CURRENT INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A000100140001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 15, 2016
• Document Release Date: April 14, 2004
• Sequence Number: 1
• Publication Date: September 4, 1953
• Content Type: REPORT

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~-Fqr Rel'~ase 2004/06/24 :CIA-RDP79-A0927A001~Da~~7 NO. O .
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4 September 1953
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CENTRAL INTELLIGENCE AGENCY
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STATE review(s) completed.
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THE SOVIET WORLD Page 4
AUSTRIA REMAINS SOVIET PAWN IN GE1tINAN DEADLOCK Fage 6
The Soviet Union has taken a number of steps to
de-emphasize ,the role of its milii;ary personnel in
Austria. Soviet diplomacy, howevE:r, has revealed no
intention to agree to an Austrian treaty, except as part
of a solution of the German problE~m.
PRESIDENT RHEE'S TIGHTENING CONTROL OVER SOUTH KOREA. Page 8
President Rhee~'s control over the internal South
Korean situation has been strengtYiened in the past few
months by several political, milii;ary, -and internal
security developments.
FINANCIAL PROSPECTS IN IRAN Page 10
Prime Minister Zahedi faces a~ serious financial
situation arising from the policies of the Mossadeq
government and must solve it if hey is to retain control
of the Iranian government .
INFILTRATION OF GOVERNMENT IS CHIEF COMMUNIST THREAT
TO INDONESIA . Page 12
The principal danger presented by the new Communist-
influenced cabinet in Indonesia is the possibility of
wide-spread Communist infiltration throughout the govern-
ment , the police , and the armed f o~rces .
SOVIET INTEREST IN ALBANIA SPURRED BY BALKAN PACT Page. 13
Several recent Soviet gestures have demonstrated
concern for t he recur i t y of tie Hoxha government , but
there continues to be no firm commitment to defend the
regime against aggression.
LABOR TROUBLE BUILDING UP IN ITALY .~. Page 15
Recent signs of labor unrest in Italy suggest that
a wave of strikes supported by all the labor organiza-
tions is likely in the fall.
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THE US-PANA~dA TALKS ON TREATY REVISION .. . Page 16
Failure to obtain some tangible cancessi.ans fram the
United States in the 10 September 'Nashington talks on
Canal Zone treaty revision will tend to weaken the moderate
Remon government and to give incre,~sed currency throughout
Latin American to nationalist and ~~ommunist charges that
the United States disregards the rights of small nations.
PROSPECTS FOR SOVIET AGRICULTURE . . Page 18
The new Soviet regime has instituted a more liberal
agricultural program, based on increased incentives to
the individual collective farmer.
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Moscow still evidently desires around-table conference
open to all states concerned in the settlement of the Korean
question, as opposed to the American concept of the "two
sidesq" There are no indications that the Communists will
abandon this position, outlined iii the two Soviet UN res-
olutions and endorsed by Communist: China. and North Korean
Communist charges of American obstructionism on the
conference may foreshadow pr oposa}.s designed to circumvent
the UN's endorsement of the Americ;an concept of a conference
and to reopen the Korean question in this fall's Eighth
General Assemblyo Such proposals are likely to suggest
the participation of some or all of the ''neutral" and
"neighboring" states mentioned in earlier Soviet resolutionso
The Soviet Union will probably attempt to link the.
admission of Communist China to ttie UN, which Vyshinsky has
promised to raise in the Eighth General Assembly, with its
effort to revive the controversy between the United States
and other UN members: on Korean issues. Vyshinsky remarked
on 27 August that if it should develop that "there was some
discrepancy" between the Communist position and the UN rec-
ommendations on the political conference, the "question
should be discussed anew in the General Assemblya"
The North Korean delegation which departed for Moscow
on 1 September will probably receive instructions on tactics
to be followed in the political conference, in addition to
discussing internal North Korean political and economic
matterso General Peng Teh-hunt, who headed the Chinese
Communist .delegation to the truce talks, has also reportedly
left for Moscow o
Moscow's reaction to the installation of a pro-Western
regime in Iran has .been guarded bul:apparently conciliatoryo
According to press reports,the Soviet trade representative
in Iran has had several meetings with the. Iranian minister
of national economya A report of 1 September stated that
a supplementary Soviet-Iranian barter agreement had been
approved b y members of the Iranian government.
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Inside the Soviet Union, the p~~sition of P. K.
Ponomarenko in recent listings of t~~p party officials tends
to confirm rumors that he has replaced S. D. Ignatiev as a
member of the central committee secretariat. His appoint-
ment to the secretariat would further ensure Malenkov's
control over top-level personnel appointments.
