REVIEW OF THE WORLD SITUATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67-00059A000500080004-4
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 9, 2016
• Document Release Date: October 10, 2000
• Sequence Number: 4
• Publication Date: October 19, 1949
• Content Type: REPORT

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SECRET FOR THE CHIEF, CIA ttLRAARY
REVIEW OF THE WORLD
SITUATION
Published 19 October 1949
CENTRAL INTELLIGENCE AGENCY
SECRET
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REVIEW OF THE WORLD SITUATION AS IT RELATES
TO THE SECURITY OF THE UNITED STATES
1. The Soviet Bomb: the military security
position of the US has undergone no imme-
diate and drastic change, but the over-all US
security position is now subject to inevitable
and fundamental modification.
2. Devaluation, having set in motion eco-
nomic adjustments of which the ultimate ef-
fectiveness cannot yet be estimated, has also
generated collateral political stresses in the
UK, in Western Europe, and in Indian-Pak-
istani relations.
3. The violence of the Soviet reaction to
Yugoslavia's candidacy for a seat on the UN
Security Council demonstrates how seriously
Tito's defection menaces the Soviet control of
international Communism. From Tito's point
of view, the action, even though it may not
gain the seat, strengthens his defenses against
the USSR.
4. The concentration of the USSR on Tito
and the virtual abandonment of guerrilla ac-
tivities in Greece brings up the possibility of
guerrilla strength being directed toward Yugo-
slavia. Slavo-Macedonian aspirations would
provide the channel.
5. The Far East: the establishment of the
People's Republic of China brings closer the
difficult problem of recognition. In South-
east Asia, events in Indochina point directly
to a French failure. Stability in Indonesia is
coming increasingly to depend on the speed
with which a reasonable compromise emerges
from the Hague Conference.
6. There have been no important develop-
ments in Latin America. A general state of
political instability continues to be adverse to
US interests in Hemisphere solidarity.
Note: This review has not been coordinated with the intelligence organizations of the De-
partments of State, Army, Navy, and the Air Force. The information herein is as of 14
October 1949.
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REVIEW OF THE WORLD SITUATION AS IT RELATES
TO THE SECURITY OF THE UNITED STATES
1. The Soviet Bomb.
The atomic explosion achieved by the
USSR has introduced a new, though not un-
expected, factor into the problem of US se-
curity. The situation calls for two general
types of examination. The first is concerned
with changes in the US security position in
terms of the balance of military power be-
tween the US and the USSR. The second is
concerned with psychological and political im-
ponderables and the extent to which the
USSR can manipulate them in an attempt to
alter or neutralize politico-strategic align-
ments in the non-Soviet world.
For the moment, the military security posi-
tion of the US has undergone no instantane-
ous and fundamental modification. If it was
valid previously to point to an exclusive pos-
session of an atomic technology as a signifi-
cant item on the US side, it is still valid to
point to a superior US stockpile as a signifi-
cant item.
The power value of exclusive knowledge was
recognized, however, as being limited in time.
The power of value of a superior stockpile is
similarly limited. Probably an essential first
step in re-examining the over-all problem of
US security is to determine the time at which
the rising curve of a Soviet stockpile will reach
a point at which it can be considered opera-
tionally effective. This date will mark the
end of a strictly limited period of transition
as far as a balance of purely military power is
concerned.
With respect to the manipulation of psy-
chological and political imponderables, it is
possible that there will be no equivalent pe-
riod of transition, or that it will be very short.
Here, it is the Soviet ability to stockpile that is
significant, and not the size of the stockpile.
The fact that atomic technology is no longer
exclusive permits the USSR to exert psycho-
logical and political pressures in Western
Europe and to do so before the US has built
up there an effective political, economic and
military bulwark. There are no signs yet of
the exertion of such pressures and no accu-
rate basis for estimating probable reactions.
But it is certain that the USSR has an en-
hanced "cold war" capability.
2. Devaluation.
The initial currency and foreign exchange
adjustments to the fact of British devaluation
have been made. The speed with which they
were completed suggests a readiness for ac-
tion that somewhat discounts the cries of an-
guish and outrage that arose. The second
round of consequences, involving political
problems, is now rapidly developing.
