CURRENT INTELLIGENCE WEEKLY SUMMARY

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CIA-RDP79-00927A001300030001-6
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February 4, 2005
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June 13, 1957
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SUMMARY
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Approved For Release 2005/02/14: CIA-RDP79-00927A0,01300030001-6 CONFIDENTIAL` CURRENT INTELLIGENCE EEKLY S UWAA ARY DAT Qa4-REVIEWER: COPY NO. 17 OCI NO. 3057/57 13 June 1957 DOCUMENT NO. NO CHANGE IN CLASS. 0 0 DECLASSIFIED CLASS. CHANGED TO: TS S? NEXT REVIEW DATE/ _ -- II CENTRAL INTELLIGENCE AGENCY f OFFICE OF CURRENT INTELLIGENCE r% W, 1{l1 >4 Lj 1?~ CONFIDE L -9 25X1 25X1 State Department review completed Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 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. Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 Approved For-Release 2Gl14FiIDEiNflA -00927A001300030001-6 OF IMMEDIATE INTEREST USSR MODIFIES PROPOSALS FOR PARTIAL DISARMAMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . Page 1 Soviet disarmament delegate Zorin, responding to an earlier informal US presentation of views,~on 7 June moved toward the American position by accepting' suggestions on three points at issue. However, the Soviet Union main- tained intact its minimum terms for a partial agreement as set forth in its 30 April proposals--suspension or cessation of nuclear tests, renunciation of the use of nuclear weapons, and a commitment to reduce forces beyond the first-stage level of 2,500,000 for the US and the USSR. In the forthcoming phase of the London talks, Zorin probably will seek to focus attention on two issues on which Moscow apparently believes the West's position is most difficult to defend--a nuclear test ban and a Euro- pean inspection zone. MIDDLE EAST DEVELOPMENTS . . . . . . . . . . . . . . . . Page 2 Developments favorable to the West in the first phase of the Lebanese election coincide with potentially impor- tant setbacks for Nasr in his relations with other Arab governments. King Saud's six-day visit to Jordan which commenced on 8 June highlights the emergence of an impor- tant Arab bloc estranged from Nasr. Meanwhile, relations between Jordan and Egypt have virtually been broken off, and there are growing indications of Saudi rapprochement with Iraq. NEW ITALIAN GOVERNMENT CRISIS . . . . . . . . . . . . . . Page 4 The search for a new Italian premier to succeed Chris- tian Democrat Adone Zoli, who resigned on 10 June, is tak- .ing place in an atmosphere of political bitterness accen tufted' by press demands for early elections. Formation of an exclusively Christian Democratic caretaker cabinet, to govern pending elections advanced to autumn seems the most likely solution. CONFIDENTIAL Approved For Releas0M4 I19-00927A001300030001-6 Approved For-Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 THE NEW FRENCH GOVERNMENT . . . . . . . . . . . . . . . . Page 5 Maurice Bourges-Maunoury, youngest premier under the Fourth Republic, will be obliged to follow the general lines of the Mollet policy on the key financial and North African problems. His strong nationalism will be a com- plicating factor, however, in any discussion of France's role in Africa and the Middle East as well as on disarma- ment. PART II NOTES AND COMMENTS NORTH AFRICA . . . . . . . . . . . . . . . . . . . . . . Page 1 Clashes between French army units and the Tunisian national guard continue. As a result, Premier Bourghiba has renewed his demands that France evacuate all Tunisia except the strategic base at Bizerte. The French contend that Bourghiba cannot maintain order. In Algeria, the widely publicized Melouza massacre which occurred on 28 May and the riots by Europeans on 11 June are symptomatic of the continuing deterioration of the security situation. F_ 7 KARACHI SESSION OF BAGHDAD PACT COUNCIL . . . . . . . . . Page 2 The recent meeting of the Baghdad pact council in Karachi demonstrated that, despite differences of opinion on procedural and organizational matters, the members are basically united in their desire to get ahead with the business of area defense planning. There is agreement that while the membership of other Arab states is de- sirable, no pressure will be exerted to bring them in at this time. KISHI'S WASHINGTON VISIT . . . . . . . . . . . . . . . . Page 3 The major purpose of Prime Minister Nobusuke Kishi's visit to Washington, scheduled for 19-21 June, is to lay the foundation for a change in the "basic spirit" of the relationship between the United States and Japan. He apparently feels the key to better relations lies in re- vising the US-Japanese security treaty and administrative agreement, but he is expected also to seek adjustments on several other major issues. These include the status of the Ryukyus and the Bonins, China trade, nuclear tests and the release of Japanese war criminals. SECRET 25X1 THE WEEK IN BRIEF Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Approved For-Release 2005/02/14: CIA-RDP79-00927-A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 BULGANIN-KHRUSHCHEV VISIT TO FINLAND . . . . . . . . . . Page 5 Bulganin and Khrushchev on 13 June ended their seven- day visit to Finland--their first to a non-Communist coun- try since the Hungarian revolution. The two leaders made a special attempt to demonstrate that Soviet-Finnish re- lations constitute a prime example of friendly intercourse between countries regardless of their social systems. Although the Soviet delegation included high government, defense and trade officials, no outstanding problems be- tween the two countries were negotiated. 25X1 ORGANIZED RESISTANCE TO SOVIET LITERARY POLICY . . . . . Page 6 At a recent Communist Party meeting of Moscow writers, it was openly charged that the editors of the much-criti- cized almanac Literaturnaya Moskva, supported by several liberal young authors, a formed an "opposition group" on the basis of a "clearly defined literary-political plat- form not in conformity with the party's policy in the field of literature." The platform is alleged to advo- cate "democracy without bounds," "freedom of the press " and other "petty-bourgeois vacillations." 25X1 HUNGARY'S ECONOMIC PROBLEMS . . . . . . . . . . . . . . . Page 7 Fiscal policies underlying this year's economic plan and budget in Hungary have been radically revised in order to meet some of the country's grave economic problems. Investments, military expenditures and outputgoals have been cut drastically. Nonetheless, judging from the poor performance during the first quarter of this year, it seems that even these modest goals are too high. For the foreseeable future, Hungary will continue to be an eco- nomic liability to the Soviet bloc. 25X1 EAST GERMAN EFFORTS TO COMBAT STUDENT UNREST . . . . . . Page 8 The East German regime's determination to stamp out deviationist ideas in university and intellectual circles is being emphasized at discussions between party leaders and university officials tbrougbout East Germany. As a result of the government's repressive measures and in order to avoid army service, East German youth are flee- ing to the West in growing numbers. SECRET iii 25X1 THE WEEK IN g~I~ Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 Approved For-Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 CYPRUS . . . . . . . . . . . . . . . . . . . . . . . . . Page 9 As a result of his preliminary investigation of the Cyprus question, NATO Secretary General Spaak believes that internationally guaranteed independence offers the most helpful basis for reopening negotiations. British governor Harding wants London to make some positive move now toward eventual negotiation with the Cypriots, but the government prefers to await the outcome of Spaak's endeavors. INDONESIA . . . . . . . . . . . . . . . . . . . . . . . . Page 10 Lt. Col. Sumual, commander in East Indonesia, and army chief of staff General Nasution have reached a "mu- tual understanding" for "normalizing" military, economic and financial relations between East Indonesia and the Djakarta government. The degree to which such, an under- standing will be implemented remains to be seen. Mean- while, the economic consequences of the separatist move- ments are becoming increasingly apparent. Prime Minister Djuanda plans to submit the $100,000,000 Soviet technical aid agreement to parliament in the near future. SITUATION IN LAOS . . . . . . . . . . . . . . . . . . . Page 11 Laotian prime minister-designate Katay is attempting to form a cabinet in which all major parties will be repre- sented. His chances of success, while still fair, have been somewhat reduced as a result of the unfavorable re- action of a number of deputies to his proposed tough policy toward the Pathet Lao. The Pathets, meanwhile, are engaged in an all-out effort to block Katay and re- turn Souvanna Phouma to office. COMMUNIST CHINA'S FORTHCOMING NATIONAL PEOPLE'S CONGRESS . . . . . . . . . . . . . . . . . . . . . . . Page 12 The upcoming session of Communist China's National People's Congress--nominally the highest organ of govern- ment--will probably stress Peiping's policy of general relaxation in internal affairs, reaffirming in particular the regime's decision to allow popular criticism of the Chinese Communist Party. The highlight of the session, scheduled to open on 20 June, is likely to be Chou En- lai's foreign policy report in which he will probably support all Soviet policies toward the West and under- score the importance of bloc unity, while pointing out that such unity does not require complete agreement among SECRET iv 25X1 25X1 25X1 Approved For Release5Y&M:'IAff9-00927A001300030001-6 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 COMMUNIST CHINA CHARGES INTRUSION BY AMERICAN AIRCRAFT . . . . . . . . . . . . . . . . . . . . . . . . Page 13 Peiping can be expected to use the 12 June incident near Swatow involving American aircraft in its propaganda campaign against Taiwan. The Chinese Communists were quick to link their allegations of intrusions of Ameri- can naval aircraft with charges of new American "aggres- sion and provocation." The Communist charges were not unusual, either in tone or the speed with which they were publicized. F_ I CUBAN GOVERNMENT'S POSITION WEAKENS . . . . . . . . . Page 14 President Fulgencio Batista's government has suffered a noticeable loss of prestige during the past few weeks. It has failed in its drive against the rebels in eastern Cuba and in its efforts to promote a political compromise in Havana. Batista's ability to retain control until the end of his term in February 1959 is uncertain.) THE CANADIAN ELECTIONS Page 15 The failure of either of the major Canadian parties to win a majority in the 10 June election and the absence of any apparent basis for a coalition suggest that new elections may be held soon. Most observers expect, how- ever, that the Conservatives will in the meantime form a government which would display heightened sensitivity about Canadian sovereignty in relation to the United States, and seek to tighten relations with Britain and the Commonwealth. PATTERNS AND PERSPECTIVES NEW FERMENT IN EASTERN EUROPE STIMULATED BY CHINESE COMMUNIST DOCTRINES . . . . . . . . . . . . . . . Page Communist intellectuals in Eastern Europe have begun to turn to Communist China for inspiration and ideological support. Polish intellectuals cite Chinese doctrines that are at some variance with Soviet doctrine (especially Chinese concepts of "let all flowers bloom" and "internal contradictions"), and writers in the hard-line Satellites have begun to do the same. With the exception of Hungary, these hard-line Satellite regimep have avoided:interpreta- tion?and discussion of the Chinese ideas. Ian Hungary, where the controls are strictest, official publications SECRET 25X1 THE WEEK IN BRIEF Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Approved For-Release 2005/02/14: CIA-RDP79-0092ZA001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 stress that the new Chinese doctrines are not necessarily applicable elsewhere in the Communist world. This ap- proach, which is probably intended to check any ground- swell of Chinese-inspired intellectual ferment, has re- cently been sanctioned by Khrushchev and may become the orthodox line in the Soviet bloc. 25X1 SHORTCOMINGS IN COMMUNIST CHINA'S ECONOMIC PLANNING . . . Page 3 The Chinese Communists recently have admitted they made "serious mistakes" in being overambitious in eco- nomic planning, implying that this was in part a result of their past dependence on Soviet economic advice. These mistakes, they say, are the cause of the raw material and consumer goods shortages as well as the financial strin- gencies of the past six months which forced Peiping to make 1957 a year of retrenchment and austerity. Indica- tions are that a conservative outlook will affect China's Second Five-Year Plan (1958-1962). The investment pattern for the plan is to be altered to give an increased pro- portion of funds to light industry and agriculture, and more emphasis will be put on the construction of small- and medium-sized enterprises which can be designed and equipped from China's own resources. 