CURRENT INTELLIGENCE WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000400240001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 35
• Document Creation Date: December 20, 2016
• Document Release Date: January 18, 2006
• Sequence Number: 1
• Publication Date: October 12, 1999
• Content Type: SUMMARY

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CONFIDENTIAL.
~
CURRENT
INTELLIGENCE
WEEKLY
SUMMARY
COPY NO. 12
OCR NO. 2712/55
24 March 1955
CENTRAL INTELLIGENCE AGENCY
OFFICE OF CURRENT INTELLIGENCE
CONFIDENTIAL
rSE~
State Dept. & PACOM review(s) completed.
DOCUMENTNO.,lr 25X1
CJ DECLASSIFIED
CLASS. CHANGED TO:
AUTH
oeNT 1. 70
NEXT REVIEW DATE:
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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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SECRET
CURRENT INTELLIGENCE WEEKLY SUMMARY
OF IMMEDIATE INTEREST
OFFSHORE ISLANDS
SITUATION QUIET
There has been no signif-
icant military activity in
areas near the Matsus and
Quemoys during the past week.
Light, sporadic shelling
of Nationalist positions on
the Quemoys continued, but
there was no action against
the Matsus.
EAST CHINA (incl. FORMOSA)
Available Airfield (jet)
Available Airfield (cony.)
~t Airfield Site
-Selected Road -Selected Selected Railroad
--- Proposed Railroad
CHINHUA c`i
IAN G
111111 HAIME
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The Chinese Na-
tionalist 84th Divi-
sion, considered a
fine unit by American
advisers, is now in
place on islands in
the Matsu group. It
will take some time,
however, for the
division to ready
defenses against a
possible Chinese Com-
munist assault.
Exploratory
cease-fire talks be-
tween Soviet, Chinese
Communist, British
and Indian officials
have apparently been
suspended as a re-
sult of Chinese in-
transigence. Peiping
has evidently con-
tinued to refuse to
modify its claim to
all Nationalist-held
territory, or to re-
nounce the use of
force in pressing
that claim, or to
attend any inter-
national conference
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
in which Nationalist China is
represented.
A Peiping spokesman on 18
March publicly reaffirmed that
the Chinese Communists "will
go steadily ahead with our
Just cause of liberating" For-
mosa and the offshore islands,
and that "the 'two Chinas'
fraud--the American and British
FRENCH URGE EARLY PREPARATION
FOR EAST-WEST TALKS
On the grounds that he
needs every possible weapon to
get the French Council of the
Republic to approve the Paris
agreements, Premier Faure on
22 March handed the American
charge and the British ambas-
sador in Paris an aide-memoire
calling for early convocation
of a working group to prepare
for talks with the USSR.
Faure said he and Foreign
Minister Pinay undertook a
moral commitment to work for
early East-West talks when
they pressed for prompt and
unconditional ratification of
the accords. Council approval
is expected by 26 March.
Many Frenchmen accept
former premier Mendes-France's
implied thesis that negotia-
tions with the USSR after
ratification can still stymie
German rearmament. Faure
himself thinks that an agreed
approach to the USSR should be
made as soon as possible.
Some Frenchmen are still
-thinking in terms of a con-
versions alike--will end up
nowhere."
Radio'Peiping on 20 March
derided any American hope of a
"quick victory" through the
tactical use of nuclear weapons,
and asserted that the United
States did not in any case in-
tend to "renounce weapons of
mass destruction "
ference in May as proposed by
Mendes-France.
A tripartite study group
was originally suggested by
Mendes-France but the proposal
was sidetracked during the
government crisis in February.
Faure stated that he
envisaged initially only a
tripartite group, excluding
West Germany. Temporary ex-
clusion from the working group
would annoy the West Germans,
but would probably be accepted
by Chancellor Adenauer once
the French have ratified the
accords. London's reaction
to the proposal will depend on
its acceptability to Bonn.
German president Heuss
signed the Paris accords on 24
March, thus completing action
by the Bonn government.
Even if the court on 28
March should agree to accept
the Social Democratic petition,
most legal observers agree that
the case is so weak as to pre-
sent no threat to the a"ords.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
VIETNAM SECTS SERVE
"ULTIMATUM" ON DIEM
Premier Diem's plan to
deal with the Vietnamese
sects by buying off certain
commanders in the hope that
the army can then deal with
the remainder is facing a
setback. Those bought off
do not always stay bought and
the army is in no shape to
play its role.
The continuing intrigues
of the sects are not likely
to result in the fall of the
government, but they are pre-
venting it from getting on
with the task of building the
political and economic strength
necessary to deal with the
Viet Minh.
The sects stepped up
their political pressure with
a joint "ultimatum" on 20
March, calling on the govern-
ment to reconstitute itself
in an unspecified manner with-
in five days. Failing this,
the signatories threatened to
"appeal to the people."
The ultimatum bore the
signatures, among others, of
the Cao Dai generals Phuong
and The, who had not joined in
an earlier antigovernment
manifesto. The wavering
attitude toward the government
of these individuals illus-
trates the sort of difficulty
Diem faces.
In February, General The
declared his loyalty to the
government in a much-publicized
ceremony in Saigon. Since
that time he has been the
recipient of more than half
the premier's confidential
funds and has deployed his
private army of some 2,000
men in a manner designed to
offset the influence of the
Binh Xuyen forces which have
remained hostile to the govern-
ment,
On 20 March, General The
reopened the question of his
loyalty to the government by
signing the "ultimatum"--and
Vietnamese army forces sta-
tioned near Saigon suddenly
found themselves uncomfortably
sandwiched between forces of
the Binh Xuyen and of General
The.
Meanwhile, Diem admits
that army morale is low. He
attributes this to the arbi-
trary dismissal of officers by
the defense minister. The
latter has expressed his fear
that Diem will insist on a
tough line against the sects
and made it clear that he has
no stomach for a showdown
fight against them.
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NOW, SECRET
CURRENT INTELLIGENCE WEEKLY SUMMARY
NOTES AND COMMENTS
USSR Charges West Is Avoiding
Big-Power Negotiations
Prime Minister Churchill's
disclosure of his correspond-
ence with Molotov last summer
and the State Department's
publication of the Yalta.
documents have been used by
Moscow to argue that Britain
and the United States are
seeking to avoid great-power
talks which might ease inter-
national tension.
This Soviet reaction
suggests that the USSR is
trying to establish the posi-
tion that it will not be to
blame if it refuses to nego-
tiate on European issues after
ratification of the Paris
accords.
The USSR probably con-
sidersits negotiating posi-
tion weak because of its
basically uncompromising at-
titude on the German and
Austrian issues, which would
be the major subjects of new
four-power talks. The Foreign
Ministry delayed.for six
months before agreeing to the
Berlin conference of February
1954.
The present propaganda
line--in the context of Soviet
statements that ratification of
the Paris accords would make
negotiations pointless--indi-
cates that a prolonged period
of stalling will follow rati-
fication of the accords. At
the same time, Moscow can be
expected to dangle the possibil-
ity of talks whenever this seems
likely to interfere with im-
plementation of German rearma-
ment.
Following Churchill's dis-
closure of his exchange with
Molotov, the Soviet govern-
ment released the text of the
correspondence. Pravda pub-
lished a sharp attack on
Churchill which was in line
with a recent hardening of the
propaganda tone toward Britain.
Churchill was not only
blamed for abandoning his pro-
posal that he and Molotov meet,
but his whole public campaign
for top-level talks was attacked
as insincere and not aimed
at lessening tension. Accord-
ing to Pravda, Churchill's
various ca is for conferences
were merely intended to strength-
en Britain's bargaining po-
sition in relation to the
United States.
