CURRENT INTELLIGENCE WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A001900030001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 43
• Document Creation Date: December 16, 2016
• Document Release Date: February 17, 2005
• Sequence Number: 1
• Publication Date: September 4, 1958
• Content Type: SUMMARY

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CONFIDENTIAL
COPY NO. 50
OCI NO.4045/58
4 September 1958
CURRENT
INTELLIGENCE
Document
WEEKLY No Change I ass. 0
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0 D cies
Class
UMMA RY Auth.:
Next
Date:
Document No. 5
No Change In Class. 0
fl Declassified
Class. Changed to: TS S
Next Review Date: 14344
Ruth.: HR 70-3
Date: ZD41.11_11_
125X1
By:
CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
URN T
INEUMIELY MEE BE
ORarj,___L
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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? CONFIDENTIAL
CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
THE WEEK IN BRIEF
PART I
OF IMMEDIATE INTEREST
TAIWAN STRAIT SITUATION Page 1
The Chinese Communists have deployed sufficient
ground and air strength into the area opposite Taiwan
to carry out an invasion of any of the offshore is-
lands. There also continue to be indications of the
gradual assembling of a naval force immediately north
of the Matsus, but there is little evidence of any
naval concentration near the Kinmens. Moscow, through
its propaganda media, is apparently attempting to
arouse world-wide apprehension over the possibility
of large-scale hostilities. Peiping appears to be
further committing itself to action against the off-
shore islands in its home press coverage. Peiping
has issued a declaration defining its territorial
waters as extending 12 miles from a base line drawn
to include all its coastal islands. There has been
little free-world press support for Taiwan's claim
to the islands or for the concept of an American de-
fense of them.
MIDDLE EAST DEVELOPMENTS .
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? ......... Page 4
In Jordan, the sensitive west bank zone has re-
turned to nearly normal activity, although security
precautions remain in force throughout the country.
Cairo radio Alas predicted General Shihab will name
rebel leader Karame as prime minister. Libya is re-
ported to have been offered Soviet aid. The Sudan
is engaged in trade talks with Communist China, and
Cairo has resumed press attacks on the Khalil gov-
e ? re ardin the Nile waters dispute.'
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CONFIDENTIAL
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
PART II
NOTES AND COMMENTS
USSR 'S SEVEN-YEAR PLAN Page 1
The USSR's Seven-Year Plan (1959-1965) will appar-
ently be released soon. Public handling of the announce-
ment of the plan details will be intended to :Impress the
world byaontrasting the high rate of Soviet growth with
that of the United States. The plan will probably re-
flect an increasingly optimistic view of the rapidity
with which the Soviet economy can overtake the United
States in industrial production. Preliminary informa-
tion indicates that growth rates will be higher than
necessary to conform to Khrushchev's 15-vTar forecasts
of last November.
USSR AGREES TO NUCLEAR TEST SUSPENSION TALKS ..... . .
Premier Khrushchev, in accepting the 31 October
date set by the West for talks on nuclear test suspen-
sion, warned that the USSR might be forced to resume
testing if the United States and Great Britain continue
their testing. This action was designed to reap further
propaganda gains from the issue and to strengthen the So-
viet bargaining position at the forthcoming talks I
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YUGOSLAV - SOVIET BLOC TRADE RELATIONS Page 3
Moscow is continuing its economic harassment of
Belgrade by refusing to send wheat under their exist-
ing trade agreement. A complete Soviet bloc economic
boycott of Yugoslavia is unlikely, however, since such
a course failed in 1948. For the present at least, Mos-
cow apparently prefers to exert pressure on Belgrade in
other ways, such as sending goods of inferior ?uality
and delaying deliveries.
CHINESE COMMUNIST PRESSURE ON HONG KONG Page 4
Recent Chinese Communist economic and political
pressures against Hong Kong have increased doubts
among colonial officials and informed private circles
regarding the colony's long-range prospects. By threaten-
ing Hong Kong, Peiping may hope to discourage London from
supporting American policy in regard to Taiwan, and even-
tually to reduce Hong Kong to a political and economic
,satellite of the mainland.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
PART II (continued)
CYPRUS .Page 5
The tempo of violence has again quickened on Cyprus
and EOKA's one-month-old "truce" may be over. All Greek
Cypriots continue to support Makarios in his denunciation
of the British plan for Cyprus. Turkey has agreed to co-
operate in attempting implementation of the new plan; but
without Greek-Cypriot cooperation, the attempt will proba-
bly fail.
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BRITISH-ICELANDIC FISHERIES DISPUTE Page 5
The British-Icelandic fisheries dispute entered a
new phase on 1 September when Icelanders boarded--and
then were driven from--a British trawler in an effort
to enforce a 12-mile territorial limit. The danger of
serious incidents is increasing. With new compromise
efforts being made in NATO, there is a possibility that
Icelandic hostility toward Britain might shift to NATO
itself.
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OUTLOOK FOR FINLAND'S NEW GOVERNMENT Page 6
The Finnish Government formed on 29 August by moder-
ate Social Democrat K. A. Fagerholm represents all parties
except the opposition Social Democrats and the Communist-
front Finnish People's Democratic League (SKDL), which
emerged from the 6-7 July elections as the country's largest
single party. Some of the new cabinet's parliamentary sup-
port is Aialfhearted, however, and the government faces dif-
ficult economic problems which may result in its overthrow 25X1
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MEXICAN LABOR TROUBLES Page. 8
Last weer& labor and student riots in Mexico City
were probably brought about by dissident, leftist labor
leaders who are determined to gain stronger influence
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
PART II (continued)
in the governing Party of Revolutionary Institutions
(PRI). The power already acquired in important unions
by these leaders may force President-elect Lopez Mateos
to give some weight to their views in his program when
he takes office on 1 December.
PARAGUAYAN UNREST Page 9
President Stroessner's dictatorship is faced with a
new threat to stability, having overcome plotting just
prior to its second inauguration on 15 August. The re-
gime fears that political repercussions from a general
strike suppressed on 27 August may be exploited by sub-
versive elements and hamper its recent steps to liberalize
political conditions. Stroessner has strong military sup-
port, but each crisis offers an opportunity to disgruntled
key commanders to make a bid for power.
PRE-ELECTION ASSEMBLY SESSIONS IN PAKISTAN Page 10
The tenor of the recently concluded West Pakistan
provincial assembly session and the present National
Assembly session, together with the nature of the ef-
forts being made to strengthen the Awami League govern-
ment of East Pakistan, suggests that all three govern-
ments will be able to remain in power until national
elections are held in February. Stability depends, how-
ever, on the Awami League's ability to prevent the aliena-
tion of support of important individuals in the national
government.
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INDIAN FINANCE MINISTER'S VISIT TO THE UNITED STATES . . . Page 10
Indian Finance Minister Desai is expected to empha-
size India's need for long-term financial assistance
during his Washington visit beginning 6 September. India
recently secured $350,000,000 for its short-term-needs
from Britain, the United States, West Germany, Japan, Cana-
da, and the International Bank for Reconstruction and De-
velopment. Desai is one of the leading candidates to suc-
ceed Nehru as prime minister, and this is his first trip
outside India.
HANOI ATTEMPTS TO REFORM EDUCATION
North Vietnam has announced a three-year plan for
education to be inaugurated at the beginning of the
coming academic year, and propaganda media are discuss-
ing ways to reorganize the private schools and re-educate
secondary-school teachers. Newspaper articles have criti-
cized teachers' attitudes and political concepts, equating
them with those expressed by dissident writers and profes-
sors earlier this year. Hanoi probably intends eventually
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
PART II (continued)
to abolish the private schools, which generally have a
higher academic standard than their public counterparts,
and is taking some half measures toward that end.
COMMUNIST SUBVERSIVE GAINS IN LAOS Page 12
The Communist-dominated Neo Lao Hak Zat (NLHZ)
is extending its influence throughout Laos. NLHZ cam-
paigns to penetrate the army and control local adminisi-
trations in the provinces are meeting considerable sue-
cess. Pro-NLHZ sentiment is spreading among the minority
tribes, which constitute about half the population, and
among the influential Buddhist clergy.
KENYA SECRET SOCIETY CAUSING POLICE GROWING CONCERN . . . Page 13
The Kiama Kia Muingi (KKM)--an African secret society
in Kenya which is a direct outgrowth of the Mau Mau--
has mushroomed into an organization of perhaps 200,000
members. The society aims at independence for this Brit-
ish crown colony and plans eventually to uSe violence to
25X1 oust the 60,000 Europeans.
PART III
PATTERNS AND PERSPECTIVES
COMMUNIST CHINA'S "GIANT LEAP FORWARD" Page 1
The Chinese Communist leaders are firmly committed
to, their campaign for maximum speed in economic develop-
ment--which Peiping describes as its "giant leap forward."
They express elation with the results of the campaign in
the first half of the year. More attention is being paid
to agriculture, large numbers of small industrial plants
are being built, and some responsibility for financial,
industrial, and commercial management has been passed
from Peiping to lower administrative levels in expecta-
tion that this would increase efficiency. These important
modifications have been made in China's economic pro-
grams to avoid repetition of the raw material short-
ages, transportation tie-ups, and financial difficul-
ties which followed the relatively modest economic
speed-up in 1956 and which hampered the economy
through much of 1957. However, there are signs that
some of the troubles of 1956 have begun to reappear.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
PART III (continued)
JAPANESE-AMERICAN RELATIONS Page 6
During his visit to Washington on 11 and 12 Septem-
ber, Japanese Foreign Minister Aiichiro Fujiyama intends
to discuss problems connected with revision of the US-
Japanese security treaty, ways to increase Japanese ex-
ports to the United States, economic assistance for South-
east Asia, and relations with Communist China. Prime Min-
ister Kishi believes the visit will be the key to long-
term cooperation and that it will counter charges that
Tokyo is subservient to the United States on issues af-
fecting Japanese interests.
THE COMMONWEALTH ECONOMIC CONFERENCE Page 9
The Commonwealth Economic Conference opening at
Montreal on 15 September--the first such full-scale
meeting since 1952--is likely to show a somewhat dimin-
ished role for Britain and a growing divergence between
the older and newer Commonwealth countries as to the
means of overcoming their economic problems. Older mem-
bers such as Canada and Australia are concerned primarily
about the inadequacy of monetary reserves, while the new-
er, less developed members like India and Ghana insist
that the immediate problem is the need for stabilizing
prices of raw materials. Britain is interested in fur-
ther exploring Commonwealth attitudes toward the United
Kingdom's membership in the proiected ruropean free
trade area.
