CURRENT INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000200190001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 15, 2016
• Document Release Date: May 3, 2004
• Sequence Number: 1
• Publication Date: April 2, 1954
• Content Type: REPORT

r R ase 2004/06/24: CIA- R _927A00Q1001c9 9 -1N(). 13
cool OCI NC;'. 4659
III 2 Apr-1 1954
CURRENT
INTELLIGENCE
WEEKLY
I
DOCUMENT NO.
NO CHANGE IN CL :
25X1
. DECLASS:FILD
CLASS. CHANGED T;): T:' :gym
NEXT REVIEW DATE.
AUTH H
__
DATE.2! . J7EVIE;.YER:4
CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
:RET
25X1
State Dept. review completed
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 A% A
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
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 has been prepared prima-
rily 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 im-
mediate appraisal of the Office of Current Intelligence.
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Foelease 2004/
2 Apr 54
. . Page 4
KOREAN ISSUES AT THE GENEVA CONFERENCE . . . . . . Page 6
Although both the North and South Koreans have
expressed a desire for the withdrawal of foreign troops,
it is doubtful that agreement can-be reached on the
means of achieving the goal.
THE STRUGGLE FOR POWER IN EGYPT . ... . . . . . . . . . Page 8
Until the Nagib-Nasr contest in Egypt is finally
resolved, there can be no political stability or prog-
ress on economic development. At present no genuine
reconciliation between the two men appears possible.
IMPLICATIONS OF THE SOVIET GRANT OF "SOVEREIGNTY" TO
EAST GERMANY . . . . . . . . . . . . . . . . . . . . Page 9
The grant of "sovereignty" to East Germany was
primarily an attempt to give maximum prestige to a
regime which was left weak and divided by the unrest
and economic instability that followed the June 1953
riots.
ARBURUA EXPECTED TO ASK MORE AMERICAN ECONOMIC AID FOR
SPAIN . . . . . . . . . . . . . . . . . . . . . . . . Page 11
Spanish minister of commerce Arburua is expected
to stress in Washington next week his country's urgent
need for more economic assistance and to urge that
Madrid be given greater latitude in how American aid
funds are used..
(]RET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Foelease 2004/SG4R(#RDP79-0092W00200190001-1
EAST PAKISTAN ELECTION DEFEAT POSES PROBLEMS FOR
KARACHI GOVERNMENT . . . . . . . . . . . . . . . . . . Page 13
The overwhelming victory of the United Democratic
Front in the recent East Bengal provincial elections
poses serious problems for Pakistan's Moslem League
government.
MACAO PUSHING STRATEGIC TRADE WITH CHINA . . . . . . . Page 15
The Portuguese colony of Macao openly encourages
the sale of about 2,000 tons of strategic goods to
Communist China each month, thus tending to perpetuate
the principal loophole in Western export controls
against Peiping.
SOVIET REPUBLIC PARTY CONGRESSES REVEAL PROBLEM AREAS . Page 17
Recent party congresses in the Soviet republics
dealt primarily with problems encountered in implementing
internal policies and revealed that Kazakhstan and
Azerbaijan at present are the principal problem areas.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Focelease 2004/&ahCP&ZRDP79-0092Ai 00200190001-1
2 Apr 54
There were further indications last week that Moscow
will attempt to use the Geneva conference primarily to pro-
mote two foreign policy goals:
(1) Recognition of Communist China's claim to great power
status and a permanent voice in world affairs.
(2) Acceptance of the North Korean and Viet Minh regimes,
and possibly the puppet governments for Cambodia and Laos, as
the spokesmen of their respective countries.
As part of the continuous effort to enhance China's inter-
national status, the Soviet delegation may seek to obtain
five-power discussion of general measures for the reduction
of international tension. Two Soviet officials have recently
hinted at an attempt to broaden the conference. Soviet diplo-
mats suggested to Ambassador Bohlen and to British Foreign
Office officials that the discussions should not be confined
to Korea and Indochina but should be extended to the consider-
ation of general questions, such as reduction of armaments
and the, development of East-West trade.
With respect to discussions on Indochina, Moscow and
Peiping seem convinced that the Viet Minh's political strength
and military initiative and France's evident desire for a truce
will enable them to demand a high price for ending the war.
Communist tactics appear aimed at inducing the French to take
the initiative in approaching the Viet Minh with a truce offer.