On the purely economic side, the major
pressure leading to devaluation was the prob-
lem of dollar deficits. Devaluation will not of
itself solve this problem. The maximum ef-
fect to be expected will be the creation of a
more realistic base from which to develop
more significant attacks on the problem. Ini-
tially, devaluation in and of itself will lower
production costs in dollar terms, improve the
competitive position of devalued goods in the
dollar market, and initiate changes in pro-
duction patterns as dollar sales increase and
dollar imports decline. But unless devalua-
tion leads rapidly into measures to increase
productivity, reduce costs, attract capital,
stimulate investment, and control inflationary
pressures, the action will exhaust itself with
little or no effect on the problem of dollar
deficits.
Devaluation has, however, already gener-
ated collateral political problems. As the in-
ternal economic consequences of devaluation
develop in the devaluing countries, these prob-
lems will tend to become domestic political
issues. Generally, internal prices will rise
and living standards will be adversely affected.
Concurrent pressure for wage increases can be
expected and, in some countries, will lead to
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labor unrest. Certain significant political by-
products of devaluation, of interest to US se-
curity, are discussed below.
a. British Politics.
The popular political reaction to devalua-
tion has not yet crystallized. In part, as in
the Trade Unions, attention has been fixed on
the possible immediate effects of the action on
traditional labor interests. In part, as with
the public generally, the key problems were so
technical and remote that no basis has yet
developed for a broadly felt response.
The recent Parliamentary debate on devalu-
ation revealed, however, the existence of very
powerful political considerations. While pro-
fessional financial and commercial opinion
generally agreed that devaluation required
supplementary concrete measures if its mo-
mentary benefits were to be improved upon,
the shadow of a General Election fell darkly
over the speeches of both parties. A serious
debate on the UK's economic requirements
proved out of the question. Since possible
supplementary measures were believed likely
to raise popular ill-will, both the Government
and the Opposition avoided unpleasant reali-
ties. Instead, both parties electioneered.
The most general opinion was one that con-
sidered an immediate General Election desir-
able on the ground that requisite action could
not be taken until the air was cleared of po-
litical maneuvering and the fundamental is-
sues could be frankly and sharply debated.
But, on 13 October, Attlee announced that
there would be no Election until 1950.
Though the Cabinet was long divided on the
question, the decision suggests that it has
been concluded that the Labor Party's pro-
gram will show positive results in six to eight
months. However, no significant internal
measures supplementary to devaluation have
yet been announced.
b. Western Europe.
A broad pattern of reaction to devaluation
has started to shape up. It focuses sharply
on the basic problem of trade revival as the
next step in attacking the dollar shortage. It
involves a use of ERP aid in the form of in-
centives to increase trade, and it has led to
OEEC proposals for extensive reductions of
import restrictions between Western European
countries. In the background, are the pro-
posals for a thoroughgoing economic union
which emerged from the first meeting of the
Council for Europe.
Development within this pattern is, how-
ever, interfered with by political factors. De-
valuation by the UK was considered a need-
lessly drastic and unilateral action. In
France, in particular, exaggerated charges
were made about the initiation of "economic
warfare." More generally, it was suspected
that the US and the UK were devising a broad
policy line in which continental interests and
problems were being subordinated. Already
suspicious of British "foot-dragging" with re-
spect to Western Europe, considerable anti-
British sentiment came to the surface.
Enough still remains to make relations diffi-
cult at the moment.
Further political difficulties have arisen in
France and in connection with Allied author-
ity in Germany. The devaluation of the West
German mark generated an issue with wide
ramifications. French resistance to the per-
centages of devaluation proposed was simul-
taneously bitter and official. It involved con-
siderations of commercial competition, coal
prices, the degree of authority to be permitted
in the West German State, doubts about US
and UK intentions with respect to Germany,
and security phobias. The French, by virtue
of their position on the Allied High Commis-
sion and because the terms of reference of the
Commission are broad and vague, are able to
frustrate legislative action by the German
Government. The position of the US is pre-
carious in this situation. The German Gov-
ernment, seeing the US as the dominant oc-
cupying power, saddles the US with responsi-
bility for frustrations resulting from French
vetoes on action. Yet, it is hard for the US
to exert pressure on France without strength-
ening the French conviction that German in-
terests are being given exclusive consideration.
The solution of these difficulties is further
delayed by the fall of the Queuille Cabinet.
This political overturn was not primarily the
result of devaluation. Its immediate cause
was a disagreement among coalition parties
over wage-price policy, and this issue was an
old one which was gradually developing to a
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new critical point. Devaluation did, however,
limit the possibility of compromise. While
the new government will differ little from its
predecessor, the political turmoil surrounding
its formation has stirred up deep issues of
French security and prestige while at the same
time delaying the decisions that might resolve
them.
c. Pakistan - India.
Among the political curiosities of devalua-
tion is Pakistan's refusal to follow the crowd.
