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September 11, 1958
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Approved For Relea 2005/03/15 : CIA-RDP79-00927AO01940040001-9 CONFIDENTIAL PT/-CURRENT INTELLIGENCE WEEKLY SUMMARY CENTRAL INTELLIGENCE AGENCY OFFICE OF CURRENT INTELLIGENCE DIA and DOS review(s) completed. L COPY NO. 50 OCI NO. 4046/58 11 September 1958 A/ NO CHANGE IN CLASS 17 DECLASSIFIED CLASS. CHANGED TO: TS S DATE/a_7 REVIEWER NEXT REVIEW DATE: AUTH: HR 70-2 25X1 NFIDENTIAL 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927A0019000400 1-9 Approved Foelease 2005/03/15 : CIA-RDP79-00921t001900040001-9 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 2005/03/15 : CIA-RDP79-00927A001900040001-9 Approved For ReleaTe 2005/03/15 : CIA-RDP79-00927A001 0040001-9 ~ CONFIDENTIA!. CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 T H E W E E K I N B R I E F PART I OF IMMEDIATE INTEREST TAIWAN STRAIT SITUATION . . . . . . . . . . . . . . . . . Page 1 The increasingly belligerent statements by Chinese Communist leaders and Premier Khrushchev's blunt warning to the United States are intended to serve notice that the bloc is prepared for a showdown over the offshore islands. Bloc leaders may believe, 'however, that their present tactics will enable them to progress toward po- litical goals without major hostilities. The USSR will probably raise the issue of "American provocations" against Communist China in the forthcoming UN General Assembly session, where a major debate over the question of Chinese representation appears in the making. Although Peiping has agreed to resume ambassadorial talks with the United States, if these talks fail to progress, the Com- munists will probably press for multilateral negotiations on a higher level. Militarily the Chinese Communist naval build-up in the strait area continues. Bombardment of the Kinmens has been light except for 8 September, when some 50,000 rounds were fired against the islands. The Chi- nese Nationalists have had difficulty in supplying Kin- men, even with American naval escorts. The dominant re- action throughout the free world to the prospect of Sino- American negotiations was one of relief, although there was no expectation that any permanent solution would be achieved, MIDDLE EAST DEVELOPMENTS . . . . . . . 25X1 . . . . . . . . . Page 6 as r has in effect indicated to UN Secretary Genera Hammar- skjold that he would not be willing to provide the as-. surances of noninterference in Jordan desired by King Husayn before the King agrees to the withdrawal of Brit- ish troops. Jordanian officials consider the Hammarskjold mission has failed, and it is likely that Jordan will again place its complaint against UAR interference before the next UN General Assembly session. Cairo is striving to in- crease its influence in the Iraqi armed forces, presumably to strengthen the faction, led by Deputy Prime Minister Arif, which favors membership in the UAR. Approved For Release 2005/03/15: CIA-RDP7900-QW THE WEEK IN BRIEF 41 Al 25X1 Approved For Rele a 2005/03/15 : CIA-RDP79-00927A001040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 PART II NOTES AND COMMENTS USSR SCHEDULES 21ST PARTY CONGRESS FOR JANUARY . . . . . . Page 1 The Soviet party central committee on 5 September decided to convene an "extraordinary" 21st party con- gress on 27 January to discuss economic goals under the Seven-Year Plan (1959-65). While the agenda does not provide for the election of a new central commit- tee, changes may be made in that body; it is also likely that membership changes in the party presidium and secre- tariat will be made in furtherance of Khrushchev's polit- ical control. The congress is expected to extol Khrushchev's economic policies in such appealing terms as to obscure the likelihood that a slower rate of improvement in living stand- ards will be necessary if the present rate of industrial growth is to be maintained. EAST GERMANY CONCERNED OVER REFUGEE FLIGHTS TO WEST . . . Page 2 East German officials are greatly concerned over the mass refugee flights to West Germany which have continued despite severe control measures in East Ger- many and East Berlin. The situation has also caused all the West German political parties to condemn strong- ly the political oppression in East German which has 25X1 caused this exodus. CZECH WAGE REFORM . . . . . . . . . . . . . . . . . . . . . Page 4 A campaign is under way in Czechoslovakia to popu- larize wage reform measures and work norm revisions which will affect approximately two million industrial workers. The regime hopes to lower costs and increase industrial output by raising labor productivity propor- tionately more than wages and by redistributing wage funds among workers. While the regime plans to institute reforms cautiously, any rise in work norms is bound to antagonize labor and could hamper the regime's program for continued economic expansion. CAMBODIA . . . . . . . . . . . . . . . . . . . . . . . . . Page Premier Sihanouk seems likely to become even more uncompromising than in the past in handling Cambodia's border and other disputes with neighboring South Viet- nam and Thailand. His attempts to use Peiping as a counterweight to Saigon and Bangkok will probably ac- 25X1 25X1 celerate Communist subversion in Cambodia. 25X1 SOUTH KOREAN LEADERSHIP . . . . . . . . . . . . . . . . . Page 6 The relatively moderate reaction in South Korea to the Taiwan Strait developments contrasts with the lively interest shown in the Indonesian situation last SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 THE WEEK IN BRIEF Nwf Approved For Release 2005/03/15 : CIA-RDP79-00927AO019ZO040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 PART II (continued) May when government-staged demonstrations called for "volunteers" to aid the insurgents. The present atti- tude may in part result from President Rhee's waning dynamism and gradual withdrawal from day-to-day politics. The poor health of Rhee's chief political lieutenant, Yi Ki-pung, who may have to step down as chief of the gov- erning Liberal party, is further weakening the administra- tion leadership. These factors reduce the possibility of an orderly and constitutional succession when Rhee dies. F__ I NORTH AFRICA . . . . . . . . . . . . . . . . . . . . . . . Page Morocco and Tunisia are committed to support Al- gerian independence, but are beset by internal diffi- culties and apparently have given little more than lip service to their agreement of last June to coordinate foreign policies and collaborate closely in other spheres. Tunisia's decision to join the Arab League, following similar action by Morocco, was more an ef- fort to avoid isolation from the rest of the Arab gov- ernments than a gesture of North African solidarity. A recent meeting of the Maghreb Secretariat--composed of Algerian, Moroccan, and Tunisian political lead- ers--indicated only superficial harmony a on the North African leaders. CYPRUS . . . . . . . . . . . . . . . . . . . . . . . . . . Page EOKA's announcement on 7 September of the termina- tion of its month-old, self-imposed "truce" may presage a resumption of terrorism on a major scale. Greek and British officials expect all-out attacks by 1 October, when the British plan is to be implemented. These at- tacks may include an attempt on the life of the Turkish representative appointed to advise Governor Foot or vio- lence against Turkish Cypriots in an effort to gain prompt UN intervention to "restore peace" on Cyprus. 25X1 25X1 25X1 FRENCH CONSTITUTIONAL REFERENDUM . . . . . . . . . . . . . Page 8 The new French constitution is virtually assured of approval on 28 September by a substantial majority of voters in metropolitan France, where most political leaders are rallying to support it; in tropical Africa, where the option of independence has won it wide back- ing; and in Algeria, where the army is expected to get out a favorable vote. Most of the traditional parties and the recently organized political groupings are now maneuvering with an eye to parliamentary elections which probably will be scheduled for November. SECRET 25X1 i i i Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 THE WEE?. IN BRIEF Aw~ Approved For Release 2005/03/15 : CIA-RDP79-00927AO019WO40001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 PART II (continued) ITALIAN GOVERNMENT PROBLEMS Page When the Italian Chamber of Deputies convenes on 16 September, Premier Fanfani's shaky coalition may be threatened by a financial scandal which allegedly involves members of his own Christian Democratic party. Fanfani is depending on his diplomatic initiatives in Middle Eastern affairs to bolster his government's pres- tige, but possible defections from right-wing Christian Democrats who object to his socio-economic reform pro- gram could deprive him of'his present three-vote ma- jority and force him to broader parliamentary sup- 25X1 port. CHILE'S PRESIDENTIAL CHOICE . . . . . . . . . . . . . . . Page 10 Prominent Chilean industrialist Jorge Alessandri,who won a slim plurality over leftist candidate Allende in the 4 September presidential election, will probably be ratified by the Chilean Congress on 24 October. He hopes to solve Chile's long-standing economic diffi- culties by a program of economic austerity and by re- storing competitive enterprise with a minimum of state intervention, but will rob uire substantial foreign aid. THE ABORTIVE MILITARY COP I U N V 25X1 ENEZUELA N . . . . . . . . Page 12 The attempted military coup in Venezuela on 7 Sep- tember failed in part because the civilians' defense against a return to military rule was well organized and most of the divided armed forces continued their support of junta president Larrazabal. An effective general strike on 8 September, in which the Communists were particularly active, further demonstrated civilian strength. The military may still unite for a showdown, if it feels its role in the government is further en- dangered or if the junta beconer aptive of periodic mob action. 25X1 PART III PATTERNS AND PERSPECTIVES BLOC ECONOMIC ACTIVITY IN INDONESIA . . . . . . . . . . . Page Sino-Soviet bloc assistance to Indonesia has been marked this year by Djakarta's activation of the long- standing Soviet $100,000,000 economic credit, a Chinese Communist $40,000,000 loan, and an arms deal possibly amounting to as much as $200,000,000. The aid is in the form of essential items, such as rice, textiles, ships,.and industrial machinery, and also provides for technicians, including military specialists. Bloc SECRET iv Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 THE WEEK IN BRIEF Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 PART III (continued) trade promotion activities, reinforced with liberal credit offers, probably will result in an increase in bloc-Indonesian trade for 1958 above the 1955 peak of $74,000,000. 