LATIN AMERICAN INTEREST IN A COMMON MARKET
Latin American exploratory discussions of a "com-
mon market" stem primarily from a desire for accelerated
industrialization. Political conditions and trade pat-
terns in Latin America are less favorable than in Western
Europe to integration of the economy. Growing inter-
est in a commonrmarket may, however, foster economic co-
operation among Latin American countries and some liberar-
zation of trade and payments.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
PART I
OF IMMEDIATE INTEREST
TAIWAN STRAIT
Periodic bombardment of the
Kinmens by the Chinese Commu-
nists continued during the past
week but declined in intensity
during the first days of Septem-
ber. Temporarily, at least,
Communist shore artillery has
combined with motor torpedo
boats in attempts to interdict
the supply lines to the Kinmens.
Supplies still are reaching the
Kinmens, but in Sharply reduced
volume.
Chinese,Nationalist mili-
tary officials admit that these
interdiction efforts have been
partly successful. Aircraft
are encountering artillery fire
immediately on nearing the Kin-
men airstrip, and apparently only
one per day landed from 29
August to 4 September. Only two
of ten LCM's based at Kinmen
remain in operation, reducing
Nationalist ability to off-load
shipping in Liaolo Bay.
The supply situation of
Big and Little Kinmen is not
yet critical. The islands have
at least a 30-day supply of
food and possibly considerably
more. Thus far, supply dumps
have not been seriously damaged
by artillery fire, and roads
throughout the island complex
are passableo Few, if any,
supplies have reached the less-
er islands--Tatan, Erhtan, and
Hutzu--and heavy artillery fire
has severely damaged many of
their shelters and installations.
The Nationalists have not
yet made an all-out effort to
resupply the Kinmens. Destroy-
ers have not been used against
Communist torpedo boats, and
counterbattery fire has ,not
SITUATION
been fully employed against the
Communist guns on the Weitou
Peninsula from which fire is
directed against the Kinmen air-
field and nearby landing beach.
Air activity in the Taiwan
Strait area declined during the
period; no air clashes were re-
ported by,the Nationalists, who
said, however, that- Communist
aireraft wore active north of
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the Matsus on 2 September .1
the Communists may have with-
drawn or grounded some of their
planes for retraining, for de-
fensive reasons, or because of
the adverse weather.
There continue to be indi-
cations that a Communist naval
force gradually has been assem-
bling in the Santu Bay area for
the past month.
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The Nationalists have re-
ported successes in engagements
with the Communist Navy. During
the early morning hours on 1
September, batteries on Kinmen
fired on a Communist flotilla
and claimed titres gunboats
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
ungan
4.MACHIANG
WEITOU PENINSULA
Bridge
(under construchon)--
t
LUNGCHI
Shihma
1M V
Haicheng
AMOY I:ARBOR
CHIAN,
Wane
N A
tleering
Fo.a.
CHINGYA
WUHSU
Nationalist held
TU GTING HSU
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Odise
STATUT,E MILES
4 SEPTEMSER 10158
and eight motorized junks sunk
and five gunboats damaged. The
following morning a Nationalist
landing craft and two escort
patrol craft were attacked by
motor torpedo boats south of
Kinmen. Taipei reports that
six of the Communist craft were
sunk and six others damaged,
One of the Nationalist patrol
craft was torpedoed but was
towed to safety.
Communist ground force
strength in the Fukien area has
been augmented by two additional
armies, making a total of four
there. This means that troop
strength has been increased by
92,000 tert tetal of about 280,000.
Peiping issued an official
declaration on 4 September that
Its territorial waters extend
12 miles from a baSe line drawn
to include all coastal islands,
indirectly warning the United
States against escort aetivities
on behalf of the Chinese Nation-
alists.
Peiping broadcast repeated
defection appeals from the Fukien
Front Command to senior officers
of the Kinmen garrison from 28
August to 1 September, when the
broadcasts ceased.
Peiping newpapers, which
previously had repotted only
scant details to its domestic
audience on the strait situation,
on 31 August headlined American
"interference" in China's in-
ternal affairs and declared
that such intervention cannot
prevent seizure of the off-
shore islands. The newspaper
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
commentaries appear further to
commit the regime publicly to
action against the islands.
The Chinese Communists are
using the 31 August Pravda state-
ment to imply a Soviet commit-
ment to become militarily in-
volved in the event of TIS in-
volvement,
Pravda's warning on 31 Au-
gust that the USSR will give the
Chinese People's Republic the
"necessary moral and material
help in its just struggle" goes
well beyond Soviet statements
during the 1954 Taiwan Strait
crisis, but the article stopped
short of committing the USSR to
military action in the event of
an outbreak involving American
forces.
Moscow's immediate aims
probably ,:are. tcidiscourage
American military counteraction
in the event of a Chinese Com-
munist attack on Nationalist-
held territory and to arouse
world-wide apprehension over the
possibility of large-scale hos-
tilities.
An Izvestia article, dis-
tributed By Moscow TASS to Eu-
rope on 3 September, contained
Moscow's first reference to the
Sino-Soviet alliance, but with-
out citing any details of Soviet
obligations under the treaty.
It said: "The Soviet Union,
tied to the Chinese People''S
Republic by bonds of their in-
violable fraternal alliances,
fully supports this just strug-
gle. This should never be for-
gotten by the US imperialists,
whose brink-of-war policy has
led to a series of complete
failUres."
World Reactions
Official and press opinion
in a number of European and
Asian countries is that Commu-
nist China is engaged in a po-
litical maneuver to demonstrate
its strength and importance And
that it is not prepared to risk
World War III. There is no
significant body of comment,
except from countries closely
associated with the Sino-Soviet
bloc, that assumes the United
States would risk World War III
to ensure Taiwan's continued
control of the offshore islands.
Very little sympathy is expressed
for Taiwan's claim to the is- '
lands, and, except in South
Korea and South Vietnam, free-
world opinion does not support
the concept of an American de-
fense of the islands.
Heavy British press com-
ment points to serious diffi-
culties for the Macmillan gov-
ernment should the United States
beacons' involved in the hostili-
ties. Many papers have editori-
ally attacked America's China
policy, and the government pub-
licly continues to regard the
offshore islands as Chinese Com-
Munitt? vbelrritory.
The , Japanese Government
likewise feels that it will be
Ina,.diffIcUlt position if
the United States intervenes
militarily, and in this event
would probably not take a posi-
tion helpfuli to ,the United
States.
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4 September 1958
MIDDLE EAST
Jordan
The air of expectancy
which has pervaded Jordan for
the past six weeks has dissi-
pated somewhat as a result of
the continued presence of Brit-
ish troops and the absence of
serious rioting or coup at-
tempts. While stringent se-
curity measures remain in force
throughout the country, the
population of West Jordan is
reported to have returned to
normal activity, and the refu-
gee? camps, always a potential
source of disorder, appear to
have relapsed into their usual
apathy. The economic situation,
which two weeks ago seemed ex-
tremely dangerous, has improved
with the partial opening of
traffic routes to Syria and
Lebanon and with increased sup-
plies of petroleum products.
Lebanon
Divisions within the Leb-
anese rebel leadership have come
increasingly into the open as
the rebels remain uncert in of
their future strategy and tac-
tics. A number of rebel leaders
want a return to normal condi-
tions and a gradual end of the
rebel-maintained strike so that
the transition from Chamoun to
Shihab can be eased. Others,
however, feel that the fruits
of the "revolution" are within
easy reach if some slight addi-
tional effort is made and that
compromise in the traditional
Lebanese manner is unnecessary.
The most serious incident of
bickering among the factions
this week was the seizure of
one faction's radio transmitter,
located in the Basta quarter of
Beirut, by a band of adherents
of another rebel group, The
less extreme group of rebel
leaders appears at the moment
to have the upper hand.
DEVELOPMENTS
Cairo radio has predicted
that General Shihab will ask
Tripoli rebel leader Rashid'
Karame to be prime minister.
Shihab himself has said he con-
templates attempting to rule
for at least six Months with
? "emergency powers." During this
period Parliament would be in
abeyance, and the cabinet would
be composed of relatively little-
known moderates. Rebel pressure
makes it doubtful that Shihab
will feel strong enough.tO carry
out such a program. Parliament
is scheduled to reconvene on 21
October, and the rebels almost
certainly will press for new
elections.
Iraq
The specifically anti-Amer-
ican tone of the press and radio,
as well as a hostile public at-
titude toward Westerners, con-
tinues in Baghdad. This is com-
plemented by vigorous activity 25X1
by the newly re-established So-
viet Embassy.
the Iraqis are negotiat-
ng for "financial assistance" 25X1
--probably financial advice rath-
er than money--with the USSR as
well as with the UAR.
A disruptive element ap-
parently will return to Iraq,
since the government has given
permission for Mustafa Barzani,
dissident Kurdish nationalist
leader, to come back from his
long refuge in the Soviet Union.
Baghdad radio broadcast an al-
leged letter from Barzani to the
government asking it to inter-
cede with Soviet bloc authori-
ties to permit him to tome home.
His presence in Iraq is likely
to create concern in Turkey and
Iran, which have significant
Kurdish minorities in areas near
the Soviet border.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
Libya
Libya has received a broad
offer of ecOnokid aid from the
USSR. While Libyan Prime Min-
ister Kubadt, already nervous
about Egyptian influence, fears
that acceptance of i Soviet of-
fer would lead to an influx of
Soviet technicians, he seems
equally, if not more, fearful
that rejection of the offer
Would be used to strengthen
pro-Egyptian elementg who claim
the government is dominated by
the West. The offer includes
financing and equipment and as-
sistance for petroleum explora-
tion; finding oil in commercial
quantities is Libya's one hope
of developing a viable economy
to support even the present
modest bureaucracy and royal
household,
Although never officially
acknowledged by Libya, a Soviet
offer of two hospitals submitted
in 1957 is apparently to be im-
plemented, the facilities to be
built and probably staffed by
the USSR, possibly on the pat-
tern of the long-established
Soviet hoSpital in Ethiopia.
Sudan-UAR
Khartoum and Cairo have
resumed their long exchange of
verbal blowt over the future
distribution of the Nile waters.