Ambassador Bohlen has com-
mented that the correspondence
last summer shows that the So--
vie.t government, while desiring
to exploit differences within
the capitalist world, was
not prepared to modify its pot-
icy in order to take advantage
of even such an outstanding
opportunity as offered by
Churchill's initiative. In-
stead, Moscow first answered
the prime minister cautiously
and then interjected the Euro-
pean conference proposal while
the correspondence was still
in progress.
American publication of
the Yalta papers was attacked
as part of Washington's cru-
sade against the Yalta agree-
ments designed to further
American aggressive policy.
The agreements were described
as the foundation of postwar
co-operation among the big
powers. Pravda claimed that
the United States, by trying to
discredit the Yalta agreements,
was seeking to discredit the
very idea of great-power talks.
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.., SECRET --e
CURRENT INTELLIGENCE WEEKLY SUMMARY
Austria May Support Sanctions
Against New Anschluss
The Austrian government,
in an effort to ascertain and
meet Moscow's terms for a state
treaty, is seemingly prepared
to accept an arrangement which
would call for automatic sanc-
tions by the big powers in the
event of another German-
Austrian Anschluss.
any West German attempt at an
Anschluss would be blocked.
Thus far, however, the
Austrians have failed in
their efforts to obtain clar-
ification of Molotov's state-
onent before the Supreme Soviet
on 8 February that four-power
"measures" to guarantee against
another Anschluss would fa-
cilitate the conclusion of.an
Austrian treaty. Communist
newspapers in Austria continue
to insist that the provision
against an Anschluss in the
present draft treaty is only
a "paper guarantee" and hence
inadequate.
The Austrians evidently
believe that Molotov wants a
four-power agreement that
Chancellor Raab, in a
radio address on 20 March, sug-
gested that the four occupation
powers guarantee Austria
against "any possible" outside
danger.
The Austrians are clearly
willing to make considerable
concessions to Moscow to get
rid of the occupation. Actu-
ally, however, they have faint
hope of success and their pres-
ent diplomacy,is aimed largely,
at denying Moscow a cheap
propaganda victory.
No evidence exists that
Moscow is really interested in
an Austrian treaty. The pur-
pose of Molotov's statement
on 8 February, and his diplo-
macy since then, may be merely
to delay implementation of
the Paris treaties by getting
the West involved in new
Austrian negotiations.
There is also a possi-
bility that the USSR may in-
tend to adopt a harsher policy
in Austria in the near future,
and that such a policy would
be "justified" by blaming the
an Anschluss.
West for failure to reach
agreement at this time on a
treaty and guarantees against
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
Japan-USSR Talks
Prime Minister Ichiro
Hatoyama has tentatively se-
lected Shunichi Matsumoto,
former ambassador to Great
Britain, to replace Arata
Sugihara as head of the Japa-
nese delegation in the, forth-
coming Japan-USSR talks.
The switch was necessi-
tated by the eleventh-hour
appointment of the nationalis-
tic Sugihara as Defense Board
chief following sustained and
noisy opposition by the Social-
ists to the prinle minister's
first choice _f--r the defense
post, former admiral Nomura.
The designation of Matsu-
moto, a career diplomat who
resigned his post to run in
Possible Disagreements on New
Soviet Appointments
Uncertainty or disagree-
ment among Soviet leaders con-
cerning ministerial appoint-
ments is suggested by the
apparent delay in announcing
the appointment of N. A. Mik-
hailov to succeed G. F. Aleksan-
drov as USSR minister of cul-
ture and by the continued va-
cancy of the important post of
USSR'minister of agriculture.
Rumors of Aleksandrov's
removal had been current in
Moscow since 10 March. His
failure to appear at a recep-
the 27 February lower house
Diet election, probably repre-
sents a compromise between
Hatoyama and Foreign Minister
Mamoru Shigemitsu.
Matsumoto is reported to
be on friendly terms with both
Shigemitsu and Sugihara, the
prime minister's personal for-
eign policy adviser. Matsumoto
is likely to take a stronger
bargaining position with the
Russians than Sugihara.
Meanwhile, Japanese offi-
cials in Tokyo continue to mani-
fest "nervousness" over Mos-
cow's failure to ^.onfirm New
York as thr' site for +ha no srn
tiations.
tion given by the Ministry of
Culture on 13 March suggests
that he was removed before that
date, but no official announce-
ment was made until 21 March.
Difficulty in reaching
agreement on the appointment of
Mikhailov--who had been Soviet
ambassador to Poland--may have
caused the delay.
Mikhailov, like Aleksan-
drov, has long been considered
a Malenkov protege. He waF elec-
ted to the party presidium and
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24 March 1955
secretariat in October 1952
but was removed from these
bodies when their size was
reduced in March 1953. On the
day after Stalin's death, he
was named to the key post of
Moscow oblast party first
secretary, replacing Khr-o.-
shchev. At that time, Malen-
kov was ranking party sec-
retary, ranking member of the
.party presidium, and chairman
of the Council of Ministers.
Mikhailov was appointed
ambassador to Poland in March
1954 following a trip to
Warsaw, made with Khrushchev,
as a member of a Soviet dele-
gation to the Polish party
congress.. It is possible
that Khrushchev was responsible
for Mikhailov's removal from
the key Moscow secretaryship
and transfer to Warsaw. If
that is the case, his return
to Moscow suggests that
Khrushchev is either willing
to accept or unable to prevent
the appointment to important
posts of persons formerly
associated with Malenkov.
The Ministry of Agricul-
ture has been without an
Soviet Forces
Receive New Medium Tank
The re-equipment of Soviet
units in Germany with a new
medium tank, beginning in the
autumn of 1954, probably fol-
iows re-gquipment programs for
units inside the USSR. This
tank, probably the T-54, seems
to be a significant improvement
over the T-34 which has a 85mm
gun developed in World War II.
(For a discussion of the re-
equipment program in Germany,
see p. 1, Part III.)
official head since 3 March,
when I. A. Benediktov was
transferred from that post to
become USSR minister of state
farms. In the past, it has
been usual to designate a
successor simultaneously with
the removal of a minister.
The post may already have
been filled, and the official
announcement temporarily with-
held. It is also possible
that the Agricultural Ministry
is being reorganized, as
recommended by Khrushchev at
the January party plenum, and
that appointment of a new
minister has been delayed pend-
ing completion bf the reorgan-
ization.
This post has pivotal
significance in agricultural
administration and is one with
which Khrushchev would pre-
sumably be especially concerned.
Failure to fill the vacancy in
the near future would tend to
indicate conflicting purposes
within the top leadership and,
like Mikhailov's appointment,
would suggest that Khrushchev's
authority over important per-
sonnel assignments is not un-
limited.
The USSR, conscious of its.
leadership in tank design, has
maintained close security over
postwar developments in this
field.
When the new tank began to
appear in Germany last autumn,
nearly six years after the T-54
began to be produced, little in-
formation on its characteristics
had been obtained. It was never
shown in parades and was not
used during the Korean war.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
WEIGHT (short tons)
HEIGHT (feet)
HULL LENGTH (feet)
WIDTH (feet)
GROUND PRESSURE (pounds p. sq. inch)
MAIN ARMAMENT
AMMUNITION CARRIED (rounds)
SECONDARY ARMAMENT
FIRE CONTROL
ENGINE (horsepower)
MAX ROAD SPEED (mph)
COMBAT RANGE (miles, main tanks)
ARMOR: Front (inches)
Turret (inches)
Sides (inches)
T-34/85
(model 1943)
35
9. 8
11.4
85mm gun
56
2 7. 62mm mg's
Optical
telescope
493 diesel
35
190
1.8
3 max.
