CURRENT INTELLIGENCE WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000400180001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 31
• Document Creation Date: December 15, 2016
• Document Release Date: June 1, 2004
• Sequence Number: 1
• Publication Date: February 10, 1955
• Content Type: REPORT

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CONFIDENTIAL
Sf~R?~'
CURRENT
INTELLIGENCE
WEEKLY
SUMMARY
COPY NO.
DATE 10 Feb 55
OCI:NO. 1335/55
CENTRAL INTELLIGENCE AGENCY
III - OFFICE OF CURRENT INTELLIGENCE
CONFIDENTIAL
25X1 I NO CHANVrF ;K1'1'1 eoc r-,
a J>r' I, 'CLASS. CHANGED TO: TS S
Q~q ? 25X1
} NEXT REVtEW
DATE: j
State Dept. review completed 1-1-1 AUTH? wa 7n_,3
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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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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
F O R E W O R D
This is the first number
of a new weekly secret publi-
cation of the Office of Cur-
rent Intelligence which re-
places the Current Intelli-
gence Weekly.
The Current Intelligence
Weekly Summary consists of a
Summary of Contents and three
Parts:
Part I, "Of Immediate
Interest."
Part II, "Notes and Com-
ment," on situations which
may be of less-urgency than
the situations treated in
Part I.
Part III, "Patterns and
Perspectives"; articles in
which relatively long-term
trends are analyzed.
25X1
HUNTINGTON D. SHELDON
Assistant Director
Current Intelligence
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
S U M M A R Y O F C O N T E N T S
SOVIET LEADERS ADOPTING
MORE TRUCULENT MANNER . . . . . . . . . . . . . . . . . Page 1
The basic elements of Soviet foreign policy are un-
likely to change in substance, but a more truculent manner
toward the West is evident.
COMMUNISTS PRESS U.S.
ON FORMOSA ISSUE . . . . . . . . . . . . . . . . . . . . . Page
Moscow and Peiping are exploiting the general fear of
war on the Formosa issue in an attempt to induce the United
States' principal allies and the Asian "neutrals" to press
Washington to reduce its commitments to the Chinese Nation-
alists.
NEW COMMUNIST PROBINGS
IN OFFSHORE ISLANDS LIKELY . . . . . . . . . . . . . . . Page 3
New Communist probing operations are expected in the
Nationalist-held island groups, both to test American in-
tentions and to increase pressure on the United States for
a settlement on Communist terms.
LONG CABINET CRISIS
FORESEEN IN FRANCE . . . . . . . . . . . . . . . . . . . . Page 3
Failure by former premier Antoine Pinay to attempt
investiture probably means a French government'impasse of
several weeks. A prolonged crisis would delay and per-
haps endanger approval of the Paris accords in the Council
of the Republic and might lead to renewed violence in
North Africa.
Molotov Reviews Soviet Foreign Policy: Molotov's speech
to the Supreme Soviet was more bellicose than other
recent. Soviet statements, but did not indicate any
substantial shift in Soviet foreign policy . . . . Page 1
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
Moscow's and Peiping's Formosa Policy: Moscow and Peiping
probably do not in en o ris a general war over
Formosa but are looking toward political negotiations. Page 1
Khrushchev on Foreign Policy: Khrushchev's statements
on foreign policy during the past year have tended
to be more bellicose toward the West, particularly
the United States, than have those of other top
Soviet leaders . . . . . . . . . . Page 2
Malenkov's Current Status: Malenkov's retention on the
presidium probably-is designed to provide a "cooling--
off" period prior to any further demotion , , . . . . Page 5
Western European Reaction to Change in Soviet Leadership:
Most es ern European spo esmen believe a
Malenkov's resignation and Khrushchev's increased 25X1
influence will lead to a more bellicose propaganda
line and perhaps also to a harder foreign policy Page 6
West Berlin: Recent reports suggest the East Germans
have plans to isolate West Berlin if the Paris
agreements are ratified and perhaps to institute a
Unrest in South Vietnam: Premier Diem's government may
soon be forced o deal with armed action on the
part of the powerful politico-religious sects .
Tension in Northern Laos: The situation in northern
Laos is tense and renewed hostilities between
government and Pathet Lao forces could result
Election Prospects in Cambodia: The Communists have
improved their prospects-for the coming Cambodian
elections by gaining a foothold in the Democratic
Party, the most influential political organization
in Cambodia . . . , , , , , , , . . . , . . Page 9
Japan-Orbit Relations: Japan's decision to negotiate
with the o normalize relations is a victory
for Foreign Minister Shigemitsu,who is over-
optimistic as to the concessions he will obtain
from the USSR . . . . . . . . . . . . . . . . . . . . Page 9
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
The Afro-Asian Conference: The Communist delegations at
the Afro-Asian conference are expected to pursue a
shrewd and forceful anti-Western line . , . . . . .
. Page 9
The Andhra Elections: The Communists may win control of
an Indian .s ate for the first time . . . . . . . . . Page 10
Pakistan: A decline in the health of Governor General
Ghulam Mohammad raises the question of his probable
successor to lead the small group which rules
Pakistan . . . . . . . . . . . . Page 10
Uneasiness in North Africa: The fall of Menades-France
d iscourage or rican nationalists and led to
civil disorders in Morocco . . . . . . . . . . . . . Page 10
Iraqi-Egyptian Differences: The Cairo conference, called
o censure Iraq's proposed treaty with Turkey, col-
lapsed and Iraq is expected to sign the pact within
"a few weeks" . . . . . . . . . . . . . . . . - . . . Page 11
Satellites Ease Travel Restrictions: The Eastern European
Satellites have recently eased restrictions on travel
across the iron curtain . . . . . . . . . . . . . . . Page 11
Costa Rica and Nicaragua: Continued Nicaraguan harassment
has strengthened the position of Costa Rican presi-
dent Figueres . . . . . . . . . . . . . . . . . . . . Page 12
El Salvador: The administration of Salvadoran president
sori.o is threatened by mounting dissatisfaction
among top army leaders and by the hostility of
neighboring Guatemala and Nicaragua . . . . . . ... . Page 12
PATTERNS AND PERSPECTIVES
KHRUSHCHEV'S RISE IN POWER SINCE STALIN'S DEATH . . . . Page 1
Khrushchev has come up from fifth place in the
listings of the all-powerful party presidium to the posi-
tion of top man in the USSR in the 23 months since Stalin's
death and is now in a stronger position than any other
Soviet leader has been since Stalin died.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
THE 1955 SOVIET BUDGET . .
. Page 3
The 1955 Soviet budget indicates that the Soviet
government, having re-evaluated its internal and inter-
national position, now intends to return to the 1952-
1953 level of appropriations for defense. At the same
time, allocations to heavy industry and transportation
are to continue to increase and minor reductions are
to be made in the proportions of consumption and invest-
ment in the total economic effort.
RECENT DEVELOPMENTS IN OVERSEAS SHIPPING IN CHINA TRADE Page 7
Soviet shipping has withdrawn from the China trade
since mid-1954 and sea-borne deliveries to Communist
China from Eastern Europe have been diverted from North
to South China ports. These developments have been
accompanied by a decline in cargoes arriving in China
from European bloc ports. This new shipping pattern was
adopted by the bloc in response to seizures by the
Chinese Nationalists.