The Cairo press last week vigor-
outily attacked Prime Minister
Khglil'S gOirernment for its re-
fusiti to abide by the 1929 Nile
*aterb Agreekent and for its
unilateral decision to begin
withholding *Ater in connection
with its Sennar Dam project.
The Nile waters question
was not a good one from the
point of view of UAR propaganda,
since Ithall enjoys popular Su-
Onese sUpport on this question.
The Sudanese prime minister is
More vulnerable on such issues
as his approval of the landing
of American troops in Lebanon,
and if Cairo makes an all-out
attatk on him, it would prob-
ably use this kind of material.
Meanwhile the Sudan's cot-
ton disposal problems are again
presaing the government. Trade
talks with the Chinese Commu-
nists are underway; although
Khalil has resisted an arrange-
ment with Peiping, the pressure
of the surplus may lead him to
weaken, especially if his domes-
tic political position should
deteriorate further.
Israel
The Israeli ArMy apparently
remains oh a "second-phase"
alert which has been in force
titide the Iraqi coup. The pres-
ent series of military maneuvers
in Israel is scheduled to end
on 6 Septetber.
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4 September 1958
PART II
NOTES AND COMMENTS
USSR'S SEVEN-YEAR PLAN
The USSR's Seven-Year Plan
(1959-1365) will apparently be
released soon. Public handling
of the announcement of the plan
details will be intended to im-
press the world by contrasting
the high rate of Soviet growth
with that of the United States.
The plan will also apparently
reflect an increasingly opti-
mistic view of the rapidity
with which the Soviet economy
can overtake the United States
in industrial production.
The draft of the plan was
completed on 22 August, accord-
ing to an official announcement,
seven weeks behind schedule.
Khrushchev had turned the plan
back to the State Planning Com-
mission three times for correc-
tion. He reportedly was dis-
satisfied particularly with the
plans for the chemical and ce-
ment industries. Pravda .re-
ported on 27 August that the
draft has been discussed at a
meeting of the Economic Commit-
tee of the Supreme Soviet's
Council of Nationalities, and
it presumably will be taken up
within the next few weeks at a
Supreme Soviet meeting. Vari-
ous reports have indicated that
such a meeting will take place
during September.
It appears that a brief
conservative period in Soviet
economic planning, seen in
Khrushchev's 15-year forecasts
and in the annual plans for
1957 and 1958 which scheduled
annual industrial growth rates
of-only 7 percent, has termi-
nated. The Soviet press re-
lease which stated that the plan
had been completed implied that
it was designed to advance all
branches of the economy "so as
to solve the main economic task
of catching up with and surpass-
ing the most developed capital-
ist countries in per capita
production of industrial goods."
In another statement, a member
of the USSR Academy of Sciences
wrote in Pravda on 9 July that
Soviet industrial output will
grow at a rate of not less than
10 percent annually, and that
the USSR will catch up with
present US industrial output
in another seven or eight years.
The 10-percent growth figure
was also given by Gosplan of-
ficials to a group of French
economists visiting Moscow.
These statements, taken to-
gether with plan targets already
disclosed, indicate that pro-
duction goals will be higher
than would have been necessary
to conform with Khrushchev's
15-year forecasts given last
November. In the case of steel,
for example, targets for 1965
appear to be 80-90,000,000 metric
tons as compared with 100-120,-
000,000 tons set by Khrushchev
to be accomplished in 15 years,
i.e., by 1972. At the tithe he
announced the 15-year goals,
Khrushchev said his targets
would be subject to change by
experience, probably in the
direction of shortening the
time periods required, and he
recently stated in a speech at
Kuybyshev that the USSR must
gain 10 to 15 years in its eco-
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4 September 1958
USSR AGREES TO NUCLEAR TEST SUSPENSION TALKS
Soviet Premier Khrushchev,
in agreeing to talks on 31
October on suspension of nu-
clear weapons tests, warned that
continued American and Brit-
ish testing may force the
USSR to resume tests. This
threat may have been designed
to strengthen the Soviet bar-
gaining position at the talks.
His statement, contained in the
29 August Pravda interview, was
timed to coincide with publica-
tion of the Geneva technical
talks report.
The Soviet premier re-
jected the Anglo-American "con-
ditions" for renewing the sus-
pension on a yearly basis.
He called instead for a ban
"for all time," with negotia-
tions to be completed "with-
in two or three weeks."
Khrushchev recalled the
Supreme Soviet decision of
31 March 1958 which stated
that the USSR would be free
to resume tests if the Western
nuclear powers failed to fol-
low the Soviet lead in sus-
pending them. Although Khru-
shchev declared that the con-
tinuation of American and
British tests "relieves the So-
viet Union of the obligation
it had assumed unilaterally,"
a resumption of tests at this
time would seriously weaken
Moscow's propaganda position
In view of the repeated charges
of American and British in-
sincerity regarding a test
suspension. In the Soviet ap-
praisal, however, the secu-
rity implications of con-
tinued US-UK nuclear progress
could outweigh the negative
aspects of test resumption
prior to the 31 October
meeting.
The 29 August Pravda state-
ment regarding possible resump-
tion of Soviet testing was ap-
pended to notes sent by Moscow
to the United States and Brit-
ain the next day. This unusual
procedure and the pessimistic
tone of Khrushchev's remarks
are calculated to demonstrate
growing Soviet impatience and
indignation over the West's
"delaying tactics."
At the same time, Moscow
has been promoting its "peace-
ful approach" to nuclear energy
problems at the second Inter-
national Conference on the
Peaceful Uses of Atomic Energy
at Geneva. Khrushchev's message
to the conference claimed that,
had agreement to prohibit nu-
clear weapons been achieved, co-
operation on the utilization of
nuclear materials for peaceful
purposes would have been much
further advanced.
On 30 August the Soviet
Union also followed the American
and British action of declassi-
fying details of research on the
controlled release of nuclear
energy from the fusion process.
According to press statements,
Western scientists attending the
meeting are considerably impressed
with the Soviet research made
public thus far. An attempt to
take advantage of the discussions
on peaceful uses to further the
Soviet campaign for a permanent
ban on nuclear tests came during
the 3 September conference ses-
sion when the head of the Soviet
delegation attacked, as a polit-
ical device designed to conceal
American desire to continue nu-
clear weapons tests, the Amer-
ican suggestion that nuclear ex-
plosives could be used for peace-
ful purposes.I
(Concurred in by OSI)
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
YUGOSLAV - SOVIET ,BLOC TRADE RELATIONS
Recent Soviet stalling on
the agreement to sell 200,000
tons of wheat to Belgrade in
1958--the first confirmed at-
tempt at harassment through
normal trade channels--follows
economic pressures initiated
by the USSR last May with its
five-year "postponement" of
$285,000,000 in credits to
Yugoslavia. Belgrade, although
now less vulnerable to bloc
economic sanctions than in 1948,
when 50 percent of its trade
was with the bloc, has become
increasingly involved in re-
cent years, and in 1958 sched-
uled bloc trade is roughly 35
percent of total Yugoslav
foreign trade.
It is unlikely
that a complete break
in economic relations
will occur. Trade
with the bloc, es-
pecially with the
more industrialized
European satellites,
is mutually advanta-
geous, and both Po-
land and East Germany
recently increased
their trade goals
with Yugoslavia.
Since the USSR
is no longer willing
to trade "machinery
for prunes," however,
bloc trade arrange-
ments less advanta-
geous to Yugoslavia are expected.
Moscow's intentions will be
clarified this fall and winter
when present trade agreements
would normally be renegotiated.
Moscow probably hesitates to
impose a total economic block-
ade on Yugoslavia, both because
of the failure of such a cam-
paign after the 1948 break and
because of adverse repercussions
such a move might have on re-
lations with the uncommitted
countries of Asia and Africa.
satisfactotily dung the first
half of 1958. .The first public
indication of a deliberate
slowdown appeared in Belgrade's
Borba on 24 August, which stated
that the USSR has refused to
deliver the 200,000 tons of wheat
provided for in the Yugoslav-
Soviet trade accord. Borba
ebarged that in addition to
wheat, Moscow has been remiss
regarding other goods deliveries.
The Soviet refusal is ap-
parently intended primarily as
a political move and does not
stem from any inability to fur-
nish the grain. Last month,
Moscow agreed to ship 200,000
PLANNED 374
ESTIMATED (35)
YUGOSLAV TRADE WITH THE SINO-SOVIET BLOC
297.6 (MILLION DOLLARS)
(48)
184.5
(54.6)
1947
80963-2
1948
Except for minor irrita-
tions, Yugoslav trade with the
bloc appeared to be moving
SINO-SOVIET BLOC
USSR
69.8
(14)
( OF TOTAL
YUGOSLAV TRADE
A*ALL
1949
10.3
2.6 (4)
1954
68.2
(10)
1955
187.4
(23)
258.4
(24)
1956
1957 1958
4 SEPTEMBER 1958
tons of wheat to Egypt some-
time this year from the bumper
crop now being harvested and
has offered Black Sea wheat
to Japan.
Loss of Soviet wheat at
this time is especially annoy-
ing to Yugoslavia since its 1958
wheat crop is smaller than
last year's record harvest.
The 200,000 tons, worth roughly
$12,000,000, could be purchased
elsewhere, but the perennial
Yugoslav shortage of hard cur-
rency has been exacerbated by
the Soviet cancellation of cred-
its- in May.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1058
Withholding shipments of
coking coal, anthracite or
petroleum, which account for
50 percent of total Yugoslav
imports from the USSR, would
deal a far more seriOus blow
to the Yugoslav economy than
withholding wheat. So far,
however, no specific complaints
have been made public regarding
these commodities. Yugoslav
wheat imports from the USSR
represent only about 15 percent
of total wheat imports.
Yugoslavia may try to
orient its trade more to the
West and increase its efforts
to find markets in the Middle
East, Asia, and Africa. The:
Yugoslav Government has al-
ready announced that an eco-
nomic delegation will go to
Iraq this month, at which time
it -will probably sign its first
trade agreement with that
Country.
(Concurred in by ORR)
CHINESE COMMUNIST PRESSURE ON HONG KONG
Recent Chinese Communist
economic and political pres-
sures against Hong Kong have
increased doubts among officials
and informed private circles
there regarding the colony's
long-range prospects. This
attitude contrasts sharply
with the previous confidence
that the colony's future was
secure because of its value to
Peiping as a major source of
free-world hard currency.