In another personnel shift, I. A. Benediktov, Soviet
ambassador to India since 28 April, has been recalled and
will "return soon to the agriculture ministry." Benediktov
served as Soviet minister of agriculture from 1946 to 1953.
He may now become first deputy minister, or may suceed the
present minister, A. I. Kozlov, although there is no indica-
tion of the latter's fall from grace. The new ambassador
to New Delhi, M. A. Menshikov, was minister of foreign
trade until 1951.
East German Communist authorities reacted to the open-
ing of the second phase of the Western food program on
2? August by repeating the previous pattern of vitriolic
press attacks against the program and admonitions to the
people to stay away from West Berlin. A blockade of the,
Western sector has not been attempted, but there is some
evidence that a military cordon has been thrown araund it
to harass or control travelers. The East German railways
have been placed on an alert status, probably to stem the
movement of people to Berlin if its proportions become
too great.
There are also indications that the resumption of
the food program has intensified the antagonism of the
population toward the East German government. Communist
interference and some decline in popular enthusiasm will
probably prevent the program from reaching the proportions
of the first distribution. It will continue, however,
to be a serious threat to the prestige of the East German
regime.
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AUSTRIA REMAINS SOVIET PAWZJ IN GERMAN. DEADLOCK
The Soviet Union has taken a number of steps to de-
emphasize the role of its military personnel in Austria,
the latest reportedly being the at~olition of some of its
army zonal border checkpoints and Kommandaturas. Soviet
diplomacy, however, has revealed n~o intention to agree to
an Austrian treaty, except as part of a solution of the
German problem,
The various steps taken by the Soviet military author-
ities would be consistent with a plan to withdraw from
Austria, but there are other valid reasons for them. The
closing of border checkpoints follows logically the 8 June
termination of Soviet .:hecks on passenger and freight
traffic. This, together with the abolition of Kommandaturas
reflects the recent reduction of S~~viet interference with
Austrian internal affairs for prop;a~ganda purposes . The
Soviet Union's 1 August assumption of its own occupation
costs provides an economic motive :e or reducing its military
establishment in Austria, Soviet ~^emoval of IL-28's from
Austria late in June is not indicative of a change in policy
toward Austria alone, since simila~? action was taken in
Germany.
There is no indication that ttte USSR intends to with-
draw all of its troops from Austria, and the activity of the
Soviet occupation forces is following the normal pattern
far this time of year,
Since withdrawal would not mean the fall of a puppet
government as it would in the Soviet zone of Germany, the
Kremlin could abandon ,its stake in Austria without suffering
a critical loss. Soviet withdrawal under the terms of the
treaty already largely drafted would involve relinquishing
about 350 enterprises, but the $150,000,000 payment would
probably be more than adequate compensation. The Soviet
Union would retain the valuable oilfields which ..now supply
90 percent of Austria's annual production of approximately
3,0009000 tons. It would lose an advanced military base,
but one far less important strategically than East Germany.
On balance, it appears that withdra~~-al from Austria would
not be too great a sacrifice of Sovaret power if the Kremlin
thought it necessary to meet Western demands for proof of
its willingness to relax cold-war t~~nsions.
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Nevertheless, the pattern of Soviet diplomatic action
has not indicated that the Kremlin is willing to change its
generally rigid policy of holding on to past gains.- In
addition, the new Soviet regime may be restrained by fear
that withdrawal would be interpreted as a sign of weakness
and would thus increase unrest in the Satellites, particu-
larly East Germany. Conclusion of an Austrian treaty would
also remove the legal pretext for maintaining troops in
Hungary and Rumania.
Recently the Soviet Union has given several indica-
tions, the first time specifically in its 4 August note,
that it would agree to an eventual Austrian settlement
only as part of negotiations on the German question. Moscow
rejected the Western bid for treaty talks on 27 May on a
flimsy excuse. Its answer to the N'est's invitation to a
31 August treaty deputies' meeting again revealed unwill-
ingness to negotiate on the Austrian issue aloneo
Instead of concluding a treaty, Soviet policy has
concentrated on a series of concili:~.tory gestures designed
to turn Austrian official and public; opinion away from the
West. The Kremlin appears to be removing sources of
friction with the Austrian populace and cutting dawn opera-
tions which aryre uneconomic or stratfagically unnecessary.
It could. go so far as to withdraw sc-me or all of its troops
in an extreme effort to embarrass tree West, without yielding
its occupation authority.
The Kremlin can be expected to welcome the newly demon-
strated Austrian interest in bilateral negotiations, which
may provide opportunities to settle problems causing Austria
concern on terms beneficial to the USSR. This method, al-
ready employed successfully in the n+egotiations on the Ybbs-
Persenbeug hydroelectric plant, can rsndermine Western efforts
to gain more favorable treaty terms :E or Austria.