25X1 SINO-CEYLONESE RICE-RUBBER AGREEMENT TO BE RENEGOTIATED Page 7 The Ceylonese government is preparing to renegoti- ate with Communist China the five-year rice-rubber agree- ment which expires at the end of 1957. A delegation tentatively scheduled to visit Peiping this month for this purpose will probably find the Chinese disinclined to sign an agreement as favorable as that obtained by Ceylon in 1952. Signature of a less favorable agree- ment would subject Prime Minister Bandaranaike's govern- ment to considerable domestic criticism. A breakdown of negotiations without agreement could have repercussions seriously affecting the government's stability. SOME LATIN AMERICAN COMMUNISTS LOOKING TO PEIPING . . . . Page 9 Some Latin American Communist Party leaders--partic- ularly in Ecuador, Chile, Colombia and Costa Rica--have recently been emphasizing the applicability of the methods and activities of the Chinese Communist Party to Latin American conditions. Ideologically, the Communists cite parallels between pre-Communist China and Latin America, such as economic domination by foreign capital and a "semi- colonial" political status. SECRET vi 25X1 25X1 Approved For Releass 014 Z%IR-19-00927A001300030001-6 Approved For-Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 SECRET vii THE WEEK IN BRRI g Approved For Release 2005/02/14: CIA-RDFE-00927A001300030001-6 Approved ForzRelease 2005/02/14: CIA-RDP79-00927AO01300030001-6 CONFIDENTIAL CURRENT INTELLIGENCE WEEKLY SUMMARY OF IMMEDIATE INTEREST USSR MODIFIES PROPOSALS FOR PARTIAL DISARMAMENT AGREEMENT Soviet disarmament dele- gate Zorin, responding to an earlier informal US presenta- tion of views, on 7 June moved toward the American position by accepting suggestions on three points at issue. However, the USSR maintained intact its minimum terms for a partial agreement as set forth in its 30 April proposals--suspension or cessation of nuclear tests, renunciation of the use of nuclear weapons, and a commit- ment to reduce forces beyond the first-stage level of 2,500,- 000 for the US and the USSR. In the forthcoming phase of the London talks, Zorin probably will seek to focus attention on two issues on which Moscow ap- parently believes the West's position is most difficult to defend--a nuclear test ban and a European inspection zone. The Soviet memorandum, pre- sented by Zorin on 7 June, agreed to the United States delegate's suggestions for (1) a three- stage reduction of forces; (2) an inspection system to enforce a cessation of nuclear tests; and (3) armaments reductions by specific quantities rather than on a percentage basis as the USSR had previously proposed. While Zorin has consistent- ly stated that the USSR regards a commitment to reduce forces beyond the first-stage level of 2,500,000 for the US and the Soviet Union as an essential part of a limited agreement, he had indicated at the end of April that the precise amount of reductions was "negotiable." He now has agreed to the US sug- gestion that conventional forces be reduced in three stages: to 2,500,000 men for the US and the Soviet Union in the first stage, to 2,100,000 in the second stage, and to 1,700,000 in the third stage. The Soviet memorandum re- quires that any partial agree- ment must commit the signatories to all three stages and implies that the US position that the second- and third-stage reduc- tions are dependent on progress toward political settlements is unacceptable. In response to the United States' position that there must be an inspection system to supervise a cessation of nuclear tests, Zorin's 7 June memo abandoned Moscow's previous posi- tion, expressed as recently as 20 April in Bulganin's letter to Prime Minister Macmillan, that no such inspection is neces- sary to stop tests. Moscow now indicates "readiness to estab- lish such control" and proposes that control posts be established in the Soviet Union, the United States, the United Kingdom, and "in the area of the Pacific Ocean." Zorin, however, repeated the standard Soviet demand for an immediate and unconditional cessation of nuclear tests in- dependent of any other aspects of the disarmament problem. He rejected the US proposal for a ten-month cessation of tests on the grounds that it is made contingent upon Soviet agreement to halt production of nuclear weapons and that it "could actually be used to prepare for subsequent tests." The Soviet CONFIDENTIAL. fomw PART I Approved For Releas2~06fR44ZfA- g TJ27A00130003000f4ae 1 of 6 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY government, according to Zorin's memo, believes that a temporary cessation of tests should last "at least two or three years." The third modification in the Soviet proposals for a par- tial agreement accepted the US position that armaments reduc- tions should be negotiated in specific quantities rather than on a percentage basis. Moscow's 30 April proposals had called for a flat 15-percent reduction in both armaments and military budgets during the first stage of a partial agreement. The Soviet memorandum again demanded that the powers. assume "a solemn obligation to renounce the use for military purposes of atomic and hydrogen weapons" and rejected the US position concerning exceptions to a prohibition on the use of these weapons as tantamount to a "legalization" of their use. Zorin charged that the US position would make possible a "completely arbitrary use of atomic weapons" and stated that the "Soviet Union cannot be a partner in such a deal." On the question of aerial inspection, Zorin confirmed Soviet readiness to consider establishing "appropriate zones" but noted the "negative attitude" of the United States toward the zones proposed in Moscow's 30 April plan. Zorin stated that "a solution should be sought, not in rejecting or narrowing aerial control, but rather in its expansion." This statement reflected the Soviet leaders' belief that Western European, particularly official West German, opposition to a European inspection zone will provide them with a chance to repeat the charge that the United States is again abandoning its own disarmament proposals after the USSR accepts them. Moscow is likely to reject any Western proposals which do not provide for a European in- spection zone and can be ex- pected to exploit heavily any opportunity to blame West German opposition to a European zone for any failure to reach a par- tial agreement. Soviet propa- ganda since Chancellor Adenauer's visit to Washington has stressed, that the US and West Germany have formed a "united front" to pre- vent any disarmament. Zorin told the US delegate on 3 June that the disarmament talks should not be complicated by political questions and warned that if the US brings the Ger- man question into the disarma- ment talks, it would hamper progress in both disarmament and reunification. 25X1 Lebanese Elections Victory for supporters of pro-Western Premier Sami Solh in the first stage of Lebanon's parliamentary elections on 9 June augers well for the results in the contests scheduled for the remaining Sundays in June, Progovernment candidates have won 15 out of 22 seats contested in Beirut and South Lebanon. The absence of incidents in the heavily Moslem south, despite Egyptian and Syrian efforts to foment unrest, indicates the SECRET 25X1 PART I Approved For ReleaRF20I.T&A 27A0013000300 iFe 2 of 6 Approved For-Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET 25X1 army's ability to maintain order. However, the election in the predominantly Moslem northern city of Tripoli, scheduled for 30 June, could be attended by antigovernment demonstrations requiring army action. A New Arab Bloc Election developments in Lebanon coincide with important setbacks for Nasr in his rela- tions with other Arab govern- ments. As a result, Nasr has become more cautious and ap- parently is attempting to cur- tail somewhat his conspiratorial activities against his Arab "allies." King Saud's six-day visit to Jordan which commenced on 8 June highlights the emergence of an important Arab bloc estranged from Nasr. On 10 June, during Saud's visit, Jordan expelled the Egyptian military attache and the consul general in Jerusalem for subversive activities; Egypt responded by demanding the re- call of Jordan's ambassador. Meanwhile, relations between Egypt and Jordan have virtually been broken off. Saud's attitude toward Nasr has undergone a marked trans- formation following the disclo- sure of Egyptian intrigue against various Arab governments, including his own. Jordan In Jordan, King Hussain appears willing to risk pro- voking Nasr by his determina- 25X1 tion to eradicate and publicly discredit Egyptian influence. Jordan's economic plight remains serious despite Saudi and American aid. At least a $20,000,000 budget deficit threatens, largely because of the refusal of Egypt and Syria to provide aid promised to re- place the old British subsidy. It has been announced that this aid will not be forthcoming unless Jordan adheres to the line of "positive neutrality" espoused by Nasr. SECRET PART I Approved For Release ZOOt%%-CIA-FZDPF9-*gviZ7A001300030001 6ge 3 of 6 Approved For-Release 2005/02/14: CIA-RDP79-00927A,001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY Syria The current trip of Syrian president Quwatli to Egypt, ostensibly for his health, ap- pears partly an attempt to steal the thunder from Saud's visit to Amman. organization of the election. The Moslem Brotherhood, an anti-Nasr, right-wing extremist group, has renewed terrorism in the election campaign, 25X1 action followed suppression of a prison riot on 1 June in which several prominent Brother- hood leaders were killed. The pro-Egyptian Asali government has joined in de- nouncing Jordan. Asali has held emergency cabinet sessions to consider the effects of the dispute between Jordan and Egypt. These events may en- courage moderate Syrian opposi- tion members of the legislature and army to make a new attempt to bring about the fall of the Asali cabinet. Egyptian Election Preparations Nasr must contend at home with problems of rigging elections on 3 July for the first parliament under his re- gime. Single party candidates will be screened and selected by a government panel, and a government victory is ex- pected. While Nasr's adminis- trative control over Egypt has been strengthened, the pre- election period has given anti- regime elements an opportunity to protest the high-handed Aqaba and Suez Developments The small Israeli-flag vessel Atlit arrived at Eilat on the Gulf of Aqaba without incident on 7 June after a trip around Africa from Haifa. A number of foreign-flag vessels with Israeli cargoes had previously arrived at Eilat. At least two of these transited the Suez Canal. Two Liberian- flag tankers with Iranian oil are due at Eilat during June. Prime Minister Ben-Gurion on 7 June reaffirmed Israel's intention to send one of its vessels to test the right of Suez transit, but the semi-of- ficial Israeli newspaper Haaretz stated on 11 June that this undertaking had been abandonea and that chartered foreign ves- sels would be used to carry Israeli trade through the canal. NEW ITALIAN GOVERNMENT CRISIS The search for a new Italian premier to succeed Christian Democrat Adone Zoli, who resigned on 10 June, is taking place in an atmosphere of political bitterness accen- tuated by press demands for early elections. Formation of an exclusively Christian Democratic caretaker cabinet, to govern pending elections advanced to autumn, seems the most likely solution. Zoli's failure makes it improbable that any Christian Democratic government except a caretaker one could win par- liamentary approval. Zoli himself repudiated the backing of the extreme right, and the Nenni Socialists refused their support despite his left-of- center program. Reconstitu- tion of a center coalition cabinet seems unlikely because Zoli's harsh criticisms may have SECRET 25X1 PART I OF.IMMEDIATE INTEREST Page 4 of 6 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Approved For Release 2005/02/14: CIA-RDP79-0092ZQ001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 further alienated the small center parties, which formerly co-operated with the Christian Democrats. Widespread dissatisfaction over the prospect of another year of parliamentary indecision may lead to elections in the fall. In such a case, an all- Christian