Another possible Communist maneuver at Geneva was sug-
gested by the publication in the Soviet and Chinese press of
the statement by the "foreign minister of the national r?sist-
ance government of Khmer" (Cambodia) protesting American inter-
vention in Cambodia. This may foreshadow a plan to demand
the participation of ready-made Cambodian and Laotian Cor -
munist governments at Geneva, in addition to the "Democratic
Government of Vietnam." Such a plan might be aimed either at
countering a French proposal to invite the Associated States
or at supporting a proposal for the creation of coalition
governments in the three states.
Inside the USSR, the 27 March decree of the Council of
Ministers and an announcement by the party's central committee
reveal that staff work on the land reclamation program has
been tardy and incomplete. Pravda has admitted that the number
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Fofj~elease 20041t 4 RDP79-0092%&000200190001-1
of volunteers is inadequate and that labor now must be drafted
and "dispatched" to the new lands. Adequate preparation has
not been made for arrival of-recruits there, and the assign-
ment of technical workers has been chaotic.
It now appears that the Soviet policy makers committed
themselves to the acreage expansion drive before surveyirg
water and soil conditions in the new area. They also failed
to measure the effect.of this effort on their other agricul-
tural plans. The latest decree directs Gosplan and the agricul-
tural ministries to come up with estimates of 1955 machinery
requirements by l June. By September, they are to prepare a
draft plan for extending the land reclamation program from
1956 through 1960.
Khrushchev had previously made vague references to the
desirability of tackling even more difficult reclamation work
after 1955, but the more specific official statements had
treated the present drive as a short-term program limited to
a two-year period.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Fo, . elease 2004/MC RDP79-0092W00200190001-1
2 Apr 54
KOREAN ISSUES AT THE GENEVA CONFERENCE
Neither the Communists nor the South Koreans are likely
to make the concessions at Geneva necessary for Korea's inifi-
cation. Although both the North and South Koreans have ex-
pressed, a desire for the withdrawal of foreign troops, it is
doubtful that agreement can be reached on the means of achieving
this goal.
Since Berlin, Communist statements on Geneva conference
issues have indicated little interest in seriously negotiating
for Korean unification. Both the first secretary of the Soviet
embassy in London and the Soviet ambassador in Paris saw little
or no likelihood of a solution to this problem.
Communist propaganda, while hailing Geneva as an important
step toward settling Korean problems, has avoided detailed
discussions of basic issues. The Communists are apparently
building a strong, general propaganda position from which they
can move in any direction when the talks begin.
An indication of what they may propose came in a Pyongyang
radio broadcast of 23 February which called for a "united front"
of all patriotic Koreans to achieve unification. The broadcast
insisted on an end to foreign interference in Korean affairs
and on the settlement of Korean problems by the Koreans
themselves.
In point of fact, Moscow and Peiping prefer the existing
division of the country to any settlement limiting their control
of the north. They hope to retain North Korea as a buffEr and
as an advanced base against Japan. The North Korean army is
being rebuilt and reorganized, most of the North Korean air
force has been moved from Manchuria to Korea, despite the terms
of the truce, and North Korea's industrial facilities arc being
rehabilitated.
Statements by Soviet spokesmen that the the Korean and
German situations are "identical" suggest that the Communists
will advance proposals on Korea similar to Molotov's forn;ula
for Germany. This would include three main phases: (a)
withdrawal of foreign forces; (b) establishment of a provisional
government by combining the rival regimes; and (c) ultimate
establishment of a unified government by elections conducted
under the provisional government.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved For?$elease 2004/ 4.i 'RDP79-00920900200190001-1
Since such a plan for unifying Korea would be unacceptable
to the Western powers, as was Molotov's proposal for Germany,
the Communists might propose a mutual withdrawal of all foreign
forces without adequate enforcement provisions, such as inspection.
This plan, which would be advanced for propaganda advantage only,
would be presented as a means of "easing tensions" and opening
the way for subsequent unification by the "Koreans themselves."
From a practical viewpoint, the Communist position is
influenced by North Korea's relatively small population. Unless
Pyongyang is granted parity with Seoul in any election procedures,
a free vote would result in the destruction of Communist influence
in Korea.