Chinese Communist light
manufactures and textiles, al-
legedly "dumped" on the South-
east Asian and Hong Kong mar-
kets, reportedly are beginning
to undersell Hong Kong products.
In the opinion of the Hong
Kong authorities, local indus-
try has not yet been hard hit,
but the competition is assum-
ing serious proportions and
is likely to grow. While they
believe the greatest danger
is to the colony's overseas
markets, they also are con-
cerned over Chinese Communist
efforts to monopolize control
of the colony's food supply.
Hong Kong's fishing opera-
tions have recently been brought
to a near standstill as there-
suit of Communist seizures of
fishing boats and the imposi-
tion of heavy fines and con-
fiscation of catches for failure
of the fishermen to join main-
land cooperatives. The Hong
Kong government is considering
naval protection for local
fishermen operating in inter-
national waters, and the Royal
Navy is providing daily escort
for fishing boats to the "outer
reaches" of the colony's waters.
Local officials, however, have
expressed the view that most of
the Hong Kong fishermen will
eventually be forced to join
the Communist cooperatives.
An increasing Volume of
propaganda and official protests
have emphasized Peiping's ada-
mant opposition to the "shel-
tering" of Chinese Nationalist
"agents" and its claim to be
the champion of the "rights"
of the Hong Kong Chinese. The
Communists have strongly at=.
tacked efforts by the colonial
authorities to curb Communist
subversiold in the local schools.
25X1
While Peiping probably
wants to increase foreign ex.
change earnings through its .
trade, its tactics also appear
to be in line with Peiping's
long-standing policy of gradual-
ly eroding the Hong Kong govern-
ment's authority and prestige
through threats, political pres-
sure, and constant agitation.
By threatening Hong Kong, Pei-
ping also may hope to discourage
the British from supporting
American policy in regard to
Taiwan. I (Con- 25X1
curred in by ORR)
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4 September 1958
CYPRUS
The tempo of violence has
again quickened on Cyprus with
four Greek Cypriots and two
British servicemen being killed
on 2 September--the largest num-
ber of deaths during a single
day in Cypriot-British fighting
since the end of large-scale
EOKA attacks in March 1957. In
June, EOKA leader Grivas warned
that a Briton would die for
every Cypriot killed by the se-
curity forces.
In announcing a truce on
4 August, Grivas reserved the
right to renew operations if
"provocations" continued, and
the recent security operations
may be considered sufficient
provocation. EOKA will be re-
luctant, however, to launch
simultaneous attacks on the
Turkish community and thus face
a "war" on two fronts.
Despite continued violence
between right- and left-wing
Greek Cypriots, all members of
the community continue, in the
fight for self-determination,
to manifest loyalty to Arch-
bishop Makarios who, on 28 Au-
gust, caustically denounced the
British and their new plan for
Cyprus. Makarios has again
called for UN intervention to
"restore peace" on the island.
Evidence is accumulating that
both Makarios and the Greek
Government are about to mount
a new campaign for A UN trustee-
ship for Cyprus. Meanwhile
there are indications that EOKA
leader Grivas is increasingly
dissatisfied with the "indeci-
sive" leadership of Makarios
and the government of Greece,
thus lessening their potential
capability for restraining EOKA
violence.
Turkey's willingness to
cooperate with Britain in im-
plementing the new plan for
Cyprus limits London's ability
to make further concessions to
secure Greek acceptance. While
Britain, with Turkish coopera-
tion, may attempt to impose its
plan, it is unlikely to be suc-
cessful in the face of massive
Greek-Cypriot opposition.
Until the exiled Makarios
is permitted to return to Cyprus,
the British apparently will have
to continue to rule the island
by force. While his return
would not guarantee peace, it
probably would restrain the ex-
tremists, whose acts could other-
wise lead to his deportation
again.
BRITISH-ICELANDIC FISHERIES DISPUTE
The British-Icelandic fish-
eries dispute entered a new
phase on 1 Septembet when Ice-
landic coastguardsmen boarded
a British trawler within the
new 12-mile territorial limit.
They were forcibly removed by
a British frigate, and the Ice-
landic patrol boat has refused
to take them back. The danger
of serious incidents is increas-
ing.
Neither the British nor the
Icelanders appear willing to
compromise their respective posi-
tions in principle. British
willingness to refrain from pro-
tecting British trawlers in the
inner six miles foundered on
Iceland's unwillingness to re-
frain from arresting British
fishermen outside the original
four-mile limit. The Icelandic
cabinet, which is under strong
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
pressure from its Communist
members, is standing firm, and
public opinion is inflamed,
with a crowd of some 400 break-
ing windows at the British Em-
bassy on 2 September.
Denmark has proposed a
ministerial meeting of the
eight countries whose fisheries
experts failed to reach a com-
promise on 29 August, and NATO
officials are seeking to find
a modus vivendi which will avert
the threat to the alliance.
While not sanguine, the
British have accepted the sug-
gestion in order to keep the
question fluid. The Icelandic
Government would, however, be
reluctant to participate in
OUTLOOK FOR FINLAND'S
The Finnish Government
formed on 29 August by moder-
ate Social Democrat K. A.
Fagerholm represents all par-
ties except the opposition
Social Democrats and the Com-
munist-front Finnish People's
Democratic League (SKDL), which
emerged from the 6-7 July elec-
tions as the country's largest
single party. Some of the new
cabinet's parliamentary support
is halfhearted, however, and
the government faces difficult
economic problems which may
result in its over-
throw this winter.
The government
in particular will
have to cope with
the problem of un-
employment; a post-
war high is expect-
ed to be reached
this winter. About
16,000 were unem-
ployed on 15 August,
compared with 3,000
the previous year.
The need to curtail
200 SEATS
any meeting which would not
recognize Iceland's unilateral
extension of territorial waters
to the 12-mile limit. It seems
more likely that Iceland may
demand that the NAC consider
British "aggression" against
Iceland, and also raise the
subject at the meeting of the
UN General Assembly later this
month.
There is a possibility that
the hostility felt toward the
British could easily be shifted
against NATO itself and against
its US-manned bases in Iceland,
if the inflammable and chauvin-
ist public feels NATO is on
the side of the British.
NEW GOVERNMENT
governmental expenses in order
to avoid the recurrent cash
shortages of recent years adds
to the difficulty of handling
the problem of unemployment.
A Finnish delegation has
come to Washington stressing
the urgency of Finland's re-
quest for a $30,000,000 loan
from the United States. Fin-
land is also requesting $25,-
000,000 from the IRBD. If
these loans for economic de-
velopment projects do not mate-
rialize, there will be strong
FINNISH DIET
JULY 1958 QUADRENNIAL ELECTIONS
LEFT OF CENTER CENTER
toopt DEMOCRATIC
PARTY "
-807083/80068
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FINN 15)1
PEOPLE'S
PARTY
1954 ELECTION FIGURES IN PARENTHESIS
4 SEPTEMBER 1958
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
pressure from leftist elements
in Finland for the government
to accept more than a token
amount of the economic assist-
ance which the USSR offered
during President Kekkonen's
state visit to Moscow last May.
The Fagerholm cabinet,
which replaces the nonpolitical
caretaker governments in power
since November 1957, is by no
means as strong as its formal
parliamentary majority would
suggest. The Finnish Confeder-
ation of Trade Unions (SAK) is
not represented in the cabinet
and is hostile toward its for-
mer secretary general, Olavi
Lindblom, who is in the cabi-
net as a labor representative.
The Agrarians entered the coali-
tion only reluctantly; and
their radical wing, unrepresented
except for Foreign Minister
Virolainen, seems to anticipate
that the government will fall
soon.
Within both the Agrarian
party and the SAK, a consider-
able element regards Communist
participation in some form as
inevitable. The fall of the
government on the unemployment
issue could lead to the forma-
tion of a regime including Com-
munists, or to a minority govern-
ment dependent on Communist 25X1
support .1
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
MEXICAN LABOR
Last week's labor and stu-
dent riots in Mexico City were
probably brought about by dis-
sident, leftist labor leaders
who are determined to gain
stronger influence in the gov-
erning Party of Revolutionary
Institutions (PRI). The power
already acquired in important
unions by these leaders may
force President-elect Lopez
Mateos to give some weight to
their views in his program when
he takes office on 1 December.
President Ruiz Cortines did
not act decisively against the
rioters, and his reluctance ear-
lier this year to deal firmly
with serious wildcat strikes
has given the initiative to the
men challenging the established
PRI union leaders. I
TROUBLES
25X1
25X1
Control of the labor move-
ment has been an important fac-
tor in the long, almost unchal-
lenged rule of the PRI. Workers,
however, hit by inflation and
low wages, complain that their
politically motivated union
heads have failed to obtain for
them a fair share in Mexico's
rapid economic growth. The dis-
sident leaders exploited this
dissatisfaction, staging strikes
which paralyzed schools, rail-
roads, and other communications;
the government capitulated '
to most of their demands. Po-
litically active students, who
started last week's outbreak by
demonstrating against a minor
bus fare increase, accepted of-
fers of assistance from the
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CURRENT INTELLIGENCE WEEKLY IBMIMARY
4 September 1958
leftists. The President also
acceded to the student demands.
Many of the newly powerful
leaders are Marxists, although
they do not belong openly to
PARAGUAYAN
President Stroessner's
dictatorship is faced with a
new threat to stability, having
overcome plotting just prior to
its second inauguration on 15
August. It fears that politi-
cal repercussions from a general
strike suppressed on 27 August
may be exploited by subversive
elements and hamper its recent
steps to liberalize political
conditions. Public sentiment
stongly favors labor's efforts
to improve its substandard liv-
ing conditions.
The government refused to
concede to labor's demand for
a 29-percent increase in mini-
mum wages, citing its fear of
inflation and damage to the
year-old stabilization program
drafted by the International
Monetary Fund. Under this, liv-
ing costs and the exchange rate
have remained steady, and Para-
guay agreed not to raise wages
by more than 5 percent over the
rise in living costs. Labor,
however, appears unusually de-
termined to attain its objec-
tive, and the General Confed-
eration of Workers (CPT) re-
jected a pre-strike offer of 5
percent.
About half the workers
returned to work immediately
after the government's prompt
repressive measures, including
the arrest of labor leaders and
seizure of the CPT. Some 700
workers took refuge in a Cath-
olic school compound, where
they were joined by Father
Talavera, whose public attack
Mexico's legal Communist party.