Democratic minority cabinet will probably be set up to prepare for elections. For- mer premier Giuseppe Pella, Sen- ate president Cesare Merzagora and Pietro Campilli, former minister in charge of southern development, have been mentioned as the most logical candidates to head a caretaker government. Such a government's only pressing task would be next year's appropriations which must be provisionally approved by parliament before 1 July and given final approval by 31 October. If the Chamber of Deputies were dissolved by Pres- ident Gronchi in late July, elec- tions could then take place in early October. This timing would meet the constitutional provision for elections within 25X1 70 days of dissolution without interfering with the harvest or the summer holidays. THE NEW FRENCH GOVERNMENT Maurice Bourges-Maunoury, at 42 the youngest premier under the Fourth Republic, will be obliged to follow the general lines of the Mollet policy on the key financial and North African problems. His strong nationalism will be a compli- cating factor, however, in any discussion of France's role in Africa and the Middle East as well as on disarmament. His small 240-192 investi- ture majority is mainly the re- sult of a last-minute decision by the Popular Republicans to Abstain. The new premier's shaky start is also emphasized by the rightists' warning that the 60 Independent votes for investiture cannot necessarily be counted on in the future, and by widespread dissatisfac- tion within the ranks of the Socialists, despite their sup- port. Like Mollet's this is a minority government; the only major cabinet change is the re- moval of Socialist Paul Ramadier from the Finance Ministry. Em- phasis on exploiting Saharan oil resources is evident in the establishment of a Ministry for the Sahara. Ramadier's ouster is a sop to the right, and his successor, Radical Socialist Felix Gaillard, may be under less immediate pressure to sup- port Socialist welfare goals. He will, however, probably push an austerity fiscal policy basically the same as that on which Mollet fell. Although Robert Lacoste continues as minister residing in Algeria, he reportedly has accepted the idea of some modi- fication in his "pacification first" policy. Bourges-Maunoury has already proposed a temporary statute to step up political SECRET PART I OF IMMEDIATE INTEREST Page 5 of 6 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Approved For-Release 2005/02/14: CIA-RDP79-00927-A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY reform in Algeria, and there are indications that a growing minority in the Socialist Party, will make a strong fight at the party's national congress on 27 June to change the government's current Algerian policy. The new wave of terrorism in North Africa has evoked a sharp re- action in France, however, and Bourges-Maunoury will not risk loss of rightist support by an about-face on Algeria. As minister of defense, Bourges-Maunoury was a staunch supporter of Lacoste's pacifica- tion program, SECRET Bourges-Maunoury has stated his intention to press for National Assembly approval of EURATOM and the Common Market before the summer recess which normally begins in July. The actual timetable, however, will probably depend on his success in getting quick action on financial measures. Meanwhile, his government's position in the disarmament discussions may be directly influenced by his nationalistic desire to main- tain France's military stature and in particular by his con- cern for France's position in the nuclear weapons field. 25X1 PART I Approved For Release 20U5/c Z/T4 `PBK'- gFf9-00927A001300030&M 6 of 6 Approved For-Release 2005/02/14: CIA-RDP79-0092L&001300030001-6 JDA CONFIDENTIAL 13 June 1957 PART II NOTES AND COMMENTS NORTH AFRICA Four clashes between French army units and the Tunisian national guard occurred on June 7 in the Gabes region of central Tunisia. As a result, Premier Bourghiba has renewed his demands that France evacuate all Tunisia except the strategic base at Bizerte. French and Tunisian reports vary widely on the cause of the clashes in which seven French soldiers and six Tunisians were killed. A French communique of 2 June implied that the French army would ignore Bourghiba's order that it not leave its barracks without advance author- ization. Bourhiba has told the American ambassador that the French army considers itself above civilian control and is "determined again to establish France" in Tunisia. The French claim, mean- while,that three of the 7 June incidents occurred even though authorization for troop move- ments had been given by local authorities in Gabes. A French spokesman in Paris has told the American embassy that Bourghiba rejected a French proposal that a French-Tunisian commission of inquiry investi- gate the clashes. The alleged rejection may have occurred in a note handed the French ambas- sador in Tunis on 9 June urging a "review of recent incidents" and reiterating Tunis' demand for the withdrawal of French troops before any defense negotiations with France begin. The French spokesman also charged that the Tunisian government may have provoked the incidents to arouse public opinion against the French army and provide a basis for an appeal to the United Nations. However, he, as well as French officials in Tunis, drew atten- tion to the possibility that Algerians or anti-Bourghiba elements may have instigated the incidents and that Bourghiba is reluctant to admit he cannot enforce order. The Tunisian security forces--which number less than 5,000, including the 2,200- man Tunisian army--lack the essential materiel and mobility to maintain order, partly because France has withheld essential supplies. French forces in Tunisia have been reduced to 25,000, according to the Paris spokesman, and will be drawn on heavily to meet the request of Robert La- coste, French minister residing in Algiers, for more troops. The reduction envisaged by Paris may have to be stepped up con- siderably if present tensions are to be alleviated. The well-disciplined Neo- Destour youth and Neo-Destour- affiliated labor groups have been unusually active, possibly in preparation for action a- gainst French forces or a de- fense against Algerian subver- sion. Algeria In Algeria, the widely publicized massacre on 28 and 29 May of more than 300 Moslem Algerian men and boys from several hamlets near Melouza in north central Algeria illu- strates the continuing deterio- ration of the security situation in Algeria. Reports from the area indicate that the massacre resulted in large part from an intertribal blood feud. It CONFIDENTIAL PART I I Approved For ReleasN(ZO85/02INM : Y9-00927A0013000300P5e 1 of 16 Approved For-Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY reportedly has succeeded in deterring some Moslems from rallying to support France, and many Moslems who had accepted administrative appointments recently now are resigning. Both the Algerian National Liberation Front (FNL) and the French are attempting to cap- italize on the incident. The FLN--claiming that the massacre was a French act--is working through the Arab-Asian bloc in the United Nations to demand an international investigation. The French government, probably in a bid for support when the Algerian issue is brought be- fore the UN again this fall, has invited the United States and eight other governments to send observers to the Melouza area to question survivors. Meanwhile, terrorism seems on the upsurge throughout Alge- ria. The explosion of time bombs in lamp posts on 3 June and in a casino on 9 June--re- sulting in 16 persons killed and 70 wounded--were the most spectacular incidents in Algiers since a milk bar bombing last fall. European youths, seeking vengeance for the casino bomb- ing, staged all-day riots on 11 June, during which they clubbed at least five Moslems to death. Con- curred in by OR113 KARACHI SESSION OF BAGHDAD PACT COUNCIL The recent meeting of the Baghdad pact council in Kara- chi demonstrated that, despite differences of opinion on pro- cedural and organizational mat- ters, the members are basically united in their desire to get ahead with the business of area defense planning. There is agreement that while the mem- bership of other Arab states is desirable, no pressure will be exerted to bring them in at this time. The Karachi meeting was the first at which Britain was formally represented since the Suez crisis. The Middle East members also enthusiastically welcomed American participation as a full member of the economic and military committees of the pact. They continue to hope for eventual full American mem- bership. The note of optimism on which the council adjourned does not reflect, however, the heated debates and inner conflicts of the four-day session when mat- ters of extreme national con- cern were discussed. The air cleared somewhat when the chief delegates, in restricted session, had an opportunity to voice their major national problems, such as Pakistan's concern over Indian neutralism and the Kash- mir problem. There were four broad areas of disagreement which involved the definition of terms of reference, delineation of the SECRET 25X1 PART 11 Approved For ReleaN@TW/6i]P4 Ce1 M59-00927A0013000309&IgO 2 of 16 Approved For Release 2005/02/14: CIA-RDP79-0092ZL001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY area of military responsibility, creation of a military command system and a declaration of common action in the event of Soviet intervention in the pact area. These basic problems were all apparently reconciled during the course of the ses- sion, but evidence of lingering dissatisfaction indicates that they will continue to be areas of controversy. Pakistan and Iraq are espe- cially interested in broadening the terms of reference to in- clude possible subversion from India and Israel. At one point Pakistani prime minister Suhra- wardy asserted that because of the limitations of the terms of reference, the "whole pact structure was being shaken." The pact members are most anx- ious to delineate the geograph- ical area of pact responsibili- ty in relation to NATO and SEATO and to develop a military defense command. The Middle East delegates especially re- gard the clarification of area responsibility as essential for military planning in peace and control of military operations in war. They have stated that without such planning the Bagh- dad pact is merely words. It was finally agreed to set up a unified Directorate of Combined Military Planning with the directorship rotating among the member countries and an American general or flag officer as deputy director. This organization is merely a planning structure, however, without command functions. The British delegate urgently pro- posed the beginning of a common Baghdad pact infrastructure program aimed at improving air- fields and improving the radar coverage of the area, especial- ly plugging the serious radar gap in Iran. Britain's desire to support the Middle East mem- bers' defense aims is high- lighted by the British offer of a $1,400,000 annual contri- bution for agreed infrastructure projects. The proposed political declaration, which would in ef- fect decree that Soviet inter- vention against any member of the Baghdad pact would consti- tute aggression against all members, was deferred until the Ankara meeting of the council next January. There was also a consensus that further meas- ures should be taken to continue the trend toward Egyptian prime minister Nasr's isolation and to cultivate a pro-Western poli- cy on the part of Afghanistan. The decision to omit from the final communique any ref- erence to such specific problems discussed as Palestine, Algeria, Cyprus, and Kashmir undoubtedly lessened the criticism from nonpact countries. I The major purpose of Prime Minister Nobusuke Kishi's visit to Washington, scheduled for 19-21 June, is to lay the foun- dation for a change in the "basic spirit" of the relation- ship between the United States and 'Japan. He believes that an enduring partnership cannot be developed on the basis of an arrangement which has its roots in the occupation period, and which to most Japanese signifies continued American domination of Japan. Kishi wants to revise the security treaty and SECRET 25X1 PART I I Approved For Releas4T4W 19021!4: F B079-00927A0013000300 ge 3 of 16 Approved For-Release 2005/02/14: CIA-RDP79-0092-7A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY administrative agreement, which to many Japanese. symbolize Ja- pan's subservience to the United States. There is no indication he wants to abolish the defense arrangements, but he apparently feels Japan should have a great- er voice in determining Ameri- can actions under the treaty. He may also seek a time limit for the treaty and a date for the withdrawal of American ground forces