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10 February 1955
SCVIET LEADERS ADOPTING
MORE TRUCULENT MANNER
The "resignation" of Mal-
eiikov as prime minister of the
USSR climaxes a six-week peri-
od of indications of contro-
versy over domestic policy
questions probably related to
a reappraisal by the Soviet
leaders of the international
situation.
Although Malenkov restrict-
ed his confession of guilt and
inadequacy mainly to his "in-
sufficient experience" and fail-
ure in agriculture, he referred
pointedly to the primacy of
heavy industry as the only cor-
rect policy for overcoming
agricultural difficulties. This
suggests that Malenkov's eclipse
is closely related to the policy
controversy over the role of
heavy industry in the Soviet
economy and the intimately re-
lated question of defense ex-
penditures.
The ouster of Malenkov does
not necessarily mean that there
will be another shift in economic
direction in the immediate fu-
ture, Malenkov's influence must
have been eclipsed before pub-
lication of the 1955 budget,
and his fall would seem to fol-
low the shift in emphasis in-
dicated by this budget, rather
than to presage a new one.
In foreign policy, the basic
elements of the Soviet position
on current problems is unlikely
to change, though a harder, more
truculent manner toward the West
is expected.
Bulganin's appointment as
premier, together with ZhuLov's
elevation to the post of min-
ister of defense, will give the
military added prestige and
possibly added weight in policy
deliberations.
? Zhukov, the most popular
of the Soviet military leaders,
probably has a realistic view
of international power re-
lations and will support an
independent military analysis
of strategic factors in policy.
The selections of Bulganin
to fill Malenkov's place sug-
gests that some degree of
"collegiality" will be preserved
and that Khrushchev will not
assume the reins of power com-
pletely, at least at this time.
Khrushchev is, however, in a
stronger position than any
other Soviet leader has been
since Stalin's death.
Khrushchev probably cal-
culates that his interests will
be better served if he plays the
game in the cautious early Stalin
manner, dominating the group from
his post as first secretary
rather than trying also to take
over the formal mantle of leader-
ship as Malenkov did in 1953.
Bulganin's influence may
be seriously circumscribed by
the keen dislike which regular
army men are reported to feel
for him as a result of his
career as a "political marshal."
Ise does not appear to have the
prestige or power to balance
Khrushchev's iif luence, which
a stronger man like Malenkov
or Beria would have had in the
same position.
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10 February 1955
COMMUNISTS PRESS U.S.
ON FORMOSA ISSUE
Moscow and Peiping are
exploiting the general fear
of war on the Formosa issue
in an attempt to induce the
United States' principal al-
lies and the Asian "neutrals"
to press Washington to re-
duce its commitments to the
Chinese Nationalists.
The Communists presum-
ably calculate that they
will win a major victory if
they succeed in this, and
that they will also win if`
the United States, by refus-
ing to reduce its commit-
ments, isolates itself on
the Formosa issue.
Chou En-lai's 3 Feb-
ruary rejection of the United
Nations Security Council in-
vitation apparently was co-
ordinated with Moscow.
Soviet UN delegates on 31
January had expressed doubt
that the Chinese Communists
would accept the invitation.
Moscow and Peiping presumably
decided that they could ob-
tain a better forum and more
favorable agenda for negotia-
tions than the UN offered.
Peiping is now pursuing
the course of maintaining ten-
sion in the China area while
expressing interest in "genu-
ine" efforts to ease that
tension, Molotov suggested to
the British ambassador in Mos-
cow on 4 February that a con-
ference be held in Shanghai
or New Delhi this month--the
conferees to include the Big
Four, Communist China and the
Colombo Powers.
Other suggested. possibili-
ties for exploring a cease-
fire are Indonesia's proposal
of mediation by the Colombo
powers, or a personal approach
by Nehru or Hammarskjold.
While the Communists might
welcome either of these two
suggestions as an opportunity
to make trouble for the United
States, there is as yet no in-
dication that Peiping is pre-
pared to alter its position.
The Communists continue to as-
sert that there can be no set-
tlement short of an American
withdrawal from the China area.
Molotov's speech to the
Supreme Soviet on 8 February
strongly reaffirmed the uncom-
promising Sino-Soviet diplo-
matic position. Molotov de-
manded that the United Nations
condemn American "aggressive
actions" and that the United
States withdraw from Formosa.
He described the Formosa
problem as strictly an internal
Chinese affair. The new Soviet
premier, Nikolai Bulganinralso re-
ferred to Formosa. in a speech on
9 February, charging that the
United States is following "a dan-
gerous road" and asserting. that
the Communist Chinese people "can
count on the help of its true
friend, the Soviet people."
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
NEW COMMUNIST PROB-
INGS IN OFFSHORE
ISLANDS LIKELY
New Communist
probing operations
are expected in the
Nationalist-held
island groups.
Peiping appears
likely to undertake
such operations both
to test American in-
tentions and to in-
crease pressure on
the United States
for a settlement on
Communist terms.
A logical tar-
get for an early
Chinese Communist
military operation
is Nanchishan, an
island 85 miles
southwest of the
Tachens. The Na-
tionalists have
stated their inten-
tion to try to hold
this island.
Available Airfield (jet)
Available Airfield (conventional)
Airfield Construction or Improvements
Nationalist-held Islands
Probing is al- PRESENTATIONS DIVISION
so expected in the
Matsu and Quemoy island groups limited'air..attacks, br,perhaps?
to the south. ,This.could take the invasion of minor lightly,
the form of artillery, naval and held islands of these groups.
LONG CABINET CRISIS
FORESEEN IN FRANCE
Failure by former premier
Antoine Pinay to attempt inves-
titure probably means a French
government impasse of several
weeks. A prolonged crisis would
delay if not endanger approval
of the Paris accords in the
Council of the Republic, and
might lead to renewed violence
in North Africa.
Pinay, an Independent, was
unable to overcome the Popular
Republicans' eagerness to reas-
sure the electorate that they
are still a party of the left.
The Popular Republicans now
are likely to be called upon
to form a government, but their
candidate will be handicapped
by the antagonism of Pinay's
conservative backers.
Pierre Pflimlin would
probably be their first choice.
The investiture of any Popular
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10 February 1955
Republican would depend on So-
cialist support, however, and
there is a possibility that
the Popular Republicans may
forego a try for the premier-
ship in favor of an attempt at
a left-center coalition includ-
ing the Socialists.
Although the Socialists
warned the Popular Republicans
during the North African debate
not to seek their support in
forming a new government, there
are indications that Socialist
leader Christian Pineau, highly
respected and moderate in out-
look, is considering the ad-
visability of heading a left-
center coalition. Such a group-
ing would include Radical So-
cialists and would be depend-
ent on some Gaullist support.
If these attempts fail,
the Radicals would be next in
line. Rene Mayer, considered
the spokesman of Mendes-France's
opposition, reportedly stepped
aside in favor of Pinay on the
first round. Acting 'foreign
Minister Faure, whom Mendes-
France is reported to have pro-
posed as his successor, is
probably in a better position
to heal internal Radical So-
cialist dissension. Faure
would be acceptable to most of
the conservative parties and
offers the assurance of con-
tinuity in domestic policy.
In view of Pinay's fail-
ure, the council will probably
avail itself of the constitu-
tional provision under which a
cabinet crisis lasting more
than eight days permits a coun-
cil deadline to be postponed
by a corresponding period. A
long crisis would mean post-
ponement of the 11 March dead-
line for council action on the
Paris agreements. Such a delay
would work against the agree-
ments, and might encourage coun-
cil sentiment for amending them.