South Korea has demanded since 1951 that all Chinese Commu-
nist troops must be withdrawn and North Korea disarmed as a
first order of business. President Rhee also demands this
UN troops remain until Korea is unified and a final settlement
of hostilities is reached. This obviously would be unacceptable
to the Communist side.
Rhee's chief motivation in demanding troop withdrawals is
his conviction that real security for South Korea is impossible
while Chinese Communist troops occupy the north. Despite the
assurance in the United States-South Korean defense pact, he
questions American willingness to fight if South Korea is
again attacked.
Rhee insists that any unification plan must extend Seoul's
sovereignty over the entire peninsula by election of a now presi-
dent or for North Korean representation in the Seoul legislature,
but not for election of an entire new constituent assembly.
He opposes coalition government or neutralization proposals
and will probably walk out of the conference if such plaits
are discussed.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Fo elease 2004/IE RDP79-00923E @002001201 -1 54
THE STRUGGLE FOR POWER IN EGYPT
Colonel Nasr and the Revolutionary Command Council (RC`:) have
succeeded in reasserting their authority in Egypt after a month-
long struggle for power with General Nagib,who had aligned himself
with the political groups demanding the restoration. of parliamen-
tary.government. Until the Nagib-Nasr contest is finally resolved,
there can be. no political stability or progress on economic devel-
opment. At present no genuine reconciliation between the two men
appears possible.
The Nasr-dominated RCC has repudiated all the concessions
toward civil government it was forced to grant during the past
month. It now apparently intends to continue its. "revolution" and
authoritarian rule without compromising with political factions.
Nagib.i?s back in the figurehead role he occupied before his ouster
on 25 February. His prestige has been lessened, his position
somewhat weakened, and he is reportedly ill. Nagib still retains,
however, considerable popular following.
Three new factors have been introduced into the political
situation as a result of the developments of the past month.
Political parties, outlawed since January 1953, were given hope of
an early return to civil government, and some of.their leaders who
had been arrested were released. Most of the leaders of the ultra-
nationalistic Wafd and the fanatic Moslem Brotherhood are now at
liberty. There has also been a general increase of activity among
both civilian and military extremists and opportunists as a conse-
quence. of the over-all loss of prestige by both the RCC and Nagib.
Finally, more popular frustration has been generated by the post-
ponement of a return to parliamentary government.
Nasr's assumption of control poses all the problems irherent
in a military dictatorship. Nasr and the RCC are unpopular and
lack widespread support. Even in the armed forces certain groups,
particularly among the cavalry and artillery, are believed opposed
to continuation of the military regime.
Since Nagib appears on the decline physically and prestige-
wise, he is not expected to attempt to challenge the RCC again in
the near future. Opposition elements, however, may continue to
use him as a rallying point.
If Nasr and the RCC can now solidify their position,
they will make a concerted effort to reach
an agreement with'Britain on the Suez base. Settlement of the
Suez questidb'i"would provide the RCC with ian.. important.. political
victory which it sorely needs. Only then can the regime attempt
to tackle the deep economic problems which confront it.
8
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
25X1
 Approved Forjilelease 200446f24~C1ia-RDP79-0092WO0200190db1&Pr 54
IMPLICATIONS OF THE SOVIET GRANT OF "SOVEREIGNTY" TO
EAST GERMANY
The grant of "sovereignty" to East Germany was
primarily an attempt to give maximum prestige, both at
home and abroad, to a regime which was left weak and
divided by the unrest and instability that followed the June
1953 riots. Announced just prior to the Socialist Unity
Party (SED) congress, the action is bound to impress they
party membership, torn by dissidence and factionalism, with
the authority and permanence of the government.
The grant of "sovereignty" will strengthen the position
of the present leadership of the SED to the detriment of
the bourgeois elements who are participating in the govern-
ment and dissidents within the SED. The new party structure
to be announced at the congress will probably reflect the
strengthening of the control of the SED first secretary
Ulbricht. The population as a whole is likely to view
the announcement as the end of their hopes for unification
with West Germany, and passive resignation can be expected,
particularly if the economic program continues to bring
real advantages to the working people.
Retention ofthe-high.commzsssoriet:-detracts;consid rably
from even the appearance of sovereignty. He will "insure
security" and maintain contact with the Western occupation
powers on "questions relating to Germany as a whole and to
those questions arising from agreed quadripartite decisions
on Germany." This is an assurance to the West that such
agreements as that governing access rights to Berlin will
not be disturbed, though it does not preclude the possi-
bility of Soviet attempts to test the Allies' resistance3 to
direct contacts with the East German regime. It also
serves notice to the West and to the East German population
that the Kremlin maintains its vital interest in East
Germany.