from Japan. The prime minister is ex- pected to try to set a date for the return of the Ryukyus and Bonins to Japanese sovereignty. He has expressed the hope that some of the 7,000 former resi- dents of the Bonin Islands will be permitted to return to their homes soon. He will also prob- ably seek an early release of the 67 American-sentenced war criminals still in detention. As for China trade controls, Japan will not immediately fol- low Britain's example in abolish- ing the China trade differential, but the prime minister will probably point out that Japan cannot accept for long a dis- criminatory position vis-a-vis its major competitors. Kishi recently completed a tour of six Asian nations de- signed partly to establish him- self in American eyes as a spokesman for Asia. Most ob- servers believe he failed in this purpose but that, as a re- sult of the tour, he is likely to make a strong plea, based on general Asian sentiment for the cessation of nuclear tests. Al- though he found only lukewarm support for an Asian development fund--a favorite project of his--he is expected to press for co-ordinating US financial aid with Japanese technology and materials in developing Asian economies. Kishi has avoided building up Japanese expectations regard- ing the outcome of his talks in Washington. He reportedly hopes as a minimum to gain American approval in principle for the establishment of a joint com- mittee to revise the administra- tive agreement, for the return of former residents to the Bonin Islands, and for the creation of an Asian development fund. He believes this would give him a political victory at home and permit his government to main- tain the close relations with the United States which he favors. The Socialists, who are planning a large rally to em- barrass Kishi on the eve of his departure, are preparing to launch a major attack on him if he fails to achieve his objec- tives. SECRET 25X1 PART II Approved For Relea 5/A4C%VNRLW9-00927A00130006IP-64 of 16 Approved For-Release 2005/02/14: CIA-RDP79-00927-A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY Bulganin and Khrushchev on 13 June ended their seven- day visit to Finland--their first to a non-Communist coun- try since the Hungarian revolu- tion. The two leaders made a special attempt to demonstrate that Soviet-Finnish relations constitute a prime example of friendly intercourse between countries regardless of their social systems. Although the Soviet delegation included high government, defense and trade officials, no outstanding problems between the two countries were negotiated with the exception of a trade proto- col. The official communique signed and issued on 12 June reportedly was based almost wholly on the Finnish draft. It reaffirmed Finland's neutral- ity and aim to "contribute to the development of a better mutual understanding and greater accord based on mutual confi- dence." Recognition of the princi- ple of universal membership as a "natural prerequisite" for the success of the UN reflects the Soviet desire for Finnish support of Red China in the General Assembly. Both govern- ments acknowledged the need for international control, a ban on the use of nuclear weapons, and an unconditional cessation of tests. An additional proto- col called for an expansion of trade in 1957 by $25,000,000. According to the terms, the So- viet Union will supply Finland with much-needed steel and oil products in return for Finnish power cables,and pulp and paper products. Stressing the exemplary nature of Soviet-Finnish rela- tions, the Soviet leaders during their visit urged Finland to promote conditions of peace in northern Europe. During the time set aside for formal talks, Khrushchev made a 40-minutes;..;.. denunciation of the United States, echoing the Bulganin letters to Norway and Denmark warning that small nations hav- ing atomic bases near the So- viet Union risk annihilation in the event of war. Khrushchev suggested that Finland should convince the Nordic countries of this danger. The reaction of the Finns to these overtures demonstrates their determination to maintain strict neutrality. Finnish foreign minister Virolainen told 25X1 Finland could not possibly com- ply with the Soviet request to influence the Nordic countries since such action would con- flict with Finnish policy of noninvolvement. The Soviet leaders were afforded a polite but modest reception by the Finnish public, and the presence of Bulganin and Khrushchev at the Finnish Trade Union celebration was given no special recognition. At a state dinner, Bulganin presented to Finnish president Kekkonen a, personal invitation from Soviet president Voroshilov to visit the USSR at the earliest convenient time. Voroshilov visited Finland last August, and any return visit by Kekkonen probably would not take place until next year in view of his scheduled trips to Iceland and Denmark. By continuing to promote exchange visits of high officials, and thus keep alive the Finns' hope that Karelia will be re- turned, Soviet leaders probably hope to keep Finland strictly neutral. SECRET 25X1 PART II Approved For ReleA 2 5 4CNO- 'PS19-00927A00130003(M$% 5 of .16 Approved For_Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY ORGANIZED RESISTANCE TO SOVIET LITERARY POLICY At a recent Communist party meeting of Moscow writers, it was openly charged that the editors of the much-criticized almanac Literaturnaya Moskva, supported byliberal_y uung authors--Dudintsev (of Not by Bread Alone fame), Yashtn aut or of-a satirical sketch Levers, a thinly disguised criticism of the Soviet system), Kron (whose Notes of a Writer has been severely criticize and others--had formed an "op- position group" on the basis of a "clearly defined literary- political platform not in con- formity with the party's policy in the field of literature." The platform is alleged to ad- vocate "democracy without bounds, "freedom of the press," and other "petty-bourgeois vacilla- tions." Although they actively de- fended their position at the March plenum of the board of the Moscow Writers' Union, these rebellious writers allegedly took a "pledge of silence" at the 14-17 May plenum of the All- Union Writers' Union attended by party secretaries Shepilov and Pospelov, and refused to acknowledge their mistakes or submit to group criticism. The report of the Moscow party meet- ing states that they still "per- sist in their errors." Furtseva spoke at the Mos- cow party meeting, and a deci- sion was adopted "which noted that ideological vacillations of certain Communists have led to factionalism by the Litera- turnaya Moskva editorial bard deserving the severest condemna- tion." Statements at the meeting and other recent developments indicate that the Literaturnaya Moskva board enjoys the taeft- support of a considerable number of less outspoken Moscow writers and that the Moscow writers' or- ganization has been convulsed for several months by internal quarrels centering around con- troversial publications in Literaturnaya Moskva and the literary journals Navy Mir and Moskovsky Literator. Since the dissident writers are of the younger generation, the attempt to restrain them by older ortho- dox writers inevitably has over- tones of a struggle between the generations. There is also evident resentment on the part of non-Russian writers of the privileged positions and luxuri- ous lives of the Moscow writers, who are almost exclusively Great Russians. Although a number of writers were purged or withdrew from creative work during Stalin's lifetime rather than conform to party directives, this movement is the first known organized re- sistance to the party line by writers since the early thirties and poses a serious problem for the regime. The editor of Moskovsky Literator has already been replaced, and more edi- torial shifts may well follow. F__ I SECRET 25X1 PART II Approved For ReleaWT 5/AVC@N i 9-00927A001300030ftlie 6 of 16 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Fiscal policies underlying this year's economic plan and budget in Hungary have been radically revised in order to meet some of the country's grave economic problems. Investments, military expenditures and out- put goals have been cut drasti- cally. Nonetheless, judging from the poor performance dur- ing the first quarter of this year, it seems that even these modest goals are too high. Although investment outlays have been cut 36 percent and military appropriations almost halved, budgeted expenditures are 25 percent higher than last year. The need to subsidize industries producing at a loss will account for over a seventh 25X1 of all expenditures budgeted and will negate in large part the economies achieved in military and in- vestment cuts. The severe in- flationary pressures at work in Hungary today are reflected in the fact that the expanded budget is accompanied by a plan to produce only 2.4 percent more this year than last--a goal about 7 percent below the level a- chieved in 1955. Adding to the infla- tionary pressures is a pronounced emphasis SECRET 13 June 1957 over 1956 and a decline in heavy industrial production of 4 per- cent. A major tenet of the economic plan is the promise of an increase in the standard of living, especially a 14-percent increase in the workers' pur- chasing power, but it seems in- evitable that inflation will make this impossible. Economic output during the first quarter was lower even than the regime anticipated in its modest plan. Industrial production was 20 percent be- low last year, and output per worker was down 10 percent. In- dustrial costs were up 14 per- cent and the average earnings of workers were up 20 to 25 per- cent. These factors combined HUNGARIAN GROSS INDUSTRIAL PRODUCTION (ANNOUNCED PERCENTAGE INCREASE OVER PREVIOUS YEAR) 11.3 r -7.7 (PLAN) 70611-4 on investment in such 13 JUNE 1957 nonremunerative fields as housing and cultural projects. Funds for investment in industry, agriculture, transport and com- munications have been cut 52 percent from last year. The plan calls for a 9- percent increase in the output of light and food industries to create conditions of very high-cost production. Industry continued to be hampered by shortages of raw materials, power and skilled manpower as well as obsolescent machinery. During this period, the rate of imports was double SECRET PART I I Approved For Release 2gh/ /V4 C1A=R P79-00927A00130003006 g 7 ?f 16 Approved For-Release 2005/02/14: CIA-RDP79-00927-A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY that of exports, the balance being paid with bloc credits. Since domestic production of consumer goods cannot bal- ance the increased purchasing power of 1956-57, the regime is planning to reduce exports of these goods in order to reduce inflationary pressures. The subsequent loss of markets is a serious deterrent to such a policy. Shipments from the Soviet Union are already ap- proximately double the rate of last year. Further inflationary pres- sure comes from the abandonment of compulsory farm deliveries which puts an extra five bil- lion forints per year into the hands of the peasants. The price rises of 10 May which run counter to the promise of higher living standards were designed to deprive the peasant of a part of this. The price increase may be the forerunner of other actions to "abolish the unhealthy discrepancies between purchasing power and stocks" by manipulating prices, wages and taxes. The handicaps of the Hun- garian economy are such that the minimal plan for 1957 will probably not be achieved; nor is the standard of living likely to withstand the inroads of in- flation. Credits from the bloc are forestalling immediate deterioration, but repayment must be started as early as 1959 in some cases. For the foreseeable future, Hungary will continue to be an economic liability to the Soviet bloc. ](Prepared by ORR) The East German regime's determination to stamp out de- viationist ideas in university and intellectual circles is being emphasized at discussions between party leaders and uni- versity officials throughout East Germany. Party leaders have made it clear that no con- cessions such as have been made to the Polish intelli- gentsia will be granted in East Germany, and have indicated their belief that a purge of the universities is necessary. In discussing the problem in Leipzig on 2 June, first secretary Walter Ulbricht said that "the working class wants honest work... study... and scientific discussions at uni- versities ... but we will not tolerate the organized work of Western intelligence agencies at our universities." Threat- ening to withhold scholarships, without which few students can attend universities, Ulbricht warned that "those who cannot be convinced, need not accept scholarships of the workers and peasants in the German Democratic Republic." Elsewhere, party officials have stated that major emphasis in the future would be placed on making good socialists of stu- dents. They criticized the party for its failure to de- velop strong cadres in the uni- versities capable of overcoming the limitations in the know- ledge of students, limitations which had been exploited by the "enemy" to foment unrest and provoke dissension. Occasional arrests of students allegedly subverted by the West have been widely publicized as a warning to students and faculty members alike. SECRET 25X1 PART I I Approved For Relea %/c '.