25X1 ISRAEL AND THE MIDDLE EASTERN CRISES . . . . . . . . . . . Page 4 Israel has reacted to the Middle East's latest crises with intensive diplomatic activity including consultations with French, British, and Italian gov- ernment leaders. Israel is seeking late-model arma- ments and a guarantee of Israel's territorial integri- ty. Israel fears that Nasir's influence may be extended over Jordan and Lebanon. Concern over such encirclement might lead the Israelis to take a military initiative at a time and place of their own choosing. POLISH ECONOMIC DEPENDENCE ON THE BLOC . . . . . . . . . . Page 7 The Soviet bloc accounted for 59 percent of Po- land's foreign trade in 1957, a figure which probably will not change significantly during the next two years. The extent of Warsaw's ties with the bloc puts the So- viet Union in a strong position to influence Polish ac- tions. Basic political concessions probably could not be forced on the Polish Government through economic means alone, however, since Poland after first suffering consid- erable losses could reorient its economy from the bloc to 25X1 25X1 BRAZIL'S FINANCIAL SITUATION ... . . . . . * . , . . . . . Page 10 Brazil has undertaken a number of emergency meas- ures in recent weeks designed to head off a foreign ex- change crisis in 1959. Even if these measures are fully carried out, Brazil will continue for some years to suf- fer severe balance-of-payments difficulties. These dif- ficulties result from its continued dependence on the fluctuating coffee market for 60 to 70 percent of its exports and the increasing demands of its booming in- dustrial complex for imports of oil, machinery, and parts. Repayments on foreign loans will require 15 to 20 percent of export earnings for the next several 25X1 years. F_ I NIGERIA'S PRE-INDEPENDENCE PROBLEMS . . . . . . . . . . . Page 13 The African leaders of the British colony of Ni- geria who will meet with British representatives in London in late September have been pressing for Ni- geria's early independence within the Commonwealth. They have unilaterally set 2 April 1960 as the date even though the country still lacks national unity. SECRET V Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 THE WEEK IN BRIEF Approved For Rele a 2005/0359Ecl&FDP79-00927A0011040001-9 CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 PART III (continued) The London conferees will also consider the reports of commissions which have been studying the colony's financial and political problems. SECRET 25X1 25X1 vi Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 THE WEEK IN BRIEF Approved For Release 2005/03/15 : CIA-RDP79-00927A0019 9040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 OF IMMEDIATE INTEREST The increasingly belliger- ent statements of top Chinese Communist leaders and Khru- shchev's blunt warning to the United States during the past week were intended to serve notice that the Sino-Soviet bloc is prepared for a, show down over the offshore islands. Bloc leaders are probably con- fident, however, that their tactics will enable them to achieve progress toward politi- cal goals without major hostili- ties. Premier Chou En-lai, in agreeing on 6 September to a resumption of talks with the United States on the ambassado- rial level, reaffirmed Commu- nist China's "absolute right" to take the "necessary military action" against Chinese Nation- alist forces on the offshore islands. On 7 September polit- buro member Peng Chen declared at the largest mass rally. ever held in Peiping. that China is "determined" to take Taiwan is well as the offshore islands. In the sharpest warning to date from Communist China, the People's Daily stated on 9 Sep- tember that convoying activity by American forces will place the United States in a "most precarious situation involving direct armed conflict with China at any moment." Khrushchev's letter of 7 September to President Eisen- hower--the first official Soviet pronouncement on the present Taiwan Strait crisis--contained the strongest statement of So- viet support for the Chinese Communists to date. After point- edly warning against the danger of miscalculation, the Soviet premier declared: "An attack on the Chinese People's Republic an attack on the Soviet Union." Although he did not specify the conditions under which the Soviet commitment would take effect or its precise form, the language of the letter ap- pears to pledge the USSR to as- sist Peiping with direct mili- tary support if the crisis de- velops into a major military action. Chinese Communist officials, in conversations with Asian dip- lomats, have also contributed to the picture of strengthened confidence which the bloc is presenting to the world.., These Soviet and Chinese moves, while calculated to dis- courage expansion of American military support of the 25X1 SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 PART I OF IMMEDIATE INTEREST Page 1 of 7 IV- Approved For Release 2005/03/15: CIA-RDP79-00927A0019ON40001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 Nationalists, are also intended to assist attainment of politi- cal objectives. In particular, the Communists probably feel that by further stimulating ap- prehension throughout the world over the prospect of large-scale hostilities, America's allies and neutral governments may be induced to bring pressure on the United States to avoid ac- tions which might lead to a large-scale clash. Bloc leaders apparently are seeking to secure a greater voice for Communist China in world affairs and its acceptance by other states as a "great power." Other Communist polit- ical goals are to diminish Amer- ican prestige, discredit Amer- ican policy toward China, and to demoralize and weaken the Nationalist regime in order to lay the groundwork for eventual acquisition of all Nationalist- held territory. Chou En-lai stated on 6 September that Peiping is ready to resume the ambassadorial talks suspended last December. Two days later Mao Tse-tung made a firmer commitment to resume the talks, and Ambassador Wang Ping-nan has left Peiping to re- turn to his post in Warsaw, evidently prepared to begin negotiations. The Chinese decision has been underplayed in the Commu- nist press, indicating that the Chinese leaders intend to sus- tain the atmosphere of crisis throughout China and maintain military as well as psychological pressures during the prospec- tive negotiations. Communist China at the talks will probably demand the with- drawal of Chinese Nationalist troops from the offshore islands, particularly the Kinmen and Matsu islands. Peiping's propaganda stresses the "immediate threat" posed by these two island groups and places Taiwan and the Penghus in the category of territory which will be "re- stored sooner or later," sug- gescing that the Taiwan issue will not be pressed as force- fully at this time. Peiping's declaration on 4 September extending its ter- ritorial waters to a distance of 12 miles was intended to emphasize the proximity of the Kinmen and Matsu groups to the mainland; both are well within the new limit. The Chinese Communist nego- tiator will also propose that the discussions consider such questions as "American provoca- tions" and "invasion" of ter- ritorial waters. In any event, Peiping will try to gain con- cessions, but will probably re- fuse to agree to any declaration or commitment which would com- promise its position that the "liberation" of Taiwan, as well as the offshore islands, is an "internal" problem. If the negotiations fail to progress, the Chinese Com- munists may propose that the ambassadors confine their ef- forts to a preliminary airing of views and the establishing of ground rules, and demand that substantive negotiations be transferred to the foreign min- ister level or to a heads-of- government meeting with Chinese Communist participation. Khru- shchev hinted on 7 September that he may call for high-level negotiations by the United States, the USSR, Communist China, and "other countries" on ways of resolving the crisis through "common efforts." SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 PART I OF IMMEDIATE INTEREST Page 2 of 7 Approved For Release 2005/03/15 : CIA-RDP79-00927A001ftb040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 Peiping's ambassador in Warsaw, Wang Ping-nan, will con- tinue in the role assigned to him in 1955 as negotiator for the Chinese side. A protegd of Chou En-lai, Wang is considered one of Peiping.'s top diplomatic technicians and has been used for many years as a contact man with foreigners. Military Developments The Communists could con- centrate about 100 torpedo boats near the offshore islands within 48 hours. Landing craft have been collecting in the strait area which, in conjunction with the 5,000 or more junks already present, give the Chinese Com- munists the capability to quick- ly assemble sufficient sea lift for an as- sault on the offshore islands. On 8 September 12 MIG's clashed with 12 'Nationalist F-86F jets (Na- tionalists claim that five MIG's were shot down and two were dam- aged in the resulting engagement with one F-86F damaged. Al- though some F-86's are now equipped with Sidewinder air-to-air missiles, they were not involved in this Bombardment of the Kinmen Islands group was light on 5, 6, and 7 September, but the Com- munists fired about 50,000 rounds on 8 September in what they termed a punitive bombardment; the firing continued through 11 September but at a reduced level. Command and supply facilities and US-escorted Nationalist con- voys continued to be the prin- cipal targets for Communist fire. Nationalist Developments Many high-level Chinese Na- tionalists fear'that any renun- ciation of the use of force in the Taiwan Strait area by Pei- ping and Washington would indef- initely defer a showdown fight with the Communists which they have anticipated might grow out of the offshore islands situation. !/ J 7 ~AMOY/ LLEH HSII Jw: EHRTAN National let held ---~. Selected railroad 25X1 25X1 25X1 SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART I OF IMMEDIATE INTEREST Page 3 of 7 Now, Approved For Release 2005/03/15 : CIA-RDP79-00927A001b040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 These Nationalists have been dismayed by the American offer to resume negotiations with Com- munist China, and they may try to take provocative actions, such as air attacks on Commu- nist airfields and artillery positions, in an attempt to ex- pand the area of conflict to the mainland. estimated 30 to 60 days in ma- jor items. There are no crit- ical shortages yet, and damage to Nationalist supply dumps by artillery fire has been negli- gible. The Nationalists have initiated air drops but their logistical capability is in- sufficient to resupply the Kinmens by this means. Taipei's public line con- tends that a Communist assault on the offshore islands is im- minent. An indication that the real estimate of the Foreign Ministry differs has been re- vealed by the Nationalist mili- tary attache in Ankara. He told the American naval attachd there that the Foreign Ministry had informed its embassies that Com- munist intentions regarding the offshore islands were political rather than military. Chinese Nationalist han- dling of the resupply convoys to the Kinmens on 7 and 8 Sep- tember was marked by lack of coordination and preparedness at the beaches by the Kinmen Defense Command. Neither con- voy unloaded all of its sup- plies, and an LSM was lost from the second convoy. No smoke screen was laid to shield the landing ships on the beach, and counterbattery fire suffered from improper positioning of Nationalist guns as well as lack of precise knowledge of the Com- munist gun positions. Another major resupply at- tempt was made on 11 September, when two convoys were sent from Taiwan. The first, consisting of an escort vessel, two tugs, and three landing ships, suc- cessfully evacuated wounded, but the second convoy, which was to land supplies, was driven off by artillery fire from the main- land. Supplies now available on the Kinmens are adequate for an Free-World Reaction Free-world reaction to re- cent developments in the Taiwan Strait situation was predominat- ly one of relief at the prospect of negotiations, although there was no expectation that any permanent solution would be achieved. Chou's offer to nego- tiate was attributed by many Western observers to US "firm- ness," but there continues to be strong opposition to any American military action to pre- serve the status quo of the is- lands. The threatening tone of Khrushchev's letter to President Eisenhower was roundly condemned. The British Government ap- pears increasingly apprehensive at the prospect that the United States intends to defend the off- shore islands, as most influen- tial British opinion doubts their importance to free-world securi- ty. Opposition leader Gaitskell, assuming emphatic labor and Lib- eral opposition to American poli- cy,believes the government may have serious trouble in holding its own supporters. Comment from other NATO countries has generally