CURRENT INTELLIGENCE WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A001300030001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: December 16, 2016
• Document Release Date: February 4, 2005
• Sequence Number: 1
• Publication Date: June 13, 1957
• Content Type: SUMMARY

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CONFIDENTIAL`
CURRENT
INTELLIGENCE
EEKLY
S UWAA ARY
DAT Qa4-REVIEWER:
COPY NO. 17
OCI NO. 3057/57
13 June 1957
DOCUMENT NO.
NO CHANGE IN CLASS. 0
0 DECLASSIFIED
CLASS. CHANGED TO: TS S?
NEXT REVIEW DATE/ _ --
II
CENTRAL INTELLIGENCE AGENCY
f OFFICE OF CURRENT INTELLIGENCE r% W,
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CONFIDE L
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State Department review completed
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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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OF IMMEDIATE INTEREST
USSR MODIFIES PROPOSALS FOR PARTIAL DISARMAMENT
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . Page 1
Soviet disarmament delegate Zorin, responding to an
earlier informal US presentation of views,~on 7 June moved
toward the American position by accepting' suggestions on
three points at issue. However, the Soviet Union main-
tained intact its minimum terms for a partial agreement
as set forth in its 30 April proposals--suspension or
cessation of nuclear tests, renunciation of the use of
nuclear weapons, and a commitment to reduce forces beyond
the first-stage level of 2,500,000 for the US and the USSR.
In the forthcoming phase of the London talks, Zorin
probably will seek to focus attention on two issues on
which Moscow apparently believes the West's position is
most difficult to defend--a nuclear test ban and a Euro-
pean inspection zone.
MIDDLE EAST DEVELOPMENTS . . . . . . . . . . . . . . . . Page 2
Developments favorable to the West in the first phase
of the Lebanese election coincide with potentially impor-
tant setbacks for Nasr in his relations with other Arab
governments. King Saud's six-day visit to Jordan which
commenced on 8 June highlights the emergence of an impor-
tant Arab bloc estranged from Nasr. Meanwhile, relations
between Jordan and Egypt have virtually been broken off,
and there are growing indications of Saudi rapprochement
with Iraq.
NEW ITALIAN GOVERNMENT CRISIS . . . . . . . . . . . . . . Page 4
The search for a new Italian premier to succeed Chris-
tian Democrat Adone Zoli, who resigned on 10 June, is tak-
.ing place in an atmosphere of political bitterness accen
tufted' by press demands for early elections. Formation of
an exclusively Christian Democratic caretaker cabinet, to
govern pending elections advanced to autumn seems the
most likely solution.
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13 June 1957
THE NEW FRENCH GOVERNMENT . . . . . . . . . . . . . . . . Page 5
Maurice Bourges-Maunoury, youngest premier under the
Fourth Republic, will be obliged to follow the general
lines of the Mollet policy on the key financial and North
African problems. His strong nationalism will be a com-
plicating factor, however, in any discussion of France's
role in Africa and the Middle East as well as on disarma-
ment.
PART II
NOTES AND COMMENTS
NORTH AFRICA . . . . . . . . . . . . . . . . . . . . . . Page 1
Clashes between French army units and the Tunisian
national guard continue. As a result, Premier Bourghiba
has renewed his demands that France evacuate all Tunisia
except the strategic base at Bizerte. The French contend
that Bourghiba cannot maintain order. In Algeria, the
widely publicized Melouza massacre which occurred on 28
May and the riots by Europeans on 11 June are symptomatic
of the continuing deterioration of the security situation.
F_ 7
KARACHI SESSION OF BAGHDAD PACT COUNCIL . . . . . . . . . Page 2
The recent meeting of the Baghdad pact council in
Karachi demonstrated that, despite differences of opinion
on procedural and organizational matters, the members are
basically united in their desire to get ahead with the
business of area defense planning. There is agreement
that while the membership of other Arab states is de-
sirable, no pressure will be exerted to bring them in at
this time.
KISHI'S WASHINGTON VISIT . . . . . . . . . . . . . . . . Page 3
The major purpose of Prime Minister Nobusuke Kishi's
visit to Washington, scheduled for 19-21 June, is to lay
the foundation for a change in the "basic spirit" of the
relationship between the United States and Japan. He
apparently feels the key to better relations lies in re-
vising the US-Japanese security treaty and administrative
agreement, but he is expected also to seek adjustments on
several other major issues. These include the status of
the Ryukyus and the Bonins, China trade, nuclear tests and
the release of Japanese war criminals.
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BULGANIN-KHRUSHCHEV VISIT TO FINLAND . . . . . . . . . . Page 5
Bulganin and Khrushchev on 13 June ended their seven-
day visit to Finland--their first to a non-Communist coun-
try since the Hungarian revolution. The two leaders made
a special attempt to demonstrate that Soviet-Finnish re-
lations constitute a prime example of friendly intercourse
between countries regardless of their social systems.
Although the Soviet delegation included high government,
defense and trade officials, no outstanding problems be-
tween the two countries were negotiated.
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ORGANIZED RESISTANCE TO SOVIET LITERARY POLICY . . . . . Page 6
At a recent Communist Party meeting of Moscow writers,
it was openly charged that the editors of the much-criti-
cized almanac Literaturnaya Moskva, supported by several
liberal young authors, a formed an "opposition group" on
the basis of a "clearly defined literary-political plat-
form not in conformity with the party's policy in the
field of literature." The platform is alleged to advo-
cate "democracy without bounds," "freedom of the press
"
and other "petty-bourgeois vacillations." 25X1
HUNGARY'S ECONOMIC PROBLEMS . . . . . . . . . . . . . . . Page 7
Fiscal policies underlying this year's economic plan
and budget in Hungary have been radically revised in order
to meet some of the country's grave economic problems.
Investments, military expenditures and outputgoals have
been cut drastically. Nonetheless, judging from the poor
performance during the first quarter of this year, it
seems that even these modest goals are too high. For the
foreseeable future, Hungary will continue to be an eco-
nomic liability to the Soviet bloc. 25X1
EAST GERMAN EFFORTS TO COMBAT STUDENT UNREST . . . . . . Page 8
The East German regime's determination to stamp out
deviationist ideas in university and intellectual circles
is being emphasized at discussions between party leaders
and university officials tbrougbout East Germany. As a
result of the government's repressive measures and in
order to avoid army service, East German youth are flee-
ing to the West in growing numbers.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
13 June 1957
CYPRUS . . . . . . . . . . . . . . . . . . . . . . . . . Page 9
As a result of his preliminary investigation of the
Cyprus question, NATO Secretary General Spaak believes
that internationally guaranteed independence offers the
most helpful basis for reopening negotiations. British
governor Harding wants London to make some positive move
now toward eventual negotiation with the Cypriots, but
the government prefers to await the outcome of Spaak's
endeavors.
INDONESIA . . . . . . . . . . . . . . . . . . . . . . . . Page 10
Lt. Col. Sumual, commander in East Indonesia, and
army chief of staff General Nasution have reached a "mu-
tual understanding" for "normalizing" military, economic
and financial relations between East Indonesia and the
Djakarta government. The degree to which such, an under-
standing will be implemented remains to be seen. Mean-
while, the economic consequences of the separatist move-
ments are becoming increasingly apparent. Prime Minister
Djuanda plans to submit the $100,000,000 Soviet technical
aid agreement to parliament in the near future.
SITUATION IN LAOS . . . . . . . . . . . . . . . . . . . Page 11
Laotian prime minister-designate Katay is attempting
to form a cabinet in which all major parties will be repre-
sented. His chances of success, while still fair, have
been somewhat reduced as a result of the unfavorable re-
action of a number of deputies to his proposed tough
policy toward the Pathet Lao. The Pathets, meanwhile,
are engaged in an all-out effort to block Katay and re-
turn Souvanna Phouma to office.
COMMUNIST CHINA'S FORTHCOMING NATIONAL PEOPLE'S
CONGRESS . . . . . . . . . . . . . . . . . . . . . . . Page 12
The upcoming session of Communist China's National
People's Congress--nominally the highest organ of govern-
ment--will probably stress Peiping's policy of general
relaxation in internal affairs, reaffirming in particular
the regime's decision to allow popular criticism of the
Chinese Communist Party. The highlight of the session,
scheduled to open on 20 June, is likely to be Chou En-
lai's foreign policy report in which he will probably
support all Soviet policies toward the West and under-
score the importance of bloc unity, while pointing out
that such unity does not require complete agreement among
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13 June 1957
COMMUNIST CHINA CHARGES INTRUSION BY AMERICAN
AIRCRAFT . . . . . . . . . . . . . . . . . . . . . . . . Page 13
Peiping can be expected to use the 12 June incident
near Swatow involving American aircraft in its propaganda
campaign against Taiwan. The Chinese Communists were
quick to link their allegations of intrusions of Ameri-
can naval aircraft with charges of new American "aggres-
sion and provocation." The Communist charges were not
unusual, either in tone or the speed with which they were
publicized. F_ I
CUBAN GOVERNMENT'S POSITION WEAKENS . . . . . . . . . Page 14
President Fulgencio Batista's government has suffered
a noticeable loss of prestige during the past few weeks.
It has failed in its drive against the rebels in eastern
Cuba and in its efforts to promote a political compromise
in Havana. Batista's ability to retain control until the
end of his term in February 1959 is uncertain.)
THE CANADIAN ELECTIONS Page 15
The failure of either of the major Canadian parties
to win a majority in the 10 June election and the absence
of any apparent basis for a coalition suggest that new
elections may be held soon. Most observers expect, how-
ever, that the Conservatives will in the meantime form a
government which would display heightened sensitivity
about Canadian sovereignty in relation to the United
States, and seek to tighten relations with Britain and
the Commonwealth.
PATTERNS AND PERSPECTIVES
NEW FERMENT IN EASTERN EUROPE STIMULATED BY
CHINESE COMMUNIST DOCTRINES . . . . . . . . . . . . . . . Page
Communist intellectuals in Eastern Europe have begun
to turn to Communist China for inspiration and ideological
support. Polish intellectuals cite Chinese doctrines that
are at some variance with Soviet doctrine (especially
Chinese concepts of "let all flowers bloom" and "internal
contradictions"), and writers in the hard-line Satellites
have begun to do the same. With the exception of Hungary,
these hard-line Satellite regimep have avoided:interpreta-
tion?and discussion of the Chinese ideas. Ian Hungary,
where the controls are strictest, official publications
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CURRENT INTELLIGENCE WEEKLY SUMMARY
13 June 1957
stress that the new Chinese doctrines are not necessarily
applicable elsewhere in the Communist world. This ap-
proach, which is probably intended to check any ground-
swell of Chinese-inspired intellectual ferment, has re-
cently been sanctioned by Khrushchev and may become the
orthodox line in the Soviet bloc.