Lopez Mateos, who was a strong
minister of labor in the outgoing
administration, *ill, probably try
to channel their demands into a
program patterned on Mexico's
own socio-economic revolution
of 1910.
UNREST
on the regime for failing to im-
prove the welfare of the people
attracted widespread approval
last February. The workers,
however, were persuaded to leave
the school compound by the clergy
after the government obtained a
court order for their eviction.
The Chamber of Deputies has taken
the unprecedented action of pro-
testing the temporary arrest of
the CPT president.
The foreign minister has
stated privately that the strike
is political rather than eco.4
nomic,and is basically Communist-
inspired, although Other oppo-
sition parties have since taken
advantage of the situation.
25X1
25X1
The major opposition Lib-
eral party faces a dilemma re-
garding the strike, wanting to
take advantage of it but not
wanting to jeopardize its newly
granted freedom for increased
political actiVity. Exiled ele-
ments of both the Liberal and
Febrerista parties, however,
have consistently advocated re-
sistance and revolution. The
armed forces, backbone of the
regime, strongly support President
Stroessner and endorse his lib-
eralization moves. Each crisis,
however, offers an opportunity
to any disgruntled key military
commander to make a bid for power.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
PRE-ELECTION ASSEMBLY SESSIONS IN PAKISTAN
The tenor of the recently
concluded West Pakistan proviD6-
cial assembly seseion and: the
present National Assembly ses-
sion, together with the nature
of the efforts being made to
strengthen the Awami League gov-
ernment of East Pakistan, sug-
gests that all three governments
will be able to remain in power
until national elections are
held in February. Stability
depends, however, on the Awami
League's ability to prevent the
alienation of support of impor-
tant individuals in the national
government.
In the current National As-
sembly session, which began on
1 September, and in the West
Pakistan provincial assembly
session which concluded on 28
August, the opposition has con-
centrated on establishing cam-
paign issues for the national
elections rather than on efforts
to overthrow the government.
The opposition Moslem League and
the National Awami party will
probably continue to attack the
government's policies, including
its pro-Western foreign policy
and its politically unpopular
repression recently of would-be
marchers on Indian-held Kashmir.
Investigation of political cor-
ruption will probably also be
demanded.
During the West Pakistan
assembly session from 25 to 28
August, the Moslem League and
other opposition parties were
unable to offer any serious
threat to the Republican party
government in that province.
However, the situation in East
Pakistan, where the Awami League
government was restored on 26
August following a period of
President's Rule, appears less
stable. The outcome of the pro-
vincial assembly session ex-
pected to begin there about the
third week in September is un-
certain. The Amami League gov-
ernment apparently does not yet
have a firm commitment of sup-
port from the National Awami
party and is bargaining for sup-
port from its own principal
rival, the Krishak Sramik party
(KSP). At the same time, it
has not filled about eight pro-
vincial cabinet posts, apparent-
ly using this to attract support
away from the KSP, which has
almost equal strength at present
in the provincial assembly.
The Awami League, which
previously has supported the
national government from outside
the national cabinet, is now
also attempting to get a number
of seats in the cabinet in order
to increase its prestige and
attract needed support in East
Pakistan. If key leaders in
the national cabinet are ousted
and thereby alienated by this
maneuver, however, serious in-
stability in the national gov-
ernment could result. 1
INDIAN FINANCE MINISTER'S VISIT TO THE UNITED STATES
Indian Finance Minister
Morarji Desai, who left India
late in August to seek finan-
cial aid from the United King-
dom, Canada, and the United
States, is expected to emphasize
India's need for long-term
financial asaistance during his
Washington visit'beginning 6
September. India recently se-
cured $350,000,000 for its
short-term needs from Britain,
the United 'States, West Ger-
many, Japan, Canida,and the
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4 September 1958
International Bank for Recon-
struction and Development. Desai
is one of the leading candidates
to succeed Nehru as prime min-
ister, and this is his first
trip outside India.
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HANOI ATTEMPTS TO
North Vietnam has announced
a three-year plan for education
to be inaugurated the beginning
of the coming academic year,
and propaganda media are die-
cussing ways to reorganize the
private schools and re-educate
secondary-School I,teachers.
Hanoi probably intends even-!-
tuallytoabolish the private
schools andA.s taking. some
measures.tOward.that.end.
REFORM EDUCATION
The educational system which
the Communists inherited from
the French was inadequate, but
it did support some excellent
secondary schools staffed by
Paris-educated instructors.
The majority of these schools
are private and enjoy a better
reputation than public schools,
as statistically their students
have a better chance of gaining
university admission--an anomaly
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in Communist states. The Com-
munist regime has approximately
doubled the number of students
enrolled in academic high
schools,: now given at 13,000,
but has not been able to main-
tain the, quality of the French
schools.
The private schools are
permitted a certain degree of
freedom, particularly in de-
ciding whom they admit; and al-
though they must teach the
standard state curricula, few
of the teachers are party mem-
bers. Some of the schools are
operated by the Catholic Church
and still give religious in-
struction after school.
It is not clear why the
Hanoi government has not na-
tionalized at least the private
high schools unless it has wished
to avoid the,expense of their
operation. In the present dis-
cussions, these institutions
are called on to improve their
organization, increase their
teachers'salaries, and raise
the level of their political
indoctrination work.
The state-operated schools
in the provinces do not escape
attack, which has been partic,-,
ularly sharp in recent weeks.
The large Hung Vuong school in
Phu Tho Province, with a stu-
dent,,body comprising 10 percent
of all academic secondary stu-
dents, has been accused of ne-
glecting the political indoctri-
nation of its pupils. Even
Hteachers who are party members
at Hung VuOng are quoted as say-
ing they have no time to teach
politics, and some are described
as listening to nonbloc radio-
broadcasts because they believed
"intellectuals should hear both
sides of a question."
The situation is decribed
as being even worse in other pub-
lic sbhools. The Lam Son school
In Thanh Hoa Province reputedly
harbors a group of teachers loy-
al to university professors fired
last spring for demanding greater
intellectual freedom. Students
there 'hat'e . ,been told that
"outmoded Communism will be re-
placed by a better doctrine";?
and party cadres are compared to
,the boor in MoliSre's Le Bour-
geoit Gentilhomme who wantedto
be a gentleman wlaile remaining
illiterate. One teacher, when
reprimanded, is said to have
warned his director to "rook out
for another. Hungarian uprising."
The regime opened a six-
week political indoctrination
course for all secondary-school
teachers which was to end on 2
September. Until Hanoi has
trained loy 1 new cadres, how-
ever, or unless it takes drastic
steps against present instruc-
tors, the schools will continue
to employ some teachers who
oppose the system. To date the
North Vietnamese intelligentsia
has proved its ability to with-
stand regime efforts to erad-
icate dissent.
COMMUNIST SUBVERSIVE GAINS IN LAOS
Although excluded from the
newly: formed national govern-
ment, the Communist-dominated
Neo Lao Hak Zat (NLHZ) is meet-
ing success in its campaign to
penetrate the army And to erode
the government's authority in
the provinces.
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4 September 1958
The NLHZ similarly appears
to be making headway in its cam-
paign to control the administra-
tive machinery in rural areas,
where locally elected officials
are reported resigning under
NLHZ pressure. The NLHZ is also
winning substantial numbers of
adherents among Laos' nearly
13,000 Buddhist monks, who have
considerable influence over
village opinion. This is, in
part, the consequence of NLHZ
leader Phoumi Vongvichit's ten-
ure as minister of religion in
the preceding government.
KENYA SECRET SOCIETY CAUSING
The Kiami Kia Muingi (KKM)
--an African secret society in
Kenya which is a direct out-
growth of the Mau Mau--has mush-
roomed into an organization of
perhaps 200,000 members. The
society aims at independence
for this British crown colony
and plans to use violence to
oust the 60,000 Europeans.
the society was officially
outlawed in January 1958.
Communist elements in Laos
have for years proselytized
among the tribal minorities,
which together comprise about
half the total population.
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NLHZ
chief Souphannouvong has
achieved considerable success
in his pose as patron of the
"suppressed minorities." To
curry additional favor in the
provinces, the NLHZ is plan-
ning to establish consumer co-
operatives and river and land
transport associations.
The over-all trend of
growing Communist influence in
almost every sector of Lao-
tian society has been fa-
cilitated by the lack of
effective government leader-
ship. The NLHZ's energetic
and well-planned efforts to
marshal support in the prov-
inces, looking toward the
national elections next year,
have been in marked con-
trast to the indifference
and neglect of responsible
government officials.1
POLICE GROWING CONCERN
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4 September 1958
Conditions in Kenya favor
the development of subversive
nationalist movements because
growing numbers of the 6,000,000
Africans have not been satisfied
with the limited political and
social reforms offered by the
British and Ken a overnments.
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4 September 1958
PART III
PATTERNS AND PERSPECTIVES
COMMUNIST CHINA'S "GIANT LEAP FORWARD"
The Chinese Communist lead-
ers are firmly committed to the
current mass campaign for max-
imum speed in economic develop-
ment--which Peiping describes
as its "giant leap forward."
They express elation with the
results of the campaign in the
first half of the year and say
it will be continued. More at-
tention is being paid to agri-
culture, large numbers of small
industrial plants are being
built, and some responsibility
for financial, industrial, and
commercial management has been
passed from Peiping to lower
administrative levels in expec-
tation that this would increase
efficiency.
These important modifica-
tions have been made in China's
economic programs to avoid rep-
etition of the troubles which
followed the relatively modest
economic speed-up in 1956 and
which hampered the economy
throughout much of 1957. How-
ever, there are signs that some
of the troubles which beset
Peiping in 1956 have begun to
reappear.
Development of the Campaign
Liu Shao-chi, Mao's chief
lieutenant and a leading expo-
nent of the "leap forward" cam-
paign,traces it to the launch-
ing of the "rectification"
drive in the spring of 1957.
Beginning in September 1957,
various of Mao's lieutenants
spoke publicly in favor of a
more rapidly paced economic de-
velopment, and the "leap" ap-
pears to have crystallized dur-
ing December. In its early
stages, it was marked by exhor-
tations to overtake Great Brit-
ain in certain industrial fields
in 15 years or so. Recent ref-
erences claim the job can be
done much sooner.
By the spring of 1958 the
campaign had spread to all eco-
nomic fronts. Little was said
about its life expectancy, but
by the time the party congress
met in May, the leadership had
apparently decided it would be
a continuing feature of China's
economy. Liu Shao-chi told
the )congress there would
be "one forward leap after
another." Tan Chen-lin, the
party's leading spokesman on
agriculture, said a "still
greater forward leap can be ex-
pected in China's agricultural
output next year and the year
after."