There is little likelihood
that a new premier would refuse
to take up the Tunisian negotia-
tions where Mendes-France left
off. No immediate change is en-
visaged in France's policy to-
ward Vietnam. Any new premier
would probably be inclined to
work more closely with the Diem
government, although he would not
be likely to withdraw the Sain-
teny mission in Hanoi, at least
in the immediate future.
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10 February 1955
Molotov Reviews Soviet Foreign
o icy
The tone of Foreign Minis-
ter Molotov's speech before the
Supreme Soviet on 8 February was
more bellicose than that of
other recent top-level Soviet
statements, but the speech did
not indicate any substantial
shift in Soviet foreign policy
or contain specific threats of
more forceful measures. It was
cast in terms reminiscent of
Khrushchev's speeches in 1954,
which tended to be more belli-
cose than those of other leaders
without differing notably in
substantive policy.
Molotov bluntly repudiated
the thesis that a third world
war would cause world civiliza-
tion to perish--the line ex-
pounded by Malenkov in March
1954--and emphasized that it
would only destroy the capital-
ist system. He repeated, how-
ever, that the USSR stood for
reducing international tension
and declared that the improve-
ment of Soviet-American rela-
tions is "fully possible."
The belligerent tone of
the speech was evident in
Molotov's claim that the United
States now lagged behind the
USSR in the development of hy-
drogen weapons, and in the
charge, unusual in an official
speech, that several Western
leaders, including Secretary
Dulles, were candidates for the
title of war criminal. There
was also a specific attack on
Churchill as an "outstanding
ideologist of imperialism."
Molotov accused the Western
powers of seeking to restore
capitalism in the whole Orbit,
including the USSR, but ex-
pressed optimism about the
spread of "people's liberation
movements" throughout Asia and
Africa.
The statement that the
Orbit countries will establish
a, united military command if
West Germany rearms was more
explicit than the threat to take
"joint measures" made in the
Moscow conference declaration
of December 1954. The speech
also revealed that the eight
Orbit countries are negotiating
a friendship and mutual aid
treaty. Heretofore, East Ger-
many and Albania have not had
such treaties with the USSR.
Molotov added nothing new
to the Soviet position on German
unification and elections and
while implying some vague liber-
alization of the Soviet stand
on Austria, continued to make
an Austrian treaty dependent on
four-power agreement on Germany.
Moscow's and Peiping's Formosa
policy
The Communists learned at
the Geneva conference that they
could successfully exploit
Western vulnerabilities in
direct negotiations. In par-
ticular, they tested and found
flaws in the unity of purpose
of Western governments when
faced with the choice of fight-
ing or negotiating over dis-
puted Asian territory.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
Peiping, strengthened by
its success at Geneva, immedi-
ately intensified its long-
standing threat to "liberate"
Formosa. As in Indochina, the
Communists' capabilities for
forcing an issue over Formosa
and the offshore islands, with
relatively limited risk to
themselves, must have appeared
good.
Moscow can approve such a
campaign, calling as it does
for the maintenance of pres-
sure by the Chinese, while the
USSR backs the validity of
China's legal case..
This is a cheap strategy
for Moscow as long as it does
not actually lead to war. The
role claimed by Moscow as
international moderator left
the way open for negotiations
if the situation were to get
out of hand. In all of its
public pronouncements, Moscow
took pains to limit its
commitments to just such a
role, carefully avoiding any
Soviet military commitment to
the "liberation" of the island.
As Peiping intensified its
campaign against Formosa, the
Soviet Union was faced by the
threat of growing Western unity
in Europe. Because of the
inflexibility and sterility of
its policy toward Germany, the
Khrushchev on Foreign Policy
In his interview with W. R.
Hearst and Kingsbury Smith on 5
February, Khrushchev adopted the
role of a senior Soviet statesman
addressing a world-wide audience.
The moderate and conciliatory tone
of his remarks reflected the es-
tablished Soviet line on such mat-
ters as coexistence, negotiations,
trade, armaments control, reducing
tensions and improving Soviet-
American relations.
USSR was severely handicapped.
The Kremlin leaders were in a
better situation, however, re-
garding the present Formosa
situation.
The pose of cautious mod-
erator could be used not only
to ensure that the situation
did not get too far out of hand
but also to challenge Western
unity on an issue which was more
promising than Western defense.
Moscow and Peiping stand to
gain definite strategic advan-
tages if they succeed in their
handling of the Formosa crisis,
whereas they will suffer only a
minor loss in Peiping's newly won
prestige if they are unsuccessful.
Communist leaders probably
do not intend to engage in the
"hazardous gamble" of general
war. They presumably consider
that Peiping can avoid such a
dangerous development by resort-
ing to negotiation; at almost
any point.
They appear to have deliber-
ately chosen a course of action
which--while it may involve con-
siderable local military pressure
by the Chinese Communists--is
basically designed to lead to
political gains in furtherance
of the strategic objective of
weakening the Western alliance
and isolating the United States.
Khrushchev's earlier utter-
ances on foreign policy were not
always distinguished by such
caution and restraint. During the
past year, Khrushchev's statements,
both public and private, have tended
to be more bellicose and uncom-
promising toward the West, particu-
larly the United States, than have
those of the other top Soviet
leaders.
While. Stalin was still alive,
Khrushchev made fewer statements
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
on international affairs than
did the other leaders. He has
yet to deliver a speech at a
postwar, anniversary celebra-
tion of the October Revolution.
After Stalin's death, Khru-
shchev's published statements
were devoted solely to domestic
affairs until his election
speech of 6 March 1954. Even
in this speech, his remarks on
international questions were
brief, comparable in scope to
those of lesser presidium-level
speakers rather than to the
authoritative pronouncements
of Malenkov and Molotov. Simi-
larly, he barely touched on
international affairs in his
speech to the Polish Party
Congress on 11 March.
His first major pronounce-
ment on foreign policy appeared
in his address to the Soviet
of the Union on 26 April 1954.
He devoted one -third of this
speech to foreign policy and
spoke authoritatively on the
subject. His remarks were
considerably more vituperative
than Malenkov's and included a
strong personal attack on Secre-
tary Dulles.
This speech was followed
by two addresses in Prague on
12 and 15 June on the occasion
of the Czechoslovak Party
Congress.
Aside from his Peiping
speech on 30 September devoted
mainly to Sino-Soviet rela-
tions, he is not known to have
made any other Major public
foreign policy statements until
his recent interview with
Hearst and Kingsbury Smith.
Khrushchev's 1954 utter-
ances were heavily punctuated
with references to alleged
Western threats made against
the USSR and warnings to those
who would commit aggression
against the Soviet Union. He
frequently invoked the destruc-
tion of Hitler as a warning to
the West.
Statements such as these
convey the image of an extreme-
ly hostile West which needs
constantly to be reminded that
it is confronted by the power-
ful and alert forces of the
Soviet bloc.
Four times in his 15 June
address in Prague, Khrushchev
referred to the West as the
"enemy." So far as is known,
there is no precedent for this
in any of the other Soviet
leaders' speeches since Stalin's
death.
