagging first-half deliveries.
In 1955 the bloc furnished
less than 20 percent of Egypt's
total refined petroleum imports
of around 1,200,000 metric tons.
In the first quarter of 1956,
however, Egypt received about
30 percent of its refined
petroleum imports from the bloc,
and the percentage will prob-
ably continue to increase
through 1956. Imports of bloc
crude oil, mainly from the
aimed largely at "equalizing"
Cambodian society.
In general, the tone of
Sihanouk's statements since
his return has been compara-
tively moderate. He has for
the first time in many months
expressed appreciation for
Western aid. He has also
promised that American military
advisers will be permitted in
the future to participate in
planning operations of the Cam-
bodian armed forces, which should
have a salutary effect on the
over-all efficiency of the na-
tion's military establishment.
In any event, Sihanouk as pre-
mier would provide Cambodia with
a more active administration than
those which have operated during
his frequent absences abroad
this year.
USSR, also will probably be
larger in 1956 than in 1955.
Foreign exchange difficul-
ties resulting from Western-
imposed sanctions following
the Suez nationalization could
force Egypt to displace some
of its Western-oil suppliers
in favor of the bloc, which
SOVIET BLOC OIL DELIVERIES
TO EGYPT
(IN METRIC TONS)
100,000
JANUARY - JUNE
SECRET
120,000
AUGUST
1956
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30 August 1956
apparently will continue to
accept barter goods in payment.
Increased deliveries of
oil products from the USSR and
Rumania to Egypt throughout
the first half of 1956 reflected
commitments made in 1955 and
early 1956. From January to
June, deliveries were around
530,000 tons, over'-five'times as
much as during the same period
in 1955 and one and one third
times the estimated bloc de-
liveries for all of 1955.
Barter agreements signed
in 1955. with Rumania and the
USSR assured Egypt of increased
supplies of kerosene and crude
oil for its expanded..refinery
capacity-, Egypt's consumption
ARAB-ISRAELI SITUATION
The flare-up of incidents
on the Arab-Israeli frontier
in mid-August has died down;
no serious clash has been re-
ported since 24 Auamazt
of all refined oil products is
expected to increase from 3,700,-
000 metric tons. in 1955 to 4,-
200,000 metric tons in 1956, as-
suming no outbreak of hostilities.
Even with increased deliv-
eries from the bloc, Egyptian
stocks of oil products have re-
mained low. As of 31 May total
stocks, including aviation gas-
oline, reportedly came to
around 390,000 metric tons, only
a slight improvement over the
estimated level at the end of
March. Stocks of kerosene re-
mained at the precariously low
level of 55,000 tons, even
though deliveries from Rumania
and the USSR were well over 300,-
000 tons in the first six months
of 1956. (Pre- 25X1
pared by ORR)
Equipment problems appear
to have been the major reason
for Jordanian king Hussain's
visit to Damascus last week.
Jordan has been trying, with only
partial success, to obtain addi-
tional eauinment nnrl amm,.r,a +3 ?~
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30 August 1956
RIVAL ITALIAN SOCIALIST PARTIES
WORK TOWARD REUNIFICATION
Public statements by
Italian Socialist Party chief
Nenni and Democratic Socialist
Party chief Saragat, follow-
ing their meeting in Savoy on
25 August, imply that a basis
of agreement has been reached
for reunification of their
parties. A stronger and more
doctrinaire Socialist Party
would eventually pull the
Italian government further to-
ward the left.
Nenni has reportedly
agreed that Italy's foreign
policy must be carried out
within the framework estab-
lished by the Western democrat-
ic powers and that a united
Socialist party would never
seek to constitute a popular-
front government including the
Communists. He added on 28
August, however, that reunifi-
cation need not prejudice rela-
tions with the Communists.
The meeting seems to have
resulted from the initiative
of the French Socialist Party,
the British Labor Party, and
the Socialist International.
Socialist unity was disrupted
in 1947 when Saragat quit Nenni
to form an anti-Communist party.