1.8
**
T-54
(model 1949)
2 7. 62mm mg's and
1 12. 7mm AA mg
Optical
periscope
512 diesel
30
225-250
3. 5 est.
9
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
In general, the new tank
has a slightly lower, wider
silhouette than its predeces-
sor, a more rounded turret set
closer down on the hull, and a.
gun which is probably of higher
velocity and larger caliber.
Its diesel power plant has been
improved somewhat, its armor
undoubtedly has been strength-
ened, and it may incorporate
improved transmission, steering
and gun-laying systems.
Estimates of current So-
viet medium tank production,
based on fragmentary evidence,
suggest a rate of between 3,700
and 6,200 per year. On this
basis, the total number of
T-54's produced through the end
of last year would be between
18,000-20,000 tanks and 28,000-
35,000 tanks.
These estimates seem high
in comparison with the total
of approximately 18,000 medium
tanks authorized in the present
tables of organization and
equipment for the Soviet army's
175 line divisions, but stock-
piling may account for a large
portion of T-54 production.
The re-equipment of tank
units in Germany probably fol-
lows similar programs for units
inside the USSR. Despite a
lack of positive identification,
,it is believed probable that
substantial numbers of T-54's
have been issued to units in
key border areas from which
Western observers are excluded.
As early as 1951, Soviet
personnel allegedly were told
that new medium tanks were in
standard issue, but only to
units within the USSR. The
appearance of the T-54 in
Germany may well indicate that
a still more improved-model
has been developed
curred in by OR Rand OSI)
Con-
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Food Shortages and Unrest
I n East Germany
Recent reports indicate
increased tension in various
localities in East Germany.
Some uneasiness has been
noted among the construction
workers of East Berlin, who
are generally credited with set-
ting off the riots of June 1953.
It is probable, however,
that resistance elements in East
Germany are not well enough
organized, and that the popular
mood is too dispirited to bring
about an uprising comparable
with that of two years ago.
The growing unrest is prob-
ably due primarily to food
shortages caused by poor sugar
and grain crops in 1954, the
chronically inefficient dis-
tribution system, faulty ad-
ministration, and possibly a
change in the food import pro-
gram. Food is scarcer now than
during the same critical period
last year, when an unusually
severe winter had caused a
serious supply situation.
The shortages, which have
been noted in basic as well as
less essential categories of
food, probably will become more
serious during the next few
months.
Only an undertone of dis-
content is evident at present.
Under the pressure of the seri-
ous food situation, however,
scattered strikes and other
overt expressions of opposi-
tion to the regime may result
from the government's plans to
increase labor norms, its em-
phasis on recruiting for para-
military training, its stiffen-
ing attitude against the churches,
and its greater emphasis on
heavy industry.
There has been no substan-
tial change in the uneasy peace
in Berlin, where controls on the
free movement of persons be-
tween the East and West sectors,
tightened during the Christmas
holiday season, were relaxed on
17 January. Reports in January
and February that West Berliners
working in the East sector
would be discharged within a
short time have not been borne
out. The rate of discharge of
these employees is not yet
exceeding the normal turnover.
The comparatively soft
policy in Berlin may be dic-
tated in part by fear that
a harsher attitude might
rouse an already disaffected
populace to increased resist-
ance.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
Food Supply in Soviet Cities
The American embassy in
Moscow reports that food supply
in the Soviet capital and in
the major cities of the western
Ukraine is showing no improve-
ment over last year.
As of mid-March, the
situation in Some cities was
somewhat worse than during the
same period in 1954.
The average citizen in
these areas is thus faced with
a daily diet which does nothing
to convince him that, after
18 months of major effort, the
regime's programs to expand
agricultural output have made
any real progress.
In the eastern Ukraine,
lower Volga region and possibly
other areas where droughts
occurred during the 1954 grow-
ing season, severe food short-
ages may develop in April and
May unless supplies are received
from elsewhere.
The total food supply
available for consumption in
the year ending 1 July 1955 in
the USSR as a whole should be
about 2 to 3 percent greater
than in the preceding year,
thus enabling the government to
correct deficiences in drought-
stricken areas without major
sacrifices in other parts of
the country.
In Moscow state stores,
food supplies this spring con-
tinue substantially at last
year's level, with the excep-
tion of meat.
the sup-
ply of as not been so
short in nine years."
The drive to double the
number of livestock in the
Soviet Union by 1960, which
Khrushchev announced in
January, may result in a
temporary reduction in slaugh-
tering so as to improve future
supplies.
Meat has always con-
stituted a relatively small
portion of the total Soviet
diet, however, so that short-
ages do not cause severe or un-
accustomed hardships to the
population.
Bread? the staple of the
Soviet diet, appears to be in
good supply in Odessa and Kiev,
and in sufficient though some-
what scarce supply in Kishinev,
the capital of the Moldavian SSR,
Queues have frequently been ob-
served in that city in front of
stores selling bread.
The meat supply in the
state stores of all three
cities has been very poor, but
supplies on the free market
are good and prices are about
the same as last year.
Considerable shortages of
sugar are reported in the
western Ukraine, as well as
limited shortages in Moscow,
probably because the produc-
tion of sugar from beets in
1954 was about 200,000 metric
tons less than in 1953.
Sugar shortages in the
Soviet Union probably will be
aggravated by a drop in imports
from Eastern Europe this year,
since bad weather caused poor
sugar beet crops throughout
the Satellites. Imports last
year from the Satellites
amounted to over 450,000
tons.
In an apparent attempt
to alleviate this impending
shortage, the Soviet Union
concluded a contract in
February 1955 with Cuba for
the import of about 200.000
tons of sugar.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
North Korea's Food Problem
A serious food shortage
has forced the North Korean
government to take extreme
measures to increase produc-
tion and to distribute food
more equitably in 1955.
The food shortage in urban
areas was revealed in October
when the regime abolished all
private retail trade in grains
to curtail widespread specula-
tion. The situation grew worse
rather than better, however,
and the government reinstated
urban food rationing on 10
March.
Natural calamities and
an overzealous and unpopular
collectivization program, ag-
gravated by continuing short-
ages of fertilizer, farm equip-
ment and draft animals, com-
bined to limit 1954 grain
production to 86 percent of
assigned quotas.
Floods, severe cold
weather and early frosts caused
crop failures which impover-
ished many farmers and forced
the regime to waive defaulted
taxes and loan repayments.
Pyongyang has also had to
release 100,000 tons of state-
held grain to farmers, an
amount equivalent to the grain
sent as aid from Communist
China during 1954.
Japan-Orbit Trade Relations
The impending visit of a
39-man Chinese Communist trade
mission to Japan will provide
Peiping with many propaganda
opportunities.
The Japanese government
has limited the places the mis-
sion may visit to Tokyo, Nagoya,
Food production failures
are apparently in hart attrib-
utable to ar. overemphasis. on
collective farming. Pyongyang
announced in January of this
year that almost one third of
all farmers had been drawn into
co-operatives. The number of
such enterprises has increased
from about 100 at the time of
the armistice to more than
10,000.
This hasty collectiviza-
tion program is reported to
have aroused much antagonism,
but it continues despite Pyong-
yang's admission that the
nation's experience in co-
operative management is
insufficient.