Another significant charac-
teristic of Khrushchev's pub
lit addresses is the absence
of any mention of the theme of
Western disunity, so widely
featured in Soviet propaganda
since its definitive formula-
tion in Stalin's Bolshevik ar-,
title of October T2. ru-
shchev has not referred to the
differences among the Western
governments on political and
economic relations with the
bloc and has generally pre-
sented a hard image of two
rigidly and inflexibly opposed
camps.
He bitterly attacked
Churchill in one of his Prague
speeches at a time when Soviet
propaganda was.holding the
British prime minister up as a
"constructive" capitalist states-
man in contrast to those who are
"blinded by hatred of the Soviet
Union." Khrushchev appeared to
be reminding his audience that,
ultimately, only enmity can be
expected from Western leaders
and that distinctions drawn be-
tween them can have no final
significance.
It is possible that this
apparent belief in the funda-
mental enmity of the West may
lead Khrushchev to doubt the
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10 February 1955
effectiveness of diplomatic
maneuvers aimed at exploiting
Western disunity. His speeches
are almost devoid of references
to Soviet diplomatic proposals.
While in his March 1954
election address he reaffirmed.
Malenkov's dictum that inter-
national questions could be
settled by negotiations, he
did not repeat this statement
in his more comprehensive and
forthright statements which
followed. It should be noted,
however, that he assured Hearst
on 5 February that there were
"no points of issue with America
which cannot be solved."
In his conversations with
Western visitors and officials,
Khrushchev appears to have re-
lied more on Communist cliches
than did Malenkov.
An interesting exchange
took place during a Czech re-
ception in December 1953.
Malenkov made a few remarks
devoted to friendly relations
and peaceful construction, and
said that the USSR would give
serious consideration to any
proposals directed toward peace.
Molotov followed with observa-
tions in a similar vein.
Khrushchev, however,
started on a different line.
He praised the Czech army,
and said it would be able, to-
gether with the Soviet armed
forces, to inflict a lesson on
any would-be aggressors.
Malenkov was visibly annoyed
with this and, in an audible
stage whisper, said to Khru-
shchev, "Peace, for peace."
Khrushchev immediately fell
into line.
At the reception in Moscow
on 7 November 1954, Khrushchev
initiated a long discussion with
French ambassador Joxe on the
Paris agreements and French-
Soviet relations. While his
remarks were not tough or
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threatening, he did express
himself in more vigorous and
forthright terms than did the
other leaders. Malenkov's
brief intervention in the dis-
cussion was quiet and moderate,
and Molotov attempted vainly
to restrain Khrushchev, saying
that this was neither the
time nor the place to discuss
such matters.
Khrushchev also attacked
the Paris agreements during
the two-hour discussion be-
tween the top Soviet leaders
and Ambassador Joxe which fol-
lowed the celebration on 10
December of the anniversary of
the Franco-Soviet treaty.
Malenkov played a more promi-
nent part in this discussion
than he had in the 7 November
exchange, but his remarks ap-
parently were more restrained
and less emotional than were
Khrushchev's. Molotov again
refused to enter seriously
into the conversa,,ion and
rather ostentatiously read and
signed official papers which
were brought to him during
the dinner.
At the dinners honoring
the visiting British Labor
delegation in August 1954,
Khrushchev made a speech de-
scribed by Sam Watson as
"viciously anti-American,...
brutal, violent and hard."
He emphasized the USSR's de-
sire for peace, but warned of
what would happen to any nation
which attacked the Soviet Union.
He also said that the Soviet
government would make no con-
cessions whatsoever in its
foreign policy, even though it
deeply desired peace.
These remarks and the
generally rigid and harsh tone
of his public speeches, suggest
that, in foreign policy, Khru-
shchev is guided by a firm con-
viction that the Soviet bloc
must rely on military power to
achieve its major goals and
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10 February 1955
that diplomacy must play a
subordinate role.
Addressing a mass rally
in Prague on 15 June, he warned
his audience that "peace can be
won by good labor, by a rise in
our industry and agriculture,
and by the daily strengthening
of our armed forces. There-
fore, comrades, as Comrade
Lenin said: 'So long as capi-
talist encirclement exists, it
is very difficult and compli-
cated to come to terms.' We
shall struggle ceaselessly,
sparing no effort for peace,
but peace must be consolidated
by our toil, our work."
Referring to the intensity
of the Soviet efforts to over-
take the West in nuclear weap-
ons, he said: "We have done
everything possible." He as-
serted that Soviet leaders are
not among the "nervous ones"
and strongly implied confi-
dence in the USSR's capability
to counterbalance Western nu-
clear power by the threat of
reprisal. "If they know what
a bomb means, so do we," he
declared.
Malenkov's Current Status
The inclusion of Malen-
kov's name in a list of party
presidium members who attended
a concert on 8 February sug-
gests that he is at least nomi-
nally still a member of that
powerful body. He has also
been assigned the functions of
deputy chairman of the Council
of Ministers and minister of
electric power stations.
The Ministry of Electric
Power Stations is one of the
most important of the basic
economic ministries. Malenkov
is not known to have had any
experience in this field.
The divergence of Khru-
shchev's thinking from the
established Soviet foreign
policy line, as reflected in
this speech, was clearly re-
vealed when a substantially
revised version of the address
was later broadcast from Prague
and published in Pravda. The
more inflammatory passages in
the speech were omitted or
emended in this modified ver-
sion, which conformed more
closely to the established
foreign policy line.
The corrected text
softened the implications of
Khrushchev's remarks by elim-
inating the reference to capi-
talist encirclement and by
changing "daily strengthening
our armed forces" to "con-
solidate the defensive capac-
ity of our countries." The
revised version also dwelt
more on the positive concept
of settling international
problems peacefully, in con-
trast to Khrushchev's state-
ment in the speech that, "so
long as the enemies do not
want to conclude a treaty with
us, we must be strong."
Malenkov's responsibili-
ties as deputy chairman of the
Council of Ministers are not
clear. It is possible that
he will take over the manage-
ment of the whole electric
power complex, now comprising
three ministries.
M. G. Pervukhin, party pre-
sidium member and deputy chair-
man of the Council of Ministers,
has been responsible for elec-
tric power since Stalin's death,
although he has not been Specif-
ically identified in this field
since mid-1954.
Presumably, Malenkov's
actual power is severely
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10 February 1955
limited, and his retention on
the presidium and new assign-
ment probably are designed to
provide 'a "cooling-off" period
Western European Reaction to
Change in Soviet Leaders-Up-
Most Western European
spokesmen believe that Malen-
kov's resignation and the in-
crease in Khrushchev's in-
fluence will lead to a more
bellicose propaganda line, and
perhaps also to a harder for-
eign policy.
The British Foreign Of-
fice feels that if Khrushchev
becomes "boss," the USSR will
be under a leadership less in-
telligent, more emotional, and
tougher'than that of.the col-
lective leadership under Malen-
kov.
The admission that the
Soviet leadership is not in-
fallible is expected to have
repercussions in the Satel-
lites.
Italian premier Scelba
believes that any crisis with-
in the USSR throws further con-
fusion into external Communist
circles. He instructed his
press chief to comment along
prior to any further demo-
tion and to assuage fears of,
a violent purge following his
demotion.
the line: "The Russians have
chosen guns, not butter."
A French Foreign Min-
istry spokesman called the
change an "internal affair."