Nenni's unity-of-action pact
with the Communists has since
been a bar to a rapprochement.
Saragat has wavered between
distrust of Nenni and desire
for a strong Socialist party.
Talks immediately after the
local elections in May, when
both parties made substantial.
gains, seemingly bogged down
on the issue of Nenni's ties
with the Communists.
Communist leaders, how-
ever, have shown increasing
public irritation over Nenni's
recent criticisms. Luigi Longo,
one of Communist secretary
general Togliatti's leading
lieutenants, wrote in the party
daily on 27 August belittling
the possibility of a Socialist
merger and saying it is not
within Nenni's power to make
decisions of that sort.
If Nenni is sincerely
trying to break the Communists'
hold over him, he must find
other financial backing and,
more important, convince a
large element of his following
that a break is necessary.
Recently there have been in-
dications he is seeking means
of becoming independent of
Communist financial support,
and his party's newspaper
Avanti: is now appearing in a
new and less expensive format.
A complete break with the
Communists will not come over-
night, and Nenni reportedly
said the process of merging
the two Socialist parties would
"take some time." He envisages
three phases: an "immediate
drawing together,,, a common
platform for the next polit-
ical elections now scheduled
for 1958, and then a merger.
A real rapprochement be-
tween Nenni and Saragat could
be the final blow to Togliatti's
leadership of the Communist
Party. He has insisted, against
the wishes of Longo and other
hard-core activists, that the
pact with Nenni was a profit-
able one. Already harassed
by criticisms from various
levels of his party as a result
of the ferment over the Soviet
20th Party Congress, Togliatti
faces his own party's fall
congress in a weakened position.
Whether or not Saragat
quits the cabinet, if reunifi-
cation is achieved, changes
would certainly follow because
the Nenni Socialists and the
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30 August 1956
Liberals refuse to participate
in the same cabinet.
Nenni and Saragat have
announced that on the instruc--
tdons of the president of the
Socialist International, French
International, French Social-
ist Party secretary general
Pierre Commin will return to
Rome for further conferences
between 31 August and 5 Sep-
tember, and will report to
the executive committee of the
Socialist International. in Lon-
don on 20 September.
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30 August 1956
PATTERNS AND PERSPECTIVES
FRICTION IN SPAIN'S RELATIONS WITH UNITED STATES
In recent months Spain's
relations with the United States
have become noticeably less
cordial. The Spanish govern-
ment has been un-co-operative
on various issues and has done
little to correct a spreading
popular belief that the presence
of Americans in Spain is re-
sponsible for many of the
country's difficulties.
The aims of the regime's
principal supporters often
clash with American objectives,
internal reverses since late
19.55 have impaired domestic
prestige, and recent interna-
tional developments tend to
make the regime in-
creasingly wary of
granting concessions
which might be inter-
preted as infringe-
ments of the nation's
sovereignty.
Bases Issue
A major issue
is American control
and operation of
facilities at the
naval bases of Rota,
El Ferrol and Carta-
gena. For many
months the Spaniards
have been dragging
their feet on vari-
ous aspects of the
problem. Negotia-
tion of a procedural
I o11. t:
within which the United States
has sole responsibility for
operations, including the
maintenance of internal secu-
rity. The Spanish are reluctant,
for example, to make conces-
sions on the extent to which
American security personnel
could replace Spanish naval
security forces and on the
type of arms American sentries
could carry.
Other unresolved issues
are the Spanish government's
treatment of American Protes-
tant groups and its apparent
failure to punish the Falangist
hoodlums who attacked American
Otis-SPANI H BASE AGREEMENT FACILITIES
TOPR
jJ AI
(end
agreement on Rota after pro-
tracted efforts has been fol-
lowed by Spanish reluctance to
make concessions on the other
bases. In large past, oppo-
sition has been centered in
the navy, which fears that con-
cessions would create "little
Gibraltars" in Spain.