25X1
SHORTCOMINGS IN COMMUNIST CHINA'S ECONOMIC PLANNING . . . Page 3
The Chinese Communists recently have admitted they
made "serious mistakes" in being overambitious in eco-
nomic planning, implying that this was in part a result
of their past dependence on Soviet economic advice. These
mistakes, they say, are the cause of the raw material and
consumer goods shortages as well as the financial strin-
gencies of the past six months which forced Peiping to
make 1957 a year of retrenchment and austerity. Indica-
tions are that a conservative outlook will affect China's
Second Five-Year Plan (1958-1962). The investment pattern
for the plan is to be altered to give an increased pro-
portion of funds to light industry and agriculture, and
more emphasis will be put on the construction of small-
and medium-sized enterprises which can be designed and
equipped from China's own resources. 25X1
SINO-CEYLONESE RICE-RUBBER AGREEMENT TO BE RENEGOTIATED Page 7
The Ceylonese government is preparing to renegoti-
ate with Communist China the five-year rice-rubber agree-
ment which expires at the end of 1957. A delegation
tentatively scheduled to visit Peiping this month for
this purpose will probably find the Chinese disinclined
to sign an agreement as favorable as that obtained by
Ceylon in 1952. Signature of a less favorable agree-
ment would subject Prime Minister Bandaranaike's govern-
ment to considerable domestic criticism. A breakdown of
negotiations without agreement could have repercussions
seriously affecting the government's stability.
SOME LATIN AMERICAN COMMUNISTS LOOKING TO PEIPING . . . . Page 9
Some Latin American Communist Party leaders--partic-
ularly in Ecuador, Chile, Colombia and Costa Rica--have
recently been emphasizing the applicability of the methods
and activities of the Chinese Communist Party to Latin
American conditions. Ideologically, the Communists cite
parallels between pre-Communist China and Latin America,
such as economic domination by foreign capital and a "semi-
colonial" political status.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
OF IMMEDIATE INTEREST
USSR MODIFIES PROPOSALS FOR PARTIAL DISARMAMENT AGREEMENT
Soviet disarmament dele-
gate Zorin, responding to an
earlier informal US presenta-
tion of views, on 7 June moved
toward the American position by
accepting suggestions on three
points at issue. However, the
USSR maintained intact its
minimum terms for a partial
agreement as set forth in its
30 April proposals--suspension
or cessation of nuclear tests,
renunciation of the use of
nuclear weapons, and a commit-
ment to reduce forces beyond
the first-stage level of 2,500,-
000 for the US and the USSR.
In the forthcoming phase of the
London talks, Zorin probably
will seek to focus attention on
two issues on which Moscow ap-
parently believes the West's
position is most difficult to
defend--a nuclear test ban and
a European inspection zone.
The Soviet memorandum, pre-
sented by Zorin on 7 June, agreed
to the United States delegate's
suggestions for (1) a three-
stage reduction of forces; (2)
an inspection system to enforce
a cessation of nuclear tests;
and (3) armaments reductions by
specific quantities rather than
on a percentage basis as the
USSR had previously proposed.
While Zorin has consistent-
ly stated that the USSR regards
a commitment to reduce forces
beyond the first-stage level of
2,500,000 for the US and the
Soviet Union as an essential
part of a limited agreement, he
had indicated at the end of
April that the precise amount
of reductions was "negotiable."
He now has agreed to the US sug-
gestion that conventional forces
be reduced in three stages: to
2,500,000 men for the US and
the Soviet Union in the first
stage, to 2,100,000 in the
second stage, and to 1,700,000
in the third stage.
The Soviet memorandum re-
quires that any partial agree-
ment must commit the signatories
to all three stages and implies
that the US position that the
second- and third-stage reduc-
tions are dependent on progress
toward political settlements is
unacceptable.
In response to the United
States' position that there must
be an inspection system to
supervise a cessation of nuclear
tests, Zorin's 7 June memo
abandoned Moscow's previous posi-
tion, expressed as recently as
20 April in Bulganin's letter
to Prime Minister Macmillan,
that no such inspection is neces-
sary to stop tests. Moscow now
indicates "readiness to estab-
lish such control" and proposes
that control posts be established
in the Soviet Union, the United
States, the United Kingdom,
and "in the area of the Pacific
Ocean."
Zorin, however, repeated
the standard Soviet demand for
an immediate and unconditional
cessation of nuclear tests in-
dependent of any other aspects
of the disarmament problem.
He rejected the US proposal for
a ten-month cessation of tests
on the grounds that it is made
contingent upon Soviet agreement
to halt production of nuclear
weapons and that it "could
actually be used to prepare for
subsequent tests." The Soviet
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CURRENT INTELLIGENCE WEEKLY SUMMARY
government, according to Zorin's
memo, believes that a temporary
cessation of tests should last
"at least two or three years."
The third modification in
the Soviet proposals for a par-
tial agreement accepted the US
position that armaments reduc-
tions should be negotiated in
specific quantities rather than
on a percentage basis. Moscow's
30 April proposals had called
for a flat 15-percent reduction
in both armaments and military
budgets during the first stage
of a partial agreement.
The Soviet memorandum
again demanded that the powers.
assume "a solemn obligation to
renounce the use for military
purposes of atomic and hydrogen
weapons" and rejected the US
position concerning exceptions
to a prohibition on the use
of these weapons as tantamount
to a "legalization" of their
use. Zorin charged that the
US position would make possible
a "completely arbitrary use of
atomic weapons" and stated that
the "Soviet Union cannot be a
partner in such a deal."
On the question of aerial
inspection, Zorin confirmed
Soviet readiness to consider
establishing "appropriate zones"
but noted the "negative attitude"
of the United States toward the
zones proposed in Moscow's 30
April plan. Zorin stated that
"a solution should be sought,
not in rejecting or narrowing
aerial control, but rather in
its expansion." This statement
reflected the Soviet leaders'
belief that Western European,
particularly official West
German, opposition to a European
inspection zone will provide
them with a chance to repeat the
charge that the United States
is again abandoning its own
disarmament proposals after the
USSR accepts them.
Moscow is likely to reject
any Western proposals which do
not provide for a European in-
spection zone and can be ex-
pected to exploit heavily any
opportunity to blame West German
opposition to a European zone
for any failure to reach a par-
tial agreement. Soviet propa-
ganda since Chancellor Adenauer's
visit to Washington has stressed,
that the US and West Germany have
formed a "united front" to pre-
vent any disarmament. Zorin
told the US delegate on 3 June
that the disarmament talks
should not be complicated by
political questions and warned
that if the US brings the Ger-
man question into the disarma-
ment talks, it would hamper
progress in both disarmament
and reunification.
25X1
Lebanese Elections
Victory for supporters of
pro-Western Premier Sami Solh
in the first stage of Lebanon's
parliamentary elections on 9
June augers well for the results
in the contests scheduled for
the remaining Sundays in June,
Progovernment candidates have
won 15 out of 22 seats contested
in Beirut and South Lebanon.
The absence of incidents in the
heavily Moslem south, despite
Egyptian and Syrian efforts to
foment unrest, indicates the
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army's ability to maintain order.
However, the election in the
predominantly Moslem northern
city of Tripoli, scheduled for
30 June, could be attended by
antigovernment demonstrations
requiring army action.
A New Arab Bloc
Election developments in
Lebanon coincide with important
setbacks for Nasr in his rela-
tions with other Arab govern-
ments. As a result, Nasr has
become more cautious and ap-
parently is attempting to cur-
tail somewhat his conspiratorial
activities against his Arab
"allies."
King Saud's six-day visit
to Jordan which commenced on 8
June highlights the emergence
of an important Arab bloc
estranged from Nasr.
On 10 June, during Saud's
visit, Jordan expelled the
Egyptian military attache and
the consul general in Jerusalem
for subversive activities; Egypt
responded by demanding the re-
call of Jordan's ambassador.
Meanwhile, relations between
Egypt and Jordan have virtually
been broken off.
Saud's attitude toward Nasr
has undergone a marked trans-
formation following the disclo-
sure of Egyptian intrigue
against various Arab governments,
including his own.
Jordan
In Jordan, King Hussain
appears willing to risk pro-
voking Nasr by his determina- 25X1
tion to eradicate and publicly
discredit Egyptian influence.
Jordan's economic plight
remains serious despite Saudi
and American aid. At least
a $20,000,000 budget deficit
threatens, largely because of
the refusal of Egypt and Syria
to provide aid promised to re-
place the old British subsidy.
It has been announced that
this aid will not be forthcoming
unless Jordan adheres to the
line of "positive neutrality"
espoused by Nasr.
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Syria
The current trip of Syrian
president Quwatli to Egypt,
ostensibly for his health, ap-
pears partly an attempt to
steal the thunder from Saud's
visit to Amman.
organization of the election.
The Moslem Brotherhood, an
anti-Nasr, right-wing extremist
group, has renewed terrorism
in the election campaign,
25X1
action followed suppression of
a prison riot on 1 June in
which several prominent Brother-
hood leaders were killed.
The pro-Egyptian Asali
government has joined in de-
nouncing Jordan. Asali has
held emergency cabinet sessions
to consider the effects of the
dispute between Jordan and
Egypt. These events may en-
courage moderate Syrian opposi-
tion members of the legislature
and army to make a new attempt
to bring about the fall of the
Asali cabinet.
Egyptian Election Preparations
Nasr must contend at home
with problems of rigging
elections on 3 July for the
first parliament under his re-
gime. Single party candidates
will be screened and selected
by a government panel, and a
government victory is ex-
pected. While Nasr's adminis-
trative control over Egypt
has been strengthened, the pre-
election period has given anti-
regime elements an opportunity
to protest the high-handed
Aqaba and Suez Developments
The small Israeli-flag
vessel Atlit arrived at Eilat
on the Gulf of Aqaba without
incident on 7 June after a
trip around Africa from Haifa.
A number of foreign-flag
vessels with Israeli cargoes
had previously arrived at Eilat.
At least two of these transited
the Suez Canal. Two Liberian-
flag tankers with Iranian oil
are due at Eilat during June.
Prime Minister Ben-Gurion
on 7 June reaffirmed Israel's
intention to send one of its
vessels to test the right of
Suez transit, but the semi-of-
ficial Israeli newspaper Haaretz
stated on 11 June that this
undertaking had been abandonea
and that chartered foreign ves-
sels would be used to carry
Israeli trade through the canal.
NEW ITALIAN GOVERNMENT CRISIS
The search for a new
Italian premier to succeed
Christian Democrat Adone Zoli,
who resigned on 10 June, is
taking place in an atmosphere
of political bitterness accen-
tuated by press demands for
early elections. Formation
of an exclusively Christian
Democratic caretaker cabinet,
to govern pending elections
advanced to autumn, seems the
most likely solution.
Zoli's failure makes it
improbable that any Christian
Democratic government except
a caretaker one could win par-
liamentary approval. Zoli
himself repudiated the backing
of the extreme right, and the
Nenni Socialists refused their
support despite his left-of-
center program. Reconstitu-
tion of a center coalition
cabinet seems unlikely because
Zoli's harsh criticisms may have
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CURRENT INTELLIGENCE WEEKLY SUMMARY
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further alienated the small
center parties, which formerly
co-operated with the Christian
Democrats.
