WEEKLY SUMMARY NUMBER 39

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A002100180001-8
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 27, 2016
• Document Release Date: July 29, 2013
• Sequence Number: 1
• Publication Date: February 25, 1949
• Content Type: REPORT

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COPY
I WEEKLY SUMMARY
1
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5-0P-0 /t 2eittz
Document No.
Number 38
.25 FEB 1949
(
NO CHANGE in Class. ri
DECLASSIFIED
Class. CHANGED TO: TS S C
DDA Memo, 4 Apr 77
Auth: DD 17.7G. 7711763
Date: #ny fr
CENTRAL INTELLIGENCE AGENCY
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1. This publication contains current intelligence exclusively
and therefore has not been coordinated with the intelli-
gence organizations of the departments of State, Army,
Navy, and Air Force.
2. This copy may be either retained, or destroyed by burning
in accordance with applicable security regulations, or
returned to the Central Intelligence Agency.
colet
61k
c -6
WARNING
This document contains information affecting the na-
tional defense of the United States within the meaning
of the Espionage Act, 50 U.S.C., 31 and 32, as amended.
Its transmission or the revelation of its contents in any
manner to an unauthorized person is prohibited by law.
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CONTENTS
Page
HIGHLIGHTS 1
WESTERN EUROPE
2
EASTERN EUROPE
5
NEAR EAST - AFRICA
8
FAR EAST
10
WESTERN HEMISPHERE
14
ARTICLE
The Overseas Chinese in Southeast Asia
15
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HIGHLIGHTS
The Israeli-Egyptian meetings at Rhodes, after six
weeks of tortuous negotiations, have produced an armistice
between the two most aggressive participants in the Palestine
dispute. The conclusion of this armistice, which represents
a considerable personal achievement for Acting UN Mediator
Bunche, marks a solid advance toward stabilization of the
Palestine situation (see page 8). However, because of the
manifold practical problems yet to be solved, the achieve-
ment of a general settlement may be a long process.
The Dutch Government's latest plan for dealing with
the Indonesian problem gives an appearance of partial com-
pliance with the 28 January Security Council resolution but
basically represents no change in Dutch policy on Indonesia
(see page 11). Although the plan calls for Republican repre-
sentation at a 12 March round table conference at The Hague,
the Dutch significantly have made no provision for the resto-
ration of Republican leaders to governmental authority be-
fore the formation of an all-Indonesian government, as re-
quired by the UN resolution. This failure will probably make
the plan unacceptable to the Republicans.
Although the Argentine Government is apparently
attempting to meet its continuing economic crisis by modi-
fying its nationalistic economic policies, the time may have
passed when such efforts can prevent a major political
upheaval in the Peron Government (see page 14).
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WESTERN EUROPE
GERMANY
Growing Nationalism The presence in western Germany
of approximately eight million Ger-
mans expelled from the east is causing serious economic,
social, and political problems. Most of these people, ex-
pelled from the Sudetenland and areas of Germany now under
Soviet and Polish rule, are in the Bizone. Their treatment
at the bands of the west German population and bureaucracy
has embittered them and accelerated the formation of radical
refugee pressure groups under irresponsible leadership.
The original program laid down by the Allies for the incorpo-
ration of expellees into west German society provided for
equal economic opportunity and proportionate representation
in civil service. In practice, however, only inferior civil
and private positions have been open to the newcomers and
they have been the first to be discharged. Although all west
German political parties are trying to win the votes of these
disgruntled exiles, the expelleestrather than support any of
the present political parties, including the Communists, are
more likely to listen to the reckless promises of the em-
bryonic nationalist groups. If such groups are permitted to
operate as legal parties, expellee support might materially
assist them in their drive for political leadership in the
west German state of the future.
ITALY ?
