OFFICE OF REPORTS AND ESTIMATES, CIA FAR EAST/PACIFIC BRANCH INTELLIGENCE HIGHLIGHTS WEEK OF 20 JANUARY - 26 JANUARY 1948

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78-01617A004600020003-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 11
• Document Creation Date: December 27, 2016
• Document Release Date: March 21, 2013
• Sequence Number: 3
• Publication Date: January 20, 1948
• Content Type: REPORT

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Ulf Iteport.'.
fc,r East/
INTELLIGZGE FIIGHLIGI ITS
ZEK OF 40 JZUARY ? 46 JANUi.RY 1948
Document No.
NO CHANGE in Class.,
DECLASSIYIED
ass. CHANGED TO: TS S C
DDDDA 1
A 7'
:7 Apr1.377
Auth:
Date: ? 2j,_ WI. By: 0
REFER NCE CENT NM'
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a
SMUT
JAPAN
Social Democratic convention results in increased Left Wing influence. The
WErVr---a-gnnatt-e--7-eWte."-e-Tre-nett?=-;avts controlled Socricraf polley
heretofore as witnessed by their holdinn the Party's seven ministries in the
coalition Cabinet. The rithdrawel of the Nationul ?errors Union group from
the Party has weakened the rinht WAIL. At the Party coneention last week the
left minn succeeded in electtun the enairnan of the conventton and in passing
a motion for scrappily; the "4 party anreenent" under Welch the coalition
Cabinet was formed.
Desnite increased left ur!en strernth, Katanera was ree:ected Onaireen
of the General Executive noimittee ebile other nod.rates and ri.ht winners
were elected to the imeortent Party posts. The conleosit'on of the new Central
execetive Consaittee is nor no subnect of bitter dispute between the two
factions with the left winn claiming they should have leaf the membzrship.
Should the left wing succeed in obtaining greater influence in the Party, the
Demoorats and People's Cooperatives will be given increased incentive to
withdrot from the Cabinet to which Wee latter is already ntving consideration.
gperation "Crank-up" apparently to be launched. The US member of the FRC has
made a statement to that &ply thut-EFFWITs planninn measures to cake Japan
"self-supportina at the earliest possible time". In this connection, the
Army is to ask Congress Der funds for the fiscal year beginning 1 July not
only to supply necessities for the Japanese people but also raw materials,
spare parts, and other items required for the expansion of peaceful production.
This may be the first official announcement of "Operation Crank-up", a
plan variously runored throughout the latter half of 1947. Under "Operation
Crank-up", the US, it has been said, would lend Japan up to a billion and one-
half $ US for the rehabilitation of the Japanese economy.
At the least, the US statement to the FEC is a recognition that Japan will
continuo to be a drain upon US resources until it can be put upon a self-support-
ing level., This goal, hareever, cannot be attained until Japan is able to enter
actively into the export nnrket; Japan's economy is geared to foreign trade. .In
the past, Japan customarily imported raw materials or semi-manufactured articles
and processed them for exeort. fence, it needs nrimarily external aid for the
procurement of imports for processing. This the ITS Congress is apparently about-
to be asked to take under advisement.
Zaibatsu banks escape iiesolutione It is reported that the Zaibatsu banking
interests will not be subjected to dissolution measures to the sane extent as
other Zaibatsu interests. The reason for the exemption is said to be the
importance of credit facilities in the rehabilitation of the Janaeese economy.
Before the war, the Zaibatsu controlled the banking structure of Japan and
thereby were enabled to extend their active business trusts. Apperentlyn the
need for strong un-hampered credit facilities in tne crucial months ahead has
led to at least a posteonement of the break-up in "excessive economic concentra-
tion" so far as the banks are concerned. nhether Zalbatsu Interests will
continue to control the bankinn structure is extreeely doubtfill, however.