The announcement makes it clear that, for security
purposes, the Soviet military force will be "temporarily"
maintained and implies that East Germany will continue
..to pay occupation costs. There is no mention of the form-
ation of an East German, army, which has often been linked
with the frequent rumors of an impending grant of "sover-
eignty." On 25 March, however, the East German radio made
one of its infrequent references to "the armed forces"
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved FoijOelease 2004 2'd4A-RDP79-0092 W00200190001-1
of East Germany and said that they had "the task of
watching at the state frontiers."
The new "sovereignty" of the East German government
is probably also intended to provide it with increased
stature in its dealings with West Germany and other non-
Orbit powers. The Soviet Union will certainly attempt =.o
induce the West to negotiate with the East German regime
on such matters as-trade and participation in international
conferences. Soviet propaganda is likely to include Ea3t
Germany in its propaganda campaign for achieving general
recognition, which already includes Communist states like
China, North Korea and the Viet Minh.
West German government and press reactions initially
played down the significance of the Soviet announcement,
but some newspapers seized the opportunity to demand that
the Western powers put the contractual agreements into effect
immediately without waiting for EDC ratification.
West-German officials have since indicated mounting
.concern over the move. On 30 March, Deputy Foreign Minister
Blankenhorn told American representatives that he did
not see how Western or other countries interested in East
Germany could long avoid establishing relations with the
East German regime. The Foreign Ministry is disturbed in
particular by the susceptibility of neutral countries like
Sweden, Switzerland, and India to the anticipated Soviet
drive for recognition.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved For elease 2004/0g/g(. TRDP79-00927 0200190001-1
2 Apr 54
ARBURUA EXPECTED TO ASK MORE AMERICAN ECONOMIC AID FOR SPAIN
Spanish minister of commerce Arburua, who is scheduled to
arrive in Washington about 4 April, can be expected to press
the argument that the financial aid program for Spain is not
based on a realistic appraisal of the country's acute economic
needs. Spain is in a severe economic crisis, and Arburua
will probably argue that its needs are greater now than when
the base agreements were signed last September.
Spain's slow but steady economic improvement since 1951,
made possible by two successive bumper harvests and by
American loans, was reversed last summer as a result of severe
drought conditions. To avoid a resumption of bread rationing,
which ended in 1952, the government had to buy more than
1,000,000 metric tons of wheat. The amount expended for this--
$52,000,000 in American dollars, $14,000,000 in other foreign
currencies, and $20,000,000 in pesetas--is more than the
$85,000,000 in American economic aid allocated for 1954.
In addition, frost damage last winter to the important citrus
crop will cost Spain an estimated $30,000,000 in foreign
exchange earnings.
A balance of payments deficit is normal for Spain, but
these losses of foreign exchange could have a disastrous
effect on the economy as a whole. There are no appreciable
financial reserves to fall back on in emergencies. Even in
normal years Spain has had to resort to cumbersome trade and
foreign exchange restrictions to insure the inflow of minimum
raw materials and industrial equipment needed to maintain
production.
Last year's drought drastically reduced the supply of
electric power, which is inadequate even in years of abundant
rainfall. This meant shorter work weeks and smaller pay
checks for large numbers of workers, whose earning power was
already near the bare subsistence level, and raised the threat
of widespread labor unrest and a possible repetition of the
general strikes of 1951.
The cumulative effect of these developments threatens to
nullify the much-publicized economic progress made between 1951
and 1953 The government was moderately successful during
this period in holding down prices by means of extensive
imports to supplement shortages of essential commodities. In
January of this year, however, it indirectly encouraged
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved For`8zlease 2004/0L1 ii TRDP79-00927. 00200190001-1
inflation by approving wage hikes averaging 35 percent for
most industrial workers. Other inflationary pressures are at
work, such as increases in coal, cement, and steel prices,
and in electricity and rail freight rates. These pressures
will almost certainly become more marked as the military
base construction work progresses.