Communist Strength The loss by the Italian Communist
Party of nearly one-fifth of its mem-
bers since the April 1948 elections may represent only a
temporary set-back in Communist influence in Italy. Contri-
buting to the decline in Communist strength have been: (I) the
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ITALY
growing realization that national Communist parties are
dominated by the USSR; (2) the loss of prestige and impor-
tant financial backing following the poor showing in the 1948
national elections; (3) the reluctance of the workers to sup-
port the Communist-led strikes except on. clear-cut economic
Issues; and (4) vigorous Vatican anti-Communist propaganda,
recently made even more effective by the Minciszenty trial.
Realizing that the Communist threat has lessened, conserva-
tive Italian elements may now feel less urgency in initiating
economic and social reforms, a development which in turn
would result in a stronger popular belief that these reforms
will be implemented only by the Communists. Similarly, the
Increasing intransigence of organized industry toward labor
demands may neutralize the potential effectiveness of the
Free Confederation of Workers to combat the Communist-
dominated Italian General Confederation of Labor, which still
directs the trade union activities of most organized workers.
In rural districts, many workers: (1) continue to support the
Communist-led agricultural confederation because of the
tangible benefits it has already brought them; and (2) regard
the non-Communist agricultural unions with suspicion be-
cause they appear to be favored by both farm management
and the national government. Thus, continued failure of the
Government to fulfill its election promises for social and
economic reform would threaten the currently high prestige
of the Catholic Church and the Christi= Democratic Party
and tend to encourage the Italians to turn once again to the
Communists.
SPAIN
Economic Paralysis The multiplying economic difficulties
of the Spanish Government may lead to
complete economic paralysis, and possibly political instability,
before the end of 1949 unless foreign aid is forthcoming.
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SPAIN
A record drought Ms prolonged the severe hydroelectric
power shortage which las afflicted the country since the
fall of 1948. Most industries are operating only one day
a week, and unemployment Ms increksed steadily since
September 1948. Lack of foreign exchange reserves pre-
cludes the purchase of the necessary equipment for rehabili-
tation of Spain's industry, particularly the deteriorated and
Inadequate transportation system. Moreover, continuance
of the drought would threaten the current wheat crop and in-
crease Spanish reliance on Argentine wheat. Argentina,
however, faced with its awn foreign exchange difficulties,
may be reluctant to continue exporting wheat to Spain until
the Franco Government can make good its $109 million trade
deficit under the Franco-Peron Protocol. Payment of this
deficit now would impose a devastating drain on the financial
resources of the Government.
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EASTERN EUROPE
SOVIET UNION
Soviet Wheat The recent Soviet proposal at the International
Wheat Conference that the USSR supply 20%
of world wheat exports was probably made primarily for bargain-
ing purposes. Such a proposition, however, indicates Soviet
desire to reduce the participation of other wheat-producing coun-
tries such as Australia, Canada, and the US as well as to enhance
Soviet ability to seek increased vital trade with western Europa.
Moreover, the Soviet proposal made no mention of participation
by Bulgaria, Hungary, Rumania, and Poland, countries which
before the war exported 37 million bushels annually. Average
prewar exports of wheat from the USSR were 22.8, and Soviet
ability to commit the unusually large amount of 98.6 million
bushels may be made possible by the inclusion of Satellite
wheat. Thus, the Soviet bloc would be able to keep part of its
exportable surplus of wheat free of international agreements.
In a buyer's market, Satellite wheat could be sold under the
guise of Soviet allocation or, during a world wheat shortage,
this wheat could be sold openly at prices above the agreed inter-
national ceiling and in markets chosen for their maximum poli-
tical advantage.
Air Transport Continuation of the present Soviet rate of pro-
duction on medium and heavy air transports,
now estimated to have surpassed the combined production of
all other nations, would provide the USSR by 1952 with an air
transport reserve far exceeding the requirements for normal
expansion of civil air routes and other government programs..