been fa- vorable, and Greek, Turkish, and West German officials have ap- proved the firm line taken by the United States as necessary to free-world security. In line with President Nasir's accusation of "direct aggression" by the United States, the Cairo press continues to support Peiping's case, holding Approved For Release 2005/03/1,5 ; Ri79-00927A001900040001-9 PART I OF IMMEDIATE INTEREST Page 4 of 7 Approved For Release 2005/03/15 : CIA-RDP79-00927A0019'lf040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 the United States responsible and giving Khrushchev's warn- ing full play. Southeast Asian governments have reacted with moderation and along expected lines. South Vietnam and the Philippines have expressed the hope for continued American firmness. Burma has drafted a policy statement de- ploring the use of force in the strait as a violation of the Five Principles, and has pri- vately indicated that it wel- comed resistance to further Chinese Communist expansion. Indonesia, declaring it was "not neutral" on the China is- sue, has reasserted its recog- nition of Peiping. Cambodian Prince Sihanouk, without com- mitting his country, has acted as a publicist for the Chinese Communist leaders' statements. Indian Prime Minister Nehru on 7 September reiterated sup- port for Peiping's claim to the offshore islands, but urged that the matter be solved peacefully. Several leading Indian papers have criticized Peiping's bel- licosity. The prospect of resumed ambassadorial talks was warmly applauded in Japan, although Foreign Ministry sources are pessimistic over-chances of agreement. The Tokyo press criticized Khrushchev's letter to President Eisenhower as "men- acing, unrealistic, and unhelp- ful." UN Representation Issue Prior to the present crisis in the Taiwan Strait, a majority of UN members seemed ready to keep Taipei in the Chinese seat at the General Assembly session opening on 16 September. Recent events, however, may lead many members to reassess their pol- icies in order to bring UN in- fluence to bear on the situation. Peiping's previous attempts to gain China's seat in the UN have met with little response, largely because no formula for the future of Taiwan has been presented which is sufficiently attractive to weaken Western support for Taipei. National- ist China's seat in the UN has been upheld for the past six years by the moratorium device-- which postpones substantive discussion of the question and requires only a simple majority vote. Most UN members, however, believe Peiping must eventually be admitted and have supported the moratoriur largely on grounds of expediency. Taipei's majori- ties have decreased each year. At this session, India for the third time will ask the General Assembly to discuss the issue substantively. An actual vote on which of the two Chinas should be seated would require a two-thirds majority--which neither Taipei nor Peiping seems at this point likely to attain. Such a vote, however, would re- quire UN members to choose openly for the first time between the two governments. Even if the General Assem- bly should support Taipei at the beginning of this session,: it could reopen the question at any time. Nationalist China's UN membership could be seriously jeopardized by any action by Taipei to provoke hostilities involving the United States or a diplomatic offensive by Peiping, particularly if in response to any UN efforts to ensure peace in the area. 25X1 SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 PART I OF IMMEDIATE INTEREST Page 5 of 7 Approved For Release 2005/03/15 : CIA-RDP79-00927A001"6040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 MIDDLE EAST DEVELOPMENTS Despite the easing since 4 September of the rebel-en- forced general strike, most op- position forces in Lebanon still stress that the rebellion will continue until their demands for political "reform" are met by the government to be installed by President-elect Shihab on 24 September. The gradual lifting of the strike reportedly re- sulted from Shihab's agreement to several opposition demands, possibly including appointment of Tripoli rebel leader Rashid Karame as prime minister in the next cabinet. The opposi- tion also insists that Shihab after inauguration take steps to amend the constitution to limit presidential powers. Factional squabbling has broken out among the rebels, primarily as a result of unwill- ingness on the part of the ex- tremists to cooperate with the rebel majority in making a ges- ture which would enable Shihab to expedite the withdrawal of American troops. pro-Chamoun extremists may at- tempt to prolong the crisis in order to prevent the withdrawal of American forces. By the re- cent formation of the National Liberal party, Chamoun has created a personal political organization with which he hopes to continue participation in Lebanese affairs after he leaves the presidency on 23 September. 25X1 In talks with UN Secretary General Hammarskjold, Nasir has in effect indicated he would not be willing to meet King Hu- sayn's desire for assurances of noninterference in Jordan before Husayn agrees to the withdrawal of British troops. Cairo has taken the position that the UN General Assembly's Middle East resolution on 21 August was in- tended essentially to expedite the withdrawal of foreign troops, and has warned that severe ten- sions would reappear if with- drawals were not speedily ar- ranged. Jordanian officials consider that the Hammarskjold mission has failed, and it is " likely that Jordan will again 25X1 place its complaint against UAR interference before the n N General'-Assembly session. Arab League The Moroccan and Tunisian decision to join the Arab League gives Nasir another significant SECRET 25 X1 PART I Approved For Release OF IMMEDIATE INTE9REST 7A0019000400019 ge 6 of 7 Approved For Release 2005/03/15 : CIA-RDP79-00927AO019MO40001-9 SECRET ' CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 victory. Membership in the Egyptian-dominated league will now include all independent Arab states-including those which in the past have opposed him. The UAR President appears in- creasingly to be without public challenge in the Arab world. Iraq The Egyptians are striving to increase their influence in the Iraqi armed forces. In- creased Egyptian influence in the armed forces would presuma- bly be exploited to strengthen the position of the faction led by Deputy Prime Minister Arif which favors Iraqi membership in the UAR. Those Iraqis led by Prime Minister Qasim who fa- vor a more independent associa- tion with the UAR would proba- bly eventually seek a direct arms deal with the Soviet bloc. Meanwhile, dissatisfaction among some army officers with the pro- gram of the Iraqi revolutionary regime has given rise to reports of plotting to organize a coun- tercoup. The regime is also beset by increasing unemployment and labor unrest. Israel An Israeli Foreign Ministry spokesman has informed the Amer- ican Embassy in Tel Aviv that there has been a steady increase in Egyptian reconnaissance and sabotage by both regular forces and terrorists in Israel since the Iraqi coup in mid-July. In publicizing the new Egyptian 25X1 infiltration, Israel may be building a case to support its requests for arms aid UAR relations with the Sudan are still strained as a result of the controversy over the Nile waters. Nasir re- portedly stated he intends to go ahead with plans for the high dam at Aswan, for which he said he might ask Western assistance, and will not con- sult the Sudan. He feels uni- lateral action is justified as a result of what he considers the recent Sudanese abrogation of the Nile waters agreement of 1929. The Sudan maintains it is not bound by an agree- ment on d.ivision~ of the wa- ters signed before its in- dependence; in July it began diversion of some of the flow for use in a local irrigation project. 25X1 SECRET PART I Approved For Releast 00IMME ,AC~# INTE9R 9 7A00190004000P9ge 7 of 7 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11'September 1958 NOTES AND COMMENTS USSR SCHEDULES 21ST PARTY CONGRESS FOR JANUARY The Soviet party central committee decided in a plenary session on 5 September to con- vene an "extraordinary" 21st party congress on 27 January. The only item on the agenda, discussion led by Khrushchev on the goals for the economy under the Seven-Year Plan (1959- 65), will be based on a set of "theses" to be published prior to the congress. Although long provided for in the party stat- utes, an "extraordinary" con- gress is unique in Soviet histo- ry. The forthcoming session has probably been designated as "extraordinary" because it has been called to discuss one special topic instead of an ar- ray of problems facing the par- ty. According to the statutes, an ordinary congress would have been convened not later than February 1960. The only other business an- nounced by the one-day plenum was the removal of former Premier Bulganin from the presidium. The party congress will not necessarily be limited to its agenda. It may change the membership of the central com- mittee, which in turn may affect the composition of the party presidium and secretariat in such a way as to further Khru- shchev's political dominance. Besides the failure to pub- lish the plan before now, there are other suggestions of high- level conflict over the growth capabilities of the USSR. This might explain the decision to issue more flexible and tenta- tive "theses" for public discus- sion prior to the party congress rather than the traditional "draft directives." This possi- ble conflict may involve the rate of improvement in living standards. If the 1955-57 an- nual rate of increase in total investment (13 percent) is not maintained, as seems likely, the continuation of an annual 10- percent rate of industrial growth--which the leadership ap- pears determined to maintain-- may require that the necessary additional funds, materials, and labor for industrial expansion be diverted from housing and other consumer-oriented invest- ment. Khrushchev may bow to this necessity in order to "catch up" with the West more quickly. The "theses" may put forth new proposals, possibly includ- ing increased authority over in- vestment funds for the regional economic councils, modifications of prices and pricing systems, and perhaps additional changes in agricultural organization. In any case, one theme of the congress will be the continuing high rate of socialist economic growth compared with that of capitalism, and particularly the fast rate "at which the USSR will be overtaking the United States" e next seven years. SECRET ~C1 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART II NOTES AND COMMENTS Page 1 of 12 Approved For Release 2005/03/15 : CIA-RDP79-00927A001906b40001-9 SECRET CURRENT INTELLIGENCE WEEKLY PUMMARY 11 September 1958 EAST GERMANY CONCERNED OVER REFUGEE FLIGHTS TO WEST East German officials are greatly concerned over the mass refugee flights to West Germany which have continued despite severe control measures in East Germany and East Berlin. The current exodus--highlighted by the escape of leading German in- tellectuals--apparently results from the relentless implementa- tion of new hard-line policies in the cultural and economic fields and an apparent belief that no diminution in political oppression or improvement in living standards is in the off- ing. Some 4,300 refugees reached West Berlin during the week end- ing 2 September--a seasonal peak--while in approximately the same period more than 1,800 fled over the interzonal border to REFUGEES REPORTING TO WEST BERLIN AND WEST GERMANY West Germany. This brings the total number of escapees to more than 140,000 during the first eight months of 1958; more than two million persons have fled East Germany since mid-1949. The total number of refugees since 1 January falls below the 1957 figure of 166,000 for the cor- responding period but includes a much higher proportion of es- sential "brainworkers"--doctors, scientists, technicians, and