Widespread dissatisfaction
over the prospect of another
year of parliamentary indecision
may lead to elections in the
fall. In such a case, an all-
Christian Democratic minority
cabinet will probably be set up
to prepare for elections. For-
mer premier Giuseppe Pella, Sen-
ate president Cesare Merzagora
and Pietro Campilli, former
minister in charge of southern
development, have been mentioned
as the most logical candidates
to head a caretaker government.
Such a government's only
pressing task would be next
year's appropriations which
must be provisionally approved
by parliament before 1 July and
given final approval by 31
October. If the Chamber of
Deputies were dissolved by Pres-
ident Gronchi in late July, elec-
tions could then take place in
early October. This timing
would meet the constitutional
provision for elections within 25X1
70 days of dissolution without
interfering with the harvest or
the summer holidays.
THE NEW FRENCH GOVERNMENT
Maurice Bourges-Maunoury,
at 42 the youngest premier under
the Fourth Republic, will be
obliged to follow the general
lines of the Mollet policy on
the key financial and North
African problems. His strong
nationalism will be a compli-
cating factor, however, in any
discussion of France's role in
Africa and the Middle East as
well as on disarmament.
His small 240-192 investi-
ture majority is mainly the re-
sult of a last-minute decision
by the Popular Republicans to
Abstain. The new premier's
shaky start is also emphasized
by the rightists' warning that
the 60 Independent votes for
investiture cannot necessarily
be counted on in the future,
and by widespread dissatisfac-
tion within the ranks of the
Socialists, despite their sup-
port.
Like Mollet's this is a
minority government; the only
major cabinet change is the re-
moval of Socialist Paul Ramadier
from the Finance Ministry. Em-
phasis on exploiting Saharan
oil resources is evident in the
establishment of a Ministry for
the Sahara. Ramadier's ouster
is a sop to the right, and his
successor, Radical Socialist
Felix Gaillard, may be under
less immediate pressure to sup-
port Socialist welfare goals.
He will, however, probably
push an austerity fiscal policy
basically the same as that on
which Mollet fell.
Although Robert Lacoste
continues as minister residing
in Algeria, he reportedly has
accepted the idea of some modi-
fication in his "pacification
first" policy. Bourges-Maunoury
has already proposed a temporary
statute to step up political
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reform in Algeria, and there
are indications that a growing
minority in the Socialist Party,
will make a strong fight at the
party's national congress on 27
June to change the government's
current Algerian policy. The
new wave of terrorism in North
Africa has evoked a sharp re-
action in France, however, and
Bourges-Maunoury will not risk
loss of rightist support by an
about-face on Algeria.
As minister of defense,
Bourges-Maunoury was a staunch
supporter of Lacoste's pacifica-
tion program,
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Bourges-Maunoury has stated
his intention to press for
National Assembly approval of
EURATOM and the Common Market
before the summer recess which
normally begins in July. The
actual timetable, however, will
probably depend on his success
in getting quick action on
financial measures. Meanwhile,
his government's position in
the disarmament discussions may
be directly influenced by his
nationalistic desire to main-
tain France's military stature
and in particular by his con-
cern for France's position in
the nuclear weapons field.
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CONFIDENTIAL
13 June 1957
PART II
NOTES AND COMMENTS
NORTH AFRICA
Four clashes between French
army units and the Tunisian
national guard occurred on
June 7 in the Gabes region of
central Tunisia. As a result,
Premier Bourghiba has renewed
his demands that France evacuate
all Tunisia except the strategic
base at Bizerte. French and
Tunisian reports vary widely
on the cause of the clashes in
which seven French soldiers
and six Tunisians were killed.
A French communique of 2
June implied that the French
army would ignore Bourghiba's
order that it not leave its
barracks without advance author-
ization. Bourhiba has told
the American ambassador that
the French army considers itself
above civilian control and is
"determined again to establish
France" in Tunisia.
The French claim, mean-
while,that three of the 7 June
incidents occurred even though
authorization for troop move-
ments had been given by local
authorities in Gabes. A French
spokesman in Paris has told
the American embassy that
Bourghiba rejected a French
proposal that a French-Tunisian
commission of inquiry investi-
gate the clashes. The alleged
rejection may have occurred in
a note handed the French ambas-
sador in Tunis on 9 June urging
a "review of recent incidents"
and reiterating Tunis' demand
for the withdrawal of French
troops before any defense
negotiations with France begin.
The French spokesman also
charged that the Tunisian
government may have provoked
the incidents to arouse public
opinion against the French
army and provide a basis for
an appeal to the United Nations.
However, he, as well as French
officials in Tunis, drew atten-
tion to the possibility that
Algerians or anti-Bourghiba
elements may have instigated
the incidents and that Bourghiba
is reluctant to admit he cannot
enforce order.
The Tunisian security
forces--which number less than
5,000, including the 2,200-
man Tunisian army--lack the
essential materiel and mobility
to maintain order, partly
because France has withheld
essential supplies. French
forces in Tunisia have been
reduced to 25,000, according
to the Paris spokesman, and
will be drawn on heavily to
meet the request of Robert La-
coste, French minister residing
in Algiers, for more troops.
The reduction envisaged by Paris
may have to be stepped up con-
siderably if present tensions
are to be alleviated.
The well-disciplined Neo-
Destour youth and Neo-Destour-
affiliated labor groups have
been unusually active, possibly
in preparation for action a-
gainst French forces or a de-
fense against Algerian subver-
sion.
Algeria
In Algeria, the widely
publicized massacre on 28 and
29 May of more than 300 Moslem
Algerian men and boys from
several hamlets near Melouza
in north central Algeria illu-
strates the continuing deterio-
ration of the security situation
in Algeria. Reports from the
area indicate that the massacre
resulted in large part from an
intertribal blood feud. It
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reportedly has succeeded in
deterring some Moslems from
rallying to support France, and
many Moslems who had accepted
administrative appointments
recently now are resigning.
Both the Algerian National
Liberation Front (FNL) and the
French are attempting to cap-
italize on the incident. The
FLN--claiming that the massacre
was a French act--is working
through the Arab-Asian bloc in
the United Nations to demand
an international investigation.
The French government, probably
in a bid for support when the
Algerian issue is brought be-
fore the UN again this fall,
has invited the United States
and eight other governments to
send observers to the Melouza
area to question survivors.
Meanwhile, terrorism seems
on the upsurge throughout Alge-
ria. The explosion of time
bombs in lamp posts on 3 June
and in a casino on 9 June--re-
sulting in 16 persons killed
and 70 wounded--were the most
spectacular incidents in Algiers
since a milk bar bombing last
fall. European youths, seeking
vengeance for the casino bomb-
ing, staged all-day riots on 11
June, during which they clubbed
at least five Moslems to death.
Con-
curred in by OR113
KARACHI SESSION OF BAGHDAD PACT COUNCIL
The recent meeting of the
Baghdad pact council in Kara-
chi demonstrated that, despite
differences of opinion on pro-
cedural and organizational mat-
ters, the members are basically
united in their desire to get
ahead with the business of area
defense planning. There is
agreement that while the mem-
bership of other Arab states is
desirable, no pressure will be
exerted to bring them in at
this time.
The Karachi meeting was
the first at which Britain was
formally represented since the
Suez crisis. The Middle East
members also enthusiastically
welcomed American participation
as a full member of the economic
and military committees of the
pact. They continue to hope
for eventual full American mem-
bership.
The note of optimism on
which the council adjourned does
not reflect, however, the heated
debates and inner conflicts of
the four-day session when mat-
ters of extreme national con-
cern were discussed. The air
cleared somewhat when the chief
delegates, in restricted session,
had an opportunity to voice
their major national problems,
such as Pakistan's concern over
Indian neutralism and the Kash-
mir problem.
There were four broad areas
of disagreement which involved
the definition of terms of
reference, delineation of the
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CURRENT INTELLIGENCE WEEKLY SUMMARY
area of military responsibility,
creation of a military command
system and a declaration of
common action in the event of
Soviet intervention in the pact
area. These basic problems
were all apparently reconciled
during the course of the ses-
sion, but evidence of lingering
dissatisfaction indicates that
they will continue to be areas
of controversy.
Pakistan and Iraq are espe-
cially interested in broadening
the terms of reference to in-
clude possible subversion from
India and Israel. At one point
Pakistani prime minister Suhra-
wardy asserted that because of
the limitations of the terms
of reference, the "whole pact
structure was being shaken."
The pact members are most anx-
ious to delineate the geograph-
ical area of pact responsibili-
ty in relation to NATO and
SEATO and to develop a military
defense command. The Middle
East delegates especially re-
gard the clarification of area
responsibility as essential for
military planning in peace and
control of military operations
in war. They have stated that
without such planning the Bagh-
dad pact is merely words.
It was finally agreed to
set up a unified Directorate
of Combined Military Planning
with the directorship rotating
among the member countries and
an American general or flag
officer as deputy director.
This organization is merely a
planning structure, however,
without command functions. The
British delegate urgently pro-
posed the beginning of a common
Baghdad pact infrastructure
program aimed at improving air-
fields and improving the radar
coverage of the area, especial-
ly plugging the serious radar
gap in Iran. Britain's desire
to support the Middle East mem-
bers' defense aims is high-
lighted by the British offer
of a $1,400,000 annual contri-
bution for agreed infrastructure
projects.
The proposed political
declaration, which would in ef-
fect decree that Soviet inter-
vention against any member of
the Baghdad pact would consti-
tute aggression against all
members, was deferred until the
Ankara meeting of the council
next January. There was also
a consensus that further meas-
ures should be taken to continue
the trend toward Egyptian prime
minister Nasr's isolation and
to cultivate a pro-Western poli-
cy on the part of Afghanistan.
The decision to omit from
the final communique any ref-
erence to such specific problems
discussed as Palestine, Algeria,
Cyprus, and Kashmir undoubtedly
lessened the criticism from
nonpact countries.
I
The major purpose of Prime
Minister Nobusuke Kishi's visit
to Washington, scheduled for
19-21 June, is to lay the foun-
dation for a change in the
"basic spirit" of the relation-
ship between the United States
and 'Japan. He believes that an
enduring partnership cannot be
developed on the basis of an
arrangement which has its roots
in the occupation period, and
which to most Japanese signifies
continued American domination
of Japan.
Kishi wants to revise
the security treaty and
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administrative agreement, which
to many Japanese. symbolize Ja-
pan's subservience to the United
States. There is no indication
he wants to abolish the defense
arrangements, but he apparently
feels Japan should have a great-
er voice in determining Ameri-
can actions under the treaty.
He may also seek a time limit
for the treaty and a date for
the withdrawal of American
ground forces from Japan.