The Spanish disagree with
the American interpretation of
those terms of the 1953 base
agreements defining the areas
citizens at the International
Institute of Education during
the student riots in February.
Anti-American Feeling
Recently thereihas been
a noticeable increase in anti-
American sentiment among the
Spanish public. Many political
and intellectual groups have
translated their long-standing
opposition to Franco into dis-
like for the United States on
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
the grounds that American aid
has enabled him to remain in
power. In addition, a consid-
erable number of Spaniards have
resented the influx of Americans
into Spain during the last two
years and blame the sharp rise
in living costs and attendant
shortages on this influx.
A large part of the re-
sentment, however, probably
stems from xenophobia and a
feeling that the Americans are
going to "take over" Spain.
Anti-American feeling is also
evident in the unfriendly and
biased tone adopted on several
occasions by Spanish newspaper
correspondents in the United
States.
Other indications that
there may be considerable feel-
ing in Spain against American
armed forces personnel assigned
to the air bases are to be
found in recent articles in the
Monarchist and Catholic Action
press suggesting that the re-
sentment in various countries,
such as Iceland, against the
American bases could be over-
come by replacing American
forces, where possible, by
forces of the country concerned.
Pressure of Vested Interests
The army, the church,
industrialists, financiers and
landowners--the principal sup-
porters of the regime--are
primarily concerned with main-
taining their own interests
in the face of widespread
public dissatisfaction over the
restrictive nature of govern-
mental controls. In foreign
affairs these forces tend to
take an extremely nationalist
point of view, with the more
reactionary elements insisting
that Spain withdraw from its
association with the West.
Latent hostility to demo-
cratic concepts is perhaps the
outstanding feature of the en-
vironment in which the regime
functions. This is clear from
Franco's often-proclaimed re-
jection of Western democratic
institutions as a method of
government for Spain. The
regime and its supporters will
co-operate as long as American
assistance contributes to
strengthening or continuing
their position. Issues em-
phasizing the conflict between
democratic and authoritarian
ideologies are bound to weaken
this co-operation.
This was apparent in the
strong punitive measures with
which the government reacted
to the February riots of Madrid
University students and the
strikes in April and May of
industrial workers in northern
Spain.
These outbreaks, arising
from the regime's restrictions
on freedom of thought and
expression and public resent-
ment of the high cost of living,
showed an awakening unrest in
large segments of the popula-
tion. Since pronouncements by
Franco himself and, more re-
cently, by the labor minister
on the subject of further bene-
fits for the workers would seem
to be merely stalling tactics
to pacify labor, it is likely
that the government will soon
be confronted with intensified
unrest.
The loss of Spanish Moroc-
co is another development which
has adversely affected the
regime's prestige and made it
more reluctant co make conces-
sions to the United States,
fearing they might be inter-
preted as infringements of the
nation's sovereignty. The army
in particular has resented the
loss of this area as a source
of various emoluments and privi-
leges that went with assignments
there.
No change can be expected
in the regime's attitude toward
freedom of the press and the
right of foreign correspondents
to criticize the government
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30 August 1956
under the present information
minister, who holds that public
opinion has no place in deter-
mining governmental policy.
Probably the greatest
pressure on the regime is
exercised by the Catholic
Church, one of whose lay arms,
Opus Doi, is successfully ex-
panding its influence in the
field of education from the
Education Ministry down. One
of its top leaders is director
general of information in the
Ministry of Information. For-
eign Minister Martin Artajo
has indicated to the American
embassy that he faces strong
opposition from this organiza-
tion in his efforts to secure
concessions for Protestant
groups in Spain. For its part,
Opus Dei would like Artajo
removed from office on the
grounds that he, a leader of
the moderate wing of Catholic
Action, is too liberal and
international-minded.
The potential of Opus Dei
as an anti-American force in
Spain has been emphasized by
the American embassy in Madrid,
which warned last month that
a further ascendancy of this
organization and of its mental-
ity would have a damaging
effect on US-Spanish relations.