~ A%-00927A0013000 -68 of 16 Approved For-Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET Despite the vigorous student opposition which greeted the government's an- nouncement limiting vacation travel to the West by univer- sity students, the restrictions probably will be extended to elementary, trade and high school students. In the past several years student travel to the West has been quite ex- tensive. In a corollary move, the regime, has stepped up pro- paganda urging students to REFUGEES 1956 FLEEING 64,549 TO JANUARY THROUGH MAY volunteer for mining, farm and factory work during the summer holidays, and has announced a broad summer camp program. The travel restrictions, the most stringent limitation on intra-German travel since 1953, are aimed primarily at curbing student visits to West Germany during the summer va- cation. The Communists not only fear that many students would defect if permitted to travel freely, but that those who returned would be infected by democratic ideas and make invidious comparisons of life in East and West Germany. Al- though the regulation permits "visits with close relatives" and trips "which serve either scientific purposes or peaceful rapprochement between the German Democratic Republic and the state concerned," it is clear that permission for visits to the West will be granted only to those whose loyalty is beyond question. Undoubtedly alarmed by the gov- ernment's attitude and in order to avoid army service, young East Germans are de- fecting to the West at a rate even higher than last year. De- spite a drop of approximately 33 percent in the total number of refugees fleeing to West Berlin so far this year, there has been an increase in the 17-24 age group to 14,883, 34.6 percent of the total, as compared with 13,234, 20.5 per- cent at this time last year. As a result of his prelim- inary investigation of the Cyprus question, NATO Secretary- General Spaak believes that guaranteed independence offers the most helpful basis for reopens ; negotiations. British governo^ Harding wants London to make some positive move now toward eventual negotiations with the Cypriots, but the gov- ernment perfers to await the outcome of Spaak's endeavors. Spaak, who for several weeks has been exploring the positions of Britain, Greece, and Turkey through their North Atlantic Council representa- tives, handed a working paper SECRET 25X1 PART I I Approved For Releas OM?/0~)iQ :9i -mil`%-00927A00130003dt 9 of 16 Approved ForRelease 2005/02/14: CIA-RDP79-00927-A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMIcARY on his views to US ambassador Perkins on 6 June. Spaak feels that the only possible solution lies somewhere between the two extremes of union with Greece or partition, and he has con- cluded that the best basis for getting negotiations started would be internationally. guaran- teed independence for Cyprus for either an indefinite or a specified period. The idea is premised on the drafting of an acceptable constitution which would clearly enunciate minori- ty group rights. Defense of the island would be ensured by military base rights granted to Britain, if necessary under a NATO arrangement. The American consul at Nicosia, after a long talk with Governor Harding on 8 June, believes Harding wants some further statement from London indicating that Britain is trying to keep the door to limited self-government open. The governor fears that the Cyprus issue is being "pushed aside" in London and that even the reform plan for local gov- ernment will probably not be published now because of Turk- ish apprehensions. Cyprus government officials have been urging London to call a con- ference of representative Cypriots immediately. Harding spoke somewhat bitterly of the new British Labor Party manifesto advocat- ing.self-determination for all dependent territories, saying that it will virtually end any chance that Makarios might be- come less intransigent. Al- though the general policy advo- cated is not new, the issuance of the manifesto will probably further encourage Makarios to insist on self-determination in the hope that a Labor govern- ment will eventually come to power in Britain. For the present, he is expected to visit various foreign countries for propaganda purposes and to go to the UN General Assembly this fall. London is apparently post- poning any new move on Cyprus till Spaak has made some prog- ress and till certain studies concerning implementation of the Defense White Paper have Produced a decision on Britain's long-term need to retain bases on the island. Lt. Col. Sumual, commander in East Indonesia, and army chief of staff General Nasution have signed an agreement in Makassar placing the entire East Indonesian command direct- ly under Djakarta. By this agreement Sumual relinquished his post as commander of East Indonesia and reportedly is to become a candidate for training in the US. According to a Makassar radio broadcast, how- ever, Sumual claims to have been appointed chief of staff of a new "East Indonesian Interregional Command." This command, essentially the same as the old one, is to be divided into four military regions,one of which was created on 1 June. The other three are to be activated shortly and to be headed by the three regi- mental commanders already in the area who presumably are followers of Sumual. This military reorganiza- tion is part of a "mutual understanding" allegedly reached between Sumual and Nasution for "normalizing" military, economic and SECRET 25X1 PART, I I Approved For Rel IFA04*2/1%9"~- 79-00927A0013000 Y-6IU of 16 Approved For-Release 2005/09&RffP79-00927-AO01300030001-6 financial relations between East Indonesia and the central gov- ernment. Whatever Sumualls authority under the reorganiza- tion may be, it is not at all clear that the "mutual under- standing" will be marked by genuine co-operation between Djakarta and East Indonesian civil and military officials. Sumual has stated that the 2 March proclamation in which he virtually proclaimed autonomy for East Indonesia remains in force, but gives lip service to Djakarta's authority by say- ing that it is to be implemented within the framework of national policy. The economic consequences of the separatist movements in East Indonesia and elsewhere are becoming increasingly ap- parent. Prime Minister Djuanda told parliament on 7 June he would shortly submit the $100,- 000,000 Soviet technical aid agreement for ratification-- further indication that the gov- ernment will use foreign aid to meet regional demands for eco- nomic development and thereby attempt to buy back provincial loyalties. The $15,000,000.US loan signed on 30 April report- edly has already been earmarked for road building in Sumatra and for small electric power plants chiefly in non-Javanese communities. "virtually hopeless." Meanwhile, the government is deeply concerned over its financial position which is de- teriorating as a direct result of the illegal trade in East Indonesia and Sumatra. An of- ficial of the Bank of Indonesia has stated that unless the gov- ernment can come to terms with 25X1 the provinces without delay, the financial situation will be SITUATION IN LAOS Laotiam prime minister-des- ignate Katay continues his ef- forts to form a cabinet in which representatives of the four major Laotian parties will serve. His chances of success, while still fair, have been somewhat reduced as a result of the un- favorable reaction of a number of deputies to his proposed policy toward the Pathet Lao. The decision of former premier Souvanna Phouma, who controls a wing of the Nationalist Party, to withdraw his support from Katay poses a threat of a split within the latter's own party. Such a development might en- courage deputies in the other parties, many of whom are wary of Katay's personal ambitions, to combine with Souvanna Phouma in sufficient numbers to block a Katay government. Judging from the advance copies of his investiture speech, Katay will call for a foreign policy based on strict neutral- ity and will propose continued negotiations with the Pathet Lao on terms less favorable to the Pathets than those advanced by his predecessor, Souvanna Phouma. While Katay indicates that unification must be based. SECRET PART II NOTES AND COMMENTS Page 11 of 16 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET on agreements previously con- cluded between Souvanna and the Pathets--including entry of Pathet representatives into the Laotian government--imple- mentation of these agreements is to depend on prior dissolu- tion of the Pathet Lao movement and reimposition of royal gov- ernment authority over the two northern provinces. In order to check Pathet stalling, nego- tiations are to be limited to a two-month period and to be on a new basis: the Pathet Lao will no longer bargain as a "state within a state" but will be regarded as "outlaws" who fought in the Viet Minh army against their own country. The next session of Com- munist China's National People's Congress, scheduled to open on 20 June, will probably stress Peiping's policy of general re- laxation in internal affairs and provide the Communists with an opportunity to demonstrate the greater freedom of debate sanctioned in Mao Tse-tung's recent doctrinal pronouncements. The National People's Con- gress is nominally the highest organ of government in China and, like the USSR's Supreme Soviet, provides the regime with a platform from which to an- nounce major policies and plans. At the forthcoming session, non- Communists will probably enlarge on the unusually frank criti- cisms they have been voicing in recent weeks of the political impotence of China's puppet parties, of dogmatism in the arts and in science, and of the lack of real authority given to nonparty personnel. While a good many of these criticisms may have been stage- managed, some of them appear to have gone beyond the limits of approved argument. For ex- ample, an elderly physiologist's condemnation of the proposal to abolish the Chinese script in favor of an alphabet is probably the first time since the present regime was established that a policy approved by Mao himself has been publicly criticized. The heterodox nature of the criticisms now being permitted suggests that Peiping is con- fident that a bold liberaliza- tion policy will not get out of hand. Peiping's position ap- pears to be that blunt condemna- tions of the mistakes of sub- ordinate party personnel in all fields will draw the fire of malcontents away from the re- gime itself, improve the work of scientists and other intel- lectuals, and increase the pres- tige of the party's top SECRET 25X1 PART II Approved For Releas T /MP4 %6WF9-00927A001300030 12 of 16 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY leadership for advancing a "sincere" policy. Mao's pres- tige in particular appears to be engaged in the matter and he has declared his intention to make the "all flowers" poli- cy a permanent one. Extending the relaxation policy to the economic field, the congress will undoubtedly highlight the regime's inten- tion to lighten the burden on the Chinese people by modifying overambitious economic programs. (See Part III, p. 3) The high point of the con- gress is likely to be Chou En- lai's foreign policy report, which is expected to be a full statement of Peiping's current stand on major international issues. On the matter of Taiwan, he will probably refer to the recent riots in Taipei, stress the increasing possibility of a "peaceful liberation," and offer to negotiate with the Chinese Nationalists. Chou is also expected to give unequivo- cal support to Soviet policies toward the West and to under- score the importance of bloc unity, while pointing out that such unity does not require com- plete agreement among the Com- munist countries on all matters. by ORR) (Concurred in 25X1 COMMUNIST CHINA CHARGES INTRUSION BY AMERICAN AIRCRAFT Chinese Communist anti-air- craft batteries near Swatow fired on and damaged an Ameri- can naval aircraft from the carrier Hornet off the southeast China coast on 12 June. Fol- lowing the incident, Peiping promptly issued its usual warn- ings in such cases. Declaring that the regime will permit no violation of its land, sea, or air space, Peiping charged that American authorities "must bear the consequences" for the "prov- ocation," which was "obviously aimed at creating new tensions in Asia." assist in the Nationalist evacua- tion of the Tachen Islands. In January 1956, when the Seventh Fleet conducted exer- cises about 125 miles east of the Tachens, Peiping reacted swiftly with charges of Ameri- can violations of the air space over Communist-held offshore islands. Last August, Peiping was quick to publicize similar charges when American naval units operated about 100 miles south of Shanghai during a search for the crew of an Ameri- can naval aircraft shot down 25X1 by the Chinese. Peiping's charges were broadcast some 13 hours after the episode. The Chinese Com- munists have reacted with similar dispatch in past in- cidents involving alleged in- trusions by American aircraft or the activities of American carriers off the China coast. In the winter of 1955, Radio Peiping responded within hours when American naval forces appeared off the China coast to SECRET PART II NOTES AND COMMEN pp 13 of 16 Approved For Release 2005/02/14: CIA-R 9-00927A0013000300-'9 Approved For Release 2005/02/14: CIA-RDP79-0092001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY The approach of any unidentified or hos- tile aircraft in this area. Chinese Commu- nist propaganda has linked the alleged intrusion with the recent Taipei riots. An editorial pub- lished on 13 June in the authoritative People's Daily, which in most cases estab- lishes the Chinese Communist propaganda line, declares that the US is resorting to new provocations in order to sustain its policy of "hos- tility and aggres*- sion" toward Commu- Southeast China nist China--which the Chinese claim has been shaken by anti- American demonstrations on Tai- wan and the British move to re- lax controls on trade with Pei- ping. Communist propaganda will use the incident in new charges of US "aggression" in connec- tion with the recently stepped- up campaign for "peaceful libera- tion" of Taiwan. CUBAN GOVERNMENT'S POSITION WEAKENS President Fulgencio Batis- ta's government has suffered a noticeable loss of prestige during the past few weeks with the failure of its drive against the rebels in eastern Cuba and of efforts to promote a politi- cal compromise in Havana. Ba- tista's ability to retain con- trol until the end of his term in February 1959 is uncertain. Early in the first week of June, the government announced a drive to wipe out within a week revolutionary activities in Oriente Province, stronghold of rebel leader Fidel Castro Ruz and recently the scene of additional rebel landings. The government has failed to rout the rebels SECRET 2M3 25X1 PART II NOTES AND COMMENTS 14 of 16 Approved For Release 2005/02/14: CIA-RDP79-00927A00130003 0 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET Extreme repressive mea- sures--including an unofficial curfew in Santiago de Cuba-- have further alienated the pre- dominantly anti-Batista popula- tion of 'Oriente Province. Some 100 families have been arbi- trarily evacuated from their homes near Castro's headquarters in the Sierra Maestra, and 180 miles of coastline in southern Oriente were blockaded by the government in an attempt to cut off the rebel supply line. Rumors that government forces are using both napalm and mus- tard gas against Castro al- though officially denied--have provoked angry protests from every part of the country. The failure to curtail rev- olutionary activity by military force has had its counterpart on the political scene. Exports by a joint congressional com- mittee to promote an electoral agreement between government and opposition parties, have been stalemated by the govern- ment's recent refusal to grant a general amnesty, and last week the opposition Autentico Party withdrew its representa- tives.. Several opposition po litical leaders have stated that they will not participate in elections unless Batista grants reasonable electoral guarantees. Batista's only concession to date has been agreeing to move up the date of national elections from November to June 1958 without advancing the inauguration date from February 1959. Dissatisfaction has been apparent in part of the labor movement and has even been re- ported among government of-. ficials normally and military considered __ personnel loyal to Batista. F 7 25X1 The failure of either of the major Canadian parties to win a majority in the 10 June election, and the absence of any apparent basis for a coali- tion government, suggest that new elections may be held soon. The American embassy in Ottawa reports that most ob- servers expect Prime Minister St. Laurent to resign immed- iately without convening the new Parliament. This would permit Conservative leader John Diefenbaker to form a new gov- ernment with a view of seeking a dissolution when circumstances offered him an electoral advan- tage. In the meantime, however, the Conservatives would be forced to rely on the votes of the right-wing Social Credit Party and of the socialist Co-operative Commonwealth Federa- tion. Both these parties have reportedly already indicated willingness to "co-operate" with whatever minority government is formed until new elections are held. Should Diefenbaker and St. Laurent both decline to form a minority government, however, the governor-general could call for new elections as early as September. The recent campaign re- volved around domestic issues, SECRET PART I I Approved For Releas4OH3/0O :qW WA-00927A00130003000e 15 of 16 Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY including high taxes, agricul- tural surpluses, and welfare legislation. The Conservative attack on the Liberal record regarding these issues was colored by their belief that United States interests have been allowed to acquire too much control over Canadian re- sources. The embassy-comments that the Conservatives can be expected to show greater sensi- tivity about Canadian sover- eignty, especially in the joint defense field. Assuming that the Conser- vatives take power, the embassy SECRET comments that their inexperience and lack of working policies probably will create some prac- tical difficulties in conducting relations with Canada. In foreign policy, a Conservative government would be likely to draw Canada closer to Britain and the Commonwealth, and reduce its role in the UN. While no change is to be expected in Canada's support of NATO, the embassy believes that intensi- fied nationalistic feelings will become increasingly evi- dent in Canada's economic re- lations with the United States. 25X1 PART I I NOTES AND COMMENTS Page 16 of 16. Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 Approved For Release 200 IA-RDP79-00927A001300030001-6 CONFIDENTIAL NEW FERMENT IN EASTERN EUROPE STIMULATED BY CHINESE COMMUNIST DOCTRINES Communist intellectuals in Eastern Europe have begun to turn to Communist China for in- spiration and ideological sup- port. Polish intellectuals are quoting Chinese doctrines con- cerning "all flowers" and "in- ternal contradictions" in sup- port of their own convictions, and writers in the hard-line Satellites have begun to do the same. While they probably fear a groundswell of Chinese-in- spired intellectual ferment, the Satellite regimes, with the exception of Hungary, have de- liberately avoided direct com- ment on the Chinese ideas. The approach in Hungary--stressing that the new Chinese doctrines are not necessarily applicable elsewhere in the Sino-Soviet bloc--has recently been sanc- tioned by Khrushchev himself and may become the orthodox line throughout the Soviet bloc. A relatively liberal atti- tude toward freedom of expres- sion in the arts, coupled with professions of toleration of non-Marxist thought, became the party line in Communist China a full year ago. It was not until this year, however, that liberal intellectuals in Eastern Europe began to cite the Chinese doctrines as support for their own ideological tenets. Until the suppression of liberalism in Hungary, the intellectuals had depended on themselves, or looked to Yugoslavia, to the West and to the pronouncements, of the Soviet 20th party con- gress for inspiration and en- couragement. stimulated the search for sup- port from a new quarter. The Chinese doctrine--"let all flow- ers bloom"--seemed to offer such support from an unimpeachable Marxist source. The "internal contradictions" thesis, fully expounded in late February, added new scope to the Chinese concepts and further encouraged the Satellite liberal Communists, particularly those in Poland. While the Chinese would be averse to intrabloc polemics develop- ing over their doctrines, they have nevertheless suggested that their recent formulations are applicable to all Communist countries. Peiping's 29 December state- ment on intrabloc relations, for example, has been described by one Chinese writer as the solution to "certain theoretical points on socialist societies which have not been set forth or concretely discussed in the Marxist classics." Mao Tse- tung's formulation on the exist- ence of contradictions between the masses and the leaders in socialist societies has been acclaimed in China as a con- tribution to basic Communist theory which supersedes the earlier theories of Lenin. The Polish Interpretation The belief in Poland, shared by both the liberals and the regime, that winds of "funda- mental" and "strategic" signif i- cance are "blowing mightily in China" has been well publicized in the Polish press, particular- ly since Mao Tse-tung made his 25X1 "secret" speeches to the Chinese party in late February and earl Soviet condemnation of Titoism and of "revisionism" in Poland, and the general emphasis on ideological conformity fol- lowing the Hungarian revolution, I _j March. The Gomulka re- 25X1 gime views the Chinese doctrines as props for its own convictions concerning Poland's road to T Approved For Release 0O5TU21 CFA BPY9-00927A001300030001-6 PART III PATTERNS AND PERSPECTIVES Pace 1 of 11 Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 socialism and the healthy evolu- tionary development of Marxism. In late May, the regime established a Polish-Chinese Friendship Society, the first such organization in the Satel- lites. The society will pub- licize Chinese theories in Po- land, which--according to a Pol- ish politburo member--can pro- fit from Chinese experience as much as it can from the Soviet. The Polish liberals, when attacked by the regime for "re- visionist tendencies," cite Chinese thought. to bolster their arguments against censor- ship and authoritarian attitudes in general. Let differences within the nation be solved by "long-range, patient and ex- haustive arguments and not by means of vulgar, primitive or administrative methods," the Poles repeat after the Chinese. To a Soviet writer's remark last winter that flowers may bloom but weeds must die, the Polish liberals answered that killing the weeds may also elim- inate some of the "choicest flow- ers"; further, they argued, who is to tell the difference be-4, tween the two? Marxism itself was once considered a "weed." A Slovak Echo Although the Poles claim that the Chinese concepts are "pregnant with significance" and should thus serve as a "starting point for discussion on an international scale," little overt discussion has as yet taken place in the hard-line Satellites. Only in Czechoslovakia have the intellectuals made public use of the Polish interpretation. Ignoring staunchly orthodox party dicta, the Slovak writers association journal in mid-May printed an attack against party dogmatism under the guise of a discussion of Chinese attitudes toward art and literature. Declaring that the people have the right to discuss non-Marxist as well as Marxist thought, the article observed that non-Marx- ists have existed and will con- tinue to exist and that, as a purely logical consideration, the socialists cannot play a leading role within a society unless there are some nonsocial ists around to be led. It also noted--as have the Polish com- mentaries--that Marxism-Leninism should certainly not be afraid of criticism since it is strong enough to withstand any test. The Regimes React Private discussions of the Chinese concepts--in large part inspired by the public Polish comments--are undoubtedly taking place throughout the Soviet bloc. The Hungarian party, however-- perhaps because its problems with the intellectuals are the most urgent--is the only orthodox one as yet to provide a full analysis,of the Chinese doctrines and their implications for East- ern Europe. A party lecturer on the Budapest radio in late May, discussing "What is really going on in China?" give rel- atively, frank treatment to the Chinese concepts but stressed that the Chinese themselves would protest the wholesale ap- plication of their doctrines in Hungary, where "counter.revolu--- tionary" elements are still alive. The Rumanian regime has in a small way repeated the Hun- garian approach, without pro- viding full analysis. It has acknowledged that the Chinese party is applying Marxist- Leninist theory to its own con- crete conditions and that the Rumanian party could learn.a great deal from the Chinese. But this acknowledgment em- phasized the "purity" of the Chinese approach, the "glorious" leadership of the Soviet party, and indicated that things to be learned from the Chinese are re- lated only to matters already subscribed to by the Rumanian SECRET PART I ,,Approved For R //0 f : C lWi7A001300030091 fe 2 of 11 Approved For Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY and Soviet parties. The basic questions concerning "internal contradictions," toleration and persuasion were not men tioned, an apparent warning that such things are not to be discussed in Rumania. The other Satellite regimes presumably hope that an indirecti In addition, specific han- approach will be sufficient to dirng of `the Chinese -doctr.ine still critical questions. Most would involve the regimes in of the orthodox regimes have topics of primary interest and recently stepped up their at- tacks on literary deviations and have emphasized the need for over-all political conformi- ty and the extent of "enemy" activity in Eastern Europe. This indirect handling of the problem probably will ac- complish little. As long as the Poles accord publicity to their interpretation. of the Chinese concepts--without Chi- nese repudiation--discussion among liberals elsewhere in the Satellites is apt to grow and to become overt, appearing--as it already has in Slovakia--in the pages of literary journals. Direct discussion of the Chinese doctrines by the hard- line regimes might keep most of the ferment beneath the sur- face, but, at a minimum, it would probably prove an embar- rassing task, Emphasis on the nonapplicability of many of the Chinese ideas in essence reasserts the many-roads-to- The Soviet Reaction SHORTCOMINGS IN COMMUNIST CHINA'S ECONOMIC PLANNING The Chinese Communists re- cently have admitted they made "serious mistakes" in being overambitious. in their economic planning, implying that this was in part a result of their past dependence on Soviet eco- nomic advice. These mistakes, they say, are the cause of the raw material and consumer goods shortages as well as the finan- cial stringencies of the past six months which forced Peiping to make 1957 a year of retrench- ment and austerity. Indications are that this more conservative outlook will also affect China's Second Five-Year Plan (1958-1962). The planning chiefs have recently disclosed that the investment SECRET socialism thesis, and direct discussion might have to be combined with "administrative" measures against the liberals, a procedure inveighed against by the Chinese. concern to the USSR, which, to date, has displayed both caution and sensitivity when confronted` with Chinese ideology. That the USSR has misgiv_ ings about the influence of Chi- nese formulations on other bloc countries--as first suggested during the Soviet-Polish "liter- ary" debates during the winter and spring--was confirmed by Khrushchev on 2 June during his appearance before an American television panel. Replying to a direct question, Khrushchev suggested that Mao's "new ideas" might be applicable to China but not to the USSR. He specif- ically denied that there are any contradictions between the masses and the leaders in the Soviet Union. Moscow clearly underscored its sensitivity on this last point by'deleting' this statement from the "tran script' 'of the interview fea- tured'on'the Soviet radio and in the press. 25X1 PART I ,,Approved For Re"0 : f*WJ~Mi7A0013000300e 3 of 11 Approved For-Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET pattern for the plan will be altered to give an increased proportion of funds to light industry and agriculture and that more emphasis will be put on the construction of small- and medium-sized' enterprises which can be designed and equipped (the objective is up to 70 to 80 percent) from China's own resources. The Planning Process An annual economic plan begins to take shape when the top levels of the party--ideally in the last half of the preced- ing year--draw up a set of "con- trol figures" or targets for all major economic activities. These "control figures" would appear to have already had the benefit of initial study by the government planning bodies, the State Planning and the Na- tional Economic Commissions, if only because of the interlocking party and government positions of the principal planners, Lu Fu-chun and Po I-po. In addi- tion, Soviet advisers very likely play an important role in these deliberations. These "control figures" are then broken down and sent to the ministries concerned for study. The minis tries sound out the principal enterprises under their jurisdiction before arriv- ing at an estimate of the feasi- bility of the performance levels required. When they are satis- fied as to what level can be reached, they submit the con- clusions to the National Eco- nomic Commission, which then be- gins the delicate task of "bal- ancing" the various sections into an internally consistent plan. After making the needed adjustments, the planning organ submits a draft plan to the top party leaders. When approved, it becomes a "final".plan-which is then supposed to be routed through government channels for ritual approval. CHINESE COMMUNIST ECONOMIC INDICATORS SECRET 25X1 PART III Approved For F ml$QB5/A 4p N P p 27A001300030%lgg 4 of 11 Approved For_Release 2005/02/14: CIA-RDP79-00927A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY Planners at Work--1956 "Don't bite off more than you can chew," warned the party leaders at the outset of the First Five-Year Plan (1953-19- 57). But when the 1956 plan was drawn up, the top command, spirits buoyed by the gratify- ing 1955 harvest and by the rapid and easy socialization of agriculture and private busi- ness, forgot the warning. One of them is reported to have re- marked,"We invested too much, we went too fast, we were wrong." By late 1956, resulting difficulties could no longer be ignored. Serious shortages of steel, electric pow- er, coal, cement, lumber and other building materials developed. Increases in individual pure,, chasing power outdis- tanced the supply of consumer goods. Ag- gravating the result- ing inflationary pressures was the in- flux of a large un- planned addition to the urban labor force. The state's agricul- tural procurement programs, especially those involving grains and cotton, began to lag. The collecti- vization of agricul- ture did not yield anticipated increases in output and actually drove down production of secondary farm products. State buying prices were raised on some agri- cultural products, and agricul- tural loans were greatly in- creased. The state's carefully shepherded reserves were run down and revenues were disap- pointing. The socialization of com- merce also seemed to hinder do- mestic trade. Wastage up to 25 percent of total investment was discovered on construction pro- jects. In addition, there were transportation bottlenecks, par- ticularly on the rail net facing the North China Plain. On top of all this, events in Eastern Europe probably brought home to the Chinese Com- munists the dangers inherent in too slavish an imitation of the Stalinist emphasis on heavy in- dustry. According to an article in a Chinese journal last Decem- ber, questions regarding the con- flict between the preferential development of heavy industry and care for the people's live- lihood were raised by "some com- rades" after seeing the "mis- takes" of certain Eastern Euro- pean countries. Planning for 1957 By the time the leaders began programming for 1957 their optimistic mood had largely dis- sipated. The "final" 1957 eco- nomic plan will not be made pub- lic until the National People's Congress meets late this month, but it is already clear that the regime sees this as a year of retrenchment and austerity. There is some evidence that the investment program for the year may be cut, perhaps by 10 to 15 percent. A number of SECRET PART I I I Approved For Re Aff0i $ : J~ rVEe 5 of 11 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY important projects-in heavy in- dustry are being suspended or slowed down. Investment by central industrial departments is nevertheless to increase slightly and will be concen- trated in those fields where shortages have been most crip- pling--iron and steel, electric power, coal and building mate- rials. The pattern of invest- ment in railroads has been shifted to lay primary emphasis on improving the capacity of overworked older lines. Budgetary spending on ad- ministration and defense is due for a cut. For example, the operating funds of the army's Rear Services Department, which "manages and uses" a large share of all military funds, have been cut by one third, and the armed forces are to be reduced in size as an economy measure. The uneven pattern of Chi- na's industrial growth is indi- cated by the fact that, while more than 20 of the 46 key in- dustrial targets were reached by the end of 1956, 15 will not be met even at the end of the plan this year. Petroleum, railroad, equipment, nonmilitary ships, and almost all important consumer goods will not meet plan goals. To help ease China's finan- cial strains, the Soviet lead- ers have agreed to permit Pei- ping to delay delivery of about $100,000,000 in agricultural goods until 1958. Moscow re- portedly has also agreed to a moratorium on repayment of Chi- na's debt, which now totals around $2 billion. Implications for the Future Commentary surrounding the campaign to popularize Mao Tse- tung's theses concerning "con- tradictions" suggests that pre- occupation with gigantic, modern enterprises is being reconsid- ered in favor of a more modest approach which will yield quick- er returns. Central among the economic "contradictions" is the demand for building China into an advanced industrial power and what are referred to as the "realities of China's backward agricultural economy." Peiping recently acknowledged that its avid pursuit of -expen- sive'.large-scale modern plants with high standards of construc- tion and automation has tended to "overemphasize the future and overlook the present." More- over, it is a policy which af- fords only limited employment opportunities, aniimportant con- sideration in overpopulated China. The correctness of past investment ratios between heavy and light industry has been called increasingly into ques- tion. China began the First Five-Year Plan with the ratio standing at 8:1, but later re- duced it to 7:1. (The ratio in the Soviet Union, which the Chi- nese say stood at around 6:1 in the First Five-Year Plan, has more recently been held at about '10:1; ) As long ago as last December a writer in the official Peo- ple's Daily--possibly a party leader us ni g a pseudonym--sug- gested that China was becoming a "prisoner" of the theory that the people's livelihood had to be sacrificed to the demands of heavy industry. He asserted that a stubborn pursuit of this policy might lead to a. situation where "we have neither the in- dustry nor the people." Other writers have argued that the ratio should be reduced to 6:1 for 1957 and the Second Five- Year Plan, and that agriculture should also be given a greater share of total investment. Chairman Mao reportedly has associated himself with these sentiments, and the planning chiefs have agreed that in the Second Five-Year Plan (1958- 1962) increased proportional investment should be made in agricultural and light industry, SECRET PART I I I Approved For RFR~ RNS /? b4 pO Ali W J111- jgZffl7A001300030Page 6 of 11 Approved For-Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 13 June 1957 although heavy industry should still retain priority. They have also proposed that the country, while continu- ing to build some big modern plants in the Second Five-Year Plan, should emphasize medium- and small-sized enterprises which not only'can be designed and equipped by China itself, but also can be built more quickly and at less cost. Most projects should be designed by China's own experts with the aim of providing 70-80 percent of the necessary equipment domestically. Construction costs should be cut by 20-30 percent and a more fluid econom- ic administration should be set up to give greater power at the lower levels. Extensive re- visions are probably being made in the earlier targets for the plan. It was probably Mao Tse- tung himself who settled the dispute on planning, including that surrounding the heavy/light, ratio, just as Mao personally reversed the party line in 1955 on the speed of agricultural 25X1 socialization. 