These tactics, while achieving ~~ome success in creating
friction .between Austria and the Wesi:ern powers, are not
indicative of any Soviet intention to .agree to a treaty as
long as the Soviet Union considers Auistria a valuable pawn
in the deadlocked German negotiations,
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PRESIDENT RHEE'S TIGHTEIIII~G Cl)N'TR4L OVER SOUTH K?REA
President Rhee 's control over the internal South Korean
situation-has been strengthened in the past few months by
several political, military, and internal security developments.
Rhee will probably not violate hi" truce assurances before the
start of the political-conference, but his ability to oppose
unfavorable decisions and to undertake independent action after
90 days of discussions has been increased.
Although government pressure has been applied to all opposi-
tion parties, Rhee has struck primarily at the Democratic
Nationalist Party, South Korea's principal overt opposition
group. Chough Pyong-ok, the party's secretary general, was
severely beaten, arrested, and indicted in June for publicly
opposing Rhee?s antitruce stand. ]Later, after considerable
police intimidation, Chough retired from public life,
Chough's about-face aroused considerable opposition from
some of his party colleagues, but the majority did not miss the
lesson of the government's repressive tactics. Press reports
indicate that 23 of the group's assemblymen have ,joined or will
soon join Rhee's party, reducing the Democratic Nationalist
Party's strength below the minimum necessary to constitute a
legislative opposition.
While some opposition leaders :have considered forming a new
coalition party, their efforts have so far been unsuccessful,
partly because pro-Rhee elements have infiltrated these move-
ments, and partly because potential leaders fear"that freedom
to form such a front no longer exisi`~s in South Korea. The net
effect of the government's strategy has been to eliminate
virtually all political opposition.
Rhee may now renew his attempt~~ to weaken the legislature.
A possible prelude to such a move wa.s indicated on 15 August
when demonstrators "spontaneously'' demanded swift adoption of
constitutional amendments empowering the gov"ernment to dissolve
the legislature, lifting the ban on a third term far President
Rhee, permitting constitutional changes by referendum, and
providing for the popular recall of assemblymen. Rhee has
already reduced the legislature's foreign policy powers by
authorizing the National Defense Committee to conclude treaties
without assembly approval.
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Rhee's control over the executive branch, exercised through
the Hc-me Affairs Ministry anri +hn ,, .,+a?~.:, __, 1 _
Finally, Rhee has moved to control the military leadership.
Most Japanese-trained officers, who are generally anti-Rhee,
have been removed from command positions. Some of Rhee's
advisers have called for the replacement of the army chief of
staff, perhaps by General Yi Hyong-kun, who favors an independent
northward advance. Rhee has also recently established a militia
outside the defense establishment w',hich may in time neutralize
the influence of the regular army.'
While Rhee's increased control gives him a strong position
for bargaining and far raising his ciemands at the political
conference, there is no evidence that he plans to upset the
truce before the 90-day time limit expires. A development,
however, which may indicate future ~-outh Korean intentions is
the contemplated establishment of a point chiefs of staff.
This could be so constituted as to strengthen Rhee's control
over the military and provide him with a command structure to
replace the United rations Command.
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Prime Minister Zahedi faces a serious financial situation
arising from the policies of the Mossadeq government and must
solve it if he is to .retain contro:L of the government. Foreign
financial aid is necessary to rest~~re a semblance of stability
to the country. An early solution of the Ang1o-Iranian oil
dispute is needed to ensure a perm~~,nent income to meet expenses
and to carry out economic and sociz~,l reforms without considerable
aid from abroad.
The 1951 oil-nationalization meant the loss of nearly 12
percent of Iran's budget and one third of its total national
income, and in 2S months of effort former prime minister Mossadeq
never salved this problem. His various stop-gap measures to
meet current expenses included expanding the note issue 40 per-
cent , borrowing from the National- ~3ank, withdrawing gold de-
posited with-the International Monc;tary Fund, and reducing
government expenditures. Prime Mirlister Zahedi now claims that,
as a result of Mossadeq's actions, ,Iran is $500,000,000 in
debt, of which $250,000,000 is owed to-the National Bank.
In March the American embassy in Tehran estimated that
Iran's budget would require about x60,000,000 from outside
sources in fiscal year 1954 to maintain economic stability with-
out oil revenues . This amount wound provide for necessary foreign
exchange surplus as well as funds ~'or economic development. Since
then, the continuing financial crisis has increased the need.