Replacement of the obsolescent PS-84 (DC-3) by the new twin-
engine IL-12 on the principal Soviet air routes is now well
advanced. This aircraft, placed in full production during 1948,
is reported to be superior in all ways to the P5-84, having
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SOVIET UNION
greater speed, range, and capacity. By 1952, unless pro-
duction is curtailed, the fleet of IL-12's will constitute a
formidable reinforcement to the transportation resources
of the USSR. If line production is extended in 1949 to include
the four-engine IL-18 or TU-70, civil air operations could
be maintained or even extended with a smaller number of the
new larger and faster types of aircraft, leaving a powerful
fleet of transports in reserve for logistical use in an emer-
gency-
FINLAND
Increasing Stability The Soviet war-of-nerves against
Finland is being offset to a large degree
by Finland's continued ability to maintain political and economic
stability. The Social Democratic Government has maintained
itself in power despite strenuous efforts by the conservative
Agrarian Party and the Communist-led Democratic Union to
overthrow it. In addition, although non-Communist Finns
generally fear that Norwegian participation in the Atlantic Pact
may bring added Soviet pressures on Finland (such as Soviet
troop concentrations on the northern Finnish border, as already
rumored), both the Finnish Government and its people appear
determined to protect their prerogatives of independent action.
Gradual improvement in the Finnish economy also is increasing
Finnish resistance to Communist propaganda. Despite Commu-
nist charges that Finland needs closer ties with the USSR in
order to offset the country's "insuperable economic difficulties,"
the Finnish Government has continued to improve internal eco-
nomic conditions and is meeting its reparations payments to the
USSR.
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GREECE
Economic Policy The new coalition Government is proving
more aggressive than its predecessors
in facing financial problems. The Government has already:
(1) announced a deadline for declaration by private citizens
of their foreign assets; (2) tightened credit controls; and (3)
imposed a capital levy, which is expected to yield an addi-
tional $10 million for relief purposes. Despite the obvious
need to find additional sources of revenue and foreign ex-
change, previous Greek governments under Populist domina-
tion hesitated to impose a capital levy or take steps to register
foreign assets because of the drastic burdens these steps
would impose on the Greeks who furnish the main financial
support for the conservative parties. The decision-to impose
a capital levy reflects the weakened position of the Populists
in the new coalition.
Although the Government is dealing more firmly with
financial interests, it has been forced to yield to several
recent labor demands for higher wages and may be forced
to make further concessions during the scheduled renego-
tiation of other collective wage agreements. The cost of
living rose 50% during 1948, and there are isolated indica-
tions that Communist influence in the trade unions is reviving.
Consequently, the unions are less likely to accept compromises
or mere promises and more likely to resort to strikes tf their
demands are not met.
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NEAR EAST - AFRICA
Rhodes Armistice The conclusion of an Israeli-Egyptian
armistice at Rhodes, after six weeks of
tortuous negotiations, represents a solid step toward stabil-
ization of the Palestine situation, as well as a significant
personal achievement for Acting UN Mediator Bunche. The
possiblity of renewed hostilities now appears remote. The
Rhodes agreement will undoubtedly encourage Lebanon,
Syria, and Transjordan (the latter is now authorized to ne-
gotiate for Iraq as well) to conclude similar armistice pacts
with Israel.
Despite these auspicious signs, Arab reluctance
to accord diplomatic recognition to Israel makes a de jure
peace distant, and a variety of practical difficulties may well
make implementation of a general settlement a long,drawn-out
process. The joint armistice commission set up by the Is-
raeli-Egyptian agreement must clarify a number of ambiguous
terms in the armistice, and its work may be handicapped by
adverse popular reaction in Egypt to the signing of the arm-
istice.
The task of the UN Palestine Conciliation Com-
mission in working out a general settlement will be complicated
by conflicting territorial claims which, at least in theory , have
not been prejudiced by the present armistice. (Although Israel
remains in possession of Beersheba, for example, it is unlikely
that either Egypt or Transjordan will abandon their claims to
the town.) Another serious obstacle is presented by the in-
sistence of the Arab governments that Israel permit the return
of those Arab refugees who so wish and by Israel's disclaimer
of any responsibility for them. Under these circumstances,
achievement of a settlement will continue to require skillful
mediation and the application of strong pressure by the major
powers on the conflicting parties.