French political party lead-
ers who believed previously
that talks with the USSR
should be held before the
Paris accords are ratified
argue that the change in
Soviet leaders makes such
talks even more desirable.
Those politicians who have
opposed talks before ratifi-
cation continue to do so.
In West Germany, as else-
where in Europe, government
leaders should be able to
capitalize on what they inter-
pret as a "tougher" Soviet
line at the expense of their
opponents who advocate a
"soft" policy toward the USSR.
Now, as at the time of the
Korean outbreak, increased
Communist belligerency would
tend to stem, at least
temporarily, talk about the
likelihood of an early under-
standing with the Communists.
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10 February 1955
25X1
West Berlin:
Several recent reports
suggest that the East Germans
have plans to isolate West
Berlin in the event of rati-
fication of the Paris agree-
ments, and perhaps even to
institute a blockade.
There are no known plans
to impose a blockade on Berlin.
Unrest in South Vietnam
Premier Diem's government
in South Vietnam may soon be
forced to deal with increasing
dissidence on the part of the
powerful politico-religious
sects.
In fact, the East German For-
eign Ministry, in a legal
study prepared in late 1954,
concluded that the Western
Allies have a right to main-
tain a garrison in West Berlin.
Since a blockade would have
the ultimate purpose of forc-
ing the Allies out of Berlin,
the Foreign Ministry study sug-
gests that measures of isola-
tion will be limited to those
required by internal security
needs connected with con-
scription and the establish-
ment of armed forces.
Such controls could in-
clude the interruption of in-
tersector rail traffic, a meas-
ure which cannot be excluded
as a possibility after ratifi-
cation of the Paris agreements.
The premier's progress to-
ward consolidating his regime
and extending its authority has
been accompanied by clear signs
of restiveness among the sects.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
For instance, the recent rally-
ing to the government of Cao
Daist general Trinh Minh The
and his estimated 4,000 troops
has provoked a strong reaction
from a number of Hoa Hao lead-
ers.
Hoa Had general Soai told
the American embassy in Saigon
on 9 February that violent con-
flict might break out at any
moment between his forces and
those of the Vietnamese army
in Southwest Vietnam.
There is also a distinct
possibility that orthodox Hoa
Hao units will come to the
assistance of the forces of Ba
Cut, a dissident Hoa Hao leader,
Tension in Northern Laos
The situation in northern
Laos remains tense and renewed
hostilities between government
and Pathet Lao forces could re-
sult.
An understrength Viet Minh
battalion was reported to have
entered Sam Neua Province from
Vietnam on 31 January with the
purpose of reinforcing Pathet
Lao troops surrounding a small
Laotain government force near
the provincial capital.
This is believed to be the
first Viet Minh violation of
against whom the government has
opened a major military campaign.
Several factors militate
against an early solution of
this problem. Diem has in-
dicated that he is opposed to
subsidizing the sects as the
French did. He would be unable
to integrate more than a few of
their units into.the national
army without seriously damaging
morale in the army, which is
in the process of releasing'
large numbers of regulars. Fi-
nally, Diem's curtailment of
the privileges of the Binh
Xuyen organization has caused
it to intrigue with the other
sects against his regime.
the Laotian border since the
truce. The government has re-
acted by sending a battalion
into the southwestern corner of
the province to forestall fur-
ther Communist encroachment
there.
Such movements of military
units could easily lead to
further armed clashes. More-
over, the tension is likely to
be increased as a result of
another suspension in the gov-
ernment's negotiations with the
Pathet Lao, this time only one
day after their resumption. The
chief government negotiator is
pessimistic over the prospects
that the talks will be reopened.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
Election Prospects
in Cambodia
Communist prospects in
the Cambodian elections sched-
uled for April have been con-
siderably enhanced by the re-
cent election of a Communist-
inclined directorate of the
Democratic Party, the most in-
fluential political organiza-
tion in Cambodia. By this
success, the Communists have
gained a foothold in the party
which has won substantial vic-
tories in both previous nation-
al elections.
Japan-Orbit Relations
The Japanese cabinet
decided on 4 February to
accept the Soviet proposal
for negotiations to normalize
relations between the two
nations. The decision was
officially communicated to
the Soviet United Nations rep-
resentative on 5 February by
Japan's observer at the UN, who
suggested New York as the place
for the talks.
The decision is a tempo-
rary victory for the cautious
policy of Foreign Minister
Shigemitsu. The short time
remaining before the election
on 27 February will be the
primary factor in preventing
The Communist delegations at
the Afro-Asian conference are ex-
pected to pursue a shrewd and
forceful anti-Western line.
The Communists probably will
assume a reasonable attitude to-
ward all those present while
denouncing the Western nations,
particularly the United States,
as exploiters of Africa and Asia.
The possibility also exists
that anti-Communists will bolt
the party, leaving the leftists
in unidsputed control of its
machinery and paving the way.'
for Son Ngoc Than, the king's
chief political rival, to take
over its leadership.
The American embassy in
Phnom Penh warns that under
these circumstances, the
great masses of the population
--ignorant of what is going
on--would give the leftists
"powerful and unmerited sup-
port" in the April elections.
immediate negotiations along
the "soft" line advocated by
Prime Minister Hatoyama.
The Foreign Ministry pre-
sumably will find it politically
possible in the postelection
period for Japan t- make
stronger demands than it can now
make for Soviet concessions
as a prerequisite for a settle-
ment.
The ministry has long
held that Moscow should return
the Habomai and Shikotan
Islands, recognize Japanese
fishing rights off Siberia
and repatriate war prisoners
prior to any negotiations for
diplomatic relations.
They may cite the Manila
pact, the Formosa treaty, the
Collins mission, and the Amer-
ican agricultural surplus dis-
posal program as measures de-
signed to perpetuate Afro-Asian
"inferiority."
In addition, the Communists
are almost certain to propose
closer future consultations among
the countries present and more
co-operation on the basis of the
"five principles of coexistence."
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
The Andhra Elections:
The first elections to be
held in the Indian state of
Andhra, beginning on 11 Feb-
ruary, will determine whether
the Communist Party can win
-control of an Indian state.
The outcome of the elections
is uncertain, since the Con-
gress and Communist Parties
appear to be evenly matched, and
both are ready to claim victory.
The Communists, with a strong
state organization, have nearly a
two months' start on the Congress
Party in electioneering and are
reported to be making an all-out
effort.
The Congress Party, hampered
by a local split, reportedly
is engaged in a desperate drive,
including "strong-arm" tactics,
to prevent a Communist victory.
Governor General Ghulam
Mohammad left Karachi on 30
January for a two-week rest
and medical treatment in
Switzerland.
A decline in his health
in recent months raises the
critical question of his prob-
able successor as leader of the
small group of men who rule the
country. General Iskander
Mirza, minister of the interior,
is Ghulam Mohammad's most
likely successor as the
Uneasiness in North Africa
The fall of the Mendes-
France government on 5 February
discouraged the Tunisian nation-
alists. They are taking the
S. K. Patil, the party's
strongest organizer, has
been sent to Andhra, ap-
parently with unlimited au-
thority and considerable
funds.
The Congress Party will
probably try to rig the elec-
tions. In the event of a Com-
munist victory,the Congress
Party would probably claim mis-
management and disorder and im-
mediately return the state to
its present status under
president's rule--that is,
direct administration from
New Delhi.