The Madrid government will probably use the present
emergency to revive its contention that in the allocation of
American aid, the normalization of the country's economy must
take precedence over purely defense needs. Arburua has taken
the position in conversations with American embassy officials
in Madrid that too much of the $85,000,000 allotted for 1954
was earmarked for direct military objectives such as trans-
portation and munitions production, leaving a meager
$22,000,000 for purely economic support of the base con-
struction program. This, he holds, presents a very serious
problem for the government because of the general public's
exaggerated impression of the size of American economic aid.
Even after the agreements were signed, some government
officials, including cabinet members, still believed that all
military support was to come out of special defense funds
over and above the $85,000,000.
Arburua will probably take advantage of his two weeks'
stay in the United States to state, prior to congressional
allocation of the 1955 foreign aid funds,. his government's
desire for a substantial increase in the $30,000,000
tentatively programmed for Spain. Failing in this he.may
press more strongly for a greater voice in the application not
only.of these funds but of the peseta c ounterpart which now
must be set aside to defray the peseta costs of base
construction. Madrid can also be expected to oppose the in-
clusion in the American aid figures for `1955 of surplus
commodities for Which the United States will accept payment
in pesetas.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved For gelease 2004/0$/RIkc-WDP79-009274000200190001-1
2 Apr 54
EAST PAKISTAN ELECTION DEFEAT POSES PROBLEMS
FOR KARACHI GOVERNMENT
The overwhelming victory of the United Democratic Front in
the East Bengal provincial elections in early March marked the
first real defeat for Pakistan's Moslem League government since
it cameto.power in 1947. This defeat in Pakistan's richest and
most populous province poses serious problems, but the League
probably will continue to control the central government in
Karachi for the near future, and could even emerge as a.-stronger
party.
The League has suffered from the schisms common in indepen-
dence movements once their objective has been won, but the mag-
nitude of its defeat in East Bengal is due primarily to local
issues. The Bengalis resent what they feel is their "colonial"
status vis-a-vis West Pakistan. Bengali students, the driving
force in the United Front's campaign, have agitated violently
against Karachi's reluctance to make the Bengali languag,.e of-
ficial, and on a par with West Pakistan's Urdu.
United Front campaigners also asserted that. East Bengal's
economic development had been slighted by Karachi. They capi-
talized on the ineptitude and unpopularity of the. League s pro-
vincial leaders. By contrast, the two principal Front spokes-
men, H.S. Suhrawardy and Fazlul Huq, are, both local heroes whose
prestige antedates the partition of India in 1947 and who broke
with the League on questions of its policy toward East Bengal..
The most immediate problem facing Karachi is whether the
Front, a loose electoral coalition which drew up a minimum com-
mon program only after.much haggling, can effectively govern
the province. Outside the top leaders, neither the Front nor
its main component, Suhrawardy's Communist-infiltrated Amami
League, has any known men with talent or experience in adminis-
tration. Huq, East Bengal's new chief minister, is an intelli-
gent but unstable octogenarian.
However, since Huq and Suhrawardy apparently have agreed
that the latter will concentrate on national politics and leave
the provincial field to Huq, the unwieldy Front majority---211
of 309 seats at last report--may hold together at-least inill!!"_
tially. Suhrawardy's ambitions to become national prime minis-
ter suggest that he will seek to curb sentiment, among hiss fol-
lowing for East Bengal's secession from West Pakistan.
13
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved For,,,,pelease 2004/OiECI?TRDP79-00927.0000200190001-1
Prime Minister Mohammed All, the national Moslem League
leader, has promised to cooperate fully with the United Front
administration. However, continuing disorder in East Bengal,
such as the recent series of violent strikes, might necessitate
taking authority out of the hands of the Front and instituting
rule from Karachi. This move would further alienate the Ben-
galis from West Pakistan.
The Moslem League's control of the national constituent
assembly, which doubles as the central legislature, is also
menaced by the Front's triumph. East Bengal is alloted 44 of
the 79 assembly seats, and of these 44, Moslem League menbers
hold 29. The Front has called for immediate dissolution of the
assembly on the ground that East Bengal's views, as expressed in
the elections, will not be represented in the draft constitution
which the assembly may produce in the next few months.
Mohammed All has firmly resisted this demand on both legal
and practical grounds, but has promised general elections for
next. year, He and Suhrawardy may have to agree earlier, however,
on some compromise whereby the Front will replace the Moslem
League incumbents from East Bengal. In any case, the overthrow
of Mohammed Ali's government in this way does not appear imminent.