teachers--many of whom are re- ported to be party members. Moreover, this total includes more-'than 10,000 males of mili- tary age--the equivalent of one line division. As East German authorities have intensified security meas- ures along the interzonal border between East and West Germany, a much larger proportion of es- capees have fled through West Berlin than in past years. In August almost 65 percent came into this city, whereas until this summer approximately 50 percent crossed the interzonal frontier. The East German Government believes it cannot permit the country "to bleed to death through' the refugee flow," but East Ger- man officials appear to be in a quandary over what measures to adopt. Party boss Walter Ulbricht re- portedly favors taking even harsher steps to cut down on travel between East and West Ber- lin and is said to have discussed the matter with Khrushchev, who allegedly was unwilling to go along with his proposals. American officials in Berlin believe still more rigorous con- trol measures may be taken by Pankow to halt travel between East Germany and Berlin. East German authorities have already imposed a ban on rail travel to stations within 31 miles of the SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART II NOTES AND COMMENTS Page 2 of 12 Approved For Rele se 2005/03/15: CIA-RDP79-00927A001%0040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 city, and travelers reportedly must now secure permission of local police to go to Berlin. Some East German party circles may be- lieve that allowing potential dissidents to escape to the West provides a safety valve which may pre- vent a recurrence of such explosions as the 17 June 1953 up- rising. Nonetheless, the Council of Minis- ters is reported to have been considering a modification of present hard-line pol- icies concerning pri- vate industry, appar- ently with a view to removing some of the causes for refugee flights. All West German political parties have seized the refugee issue as evidence of continued political oppression in East EMIGRATION FROM THE SOVIET ZONE AND THE SOVIET SECTOR OF BERLIN LEAKAGE OF BRAINS - - FROM DIE WELT, 20 AUGUST 1958 Berlin and East Germany for the purpose of directing world opin- ion to the "German question." Leaders of the major parties are considering sponsoring a resolution on this subject when JAN FLU MAK AVK MAT JUN JUL AUu 1957 JAN FEB MAR APR MAY JUN JUL AUG 1958 SECRET PART Iproved For Release 2( ~f15AA927A001900040001-$age 3 of 12 Approved For Release 2005/03/15: CIA-RDP79-00927A0019N40001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 the Bundestag reconvenes on 1 October for its traditional opening session in West Berlin. Such a resolution would empha- size the injustice that forces the refugees to leave their homes. A part of the West Ger- man press has demanded that Bonn bring the issue to the United Nations. Christian Democratic officials, however, feel it is important not to promote fur- ther unrest in the Soviet Zone. The continuing heavy in- flux of refugees into West Ber- lin has strained reception fa cilities, and some West German states have become reluctant to accept their refugee quotas. In response to appeals from West Berlin authorities, Bonn has 25X1 ordered evacuation flights of refugee The sudden sharp drop in the number of refugees entering West Berlin in the week ending 9 September--3,128, a decrease of 1,204 from the preceding week--may have been due in part to the spreading in East Ger many of sews of: crowded con- ditions in'West Berlin recep- tion centers. 25X1 A campaign is under way in Czechoslovakia to popularize wage reform measures and work norm revisions which will af- fect approximately two million industrial workers. The regime hopes to lower costs and 'in- crease industrial output by raising labor productivity pro- portionately more than wages and by redistributing wage funds among workers. The reform, to be fully in effect by 1960, is closely, allied to the reorgani- zation of industry and planning now under way. While the regime plans to institute reforms cautiously, any rise in work norms is bound to antagonize labor and could hamper the re- gime's program for continued economic expansion. Czechoslovakia will suffer a declining rate of growth for industrial production unless extraordinary measures are taken to increase labor productivity. Czech wage funds have advanced faster than labor productivity in recent years, but the regime now plans to reverse this ratio by cutting into the worker's share of the growing gross national product and diverting these funds to capital invest- ment. Because of the relatively few additions to the labor force, the regime has for some time drawn on marginal labor-- for example, women and pen- sioners, who have relatively high absentee rates--but such labor raises production costs. During the past year, as part of a scheme for reorganiz- ing industry, administrative personnel have been dismissed in large numbers and salary schedules for such personnel as were retained, as well as for technicians and engineers, have been revised: basic payments were raised and bonuses dras- tically curtailed. The average take-home pay is now roughly, the same as previously, but the total number of workers is few- er, with a resultant lower total SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART II NOTES AND COMMENTS Page 4 of 12 Approved For Release 2005/03/15 : CIA-RDP79-00927A00110040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 salary bill to the regime. It was hoped that discharged per- sonnel could be channeled into production jobs where they were needed, but in this the regime admits only limited success to date. The wage reform for indus- trial workers, originally to be experimentally introduced in selected enterprises next month but apparently already under way, will similarly raise basic payments but reduce bonuses.. from about 50 to 15 percent of take-home pay without lowering average wages, according to the regime. An accompanying comprehen- sive change in the system of job classifications and work norms will, however, lower take- home pay for some workers while it raises that of others, be- cause present wage schedules are "out of date" and the in- dividual workers are often com- pensated far above the value of work performed. In addition, the reform will re-evaluate wage schedules according to the branch of industry in order to ensure greater compensation for workers in "priority" industries such as mining and metallurgy. Even though the absolute wages of most Czech workers are not lowered, as the regime c claims, workers will in the long run be working more for the same amount of money under the system of higher work norms, and this gradual speed-up will become in- creasingly apparent to the work- ers. Reportedly, passive re- sistance has already occurred in one factory in Pilzen, where elements of the wage reform were introduced and where reassigned administrative personnel were obliged to work for wages con- siderably below their previous salaries. The combination of an un- popular increase in norms and a knot of disgruntled former white-collar workers in the factories poses a threat to re- 25X1 gime hopes of increasing ro- duction by there r f orms. 25X1 CAMBODIA Premier Sihanouk seems likely to become even more un- compromising than in the past in handling Cambodia's border and other disputes with neigh- boring South Vietnam and Thai- land. Sihanouk is en route to New York for the regular session of the United Nations General Assembly, where he may try to portray "small, neutral" Cambo- dia as the aggrieved victim of the "militant" Vietnamese and Thais. Phnom Penh's ignoring of an offer by Saigon to re- move the controversial boundary marker erected by Vietnamese troops last June inside the old Cambodian frontier indicates Sihanouk is unwilling to dispose readily of this handy symbol of Vietnamese "expansionism." Student demonstrations be- fore the Cambodian Embassy in Bangkok following the breakdown on 4 September of Thai-Cambodian negotiations attest to Thailand's hardening attitude toward Cambo- dia.since. Phnom Penh's recogni- tion of Peiping last July. The Diem government in Saigon has long been convinced that attempts to reach an understanding with Sihanouk are useless. Its offer to remove the boundary marker and to fix the common frontier by a joint survey was intended SECRET PART Approved For Release 2005/0 NOTES 5AND COMMENTS 27A001900040001-9Page 5 of 12 Approved For Release 2005/03/15 : CIA-RDP79-00927A0019'0040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 essentially to deflate any Cam- bodian charges at the United Nations of Vietnam's unyielding attitude. Despite Sihanouk'.s praise of the Peiping regime's economic progress and general policies, he remains opposed to the spread of Communist influence within Cambodia. However, subversive inroads are already perceptible as a result of Cambodia's eco- nomic and political contacts with the Sino-Soviet bloc. For example, the Cambodian Informa- tion Ministry and the local press have become orientated to the left, while Communist in- fluence among the nation's youth and the influential Overseas Chinese population is a growing problem for the government. There is considerable danger that Sihanouk may accelerate this trend by attempting to use Peiping as a counterweight to Saigon and Bangkok. 25X1 The relatively moderate reaction in South Korea to the Taiwan'.Strait developments con- trasts with the lively interest shown in the Indonesian situa- tion last May, when government- staged demonstrations called for "volunteers" to aid the insur- gents. The present attitude may in part result from President Rhee's waning dynamism and grad- ual withdrawal from day-to-day politics. The development of a critical void in the adminis- tration leadership is further suggested by the possibility that Rhee's chief political lieutenant, Yi Ki-pung, may have to step down as leader of the governing Liberal party because of poor health. Yi's political effective- ness has been at a low ebb since May and a recent rest apparently has failed to restore his physi- cal and mental vigor. Should Yi be forced to withdraw, it might set the stage for an internal power struggle which could re- duce the possibility of an order- ly and constitutional succession when Rhee dies. The lack of leadership evidenced by the uncoordinated Liberal party efforts to over- come Democratic party obstruc- tionist tactics in the recent National Assembly session may have resulted in part from Yi's poor health. Also, he has not assumed the added responsibili- ties necessary to fill the gap left in the Liberal leadership last June when a number of his experienced subordinates were replaced by less able politicians; as the result of factional maneu- vering. Rhee's numerous purges of subordinate political leaders in the past will make it difficult- to find a qualified successor to Yi. Most of the possible can- didates are obviously incompe tent, or have made themselves SECRET PART II Approved For Release W~3/j%C REg0927A001900040001Page 6 of 12 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 Approved For Release 2005/03/15 : CIA-RDP79-00927A0019Sd040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 persona non grata to Rhee by displaying minds of their own. Ambassador Dowling feels the only obvious alternatives to Yi are aged incompetents under whose leadership party organ- ization would soon deteriorate. Korean politicians are not noted for their devotion to party and, with Yi gone, many of his followers prob- ably would seek to make new political alliances.' His withdrawal also could tempt many administration politicians to use the powers of the government to suppress the opposition. F -1 25X1 Tunisia's decision to join the Arab League, following simi- lar action by Morocco, was more an effort to avoid isolation than a gesture of North African solidarity. A