To prevent a shortage this
year the regime is strenuously
attempting to improve the pro-
duction of foodstuffs. The
government offered on 2 March
incentive payments of extra
rations to those co-operatives
which overfulfill their quotas
in farming, livestock and fruit
production. North Korean
propaganda has also stressed
an increase in the fish catch.
Increased food production
would m?vn it nr ihle to de-
vote more Orbit aid to re-
habilitation and industrializ-
ation. Concurred in
b y ORR
and Osaka. It is possible, how-
ever, that Tokyo will rescind
this limitation when the Chi-
nese Communists reach Japan.
There will probably be mounting
demands by Japanese Communists,
businessmen and others, and by
the Chinese that this be done.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
Reports indicate that the
mission hopes to visit over 50
factories in the Osaka-Kobe
area alone.
The Foreign Ministry has
already bowed to a Chinese
demand by allowing special en-
trance permits to list the
mission members as nationals
of the People's Republic of
China.
Efforts by the government
to form a representative and
conservative Japanese group to
negotiate the proposed unoffi-
cial trade agreement with the
Chinese mission have failed.
The Japanese Chamber of Com-
merce and other conservative
groups have declined to partici-
pate--because of the prominent
role played by pro-Communist
Diet members and trade pro-
moters--and this may reduce
the impact of the mission's
visit.
Laos
Premier Katay of Laos has
stated that he intends to con-
tinue negotiations with the
Pathets and preparations are
being made to receive them in
Vientiane.
Katay blames the Indian
truce chairman for the dragging
out the negotiations, and
says that the royal government
King Sihanouk's abdication
and assumption of a power-be-
hind-the-throne position has
The government has adopted
an official "hands off" atti-
tude toward the Chinese delega-
tion.
The Chinese delegation,
led by the vice minister of
trade, includes a number of gov-
ernment officials, and Hatoyama's
associates will undoubtedly seek
"off the record" economic and
political discussions. Moreover,
according to a Japanese press
report of 21 March, the Chinese
mission has expressed strong
dissatisfaction with the view
of the Japanese Foreign Ministry
that the purpose of the Chinese
visit is merely "to promote
trade."
Meanwhile the foreign mini-
ster continues to emphasize
American-Japanese co-operation
as the basis of Japan's diplo-
macy, while Hatoyama continues
to stress "coexistence" in his
public remarks.
will break them off unless the
Pathets immediately agree to
permit royal officials to take
up their functions in the dis-
puted provinces.
Katay has reiterated his
belief that the Pathets are not
real Communists. He conceded,
however, that they are "certain-
ly acting as though they were."
thus far brought little real
change in the balance of
political forces in Cambodia.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
As prince,Sihanouk, the
former king,visited Nehru in
New Delhi last week, where he
received a warm welcome.
Sihanouk made no secret of the
fact that he was speaking for
his government.
Although the prince has
been resentful of Indian inter-
vention in Cambodia's internal
politics, he made a strong bid
for Indian friendship, even to
the extent of endorsing the
Nehru-Chou En-lai five princi-
ples of peaceful coexistence.
Meanwhile, the French
government is insisting on
equal standing with the United
States in the training of the
Cambodian army. The French
concept is that the French and
American training missions
would arrive at agreed recom-
mendations and present these
to the Cambodian government,
The Afro-Asian Conference
President Sukarno of In-
donesia, in his speech opening
the Bandung conference,will al-
most certainly speak out against
colanialism and make a strong
plea for recognition of Indo-
nesia's claim to sovereignty
over Dutch New 'Guinea.Coloni-
alism is the issue which comes
closest to being a common de-
nominator among the conferees.
If his speech otherwise .
is only a welcoming statement,
it would indicate that the
sponsoring powers--particularly
the neutralists--seriously in-
tend to avoid controversy if
a formula which would give
them a veto power over Ameri-
can policy in this matter.
The question whether
French or American military
doctrine is to be applied also
remains unresolved. The
French argue either that
"Korean" methods are not
suited to Cambodia or that a
prior understanding on this
point is unnecessary.
In addition to their mili-
tary mission, the French hope
to be able to exert their in-
fluence through the queen's
brother, Prince Monireth, a
candidate for army chief.
Monireth is a former colonel
in the Foreign Legion and
would give the French mili-
tary mission the inside track
if he were in charge of the
army.
at all possible. On the other
hand, a bombastic speech aimed
primarily at the West and call-
ing for "coexistence" would
probably throw the conference
into acrimonious turmoil.
The chances that Chou.
En-lai will head the Chinese
Communist delegation still
seem to be somewhat better
than even. A likely sub-
stitute would be Vice-Foreign
Minister Chang Wen-tien who,
prior to last January, was
Peiping's ambassador in
Moscow. The composition of the
Viet Minh delegation also re-
mains a mystery.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
Court Decision Clears Way
for Pakistan Reorganization
The decision of the Paki-
stani Federal Court on 21
March confirming the legality
of the present government
clears the way for putting in-
to effect Karachi's plans to
reorganize the national and
state governments and complete
a new national constitution.
Reversing a lower court's
ruling, the judgment provides
the governor general's ruling
group with a legal mandate
and has been warmly welcomed
by the country's press. it
also eliminates a potential
opportunity for the Communists
to exploit American support of
an "illegal" government.
The unification of West
Pakistan into a single province,
for which Karachi has detailed
plans, probably will progress
smoothly. There, appears to be
no significant obstacle to the
election of delegates to a new
Constituent Assembly by the
provincial legislatures in West
Pakistan. The arrest of some
legislators in Sind, allegedly
for plotting against the
provincial government, may be
designed to ensure the elec-
tion of progovernment repre-
sentatives.
On the other hand, Karachi
may be forced to delay the
restoration of parliamentary
government in East Pakistan
unless it can resolve the
split in the United Front
Party there. This would pre-
sumably postpone the province's
election of delegates to the
Constituent Assembly, which in
turn would prevent the speedy
adoption of the new national
constitution.
Considering the general
desire throughout Pakistan to
re-establish the normal func-
tioning of constitutional gov-
ernment, however, any delay
is likely to be fairly short-
Syria
The Syrian government, in
which pro-Egyptian, leftist
and neutralist elements pre-
dominate, has agreed "in
principle" to sign the
Egyptian-Saudi Arabian pact.
Meanwhile, Egyptian prime
minister Nasr told Ambassador
Byroade that his country now
is too committed to the pact
to change its course, and his
advisers believe that Syria
"must be signed up quickly."
Iraq, on the other hand,
exerted some influence on the
Syrian delegation that visited
Iraq last week to discuss the
rival defense pacts,
According to Iraqi offi-
cials, the delegation left
Baghdad somewhat "chastened"
and inclined to temporize on
the subject.
Iraq's partner, Turkey,
has made strong diplomatic
representations to Syria in the
hope of keeping it out of the
Egyptian alignment.
Under these conflicting
pressures, the Asali cabinet
may fall apart as a result of
disagreement between Prime
Minister Asali, who is inclined
to temporize, and Foreign
Minister Azm, who appears to
favor signing the Egyptian pact,
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CURRENT INTELLIGENCE WEEKLY SUMMARY
At present, Azm and his
supporters--the, Syrian chief
of staff, the extremist Arab
Socialist-Resurrectionist'
Party., Egypt and Saudi Arabia--
Strikes Tie Up Iceland's
Economy
The strike by more than
7,000 of Iceland's 26,000
organized workers which began
on 18 March has had the effect
of a general strike on
Reykjavik, economic hub of the
country. The walkout is a
political victory for the Com-
munists.