Inflation in Japan. -Further analysis of the inflationary tendencies in Japan
---ashWW-WEE-F,ErTiirs of a runaway Inflation lealinn to econonie crisis in the
immediate future are exannerated (cf. FEA Bra Weekly 13 Jan - 19 Jan 1948)0
The Narch 1946 figure of 12 billion yen note issue anpears to have been an
SLCHLT
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abnormal one; the oSficial figure of note issue as of 31 I:arch-1940 was 23
billion yen. Hence note issue had multipled a proximetely 10 tines from
31 Larch 194G to the end of 1947. This conpares with-a 30 times increase in
ON dollars during the same eoriod.
For the year 1047 through august, increase in note issue, effective ;rice
index and wages of mining workers (undeeeround) a. eear to have kept aesiee
(azproximately 2 0 tines). Hence, the inflation appears to have been kept
within bounds. Nonetheless, labor does have cause to compla'n. Average wages
of other workers during the same eer'od iecreasod only about twice; underground
rthaers are favored. Governmental employees who cannot bargain collectively and
are kept to a fairly rigid wage base are eerLice'arly hurt. Farther, wages
customarily lag. So long as the industrial level reeaIns fairly constant. labor
Trill be squeezed by the incr .asing prices. Nevertheless, the situation continues
critical* Increasing note issue together with u low industrial level mast ban
serious economic consequences. Operation Crank-up is intended to obviate these.
KORA
Future Soviet capabilities. The recent Soviet refusal to pornit the UN
Commission to operate in North Korea should not be taken as an indication of
lack of Soviet confidence in the survival-rower of its puppet North Korean
People's Comnittee. Soviet boycott was quite clearly indicated from the time
the subject was placed on the UN agenda, and the failure of the USSR to execute
a diversionary maneuver for the purpose of canouflaeine its defiance of a UN
resolution can in no sense be attributed to a lack of rol:tical resources
occasioned by loss of the diplomatic initiative to the US.
The USSR is in continuous process of stripping, down its armed forces in
Korea to a point where unilateral withdrawal is an imminent capability, and of
increasing Korean participation in the North Korean People's Committee to the
point where it is capable of evereine full-blown as an "autonomous" state. The
Kremlin is clearly committed to the policy of eventual domination of all of
Korea and has aeperently decided to utilize the People's Committee as a base for
this expansion. Its recent actions indicate that it has discounted the UN
Commission, toeether with "world opinion" which the Commission represents,
for what they are wor(h. It is erobable ;hat the Kremlin will continue for the
present its policy of giving the US "enough roee" even to the point of suffering
the US to establish an indoeendent South Korean Governeent, since it probably
believes that US forces would then be withdrawn, leaving the infant South Korean
regime defenseless. At such a'juncture t:es USSR would be found pito ereeared to
carry out its self-ineosed connitmont of "similtaneoes eithdrawal" since it could
then let ntture, in the :orm o: the North Korean People's arny,take its course.
Such action would be based on t' e assum)tion that. the only possible US counter-
move would be that of a formal protest in the UN. On the other hund, the present
Soviet policy possesses the distInct virtue of avoiding any weakening of the
USSR's position in North Korea, this leaving the Kremlin ereeared to counter any
move to strengthen the un position in the South.
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CRINA
Lilitary
There uut no Le.jor ellitery activity in Yanchuria curing the
pest week. The Care..unists were- epperently builang up rear exam. stock.
eileesin preparatien for another cumjaiga and the Nationulista were ini-
tieeing u new comuard setup, once again separating the 114 and the
political leadership. The militarz- portion of the Nationalist.rnchurian
coemand will be vezted in ei Li-huang, who is highly regarded in US cir-
cles as a result of his succeesee during the Ietter phases of the Chinese
cempeizeis in Burmu. Re is saie to have a very strong position in Army
politics and to be "acceptable" to the Talumpoa Clique.
rilitary -ctivity in worth China was centered around Fueting,
with oath sicus reportedly sustaining heavy casualties 4nd in Shdntung,
4here the Communists continue to return to those b4430 areas Iron which
they were uriveu labt year. Communist units in Shansi countered the move-
ments of Yen Hsi-shen by penetrating to ithin ten :Iles of Ten's capital
et Taiyuan.
the ecumenists 50X1
in the Taihang mien (L. Shansi) openly state that their primary military
target for 1948 is to carry the civil war into, elle south of, the Yangtze
River valley. The -...reat majority of the Communist regulars from the-Wei-
hang urea have elreadynoved into Hupeh, ehere Liu lo-cheng is presently
engaged in trying to cut river-commnicatiom fron Szechwun to the east
coast.