The prime minister is ex-
pected to try to set a date for
the return of the Ryukyus and
Bonins to Japanese sovereignty.
He has expressed the hope that
some of the 7,000 former resi-
dents of the Bonin Islands will
be permitted to return to their
homes soon. He will also prob-
ably seek an early release of
the 67 American-sentenced war
criminals still in detention.
As for China trade controls,
Japan will not immediately fol-
low Britain's example in abolish-
ing the China trade differential,
but the prime minister will
probably point out that Japan
cannot accept for long a dis-
criminatory position vis-a-vis
its major competitors.
Kishi recently completed
a tour of six Asian nations de-
signed partly to establish him-
self in American eyes as a
spokesman for Asia. Most ob-
servers believe he failed in
this purpose but that, as a re-
sult of the tour, he is likely
to make a strong plea, based on
general Asian sentiment for the
cessation of nuclear tests. Al-
though he found only lukewarm
support for an Asian development
fund--a favorite project of
his--he is expected to press
for co-ordinating US financial
aid with Japanese technology
and materials in developing
Asian economies.
Kishi has avoided building
up Japanese expectations regard-
ing the outcome of his talks in
Washington. He reportedly hopes
as a minimum to gain American
approval in principle for the
establishment of a joint com-
mittee to revise the administra-
tive agreement, for the return
of former residents to the Bonin
Islands, and for the creation of
an Asian development fund. He
believes this would give him a
political victory at home and
permit his government to main-
tain the close relations with
the United States which he
favors.
The Socialists, who are
planning a large rally to em-
barrass Kishi on the eve of his
departure, are preparing to
launch a major attack on him if
he fails to achieve his objec-
tives.
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Bulganin and Khrushchev
on 13 June ended their seven-
day visit to Finland--their
first to a non-Communist coun-
try since the Hungarian revolu-
tion. The two leaders made a
special attempt to demonstrate
that Soviet-Finnish relations
constitute a prime example of
friendly intercourse between
countries regardless of their
social systems. Although the
Soviet delegation included
high government, defense and
trade officials, no outstanding
problems between the two
countries were negotiated with
the exception of a trade proto-
col.
The official communique
signed and issued on 12 June
reportedly was based almost
wholly on the Finnish draft.
It reaffirmed Finland's neutral-
ity and aim to "contribute to
the development of a better
mutual understanding and greater
accord based on mutual confi-
dence."
Recognition of the princi-
ple of universal membership as
a "natural prerequisite" for
the success of the UN reflects
the Soviet desire for Finnish
support of Red China in the
General Assembly. Both govern-
ments acknowledged the need for
international control, a ban
on the use of nuclear weapons,
and an unconditional cessation
of tests. An additional proto-
col called for an expansion of
trade in 1957 by $25,000,000.
According to the terms, the So-
viet Union will supply Finland
with much-needed steel and oil
products in return for Finnish
power cables,and pulp and paper
products.
Stressing the exemplary
nature of Soviet-Finnish rela-
tions, the Soviet leaders during
their visit urged Finland to
promote conditions of peace in
northern Europe. During the
time set aside for formal talks,
Khrushchev made a 40-minutes;..;..
denunciation of the United
States, echoing the Bulganin
letters to Norway and Denmark
warning that small nations hav-
ing atomic bases near the So-
viet Union risk annihilation in
the event of war. Khrushchev
suggested that Finland should
convince the Nordic countries
of this danger.
The reaction of the Finns
to these overtures demonstrates
their determination to maintain
strict neutrality. Finnish
foreign minister Virolainen told
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Finland could not possibly com-
ply with the Soviet request to
influence the Nordic countries
since such action would con-
flict with Finnish policy of
noninvolvement.
The Soviet leaders were
afforded a polite but modest
reception by the Finnish public,
and the presence of Bulganin
and Khrushchev at the Finnish
Trade Union celebration was
given no special recognition.
At a state dinner, Bulganin
presented to Finnish president
Kekkonen a, personal invitation
from Soviet president Voroshilov
to visit the USSR at the earliest
convenient time. Voroshilov
visited Finland last August,
and any return visit by Kekkonen
probably would not take place
until next year in view of his
scheduled trips to Iceland and
Denmark.
By continuing to promote
exchange visits of high officials,
and thus keep alive the Finns'
hope that Karelia will be re-
turned, Soviet leaders probably
hope to keep Finland strictly
neutral.
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ORGANIZED RESISTANCE TO SOVIET LITERARY POLICY
At a recent Communist
party meeting of Moscow writers,
it was openly charged that the
editors of the much-criticized
almanac Literaturnaya Moskva,
supported byliberal_y uung
authors--Dudintsev (of Not by
Bread Alone fame), Yashtn
aut or of-a satirical sketch
Levers, a thinly disguised
criticism of the Soviet system),
Kron (whose Notes of a Writer
has been severely criticize
and others--had formed an "op-
position group" on the basis
of a "clearly defined literary-
political platform not in con-
formity with the party's policy
in the field of literature."
The platform is alleged to ad-
vocate "democracy without bounds,
"freedom of the press," and
other "petty-bourgeois vacilla-
tions."
Although they actively de-
fended their position at the
March plenum of the board of
the Moscow Writers' Union, these
rebellious writers allegedly
took a "pledge of silence" at
the 14-17 May plenum of the All-
Union Writers' Union attended
by party secretaries Shepilov
and Pospelov, and refused to
acknowledge their mistakes or
submit to group criticism. The
report of the Moscow party meet-
ing states that they still "per-
sist in their errors."
Furtseva spoke at the Mos-
cow party meeting, and a deci-
sion was adopted "which noted
that ideological vacillations
of certain Communists have led
to factionalism by the Litera-
turnaya Moskva editorial bard
deserving the severest condemna-
tion."
Statements at the meeting
and other recent developments
indicate that the Literaturnaya
Moskva board enjoys the taeft-
support of a considerable number
of less outspoken Moscow writers
and that the Moscow writers' or-
ganization has been convulsed
for several months by internal
quarrels centering around con-
troversial publications in
Literaturnaya Moskva and the
literary journals Navy Mir and
Moskovsky Literator. Since the
dissident writers are of the
younger generation, the attempt
to restrain them by older ortho-
dox writers inevitably has over-
tones of a struggle between the
generations. There is also
evident resentment on the part
of non-Russian writers of the
privileged positions and luxuri-
ous lives of the Moscow writers,
who are almost exclusively Great
Russians.
Although a number of writers
were purged or withdrew from
creative work during Stalin's
lifetime rather than conform to
party directives, this movement
is the first known organized re-
sistance to the party line by
writers since the early thirties
and poses a serious problem for
the regime. The editor of
Moskovsky Literator has already
been replaced, and more edi-
torial shifts may well follow.
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Fiscal policies underlying
this year's economic plan and
budget in Hungary have been
radically revised in order to
meet some of the country's grave
economic problems. Investments,
military expenditures and out-
put goals have been cut drasti-
cally. Nonetheless, judging
from the poor performance dur-
ing the first quarter of this
year, it seems that even these
modest goals are too high.
Although investment outlays
have been cut 36 percent and
military appropriations almost
halved, budgeted expenditures
are 25 percent higher than last
year. The need to subsidize
industries producing at a loss
will account for over a seventh
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of all expenditures
budgeted and will
negate in large part
the economies achieved
in military and in-
vestment cuts.
The severe in-
flationary pressures
at work in Hungary
today are reflected
in the fact that the
expanded budget is
accompanied by a plan
to produce only 2.4
percent more this
year than last--a
goal about 7 percent
below the level a-
chieved in 1955.
Adding to the infla-
tionary pressures is
a pronounced emphasis
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13 June 1957
over 1956 and a decline in heavy
industrial production of 4 per-
cent. A major tenet of the
economic plan is the promise
of an increase in the standard of
living, especially a 14-percent
increase in the workers' pur-
chasing power, but it seems in-
evitable that inflation will
make this impossible.
Economic output during the
first quarter was lower even
than the regime anticipated in
its modest plan. Industrial
production was 20 percent be-
low last year, and output per
worker was down 10 percent. In-
dustrial costs were up 14 per-
cent and the average earnings
of workers were up 20 to 25 per-
cent. These factors combined
HUNGARIAN GROSS INDUSTRIAL
PRODUCTION
(ANNOUNCED PERCENTAGE INCREASE OVER PREVIOUS YEAR)
11.3 r
-7.7
(PLAN)
70611-4
on investment in such 13 JUNE 1957
nonremunerative fields
as housing and cultural projects.
Funds for investment in industry,
agriculture, transport and com-
munications have been cut 52
percent from last year.
The plan calls for a 9-
percent increase in the output
of light and food industries
to create conditions of very
high-cost production.
Industry continued to be
hampered by shortages of raw
materials, power and skilled
manpower as well as obsolescent
machinery. During this period,
the rate of imports was double
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that of exports, the balance
being paid with bloc credits.
Since domestic production
of consumer goods cannot bal-
ance the increased purchasing
power of 1956-57, the regime
is planning to reduce exports
of these goods in order to
reduce inflationary pressures.
The subsequent loss of markets
is a serious deterrent to such
a policy. Shipments from the
Soviet Union are already ap-
proximately double the rate
of last year.
Further inflationary pres-
sure comes from the abandonment
of compulsory farm deliveries
which puts an extra five bil-
lion forints per year into
the hands of the peasants. The
price rises of 10 May which
run counter to the promise of
higher living standards were
designed to deprive the peasant
of a part of this. The price
increase may be the forerunner
of other actions to "abolish
the unhealthy discrepancies
between purchasing power and
stocks" by manipulating prices,
wages and taxes.
The handicaps of the Hun-
garian economy are such that
the minimal plan for 1957 will
probably not be achieved; nor
is the standard of living likely
to withstand the inroads of in-
flation. Credits from the bloc
are forestalling immediate
deterioration, but repayment
must be started as early as
1959 in some cases. For the
foreseeable future, Hungary
will continue to be an economic
liability to the Soviet bloc.
](Prepared by ORR)
The East German regime's
determination to stamp out de-
viationist ideas in university
and intellectual circles is
being emphasized at discussions
between party leaders and uni-
versity officials throughout
East Germany. Party leaders
have made it clear that no con-
cessions such as have been
made to the Polish intelli-
gentsia will be granted in East
Germany, and have indicated
their belief that a purge of
the universities is necessary.
In discussing the problem
in Leipzig on 2 June, first
secretary Walter Ulbricht said
that "the working class wants
honest work... study... and
scientific discussions at uni-
versities ... but we will not
tolerate the organized work of
Western intelligence agencies
at our universities." Threat-
ening to withhold scholarships,
without which few students can
attend universities, Ulbricht
warned that "those who cannot
be convinced, need not accept
scholarships of the workers
and peasants in the German
Democratic Republic."