1 =17 Liu Shao-chi 25X1 and Chen Yun for recent econom- ic failures implies they were more obstinate than other party leaders involved in planning, aLcli. as Chou En-lai, Li Fu-chun and Po I-po. However, all five ap- pear to be in good standing at this time. Mao may have sent some of these on extended trips to get Tirs'thhnd evidence of the need for a change in the line; Liu, Li and Po have-all made trips in recent months. While it seems unlikely that any heads will roll, there is strong evidence that Peiping's leaders are sobered and have 25X1 adopted a considerably more con- servative approach to economic planning. 25X1 (Prepared by ORR) SINO-CEYLONESE RICE-RUBBER AGREEMENT TO BE RENEGOTIATED The Ceylonese government is preparing to renegotiate with Communist China, the five- year rice-rubber agreement which expires at the end of 1957. A delegation tentatively scheduled to visit Peiping in June for this purpose will probably find the Chinese dis- inclined to sign an agreement as favorable as that obtained by Ceylon in 1952. Signature of a less favorable agreement would subject Prime Minister Bandaranaike's government to considerable criticism. A breakdown of negotiations with- out agreement could have reper- cussions seriously affecting the government's stability. The 1952 Agreement The first five-year rice- rubber agreement involved the annual exchange of 50,000 metric tons of rubber-..>about half of Ceylon's annual production-- in return for 270,000 metric tons of Chinese rice. China agreed to pay a higher price for rubber than the world market rate, and the prices of both commodities were to be negotiated annually to take account of fluc- tuating rates. The arrangement has resulted over the past four years in an average annual net profit to Ceylon of roughly. $10,000,000, which China has normally paid in sterling. SECRET PART I I I Approved For ReWAte J%%02 : 9 ~,9r-pQ jA001300030001g-6 e 7 of 11 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY At the time of signing in 1952, the international rubber embargo against Communist China was effective. Ceylon did China an important favor by opening the first significantbreach.in the trade control system. Si- multaneously, China assisted Ceylon out of a precarious posi- tion by assuring it of a regu- lar source of rice. Ceylon imports about two thirds of its total food sup- ply and half of the 1,000,000 tons of rice it consumes an- nually. In 1952, it was suf- fering from the effects of crop failures throughout South and Southeast Asia. Traditional suppliers such as Burma were unable to fill Ceylon's needs. Furthermore, Ceylon badly needed a stable market for its rubber. During the war, the West had been cut off from Southeast Asian rubber, and Ceylon had sold its total pro- duction to the Allies. The re- emergence of Southeast Asian competition in the postwar period, the poor condition of Ceylon's rubber plantations which had been overtapped, high production costs, and the grow- ing use of synthetic rubber put Ceylon in a poor market position. Changed Conditions Prime Minister Bandaranaike has recently said that his gov- ernment desires to renew the rice-rubber agreement, presumably on terms equally favorable to Ceylon. Under present condi- tions, however, Peiping can be expected to take a harder bar- gaining position than in 1952. It now can buy rubber freely in Southeast Asia at world market prices, and having obtained its immediate political objective in Ceylon--the exchange of am- bassadors--Peiping may no longer see sufficient political advan- tage in paying premium prices. The Chinese Communist negotia- tors therefore are likely to offer no more than the current world price. They may also suggest substitution of com- modities for sterling in set,-tling-any.annual_:tradb balance. During the past two years, Pei- ping has sought unsuccessfully to lighten the burden of its sterling payments by linking Chinese goods and Ceylonese rubber in a package deal; such a plan has been repugnant to Colombo. If the Ceylonese prove obdurate, Peiping may shift its rubber, purchases to Southeast Asia, an area where it is seeking closer political and commercial ties. In fact, recent reports from Singapore indicate renewed Chinese interest in the Malayan rubber market, formerly the principal source of China's imports. Diversion of buying to Malaya at this time would give Peiping an entering wedge for contacts in the Federation-- scheduled to gain independence next August. Such,1a move would disrupt the $65,000,000-$70,000- 000 yearly rice-rubber trade, depriving Ceylon of the $10,- 000,000 annual profit which Colombo has come to count on in budgetary planning. Other Possibilities These considerations have become sufficiently important for Bandaranaike to accept a watered-down agreement rather than lose the Chinese market. His difficulties in seeking al- ternative arrangements elsewhere would probably create more problems than he could solve. The USSR has claimed that there are mutual advantages in increasing Ceylonese-Soviet trade, but seems unlikely to re- place China in the Ceylonese rubber market. The USSR has bought a large part of China's purchases from Ceylon, but largely to aid China in breaking the trade embargo. Should Mos- cow now decide to buy some of Ceylon's output, it would prob- ably not be willing to pay premium prices. SECRET PART I I I Approved For Re l~~ M&2 RS Q VISIA001300030(Page 8 of 11 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 SECRET CURRENT 'INTELLIGENCE WEEKLY SUMMARY: There is no promising mar- ket in the free world for Cey- lonese rubber. Since World War II, Ceylon has several times unsuccessfully attempted to sell its rubber output to the United States or sought American aid equal in value to its rub- ber trade with China. Private American buyers have not been interested, and the US govern-, ment has filled its stockpile needs elsewhere. US financial aid to Ceylon has been well be- low the $10,000,000 annual rub- ber premium from Communist China upon which Ceylon has come to depend in its budgeting. Bandaranaike is already faced with the threat of a civil disobedience campaign by the Tamil-speaking minority population of northern Ceylon next August. Communist and leftist labor unions may capi- talize on this campaign to create additional unrest. Should the prime minister in the next few months be forced to sign a new rice-rubber agreement less, favorable to Ceylon than the present one, his political op- ponents would probably raise a storm of criticism. If no agree- ment is reached, the consequences at home might be politically disastrous for Bandaranaike. Concurred in by 25X1 ORR) LATIN AMERICAN COMMUNISTS LOOKING TO PEIPING Some Latin American Com- munist party leaders--particu- larly in Ecuador, Chile, Colombia and Costa Rica--have recently been emphasizing the applica- bility of the methods and activ- ities of the Chinese Communist Party to Latin American condi- tions. This growing interest of Latin American Communists in the ideological and propaganda les- sons to be learned from Peiping has been evidenced both in of- ficial publications and in re- ported statements at party meet- ings. Illustrative of the in- creased attention to the example of Communist China was the siz- able representation of Latin American parties at the eighth congress of the Chinese Commu- nist Party in Peiping in Septem- ber 1956. Delegations from over half the Latin American Communist parties attended. The USSR's unpalatable ac- tions in Hungary a few weeks later probably made'Peiping seem a more useful symbol in Commu- nist eyes in Latin America as elsewhere. Additional stimulus has probably been given by Pei- ping's rising prestige among Latin Americans general'y. A record number of Latin Americans visited Communist China in 1956, and the same year saw Peiping's first extensive effort in the hemisphere. A Chinese opera troupe toured Chile, Argentina, Uruguay and Brazil in the late summer and fall, while a trade mission is now negotiating in Uruguay and may visit Argentina later. Ideological Considerations Besides such immediate in- fluences, however, there is a solid basis in Communist theory for this growing interest of the Latin American parties. Com- munist thinking emphasizes many parallels between pre-Communist China and Latin America, such as economic domination by foreign SECRET PART III Approved For ReP, ' ERN 02/ AND 14 : ~IA-SPECTIV92 A001300030001--66 9 of 11 Approved For-Release 2005/02/14: CIA-RDP79-0092-7A001300030001-6 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY capital, a "semicolonial" political status, and the existence of indigenous bour- geois elements which could be used by a Communist party in its transformation of the state. Thus, though Latin American Communists. look to Moscow f or leadership, some of them may think that China's experience can be regarded as more per- tinent than the USSR's as a general guide to the achieve- ment of power and the transi- tion to Communism. The Soviet 20th party con- gress, moreover, laid down the doctrine that the path to power and the transition to Communism will vary in each country ac- cording to local conditions. This in effect amounted to a Soviet sanction of increased attention by Latin American Communists to the lessons of the Chinese Communist experienxe. Ecuador The Ecuadoran Communist Party (PCE) has already evi- denced a clear intent to turn toward the Chinese Communist Party for a greater degree of orientation. At the national party congress in May, dele- gates of the PCE reportedly praised Communist China rather than the USSR as an example for world Communism, making specific reference to land re- form--a socio-economic problem in Ecuador which the PCE at- tempts to exploit in its do- mestic political program. Pedro Saad, re-elected secre- tary general at the congress, was one of two top PCE leaders who is believed to have attended the Peiping congress and may have inspired the laudatory discussions on China. PCE interest in China is being supported by Chinese prop- aganda which is apparently en- tering the country in sizable quantities and is distributed by a special outlet in Quito. A second outlet reportedly is now being established in Guayaquil, Ecuador's largest city. Since last September, the outlawed Chilean Communist Party (PCCh) is reported to have made increasing use of Chinese Communist Party study and ideological material in PCCh publications. The PCCh magazine Principios devoted an entire issue to a congress in Peiping which was attended by several top Chilean Commu- nists. The magazine noted par- ticularly the similarities be- tween pre-Communist China and Chile, the Chinese enrichment of methods of developing so- cialism, and Chinese avoidance of Soviet errors. PCCh propa- ganda and the high level of Chilean Communist travel to China suggest close liaison between the two parties and possibly strong Chinese ideo- logical guidance. The secretary general of the outlawed Colombian Commu- nist Party (PCC), Gilberto Vieira, who attended both the Soviet 20th party congress in Moscow and the Chinese congress in Peiping, reportedly dis- cussed and praised in detail the Chinese Communist interpre- tations of the Hungarian revolu- tion, de-Stalinization, Stalin's historical place in world Com- munism, and the relation of na- tional parties to the interna- tional Communist movement.F Central America Leaders of the Costa Rican Popular Vanguard (Communist) SECRET 25X1 PART I I I Approved For RVj W/0 'j : I 7I8r 27A0013000300P1ee 10 of 11 Approved For Release 2005/02/14: CIA-RDP79-009274001300030001-6 SECRET CURRENT ' INTELLIGENCE WEEKLY SUMMARY Party, which was also repre- sented at the congres at the Chinese Commu nist Party would have a great influence in directing the Latin American revolution be- cause of likenesses between China and Latin America. I China hence- forth would be primarily re- sponsible for practical aid to Latin America, especially in SECRET ing, reportedly told regard to worker, student, and other exchange programs. Although there has been no perceptible increase of Chinese Communist Party influence on the Brazilian or Mexican Communist Party,.the Brazilian Communist press has published.. extensive materials on the Peiping con- gress. Some Mexican intellectLia]s have shown a great interest in events taking place in Communist China as a source of inspiration for the solution of Mexican prob- lems. Mexican newspapers have discussed an article from an Indian newspaper which asserts that the Communist penetration of Latin America would be direct d by Chinese Communists in the future. F__ I 25X1 PART III Approved For Re~eA /04 :PER SPECTIVE57A001300030 Page 11 of 11 25X1 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6 Approved For Release 2005/02/14: CIA-RDP79-00927AO01300030001-6