Internal foliticul
The control ol the Minese Rational Government continuos in the
banes of the ri.,;ht-wirz extreuiets. Legisl.tive Yuan elections uppeur as
completely erearranged and controlled by' the Coutrru.ont, as were the
National ..ssembly elections, with popular cynicism anti leek of interest
even nose in evioence. The post noteworthy difference is that while the
previous elections -ere almost entirely run by the CC Clique -..mhich took
a le.jority of seats and dictated the disposition of the remainder to other
Government factions as well as minority parties -- the present elections
reveal that this tette more control vill be shared by other rightist groups.
The Sun rin Chu I Youth Corp, Hsudn Tieh-wu's Shanghai Garrison Headquarters,
the Bureau of Investigation and Statistics' secret police, have built up
their election machines and assured themselves, in Shanghai at least, of a
larger share of the spoils than previously. Ireliminery informution from
the provinces however, indicates that in Kiangsu and Chekiang the CC Clique
mill iin doLnute completely..
The Chinese press, hungry for news fit to print, found a welcome
outlet in the Kowloon incident which ended in violence in Canton and demon..
strutions in Shanghai. The offente to Chinese sensibilities found express.
ion not only in the volume of the news coverage but in editoriel coument
in newsi.al.orci of all shades of opinion. On every side yarning ues given
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CHET
the British that unless the "brutal insult" was righted popular sentiment
might be more forcibly expressed. The uproar extended even to Ta Kuno Face
influential Chinese newspaper which nornally nuinteins a relatively ration-
al and dispassionate attitude. In general, the untoward amount of attention
given this minor incident was a diversionary tactic to keep public attention
focussed on a foreign issue, while internal wetters became increasingly
had (see also "Lxternal folitical" below).
Externel Iolitical
Canton-Shanehai disorders. Britain has demanded full compen-
sation for losses at Canton ana full enquiry into the identity of orgen-
leers and jerticipants in the attack. China has claimed full coeeense-
tion for the eviction of the Kowloon squatters. Both Governments re-
frainea from mentioning the coenterincident.
The Daixissy reported on 23 January that Chinese authorities were
reluctant to adopt strong measures to suppress the Canton-Shanghei dis-
orders because of the widespread anti-British and anti-US feeling, which
had been inflamed by "Government dominated" propaeanda. Thus Strong
measures would expose the Government to charge of failure to resist im-
perialist z:zzrossion. Also despite expressed Government intention to safe-
guard foreign lives and property, anti-British propacende continues una-
bated with implied inclusion of the US as likewise imperialist. The Consul.
General at Canton has exchanged communicatione with Governor T.V. Soong on
necessary protective measures to US and other foreign lives and property,
and is dissatisfied with the Governor's assurances, since the latter lacks
the support of many high level leaders in South China.
A Nanking United press story of 19 January reports Chinese sources
as auyine that the Canton outbreak vas intended inter alia as a reprisal
for the sanctuary afforded by the Hong Kong authorities to Llarshal Li
Chi-shen and other diseidents. In this connection it my be noted that
the Hong Kong Government last year gave Li Chi-shen several warnings that
he would be ousted from the colony if he continued to violate the terns of
his admission there which included abstention from "caustic criticism of a
friendly government".
kossible Sino-Soviet ra ocheeent. The ranking Enbassy reports
that on 23 January General Cheng Kai-min ehose general reliability is
questioned) states embers of the I-olitieal Science Group now strongly
favor rapprochement with the USSR as means of insuring China's neutrality
in an anticipated US-USSR war and desire that Chiang Kai-shek go abroad so
that he will not be an obetecle to such a rapprochement. The Embussy further
reports that Soviet Eilitary Attache, General Roschin, allegedly had sug-
gested Soviet gooa offices in ending the civil Ler. Coupling these to
reeorte, the Lmbeesy believes that it is possible a Soviet mediation offer
has been rade and that the deteriorating military position has disposed cer-
tain elceents in the fletional Government to accept.