Even as the "leap" was
getting under way late last
year, Liu Shao-chi noted that
"some people" doubted the wisdom
of such a course, and the offi-
cial People's Daily perceived
an "undercurrerarl-Wf "anxiety
and worry." The opposition to
the plan persists, and is pic-
tured as hoping that the re-
sults at year's end will prove
it right. Convinced that the
program is "too impetuous,"
these elements cite the troubles
brought on by the relatively
modest acceleration of 1956.
In that year, raw material short-
ages, transportation tie-ups,
and financial difficulties ham-
pered the economy through much
of the following year.
Policy Reforms
The leadership argues that
the 1956 setbacks were offset
by the year's achievements and
that policy changes made since
that time will ensure against
a recurrence. Peiping has ac-
knowledged the pressing need
above all to speed up agri-
cultural development and, to
this end, has sharply increased
investments in money and man-
power. Secondly, it has taken
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4 September 1958
steps to shift to lower admin-
istrative levels a portion of
the economic power which has
become increasingly centered
in Peiping.
Closely related to this
is a program to build large
numbers of small-and medium-
size plants "like stars in the
sky" throughout the countryside.
As Liu Shao-chi observed, "It
is only when all central and
local authorities get going at
it, only when there is a divi-
sion of labor and cooperation
among big, small, and medium-
size enterprises, that we can
achieve greater, faster, better,
and more economical results."
The decision to make such
reforms appears to have been
made last fall, along with the
decision to press ahead more
rapidly. The decentralization
of financial, industrial, and
commercial activity can be
traced to the third plenary
session of the party's central
committee last October. Chen
Yun, believed to be a principal
architect of the program, gave
a report on this topic, the de-
tails of which have not been
released. As a result of this
meeting, Peiping made public in
November a series of regulations
which defined the decentrali-
zation process.
PRODUCTION TARGETS IN COMMUNIST CHINA'S
"GIANT LEAP FORWARD"
MILLION METRIC TONS
REGULAR PLANNING TARGETS
GRAIN
300-350
RESULTS
"LEAP FORWARD" TARGETS
1957
* COAL
1958
1962
300
1957
80902
1958
1962
g PETROLEUM
1.45
- -
1.55 1.66
r1
5-6
30-36
1957 1958
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1962
5.24
ri
10.7
6.25
30.0
12.0
1957 1958 1962
ELECTRIC POWER
BILLIONS KWH
19.0
22.5125.0
44.0
74.0
1957 1958 1962
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4 September 1958
The decentralization and
attendant programs featuring
agriculture and small rural
plants necessitated modifica-
tions in the planning mechanism.
First of all, the process was
simplified and the range of tar-
gets sent out from the center
was narrowed. But of more im-
portance was the launching of
a new planning system, called
by Peiping "a Chinese creation."
Under it, the planning author-
ities in Peiping draft relative-
ly reasonable goals which must
be achieved. These become the
central government's "first ac-
count" goals. They are then
sent down to the provincial
planning authorities, who,
drawing on a more detailed and
comprehensive knowledge of lo-
cal resources, draft an "ex-
panded" version of these goals.
The sum of all these ex-
panded provincial plans becomes
the central government's "sec-
ond account" goals. It is to
this account that targets pub-
licized in connection with the
"leap" refer. The same process
occurs once again when the pro-
vincial authorities transmit
their goals to the next lower
level.
Small Plants
As a result of the programto
build many small- and medium-size
plants, China in effect has two
industrialization programs pro-
ceeding side by side. The first
and more important one involves
the central government's key
projects and continues at least
at the pace achieved in the past.
The second concerns the construc-
tion of small locally built and
operated plants, lately grafted
on to the first program.
These plants will serve to
support agriculture by providing
simple machinery, fuels and
electric power to run the ma-
chines, and chemical fertilizer.
The plants' contribution
to national output will be
considerable; while the qual-
ity of their output will be
uneven and not impressive in
terms of a modern industrial
economy, it will be good enough
for the backward Chinese coun-
tryside.
The central government in
Peiping has established the
guide lines for the program
and has drawn up blueprints
for the plants. Pilot plants
have been set up near Peiping
tO which technicians from the
interested localities can come
for training and experience.
Peiping also has urged the big
established enterprises to pro-
vide the smaller new ones with
technical and other help. This
assistance has come sometimes
from individual plants and
sometimes from an existing in-
dustrial center.
Shanghai, for example, has
not only launched a program of
investing in small plants in
neighboring provinces but has
agreed to supply the necessary
blueprints, to send technicians,
and to train students from near-
by areas. In a number of in-
stances these small plants will
probably serve as satellite sub-
contractors of the larger ones,
in line with a pattern which
persists in Japan.
Economic Decentralization
Along with the creation of
a myriad of small producers,
Peiping has provided for the
transfer of managerial respon-
sibility in industrial and com-
mercial enterprises from the
central to the local govern-
ments. When the November 1957
regulations were issued, Pei-
ping pointed out that the devo-
lution of authority would apply
to only a limited range of enter-
prises, chiefly in light indus-
try. Most of the major heavy
Industries, including all de-
fense industries, were to re-
main firmly under central
control.
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In April of this
year, however, it was
apparently decided
that all enterprises
would be involved
"except some special,
key enterprises, or
enterprises of an ex-
perimental nature."
Peiping reported in
June that responsi-
bility for some 80
percent of the total
number of enterprises
under the central in-
dustrial ministries
had been shifted to
the provincial gov-
ernments. The chances
are, however, that
the large industrial
combines, like the
Anshan Iron and Steel Plant,
and most defense industry and
other "special" enterprises
will not be transferred.
4 September 1958
SMALL POWER STATION IN SHANTUNG PROVIENCE
Even in the case of the
plants transferred, the central
government retains a strong
voice in the operation of the
more important plants through
its functions in planning and
inspection. Only the day-to-
day management has been handed
over.
Much of the small local
industry will probably come un-
der the control of the new "peo-
ple's communes" which the re-
gime has recently begun to pop-
ularize as the coming "basic
social unit" in China. These
communes in some cases will be
quite large. Peiping has indi-
cated that membership will
range from 5,000 to 10,000
households. They will have
departments in charge of indus-
try, agriculture, commerce,
transport, culture, and militia
and will thus virtually displace
the present echelons of govern-
ment below the county level.
Cautious as the regime has
been in loosening the strings
of management of the nation's
industry and commerce, it has
been even more careful in regard
to the nation's purse strings.
The first moves toward assign-
ing more local responsibility
in financial matters were taken
last November. Regulations pub-
lished in June serve to increase
the local governments' share in
some taxes and open up addi-
tional sources of income. They
now have the authority to issue
local construction bonds, ex-
clusive claim on seven types of
taxes and a partial claim on
four more, the right to levy
local surtaxes, and a 20-percent
share in the earnings of enter-
prises located in their area.
However, the regulations
also provide that all local
budgets must be forwarded to
the Ministry of Finance for
"inspection, review, and neces-
sary changes." Moreover, local
extrabudgetary income, which
previously had sometimes es-
caped the central authorities,
will be brought into the local
budgets and thus will come un-
der Peiping's purview.
More recently, the central
government has issued regula-
tions designed to improve the
"management of investment funds
"Full powers" in this field
are delegated to the organs
directly in charge of the con-
struction projects. These are
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4 September 1958
now free to change designs, re-
allocate funds, and readjust
their work so long as there is
no reduction in planned capacity
of the project involved, no de-
lay in delivery, no excess costs,
and no increase in nonproductive
spending.
Political Implications
The achievements of the
first half of the year--record
levels of industrial growth
and unprecedented early har-
vests--are clearly viewed by
the leadership as vindicating
its "giant leap forward" policy.
The People's Daily took the
view that the achievementswere
so great that it was not neces-
sary to wait for the returns
of the second half of the year,
especially since the gains thus
far are but a "prelude" to even
greater gains in the future.
The paper gloated over the rout
of the "gloomy clique" which
had hoped to "settle accounts"
after the fall harvest.
Recent references to op-
posing elements have, in fact,
shown an increasing harshness.
So far no individual has been
identified as being a member
of the "gloomy clique," and it
is doubtful that any of the
top leaders are members. Mao
has been frequently and strongly
linked to the "leap." Liu Shao-
chi and his chief lieutenants,
especially Teng Hsiao-ping and
Tan Chen-lin, were early and
dedicated advocates.
Chou En-lai has been asso-
ciated with it since early 1958,
and is being given credit for
an earlier advocacy. Chen Yun,
the regime's ranking
economist, has not
publicly associated
himself with the
"leap" as such but
has been connected
with the policy re-
forms which are an
integral part of the
program. A few other
politburo members have
either failed to get
on the bandwagon or
have climbed aboard
late in the day, but
all of them seem to
be in good standing.
BLACKSMITHS' COOPERATIVE IN SHANSI PROVINCE
Although there
is an outside chance
that one or another
politburo member will
be brought down, the
better candidates for
the "gloomy clique',
are at lower levels
of power. For ex-
ample, Teng Tzu-hui,
director of the par-
ty's rural work de-
partment, opposed Mao
Tse-tung's speed-up of
agricultural sociali-
zation in 1955-56 and
has since been dis-
placed as the party's
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4 September 1958
leading spokesman on agriculture.
Moreover, Teng's 1957 position
on limiting the size of coopera-
tives has been overturned by
the Mao-inspired program of merg-
ing cooperatives into "people's
communes." There are a few oth-
er possibilities among the di-
rectors of the party's central
departments, and the first
secretaries of provincial and
municipal party committees.
There are also several candi-
dates among the heads of gov-
ernment staff offices and min-
istries.
Prospects
The regime may be pushing
the "leap forward" campaign too
hard. Despite the policy
changes, there are indications
that some of the economic trou-
bles which cropped up in 1956
are reappearing. The People's
Daily has complained that the
"gloomy clique" is now trying
to make an issue out of the raw
materials shortage. Actually,
shortages of raw materials
began to be felt as early
as March. The regime at that
time insisted it would be able
to deal with the "tense" sit-
uation, but its remedies were
limited to promoting the use
of substitutes and urging re-
duced consumption and the sal-
vaging of used materials. The
problem was still "paramount"
in July.