Imposition of president's
rule would not solve the basic
problem, however, since it
would be an open admission
of the Congress Party's ina-
bility to rule Andhra by demo-
cratic means.
strongest power in the Paki-
stani government.
Mirza is forceful but
does not have Ghulam Mohammad's
talent for political maneuver-
ing. His blunter approach to
government would be likely to
create open resentment among
other political leaders.
Under Mirza's leadership
the ruling group therefore
would probably be less success-
ful than Ghulam Mohammad in
maintaining order without the
use of force.
position that they expect the
next French cabinet to honor
the agreement on Tunisian auton-
omy which had been reached with
Mendes-France. They have an-
nounced that any attempt to
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
scuttle the gains they have won
would cause violence.
In Morocco, civil disorders
which had practically ceased
for three weeks were renewed
on 2 February coincident with
the opening of the Paris par-
liamentary debate on North
Africa. Disorders are expected
Iraqi-Egyptian Differences
The collapse on 6 Feb-
ruary of the Cairo conference
called to censure Iraq's pro-
posed treaty with Turkey is a
triumph for Iraq, which is now
expected to sign the pact within
"a few weeks."
An effort is now under way,
sponsored by such relative neu-
trals as Lebanon and Jordan,
Satellites Ease
Travel Restrictions
Satellite citizens are be-
ing permitted to visit relatives
in Western Europe, and increasing
numbers of Western nationals as
well as Satellite refugees are
being encouraged to visit the
Satellites. These conciliatory
gestures to the West appear to
be tied in with a general Orbit
"soft" line toward emigres cal-
culated to encourage them to
return home.
Hungary has announced plans
to re-establish its tourist in-
dustry in 1955, and Poland appar-
ently intends to open an office
of the state-controlled travel
agency in London. In late Jan-
uary, Hungary permitted 700
foreign visitors to attend the
European ice-skating champion-
ships in Budapest. Among them
were 200 Hungarian emigres, the
first such group to visit the
country since the war.
Czechoslovakia has similar
plans for a sports festival this
to increase as a result
of the French cabinet's fall.
The settler elements in
Algeria, which opposed Mendes-
France's North Africa policy,
are elated over his downfall.
Native reaction is generally
apathetic.
to delay Iraqi action in the
hope of somehow placating
Egypt. Any faltering or de-
lay by Iraq, while it tries to
convert the proposed treaty
into a broader regional secu-
rity arrangement, or negotiates
with Turkey over the terms of
the treaty, would encourage Arab
maneuvering.
summer and is making a special
effort to encourage visits of
tourists of Czech and Slovak
origin at that time.
Some selected Hungarians
were allowed to visit relatives
in Paris last Christmas, and
there have been reports that
some Rumanians will be permit-
ted similar visits. The Czech
government has indicated to
British officials in Prague
that persons with dual Czech
and British citizenship living
in Czechoslovakia will be
allowed to Nisit relatives in
Britain.
The Reuters agency in
London has obtained agreement
from the Czech news agency,
CTK, to admit a resident cor-
respondent, the first Western
press access to Czechoslovakia
since 1952. Negotiations be-
tween the Czechs and the French
Press Agency for a similar agree-
ment are under way.
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10 February 1955
Costa Rica and Nicaragua
Continued Nicaraguan
harassment has strengthened
the position of Costa Rican
president Jose Figueres.
The futile rebel attack
at Los Chiles on 5 February
and the ineffective "civil re-
sistance" campaign of Figueres'
domestic opposition have fur-
ther strengthened Figueres'
already strong position, both
at home and abroad.
The Nicaraguan govern-
ment, in deliberately de-
ceiving the Organization of
American States (OAS) mili-
tary observers by transport-
ing "interned" Costa Rican
rebels through Nicaraguan
territory to make the attack
on Los Chiles, has presented
the OAS with a direct chal-
lenge and has increased the
possibility of formal OAS
El Salvador
The administration of Sal-
vadoran president Oscar Osorio
is threatened by. mounting dis-
satisfaction among top army
leaders and by the hostility
of the regimes in neighboring
Guatemala and Nicaragua.
Col. Carranza Amaya, in-
spector general of the Salva-
doran army, seems to be the
leader of a strong army faction
which opposes Osorio's conten-
tion that he should be suc-
ceeded next year by a civilian
and blames him for the apparent
growth of leftist influence in
his administration.
condemnation of Nicaragua as
an aggressor.
Nicaraguan president
Somoza has made veiled threats
to invade Costa Rica in re-
sponse to alleged violations
of his border by Costa Rican
forces operating against rebel
elements. It is unlikely,
however, that Somoza will take
overt action against Costa Rica.
Leaders of Figueres'
domestic opposition, inclu-
ding former president Ulate,
have lost much of their fol-
lowing as a result of the
apathy they showed at the
height of the revolt and their
present provocative opposi-
tion to Figueres. There is
now a danger that Figueres'
more fanatical backers may,
despite the president's
urgings of moderation, resort
to violence against opposi-
tion elements.
Osorio seems to be los-
ing the confidence of other
army leaders as well, though
he still enjoys wide popular
support.
Osorio's "neutrality" in
recent Central American crises
has earned him the distrust
of Presidents Castillo Armas
of Guatemala and Somoza of
Nicaragua, who feel that Osorio
was sympathetic to the former
pro-Communist Guatemalan
government and that he is back-
ing the current Figueres regime 25X1
in Costa Rica.
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10 February 1955
PATTERNS AND PERSPECTIVES
KHRUSHCHEV'S RISE IN POWER SINCE STALIN'S DEATH
Party First Secretary N.
S. Khrushchev has come up from
fifth place in the listings of
the all-powerful party presid-
ium to the position of top man
in the USSR in the 23 months
since J. V. Stalin's death. He
is now in a stronger position
than any other Soviet leader
has been since that time.
The stage for his rapid
rise was set in March of 1953,
when G. M. Malenkov resigned
from the party secretariat,
leaving Khrushchev as senior
man on that body. The secre-
tariat exercises immediate
supervision over the powerful
party apparatus and controls
most personnel appointments.
It was the vehicle for Stalin's
rise to power in the 1920's.
Following the purge of L.
P. Beria in July 1953, Khru-
shchev moved up from fifth to
third position in the listings
of the party presidium. Then,
in September of that year, a
plenary meeting of the party
central committee made him
first secretary of the party
and heard his report detailing
the important new agricultural
program.
Observers noted two hints
of a Malenkov-Khrushchev rival-
ry at that time. First, Khru-
shchev failed to credit Malen-
kov with the formulation of the
agricultural program, although
Malenkov had first outlined it
in a speech before the Supreme
Soviet a month earlier. Second
Khrushchev attended a party
plenum a couple of months later
which removed V. M. Andrianov,
long considered a Malenkov
protege, from his job as Lenin-
grad party boss.
During the latter months
of 1953, Khrushchev continued
to receive considerable pub-
licity in connection with
agriculture, and in February
1954 he made another highly-
publicized report to the cen-
tral committee outlining the
results and prospects of the
agricultural program. By this
time Khrushchev was receiving
more personal publicity than
any other top Soviet leader
and had definitely outstripped
Molotov to become second man
in the hierarchy.
The extent of Khrushchev's
rise was fully revealed in
April 1954, when he and Malen-
kov each gave a principal ad-
dress to one of the houses of
the Supreme Soviet, Khrushchev
appearing before the slightly
more important Council of the
Union.