Travel Permits. Hollington Tong, of Government Informetion Office,
SeCRIT
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states that possession of a resident (entrance) permit will enable a
national of a foreign state which has a treaty with China to travel in that
country. llon-treaV nationals and stateless aereons must appky to local
police stations icar travel permits.
.....2Ateis_;instismigjElkm. In an attetat to break the deaulock
batmen the U3S2 and the Commission mujority in the UN Atomic Energy com-
mission "aerking Committee, Lr. ei Hsieh-jen, adviser to the Chinese de-
legation, on 22 January offered a compromise aroposal. The USSR has in-
sisted on berate international conventions, one to outlaw atomic weapon.,
ana another to establish a system of world controls, While the US and the
Commission majority have supported a single combined plan. Dr. -ei aro-
posed sepurate conventions with co-ordinated enforcement, so that the im-
plementation of the terms will be co-ordinated.
Chinese Technical nisei= to US. Since the arrival in 71ashington
on 16 January of the Chinese Technical Liseion, Tei Teu-yi, Who heads the
Lission, and his associates have been in daily conference with State De-
purtment officials on the aid plan to China, which, it is anticipated, will
provide safeguards for the US outlay, and stipulate an appropriate measure
of self-help. The Mission will be shown a copy of the proposed US plan
before it ie presented to Congress (see also "Economic" below).
Economic
Currency. . Shanghai merkets were unusually quiet during the past
week. The US d-11- blackmarket selling rate receded from CN ;1160,000 on
17 January to CU 140,000 on 23 January 1948. Uo change is noted in the
official uopenn vete of CU =WOO which ries established on 12 January.
It is reported that the issuance of large denomination notes has been sus-
;ended (Customs Gold Units notes of 1,000, 2,000 and 5,000 equivalent to
CH 2),000, 40,000 and 100,000 respectively, introduced last month, have
been the lar, est denominations to appear to date); also that sending cur-
rency by air is banned. kolice controls and loan restrictions have caused
the flight of Boum idle capital to Canton. Money remains relatively tight,
forcing interest rates up to neer 30,; per month.
liemand appears to be growing in up-country areas for silver
dollars that are still in circulation. The Communists are also showing less
interest in CH currency.
The Chinese press reports that lei Tau-yi, now in :.ashington as
head of the Chinese technical mission, would present to the US Governuent
Chiang Kai-shek's two alternative currency reform plans for which ]arae
cash or credits woulu be requested. One plan calls for a new paper cur-
rency bused on the gold standard and linked to the US dollar at the pre-
war rate of 3.33 to US a. The second plan is a metal currency supaleaented
by taper nos and based on the silver standard. The Vational Government
estimatee that US ,300 million will be requireu to finance the currency re-
form project. The Coommeemt does not plan to introduce the new currency
until economic stability haa been achieved. Shanghai foreign economic
'a.:11'
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writers regard the currency reform talk as an neye-uashWeven with US aid.
Prices. Steadyarrivals of rice stocks at Shanghai have kept
the retail price at CH :11,400,000 a picul, the same price as reported on
16 January 1948.
Shipping. The Chinese merchant fleet is nou reported 31.6:'.
larger than it was a year ago. During 1947, 1,039 vessels were added,
twinging the total to 3,317 vessel. with gross tonnage of 951,826. The in-
crease is attributed to the purchase of surOus from the US and other
countries, and recoveries of vessels from Japan.