Operations at the American-
manned air base at Keflavik
have not been seriously ham-
pered. Some sympathy walkouts
are likely, however, and the
unions of the outdoor workers,
carpenters, ironworkers, and
painters have already announced
they will strike at midnight
on 29 March. There are no
immediate shortages at the
base, but an airlift of es-
sential supplies has been re-
quested.
The Reykjavik docks,
which handle about 90'percent
of the nation's imports, are
Growing Labor Unrest
In Western Europe
Labor unrest is on the
rise throughout much of West-
ern Europe.
hold the upper hand and will 25X1
probably continue to do so in
any cabinet reorganization in
the immediate future.
completely tied up, and workers
in essential industries and
services are on strike.
The workers are demanding
wage increases of at least 25
percent. They have rejected
the employers' offer of about
seven percent, and a work
stoppage of between two and
five weeks seems likely.
The most probable economic
consequence will be a resumption
of the inflationary spiral
which was arrested in late
1952. Politically, the strikes
are a victory for the Communists,
who, in co-operation with left-
wing Social Democrats, dominate
the Icelandic Federation of
Labor. The Communists are
seeking to extend their control
over the entire labor movement
to use it eventually for
political ends.
At the moment the labor
situation in Finland and Ice-
land is critical; in Italy and
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
West Germany it is serious;
in France complicating factors
like the Poujade movement
leave the situation uncertain
but threatening.
For the most part the
trouble stems from demands for
increased wages, to which
governments and employers are
opposed, largely because of
the inflationary effect of
granting such demands.
Except in Finland the
Communists are actively in-
volved in the agitation in an
effort to damage the Western
European economy and promote
political instability.
The Icelandic Communists,
who dominate the Icelandic
Federation of Labor, are spear-
heading a campaign for infla-
tionary wage increases and have
brought about a strike that
threatens the port of Reykjavik
with economic paralysis.
In Finland the cabinet has
threatened to resign if the six
striking government workers'
unions, representing some 25,000
workers, do not accept the gov-
ernment's compromise offer on
their wage demands. While not
directly involved in the strike,.
Finnish Communist. would probably
use the fall of the government to
push their efforts to undermine
the political stability of the
country.
The labor situation in
Italy is worsening while the
government makes only feeble
efforts to cope with the problem
of growing unemployment.
The Sicilian sulphur mines,
employing some 10,000 workers,
were closed down on 20 March;
serious political repercussions
are in prospect in view of the
imminence of the Sicilian elec-
tions in early June. The dis-
missal of 1,500 Sardinian coal
miners led to a 48-hour protest
strike by both Communist and
non-Communist miners.
Unity of action between
Communist and non-Communist
elements was also displayed in
Trieste on 15 March when a one-
hour general strike was sup-
ported by all labor organiza-
tions and by an association of
small businessmen in protest
against the continuing economic
decline of the port.
The strike in Genoa of the
Communist-dominated port workers'
union against new hiring regu-
lations is now in its tenth
week, with regular cargo-handl-
ing operations interrupted by
sporadic stevedore strikes.
Communist control of the sea-
men's union has been strength-
ened in readiness for sympathy
strikes in response to demands
from the dock workers.
Under pressure from the
Italian Communist Party, the
General Labor Confederation
reportedly has agreed to start
a series of "labor actions,"
including general strikes, to
continue without interruption
during the next few months.
In West Germany, dissatis-
faction of workers with their
share in the general prosperity
is causing the unions to adopt
a more militant program.
The 600,000-member Ruhr
coal miners' union voted on
22 March to go out on strike
unless its demands for a 12-per-
cent wage increase are met.
The powerful miners' union is
prepared to wage a three-week
strike, and is seeking financial
and tactical support from the
metalworkers' and railway un-
ions, both of which engaged in
a series of successful strikes
last year for increased wages.
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The threatened mine--
worker's strike will spur the
Adenauer government to strong
efforts at mediation,especially
if it also ties up large seg-
ments of West German industry
and transportation. Failure
to win on the wage issue, how-
ever, would cause the West
German unions to lose ground
to the Communists9who have
been in the forefront of the
wage agitation.
In France, rising prices
will make it difficult for the
Faure government to meet the
workers' wage demands at the
scheduled April "rendezvous"
with industry and labor with-
out risking a new inflationary
trend. The government workers'
strong protest at the inade-
quacy of Faure's offer of a
three-billion-franc increase
in civil service pay has o-
bliged the premier to announce
that a rise in the minimum wage
for government workers will
also be considered at the
April "rendezvous."
Complicating Faure's
task are the large budgetary
deficit facing the government
and the growing Poujade anti-
tax movement, which is threat-
ening to get out of hand and
stampede the National Assembly
into unwise tax legislation.
Faure's problem is to re-
form the tax system without
reducing receipts, and any
concessions to small business-
men without adequate compen-
sation to the workers is likely
to spark an "antifascist"
campaign among the unions to
the detriment of the public.
The approach of the can-
tonal and senatorial elections
in France further limits Faure's
chances of maintaining a tight
economic and financial policy
and preserving industrial
peace.
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CURRENT INTELLIGENCE; WEEKLY SUMMARY
Guizado Trial May Cause
The trial of former
Panamanian president Guizado,
which opened in the National
Assembly on 21 March, is ex-
pected to have widespread re-
percussions in Panama, and may
even lead to attempts to
overthrow the government.
Guiza,do is charged with
complicity in the assassina-
tion of President Remon on
2 January.
Prominent Panamanians,
local businessmen, and diplomats
have informed American officials
in Panama of their belief that
an acquittal of Guizado for
complicity in the Remon mur-
der case might completely
discredit the government and
could call for the prosecution
of powerful persons not yet
publicly ., implicated. These
persons might therefore antic-
ipate such action by seizing
the government.
In early February,
there were rumors that some
highly placed Panamanians
feared further revelations in
the case and that many favored
the establishment of a junta.
At the moment, certain.
forces in the government and
the National Assembly appear
determined to have Guizado
found guilty by hook or by
crook. Their motive may be
to conceal their association
with narcotics traffickers
who are widely believed to
have been the real authors of
Remon's assassination.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
In theory, if the charges
against Guizado are not veri-
fied, he will be eligible to
reassume the presidency.
Should the government
weather Guizado's trial, it
must still deal with the trial
of Ruben Mira, self-confessed
murderer of Remon, in the
regular courts.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
SOVIET GROUND FORCES IN GERMANY MODERNIZING EQUIPMENT
Soviet ground forces in
Germany, which would bear the
initial brunt of land oper-
ations in the European area
in the event of war, were
re-equipped and modernized
during 1954 to a greater ex-
tent than in any other year
since the end of World War II.
The program, continuing in
1955, is producing a sub-
stantial improvement in the
mobility and firepower of
these forces.
The re-equipment was high-
lighted by the arrival in
Germany, beginning in the
autumn of 1954, of over 200
medium tanks of an improved
model. (For a discussion of
this tank, see Part II.)
Four of the eight tank divi-
sions in the Group of Soviet
Forces in Germany had prob-
ably each received about 50
of the new tanks by the end
of February 1955, while a
fifth may have received an
initial consignment of 10
during February.
The new tank probably is
the T-54, which first went
into production in 1949. It
is evidently being used to
replace the T-34, rather
than as an additional element
of divisional equipment.
The Soviet forces in
Germany are estimated to have
nearly 4,000 tanks of the
T-34/85 model. Whether they
will all be replaced quickly
or in a single program has
not yet been determined.