meeting from 30 August to l September of the Maghreb Secretariat--composed of Algerian, Moroccan, and Tuni- sian political leaders--,indi- cated only superficial harmony among North Africans. Morocco and Tunisia are committed to support Algerian independence, but are beset by internal dif- ficulties and apparently have given little more than lip serv- ice to their agreement of last June to coordinate foreign pol- icies. Under strong pressure from the left wing of the dominant Istiqlal party, the moderate Moroccan Government was ap- parently persuaded during the recent visit of Iraqi Foreign Minister Joumard of the advan- tages of Arab solidarity. The Moroccan decision to join the league was made with- out consulting Tunisia. Presi- dent Bourguiba is annoyed with Morocco's action but nonethe- less considered that Tunisia could not afford to remain out- side the league. He seems to hope Tunisia can exert a moderat- ing , influence, a possibility which might be enhanced if Tuni- sia is elected to the UN Securi- ty Council. Bourguiba has been outspokenly anti-Nasir and his relations with the UAR probably will not improve materially with league membership, as he will continue to combat' Egyptian sub- version in Tunisia. The Maghreb Secretariat meeting in Tunis was apparently only superficially concerned with major policy issues. It seems to.have directed its ef- forts primarily toward drafting a final communique denouncing the French constitutional ref- erendum and announcing agreement to collaborate during the forth- coming UN debate on Algeria. It made no progress toward forming a Maghreb Consultative Assembly, desired by the FLN, and scheduled another meeting for Rabat on 6 October. Probably dissatisfied with the lack of substantive progress at Tunis, the FLN may be weighing the possibility of overriding Moroccan-Tunisian objections and declaring its executive committee--reorganized along governmental lines some months ago--to be the pro- visional government of an Algerian republic. It would then seek membership in the Arab League. SECRET 25X1 PART II Approved For Releasedfl5 /~3/I DC&WN7~ p0927A00190004000~9 age 7 of 12 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 SECRET %W CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 EOKA's announcement on 7 September of the termination of its month-old, self-imposed "truce" on Cyprus follows a re- cent increase in clashes between EOKA and the security forces. It may presage a resumption of terrorism on a major scale. Both Greek and British offi- cials expect all-out attacks on the British by 1 October when Turkey's official repre- sentative, appointed to advise Governor Foot as the first step in implementing the new British plan for Cyprus, is expected to arrive in Nicosia. Turkish par- ticipation in the administra- tion of the island--even on a consultative basis--is violent- ly opposed by Greek-Cypriot leaders as well as the govern- ment of Greece as a move toward partition and violation of the Treaty of Lausanne. In addition to stepping :up its attacks on the British,EOKA may launch attacks against Turk- ish Cypriots or make an attempt on the life of the Turkish rep- resentative. Attacks against the Turks would embroil EOKA in fighting on two fronts, but the Greek Cypriots might deem them necessary in order to obtain _ prompt UN intervention to "re- store peace" on Cyprus. Arch- bishop Makarios on 28 August called on the UN to intervene for that purpose. An attempt on the life of the Turkish rep- resentative or new intercommunal violence on Cyprus would also lead to a severe crisis in rela- tions between Greece and Turkey, Greek Foreign Minister Aver- off favors breaking diplomatic relations with Britain and Tur- key acid possibly withdrawing from NATO if the British plan is implemented. Averoff has been warning for some time that Greece must make "drastic changes" in its foreign policy if the Cyprus issue is not re- solved along lines acceptable to Athens, but his views may be modified by Premier Karamanlis. Governor Foot recently visited London for discussions which concerned in part the pos- sible return of the exiled Makarios to Cyprus. Makarios has previously been forbidden to return until all violence ceased on Cyprus for an extended period of time. A change in the British attitude toward his return would be based on the hope that his presence could be used to restrain EOKA. Recent state- ments by Makarios indicate, how- ever, that he remains ada- mant in his opposition to the British plan for Cyprus, and his return to the island at this time might not lead' to an end of violence. The new French constitu- tion is virtually assured of ap- proval in the 28 September ref- erendum as most political lead- ers in metropolitan France and France's overseas possessions rally to back it. Socialist leader Guy Mollet's plea for broad support to thwart any rightist claim to "an exclusive. mandate to build a new France" is expected to swing his party, which will adopt an official stand at its 11-14 September party congress. Most of the leaders at the Radical party congress, meeting during the same period, are also expected to back De Gaulle. SECRET 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART II NOTES AND COMMENTS Page 8 of 12 Approved For Release 2005/03/15 : CIA-RDP79-00927A00tZP040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 The Popular Republicans have already voted to back the constitution, and most right-of- center leaders, despite reserva- tions, will do the same. Ex- treme rightist Poujade and his Peasant party ally Antier, how- ever, are opposed. Practically all of the dozen or so new po- litical groups support the con- stitution except Daniel Mayer's leftist Union of Democratic Forces and General Chassin's rightist organization of "Com- mittees of Public Safety," which may have ties with Poujade and Antier. In view of De Gaulle's last-minute revisions in the text of the constitution to rec- ognize the right of overseas territories to opt for independ- ence, it now appears likely that the territories will vote fa- vorably. A large favorable ma- jority seems assured in Algeria despite De Gaulle's deliberate vagueness concerning the area's future, which has disgruntled many settlers, and despite con- tinuing FLN efforts to force Moslem abstention. The Communists. will provide the most active opposition, but minority leaders in both Social- ist and Radical circles are also expected to campaign against De Gaulle. They.argue that the referendum has become a plebi- scite on De Gaulle rather than on the merits of the proposed constitution, which they con- sider too authoritarian. Wheth- er they succeed in rallying a sizable negative "republican" vote or not, Pierre Mendes-France, Christian Pineau, and Daniel Mayer will probably form the nucleus for a new political grouping in the subsequent par- liamentary elections. They will try to consolidate the non-Com- munist left in the hope of de- veloping a loyal opposition. On the right, three of the new political formations, in- cluding Information Minister Soustelle's Union for the Res- toration of France, have com- bined under the leadership of the secretary of the Gaull- ist'. Social Republican party. They may seek to participate in the elections scheduled for November as a reincarna- tion of. De Gaulle's Rally of the French People. ITALIAN GOVERNMENT PROBLEMS When the Italian Chamber of Deputies convenes on 16 Sep- tember, Premier Fanfani's shaky coalition may be threatened by a financial scandal which al- legedly involves members of his own Christian Democratic party. Fanfani is depending on foreign issues to bolster his govern" ment's prestige, but may have to seek broader parliamentary support. Finance Minister Preti, a Democratic Socialist, is press- ing an investigation of "Bankers Anonymous," a financial group which has been engaged for eight years in "administering" huge sums contributed by small in- vestors who received from 30 to 100 percent interest on their investment. The Republican party--on whose abstention the government depends for its three- vote majority--charges through its newspaper that the treasury minister, a right-wing Christian Democrat, and a Catholic Action leader are also involved. The Democratic Socialists and the Republicans seem to be 25X1 Approved For Release 2005/03/1 : I - 'P79-00927A001900040001-9 PART II NOTES AND COMMENTS Page 9 of 12 Approved For Release 2005/03/15: CIA-RDP79-00927A0Qr,900040001-9 SECRET CTJRRENT INTELLIGENCE WEEKLY SCARY 11 September 1958 ITALIAN PARLIAMENT MAY 1958 COMMUNITY MOVEMENT JJ REPUBLICANS (PRI) I RAN DINT LIM r / RADICALS (PR) 246 ELECTED MEMBERS 17 APPOINTED FOR LIFE ) SENATE 253 SEATS 14-POPULAR MONARCHISTS(PMP) NEO-FASCISTS(MSI) SOUTH TYROLEANS(SVP) pushing the issue as a way of ridding the cabinet of right- wing Christian Democrats, but their efforts have weakened the coalition and may decrease the possibility of early Repub- lican participation in the gov- ernment. The government's right wing is already unhappy over Fanfani's proposals for land and tax reforms and may be tempted to overthrow him in the secret vote on the foreign affairs budget, the first major item on the legislative agenda. Fanfani has been striving to build up his personal prestige by talks with foreign government heads, and he now seems to be trying to develop a role for Italy as me- diator of Middle East- 25X1 ern problems. He hopes to visit Cairo in late September, presumably as a step in his ef- forts to effect a rec- onciliation between Egypt and Israel. In the meantime he is at- tempting to placate the Republicans by sending one of their leaders, Randolfo :Pacciardi, on a fact- finding mission to the Middle East on 12 September. The long-term prospects for Fan- fani's government will depend to a considerable extent on the outcome of three political meetings this fall. The Dem- ocratic Socialist central com- mittee meeting later in Sep- tember will discuss the party's continued participation in the coalition. The Republican party congress in October will decide whether that party is now to join the government. The Nenni Socialist congress in November or December may consider the question of relations with the Christian Democratic party. 