International Issues
Franco's efforts to ex-
ploit two recent international
developments are posing further
difficulties for US-Spanish
relations.
Since April there have
been indications that Madrid
intends to use what it regards
as a weakening of NATO's de-
fense system, resulting from
growing neutralism in Western
Europe and opposition to Ameri-
can bases in Iceland, to drive
a stronger bargain with the
United States over base facili-
ties. In a speech last April,
the Spanish foreign minister
termed American aid to Spain
insufficient and asked for
more economic assistance and
more modern weapons for the
Spanish army. He argued that
Soviet advances in atomic
weapons and guided missiles
increased Spain's risk in
participating in the defense
of Europe and necessitated
further military aid.
The Madrid press echoed
the foreign minister's views,
quoting him as saying, "We must
not overlook the fact that our
accords with the United'States
are aging and do not conform
adequately to new European
realities." The Falangist
Arriba went so far as to state
that the United States recog-
nized this situation and the
need for renegotiating the 1953
base agreements within a more
ample framework.
On the Suez Canal issue,
the Spanish government has
maneuvered to reconcile its
desire for strengthened ties
with the Arab world with a
policy of support for the
American position. Insisting
that a solution must respect
Egypt's sovereignty over the
canal, the Spanish delegation
at the London conference agreed
to the Dulles plan, but with a
condition: that if Egypt re-
jects the American proposal,
the proposed Spanish amendment
calling for Egyptian operation
of the canal with the partici-
pation of other nations on the
administration board would be
presented to Egypt as a basis
for negotiations.
By taking this position,
Madrid was able to plead Egypt's
cause at the conference, and
at the same time demonstrate
solidarity with the other West-
ern conferees. Even more im-
portant to Franco's prestige,
the impression seems to have
been created in Spain that the
government--through astute
diplomacy and conciliatory ef-
forts--may well have saved the
day for the West.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
PHILIPPINE-AMERICAN RELATIONS
Expressions of anti-Ameri-
can sentiment in the Philip-
pines, sparked by Senator Claro
Recto, are increasing among
politicians and sections of the
press. Although no drastic re-
orientation of the Philippine
foreign policy is likely in the
near future, increasing numbers
of influential Filipinos are
beginning to voice the belief
their country deserves better
treatment from the United States.
Bases Negotiations
The present negotiations
concerning American military
bases in the Philippines have
CURRENT STATUS
? Site which the-US ratans the,i hfto o
w Site which may be used by the US `
required by military
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Major Military Bases are named ohhe m y
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SANOLEY PO
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The Philippine Islands
produced the clearest evidence
of the Filipinos' dissatisfac-
tion with their relations with
the United States. From the
very outset, it was clear that
the Philippine negotiating
panel, which includes a number
of supporters of Senator Recto's
nationalistic viewpoint, would
insist on a revision of the
bases agreement. The panel's
position has been so well pub-
licized that it will be ex-
tremely difficult for it to
retreat, particularly in the
face of Recto's constant
proddings.
The paramount issue in
the eyes of the negotiators is
that of Philippine sovereignty
over the base areas; they feel.
various provisions infringe on
that sovereignty and must be
changed. They are insisting
that the basic agreement be re-
vised to conform with base
agreements which the United
States has concluded with Japan,
the NATO nations, and even Spain.
They also want a joint committee
to oversee the operations of the
base agreement, and are anxious
to have greater jurisdiction
over such matters as law enforce-
ment within the bases.
In addition to the sov-
ereignty issue, the Philippine
panel has raised a number of
other points. These include
the surrender of bases which
are either inactive or are be-
ing used by Philippine forces,
customs and tax regulations,
the exploitation of mining and
forest resources on the bases,
and the return of the military
port of Manila to commercial
use.
Critics
A variety of motives and
special interests have prompt-
ed. the deliberate attacks on
American policies. Behind many
of them has been a desire by
some powerful political and
economic interests to undermine
the social reforms proposed by
President Magsaysay. They feel
this can be accomplished, in
part, by discrediting him as
being excessively pro-American.