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Mediterranean Pact Growing pressure for a Mediterranean
counterpart of the Atlantic Pact may
develop during Ur) next six months from Greece and Turkey
and other Near Past states. Greece and Turkey, already re-
cipients of substantial US aid, are concerned lest Atlantic
Pact responsibilities should cause a slackening of US interest
In the eastern Mediterranean. Because US-UK assurances
of continued backing are unlikely to satisfy the Greeks and
the Turks, they will probably attempt either to tie themselves
to the Atlantic Pact or to obtain US-UK participation in a
Mediterranean bloc. The Arab states and Iran have also
recently shown greater interest in closer security ties with
the US and the UK. Any efforts to conclude a Mediterranean
pact, however, are sure to encounter strong Soviet opposition,
including greater pressure against Iran, Greece, and Turkey.
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FAR EAST
CHINA
Military Lull Although the lull in the Chinese Communist
military offensive may be partly caused by
the necessity to rest and regroup, it is dictated primarily by
the need to strengthen Communist political control over the
newly-Avon territory north of the Yangtze River. Because
the territorial gains of the past several months have greatly
complicated the problems of administration, the Chinese
Communists apparently do not wish to take over more terri-
tory until they have consolidated what they now hold. This
consideration seems to have prompted Communist insistence
on regional capitulation rather than a "national" settlement.
Moreover,, delaying the military campaign gives the Commu-
nists time to determine what military forces Acting President
Li Tsung-Jen can or will surrender to the Communists and
what forces will remain at large and hostile. Although con-
solidation of their present position will absorb the energies
of the Communists for weeks or perhaps months, there is
no reason to believe that the Communists have altered their
announced intention to push south of the Yangtze and proclaim
a National Government of China before 1950. .
Possible Offensive Despite the Communists' desire to con-
solidate their political control in North
and Central China, they may be compelled to assume the
offensive in Northwest China because of the threat to their
eventual control of that area resulting from Nationalist-Soviet
negotiations in Sinkiang. In a broadcast entitled "Calling
Northwest Guerrilla Units," a new Communist radio station
has called on all Nationalist forces in the northwest to sur-
render. General Peng Teh-huai, who commands the Communist
troops around Sian, may take advantage of the withdrawal of
Nationalist forces there to drive westward into eastern Kansu,
aiming for Lanchou, gateway to the Northwest.
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CHINA
Nationalist Disunity In the Nationalist ranks the split be-
tween the followers of "retired"
President Chiang Kai-shek and Acting President Li Tsung-
jen is accelerating the destruction of all semblance of unity
In the National Government. Li's principal efforts are
directed toward reducing Chiang's influence throughout
Nationalist China. He may have won over General Ho Ying-
chin, a close associate of Chiang during the past 20 years
who has suggested that Chiang's continued presence in China
Is interfering with Li's efforts to end the war. Meanwhile,
Li's attempts to formulate a working agreement with the
Cabinet in Canton are apparently proving fruitless, and he
has been unable thus far to win the support of other promi-
nent right-wing generals. There is only a slight prospect
that Li will be able to consolidate his leadership over what
Is left of Nationalist China.