The port of Tsingtao is still closed to foreign shipping.
Tientsin was cut off from the sea following Comuniet capture of
several points along the Hai River on 9 January 1948. ::ithdri.s.mle after
two days permitted navization under militarrescort.
Railroads. The Feiping-Suiyuan railroad from Langshan to Tam
was destrOICUM-Ncember 1947, presumably from vrar operations.
kussenger service is open on the Feiping-Hunkow line asfar south
a; ChoSien. From Choisien southward the line is badly damaged but service
was reported restored as far as Sunglintien by 6 January 1948.
- The Changchun railroad operations are reportedly reduced to 87
kilometers operating from Suchiutun, south of I:ukden, to Tiehling, to the
north. Rail service from Lukden to renhsi was reopened on 3 January 1948.
Highiya. Changchun highway communications were recently re-
ported closed in all directions.
Traffic was resumed on 10 January 1948 on the highway from Chuh.
Bien to Changehan (20 miles) in Chekiang Irovince after completion of
reconstruction work.
Telecommunications. Radiophone service between Canton and Hong
Kong has been inaugurated With tolls of HK 0.2.00 for the first 3 minutes
and HK ,4.00 for each additional minute. Rates from Shanghai to the US
are based on US a2.00 for the first '3 minutes converted at CN $89.,000 to
US 4.
Coal. Communist interruption of Uorth China railways may force
China to seek Canadian, Ihilippine, Siberian or Indian. coal, for Shanghai.
aritET
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iciDOCBITIA
Damonstrationx for Lao Dai 's return. Early in December 1947 two
rmetings took place in the Bei? d'Along between French nigh Commissioner
Bollaert and forner Annamito .174cerior Bao Dui at which the political baeis.
for Bao Baits return,was settled. Following those neetings new nelitien1
groupings gradually emerged in both north and south Vietnam. llies
viers held in the chiefcities of Indochina, soonsbred by the Vietnamese
Nationalists who aro opposed to lib Chi.:Inh and his Viet Tlinh, in order
to express confidence in the former emperor's ability to lay the founds,
time for "independence and unity."
A.th these rallies as a foundation, the "'Aetna, rvoc Pin TO!) nOOle
or "Rassemblement rational Vietnanien" emerged in Salem, its aim being
to rrOWn'oll rolitical and resistance elements in a mere effectivn struefqe
for unity and indonendence. The outcome of contacts. rith similar rroups,
such as the rational 2allyThostent in 7.anoi, was the formation of the
"Opoc Gia Lien Pimp", which united such elements in one bloc behind Pao Doi
In an effort to realize Vietnamese aspirations snort from the stru-rle of
nb Chi rinh's Vietnon7Zepublic.
inch dissension among Pao Del sunrorters has been evident recently,
particularly in the dissolution and re-creation of numerous committees in
north Vietnam. Former President Ie-van-noach of the Cochin China novernment
was criticized by some of. the north Vietnam erours for his close collaboration
with the French, but his faction countered with a now committee of its. own.
These n&oenstimtio-. have been epontered by the _Trench so that Bao Dai
racy appear to be recalled to Indochina at ?the "people's demand." Tlie
schism among the Doe psi supporters, attributed by many to personal stir'-les
for political positions and leadership of the pro-Dao Doi movement in the
north, is a clear indication that despite French efforte to build a firm
foundation for the former emperor's return, they have failed to create the
cooperation among the anti-Viet.!inh rationalists requisite to the success
of any government which plans to exclude re Chi 71inh.
SIAM
Current Sienese Politics. The nrovisional government headed by
Premier Ehuang Aphaiwong is planning to hold national electionson the
29th of January. Because the upper house of Parliament, the Senate, was
re-created as an anpointive body following the Novedber coup, these elections
will determine the composition of only the House of Representetives which
was disisolved in rovebber. By those elections the overnment will become
legalized end permanent within the provisions of the now constitution.