Elsewhere, party officials
have stated that major emphasis
in the future would be placed on
making good socialists of stu-
dents. They criticized the
party for its failure to de-
velop strong cadres in the uni-
versities capable of overcoming
the limitations in the know-
ledge of students, limitations
which had been exploited by the
"enemy" to foment unrest and
provoke dissension. Occasional
arrests of students allegedly
subverted by the West have been
widely publicized as a warning
to students and faculty members
alike.
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Despite the vigorous
student opposition which
greeted the government's an-
nouncement limiting vacation
travel to the West by univer-
sity students, the restrictions
probably will be extended to
elementary, trade and high
school students. In the past
several years student travel
to the West has been quite ex-
tensive. In a corollary move,
the regime, has stepped up pro-
paganda urging students to
REFUGEES 1956
FLEEING 64,549
TO JANUARY THROUGH MAY
volunteer for mining, farm and
factory work during the summer
holidays, and has announced a
broad summer camp program.
The travel restrictions,
the most stringent limitation
on intra-German travel since
1953, are aimed primarily at
curbing student visits to West
Germany during the summer va-
cation. The Communists not
only fear that many students
would defect if permitted to
travel freely, but that those
who returned would be infected
by democratic ideas and make
invidious comparisons of life
in East and West Germany. Al-
though the regulation permits
"visits with close relatives"
and trips "which serve either
scientific purposes or peaceful
rapprochement between the
German Democratic Republic and
the state concerned," it is
clear that permission
for visits to the
West will be granted
only to those whose
loyalty is beyond
question.
Undoubtedly
alarmed by the gov-
ernment's attitude
and in order to avoid
army service, young
East Germans are de-
fecting to the West
at a rate even higher
than last year. De-
spite a drop of approximately
33 percent in the total number
of refugees fleeing to West
Berlin so far this year,
there has been an increase in
the 17-24 age group to 14,883,
34.6 percent of the total, as
compared with 13,234, 20.5 per-
cent at this time last year.
As a result of his prelim-
inary investigation of the
Cyprus question, NATO Secretary-
General Spaak believes that
guaranteed independence offers
the most helpful basis for
reopens ; negotiations. British
governo^ Harding wants London
to make some positive move now
toward eventual negotiations
with the Cypriots, but the gov-
ernment perfers to await the
outcome of Spaak's endeavors.
Spaak, who for several
weeks has been exploring the
positions of Britain, Greece,
and Turkey through their North
Atlantic Council representa-
tives, handed a working paper
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CURRENT INTELLIGENCE WEEKLY SUMIcARY
on his views to US ambassador
Perkins on 6 June. Spaak feels
that the only possible solution
lies somewhere between the two
extremes of union with Greece
or partition, and he has con-
cluded that the best basis for
getting negotiations started
would be internationally. guaran-
teed independence for Cyprus
for either an indefinite or a
specified period. The idea is
premised on the drafting of an
acceptable constitution which
would clearly enunciate minori-
ty group rights. Defense of
the island would be ensured by
military base rights granted to
Britain, if necessary under a
NATO arrangement.
The American consul at
Nicosia, after a long talk with
Governor Harding on 8 June,
believes Harding wants some
further statement from London
indicating that Britain is
trying to keep the door to
limited self-government open.
The governor fears that the
Cyprus issue is being "pushed
aside" in London and that even
the reform plan for local gov-
ernment will probably not be
published now because of Turk-
ish apprehensions. Cyprus
government officials have been
urging London to call a con-
ference of representative
Cypriots immediately.
Harding spoke somewhat
bitterly of the new British
Labor Party manifesto advocat-
ing.self-determination for all
dependent territories, saying
that it will virtually end any
chance that Makarios might be-
come less intransigent. Al-
though the general policy advo-
cated is not new, the issuance
of the manifesto will probably
further encourage Makarios to
insist on self-determination in
the hope that a Labor govern-
ment will eventually come to
power in Britain. For the
present, he is expected to
visit various foreign countries
for propaganda purposes and to
go to the UN General Assembly
this fall.
London is apparently post-
poning any new move on Cyprus
till Spaak has made some prog-
ress and till certain studies
concerning implementation of
the Defense White Paper have
Produced a decision on Britain's
long-term need to retain bases
on the island.
Lt. Col. Sumual, commander
in East Indonesia, and army
chief of staff General Nasution
have signed an agreement in
Makassar placing the entire
East Indonesian command direct-
ly under Djakarta. By this
agreement Sumual relinquished
his post as commander of East
Indonesia and reportedly is to
become a candidate for training
in the US. According to a
Makassar radio broadcast, how-
ever, Sumual claims to have
been appointed chief of staff
of a new "East Indonesian
Interregional Command." This
command, essentially the same
as the old one, is to be
divided into four military
regions,one of which was created
on 1 June. The other three are
to be activated shortly and to
be headed by the three regi-
mental commanders already in
the area who presumably are
followers of Sumual.
This military reorganiza-
tion is part of a "mutual
understanding" allegedly
reached between Sumual and
Nasution for "normalizing"
military, economic and
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financial relations between East
Indonesia and the central gov-
ernment. Whatever Sumualls
authority under the reorganiza-
tion may be, it is not at all
clear that the "mutual under-
standing" will be marked by
genuine co-operation between
Djakarta and East Indonesian
civil and military officials.
Sumual has stated that the
2 March proclamation in which
he virtually proclaimed autonomy
for East Indonesia remains in
force, but gives lip service
to Djakarta's authority by say-
ing that it is to be implemented
within the framework of national
policy.
The economic consequences
of the separatist movements in
East Indonesia and elsewhere
are becoming increasingly ap-
parent. Prime Minister Djuanda
told parliament on 7 June he
would shortly
submit the
$100,-
000,000 Soviet
technical
aid
agreement for
ratification--
further indication that the gov-
ernment will use foreign aid to
meet regional demands for eco-
nomic development and thereby
attempt to buy back provincial
loyalties. The $15,000,000.US
loan signed on 30 April report-
edly has already been earmarked
for road building in Sumatra
and for small electric power
plants chiefly in non-Javanese
communities.
"virtually hopeless."
Meanwhile, the government
is deeply concerned over its
financial position which is de-
teriorating as a direct result
of the illegal trade in East
Indonesia and Sumatra. An of-
ficial of the Bank of Indonesia
has stated that unless the gov-
ernment can come to terms with 25X1
the provinces without delay, the
financial situation will be
SITUATION IN LAOS
Laotiam prime minister-des-
ignate Katay continues his ef-
forts to form a cabinet in which
representatives of the four
major Laotian parties will serve.
His chances of success, while
still fair, have been somewhat
reduced as a result of the un-
favorable reaction of a number
of deputies to his proposed
policy toward the Pathet Lao.
The decision of former premier
Souvanna Phouma, who controls
a wing of the Nationalist Party,
to withdraw his support from
Katay poses a threat of a split
within the latter's own party.
Such a development might en-
courage deputies in the other
parties, many of whom are wary
of Katay's personal ambitions,
to combine with Souvanna Phouma
in sufficient numbers to block
a Katay government.
Judging from the advance
copies of his investiture speech,
Katay will call for a foreign
policy based on strict neutral-
ity and will propose continued
negotiations with the Pathet
Lao on terms less favorable to
the Pathets than those advanced
by his predecessor, Souvanna
Phouma. While Katay indicates
that unification must be based.
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on agreements previously con-
cluded between Souvanna and
the Pathets--including entry
of Pathet representatives into
the Laotian government--imple-
mentation of these agreements
is to depend on prior dissolu-
tion of the Pathet Lao movement
and reimposition of royal gov-
ernment authority over the two
northern provinces. In order
to check Pathet stalling, nego-
tiations are to be limited to
a two-month period and to be on
a new basis: the Pathet Lao
will no longer bargain as a
"state within a state" but will
be regarded as "outlaws" who
fought in the Viet Minh army
against their own country.
The next session of Com-
munist China's National People's
Congress, scheduled to open on
20 June, will probably stress
Peiping's policy of general re-
laxation in internal affairs
and provide the Communists with
an opportunity to demonstrate
the greater freedom of debate
sanctioned in Mao Tse-tung's
recent doctrinal pronouncements.
The National People's Con-
gress is nominally the highest
organ of government in China
and, like the USSR's Supreme
Soviet, provides the regime with
a platform from which to an-
nounce major policies and plans.
At the forthcoming session, non-
Communists will probably enlarge
on the unusually frank criti-
cisms they have been voicing in
recent weeks of the political
impotence of China's puppet
parties, of dogmatism in the
arts and in science, and of the
lack of real authority given
to nonparty personnel.
While a good many of these
criticisms may have been stage-
managed, some of them appear
to have gone beyond the limits
of approved argument. For ex-
ample, an elderly physiologist's
condemnation of the proposal to
abolish the Chinese script in
favor of an alphabet is probably
the first time since the present
regime was established that a
policy approved by Mao himself
has been publicly criticized.
The heterodox nature of the
criticisms now being permitted
suggests that Peiping is con-
fident that a bold liberaliza-
tion policy will not get out of
hand. Peiping's position ap-
pears to be that blunt condemna-
tions of the mistakes of sub-
ordinate party personnel in all
fields will draw the fire of
malcontents away from the re-
gime itself, improve the work
of scientists and other intel-
lectuals, and increase the pres-
tige of the party's top
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leadership for advancing a
"sincere" policy. Mao's pres-
tige in particular appears to
be engaged in the matter and
he has declared his intention
to make the "all flowers" poli-
cy a permanent one.
Extending the relaxation
policy to the economic field,
the congress will undoubtedly
highlight the regime's inten-
tion to lighten the burden on
the Chinese people by modifying
overambitious economic programs.
(See Part III, p. 3)
The high point of the con-
gress is likely to be Chou En-
lai's foreign policy report,
which is expected to be a full
statement of Peiping's current
stand on major international
issues. On the matter of Taiwan,
he will probably refer to the
recent riots in Taipei, stress
the increasing possibility of
a "peaceful liberation," and
offer to negotiate with the
Chinese Nationalists. Chou is
also expected to give unequivo-
cal support to Soviet policies
toward the West and to under-
score the importance of bloc
unity, while pointing out that
such unity does not require com-
plete agreement among the Com-
munist countries on all matters.
by ORR)
(Concurred in 25X1
COMMUNIST CHINA CHARGES INTRUSION BY AMERICAN AIRCRAFT
Chinese Communist anti-air-
craft batteries near Swatow
fired on and damaged an Ameri-
can naval aircraft from the
carrier Hornet off the southeast
China coast on 12 June. Fol-
lowing the incident, Peiping
promptly issued its usual warn-
ings in such cases. Declaring
that the regime will permit no
violation of its land, sea, or
air space, Peiping charged that
American authorities "must bear
the consequences" for the "prov-
ocation," which was "obviously
aimed at creating new tensions
in Asia."
assist in the Nationalist evacua-
tion of the Tachen Islands.