1 -1 CHILE'S PRESIDENTIAL CHOICE Prominent industrialist Jorge Alessandri, winner of Chile's 4 September presiden- tial election, has promised to turn the country away from the leftist economic policies of the past 20 years and attack its long-standing economic difficulties by a program of economic austerity and by re- storing competitive enterprise with a minimum of state inter- vention. Since Alessandri failed to win by a majority, the Chilean Congress must choose on 24 October between him and 25X1 SECRET PART Itpproved For Release 21~I "Q927A001900040001-page 10 of 12 Approved For Release 2005/03/15 : CIA-RDP79-00927A0 1W00040001-9 CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 Socialist candidate Allende, but his formal election by Congress is generally taken for granted. Senator Alessandri, a 62- year-old civil engineer and son of one of Chile's best known His first step is lik presidents, is a former minister I to be a request for. of finance with a..long record as in. consolidating Chile' a champion of economic liberal ism and anti-Commu nism. He will prob- ably make '.little CHILEAN PRESIDENTIAL ELECTION RESULTS change in President 50% Ibanez' foreign pol- ( OVER 50% REQUIRED FOR ELECTION) assuring him an operating ma- j orit3r. there . In addition, the returns in certain working-class districts indicate that a large sector of Chile's normally Marx- ist: labor voted for Alessandri. Alessandri faces serious economic problems, which stem mainly from the steady three- year decline in the price of copper--source of 65 percent of Chile's foreign exchange and much of its government revenue. The newly released figures for the 1959 budget, projecting a level of expenditure obviously inadequate for the country's needs, represent a frank ad- mission of the inability of the government to finance a major portion of its total require- ments. Despite his own preference for free enterprise and economic self-help, Alessandri will prob- . . ably have to ':ask for US aid ely help' s TOTAL VOTE 1, 247,000 25X1 JORGE SALVADOR EDUARDO 191,000 LUIS 1% 20,000 ALESSANDRI ALLENDE FREI BOSSAY 41,000 INDEPENDENT SOCIALIST CHRISTIAN RADICAL ANTONIO EMOCRAT ZAMORANO VOID D INDEPENDENT 11 SEPTEMBER 1958 The election re- sults give promise of greater political stability than any Chilean Government has enjoyed for some time. He seems likely to get the Radical parr,. ty's support in Congress, thus short-term debt abroad, which 25X1 is now estimated at $150,- 000,000, SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 PART II NOTES AND COMMENTS Page 11 of 12 Approved For Release 2005/03/15 : CIA-RDP79-00927AOW00040001-9 SECRET CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 THE ABORTIVE MILITARY COUP IN VENEZUELA The failure of a military coup attempt in Venezuela on 7 September demonstrates the ef- fectiveness of civilian strength as a check against a return to military rule and continuing support by most of the divided armed forces for junta presi- dent Larrazabal. A general strike of 8 September, in which the Communists were particular- ly active, ended when the junta acceded to demands that the coup leaders be punished. Nei- ther the civilian nor the mili- tary elements appear satisfied with the junta's handling of the situation. The armed forces may still face a showdown with civilian elements over control of the government, perhaps even before the scheduled November elections. The abortive revolt was quickly suppressed, but fight- ing between civilians and the military rebels resulted in several casualties in Caracas. The action was led by officers allegedly involved with former Defense Minister Castro Leon, who was reportedly planning a coup at the time of his ouster from the cabinet on 23 July. The attempt climaxed a period of tension over the recent re- assignment of the chief of the Combined Staff, a close asso- ciate of Castro. The elaborate civilian or- ganization, which called the strike on 8, September, has been developed since the ouster of dictator Perez last January primarily to guard against the continuing threat of a military coup and to ensure the restora- tion of constitutional govern- ment. It includes political, student, and labor groups, some of which are armed and most of which can be mobilized rapidly for a general strike or similar display of force. The respon- sible leaders in this civilian structure, however, may not in the future be able to exercise control over the radical ele- ments, which could convert the organization into an instru- ment of violence. The armed forces, divided among themselves, have been re- luctant to use force against civilians to bolster their wan- ing political power, because such action would probably lead to widespread unrest or possi- bly civil war. The military may still unite for a showdown if it feels its role in government is further endangered -or 'if' the junta becomes a captive of peri- odic mob action. Moreover, in the present atmosphere :charged with tension and rumor, armed civilian groups might provoke serious incidents with the military, which is be- coming a symbol of reaction in the public mind. Meanwhile, any breakdown in the political unity program, endorsed by all parties but now under consider- able strain, is likely to en- courage continued military plotting. SECRET 25X1 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART II NOTES AI 'b COMMENTS Page 12 of 12 Approved For Release 2005/O BIETDP79-00927AO0190d040001-9 CURRENT INTELLIGENCE WEEKLY SUMAI RY 11 September.. 1958 'PATTERNS AND PERSPECTIVES BLOC ECONOMIC ACTIVITY IN INDONESIA The Sino-Soviet bloc has extended liberal assistance to Indonesia this year, particular- ly a Soviet $100,000,000 eco- nomic credit, a Chinese Commu- nist $40,000,, and an arms deal possibly amounting to as much as $200,000,000. The aid is in the form of essential items, such as rice, textiles, ships, and industrial machinery, and also provides ' for .tech- nicians, including military specialists. Bloc trade pro- motion activities, reinforced with liberal credit offers, probably will result in an increase in bloc-Indonesian trade in 1958 to above the 1955 peak of $74, 000,000. Economic Aid The Soviet $100,- 000,000 economic loan, offered first in 1956, was not ac- cepted until early this year. In March and April, ten So- viet cargo vessels costing about $11,- 500,000 were pur- chased under the loan and, subsequent- ly, two tankers cost- ing about $3,300,000. Other Soviet commit- ments under the cred- it include a foreign exchange loan of $25,000,000, textiles worth $600,000, and possibly the sale of some fish- ing trawlers estimated at about $12,600,000. A highway which has been surveyed by Soviet technicians may be constructed in Borneo at an estimated cost of $8,000,000 for the machinery alone. In addition to the $100,- 000,000 loan, the USSR has of- fered to carry out a mineral and uranium survey for Indonesia and to exploit any deposits found. It has also offered to cooperate with Djakarta on a research program for developing peaceful uses for atomic energy and to aid the country's ed- ucational system with $10,000,- 000 worth of projects. .Indo-. nesia. is said to ::have .disc- . cussed -recently .. the. , pur- chase of $15,000,000 worth of barges and dredging equip- ment from'.the USSR : and., Poland. Aside,.from these offers of assistance to the Indonesian Government, Moscow has offered to extend unlimited credit with easy repayment terms to private organizations. As a-result, a $2,500,000 glass factory is under construction near Djakarta and another firm has signed a contract for the delivery of $800,000 worth of electrical equipment. SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 1 of 16 Approved For Release 2005/0311$ 9c'4 DP79-00927A0019 ,0040001-9 - J CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 Of the $40,000,000 econom- ic aid offer from Communist China, $11,200,000 is being used to import 20,000 tons of rice and 74,000,000 yards of textiles. The proceeds from the sale of these goods are'to be used for meeting local con- struction costs incurred in the building of textile factories. The purchase of factory equip- ment is to be financed under the remainder of the Chinese credit. Peiping, in addition, has offered to purchase oil from the North Sumatran fields, The European satellites also are contributing to the bloc's economic program in In- donesia. Poland contracted in June to deliver to Indonesia during the next three years 24 ships worth an estimated $39,- 000,000, under a liberal 13- year credit with a 2-percent down payment. East Germany completed in June a $7,900,000 sugar refinery at Jogjakarta, which, because of several break- downs, is not expected to be in operation until 1959. Other East German offers of credit in the fields of mining, road building, shipping, and commer- cial air lines have been made. Czechoslovakia is probably the most active of the European satellites in efforts to develop a wide, variety of economic contacts in Indonesia. It has completed construction of a small enamelware factory in Djakarta and'is-financing under a five-year credit the Brantas irrigation canal project now under construction in east-cen- tral Java. A $1,500,000 rubber- tire factory in Djakarta built by Czech engineers is scheduled to open soon. A $4,900,000 con- tract for equipment to generate hydroelectric power was signed in April 1958 and additional contracts are expected to fol- low shortly. In addition to these projects, Prague has ex- tended several other offers, in- cluding construction of a $25,- 000,000 thermopower plant, a $6,000,000-power plant, and a $4,500,000 tractor deal. The Communist bloc con- cluded arms deals with Indonesia early this year amounting to at least $100,000,000 and possibly as much as $200,000,000. The Indonesian Government has stated that its arms mission was given the authority to purchase up to $250,000,000 worth of arms-- $50,000,000 for the army and $100,000,000 each for the air force and the navy. The army group apparently purchased about $20,000,000 worth of hardware in Poland and Czechoslovakia. In 1957 the army and air force together purchased 4,000 jeeps from the USSR at a cost of over $7,000,- 000. The air force contingent met its requirements within the bloc--allegedly in Czechoslovakia --purchasing aircraft and sup- plementary equipment worth about $63,000,000--about 35 MIG- 17 jet fighters, 20 to 30 IL-28 25X1 jet bombers, 20 IL-14 transports,25X1 20 MIG-15 jet trainers, and possibly some helicopters. I SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 2 of 16 Approved For Release 2005/03/5 P79-00927AO019 00 040001-9 CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 about 130 are military~ special- ists# and personnel will prob- ably be continually arriving in the country. The bloc, in ad- dition, is providing facilities for at least 50 Indonesian mili- tary personnel now training in 25X1 Poland, Technical Assistance Concurrent with its mili- tary and economic aid programs, 25X1 the bloc also is providing tech- nicians to work on economic de- velopmental projects as well as military specialists to assist in the assembly and maintenance of the arms being delivered to Indonesia. About 400 bloc personnel are now en- Bloc trade promotion gaged in Indonesia, of whom activities in Indonesia are SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 3 of 16 Approved For Release 2005/03MCR1EIFDP79-00927A00 90 040001-9 CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 being effectively reinforced with offers of liberal credit to both government and private organizations. Bloc trade was small in 1957, however, amount- ing to only $68,000,000, about 4 percent of Indonesia's total foreign trade. Communist China's share of the bloc's trade with Indonesia rose to about 78 per- cent last year. Trade with the USSR in 1957 was only about 1 percent of total bloc trade, but this trade has increased this year. Trade agreements are being renegotiated with some of the European satellites. One was signed with Czechoslovakia in May and another was con- cluded with Poland in August. Delegations from Communist China and North Korea are now in Indonesia to devel- op trade with Djakarta. North Vietnam recently pur- chased at least $500,000 worth of Indonesian rubber for transshipment to Eastern Europe. It is probable that bloc trade with Indonesia in 1958 will rise above- the previous $74,000,000 peak recorded in 1955. 