INDONESIA
New Dutch Plan Despite ostensible compliance with the
Security Council resolution, the Dutch
Government has not basically modified its policy on the
Indonesian question during the past three weeks of Cabinet
Indecision. The Government's latest plan for dealing with
the Indonesians, however, does represent a moderate gain
for the more liberal ministers who have prevailed upon the
Catholic Party not to reject the SC resolution flatly. Never-
theless, the Government still intends in practice to follow
only those SC recommendations which coincide with its new
plan. This plan calls for a 12 March round table conference
at The Hague of all parties concerned with Indonesia. The
Dutch hope to reach agreement on terms for the transfer of
sovereignty to an all-Indonesian government shortly after
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INDONESIA
? 1 May, considerably ahead of the UN schedule. Those invited
to participate in the discussions include the UN Commission
for Indonesia and a delegation of Republicans selected by former
President Soekarno. Although the Dutch have agreed to lift
existing restrictions on the movement of Republican leaders,
they have ignored the UN resolution by refusing to restore
Republican leaders to governmental authority at Jogjakarta
before the formation of an all-Indonesian government. This
refusal will probably make the plan unacceptable to the Re-
publicans and compel the UN Commission for Indonesia to
issue an unfavorable report on Dutch compliance with the SC
resolution.
BURMA
Rice Crop Burmese rice production and exports have
diminished appreciably as a result of civil strife
and a disintegrating economy. The decline will probably con-
tinue for some time despite efforts by the UK and the Common-
wealth nations (India, Pakistan, Ceylon, New Zealand, and
Australia) to find a means of restoring economic and political
stability. Spurred by the prospect of economic dislocations
throughout Southeast Asia which would ensue as a result of
a stoppage of Burmese rice exports, the Commonwealth nations
are considering plans to: (1) grant financial assistance to the
near-bankrupt Burmese Government; and (2) halt the racial
strife between Karens and Burmans as the first step toward
attaining political stability in Burma.
A negotiated settlement of the fighting is a remote
possibility at present in view of the great disparity in the
demands of the conflicting parties, the confidence of the
Burmans in their ability to win the civil war, and the patho-
logical opposition of the Burmese to foreign interference.
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BURMA
However, the Burmese Government may become more
amenable to a negotiated settlement if,as is becoming in-
creasingly possible, the war goes against it. Without a
peaceful settlement, implementation of Commonwealth
plans for bolstering the financial condition of the present
government would at best be a temporary palliative de-
signed to insure the movement of the current rice crop
to Burman ports. Financial assistance alone would not
produce the peaceful conditions essential for the planting
and harvesting of subsequent rice crops.
SIAM
National Emergency By declaring a state of national
emergency in Siam, Premier Phibul
may be putting himself in a position to take the measures
necessary to prevent the overthrow of his regime. Factional
unrest is increasing within Siam's rival political groups;
and the Government undoubtedly fears the spread of Com-
munist disorders to Siam. In the event of a breakdown of
the negotiations now presumed to be in progress with his
principal rival, Pridi (lately returned from self-imposed
exile), Phibul will probably again air the charge that Pridi
has Communist tendencies. Meanwhile, the state of national
emergency affords Phibul some measure of protection against
any coup d'etat that the Pridi clique might engineer.
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WESTERN HEMISPHERE
ARGENTINA
Crisis Continues Despite some signs that the Peron Gov-
ernment is changing its nationalistic eco-
nomic policy in a last-minute effort to avoid overthrow, it
is possible that these efforts have been delayed too long to
prevent a major political upheaval. Moreover, the adminis-
tration may find it impossible to retain sufficient support to
accomplish the changes in economic policy necessary for
obtaining a life-saving foreign loan. The increasing influ-
ence in the Peron regime of the advocates of a more inter-
national-minded economic policy is indicated by: (1) the
recent request for US views on the advisability of acceptinf
a Soviet offer to purchase--for dollars or gold--Argentina s
entire exportable surplus of fats, oils, and hides; (2) tentative
overtures toward joining the World Bank and International
Monetary Fund; and (3) the dismissal of economic czar
Miguel Miranda, who was the principal advocate of high ex-
port prices and a state-controlled economy. Peron's cotn-
mitments in the past to a policy of Argentine economic
Independence and the influence of nationalist elements may
frustrate these efforts to avert economic disaster. Argentina
has withdrawn from the International Wheat Conference; has
failed to accompany overtures for a US loan with satisfactory
commitments for prompt repayment; and has made no prom-
ises either to reduce anti-US propaganda or accord more
favorable treatment to US business. Meanwhile, the demand
for Argentine exports is decreasing and internal inflationary
pressures are being aggravated by reduced production and
continuing strikes.