Transport congestion has
been felt this year earlier
that it was in 1956. The party's
main spokesman in the field re-
cently warned that the "tre-
mendouspressuresil already ap-
parent would continue to in-
crease. "Bottlenecks," he said,
were already hampering rail
movements. He urged a speeding
up of construction on new facil-
ities. Neither of these prob-
lems is yet as widespread or as
serious as they became in 1956,
however, and there has been no
sign yet of similar financial
strains.
The leadership, heavily
committed to the "leap" and
aware that opposition elements
have been waiting for statisti-
cal support for their charges
of recklessness, may have
rushed the publication of the
statistical report for the first
half of the year before the sup-
porting figures could be ade-
quately checked. This would
appear to be most likely in the
case of agriculture.
Great gains have almost
certainly been made in the
course of the "leap." Rates of
growth in both industry and ag-
riculture have been stepped up
and economic reforms which
should be of continuing value
have been effected. While a
slowdown seems inevitable, the
chief exponents of the "leap"
have isolated an opposing group
which can be blamed for the
slowdewn if necessary
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JAPANESE-AMERICAN RELATIONS
? On his visit to Washington
on 11 and 12 September, Japal,
nese Foreign Minister Aiichiro
Fujiyama intends to discuss
problems connected with revision
of the US-Japanese security
treaty, ways to increase Japa-
nese Aexports. to the-Ainited.
States, economic assistance for
Southeast Asia, and relations
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4 September 1958
with Communist China. Prime
Minister Kishi believes the
visit will be a key to long-
term cooperation and that
it will counter widespread
charges that Tokyo is subser-
vient to the United States on
issues affecting Japanese in-
terests.
Kishi believes his own
visit to Washington in June
1957 achieved limited success,
particularly the abolition
of the China differential
trade embargo and agreement
on disposition of Japanese
war criminals. However, he
feels the adjustments made in
security arrangements lacked
substance. Remaining issues
were left unsettled and several
now have assumed crucial im-
portance for Kishi's govern-
ment.
Priority attention is be-
ing , given' to the need for
sweeping changes in security
relations. Many Japanese feel
that the present "one-sided"
security treaty was imposed as
a price of a peace treaty in
1952. The Socialists and oth-
er leftists have been able to
foment public antagonism to
ward the treaty by charging
that it infringes on Japanese
sovereignty.
Fujiyama v*ill seek a
revision which would specif-
ically require Japanese Gov-
ernment approval before nuclear
weapons are brought to Japan
and before American forces and
equipment in Japan are dis-
patched for use in hostilities
outside the country. Concern
among Japanese that action by
Japan-based forces might in-
volve their country involun-
zarixv in nostifirlAs in ntheir
areas
Fujiyama will also seek
some Japanese control over the
use and disposition of Ameri-
can forces in Japan.
Occupying almost equal im-
portance on Fujiyama's agenda
is the problem of cooperation
in the economic development of
Southeast Asia. Unlike a year
ago, when Kishi proposed a de-
tailed plan for an Asian devel-
opment fund, the Japanese are
prepared to listen to American
proposals. They have taken
special note of US interest in
regional development programs
for Latin America and the Mid-
dle East and have been encour-
aged by President Eisenhower's
recently announced intention
to strengthen the World Bank
and establish, an international
development association, which
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4 September 1958
they hope will coincide with
their own plans for Asian devel-
opment.
Fujiyama probably will call
for a plan to stabilize raw ma-
terial prices in Southeast Asia
and emphasize the need for ur-
gent action to counter develop-
ing Communist economic penetra-
tion of that area. Communist
China's call for a boycott of
Japanese goods by Overseas Chi-
nese in Southeast Asia and its
campaign to undersell Japanese
products there have aroused
serious concern in Japan.
Tokyo is looking to the
United States as the major
financier of a program for de-
veloping Southeast Asia. Japan's
ability to contribute to such a
program is limited. It has ap-
propriated approximately $14,-
000,000 in its current budget
as a contribution in the event
a program is established, but
its limited fiscal resources
are already heavily committed.
Japanese reparations to coun-
tries in the area total about
$70,000,000 annually, a credit
of $50,000,000 has been ex-
tended to India, another of
$20,000,000 has been approved
for Burma, and similar action
may be taken on requests from
Pakistan and Ceylon. Fuji-
yama may propose, however, that
some $600,000,000 which Japan
owes the United States for re-
lief expenditures in Japan fol-
lowing World War II be utilized
in an Asian development pro-
gram.
An accommodation with
Communist China probably is the
Kishi government's most contro-
versial and complex problem.
The prime minister's dilatory
policy on the impasse with
Peiping is receiving ever-
increasing criticism from
business and labor interests,
the press, Socialists, many
conservative leaders, and at
least two of his own cabinet
members. Communist China's
economic campaign in Southeast
Asia and the recent relaxation
of the COCOM embargo, which
many Japanese fear will give
European commercial interests
a foothold on the mainland while
trade with Japan is suspended,
have spurred demands for gov-
ernment action to break the
stalemate.
Kishi continues to assert
that he will "wait and see" but
recently told Ambassador
MacArthur he is becoming iso-
lated in this view and requires
definite support, such as Amer-
ican assistance in the Asian
development program, which
would allow Japan to expand mar-
kets in Southeast Asia to re-
place those "lost" on the China
mainland. Fujiyama, who has in-
dicated that Japan is planning
ambassadorial talks with Commu-
nist China if the government
cannot find another way of re-
ducing Japanese pressures for
China trade, probably will at-
tempt to .discern how fat
Tokyo can go _toward closer,
relations with Peiping without
alienating the United States.
Tokyo insists that any efforts
toward a rapprochement with
Communist China will not in-
clude diplomatic recognition.
Finally, Fujiyama will dis-
cuss in a general way methods
for expanding Japanese markets
in the United States. The Jap-
anese experienced a deficit of
more than one billion dollars
in trade with the United States
in 1957, about half of which was
offset by special US dollar ex-
penditures in Japan. In an at-
tempt to close the dollar gap,
the Japanese had begun to switch
some purchases of soybeans from
the United States to Communist
China prior to Peiping's suspen-
sion of Sino-Japanese trade, and
have been considering switching
purchases of various commodities
elsewhere.
The trade deficit with the
United States during the first
half of 1958 was approximately
$275,000,000--about half that
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4 September 1958
of a year ago. Special US dol-
lar expenditures in Japan, how-
ever, have declined about 18
percent,and the trade improve-
ment has resulted principally
from a drop in Japanese imports
under the present "tight money"
policy rather than from an
expansion of exports. Fujiyama,
therefore, probably will seek an
understanding on general princi-
ples which the United States will
follow in order to close the
trade gap when Japan's econ-
omy' begins to recover,, which
is expected shortly, and Tokyo
exnandQ it= imnevwf Trograms..
THE COMMONWEALTH ECONOMIC CONFERENCE
The Commonwealth Economic
Conference opening at Montreal
on 15 September--the first such
full-scale meeting since 1952--
is likely to show a somewhat
diminished role for Britain
and a growing divergence be-
tween the older and newer Com-
monwealth countries as to the
means of overcoming their eco-
nomic problems. Older members
such as Canada and Australia are
concerned primarily about the
inadequacy of monetary reserves,
while the newer, less developed
members like India and Ghana
insist that the immediate prob-
lem is the need for stabilizing
prices of raw materials.
Earlier Conferences
Despite the continuing im-
portance of the sterling area
in world trade, the years since
the 1952 economic conference
have seen a general loosening
of Commonwealth ties and an in-
tensification of the tendency
to seek economic arrangements
outside the Commonwealth frame-
work. Discussions at the cur-
rent meeting will in part look
forward to the October confer-
ence of the International Mon-
etary Fund and World Bank and
be directed toward achieving a
more comprehensive free-world
attack on such problems as in-
creasing monetary reserves,
stabilizing trade, and accel-
erating economic development.
The increased importance
of underdeveloped countries
25X1
in Commonwealth councils is
seen in the broader composition
of the September conference,
which will include the newest
Commonwealth members, Ghana
and Malaya, as well as colonial
representatives from the West
Indies Federation inaugurated
early this year.
Britain's gradually declin-
ing ability to provide invest-
ment capital and other tangible
economic benefits to the other
Commonwealth members was re-
flected in the conference prep-
arations. Contrary to the
usual procedure whereby Britain
initiated all such conferences,
this one was proposed by Cana-
dian Prime Minister Diefenbaker
at the annual meeting of Common-
wealth finance ministers last
September. It is also the first
one to be held outside London
and the first in which papers
will have been prepared by
Commonwealth members other than
Britain.
SECRET
COMMONWEALTH CONFERENCE
AGENDA
? Significance of changes in world trade.
? Measures to expand trade among Common-
wealth countries.
? Commonwealth economic expansion and
provision of development capital.
? Progress toward freer trade and payments.
? Economic and trade problems in regard to
agriculture and other primary production.
? Commonwealth and European Free Trade Area.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
The conference proposal re-
ceived a lukewarm reception at
first by most of the Common-
wealth members. The Diefenbaker
initiative was generally con-
sidered a political gesture by
the new Canadian Conservative
government which had pledged
during the previous spring's
election campaign to lessen
Canada's economic dependence on
the United States and to strength-
en its Commonwealth ties.
Britain, however, took up
the proposal enthusiastically,
apparently in the hope that such
a meeting might be used to re-
vive confidence among sterling
area members who were becoming
increasingly alarmed by recur-
ring stresses on sterling. Aus-
tralia, for instance, in ex-
pressing its doubts about the
long-term prospects for the
sterling area's survival to
American Embassy officials in
Canberra early this year,
wondered whether the United
States was thinking of possible
alternatives or remedial meas-
ures that might be adopted. How-
ever, Britain's current rela-
tively strong financial position,
compared with its financial
crisis last fall, has removed
the sense of urgency for con-
crete results.
Conflict of 'Interests.
The preparatory discussions
held in London in February and
again in June illustrated the
disparity of views among Common-
wealth members on the relative
priority of the agenda items.
Of greater importance, however,
is the contrast the talks fur-
nished of the opposing economic
Interests of the older and newer
members. Australia's concern
with the inadequacy of monetary
reserves is shared by Canada,
New Zealand, and South Africa,
which are among the world's most
BRITISH COMMONWEALTH
'\NADA
GDOM
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25X1
4 SEPTEMBER 1958
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NEWLE7.1414ANL
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
rapidly industrializing coun-
tries outside the Soviet bloc.