The Pakistani Government is convinced that
the nation's position as a supplier of raw ma-
terials is strong and argues that an ability to
purchase capital goods at devalued prices will
bring additional strength. Although this is
generally considered to be a misreading of the
economic facts, Pakistan's decision is serving
further to embitter relations with India. Not
only must India pay higher prices for Paki-
stan's raw materials, but Pakistan's debt to
India has been automatically cut by 30 per-
cent. Angry retaliatory measures have been
announced. The immediate strain on the un-
stable economies of the two states is great and
their already bad political relations will move
still further away from adjustment.
3. USSR - Yugoslavia.
The Soviet war of nerves against Tito,
which has now led to the abrogation of friend-
ship treaties with Yugoslavia, increasingly re-
veals the disintegrating effect of Tito's defec-
tion on the structure of international Com-
munism as developed by the USSR since the
war. Tito's successful defiance is providing
a focal point for scattered and unorganized
dissident Communist groups. Although these
dissidents range from old Trotskyites to new
"national defectionists," Tito's defense of his
position, by emphasizing a fundamental and
unresolved strain in Communist doctrine and
organization, may develop into a means of
pulling together an anti-Stalin opposition.
The issue, of course, is whether world Com-
munism will be politically dominated by the
USSR or by an international and equalitarian
Party apparatus; and whether world Commu-
nism will be a driving force in national revo-
lutions or will be an agent of Soviet Russian
imperialism. Tito has specifically questioned
the ideological leadership of the USSR by pre-
senting his own position of equality of power
within the Party apparatus as more orthodox
and has, with more practical application, pub-
licly undercut the Soviet claim to being the
only model for a Communist state. Even if
Tito does not actively encourage the growth of
an anti-Soviet Communist movement, he will
increasingly become the symbol for efforts
aimed in this direction.
From the point of view of the USSR, the
dangers in such a development cut so deep
that the elimination of the major immediate
irritant-Tito and the Tito-Communists-re-
main a priority objective of Soviet policy. Di-
rect military action still seems improbable in
spite of the strengthening of Soviet ground
forces near Yugoslavia. But measures involv-
ing intense propaganda pressure, incitement
to subversion and sabotage, and guerrilla ac-
tivities will almost certainly be applied, with
increasing vigor. The last of these measures
is further examined below (see para. 4).
Tito has shown great skill in conducting the
Yugoslav side of the conflict. Operating from
a middle position between West and East, his
timing of his resistance to or his giving in to
the external pressures on this position has
been remarkable. Now, by publicly seeking a
seat on the UN Security Council in compe-
tition with a Soviet-endorsed candidate, he has
transferred his display of independence from
the Soviet-Satellite theatre to the world stage.
The significance of this move is more to be
measured by the undisguised violence of the
Soviet reaction to it and by the fact that it
has drawn out US support than by any prac-
tical differences its success might produce in
the operations of the Security Council.
Yugoslavia, on the Security Council, would
scarcely vote uniformly as a "tool" of the
Western Powers. On the other hand it would
certainly vote against the USSR when occa-
sion required. Finally, but most important,
the weapon of the veto is still available to the
USSR to negate any seriously adverse action.
Fears that the USSR might withdraw from
the UN in this connection are wholly dis-
counted. Whether or not Yugoslavia suc-
ceeds in its bid, Tito has converted a family
quarrel into an East-West issue and has, with-
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out committing himself to the West, maneu-
vered himself into a position where the West,
through an international organization, will be
obliged to support him by deterring the USSR
from taking drastic counter-measures.
For the time being, and from the US point
of view, there would appear to be considerable
advantages in encouraging this change of
venue for the Yugoslav-Soviet conflict. The
more public the airing of ideological differ-
ences, the less monolithic will the structure of
international Communism seem to be; and the
larger the stage, the greater the spread of the
disintegrating propaganda.
4. The Balkans.
The point of tension that has been reached
in Yugoslav-Soviet relations requires refer-
ence to the present state of affairs in the Bal-
kans, for in the Balkans alone could direct
Soviet action be developed conveniently and
"spontaneously" under cover of local issues.
The USSR is able to develop an anti-Yugoslav
policy through its controls in Hungary, Bul-
garia, Rumania, and Albania. This capacity
can, however, be offset somewhat by a rap-
prochement between Yugoslavia and Greece,
and by the uncertainties of the Albanian po-
sition. Furthermore, if the USSR wishes to
press upon Yugoslavia through the Balkan
satellites and, at the same time, avoid general
military action, it can most easily work
through traditional antagonistic nationalisms.