This indirect campaign against
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
the president is also being
conducted with an eye on 1957
presidential and congressional
elections, but more hopefully
toward those in 1961.
The motives of Senator
Recto derive from extreme eco-
nomic and political national-
ism, personal animosity toward
Magsaysay, and a conviction of
the wisdom of neutralism.
Recto's attacks, typified by
his speech on 18 August aimed
at preventing Philippine con-
cessions in. the base talks,
reveal a belief that present
US-Philippine relations are
not equally beneficial to the
two countries. His attitude
is to get the most out of the
situation in terms of economic
and material aid, automatic
guarantees of defense, favor-
able trade arrangements, and
maximum respect for Philippine
sovereignty.
Anti-Americanism
Although anti-American
sentiment is not a new phenom-
enon in the Philippines, it
has always been overshadowed
by the friendly response of
most Filipinos to the tangible
benefits of close relations
with the United States. In-
creasing criticism of the
United States is in part an
expression of growing Philip-
pine nationalism and has been
influenced by the "actively
independent" policies of other
new Asian nations. Philippine
dependence on American guidance
and support often results in
the United States being blamed
for a wide variety of local
dissatisfactions, regardless
of where the fault may lie.
The majority of rural
Filipinos still appear to be
apathetic toward any campaign
to stimulate anti-American
sentiment, although responsive
chords have been struck at
times. Philippine tobacco and
sugar interests have objected
to American trade policies,
and labor spokesmen have claimed
wage discrimination against
Filipino workers on Guam.
Repeated attacks on "meddling"
American experts have aroused,
at least among more politically
sophisticated groups in Manila,
resentment over the restric-
tions accompanying American
aid to the Philippines. Un-
easiness has been expressed
that the presence of American
bases on Philippine soil may
invite a nuclear attack, or
that the United States' strong-
ly anti-Communist policies may
leave the Philippines badly
exposed should American power
withdraw from Asia.
Magsaysay's Position
As long as his own position
is stable, Magsaysay will un-
doubtedly continue his efforts
to curb anti-American influences
and stress Philippine dependence
on the United States. His ad-
ministration's program of
"dynamic nationalism" is an
effort to channel the growing
nationalism into a constructive
path. American officials, how-
ever, report that "neither
Magsaysay nor the United States
can win here in the long pull
if the politicos are against
the US." They also state that
some influential politicians,
in addition to Recto, are
"beginning to turn now."
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30 August 1956
The Taiwan economy is con-
tinuing to make gains this year.
Industrial production now stands
66 percent above the prewar high
of 1941 and is continuing to
expand at a steady pace. Agri-
cultural production equals its
prewar high, although a rapidly
increasing population has
sharply reduced per capita out-
put. The Taiwan. economy, how-
ever, cannot support the ex-
isting military establishment
and has other basic weaknesses
which will keep the island de-
pendent on external aid.
Agriculture
Record crop yields during
the past six months may push
this year's agricultural pro-
duction somewhat higher than
the prewar 1935-1939 annual
average. Per capita production,
however, is well below prewar
because of population increases.
Ninety percent of exports are
agricultural products, princi-
pally sugar and rice.
In the future, somewhat
higher crop yields should be
attainable through use of ferti-I
liters and improved methods of
farming, and completion in two
or three years of a $9,000,000
highway across the island will
open up additional arable land
in the rugged mountain valleys
in the interior. Most ob-
servers agree, however, that
agricultural production has
nearly reached.its optimum.
Fishing is the only food in-
dustry which can be signifi-
cantly expanded, and a program
of trawler construction is
under way.
Industrial Growth
Industrial growth since
the end of World War II has
been steady if not sharp, and
the industrial production index
has risen 66 percent over the
prewar high of 1941, a con-
siderable achievement. Key
production commodities are coal,
cement, textiles, chemicals,
and nonferrous metals produced
primarily by government trusts.