In January 1956, when the
Seventh Fleet conducted exer-
cises about 125 miles east of
the Tachens, Peiping reacted
swiftly with charges of Ameri-
can violations of the air space
over Communist-held offshore
islands. Last August, Peiping
was quick to publicize similar
charges when American naval
units operated about 100 miles
south of Shanghai during a
search for the crew of an Ameri-
can naval aircraft shot down 25X1
by the Chinese.
Peiping's charges were
broadcast some 13 hours after
the episode. The Chinese Com-
munists have reacted with
similar dispatch in past in-
cidents involving alleged in-
trusions by American aircraft
or the activities of American
carriers off the China coast.
In the winter of 1955,
Radio Peiping responded within
hours when American naval forces
appeared off the China coast to
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CURRENT INTELLIGENCE WEEKLY SUMMARY
The approach of any
unidentified or hos-
tile aircraft in
this area.
Chinese Commu-
nist propaganda has
linked the alleged
intrusion with the
recent Taipei riots.
An editorial pub-
lished on 13 June in
the authoritative
People's Daily, which
in most cases estab-
lishes the Chinese
Communist propaganda
line, declares that
the US is resorting
to new provocations
in order to sustain
its policy of "hos-
tility and aggres*-
sion" toward Commu-
Southeast China
nist China--which the Chinese
claim has been shaken by anti-
American demonstrations on Tai-
wan and the British move to re-
lax controls on trade with Pei-
ping. Communist propaganda will
use the incident in new charges
of US "aggression" in connec-
tion with the recently stepped-
up campaign for "peaceful libera-
tion" of Taiwan.
CUBAN GOVERNMENT'S POSITION WEAKENS
President Fulgencio Batis-
ta's government has suffered a
noticeable loss of prestige
during the past few weeks with
the failure of its drive against
the rebels in eastern Cuba and
of efforts to promote a politi-
cal compromise in Havana. Ba-
tista's ability to retain con-
trol until the end of his term
in February 1959 is uncertain.
Early in the first week of
June, the government announced
a drive to wipe out within a
week revolutionary activities
in Oriente Province, stronghold
of rebel leader Fidel Castro
Ruz and recently the scene of
additional rebel landings. The
government has failed to rout
the rebels
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Extreme repressive mea-
sures--including an unofficial
curfew in Santiago de Cuba--
have further alienated the pre-
dominantly anti-Batista popula-
tion of 'Oriente Province. Some
100 families have been arbi-
trarily evacuated from their
homes near Castro's headquarters
in the Sierra Maestra, and 180
miles of coastline in southern
Oriente were blockaded by the
government in an attempt to
cut off the rebel supply line.
Rumors that government forces
are using both napalm and mus-
tard gas against Castro al-
though officially denied--have
provoked angry protests from
every part of the country.
The failure to curtail rev-
olutionary activity by military
force has had its counterpart
on the political scene. Exports
by a joint congressional com-
mittee to promote an electoral
agreement between government
and opposition parties, have
been stalemated by the govern-
ment's recent refusal to grant
a general amnesty, and last
week the opposition Autentico
Party withdrew its representa-
tives.. Several opposition po
litical leaders have stated
that they will not participate
in elections unless Batista
grants reasonable electoral
guarantees. Batista's only
concession to date has been
agreeing to move up the date of
national elections from November
to June 1958 without advancing
the inauguration date from
February 1959.
Dissatisfaction has been
apparent in part of the labor
movement and has even been re-
ported among government of-.
ficials
normally
and military
considered
__
personnel
loyal to
Batista.
F
7
25X1
The failure of either of
the major Canadian parties to
win a majority in the 10 June
election, and the absence of
any apparent basis for a coali-
tion government, suggest that
new elections may be held soon.
The American embassy in
Ottawa reports that most ob-
servers expect Prime Minister
St. Laurent to resign immed-
iately without convening the
new Parliament. This would
permit Conservative leader John
Diefenbaker to form a new gov-
ernment with a view of seeking
a dissolution when circumstances
offered him an electoral advan-
tage.
In the meantime, however,
the Conservatives would be
forced to rely on the votes of
the right-wing Social Credit
Party and of the socialist
Co-operative Commonwealth Federa-
tion. Both these parties have
reportedly already indicated
willingness to "co-operate" with
whatever minority government is
formed until new elections are
held. Should Diefenbaker and
St. Laurent both decline to form
a minority government, however,
the governor-general could call
for new elections as early as
September.
The recent campaign re-
volved around domestic issues,
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CURRENT INTELLIGENCE WEEKLY SUMMARY
including high taxes, agricul-
tural surpluses, and welfare
legislation. The Conservative
attack on the Liberal record
regarding these issues was
colored by their belief that
United States interests have
been allowed to acquire too
much control over Canadian re-
sources. The embassy-comments
that the Conservatives can be
expected to show greater sensi-
tivity about Canadian sover-
eignty, especially in the joint
defense field.
Assuming that the Conser-
vatives take power, the embassy
SECRET
comments that their inexperience
and lack of working policies
probably will create some prac-
tical difficulties in conducting
relations with Canada. In
foreign policy, a Conservative
government would be likely to
draw Canada closer to Britain
and the Commonwealth, and reduce
its role in the UN. While no
change is to be expected in
Canada's support of NATO, the
embassy believes that intensi-
fied nationalistic feelings
will become increasingly evi-
dent in Canada's economic re-
lations with the United States.
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CONFIDENTIAL
NEW FERMENT IN EASTERN EUROPE
STIMULATED BY CHINESE COMMUNIST DOCTRINES
Communist intellectuals in
Eastern Europe have begun to
turn to Communist China for in-
spiration and ideological sup-
port. Polish intellectuals are
quoting Chinese doctrines con-
cerning "all flowers" and "in-
ternal contradictions" in sup-
port of their own convictions,
and writers in the hard-line
Satellites have begun to do the
same. While they probably fear
a groundswell of Chinese-in-
spired intellectual ferment,
the Satellite regimes, with the
exception of Hungary, have de-
liberately avoided direct com-
ment on the Chinese ideas. The
approach in Hungary--stressing
that the new Chinese doctrines
are not necessarily applicable
elsewhere in the Sino-Soviet
bloc--has recently been sanc-
tioned by Khrushchev himself
and may become the orthodox line
throughout the Soviet bloc.
A relatively liberal atti-
tude toward freedom of expres-
sion in the arts, coupled with
professions of toleration of
non-Marxist thought, became the
party line in Communist China
a full year ago. It was not
until this year, however, that
liberal intellectuals in Eastern
Europe began to cite the Chinese
doctrines as support for their
own ideological tenets. Until
the suppression of liberalism
in Hungary, the intellectuals
had depended on themselves, or
looked to Yugoslavia, to the
West and to the pronouncements,
of the Soviet 20th party con-
gress for inspiration and en-
couragement.
stimulated the search for sup-
port from a new quarter. The
Chinese doctrine--"let all flow-
ers bloom"--seemed to offer such
support from an unimpeachable
Marxist source. The "internal
contradictions" thesis, fully
expounded in late February,
added new scope to the Chinese
concepts and further encouraged
the Satellite liberal Communists,
particularly those in Poland.
While the Chinese would be averse
to intrabloc polemics develop-
ing over their doctrines, they
have nevertheless suggested that
their recent formulations are
applicable to all Communist
countries.
Peiping's 29 December state-
ment on intrabloc relations,
for example, has been described
by one Chinese writer as the
solution to "certain theoretical
points on socialist societies
which have not been set forth
or concretely discussed in the
Marxist classics." Mao Tse-
tung's formulation on the exist-
ence of contradictions between
the masses and the leaders in
socialist societies has been
acclaimed in China as a con-
tribution to basic Communist
theory which supersedes the
earlier theories of Lenin.
The Polish Interpretation
The belief in Poland, shared
by both the liberals and the
regime, that winds of "funda-
mental" and "strategic" signif i-
cance are "blowing mightily in
China" has been well publicized
in the Polish press, particular-
ly since Mao Tse-tung made his 25X1
"secret" speeches to the Chinese
party in late February and earl
Soviet condemnation of
Titoism and of "revisionism" in
Poland, and the general emphasis
on ideological conformity fol-
lowing the Hungarian revolution,
I _j March. The Gomulka re- 25X1
gime views the Chinese doctrines
as props for its own convictions
concerning Poland's road to
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13 June 1957
socialism and the healthy evolu-
tionary development of Marxism.
In late May, the regime
established a Polish-Chinese
Friendship Society, the first
such organization in the Satel-
lites. The society will pub-
licize Chinese theories in Po-
land, which--according to a Pol-
ish politburo member--can pro-
fit from Chinese experience as
much as it can from the Soviet.
The Polish liberals, when
attacked by the regime for "re-
visionist tendencies," cite
Chinese thought. to bolster
their arguments against censor-
ship and authoritarian attitudes
in general. Let differences
within the nation be solved by
"long-range, patient and ex-
haustive arguments and not by
means of vulgar, primitive or
administrative methods," the
Poles repeat after the Chinese.
To a Soviet writer's remark
last winter that flowers may
bloom but weeds must die, the
Polish liberals answered that
killing the weeds may also elim-
inate some of the "choicest flow-
ers"; further, they argued, who
is to tell the difference be-4,
tween the two? Marxism itself
was once considered a "weed."
A Slovak Echo
Although the Poles claim
that the Chinese concepts are
"pregnant with significance"
and should thus serve as a
"starting point for discussion
on an international scale,"
little overt discussion has as
yet taken place in the hard-line
Satellites.
Only in Czechoslovakia have
the intellectuals made public
use of the Polish interpretation.
Ignoring staunchly orthodox
party dicta, the Slovak writers
association journal in mid-May
printed an attack against party
dogmatism under the guise of a
discussion of Chinese attitudes
toward art and literature.
Declaring that the people have
the right to discuss non-Marxist
as well as Marxist thought, the
article observed that non-Marx-
ists have existed and will con-
tinue to exist and that, as
a purely logical consideration,
the socialists cannot play a
leading role within a society
unless there are some nonsocial
ists around to be led. It also
noted--as have the Polish com-
mentaries--that Marxism-Leninism
should certainly not be afraid
of criticism since it is strong
enough to withstand any test.
The Regimes React
Private discussions of the
Chinese concepts--in large part
inspired by the public Polish
comments--are undoubtedly taking
place throughout the Soviet bloc.
The Hungarian party, however--
perhaps because its problems
with the intellectuals are the
most urgent--is the only orthodox
one as yet to provide a full
analysis,of the Chinese doctrines
and their implications for East-
ern Europe. A party lecturer
on the Budapest radio in late
May, discussing "What is really
going on in China?" give rel-
atively, frank treatment to the
Chinese concepts but stressed
that the Chinese themselves
would protest the wholesale ap-
plication of their doctrines in
Hungary, where "counter.revolu---
tionary" elements are still
alive.
The Rumanian regime has in
a small way repeated the Hun-
garian approach, without pro-
viding full analysis. It has
acknowledged that the Chinese
party is applying Marxist-
Leninist theory to its own con-
crete conditions and that the
Rumanian party could learn.a
great deal from the Chinese.