:EGRET
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Premier Aphaiveme and his Democratic Party are expected to win a
majority of the Houac seats, but because of the streneth of other parties
in Parliament a few opeosition leaders may be included in the new cabinet
to form a coalition eovernment. In exrosine itsolf-to a eeneral election,
the previsional eevaennent is attempting to demonstrate its stability and
to prove to foreign governments that recoenition should be accorded to the
post-election eovorneent.
lierowineeeplit between the Aphaiwone Government and Marshal Thibul
and his ermy supporters is rapidly assuming ominous proportions, primarily
because the provisional and basically civilian gorernment is etterptine to
administer Siam regardless of the wishes of the military. There are many
indications that the military may discard Aphaiwone, even if he is duly
returned to office by the elections, in the event that his eovernment con-
tinues its independent course of action. If the military believe that
evert seizure of control is necessary, another coup d'etat will have to he
staged since the CMorrency powers recently held by the military have been
returned to the civil authorities.
I:Ate:TS:Le
4?1.......1?00=101?51?11M.PIOE,
acallszape of crisis in Dutch-Indonesian nepotiations. Implementation
of the recently siened Dutch-Indonesian truce will be conelicated by 'Dutch
susnicions of Republican sincerity repardine a political settlement and by
the Repeblic's failure to understand the implications of the terms of the
documents which were sipned on 17 January. The effect of these obstacles
on Dutch-Indonesian relations were illustrated by the crisis which developed
after the truce was signed and which nearly led to the collapse of the MC-
sponsored neeotiations. The crisis arose from the belief, of the Dutch dele-
eation that the Ropeblic had only conditionally accented the eCC's Sin Prin-
ciples for political settlement which the Dutch had already accepted un-
conditionally. The interpretation of the 7.emublican renresentatives reearding
the (IOC's Six Principles apparently led then to believe that the Republic
could continue, to conduct its own foreien affairs and exercise other sovereien
perquisites, despite the clear statement in the Six Principles that such
sovereign rights will renain with the einedem of the Netherlands until the
transfer of soverelenty to a United States of Indonesia. !bile the crisis
was later averted by President Sukarno's unconditional acceetance of the
Six Principles, the incident has reinforced the Dutch belief that the
Republic would attempt to evade fulfillment of its committnents in any
eventual political agreement. The tendency of both the Netherlands and the
Republic to derive vastly different interpretations from the same signed
committnent, and the habit of each party to regard its interpretation as the
only one possible may readily lead to repeated breakdowns of neeotiations
and finally to a resumption of Dutch "police action" on the grounds that
dealings with the Republic are patently impossible. Varyine interpretations
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of the Linggadjati Agreement and refusals, by both sides to give way finally
led after four months of increasingly involved negotiations to the "police
action" of 20 July 1947.
ZETLI PPINES
ketemejagrearerieurhorlaiirrejna to US. President Roxas has proposed
that Secretary of National Defense Kanglcon heed miscion to rashington to
press passage of -ending US legislation benefiting Philippine reterens.
While Roxas prefers that Kangleon, wereUmeguerriLealeader OA Leyte ,'head
the veterans mission as a nrivate ettioen, Ksegleon believe e that his assign-
ment to a mission which eould be required to register as a lobby would be un-
dignified. The Defense Secretary, now in Tokyo conferring with General Mac-
Arthur, nrefers to come to the US in-his officiel catacity in order to discuss
US policy corcerning Mill:4pin? defense and to determine the extent of US
assistance "in nrenaretion for and during next emergency."
EsgaLsAUE.Lqr,_gxagsLghozdgza_:athjhLkbalqjma. President Roxas, in a
two-hour extemporaneous speech at the annual meeting of -rovincial officials
on 22 January, called for an armed showdown "as quickly as eoseible" aith the
dissident -eavants (Hukbalahap), whom he labeled Communists. Reviering his
administration since May, 1946, the President declnred that the policy of
"appeasement"-eincluding legislation providing larger rice cron shares for
farmers and a land resettlement nrogram? yes a "mistake" and a failure because
the dissidents did not believe either in srivate eroperty or individual rights.
rarning the provincial governors and mayors to nave no contact with the dis-
sidents without the knowledge of the Constabulary, and stating he believed
that the armed eeseants were determined to overthrow the Government by liquie
dating its leedership, Roxas, according to an AP renort, said: "Thank God
this Government has physical strength ard nower to control this situation."