Khrushchev's personal pub-
licity continued to exceed that
of other Soviet leaders during
the spring, and reached a
point where it threatened to
shatter the facade of collec-
tive leadership. He was ac-
tive in many aspects of domes-
tic affairs and led the Soviet
delegation to the Polish and
Czech party congresses.
In June, however, Khru-
shchev's position appeared to
suffer. A facade of strict
collectivity was reimposed,
and he apparently did not give
the major report to the cen-
tral committee meeting held
that month and was not public-
ly associated with its deci-
sions.
The British Labor Party
delegation which visited Mos-
cow in August and dined twice
with the leading members of
the party presidium received
the distinct impression that
Malenkov was the leader of
that group and was much more
able an individual than Khru-
shchev. In fact, this senti-
ment was echoed by almost all
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10 February 1955
Westerners who met the two men
at social gatherings during the
summer and fall. The most re-
cent statement to this effect
came from their dinner with the
French ambassador on 10 Decem-
ber.
Khrushchev's position
again improved markedly in
September 1954, however. He
led the well-publicized Soviet
delegation to China and signed
the important Sino-Soviet agree-
ment concluded at that time.
On his way back from China, he
made an extensive inspection
trip through the Soviet Far
East and went on to Tadzhiki-
stan and Uzbekistan. These
journeys gave Khrushchev a
valuable opportunity to make
contacts in many areas of the
USSR and cast him--in the eyes
of many local party and govern-
ment officials--in the role of
principal spokesman of the
regime.
Khrushchev's personal pub-
licity increased in connection
with these trips and his other
activities as party first secre-
tary. He was included in lists
of Lenin's co-workers and
"leading central committee work-
ers sent directly to war work"
which pointedly excluded Malen-
kov, and his name appeared with
increasing frequency in the
Soviet press.
During the late fall Khru-
shchev's public activity in-
creased still more. He acted
as principal spokesman of the
regime in an increasing number
of fields, and on 7 December
he made a speech to a confer-
ence of construction workers
which foreshadowed the greater
emphasis officially accorded
the importance of heavy in-
dustry later in the month.
In a speech to a gather-
ing of Komsomol members on 7
January, Khrushchev, contrary
to previous practice, stressed
his close personal relation-
ship with Stalin, and on 10
January, Khrushchev's name was
linked with Lenin's when he
signed a central committee de-
cree changing the date and
character of the celebration
of Lenin's memory.
A striking sign of Khru-
shchev's growing importance
came out of another central
committee meeting, commencing
on 25 January. A report to
the plenum on increasing live-
stock production made by Khru-
shchev on that date heavily
stressed the importance of
heavy industry. It equated
the position of those "woe-
begone theoreticians" who had
underestimated the importance
of heavy industry with that of
Bukharin and Rykov, politburo
members who were first demoted.
and. then shot in 1938 for
"rightist deviations."
This speech, which occu-
pied six pages of Pravda on 3
February, the opening day of
the current Supreme Soviet
session, set the tone for the
modification of the "new
course" effected at that ses-
sion and made Khrushchev the
principal spokesman for that
important shift in policy.
The awareness of at least
some of the Supreme Soviet
delegates as to Khrushchev's
leading position was evidenced
by the fact that over half the
speakers at that meeting men-
tioned his name in their re-
ports while none of them cited
Malenkov.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
THE 1955 SOVIET BUDGET*
The 1955 Soviet budget, an-
nounced on 3 February, indicates
that the Soviet government, hav-
ing re-evaluated its internal
and international position, now
intends to return to the 1952-
1953 level of appropriations
for defense. At the same time
allocations to heavy industry
and transportation are to con-
tinue to increase and minor re-
ductions are to be made in the
proportions of consumption and
investment in the total economic
effort.
Revenue measures are de-
signed to reduce sharply the
excess purchasing power. Con-
sumers' goods prices evidently
will not be reduced this year.
The funds budgeted (see
table I) should allow the Soviet
113 report was prepared
jointly by the Office of Cur-
rent Intelligence and the Of-
fice of Research and Reports.
`:12.6
V
EXPENDITURES
544.9
562.8
~~a ?n
559.tl
h41 others
thers
All
a REVENUES
590.5
All.0mra
'ls
o
125.5
'fr PFE.,
Alloth era
'
`AGr
193.3
.22.5
105.5
.
450 630.5
All others
441.9
`.'
102.1
-]Ce -
-_''??r
ns
i
d
D 4
.incr.'43.5
A
8 Pr
Dd.Me
SI21
Ag. Pr. Incr.1E.5
!Rate BorrowlrR
?
All others
91
1
o
Re
uc
Y
_ __
___
42.5?
.
Roo. 27.4'
9tt
Dlr. T.. Pop.
Direct 7'as
Iwo"
8h[. 9arrow n?
42.8'
Direct Tax x on
48
1
I
ti
u
n
'
f
48.4
PP? 44.9
state
7
4.-
Direct Tax on
population 47.4
an
.
.
P.,
Detlucllons
5
Detluctlon
[nr2[
74.7
Detluctio~w
from Profile
IFaN 3
D [kill-
fit
47
5
P
"vS
De_urti
from
Profits 58.5 m
9"111
8(1. from Profits
7
from Profits
92.8
~,
-
LL7.5
.
ro
.
0
-
_
-
Turnover
`
7WrMrer
Tlx
,7 L *
TYx
240.9
r? .,
7W rnaver
Tax
4
0
$"'`"`?
"
TLrnover
.lyx
`""
;~'bUItDb1S
2
, X4
'Nrewver
233.2
247.8
.
24
234.3
.
_ .-.. ..
.-. sae
toi...t
1954
Plant
1955
(Plan(
17.5
14.9 ?.
Union to realize its Fifth Five-
Year Plan goal for gross indus-
trial output, to increase sub-
stantially the procurement of
new and modern military hard-
ware, and to continue to enlarge
the absolute level of consumers'
goods output.
The Soviet Union has thus
apparently decided to improve
its already formidable military
capability, but does not intend
an immediate all-out mobilization.
Defense Expenditures
The budget allocates 112.1
billion rubles for explicit mili-
tary expenditures,, a 12-percent:
increase over 1954 allocations.
These expenditures will be at
a postwar high if the alloca-
tion is completely. utilized--
although there is considerable
evidence to indicate that no
recent defense budget has been
fully spent (see table II).
SOVIET BUDGETS, 1951-1955
(in bilf t of cwront ruble,)
79.2
93.0
82.9 ...... ~..
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
The amount officially an-
nounced each year is believed
to cover the cost of maintain-
ing and training the military
establishment and of procuring
military end items. The explic-
, allocation for defense does
not cover investment in,_or
operations of, plants where de-
velopmental research on new
weapons takes place.
If, as seems likely, the
personnel strength and admin-
istrative costs of the Soviet
military establishment remain
relatively unchanged, the in-
crease of 12 percent in the
allocation to thmilitary
esta:Filishment will -be ufili ed
prar3Tor procurement of
military end ems.
In monetary terms, pro-
vision for procurement of
weapons and equipment could
increase over that provided in
the 1954 budget by a maximum
of about 15 percent, bringing
allocation for military pro-
curement to a postwar peak.
Production of military items
in 1955 may not increase by
this much, however, since
some of the allocation may be
devoted to production in fu-
ture years.