But this acknowledgment em-
phasized the "purity" of the
Chinese approach, the "glorious"
leadership of the Soviet party,
and indicated that things to be
learned from the Chinese are re-
lated only to matters already
subscribed to by the Rumanian
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and Soviet parties. The basic
questions concerning "internal
contradictions," toleration
and persuasion were not men
tioned, an apparent warning
that such things are not to be
discussed in Rumania.
The other Satellite regimes
presumably hope that an indirecti In addition, specific han-
approach will be sufficient to dirng of `the Chinese -doctr.ine
still critical questions. Most would involve the regimes in
of the orthodox regimes have topics of primary interest and
recently stepped up their at-
tacks on literary deviations
and have emphasized the need
for over-all political conformi-
ty and the extent of "enemy"
activity in Eastern Europe.
This indirect handling of
the problem probably will ac-
complish little. As long as
the Poles accord publicity to
their interpretation. of the
Chinese concepts--without Chi-
nese repudiation--discussion
among liberals elsewhere in the
Satellites is apt to grow and
to become overt, appearing--as
it already has in Slovakia--in
the pages of literary journals.
Direct discussion of the
Chinese doctrines by the hard-
line regimes might keep most
of the ferment beneath the sur-
face, but, at a minimum, it
would probably prove an embar-
rassing task, Emphasis on the
nonapplicability of many of
the Chinese ideas in essence
reasserts the many-roads-to-
The Soviet Reaction
SHORTCOMINGS IN COMMUNIST CHINA'S ECONOMIC PLANNING
The Chinese Communists re-
cently have admitted they made
"serious mistakes" in being
overambitious. in their economic
planning, implying that this
was in part a result of their
past dependence on Soviet eco-
nomic advice. These mistakes,
they say, are the cause of the
raw material and consumer goods
shortages as well as the finan-
cial stringencies of the past
six months which forced Peiping
to make 1957 a year of retrench-
ment and austerity. Indications
are that this more conservative
outlook will also affect China's
Second Five-Year Plan (1958-1962).
The planning chiefs have recently
disclosed that the investment
SECRET
socialism thesis, and direct
discussion might have to be
combined with "administrative"
measures against the liberals,
a procedure inveighed against
by the Chinese.
concern to the USSR, which, to
date, has displayed both caution
and sensitivity when confronted`
with Chinese ideology.
That the USSR has misgiv_
ings about the influence of Chi-
nese formulations on other bloc
countries--as first suggested
during the Soviet-Polish "liter-
ary" debates during the winter
and spring--was confirmed by
Khrushchev on 2 June during his
appearance before an American
television panel. Replying to
a direct question, Khrushchev
suggested that Mao's "new ideas"
might be applicable to China
but not to the USSR. He specif-
ically denied that there are
any contradictions between the
masses and the leaders in the
Soviet Union. Moscow clearly
underscored its sensitivity on
this last point by'deleting'
this statement from the "tran
script' 'of the interview fea-
tured'on'the Soviet radio and
in the press.
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pattern for the plan will be
altered to give an increased
proportion of funds to light
industry and agriculture and
that more emphasis will be put on
the construction of small- and
medium-sized' enterprises which
can be designed and equipped
(the objective is up to 70 to
80 percent) from China's own
resources.
The Planning Process
An annual economic plan
begins to take shape when the
top levels of the party--ideally
in the last half of the preced-
ing year--draw up a set of "con-
trol figures" or targets for
all major economic activities.
These "control figures" would
appear to have already had the
benefit of initial study by
the government planning bodies,
the State Planning and the Na-
tional Economic Commissions, if
only because of the interlocking
party and government positions
of the principal planners, Lu
Fu-chun and Po I-po. In addi-
tion, Soviet advisers very likely
play an important role in these
deliberations.
These "control figures" are
then broken down and sent to the
ministries concerned for study.
The minis tries sound out the
principal enterprises under
their jurisdiction before arriv-
ing at an estimate of the feasi-
bility of the performance levels
required. When they are satis-
fied as to what level can be
reached, they submit the con-
clusions to the National Eco-
nomic Commission, which then be-
gins the delicate task of "bal-
ancing" the various sections
into an internally consistent
plan. After making the needed
adjustments, the planning organ
submits a draft plan to the top
party leaders. When approved,
it becomes a "final".plan-which
is then supposed to be routed
through government channels
for ritual approval.
CHINESE COMMUNIST ECONOMIC INDICATORS
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CURRENT INTELLIGENCE WEEKLY SUMMARY
Planners at Work--1956
"Don't bite off more than
you can chew," warned the party
leaders at the outset of the
First Five-Year Plan (1953-19-
57). But when the 1956 plan
was drawn up, the top command,
spirits buoyed by the gratify-
ing 1955 harvest and by the
rapid and easy socialization
of agriculture and private busi-
ness, forgot the warning. One
of them is reported to have re-
marked,"We invested too much,
we went too fast, we were wrong."
By late 1956, resulting
difficulties could no longer be
ignored. Serious shortages of
steel, electric pow-
er, coal, cement,
lumber and other
building materials
developed. Increases
in individual pure,,
chasing power outdis-
tanced the supply of
consumer goods. Ag-
gravating the result-
ing inflationary
pressures was the in-
flux of a large un-
planned addition to
the urban labor force.
The state's agricul-
tural procurement
programs, especially
those involving grains
and cotton, began to
lag. The collecti-
vization of agricul-
ture did not yield
anticipated increases
in output and actually drove
down production of secondary
farm products. State buying
prices were raised on some agri-
cultural products, and agricul-
tural loans were greatly in-
creased. The state's carefully
shepherded reserves were run
down and revenues were disap-
pointing.
The socialization of com-
merce also seemed to hinder do-
mestic trade. Wastage up to 25
percent of total investment was
discovered on construction pro-
jects. In addition, there were
transportation bottlenecks, par-
ticularly on the rail net facing
the North China Plain.
On top of all this, events
in Eastern Europe probably
brought home to the Chinese Com-
munists the dangers inherent in
too slavish an imitation of the
Stalinist emphasis on heavy in-
dustry. According to an article
in a Chinese journal last Decem-
ber, questions regarding the con-
flict between the preferential
development of heavy industry
and care for the people's live-
lihood were raised by "some com-
rades" after seeing the "mis-
takes" of certain Eastern Euro-
pean countries.
Planning for 1957
By the time the leaders
began programming for 1957 their
optimistic mood had largely dis-
sipated. The "final" 1957 eco-
nomic plan will not be made pub-
lic until the National People's
Congress meets late this month,
but it is already clear that the
regime sees this as a year of
retrenchment and austerity.
There is some evidence that
the investment program for the
year may be cut, perhaps by 10
to 15 percent. A number of
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CURRENT INTELLIGENCE WEEKLY SUMMARY
important projects-in heavy in-
dustry are being suspended or
slowed down. Investment by
central industrial departments
is nevertheless to increase
slightly and will be concen-
trated in those fields where
shortages have been most crip-
pling--iron and steel, electric
power, coal and building mate-
rials. The pattern of invest-
ment in railroads has been
shifted to lay primary emphasis
on improving the capacity of
overworked older lines.
Budgetary spending on ad-
ministration and defense is due
for a cut. For example, the
operating funds of the army's
Rear Services Department, which
"manages and uses" a large share
of all military funds, have been
cut by one third, and the armed
forces are to be reduced in
size as an economy measure.
The uneven pattern of Chi-
na's industrial growth is indi-
cated by the fact that, while
more than 20 of the 46 key in-
dustrial targets were reached
by the end of 1956, 15 will not
be met even at the end of the
plan this year. Petroleum,
railroad, equipment, nonmilitary
ships, and almost all important
consumer goods will not meet
plan goals.
To help ease China's finan-
cial strains, the Soviet lead-
ers have agreed to permit Pei-
ping to delay delivery of about
$100,000,000 in agricultural
goods until 1958. Moscow re-
portedly has also agreed to a
moratorium on repayment of Chi-
na's debt, which now totals
around $2 billion.
Implications for the Future
Commentary surrounding the
campaign to popularize Mao Tse-
tung's theses concerning "con-
tradictions" suggests that pre-
occupation with gigantic, modern
enterprises is being reconsid-
ered in favor of a more modest
approach which will yield quick-
er returns. Central among the
economic "contradictions" is
the demand for building China
into an advanced industrial
power and what are referred to
as the "realities of China's
backward agricultural economy."
Peiping recently acknowledged
that its avid pursuit of -expen-
sive'.large-scale modern plants
with high standards of construc-
tion and automation has tended
to "overemphasize the future
and overlook the present." More-
over, it is a policy which af-
fords only limited employment
opportunities, aniimportant con-
sideration in overpopulated
China.
The correctness of past
investment ratios between heavy
and light industry has been
called increasingly into ques-
tion. China began the First
Five-Year Plan with the ratio
standing at 8:1, but later re-
duced it to 7:1. (The ratio in
the Soviet Union, which the Chi-
nese say stood at around 6:1 in
the First Five-Year Plan, has
more recently been held at about
'10:1; )
As long ago as last December
a writer in the official Peo-
ple's Daily--possibly a party
leader us ni g a pseudonym--sug-
gested that China was becoming
a "prisoner" of the theory that
the people's livelihood had to
be sacrificed to the demands
of heavy industry. He asserted
that a stubborn pursuit of this
policy might lead to a. situation
where "we have neither the in-
dustry nor the people." Other
writers have argued that the
ratio should be reduced to 6:1
for 1957 and the Second Five-
Year Plan, and that agriculture
should also be given a greater
share of total investment.
Chairman Mao reportedly has
associated himself with these
sentiments, and the planning
chiefs have agreed that in the
Second Five-Year Plan (1958-
1962) increased proportional
investment should be made in
agricultural and light industry,
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CURRENT INTELLIGENCE WEEKLY SUMMARY
13 June 1957
although heavy industry should
still retain priority.
They have also proposed
that the country, while continu-
ing to build some big modern
plants in the Second Five-Year
Plan, should emphasize medium-
and small-sized enterprises
which not only'can be designed
and equipped by China itself,
but also can be built more
quickly and at less cost. Most
projects should be designed by
China's own experts with the
aim of providing 70-80 percent
of the necessary equipment
domestically. Construction
costs should be cut by 20-30
percent and a more fluid econom-
ic administration should be set
up to give greater power at the
lower levels. Extensive re-
visions are probably being made
in the earlier targets for the
plan.
It was probably Mao Tse-
tung himself who settled the
dispute on planning, including
that surrounding the heavy/light,
ratio, just as Mao personally
reversed the party line in 1955
on the speed of agricultural 25X1
socialization. 1 =17
Liu Shao-chi 25X1
and Chen Yun for recent econom-
ic failures implies they were
more obstinate than other party
leaders involved in planning, aLcli.
as Chou En-lai, Li Fu-chun and
Po I-po. However, all five ap-
pear to be in good standing at
this time. Mao may have sent
some of these on extended trips
to get Tirs'thhnd evidence of
the need for a change in the
line; Liu, Li and Po have-all
made trips in recent months.