The eight tank divisions,
which are authorized 210 me-
dium tanks each, may rapidly re-
ceive their full authorization,
of the new model, while the
ten mechanized divisions and
four rifle divisions (author-
ized respectively 185 and
52 each) may continue to
operate for some time with
the older model.
Soviet forces in Germany
are known to have received
during 1954 a total of 637
tanks of all types, about
1,500 light armored vehicles,
and about 1,800 artillery
pieces. Relatively few items
in any of these categories
were noted being shipped out
of East Germany during the
same period.
More than 20,000 new
military trucks also were re-
ceived last. year, while only
6,800 of the 50,000-60,000
trucks previously assigned to
the Soviet forces in Germany
are known to have been shipped
back to the USSR.
New trucks have now al-
most completely replaced Lend-
Lease and old Soviet trucks,
many of which probably were
cannibalized or otherwise dis-
posed of locally.
Other significant arrivals
during the year include new
semiautomatic rifles,replacing
bolt-action models, a few
helicopters, new full-tracked
amphibious vehicles, wheeled
amphibians ,and heavy-duty
bridging equipment.
Distribution of new equip-
ment to units in Germany has
been widespread, and there are
no indications of stockpiling.
some equipment is being used
to implement changes in the
organization of mechanized and
artillery elements of tank
and mechanized divisions.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
The effect of the re-
equipment will be a significant
increase in mobility and fire-
power of Soviet ground divisions
deployed in Germany.
The re-equipment program
indicates that the USSR is
continuing to devote consider-
able attention to strengthen-
ing the capabilities of
ground forces, at least
this key area.
(Concurred in by URR and OSI)
USSR MODIFIES FOREIGN TRADE POLICY
The volume of over-all
Soviet trade with the West, es-
pecially with Western Europe,
will be lower in 1955 than in
1954 as a result of a modifica-
tion in the USSR's foreign
trade policy.
Within this reduced volume,
the USSR can be expected to im-
port a smaller proportion of
RECENT TRENDS IN SOVIET TRADE
MILLIONS WITH THE WEST
OF $
400
353.1
7
2
0
6
263
239
214
I
19
16
189.8
146
FIRST LAST
HALF HALF
1953
SOVIET EXPORTS
SOVIET IMPORTS
FIRST LAST
HALF HALF
1954
consumers' goods and a larger
proportion of goods needed for
industrial development--
machinery, electric and elec-
tronic equipment, nonferrous
metals and merchant ships.
Soviet trade with the West
rose, sharply from mid-1953 to
mid-1954, primarily as a result
of a dramatic rise in Soviet
imports under the "new course."
Difficulties in marketing ex-
ports in the West, however,
limited Moscow's ability to
finance the expanded imports.
In spite of unusually
large gold sales by the USSR
in late 1953 and early 1954,
the trade imbalance continued
to grow worse. In the last
half of 1954, this trend neces-
sitated ,a marked decrease in
Soviet imports, especially of
consumers' goods, from the West.
Since Late December, Soviet
policy makers--in keeping with
their renewed emphasis on the
expansion of heavy industry
inside the USSR--have determined
on a further cutback in imports
of consumers' goods both from
Western Europe and the European
Satellites.
In trade negotiations
with Western European countries,
Soviet officials now are likely
to be less amenable, to talk
less about "trade for trade's
sake," to haggle more and bar-
gain harder, and to infuse
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
trade discussions with more
political propaganda. They
will also continue to use
trade offers to reinforce
political and diplomatic
efforts to divide the West-
ern coalition.
Soviet commercial repre-
sentatives have attempted, for
example, to exert political
pressure by claiming that
recent reductions in imports
are a direct result of Western
plans to rearm Germany, and
have threatened some Western
business firms with a cessa-
tion of Soviet orders if the
Paris accords are ratified.
The USSR will probably
also continue its efforts to
split the West on the issue
of COCOM and Battle Act ex-
port controls. Bloc countries
intend to keep on with large-
scale imports of some com-
modities on which controls
were relaxed last August, and
Communist importing officials
undoubtedly will cite these
cases to individual Western
firms as examples of the in-
creased trade that would be-
come possible if controls
were further reduced.
The USSR is putting es-
pecially heavy pressure on
Japan for a lower level of
controls, capitalizing on
the desire of Japanese busi-
ness firms and the government
for a rapid expansion of trade
with China and, to a less ex-
tent, with the other bloc
nations.
Both the USSR and the
European Satellites are push-
ing ahead with their program
of using trade and economic aid
to increase their political
influence in the underdeveloped
non-Communist countries of the
Middle East, South Asia and
Latin America. There is evi-
dence, both in the statements
of Soviet and Satellite offi-
cials and reports of specific
negotiations, that there will
be a gradual increase during
the next few years in the
volume of Soviet capital
goods offered in exchange
for raw materials and agri-
cultural products.
Additional offers of
technical aid for the build-
ing of industrial plants in
some of these countries
probably will be made, but
the number of such projects
actually undertaken is likely
to increase slowly and the
total cost to the Soviet bloc
will remain small.
Soviet propaganda, cap-
italizing heavily on such
projects as are actually
under way, is likely to focus
in general terms
on claims
that the
bloc is
willing and
able to provide
such assist-
ance on a
major scale.
The
USSR and the East
European
Satellites plan
to
continue
to stage lavish
ex-
hibitions
at industrial
trade
fairs in
a large number
of
non-Communist countries,
stressing the high level of
technical advancement and
industrial progress achieved
under the Communist system.
Inside the Soviet bloc,
announcements of 1955 trade
agreements indicate that
Soviet trade with the European
Satellites will not increase
as it has in previous years.
Attention apparently is being
focused on exchanges of basic
raw materials and capital
goods, and the volume of con-
sumers, goods traded may well
decline.
To attain a higher de-
gree of co-ordination, es-
pecially in the output of the
heavy industries and armaments
industry, the European Satel-
lites also intend to exchange
industrial technicians, blue-
prints, and technical know-
how on a major scale and to
co-operate in drawing up their
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CURRENT INTELLIGENCE WEEKLY SUMMARY
individual economic plans for
the five-year period beginning
in 1956.
.The USSR is also committed
to provide substantial economic
aid to China and North Korea,
and the European Satellites
are participating on an in-
creasing scale in the con-
struction of industrial plants
in those countries. Agree-
ments for 1955 call for a fur-
ther expansion of Soviet trade
with China and a 25-percent
rise in trade with North Korea.
The Soviet Union has been
behind schedule in supplying
economic assistance to North
Korea, but most of the Satel-
lites have signed economic aid
agreements with Pyongyang for
1955 calling for increased
deliveries of capital equipment.
China is the only country
in the Sino-Soviet bloc that
has as yet concluded formal
trade and aid agreements with
the Viet Minh, although East
Germany and the Viet Minh
are reported to have signed
an interim trade agreement
covering the period 1 October
1954 to 1 March 1955.
Trade and aid agreements
are likely to be signed by
other European Satellites and
the USSR in the near future.
25X1
The Chinese Communist
leadership has been tightening
its control over the party at
the same time the party has
been tightening its control
over China. Both appear to be
in unprecedentedly strong
positions.
The party has been engaged
since 1951 in a quiet but
thorough purge--officially
designated a "reorganization"?
which has removed about one in
ten of those who were party
members in 1951.
For the past year the
party's central committee has
apparently emphasized a drive
for "unity" among the committee
members. This "unity" drive
has evidently been conducted
under the continuing leader-
ship of Mao Tse-tung, Liu
Shao-chi and Chou En-lai, who
have been ranked in that order
as the "big three" in party
pronouncements for several
years.