A part of this increase
probably resulted from a So-
viet conclusion that the in-
ternational situation re-
quired greater military pre-
paredness, and perhaps also
from a decision to increase
military assistance to the
Satellites and China.
The rise is also partly a
result of the increasing cost
of modern, complex weapons
with which the Soviet armed
forces are being re-equipped,
and may reflect long-planned
increases in output of cer
tain specific types of equip-
ment.
Expenditures for Heavy Industry
Planned budget allocations
to heavy industry are to increase
by a very large amount--more
than 21 billion rubles--over
the 1954 level (see table III).
Investment in heavy industry,
however, is scheduled to in-
crease only 3.5 billion ru-
bles. This is in marked con-
trast with previous years,
when heavy industry total allo-
cations and investments in-
creased proportionately.
In addition to capital
investment, allocations from
the budget to heavy industry
have historically included
such items as capital repairs,
subsidies, and increments to
working capital. Aside from
changes in accounting pro-
cedures, there is no apparent
reason for such expenses to
jump suddenly this year.
There are, however,
several possible explanations
for this increase. Atomic en-
ergy expenditures in recent
years are believed to have been
included in the "other" cate-
gory of "financing the national
economy." Since the "other"
category is to include 9 bil-
lion rubles less in 1955 than
in 1954, some expenditures,
hitherto concealed, probably
including atomic energy, may
have been transferred elsewhere
in the budget, perhaps to the
allocation for heavy industry.
The increase under heavy in-
dustry is much greater, how-
ever, than the decrease in the
"other" category.
It is also possible that
major increases in expend-
itures connected with a new
or developing military pro-
gram--such as pre-series
production of guided missiles
--may be included in this part
of the budget.
Expenditures for Agricul-
ture and onsumers Goo dg
Budget allocations to
agriculture and the consumer
industries are scheduled to
decline by 12 to 15 percent in
1955. Investment in these
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
parts of the economy, however,
will probably decline by a les-
ser amount and will still be far
above the 1952-1953 level. As
a result of this and of the high
rate of investment in these sec-
tors during 1954, there probably
will not be any substantial down-
ward revision of "new course"
goals for '1955, The rate of ex-
pansion in consumer sectors of
the economy, however, will
definitely fall below the 1954
planned rate.
Since most of the decline
in budget allocations to ag-
riculture apparently resulted
from elimination of subsidies
to state farms, most elements
of Soviet agriculture, par-
ticularly the "new lands"
Soviet Budget Expenditures
Financing the national economy
Heavy industry
Light and Food industry
Argiculture & Procurement
Transport & Communications
Other
Defense expenditures
Social & Cultural expenditures
Other known allotments
Undisclosed residual
TOTAL REAL EXPENDITURES
Artificial expenditures*
Total Announced expenditures
Soviet Budget Revenues
Turnover Tax
Deductions from profits of
Billions of rubles
1954 (Plan) 1955 (Plan)
216.4 222.4
79.7 101.2
12.6 10.6
62.5 55.1
21.5 23.0
40.1 32.5
100.3 112.1
141.4 146.9
30.9 24.8
34.8 34.2
523.8 540.4
39.0 22.5
562.8 562.9
enterprises 92.8 117.5
Taxes on population 45.7 48.4
State loans (including increase
in savings of pop.) 27.4 42.5
Other revenue 133.2 125.5
TOTAL REAL REVENUES 533.5 567.1
Artificial revenue* 39.0 22.5
Total Announced revenue 572.5 589.6
WI_n this year s budget, there is only one clearly artificial entry
under both expenditures and revenue. This is an entry of 22.5 billion
rubles for increased procurement and purchase prices in agriculture. In
1953 and 1954, there was a second artificial entry, an allocation to cover
the annual price reductions on consumer goods. The size of the total bud-
get is thus artifically inflated less in 1955 than it was in 1953 and 1954.
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lomw SEC_?
CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
program, probably will receive
increasing attention.
Social and Cultural Expenditures
Expenditures for social and
cultural purposes are to increase
moderately from 141.6 billion
rubles in 1954 to 146.9 billion
in 1955. The fact that these
expenditures are continuing to
rise is further evidence that
the Soviet Union intends to
achieve a gradual improvement
in strategic capability, rather
than immediate, all-out mobili-
zation.
Capital Investment
Total capital investment
is scheduled to drop slightly
to 167.2 billion rubles in 1955
(see table III). Since invest-
ments in heavy industry and
transport and communications
combined are to increase about
4 percent, the decrease must
come from other sectors of the
economy. The failure of invest-
ment outlays to increase sub-
stantially jeopardizes the
achievement of the capital in-
vestment goal of the Fifth
Five-Year Plan.
The slight decline in
investment in the 1955 budget
presumably reflects an unwill-
ingness to increase long-range
commitments, and a decision to
direct the increment of the
economy's growth to end-item
production, an important share
of which apparently is to be
devoted to military produc-
tion.
The decision to reduce
the rate of growth in invest-
ment may also have been in-
fluenced by the difficulties
which the Soviet Union has
encountered in completing
investment projects. In
words similar to those used
two months earlier by Khru-
shchev at the Soviet construc-
tion conference, Finance
Minister Zverev noted re-
cently that the volume of
unfinished building was
increasing, and that it would
be necessary in 1955 to con-
centrate on the completion of
already planned projects, rather
than launch a large number of
new projects.
Administrative Expenditures
Administrative expendi-
tures are to be reduced more
than 10 percent, from 13.9
billion rubles in 1954 to 12,6
billion for the current year.
The Soviet regime placed heavy
emphasis throughout 1954 on
the need for reducing admin-
istrative costs, and the new
budget shows that this effort
will continue.
As a part of this drive
for economy and efficiency, a
number of new republic minis-
tries were set up in 1954 to
take over former all-union
activities, i.e., the Min-
istries of the Oil Industry
in Azerbaijan, and of Ferrous
Metallurgy in the Ukraine.
The budgets for these repub-
lics did not change substan-
tially, indicating that the
new republic ministries are
still to receive their in-
vestments and other new re-
sources from the all-union
budget, and have been es-
tablished as decentralized
entities only for purposes of
administration.
Budget Revenues
Revenue measures out-
lined in the budget are de-
signed to reduce sharply the
excess purchasing power which
has resulted from the achieve-
ment a year ahead of time of
the Five-Year Plan goal for
increasing total wages. This
goal was reached early as a
result of widespread increases
in employment beyond planned
levels by economic enterprises,
and by the cumulative effects
of successive price reductions
on consumers' goods during the
period 1950 through 1954.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
10 February 1955
The excess purchasing power
will be reduced by the doubling
of the annual state loan, which
will return to the 1952 level.
Furthermore, the budget indicates
that no significant reduction in
the prices of consumers' goods
will occur this year.
Increased deductions from
profits of state enterprises and
the doubling of the state loan
are to be the primary sources of
increased revenues. Turnover
taxes are planned to yield some-
what less in 1955 than in 1954,
233.2 billion rubles as opposed
to 234.4 billion last year. This
seems abnormally low, since trade
RECENT DEVELOPMENTS IN OVERSEAS SHIPPING IN.CHINA TRADE
Soviet shipping has with-
drawn from the China trade
since mid-1954 and sea-borne
deliveries to Communist China
from Eastern Europe have been
diverted from North to South
China. ports. These develop-
COMMUNIST CHINA ~' M n