While it seems unlikely that
any heads will roll, there is
strong evidence that Peiping's
leaders are sobered and have
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adopted a considerably more con-
servative approach to economic
planning. 25X1
(Prepared by ORR)
SINO-CEYLONESE RICE-RUBBER AGREEMENT TO BE RENEGOTIATED
The Ceylonese government
is preparing to renegotiate
with Communist China, the five-
year rice-rubber agreement
which expires at the end of
1957. A delegation tentatively
scheduled to visit Peiping in
June for this purpose will
probably find the Chinese dis-
inclined to sign an agreement
as favorable as that obtained
by Ceylon in 1952. Signature
of a less favorable agreement
would subject Prime Minister
Bandaranaike's government to
considerable criticism. A
breakdown of negotiations with-
out agreement could have reper-
cussions seriously affecting
the government's stability.
The 1952 Agreement
The first five-year rice-
rubber agreement involved the
annual exchange of 50,000 metric
tons of rubber-..>about half of
Ceylon's annual production--
in return for 270,000 metric
tons of Chinese rice. China
agreed to pay a higher price
for rubber than the world market
rate, and the prices of both
commodities were to be negotiated
annually to take account of fluc-
tuating rates. The arrangement
has resulted over the past four
years in an average annual net
profit to Ceylon of roughly.
$10,000,000, which China has
normally paid in sterling.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
At the time of signing in
1952, the international rubber
embargo against Communist China
was effective. Ceylon did China
an important favor by opening
the first significantbreach.in
the trade control system. Si-
multaneously, China assisted
Ceylon out of a precarious posi-
tion by assuring it of a regu-
lar source of rice.
Ceylon imports about two
thirds of its total food sup-
ply and half of the 1,000,000
tons of rice it consumes an-
nually. In 1952, it was suf-
fering from the effects of
crop failures throughout South
and Southeast Asia. Traditional
suppliers such as Burma were
unable to fill Ceylon's needs.
Furthermore, Ceylon badly
needed a stable market for its
rubber. During the war, the
West had been cut off from
Southeast Asian rubber, and
Ceylon had sold its total pro-
duction to the Allies. The re-
emergence of Southeast Asian
competition in the postwar
period, the poor condition of
Ceylon's rubber plantations
which had been overtapped, high
production costs, and the grow-
ing use of synthetic rubber put
Ceylon in a poor market position.
Changed Conditions
Prime Minister Bandaranaike
has recently said that his gov-
ernment desires to renew the
rice-rubber agreement, presumably
on terms equally favorable to
Ceylon. Under present condi-
tions, however, Peiping can be
expected to take a harder bar-
gaining position than in 1952.
It now can buy rubber freely in
Southeast Asia at world market
prices, and having obtained its
immediate political objective
in Ceylon--the exchange of am-
bassadors--Peiping may no longer
see sufficient political advan-
tage in paying premium prices.
The Chinese Communist negotia-
tors therefore are likely to
offer no more than the current
world price. They may also
suggest substitution of com-
modities for sterling in set,-tling-any.annual_:tradb balance.
During the past two years, Pei-
ping has sought unsuccessfully
to lighten the burden of its
sterling payments by linking
Chinese goods and Ceylonese
rubber in a package deal; such
a plan has been repugnant to
Colombo.
If the Ceylonese prove
obdurate, Peiping may shift its
rubber, purchases to Southeast
Asia, an area where it is
seeking closer political and
commercial ties. In fact, recent
reports from Singapore indicate
renewed Chinese interest in the
Malayan rubber market, formerly
the principal source of China's
imports. Diversion of buying
to Malaya at this time would
give Peiping an entering wedge
for contacts in the Federation--
scheduled to gain independence
next August. Such,1a move would
disrupt the $65,000,000-$70,000-
000 yearly rice-rubber trade,
depriving Ceylon of the $10,-
000,000 annual profit which
Colombo has come to count on in
budgetary planning.
Other Possibilities
These considerations have
become sufficiently important
for Bandaranaike to accept a
watered-down agreement rather
than lose the Chinese market.
His difficulties in seeking al-
ternative arrangements elsewhere
would probably create more
problems than he could solve.
The USSR has claimed that
there are mutual advantages in
increasing Ceylonese-Soviet
trade, but seems unlikely to re-
place China in the Ceylonese
rubber market. The USSR has
bought a large part of China's
purchases from Ceylon, but
largely to aid China in breaking
the trade embargo. Should Mos-
cow now decide to buy some of
Ceylon's output, it would prob-
ably not be willing to pay
premium prices.
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CURRENT 'INTELLIGENCE WEEKLY SUMMARY:
There is no promising mar-
ket in the free world for Cey-
lonese rubber. Since World
War II, Ceylon has several times
unsuccessfully attempted to
sell its rubber output to the
United States or sought American
aid equal in value to its rub-
ber trade with China. Private
American buyers have not been
interested, and the US govern-,
ment has filled its stockpile
needs elsewhere. US financial
aid to Ceylon has been well be-
low the $10,000,000 annual rub-
ber premium from Communist China
upon which Ceylon has come to
depend in its budgeting.
Bandaranaike is already
faced with the threat of a
civil disobedience campaign by
the Tamil-speaking minority
population of northern Ceylon
next August. Communist and
leftist labor unions may capi-
talize on this campaign to
create additional unrest. Should
the prime minister in the next
few months be forced to sign a
new rice-rubber agreement less,
favorable to Ceylon than the
present one, his political op-
ponents would probably raise a
storm of criticism. If no agree-
ment is reached, the consequences
at home might be politically
disastrous for Bandaranaike.
Concurred in by 25X1
ORR)
LATIN AMERICAN COMMUNISTS LOOKING TO PEIPING
Some Latin American Com-
munist party leaders--particu-
larly in Ecuador, Chile, Colombia
and Costa Rica--have recently
been emphasizing the applica-
bility of the methods and activ-
ities of the Chinese Communist
Party to Latin American condi-
tions.
This growing interest of
Latin American Communists in the
ideological and propaganda les-
sons to be learned from Peiping
has been evidenced both in of-
ficial publications and in re-
ported statements at party meet-
ings. Illustrative of the in-
creased attention to the example
of Communist China was the siz-
able representation of Latin
American parties at the eighth
congress of the Chinese Commu-
nist Party in Peiping in Septem-
ber 1956. Delegations from
over half the Latin American
Communist parties attended.
The USSR's unpalatable ac-
tions in Hungary a few weeks
later probably made'Peiping seem
a more useful symbol in Commu-
nist eyes in Latin America as
elsewhere. Additional stimulus
has probably been given by Pei-
ping's rising prestige among
Latin Americans general'y. A
record number of Latin Americans
visited Communist China in 1956,
and the same year saw Peiping's
first extensive effort in the
hemisphere. A Chinese opera
troupe toured Chile, Argentina,
Uruguay and Brazil in the late
summer and fall, while a trade
mission is now negotiating in
Uruguay and may visit Argentina
later.
Ideological Considerations
Besides such immediate in-
fluences, however, there is a
solid basis in Communist theory
for this growing interest of
the Latin American parties. Com-
munist thinking emphasizes many
parallels between pre-Communist
China and Latin America, such
as economic domination by foreign
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CURRENT INTELLIGENCE WEEKLY SUMMARY
capital, a "semicolonial"
political status, and the
existence of indigenous bour-
geois elements which could be
used by a Communist party in
its transformation of the state.
Thus, though Latin American
Communists. look to Moscow f or
leadership, some of them may
think that China's experience
can be regarded as more per-
tinent than the USSR's as a
general guide to the achieve-
ment of power and the transi-
tion to Communism.
The Soviet 20th party con-
gress, moreover, laid down the
doctrine that the path to power
and the transition to Communism
will vary in each country ac-
cording to local conditions.
This in effect amounted to a
Soviet sanction of increased
attention by Latin American
Communists to the lessons of
the Chinese Communist experienxe.
Ecuador
The Ecuadoran Communist
Party (PCE) has already evi-
denced a clear intent to turn
toward the Chinese Communist
Party for a greater degree of
orientation. At the national
party congress in May, dele-
gates of the PCE reportedly
praised Communist China rather
than the USSR as an example
for world Communism, making
specific reference to land re-
form--a socio-economic problem
in Ecuador which the PCE at-
tempts to exploit in its do-
mestic political program.
Pedro Saad, re-elected secre-
tary general at the congress,
was one of two top PCE leaders
who is believed to have attended
the Peiping congress and may
have inspired the laudatory
discussions on China.
PCE interest in China is
being supported by Chinese prop-
aganda which is apparently en-
tering the country in sizable
quantities and is distributed
by a special outlet in Quito.
A second outlet reportedly is
now being established in
Guayaquil, Ecuador's largest
city.
Since last September, the
outlawed Chilean Communist
Party (PCCh) is reported to
have made increasing use of
Chinese Communist Party study
and ideological material in
PCCh publications. The PCCh
magazine Principios devoted an
entire issue to a congress
in Peiping which was attended
by several top Chilean Commu-
nists. The magazine noted par-
ticularly the similarities be-
tween pre-Communist China and
Chile, the Chinese enrichment
of methods of developing so-
cialism, and Chinese avoidance
of Soviet errors. PCCh propa-
ganda and the high level of
Chilean Communist travel to
China suggest close liaison
between the two parties and
possibly strong Chinese ideo-
logical guidance.
The secretary general of
the outlawed Colombian Commu-
nist Party (PCC), Gilberto
Vieira, who attended both the
Soviet 20th party congress in
Moscow and the Chinese congress
in Peiping, reportedly dis-
cussed and praised in detail
the Chinese Communist interpre-
tations of the Hungarian revolu-
tion, de-Stalinization, Stalin's
historical place in world Com-
munism, and the relation of na-
tional parties to the interna-
tional Communist movement.F
Central America
Leaders of the Costa Rican
Popular Vanguard (Communist)
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Party, which was also repre-
sented at the congres
at the Chinese Commu
nist Party would have a great
influence in directing the
Latin American revolution be-
cause of likenesses between
China and Latin America. I
China hence-
forth would be primarily re-
sponsible for practical aid to
Latin America, especially in
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ing, reportedly told
regard to worker, student, and
other exchange programs.
Although there has been no
perceptible increase of Chinese
Communist Party influence on the
Brazilian or Mexican Communist
Party,.the Brazilian Communist
press has published.. extensive
materials on the Peiping con-
gress. Some Mexican intellectLia]s
have shown a great interest in
events taking place in Communist
China as a source of inspiration
for the solution of Mexican prob-
lems. Mexican newspapers have
discussed an article from an
Indian newspaper which asserts
that the Communist penetration
of Latin America would be direct d
by Chinese Communists in the
future. F__ I 25X1
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