A major effort has been made to
increase electric power output
and establish a base for new
industry. Both hydroelectric
and thermal power plants have
been built, the most ambitious
project being a dam at Shihmen,
some 35 miles south of Taipei.
Power output is now approxi-
mately triple its 1938 figure.
A number of new industries
have come into operation during
the past year, notably a high-
octane gasoline refining unit
and a window glass factory.
Planning is under way for sever-
al more industries, including
a steel plant, a plastics plant,
and a coke oven. In addition,
an American shipbuilding company
has proposed leasing the Taiwan
Shipbuilding Corporation to con-
AGRICULTURE PRODUCTION INDEX (1935-39 AVERAGE-100)
INDUSTRIAL PRODUCTION INDEX (1941=100)
150
-
125
100
75
POPULATION (in mH119pt) 9.7 9.9 10.2 10.5
30 AUGUST 1956 .-.-"i
struct large tankers and other
vessels. In contrast to its
earlier stress on the import of
consumer goods, Taiwan has late-
ly begun to stress development
of basic industry, possibly in
tacit recognition of the improb-
ability of an early return to
the mainland.
In the past, the National-
ist government has not encouraged
private industry or foreign in-
vestments. Private businessmen
have found it difficult to obtain
working capital in part because
of government bank regulations.
Banks with funds have kept them
hidden to avoid high income tax
rates. Nevertheless, private
industry is active in the light
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CURRENT INTELLIGENCE WEEKLY SUMMARY
30 August 1956
consumer goods field, and Amer-
ican business firms have recent-
ly shown interest in loans to
Chinese industry. The Nation-
alist government has proclaimed
its intention to promote Over-
seas Chinese investment on Tai-
wan, but it has yet to demon-
strate a genuine willingness
to implement wuch a policy.
Whether Taiwan will main-
tain its standard of living,
which is relatively high, by
Asian standards, depends princi-
pally on the success of the
industrialization program, which
must expand and supplement agri-
culture as a source.of income.
The increase in food pro-
duction has been paralleled by
a corresponding and much greater
increase in population. Some
2,000,000 refugees poured in
from China's mainland in 1949
to escape Communist rule. This
influx, combined with one of
the highest birth rates in the
world, has resulted in a 55-
percent increase in population
since 1946. Food production
has not kept pace with popula-
tion growth. Per capita out-
put has fallen to about 53 per-
cent of prewar.
Despite undeniable gains,
a number of other inherent
weaknesses leave Taiwan heavily
dependent on American aid. First,
import requirements are still
running far ahead of exports,
although the balance-of-payments
deficit, made up indirectly by
American aid, decreased from
$116,000,000 in 1954 to $65,-
000,000 in 1955. The National-
ists have remained more inter-
ested in increasing. consumer
goods imports than in promoting
exports, and differential rates
of exchange tend to favor im-
ports. Export shipments have
often been hampered by admin-
istrative delays. Over the
long run, the high birth rate
will cut down exportable food
surpluses.
Second, creeping inflation
is still a threat, despite the
fact that wholesale prices have
declined somewhat since last
December. Prices have risen
some 40 percent since February
1953. The money supply contin-
ues to expand and a government
policy of deficit spending adds
to the inflationary pressure.
The most serious weakness
in the economy is Taiwan's in-
ability to support the present
640,000-man military establish-
ment. Approximately one third
of the military budget must be
met by American aid. This is
in addition to the cost of new
equipment, which is supplied by
the United States through the
MDAP program. Without American
aid, military expenditures
would consume approximately 70
percent of the government's rev-
enue. Unaided, the Taiwan econ-
omy could support only nominal
military forces.
The basic economic problem
for the Nationalist government
is how to increase agricultural
and industrial output sufficient-
ly to keep pace with a rapidly
expanding population, and at
the same time maintain its
military establishment. Con-
siderable progress has been
made, but there is little pros-
pect for the establishment of
a self-supporting economy under
present curcumstances.
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