On 30 August Ambassador Hendez~son-and Point IV director
Warne estimated that Iran needs $6~i,Op0,000 in excess of the
$23 ,500 ,000 already alloted for 19~i4 under the Point IV program
to meet the current operating deficit for the next seven months,
to initiate employment-creating programs, and to establish over-
all-development programs that can be maintained for several years.
Only a restoration of oil revenues, however, promises a
satisfactory long-term solution to Iran's problems. In 1949,
Iran decided to set aside all oil revenues for construction and
development projects to be carried on through the Seven-Year
Plan Organization. This organization and its projects have been
limping along at a much-reduced level since 1951. Any government
*For further discussion of this subject, see 5E-49.
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that expects to stay in power must not only make payments on the
large public debt and handle current operating expenses but must
meet the growing demand for social reforms and higher living
standards.
Although the shah and .the prirr~e minister probably recognize
that Iran's only means of achieving these ends is through oil,
the anti-British sentiment aroused by Mossadeq still makes it
difficult for Zahedi to push negotiations for an agreement with
Britain. .Zahedi has indicated his intention of proceeding
cautiously toward the British, and he has publicly stated that
he cannot agree to pay compensation. for loss of future profits,
a point on which the British insist. An extended period of bar-
gaining probably will take place after negotiations are finally
started, 'and both countries will have to show more flexibility
and willingness to compromise than they have in the past.
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Union may a contemplating some measures to aid Iran. These may
be to provide goods on long-term credit or td extend the present
barter arrangements. it is not likely, however, that the USSR
would be willing to provide the direct financial aid which Iran
needs. Nevertheless, if the Soviet Union makes attractive trade
offers when the Iranian-Soviet talks are resumed in Tehran, Iran
might find it difficult to turn them down.
Zahedi's capacity to maintain his position depends on his
ability to find short-range financial aid to meet Iran's immedi-
ate problems and a solution of the oil dispute which would pro-.
vide. the necessary resources for long-range economic and social
improvement. If the prime minister cannot achieve these ob,~ec-
tives, he risks the collapse of his government and the probabil-
ity that any successor government w~nuld lead Iran toward the
Soviet Orbit. .
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INFILTRATION OF GOVERNMENT IS CHIEF COMMUNIST
THREAT TO INDONESIA
The principal danger presented by Indonesia's new Commu-
nist-influenced cabinet is not the possibility of an early
Communist takeover or the impositi~~n of extreme leftist policies
but the opportunity for widespread Communist infiltration
throughout the government, the pol:lce, and the armed forces.
With the Nationalist Party-Cammuni.~t bloc in control, policy
is expected to be mare nationalist:Lc and hence less friendly to
the West, but no marked cooperatio~i with the Soviet bloc is
anticipated.
Developments have progressed Sao favorably and ea rapidly
far the Communists that there appe~~rs no need for them to take
the risk of discarding legal procedures. After little more than
a year of united -front tactics, the! Communists -- through co-
operation with the National Party, the second largest in parlia-
ment -- have made their support es.~ential for cabinet stability.
They lack a military force capable of supporting a coup, how-
ever, and the present leaders of Indonesia's armed forces and
police are largely anti-Communist.
In spite of threats to increase trade with Communist China
and 1
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THE US-PANAMA TALKS ON TREATY REVISION
The elaborate 2? August sendoff given Panama's delega-
tion to the 10 September Washington talks on Canal Zone treaty
revision illustrates the great popular attention now focused
on this issue. Failure to obtain some tangible concessions
from the United States will tend t;o weaken the moderate and
pro-US-Remon government and to give increased currency through-
out Latin America to nationalist a,nd Communist charges that
the .United States disregards the rights of small nations.
Panama's demands spring partly from long-standing irrita-
tions produced by a foreign enclave on its territory, and
partly from the republic's currently serious financial diffi-
culties. Its specific demands will reportedly include an in-
crease from $430,000 to $5,000,000 in the annuity provided by
the United States under the 1936 revision of the original 1903
treaty., as well as a rise in canal tolls and a share in them
for Panama. Remon's representatives may also-ask for a cessa-
tion of Zone commercial activities which compete with Pana-
manian business, and an end to economic and racial discrimina-
tion against Panamanian workers in the Zone. In return, they.
may offer air bases in the republic.
Popular sentiment for changes in the treaty was stirred
up last March by an incautious speech of the newly installed
president. Communists and powerful opposition groups, mainly
ultranationalists, were-quick to offer their support on this
universally popular issue, evidently hoping that Remon would
so deeply commit himself as to dis~~redit his administration
at home and alienate the United States.