Macedonia, involving as it does Yugoslav,
Greek, and Bulgarian claims and interests, is
the possible focus for such an effort. How-
ever, the excitation of Balkan nationalist feel-
ing is a weapon difficult to handle and hard
to keep fixed on a target.
A few months ago, when the Greek guer-
rillas began to be contained, there were signs
of a Soviet intention to stir up trouble in
Macedonia, apparently to feel out the strength
of Yugoslav control, or to aid the Greek guer-
rillas. No serious weak spots were uncovered
in the Yugoslav position. The attempt to
create unrest by stirring up Albanian and
Slavo-Macedonian minorities met with no vis-
ible success. But, since then, jockeyings for
position in the larger field of conflicting Yugo-
slav and Soviet interests have intensified.
The Greek guerrillas have now been reduced
to about 2500 in Greece. Mass withdrawals
into Albania and Bulgaria suggest that large
organized guerrilla operations have come to
an end. For the first time since 1941, the
northern border of Greece is under Greek con-
trol. In comparison with the situation a few
months past, the capacity of the guerrillas to
attempt to negotiate with the Greek Govern-
ment is almost nonexistent.
The Greek Government, now confident of
its strength, is even cooler than before to any
thought of compromise, is retreating from the
idea of too broad an amnesty, and is showing
reluctance to relax its existing security meas-
ures. The more ardent elements have even
considered pursuing the guerrillas across the
border into Albania, an operation that could
only too easily develop into a settling of old
and outstanding scores in this area. The dan-
gers implicit in these proposals led to strong
American and British restraining advice.
The Greek Government has now pledged itself
not to move against Albania and is instead
urging the UN to act to check any renewal of
infiltration from Albania and Bulgaria.
Concurrently with these developments, both
Greece and Yugoslavia, urged by the US, have
improved their positions by gradually improv-
ing their relations. The play has been and
still is complex, but generally, the result has
been to reduce the capacity of the USSR to
achieve its ends in Greece. At the moment,
and given the Soviet need to concentrate on
the Tito heresy, the USSR is de-emphasizing
the guerrilla war in Greece, possibly in prepa-
ration for re-orienting guerrilla activities
against Yugoslavia. A refocussing of guerrilla
strength to exploit the chronic aspirations of
the Slavo-Macedonians would serve a double
purpose. On the one hand, it would seek to
harass Tito and the Yugoslav Federation in
which two-thirds of the Slavo-Macedonians
have been incorporated. On the other, trained
guerrilla units operating in Macedonia would
be available to threaten Greece with a renewal
of attacks whenever circumstances seemed
favorable. The main check on a Soviet use of
Macedonia for these purposes lies in the fact
that Tito is in a comparatively favorable po-
litical and military position in the area.
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5. Far East.
a. China.
The establishment of a Communist-con-
trolled "People's Republic of China" and So-
viet and Satellite recognition of the new re-
gime raise four main issues affecting US se-
curity interests. At present it is possible only
to identify problems, the resolution of which
will be a matter of importance in the Far East
for some time.
(1) The nations of the North Atlantic Com-
munity, although anxious to maintain a com-
mon front on China, will tend to react accord-
ing to widely divergent interests and opinions
on the best course to follow in regard to recog-
nizing the new regime. Although for the
present the UK appears willing to follow the
lead of the United States, extensive UK eco-
nomic interests are pressing for de facto recog-
nition and restricted trade.
(2) The weak governments of Southeast
Asia will find themselves under increasing
pressure to regularize their relations with
Communist China. A policy of non-friend-
ship would expose these countries to greatly
increased threats to their security, and they
can be expected to follow such a course only
if they receive assurances of protection by
larger powers, preferably by the US.
(3) The Soviet bloc will support the Chinese
Communists' claim to succeed the Nationalists
in the United Nations and in other interna-
tional organizations, particularly the Far
Eastern Commission, and the Allied Council
in Japan. The grounds for opposing this
claim will be weakened progressively by the
diminishing strength and prestige of the Na-
tionalist remnant and by eventual recognition
of the new regime by non-Soviet countries.
(4) Finally, the new situation will make it
necessary for the US sooner or later to clarify
its relations with the National Government.
In particular, the new Communist Govern-
ment's professed determination to gain con-
trol over all territories once a part of Nation-
alist China, will before long turn the spot-
light on Taiwan, control of which is of con-
siderable significance to the US.
b. Indochina.