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THE OVERSEAS CHINESE IN SOUTHEAST ASIA
The serious prospect of a Communist-dominated
China brings into sharp focus the role which the overseas
Chinese communities can be expected to play in the future.
There are more than nine million overseas Chinese, and
they comprise a prosperous and Influential group in South-
east Asia. Their industry and quiet respectability as citizens
give them wealth and prestige which is disproportionate to
their numerical strength. However, their strong sense of
nationality and their carefully-maintained ties with the home-
land make them largely unassimilable. It is this combination
of the successful colonizer and the unassimilable nationalist
which makes the overseas Chinese potential instruments of
Ian aggressive Chinese foreign policy. No government of China
could be unaware of this potentiality.
Considering the relative wealth of the Chinese over-
seas community, Chinese Communist influence has made
surprising inroads. Communism has spread to such an
extent among the Chinese communities in Malaya as to make
it the focal point for expansion throughout Siam, the Philip-
! pines, and Indonesia. Already a number of wealthy Chinese
merchants in Malaya have identified themselves in some way
with Communist Party interests. This tendency apparently
can be explained only by a desire to be a part of the Commu-
nist movement when it assumes an expected ascendancy in
Southeast Asia.
Although the Kuomintang organization and secret
societies in Southeast Asia are strong and well entrenched,
they appear to be losing influence to the Communists. Some
of these Kuomintang elements may go underground following
a Nationalist collapse, but in general the overseas Chinese
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communities will probably serve the interests of a Com-
munist-dominated government in China. In the meantime,
Chinese Communist elements in Southeast Asia are expected
to continue their efforts to gain political control of the
Chinese overseas communities and to cooperate with armed
resistance movements now struggling for power with the
various governments in the area.
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DISTRIBUTION
1 The President
2 Secretary of State
3 Chief of Staff to commander in Chief
4 Secretary of Defente
5.. . . Secretary of the Army
6 Secretary of the NAT
7 Secretary of the Alr Force
8,70 Chairman, National Security Resources Board
9 Executive Secretary, National Security Council
10 Assistant Secretary of the Navy for Air
11,69i Chief of Staff, U.S.Army
12,13,14 Chief of Naval Operations
15,16,17 Chief of Staff, U.S. Air Force
18 Director of Plans and Operations, General Staff,U.S.Army
19 Deputy Chief of Staff (Operations) U.S. Air Force
20 Deputy Chief of Naval Operations (Operations)
21 Director of Plans and Operations, U.S. Air Force
22,23,24 Special Assistant to Secretary of State for Research
and Intelligence
25,26,27,28,29, Director of Intelligence, General Staff U.S. Army
30,31,32,33,34.
35,36,37,38,39, Chief of Naval Intelligence
40,41,42,43,44.
45,46,47,48,49
50
51
52,53,54,55,56.
57.
58. . .
59. . ? ?
60
61
62,63
65
66,67
68
Director of Intelligence, U.S. Air Force
Director of Security and Intelligence,Atomic Energy Comm.
Executive Secretary, Military Liaison Committee,
Atomic Energy Commission ?
Chief,Acquisftion & Distribution Division,01CD,Dept.Slate
Director, .Federal Bureau of Investigation
Secretary, joint Chiefs of Staff
Chief, Policy Planning Staff ,Department of State
Secretary of State (Attention: Chief, Policy Reports Staff)
Deputy Director, Joint Intelligence Group, Joint Staff
Secretary, joint intelligence Group, joint Staff
US Air Force Representative on joint Strategic
Survey Committee
Secretary, State-Army-Navy-Air Coordinating Committee
Administrator, Economic Cooperation Administration
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U. S. GOVERNMENT PRINTING OFFICE
2631-8-10411
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