Before the election, the United Front refrained from open
attack on American military aid to Pakistan and the defense pact
with Turkey, although Soviet Orbit propaganda and the Indian
press have interpreted the Moslem League's defeat as a popular
rejection of these policies. A postelection statement by leftist-
minded Maulana Bhashani, Suhrawardy's principal lieutenant in
East Bengal, denounced Pakistan's "slave pact" with American
"warmongers." Suhrawardy himself, however, has been very cautious
on this question, stating that Pakistan should remain neutral in
a world war, but that he favored military aid provided no strings
were attached. Pakistan's foreign minister told the American em-
bassy in Karachi on 25 March that the elections would not affect
his government's foreign policy.
There are already indications that defeat has awakened the
Moslem League to the need for the party's reorganization. Its
leaders in Punjab and Sind Provinces have called for "revitaliza-
tion," formulation of an economic program, and elimination of
corruption in the ranks. The League is.still the only Pakistani
party operating on a nationwide basis, and it has the support of
senior army officers who in the past have played a decisive role
in ensuring government stability. These factors, plus greater.
respect for the unique situation of East Bengal, could enable the
League to reorganize and thus prevent an eventual breakdown of
its control of the central government.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved For4please 200410W R kWDP79-00927Q$0200190001-1
2 Apr i4
MACAO PUSHING STRATEGIC TRADE WITH CHINA
The Portuguese colony of Macao openly encourages the
sale of about 2,000 tons of strategic goods to Communist china
each month, thus tending to perpetuate the principal loophole
in Western export controls against Peiping.
At Portugal's request the United States sent a delegation
to Lisbon on 17 March for an exchange of views on trade con-
trols applied to Macao. Although Portugal is expected to agree
to improve the colony's ineffective controls, Lisbon has not in
the past shown that it can force its decisions on its officials
in Macao., who-profit from the trade in strategic goods and are
unwilling to suppress it. The Portuguese assert that this trade
must be maintained to protect the colony from a Chinese attack,
but the trade is not believed to be of such importance to China
as to affect Peiping's military intentions toward .Macao.
Macao's loose trade policies, plus the availability of
Portuguese shipping, give European exporters their only legal
method of selling strategic goods to Communist China, from
which they derive large profits. The procedure has been For
these exporters to obtain Macao import certificates, freely
available, which state that re-export will not be permitted.
Some European governments, while recognizing the probability
that industrial exports will be transshipped., to China, ac,::ept
these certificates and permit exports to Macao of..goods
embargoed to Communist China.
Lisbon. has further contributed to the procuring.,of
strategic goods for Communist agents in Macao by providing
the shipping used in this trade. For more than a year.Eui?opean
cargos averaging close to 4,000 tons each have been reach._ng
Macao on Portuguese vessels at intervals of two months.
A recent example was the 3,800 tons loaded at Hamburg,
Bremen, Rotterdam, and Antwerp by the freighter India.and
delivered to Macao last January. Copper wire--embargoed by
the governments concerned to any Orbit country--was the mcsst
important item, and strategic types of ball bearings, acetic
acid, aluminum and lead ingots, and radio tubes comprised
much of the cargo.
l 5
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Foi elease 2004/OV&CkA DP79-0092AQ,p'00200190001-1
25X1
In addition to the open trade in industrial goods, cacao
has remained a principal smuggling base for the Chinese
Communists, for whom strategic goods are illicitly obtained--
primarily from Hong Kong, but also from Okinawa and Japan.
This type of trade, which has probably been small in recent
months, may be rising.
One major difficulty encountered by Macao's smuggler-
traders in the past year has been the shifting policies of
Chinese Communist buyers. Their increased discrimination has
been noted generally in trade contacts with the West since
the Korean truce, and has coincided with a domestic austerity
program. In January, for example, Hong Long imported from
Macao a quantity of automobile batteries and 302 tons of iron
sheets, items apparently originally purchased by speculators
for sale to Communist mainland buyers. Trade has also been
affected by Chinese development of certain islands in the
Pearl River estuary as transshipment bases, by-passing Macao.
Such actions have frightened Macao officials into
additional overtures to Peiping. On several occasions in
recent months, the governor has admitted to American representa-
tives that Macao is offering every facility to the Communists
in'the hope of regaining its former position as an important
entrepot.