The possibility that the governments of
Southeast Asia will recognize Communist-
controlled China and the probability that
Indochina will fall completely into the hands
of a Communist-oriented government adds to
the difficult security problem in Asia. With
the forces now available, the French can do
no more than maintain the present stalemate
in which French troops occupy major cities
and strategic positions in the Red and Mekong
deltas, but actually control only 10 percent of
the disputed territory. The political strength
of the anti-colonial nationalist movement, the
bulk of which has rallied to Ho Chi Minh, has
encouraged the Vietnamese to hold out for un-
conditional independence. The Bao Dai re-
gime, gravely handicapped by French slowness
in transferring substantial elements of sov-
ereignty as agreed in March, has been unable
to avoid the implication of being a French
puppet government. It is unlikely that Bao
Dai will be able to win over any appreciable
part of the resistance movement unless the
French grant his government an independent
status within the French Union. Even under
these circumstances, there is no assurance
that Bao Dai could muster sufficient local
backing to prevent a nationalist government,
hostile to both the French and his own regime,
from taking over power.
If present circumstances continue basically
unchanged, the Vietnamese nationalists will
probably be able to drive the French out of
Indochina within two years. The acquisition
of power by a government under Ho Chi Minh,
in conjunction with pressures from Commu-
nist China, would almost certainly greatly
strengthen an existing tendency in Thailand,
Burma, and Malaya to seek accommodation
with Communist China. Since Indochina
may prove to be the key to control of the
whole Southeast Asia peninsula, it also might
be the critical breach in the non-Communist
crescent around China, which now consists of
India, the Southeast Asia peninsula, Indo-
nesia, the Philippines, and Japan. The US
interest in preserving this crescent intact is
therefore threatened by the current trend in
Indochina.
c. Indonesia.
The strength of another component of the
non-Communist crescent hinges on finding a
reasonable compromise between the Nether-
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lands and the Indonesian nationalists at the
Hague Conference. Progress toward agree-
ment on the structure of the Netherlands-
Indonesian Union and future financial rela-
tions between the partners in the Union has
been slow. Negotiations envisaging the as-
sumption of the old Indies Government debts
by the new United Republic of Indonesia have
been particularly difficult, and the success of
the conference may well hinge on the settle-
ment of the issue. The cease-fire order in
Indonesia has continued to be well observed,
but many of the nationalist elements are be-
coming restive and critical of what they con-
sider to be unnecessary delays at The Hague.
Republican officials at home and abroad have
had to defend Premier Hatta against charges
of being too conciliatory with the Dutch.
6. Latin America.
During the month no serious effects have
appeared in Latin America in the wake of the
devaluation of European currencies. Only
one country-Argentina-has made a signifi-
cant response. It put into effect a compli-
cated readjustment of peso exchange rates
and export prices in an apparent attempt to
expand its export trade, particularly in dol-
lars, and to discourage imports of "non-essen-
tial" items.
A number of conditions in the area, how-
ever, have been adverse to US interests in
Hemisphere solidarity. The continued hos-
tility between antagonistic countries in the
Caribbean were highlighted this month by
Nicaraguan-Costa Rican charges, counter-
charges, and denials of hostile intent. There
were no signs during the month of any abate-
ment of revolutionary preparations by the
Caribbean Legion-activities which have
made more acute the tension between the "de-
mocracies" and "dictatorships" in the Carib-
bean area. Satisfactory diplomatic relations
do not exist between many of these countries.
Colombia has not yet resumed relations with
Paraguay; Guatemala, Bolivia, Chile and
Uruguay still do not recognize Venezuela.
Uruguay, Costa Rica, Guatemala, and Cuba
(which recently broke relations) do not recog-
nize Peru. Costa Rica and Guatemala have
broken relations with the Dominican Repub-
lic. Bolivia, Chile, and Uruguay do not
recognize El Salvador. Guatemala has no re-
lations with Nicaragua.
There are certain situations also which have
been at odds with the US interest in politically
stable governments. In Colombia, the in-
creasingly tense political situation, which has
but little chance of resolution before the com-
ing elections, has been marked by violent
clashes between Conservatives and Liberals.
Even though the Bolivian Government suc-
cessfully suppressed an insurrection, the ef-
fort was great, the cost was considerable, and
the political and economic situation still re-
tains many of the characteristics which pre-
viously made the government vulnerable to
attack. Paraguay, which during 1949 has
had four changes in government, is still so
politically unstable that it has recently found
it necessary to declare a state of siege.
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U. S. GOVERNMENT PRINTING OFFICE
4320-STATE-1949
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