The American Embassy in Ottawa
considered it significant that
Prime Minister Diefenbaker's
only substantive policy state-
ment when introducing President
Eisenhower to the Canadian Par-
3500
3000
2500
2000
1500
BRITAIN'S GOLD AND DOLLAR RESERVES
( MILLION DOLLARS )
1958
JASCINDJFMAMJJASONDJFMAMJJA
* INCLUDES 1111, 000,000 DRAWN FROM I M F AND EXPORT - IMPORT BANK
4 SEPT 1958
80829 5
liament last June was a call
for much larger "liquid re-
serves"--i.e., gold and dol-
lars--to support free-world
trade.
The conferees are expected
to coordinate their views on
the scale of enlarging IMF
quotas and amounts pledged to
the World Bank, in anticipation
of the annual meetings of these
institutions in New Delhi on
6 October.
To the newer Commonwealth
members, the dominant problem
to be faced at the conference
is the instability of prices
for raw materials and agricul-
tural commodities. Primary-
producing Commonwealth countries
like Malaya, Ghana, and India
charge that the sharp drop in
these prices during the past
year contributed in large part
to Britain's improved economic
position but endangered their
own foreign-exchange holdings.
In the preliminary London talks
they insisted that some long-
term remedial action must be
taken to avoid the sharp and
sudden price changes which
since 1938 have seen prices for
wheat fluctuating by as much
as 273 percent, for wool by
415 percent, for sugar by 435
percent, and for copper by 612
percent.
In defense of their posi-
tion, these Commonwealth members
point out that in many cases
their countries account for the
greater part of the world's out-
put of primary commodities: for
example, half or more of the
total output of wool, jute,
cocoa, tea, sisal, gold, nickel,
manganese, and asbestos; and
between one third and one half
of the world output of natural
rubber, rice, oilseed, tin, and
chrome.
British Board of Trade of-
ficials have informed the Amer-
ican Embassy that the preliminary
discussions on the conference
showed a more acute concern
about the prospect of Britain's
participation in the projected
European free trade area than
London had anticipated. In a
roundabout way this was linked
with proposals advanced for the
consolidation and expansion of
development funds.
Malaya's introduction of
the concept of Britain's extend-
ing development funds as a quid
pro quo for retaining Common-
wealth preferences, for instance,
found considerable favor at the
February meeting. It was argued
that these tariff preferences
gave Britain greater advantages
than Malaya, with the implication
that British participation in a
free trade area would sharpen
the unfairness of this situa-
tion. On this basis, therefore,
Malaya suggested that a supply
of development capital instead
of British trade concessions
might be a more appropriate
counterbalance. According to
the embassy, London is convinced
that it faces difficult maneuver-
ing to avoid a critical attack
on these issues at the confer-
ence.
Britain's Approach
It appears that Britain
will play a defensive role at
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
the conference. For a variety
of reasons, the Macmillan gov-
ernment has decided not to pre-
sentthe only two positive pro-
posals it was prepared to offer
at the meeting: a Commonwealth
bank along the lines of the
World Bank and a Commonwealth
free trade area, both of which
are believed to have been pet
projects of the prime minister
himself.
London is expected to re-
sist pressure for a Commonwealth
initiative in seeking interna-
tional commodity agreements and
the establishment of a Common-
wealth development agency simi-
lar to that of the US Develop-
ment Loan Fund established in
1957. While acknowledging the
need for a new approach to com-
modity problems, Britain ap-
pears determined to retain its
traditional flexibility and to
avoid any pat formula on issues
of Commonwealth trade and aid.
In view of its limited maneuver-
ability and capacity to supply
funds, London apparently pre-
fers to deal with each situa-
tion as it arises on an ad hoc
basis, as, for example, in the
plan to relieve India's critical
foreign exchange shortage in
cooperation with the United
States, Japan, West Germany,
Canada, and the World Bank.
LATIN AMERICAN INTEREST
The early August declara-
tion by the foreign ministers
of Venezuela, Colombia, and
Ecuador, which called among
other things for a "common mar-
ket" among their three countries
illustrates the increased in-
terest in regional marketing
arrangements that has prevailed
The inclusion in the dele-
gation of Paymaster General
Maudling, Britain's negotiator
on European free trade area ques-
tions, indicates the importance
London continues to attach to
achieving Commonwealth agree-
ment on this major objective of
the Macmillan government. While
Maudling will be pressed to re-
new assurances that the prefer-
ences given Commonwealth agri-
cultural exports to Britain will
be protected, he presumably will
explore the extent to which
these preferences might be modi-
fied if necessary to secure
Continental agreement on the
free trade Area. Maudling is
not known to be entertaining
any specific compromise plan.
Fortunately from the Brit-
ish view, however, the sense
of urgency in which the confer-
ence was conceived no longer
exists. London can exploit the
very substantial improvement
in its financial position in
recent months as evidence of the
recuperative powers and basic
strength of the pound sterling.
The anticipated pickup in Amer-
ican production this autumn--
which would probably raise
prices for raw materials--may
also lessen the pressure for
Commonwealth action on commodity
problems.
25X1
IN A COMMON MARKET
in Latin American economic and
financial conferences since
1955. Present political condi-
tions and trade patterns in
Latin America do not favor re-
gional economic integration like
that of the European Economic
Community (EEC) or Common Market,
and the Latin Americans seem
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4 September 1958
primarily concerned with using
joint action to accelerate in-
dustrialization. Such moves,
however, may be symptomatic of
a growing interest in economic
self-help, and experience in
regional marketing problems may
lead to some reduction of trade
barriers.
Apart from an agreement
among? the governments of five
Central American republics on
a very limited treaty "for
multilateral free trade and in-
tegration," which now is subject
to ratification, Latin American
action toward a regional market
has been restricted to pro-
nouncements, discussion, and
study. All of these reveal that
the Latin American approach is
markedly different from that
of the EEC and in many respects
contrary to the in-
tent of the General
Agreement on Tariffs
and Trade (GATT) to
increase competition
and promote efficient
use of resources.
Common Market Concept
There is astrik-
ing contrast between
Latin American and
Western European po-
litico-economic conditions as
they relate to possibilities
for economic integration.
they are members of the oldest
existing regional political
grouping, they have had no ex-
perience in economic cooperation
comparable to that of Western
Europe in the Organization for
European Economic Cooperation
(OEEC) under the aegis of the
Marshall Plan.
Several of the Latin Amer-
ican countries also lack the
technical skills in internation-
al trade and finance necessary
to coordinate national economic
policies. The problem of co-
ordinating a common market for
20 countries, as contrasted with
six in the EEC, would be addi-
tionally complicated by the
vastly greater distances in-
volved. This may tend to en-
courage smaller regional group-
ings.
EXPORTS OF LATIN AMERICA AND THE
EUROPEAN COMMON MARKET AREA, 1955
(MILLION DOLLARS)
EXPORTING AREA
AREA OF DESTINATION
LATIN AMERICA
COMMON MARKET
UNITED STATES
LATIN AMERICA
COMMON MARKET
UNITED STATES
TOTAL
736 9.4
1,064 11.0
3,529 45.2
7,811
1,123 6.1
5,643 35.8
1,162 6.3
18,527
3,158 20.9
2,354 15.1
_ -
15,547
00% 0 TOTAL EXPORTS
80029 9
p sEPTEIN8ER 1958
In the EEC there are six
mature economies which conduct
about one third of their total
trade with each other. They
are strongly motivated politi-
cally toward union to avert
repetition of costly wars and
to tie West Germany to the West.
An integrated economy and com-
munity is seen as the only means
of re-establishing Europe's
traditional world influence.
In Latin America, on the
other hand, there are 20 na-
tionalistic, underdeveloped
republics which conduct less
than 10 percent of their total
trade with each other. Although
Latin American Approach
There appears to be no
practical Latin American intent
to merge economies and societies
as in the EEC. It was, in fact,
the prospective advent of the
EEC which in 1956 initiated the
current wave of interest among
the Latin Americans in a local
"common market" as a means of
protecting themselves from an-
ticipated discrimination against
their trade in favor of the
EEC's tropical dependent ter-
ritories--particularly in such
commodities as coffee and cocoa.
Their interest in a "common mar-
ket" appears to be motivated
largely by a desire to offset
jointly national economic vul-
nerabilities in order to foster
diversification and industrial
development.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
4 September 1958
The decline in world prices
of their primary commodities
such as coffee and nonferrous
metals since 1956 led to acute
balance-of-payments problems
for most Latin American coun-
tries and gave much impetus to
the search for a common market
solution. It also intensified
resentment against the United
States for the "inadequacy" of
its financial aid to Latin Amer-
ica and for its resistance to
commodity price stabilization
arrangements.
Specialists on the staff
of the Economic Commission for
Latin America (ECLA) see the
common-market approach as a
means of ameliorating payments
difficulties while maintaining
desired levels of industrial
development. The contend that
creation of export industries
within such a protective ar-
rangement would enable member
countries to ease foreign-ex-
change shortages by promoting
regional self-sufficiency.
These experts also think in
terms of applying the common-
market principle only to spe-
cific industries and commodities.
Furthermore, the Brazilian
director of currency and credit
has recently cited redress Of
bargaining power against the
United States and the EEC as a
major aim of a regional Latin
American market. These views
are clearly contrary to the
spirit, if not the letter, of
Article XXIV of the GATT which
authorizes establishment of a
common market and stipulates
that it shall not raise barriers
to trade with other GATT mem-
bers and shall embrace sub-
stantially all trade originating
in such an area.
Prospects in Latin America
Establishment of a common
market can be achieved only
over a period of many years;
12-15 is anticipated even in
the case of the EEC. Few, if
any, Latin American governments
have demonstrated sufficient
stability and continuity of
policy to justify any expecta-
tion that they could maintain
the orderly direction required.
On the other hand, there
is considerable scope for in-
creased trade between Latin
American countries, particularly
in agricultural products and
light manufactures, that could
be stimulated through limited
joint marketing arrangements.
In their recent consideration
of such possibilities, Latin
Americans have shown increasing
appreciation of the need to
eliminate import quotas and
payments restrictions as a first
step toward promoting such trade.
As the infeasibility of an
all-embracing "common market"
and the need for eliminating
trade restrictions come to
be more widely appreciated
in Latin America, the current
interest in a "common market"
will serve US interests in
maximizing world trade. /
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