Recent reports indicate that Peiping is again accepting
Macao as a trading base. The Chinese have reportedly dis-
continued plans for the development of a third transshipment
base in the Pearl River, and their trade organizers in the
colony have become more active this year.
16
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Foi elease 2004/AP RQTRDP79-0092 4d00200190,90A~r 54
SOVIET REPUBLIC PARTY CONGRESSES REVEAL PROBLEM AREAS
Soviet local party leaders, particularly in Kazakhstan
and Azerbaijan, have apparently been unable, in the face of
local obstructions, to cope with the challenge posed by the
Malenkov regime's program.
The Kremlin's problems were clearly defined at the party
congresses which took place in the various republics during
January and February. In general, the congresses reflected
preoccupation with efforts to strengthen and revitalize party
leadership.
Proper leadership was described as on-the-spot personal
supervision, as opposed to remote-control direction by a
myriad of written instructions and endless conferences. The
vehemence and frequency with which this theme was voiced, par-
ticularly in relation to agricultural problems, indicate how
seriously Moscow views the role of the party in carrying out
its agricultural policy.
While criticism at all the congresses was fairly consis-
tent in severity and content, it was particularly emphatic
in two areas, Kazakhstan and Azerbaijan, where the work of
the central committees was the object of special condemnation.
The primary reason for blasting the Kazakhstan central
committee was the critical situation in agriculture and par-
ticularly in livestock. During the week preceding the congress,
this situation had caused a major shake-up, with the first and
second secretaries, Z. Shayakhmetov and I. I. Afonov, replaced
by an alternate member of the all-Union party presidium, P. K.
Ponomarenko, and the ex-first secretary of Moldavia, L. I.
Brezhnev.
"Incompetent leadership of agriculture" was the main rea-
son given for the purge. Shayakhmetov, who still retains his
membership on the party buro, was described by Khrushchev in
his report to the February all-Union central committee plenum
as an honest but weak leader. The Kremlin apparently believed
that the Kazakhstan leadership, which for years failed to over-
come a constant lag in agriculture, could not possibly cope
with the new goals, particularly the recent reclamation program.
SECRET
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1
 Approved Folease 20W1/iADP79~00927iW0200190001-1
CO E 'JAL
The deterioration in Kazakh agriculture cannot be laid
solely to poor party leadership. It is caused equally by the
native Kazakh's lack of responsibility for the welfare of com-
munal herds and land, and by an apathy toward collectivization
in general. This is a problem that Moscow must solve if its
goals are to be realized. It is probable that the principal
"remedy" will continue to be extensive resettlement of Great
Russians and Ukrainians in Kazakhstan, as is being done in
connection with the new land reclamation project.
In Azerbaijan, as in the Armenian and Georgian republics,
party leadership problems stood out as the basic weakness.
The problems stemmed principally from the survival of Beria
men in key positions. The situation was further complicated
by the fact that these men, particularly Arutinov in Armenia
and Bagirov in Azerbaijan, had held their posts for an unusual
length of time, probably because of Beria's protection, and
had allowed the development of an advanced form of provincial
dictatorial rule.
The Kremlin leadership, therefore, was concerned nct only
with weeding out Beria's associates but also with correcting
the damage done by them to active party control over all aspects
of Soviet life. A number of key men identified with Beria
were eventually removed. The long delay in several instances
and the nature of the charges when the ax finally fell.suggest
that they may have been granted a chance to reform but failed
to respond. For example, it was not until late November that
Armenia's boss, Arutinov, was purged with other top officials.
In Azerbaijan, except for the removal of first secretary
Bagirov in July, no further shifts in the leadership or apparent
attempts at reform were made until the congress in February.
There the three top leaders, all hold-overs from Bagirov's re-
gime, were charged with failure to eliminate grave mistakes in
economic and party-political work, and all three emerged shorn
of their posts and membership on the Azerbaijan central commit-
tee. The central committee itself was scored for unsatisfactory
performance.
Apparently, Bagirov's purge had not removed his influence
and the Kremlin recognized the necessity for further changes
in order to revitalize the party. Whereas reports from the
Georgian and Armenian congresses suggest that the party leader-
ship there has already made considerable progress in rectifying
this situation, similar results in Azerbaijan are yet tc come.
S IFMIW-
Approved For Release 2004/06/24: CIA-RDP79-00927A000200190001-1