The leading victims of
the drive appear to have been
Kao Kang, a politburo member
previously publicized. as one
of the top five, and Jao Shu-
shih, chief of the party's
organization department.
Both were apparently punished
in part for trying to build
"independent kingdoms" as re-
gional leaders. In addition,
Kao may have openly opposed
the party's economic policy
and Jao may have made unwise
appointments.
Continuation of the "unity"
drive at the central committee
level was probably a factor in
postponing the party's confer-
ence, which had been scheduled
for 1954. Such a conference,
last held in 1951, is a kind
of vocal outlet for the central
committee and can replace up
to 14 of its members, whereas
a party congress, last held in
1945, has the function of elect-
ing the entire central committee
which, at present, has 70
members.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
The next party conference
is expected during 1955. It
will probably announce the end
of the "reorganization," for-
malize the rise to power of
several new leaders, and remove
any erring members of the
central committee who have not
been "rehabilitated." In line
with Mao's policy of "treating
the sickness" rather than
staging a spectacle such as
the Soviet purges of the
1930's, the number of those
"unreconstructed" is ex-
pected to be small.
The party conference is
expected to emphasize party
unity in the regime's "prog-
ress toward socialism." It
seems likely also to call for
improvements in recruiting
and training the rural member-
ship and in the related task
of consolidating agricultural
producer co-operatives--a
transitional step to collec-
tivization. All of these
goals will probably be related
to the objective of "liberating"
all Nationalist-held territory.
Party control has been
pervading all phases of Chi-
nese life. The new govern-
ment set up last fall under
China's first constitution
has approximately doubled its
top-level personnel, and most
of these new bureaucrats are
experienced party men.
Communist Party members
now exercise complete control
of all key organs and minis-
tries. Where changes in high-
ranking personnel have occurred,
party members have replaced
non-Communist officials. Non-
Communists allowed to retain
nominal leadership,of a minis-
try or commission have been
surrounded by an increased
number of deputies, most of
whom are Communists.
Direct central control
over provincial party com-
mittees is being established
by the abolition of regional
party bureaus, which in the
Soviet Union remain impor-
tant links between the center
and local units. The North
China and Central-South bureaus
are known to have been elim-
inated, and there are good
indications that others have
been abolished or are soon
to be.
Recent elections reveal
the party's open control of the
united front at the provincial
level. In most cases the
elected chairman of the united
front body is also the party
secretary in the province.
Peiping's authority in
the provincial governments was
increased considerably by the
new constitution. Following
the decision in June 1954 to
abolish regional governments,
the constitution provided for
provincial governments to come
under the direction of Premier
Chou En-lai's State Council.
The State Council has an ad-
ditional check through its con-
stitutional responsibility to
nominate heads and deputy heads
of departments of provincial
governments. .
Considerable progress has
been made in the past year in
tightening party control of
the armed forces. Changes in
September 1954 brought military
affairs for the first time
into the administrative area
of the government, and all
elements of. the armed forces
now seem to be subordinate ;;o
the State Council. At the
same time the power of regional
military leaders--who have
long seemed to be the only
potential leaders of organized
resistance movements in Com-
munist China--has been steadily
reduced.
Finally, three regulations
enacted in recent months have
brought party control even
closer to the man in the street.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
These regulations govern
the organization of city
street bureaus, city residents'
committees and public security
substations. These typical
police state controls, which
have existed in varying de-
grees in China since the
Peiping regime was established,
have now been standardized to
provide a thorough check on
every family.
DRIVE TOWARD FREER TRADE AND CONVERTIBILITY IN WESTERN EUROPE
Final action by most West-
ern European countries to elim-
inate restrictions on dollar
imports and to make their cur-
rencies freely exchangeable
for dollars may be delayed in-
definitely should current
symptoms of incipient infla-
tion in several of these
countries become acute and
general.
In the meantime the
better economic outlook in the
United States and proposed
American trade liberalization
measures are furthering prog-
ress toward convertibility.
Because approximately 40
percent of world trade is
transacted in sterling, it is
generally agreed that the
pound must lead the way to
convertibility. Britain has
steadily removed restrictions
on the use of sterling over
the last two years, but timing
of the final step to freely
exchangeable currencies is
guided to a large extent by
the British view that con-
vertibility should be a
means to a freer trade system
throughout the world.
As a step toward converti-
bility, the Organization for
OFFICIAL LIBERALIZATION PERCENTAGES OF THE VARIOUS
OEEC MEMBER COUNTRIES
1952
30 June
31 Dec
1953
30 June 31 Dec
1954
30 June
31 Dec
ITALY
99.7
99.7
99.7 99.7
99.7
99.7
PORTUGAL
100
85
92.8 92.8
92.8
92.8
NETHERLANDS
75
75
92.3 92.6
92.6
92.5
SWITZERLAND
88.2
91.4
91.6 91.6
91.6
91.6
SWEDEN
75
86
91.4 91.4
91.2
91.2
GERMANY
76.6
81
90.1 90.1
90.1
90.1
BELGIUM- LUXEMBOURG
75
75
87.2 87.2
87.2
87.7
UNITED KINGDOM
46
44
58.5 75.3
80
82.9
IRELAND
75
73.4
75.1 76.7
76.7
76.8
DENMARK
68
75
76 76
76
75.9
AUSTRIA
0
0
35.8 50.6
75.5
82.4
NORWAY
75
75
75.1 75.5
75.5
75
FRANCE
0
0
0 17.9
51.2
64.6
ICELAND
41
0
0 29
29
29
TURKEY
63
63
0 0
0
0
GREECE
0
0
0 0
0
0
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
European Economic Co-operation
(OEEC) in 1948 set a goal of
removing quotas on 50 percent
of intra-European imports..
This goal was raised to 60 per-
cent in mid-1950, and a target
of 75 percent was set for 1
February 1951. Despite numer-
ous setbacks for individual
countries, a general level of
75-percent liberalization was
slightly surpassed by early
1954 except in France, which
then lagged at 18 percent.
With internal and ex-
ternal economic conditions much
improved in 1954 and with the
use of a compensating tax,
France advanced to 65-percent
liberalization last November
and to an experimental 75
percent in January. Announce-
ment that France would commit
itself officially to attain
the general level of 75-percent
liberalization by 1 April was
one of the main factors that
made it possible in January
for the OEEC to raise trade
liberalization goals to 90
percent for September 1955.
In order to accelerate
preparation for dollar conver-
tibility, the OEEC ministers
agreed in January that their
countries would periodically
submit their records on the
removal of quotas on dollar
imports. for review by the OEEC,
with the implication that each
would be called on to justify
any ,delays.. It was also ar-
ranged that the trade policies
of the United States and Cana-
da would be reviewed from time
to time in the OEEC for their
progress toward liberalization.
The ministers also took
steps to arrange continuance
of the OEEC's European Payments
Union (EPU) for one year, and
a $600,000,000 fund was planned
to provide credit to support
the currencies of countries
that may require it when the
currencies of most other coun-
ties become convertible and
the EPU automatically goes out
of existence.
The OEEC ministerial ex-
amination group on convertibil-
ity, in January deferred
further recommendations for
steps toward full convertibil-
ity, pending the review of the
General Agreement on Tariffs
and Trade (GATT) then in prog-
ress. Little advance was
made at the GATT meeting to-
ward freeing trade, largely
because of American insistence
on continued use of agricul-
tural import quotas.
The earliest target date
for full convertibility appears
to be some time after October
1955. The British govern-
ment is unwilling to consider
full convertibility before
the general election which is
expected at about that time.