Roxas' speech came less than a reek after the most recent Philinpine
Constabulary offensive, begun 12 January and aimed at capture of dissident
leaders and the breakun of armed elements, erded--as most srevious camnaigne--
in failure. This drive, first termed "Operation Mystery" and finally "Oper-
ation Carefree," involved approximately 2000 Constabulary men in a planned
15-day Central Luzon offensive against an estimated 3000 Hukbalahap. The
Constebula'ry tisk force commander admitted the helplessness of his troons to
cope with the strategy of the Huks who dislerse raeidly in .the face of large
Constabulary troop concentrntions and then re-form their units when the
Government forces move on.
The Roxas speech is not expected to result in any immediate settlement
of the law and order problem. The speech,which was doubtless designed as a
political maneuver to bolster the courage and gain the ru-port of hardpressed
provincial officials and for -oeular consumption, nevertheless reveals to
some extentsthe sense of frustration the (,hiet Executive feels at midpoint
in his term of of ice when he finds the most serious immediate problem still
remains the establishment of law and order.
aillmina_ggmmtuallaamsdomjamelm. The Philippine Congress, which
convened on 26 January after an adjournment of eight months, is confronted
with legislative proposals on two serious and recurrently embarrassing problems--
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2013/03/21 : CIA-RDP78-01617A004600020003-6
Declassified in Part - Sanitized Copy Approved for Release 2013/03/21 : CIA-RDP78-01617A004600020003-6
establishment of law and order in Scuthern and Central Luzon and settlement
of the collaboration question. It iv exnected that measures designed to
grant amnesty to political collaborators will receive support from Congress-
men of both narties. The Congress will be divided, however, on the law aid .
order problem with members of Roxns' Liberal party unwilling to make con-
cessions to the militant dissidents and the minority inclined toward further
attempts to mediate. "Chile President Roxes undoUbtedly stated the Adminis-
tration7s stand on one or both of these -roblems in his State of the Nation
message it is likely that he stressed more firmly issues which require addi-
tional US financial aseistance-eveterens benefits develoementel loans; end
additional war damage.
The current session of Congress will be in all likelihood a stormy one.
Minority strength is eresently on the increase, and party feeling is intensi-
fying. Before Congress opened both Liberals and the minority had taker well
defined stands along lines which will enobably become more sharply drawn as
the version continues. Moreover,.developmeets during this session of Congress
should definitely shape the presidential can-aign of 1949-50. The uncompro-
mising stand of the Roxas Government toware ijne Luzon dissidents has given the
opposition ar issue u-on which to melte eoliticel cenitel, and am/esty, if
granted; will release from the stigma of collaboration a highly capable group
of men whose political ambitions will bc,come well-defined.
AUSTRALIA
The margin between Australian exports to and imnorts from the US was
unfavorable to Australia in the amount of la 125,000,000 for the first five
months of the current fiscal year. While this figure might seem to belie
the effectiveness of the imeort r-strictions and the concurrent export drive
initiated in November, it is believed that the full effects of these policies
will not be felt for several months. Australian Government officials are
lookirg to the European Recovery Progrem for the increased nurcha sing -veer
in Europe which would increase their exeorts.
Representatives of the French are consulting with the New Zealand
National Airways on French aviation in the pacific. The French' are planning
an. extension of their air services from Noumea to Papeete and Tahiti via the
Fiji and .Cook Islands.
Declassified in Part - Sanitized Copy Approved for Release 2013/03/21 : CIA-RDP78-01617A004600020003-6