More recently, Remon has been trying to tone down popular
expectations and, in an effort to minimize his political lia-
bility, has attached to the delega7tion to Washington two former
presidents who are leading political opponents, Both ex-presi-
dents are eminent lawyers who have shown anti-US attitudes;
one of them, Harmodio Arias, is al.~o an important newspaper
owner and an extremely. skilled intriguer likely to do every-
thing possible to turn the talks to his own political advan-
tage..
Meanwhile, Remon?s long-sought: invitation. to visit Presi-
dent Eisenhower on 28 September hoe, reinforced his domestic
political prestige, at least temporarily, It will also allow
him to make a dramatic personal report on the initiation of
the treaty talks to the National Assembly when it reconvenes?
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on 1 October.. Should the results then obtained from the talks
not appear politically acceptable in Panama, however, Remon
-may feel forced to defend himself against ultranationalist
attacks by taking an anti-US line.
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PROSPECTS FOR SOVIET AGRICULTURE
The new Soviet regime, in an apparently realistic effort
to raise agricultural output, has reversed Stalin's theoret-
ical approach toward the organization of agriculture, with
its basic distrust of the peasant and-its elaborate system
of controls. Instead Malenkov has instituted a more liberal
program, based on increased incentives to the individual
collective farmer. Although indications of the reversal
have-been noted since May, its scope and significance be-
came Iarticularly a~yparent during the recently concluded
Supreme Soviet session.
In his. Bolshevits article last October, Stalin reiter-
ated the ,~roposi?ion that "commercial production" was in-
compatible with full communism-and therefore eventually had
to be abolished in favor of barter. The logical conclusion
was that the collective farm market must be eliminated and
the entire agricultural surrlus de:ivered to the state in
exchange for manufactured goods. :[t amounted, in-fact,
to a gradual but comr~lete substitution of state for collec-
tive farms.
This policy seemed still to be reflected in -the spec-
tacular cuts in prices of fruits aril vegetables announced
on 1 April. These reductions were probably calculated to
force the collective farm markets t;a compete"with arbitrarily
lowered prices in the state stores. By the end of May,,
however, agrarian policy was shifting. Pravda delivered a
sharp rebuke to those seriously interest~Stalin's
thesis- of a transition to a barter system and condemned
the plan as "theoretically incorrect" and "practically
harmful" during the current historical period.
Having reassured the collective farmers in May that
.the status quo would be maintained, the government went much
further in August by announcing important new concessions
to the peasantry. First, Minister of Finance Zverev in-
f ormed the Supreme Soviet on 5 August that-the agricultural
tax,. based on the income received b;y peasants-from their
private holdings, would be reduced lby 43 percent in 1953
with further decreases in 1954. OtT:~er tax reductions. were
provided in order to encourage the private purchase of
cattle, and tax arrears were cancel:ked for those who had
worked the prescribed number of day,.
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Malenkav's subsequent speech, further revealed that the
Soviet government had decided to pay more for many agricul-
tural commodities procured by the state as obligatory de-
liveries. In addition, obligatory deliveries from the
kolkhoz members' private plots were to be "considerably reduced."
These changes seem to indicate a mayor shift in the
Soviet attitude toward the peasantry, but not a reversal of the
collectivization policy. Ever since the collectivization drive
first began over 20 years ago, the government's efforts had
been increasingly directed toward enlarging, improving and
encouraging the collective sector of agriculture and reducing
and discouraging individual produ~:tion. Now Malenkov says that
the latter will be assisted and e>couraged.
Such a shift is a clear admi.~sion that peasant support of
collectivization has not been attE~ined and indicates that the
Soviet government now realizes thE~ necessity of attempting to
increase agricultural production through a more realistic
system of incentives . It confirm~~ that the much-publicized
Three-Year Plan for the developme~~t of communal husbandry was
a dismal failure and also points to the inability of the govern-
ment to provide state stores with adequate amounts of agricul-
tural products and other consumer goods, a situation that has
become increasingly evident during the current year.
These concessions are intended only to improve the
existing system, and their continuation may well depend on
an increase in production. At least for the near future,
however, the peasantry should enjoy a slightly higher living
standard although, as Malenkov warned,. nonfulfillment of
minimum work days will. bring stiffer penalties than in the past.
As for the question of collective rearm amalgamation, .Malenkov
implied that the need for some merl~ers still exists.
The new Ministry of Agricultu~~e and Procurement is
apparently to be given greater autYiority in implementing the
new program. This should help to decrease some of the
bureaucratism that has impeded ministerial control. Finally,
Malenkov indicated that production figures for grain and other
produce will no longer be derived from estimated yields but
op the basis of amounts actually harvested.. All of these
changes suggest more efficient supervision of Soviet agriculture.
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