The outstanding improve-
ment in Western Europe's eco-
nomic situation between mid-
1953 and the fourth quarter of
1954 makes convertibility
shortly after the British
elections possible.
Industrial production rose
12 percent in this period and
gold and dollar reserves in-
creased by $2.6 billion to
$13 billion, contributing
greatly to the reduction of
quantitative restrictions on
dollar imports, an important
step toward convertibility.
By the end of 1954 these re-
strictions had been removed
from 48 percent of Western
Europe's dollar imports, com-
pared with 13 percent at the
beginning of 1954.
It was possible for this
expansion in Western Europe's
economy to take place with
comparatively stable price
levels, despite relaxation of
controls and increases in
money and credit supply, be-
cause the increased output
came from previously unused
capacity.
Since the third quarter
of 1954, however, it has be-
come increasingly apparent in
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CURRENT INTELLIGENCE WEEKLY SUMMARY
several countries that avail-
able resources, particularly
of manpower, have reached or
are approaching full employ-
ment. Accordingly, governments
have taken or prepared to take
steps to limit internal de-
mand in order to counter
inflationary trends.
This development has been
accompanied by some deteriora-
tion in balance of payments
positions. All of the Scandi-
navian countries have already
taken or prepared to take
measures to restrict credit.
Even in the Netherlands,
where the balance of payments
remains strongly in surplus,
the authorities have reduced
liquidity of commercial banks
as a precaution. Although
economic improvement continues
in France and price rises have
been moderate thus far,
Premier Faure has warned that
potential inflation is the
greatest threat to the economy.
Most important for the
future of convertibility,
some inflation has appeared
in Britain. That country's
DOLLAR LIBERALIZATION OF OEEC COUNTRIES, 1953-55
(Percent of 1953 private imports)
Country
1 Jan 53
1 Jan 54
1 Jan 55
AUSTRIA
0
0
0
BELGIUM
57a
70a
86
DENMARK
1
1
38
FRANCE
0
0
0
GERMANY
0
24b
70b
GREECE
0
90
90
ICELAND
0
33
33
IRELAND
0
0
0
ITALY
0
10
24
NETHERLANDS
0
30c
86
NORWAY
0
0
0
PORTUGAL
0
0
0
SWEDEN
0
0
40
SWITZERLAND
98
98
98
TURKEY
0
0
0
UNITED KINGDOM
7c
43a
50
AVERAGE
Source OEEC, except as noted.
NOTE These liberalization figures represent the percentage of
private imports from the US and Canada which are free
from quantitative restrictions. The ba, year is 1953.
a. Member country estimate.
b.. Estimate obtained from unclassified embassy despatch.
c. American estimate.
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CURRENT INTELLIGENCE WEEKLY SUMMARY
gold and dollar reserves de-
clined by $82,000,000 to $2.68
billion in February. Chancellor
of the Exchequer Butler stated
in January that, because the
balance of payments was about
level, he foresaw no further
liberalization of -British trade
in the near future.
The sixth annual report
on the condition of Western
Europe's economy, about to
be issued by the OEEC, will
present a picture of essen-
tial strength and soundness
with considerable optimism
for the future.
Inflation and deteriora-
tion in balances of payments
are moderate and governments
have proved alert to take
corrective measures.
prophetic.
If such measures prove
adequate to arrest inflation,
if economic expansion con-
tinues, and if Western Europe
is reassured on American trade
policy, the prospects for con-
vertibility this year will be
good. Otherwise, West German
economics minister Erhard's
repeated warnings that it is
necessary to move more rapidly
toward convertibility "lest we
miss the lucky hour" may prove.
UNITED KINGDOM GOLD AND SHORT-TERM DOLLAR HOLDINGS*
Two billion dollars consir.ered absolute minimum necessary to support convertibility
(millions of $ at end of period)
4,000
U
1938 '47 48 49 50 51 52 53 JUNE S ND J F
54 1955
EXCHANGE EOUALIZATIDN FUND ACCOUNT OFFICIAL HOLDINGS OF COLD, US AND CANADIAN DOLLARS, AS REPORTED BY THE BRITISH GOVERNMENT. 503212
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CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
COFFEE PROSPECTS CAUSE CONCERN IN LATIN AMERICA
The prospect of a new
decline in the coffee market
is causing considerable con-
cern in the ten Latin American
countries where coffee is a
major foreign exchange earner.
COFFEE AS PERCENT OF VALUE OF TOTAL EXPORTS 1953
75
I-
50
25
G
Another serious drop in
world coffee prices, which
are already about 40 percent
below the 1954 peak, would
bring on financial crises in
some of the countries and
probably lead to new expres-
sions of anti-American senti-
ment.
Coffee production is
expected to exceed consumption
by a significant margin for
the next several years, largely
because of an estimated 12 to
14 percent drop in consumption
in the United States in 1954
and a sharp increase in new
plantings in recent years.
The Latin American coun-
tries principally concerned
are Brazil--which alone sup-
plies about 45 percent of the
COFFEE PRICES IN THE UNITED STATES
Wholesale Averages
1945 46 47 48 49 50 51 52 53 lJ F
SECRET
Monthly figures represent
quotations as near as possible
to the 15th of the month.
They are not averages.
A M J J A S 0 N D J F
1954.1955
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world's coffee--Colombia, Costa
Rica, Ecuador, El Salvador,
Guatemala, Haiti, Honduras,
Mexico, and Nicaragua. Alto-
gether these countries produce
about 80 percent of the world
coffee output.
These countries, most of
which have already imposed
minimum export prices, have
indicated a belief that inter-
national action will be nec-
essary to stabilize coffee
prices.
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?-,~~+ I L / L - 1 ir
CURRENT INTELLIGENCE WEEKLY SUMMARY
24 March 1955
Under a recommendation
passed at the Inter-American
Economic Conference at Rio de
Janeiro last November, an ad
hoc coffee canmittee has been
appointed and is now preparing
a report on coffee prospects
for the next several years.
This committee is to prepare
proposals, if such action is
deemed feasible, for inter-
national co-operation to re-
duce fluctuations in coffee
prices.
Puerto Rico, meanwhile,
has proposed that the Federa-
tion of Mexican, Central Ameri-
can and Caribbean producers
(Fedecame) invite the South
American producers to discuss
the coffee problem at Puerto
Rico next month.
A likely subject would be
the Guatemalan proposal for a
conference of all Latin Ameri-
can coffee-producing countries
in Washington under the auspices
of Fedecame, which is now sound-
ing out the governments con-
cerned.
It is doubtful that these
efforts to stabilize coffee
prices will be more than par-
tially successful. The de-
pletion in recent years of
stocks both in the major con-
suming country, the United
States, and in the producing
countries is a favorable factor.
However, the attempt, difficult
in any case because of the
number of producers involved,
is complicated by the facts
that (a) the African producers,
who supply about 15 percent of
world production, are not in-
cluded, and (b) Brazil, which
because of its output is the
key to any coffee stabilization
plan, is in an extraordinarily
weak financial position and may
be unable to withstand buyer
pressure for lower prices.
A continuation of present
price trends would have inter-
national political as well as
economic repercussions. Many
Latin Americans would probably
renew their charge that Ameri-
can governmental allegations of
sharp practices in coffee mar-
kets were important in causing
the 1954 drop in American con-
sumption. Meanwhile, any Orbit
contracts for coffee, such as
the East German-Colombian barter
agreement concluded last month,
would receive extremely favor-
able publicity even if the pur-
chases were negligible in terms
of world supply.
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