25X1 25X1 ISRAEL AND THE MIDDLE EASTERN CRISES Israel has reacted to the Middle East's latest crises with intensive diplomatic ac- tivity involving conferences between Foreign Minister Golda Moir and French, British, and Italian government leaders. This busy diplomacy reflects increased Israeli anxiety over the effect of events in Iraq, Lebanon, and Jordan on Israel's isolated position amid hostile Arab neighbors. The Israelis apparently feel recent events have hastened an Arab-Israeli showdown. A settlement with UAR President Nasir seems as remote as ever, and the Israelis very likely as- sume that radical Arab nation- alism, as symbolized and led by him, by its very nature must eventually attempt an all-out assault on Israel. The prospect that such an assault would be better coordinated than in 1948, in addition to being waged with modern Soviet weapons, emphasizes the seriousness of Israel's problem. The travels of Mrs. Meir and Ben-Gurion have aimed at meeting this longer range contingency. They have sought essentially .:late-model `arms- ments and a guarantee of Israel's territorial integrity. Results of Israeli Diplomacy In Paris, Mrs. Meir hoped to reconfirm close French- Israeli ties with the De Gaulle government and effect a possible alliance. Premier de Gaulle, SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 4 of 16 Approved For Release 2005/039PX?f!DP79-00927A00' 00040001-9 VW CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 however, reportedly wishes to de-empha- size the relationship between the two coun- tries in order to facilitate his policy of seeking :a rap. prochement with the Arab states. The possibility of a for- mal French-Israeli alliance therefore probably is remote, but Israel may be able to obtain addi- tional Vautour twin- jet aircraft from France. Despite De Gaulle's reticence on political rela- tions, a close rela- tionship between the armed forces of the two coun- tries very likely still exists. On 4 August, the subdirector for Levant affairs in the French Foreign Ministry, while telling an American official that French-Israeli relations had become "more reserved and objec- tive," conceded that strictly military relations remained ex- tremely close but that even working-level officials at the Foreign Ministry did not know exactly what form of agreement existed between the services of the two countries. In London, Mrs. Meir ap- parently received some encourage- ment. Foreign Secretary Lloyd assured her his government no longer intends to suggest any Israeli territorial sacrifices as it previously had proposed in seeking to promote an Arab- Israeli settlement. Earlier, a British official stated that Prime Minister Macmillan had re- sponded cordially but vaguely to recent overtures from Ben- Gurion for a "partnership" ar- rangement between the two aov- 25X1 25X1 Economic Considerations There is also an economic aspect to recent Israeli di- plomacy. The UAR has imposed severe restrictions ion the SECRET Italian Prime Minister Fanfani, after his meeting with Mrs. Meir, spoke of his plans to promote negotiations between Israel and the UAR. The Is- raeli foreign minister may have encouraged him in order to es- tablish a possible avenue of contact with Nasir. MEDITERRANEAN Tripoli LEBANON An arms deal very likely was part of Mrs. Meir's price. Britain has agreed to sell Is- rael military equipment, in- cluding two submarines, and is considering supplying 55 tanks. The Israelis probably see in Great Britain a power which might well consider close co- operation with them as valuable to the protection of British interests in the Middle East. The on-and-off status of Israel's permission for British over- flights of its territory en route to Jordan probkbly was in part an effort to obtain British concessions to Israel's needs. 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 5 of 16 Approved For Release 2005/05F2R-TDP79-00927A00199OOD040001-9 CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 passage of Israeli trade through the Suez Canal, and the Arab states as a whole cooperate in an economic boycott of Israel. This has prevented the Israelis from integrating their economy with that of the Middle East as a whole and has kept their ports from.,becoming commercial centers for the area. Israel accordingly has been forced to seek commercial partners abroad. A particular endeavor has been made to establish trade rela- tions with African and Asian states, an effort to which the development of Eilat port on the Gulf of Aqaba and the main- tenance of ::transit rights through. the gulf are linked Israel sees another possi- ble means of increasing its earnings by becoming a passage- way for Middle Eastern oil bound for Europe. After Nasir blockaded the Suez Canal in 1956, the Israelis attempted to obtain Western support for con- struction of a 32-inch pipeline across Israel. During the re- cent crisis, the Israelis again seized on the apparent threat to establish oil routes as an argument for Western sponsorship of such a pipeline. They achieved partial success in late August, when two interna- tional banking firms reportedly agreed to lend $15,000,000 to- ward completion of a 16-inch line linking Eilat and Haifa. Iranian oil, which Israel al- ready-obtains for domestic con- sumption, probably will be available for the new pipeline. Israel hopes European utiliza- tion of a trans-Israeli oil route would increase Western interest in its territorial in- tegrity. Israel, with a population of slightly over 2,000,000, ex- fists amid an Arab Middle East of over 55,000,000 inhabitants. Nevertheless, the Israeli armed forces probably still could de- feat the combined Arab forces in a localized conflict, al- though their advantage in.train- ing and leadership is being in- creasingly countered by the quality and quantity of the So- viet-bloc arms and training the UAR has received. The Israelis are fearful that as the Arab forces achieve proficiency in handling their new weapons, Israel's advantage will soon be overtaken. Moreover, the expansion of Nasir's influence this summer contributes to Israel's convic- tion that it must also obtain new weapons and equipment. One of Foreign Minister Meir's prin- cipal tasks during her European visit in August was to lay the groundwork for such procure- ment. In London, she announced Israel's opposition to a Mid- dle Eastern arms embargo on grounds that it would benefit only the Arabs, who already have late-model weapons. An intensified Arab-Israeli arms race accordingly has begun. Shimon Peres, director general of the Israeli Ministry of De- fense, has presented Western countries with a detailed list of Israel's armament needs. A settlement of Arab dif- ferences in accordance-' with the UN General Assembly resolu- tion of 21 July would only re- move deterrents to coordinating Arab hostility against Israel. Heretofore, intra-Arab differ- ences have mitigated the effec- tiveness of the collective Arab threat to Israel; Arab disunity was a considerable factor in Israel's success in the Arab- Israeli war of 1948 and per- mitted the Israelis to engage SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 PART III PATTERNS AND PERSPECTIVES Page 6 of 16 Approved For Release 2005/0313?P79-00927A0019,~.0040001-9 11 September 1958 Egypt alone in the 1956 Sinai campaign. The overthrow of the Nuri Said regime in Iraq,.-how- ever, eliminated Nasir's prin- cipal Arab opponent and in- stalled a government there fav- orable to him. The increasing likelihood that his sphere of influence eventually will also include Jordan and Lebanon con- fronts Israel with encirclement by Arab states responsive to the leadership of its archenemy. Jordan remains the key. Its absorption into Nasir's sphere of influence could result in the deployment of UAR troops and So- viet weapons along Israel's 330- mile Jordanian border. Should w eve pro ency - c Soviet arms.) The pattern of industrial- ization followed by Poland, partly at Soviet dictation, since the early postwar years has tended to reduce the sup- ply of goods it can sell at a profit on Western markets and to increase its economic de- pendence on the bloc. Although therennhave been important modi- fications in the order of eco- nomic priorities since 1955, the legacy of the Stalinist period and present party goals for economic development will tend to preserve this depend- ence, at least through the present Five-Year Plan (1956- 60). While the West's share in Polish foreign trade has in- creased from 30 percent in 1954 to 41 percent in 1957, and while the Poles are clearly making strong efforts to diversify their foreign markets and sources of supply--both for the direct economic benefits and for the bargaining power such diversification provides in negotiation with the bloc--the Polish Government still considers most of its trade with the bloc vital to the achievement of its economic objectives. The trade agreements nego- tiated with almost all bloc coun- tries for the period 1958-60 ap- pear to stabilize the bloc's share of Polish foreign trade at approximately the 1957 level. Moreover, the decline in West European demand for certain im- portant Polish exports--especial- ly coal and meat--and the exhaus- tion of most sources of Western credits to Poland make an ex- pansion of trade with the West this occur soon as a result of a coup in Jordan, the Israelis have clearly indicated they will fight. If the Jordanian crisis instead evolves without violence in Nasir's favor, Israel will still face the same ultimate threat. In such a situation, the Israelis probably would decide to take the military initiative at a time and place of their own choosing in order to achieve max- imum advantage. The timing of any such initiative would depend on the length of time required for assimilating the weapons they obtain from the West and on their assessment of when the Arabs i t.1. 25X1 3 l 1 --U 4 fi i SECRET A proved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART IIr PATTERNS AND PERSPECTIVES Page 7 of 16 Approved For Release 2005/0$ RIBTDP79-00927A00.1, 0040001-9 CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 on favorable terms extremely difficult in the short run. Soviet attempts to promote bloc economic integration by strengthening CEMA might also hinder such an expansion, al- though it is too early to judge CEMA's effectiveness. Only a small proportion of Poland's imports of consumer goods and materials for light industry--with the exception of cotton and oilseeds--comes from the bloc. On the other hand, the bloc is the predomi- nant source of imports of liquid fuels, machinery (equipment and parts), and most of the raw materials used in heavy in- dustry. It is also the major market for exports of machinery and equipment, the production of which is growing rapidly. The largest single economic factor tying Poland to the bloc is the need for a market for the output of its newly developed metallurgical and machinery in- SOVIET BLOC SHARE IN POLISH FOREIGN TRADE EXPORTS: BLOC AS PERCENT OF POLISH PRODUCTION TOTAL Machinery and equipment 14 12 7 Hard coal 14 7 0 Coke 18 17 0 Rolled products 17 10 2 zinc 52 42 19 Soda ash and caustic soda 18 13 11 Cement 3 2 2 Cotton fabrics 11 2 0A Sugar 32 17 17 Meat 7 5 4 IMPORTS: AS PERCENT OF POLISH CONSUMPTION TOTAL BLOC USSR Machinery and equipment 28 22 9 Iron ore 82 57 53 Manganese ore 100 99 73 Chromium ore 100 66 34 Copper 71 35 29 Alumina 100 100 0 Potash 100 100 0 Rubber(incl. synthetic) 100 27 11 Petroleum and products 90 73 46 Cotton 100 58 55 Wool 69 0 0 Grains 12 3 3 SECRET dustrtes. Only 12 percent of Polish ma- chinery exports have gone to the West in spite of strenuous efforts to find mar- kets in underdeveloped countries and in West- ern Europe. About half of Poland's scheduled exports of machinery during 1958- 60 are to be purchased by the Soviet Union, and recent trade agree- ments also provide for increased machinery exports to other bloc countries. A large portion of Poland's stock of machinery and equip- ment is of Soviet de- sign and uses Soviet parts, and many in- vestments have been planned with the ex- pectation of bloc deliveries of ma- chinery and equipment, although to a lesser degree than was the case before Gomulka's return to power. Po- land also exports to the bloc significant quantities of its out- put of coal, coke, zinc, rolled .prod- s1ct ..: roili:lig stodgy:,., ships,,. machine stools, calcinated and caus- tic ,soda,. apd . sim- ple coal-tar de- rivatives. Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 8 of 16 Approved For Release 2005/033 I DP79-00927AO011 0040001-9 ..r CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 Soviet Economic Pressures The closeness of Poland's economic ties with the bloc puts the Soviet Union in a strong position to influence Polish actions in other spheres. Soviet economic pressures are likely to be most effective when employed in moderation in bar- gaining on limited issues. Political concessions could be exacted, for example, by of- fering economic aid or better terms of trade, or by withhold- ing credits or temporarily slow- ing the flow of selected raw materials. There are indica- tions that the Soviet Union re- sorts to this tactic at times now. However, basic concessions probably could not be exacted from the Polish Government by economic dictation, that is, by repeated small pressures which at some point would make the present economic relationship unfavorable to Poland, or by a partial or complete embargo on bloc trade with Poland. It appears that, if nec- essary, Poland could adjust its production structure sufficient- ly to make practicable a shift of trade to the West. Such an adjustment was made by Yugo- slavia after 1948 and by Poland after World War I when the new- ly formed nation had not only to create a pattern of foreign trade but also to develop do- mestic trade almost from scratch. After World War II, Poland shifted most of its trade from the West to the bloc. Economic sanctions leveled against Poland by the bloc would not greatly reduce supplies of essential consumer goods in the short run, since Poland is practically self-sufficient agriculturally and a large share of its imports for light in- dustry comes from outside the bloc. Poland nevertheless would certainly suffer heavy economic losses from a bloc embargo. The metallurgical and machinery industries would be affected immediately and most severely for lack of supplies of ferrous raw materials and machine parts. Investments would in turn be greatly reduced, and there would be severe unemployment in cer- tain industries. Yet given the necessary foreign exchange, Poland could obtain from the West an adequate quantity of nearly all goods now imported from the bloc, and without delay if the present buyers' market for most raw materials persists. The greatest difficulty would lie not in obtaining im- ports, but in shifting exports from bloc to Western markets within a reasonably short time and on a large scale. For the country's largest export commodity, coal, the shift could be made only at sub- stantially lower prices and in reduced quantities; for machinery, the second most important export at present, the shift could probably not be made for many years, if at all. Without large-scale West- ern aid, the necessary ad- justments in production and trade would be extremely slow and painful. In the long run, Poland could profitably ex- pand its exports to the West of processed foods, textiles, fine ceramics, various handi- craft products, and certain types of steel, machinery, and chemicals. The Soviet Union can exer- cise considerable influence on Polish policies through economic negotiations, but is unlikely to make extensive use of eco- nomic sanctions. Such sanctions would probably accomplish noth- ing that could not be done by political means or by the threat of military action. They would tend to bring about conditions inimical to Soviet interests-- a shift in Poland's economic orientation to the West, and possibly enhanced popular sup- port for the Gomulka regime. SECRET 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001- 9 of 16 PART III PATTERNS AND PERSPECTIVES age Approved For Release 2005/03/SE P79-00927A00119900040001-9 CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 Brazil in recent weeks has curbed imports, cut back this year's economic development expenditures, and undertaken a number of other emergency meas- ures designed to head off a for- eign exchange crisis in 1959. Even if these measures are ful- ly carried out, the country will continue for some years to suffer severe "financial stresses and inter- national payments difficulties. The payments difficulties, al- though exacerbated by recent events, de- rive mainly from the basic pattern of Brazil's "foreign trade. The drive for industrializa- tion and an expand- ing population have meant a continually increasing demand for imported capital. goods, while Brazil's ability to pay has remained dependent on its traditional agri- cultural exports. Development The postwar de- velopment of Brazil's economy has been so rapid that the indus- trial sector, which before the war was only half as impor- tant as agriculture, by 1951 equaled the agricultural sector's contribution to the gross national prod- uct. Despite this, however, the coup-,. try's industry--both heavy and light-- still caters princi- pally to domestic de- mand, and contributes almost nothing to export earn- ings. The administration of President Kubitschek, elected in 1955 on a platform of "fifty years of economic progress in five," had redoubled the past emphasis on industrialization, setting goals that will cost $2.3 billion, of which $1.2 BRAZIL: COMPOSITION OF FOREIGN TRADE EXPORTS 1956 COFFEE 71.0 COCOA BEANS & BUTTER- 5.4 PINE WOOD 2.3 IRON ORE 2.4 CANE SUGAR COTTON 3.2 OTHER 15.7 TOTAL 100.0% (MILLION DOLLARS) $1,482 IMPORTS 1956 PETROLEUM & PRODUCTS 22.2 TRANSPORTATION EQUIPMENT AND PARTS 5 .9 WHEAT AND WHEAT FLOUR- 9.3 NONFERROUS METALS - 4.9 NEWSPRINT PAPER & PULP , 4.6 MISCELLANEOUS IRON MANUFACTURES - 2.5 FERTILIZERS, SODAS & ANILINE DYES 2 4 . OTHER - 48.2 TOTAL 10 0.0% 1957 60.7 6.4 4.6 3.4 3.3 3.2 18.4 100.0% $1,392 1957 17.3 11.4 7.0 4.1 4.0 3.7 1.8 50.7 100.0% (MILLION DOLLARS) $1,234 $1,489 25X1 SECRET PART 11p proved For RelePgA q&QRNS3AN1 PERSPECTIVES 001900040001P-age 10 of 16 Approved For Release 2005/038IE ITDP79-00927A00190O'040001-9 r.+ CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 billion will be required in foreign exchange. The government is aware of the varied difficulties empha- sized by unbalanced economic development and indeed esti- mates that Brazil will not meet the United Nations standard of per capita income for a "devel- oped country" before 1980, it is trying at present to diver- sify exports, particularly by encouraging development of the country's extensive deposits of WORLD COFFEE PRODUCTION (IN THOUSAND BAGS)* Brazil is also vulnerable to the threat of continuing world overproduction of coffee. Although it is still the larg- est coffee grower, supplying 40 percent of the total, Bra- zil's share of the world mar- ket has dwindled steadily over the past 20 years--principally as a result of competition from African coffee. There is lit- tle prospect of regaining the lost portion even should the African producers agree to join the world coffee-marketing agree- ment now under dis- cussion. 1935-36 1946 47 1953 54 1954.55 1955 56 1956 57 1957 58(ES BRAZIL 25,340 18,704 19,700 18,100 23,500 18,000 23,500 COLOMBIA 4,452 5,840 7,088 6,405 6,800 7,000 7,000 OTHER LATIN AMERICA 6 , 697 6,980 8,301 9,004 9,096 9,460 9,887 TOTAL LATIN AMERICA 36,489 31,524 35,089 33,509 39,396 34,460 40,387 AFRICA 2,602 4,385 6,790 7,112 8,749 8,685 8,235 OCEANIA 2,495 1,001 2,117 1,567 2,266 2,572 2,688 TOTAL 41,586 43,996 4Y 188 50,411 4S,717 51,310 WORLD 38,91D PRODUCTION * F] F ONE BAG EQUALS 132.276 LBS. manganese and high-grade iron ore, but this effort has been undercut by the decline during the past year in world demand for these products. Coffee and the Economy Coffee, although account- ing for only 5 percent of Bra- zil's GNP, has largely financed its vast postwar industrial ex- pansion by providing E60 to 70 percent of the country's for- eign exchange and an even great- er percentage of its dollars. This dependence on a single commodity has made Brazil es- pecially vulnerable to the vi- cissitudes of the world mar- ket, in which prices have fluc- tuated from 88 to 45 cents per pound over the past five years. Under the terms of this agreement, Brazil is to withhold 40 percent of its marketable crop, com- pared with 15 percent for Colombia and 5- 10 percent for other producers. For the first six months of 1958, Brazil's coffee exports were down al- most 10 percent over the same period last year. In addition, the price of Brazil- ian coffee had dropped from 55 to 45 cents per pound by early September. Foreign Exchange Commitments Despite the serious drop in coffee prices and sales, Brazil's trade balance was fa- vorable in the early months of 1958, and the drain on foreign exchange appeared primarily the result of payments on foreign loans and investment. Such pay- ments amounted to $170,000,000 in 1957 and are scheduled at $305,000,000 for 1958--or more than 20 percent of the country's total 1957 exchange earnings. This schedule of repayments con- tinues to balloon through 1959 and 1960 and will be extremely heavy even should Brazil succeed in making arrangements to post- pone payments on the US private consortium loan of $200,000,000 that falls due in those years. SECRET PART II I Approved For R~XTN 5/( /b5 ~'ERSPECTIVES 7A001900040P 001 g-9 11 of 16 T) Approved For Release 2005/03SEC,k'DP79-00927AO0190040001-9 11 September 1958 in early May of this year, Brazil's dollar holdings had virtually reached the zero mark and continued imports were pos- sible only through emergency loans from private American banks. Subsequent loans from the IMF and the Export-Import Bank have brought total emer- gency assistance for the year to more than $250,000,000, but even this may be in- sufficient to meet Brazil's needs. Hope of New Investment The extent to which new foreign in- vestment can be ex-: pected to remedy the foreign exchange im- 809083B balance is question- able. Although the Kubitschek regime has actively solicited foreign investment in all fields except oil, the vast inflow of the past decades--which brought US investment to $1.2 billion-- has begun to taper off and, in the past five years, profit remittances have exceeded new investment by between $100,000,- 000 and $150,000,000 annually. The most ambitious new invest- ments are being made by Japan and Germany. Some large new US operations may be undertaken in iron, should the world mar- ket improve, but such operations would for the short run bring mainly equipment from the US and not dollar funds. In the longer run, however, such investment--especially in the now-taboo field of oil--is considered one of the key solu- tions to Brazil's dollar prob- lem. Oil imports cost Brazil between $250,000,000 and $270,- 000,000 annually, mostly in dollars, and comprise about 20 percent of the value of total. imports. Brazil was reported "shaken to its roots" by the news in July that Argentina had reached agreements with private oil companies willing to invest almost $1 billion there--on a Brazil's national oil mo- noply, Petrobras, has been wide- ly praised over government radio stations in recent weeks for its success in having doubled production for the second straight year. It is now produc- ing about 20 percent of nation- al demand, but this is the re- sult of transportation improve- ments?and not of new discoveries. The administration's recent strong praise for the government oil monopoly is probably dictated in part by the approach of the 3 October congressional and gubernatorial elections. Within Kubitschek's shaky congression- al coalition, the leftist Labor party and the allied' Social Progressive party are expected to gain at the expense of his own Social Democratic party. Some gains may also be made by the leading opposition party, the National. Democratic ! Un- ion. A number of the emergency measures taken to head off a foreign exchange crisis are necessarily unpopular. That reducing. imports 40 percent is particularly subject to SECRET nonconcession basis under con- tract to the State Oilfields Administration. Nevertheless, the Kubitschek government, un- der renewed pressure from the army and other vocal nationalist groups, still appears fearful of risking -any - compromise with pri- vate investment in'this field.- (MILLION DOLLARS) 1 1958 1959 1960 1961 1962 CONVERTIBLE CURRENCIES 231.9 262.8 323.8 173.2 91.4 CURRENCIES OF LIMITED CONVERTIBILITY 59.0 56.4 40.1 27.2 13.5 INCONVERTIBLE CURRENCIES 14.0 9.9 4.8 3.5 1.9 TOTAL 304.9 329.1 368.7 203.9 106.8 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 12 of 16 Approved For Rel~asr 2005/031'I9`9?-fFDP79-00927A001i906040001-9 bog CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 political attack, since it ap- pears to have contributed to the new spurt in domestic in- flation this year. It is there- NIGERIA'S PRE-INDEPENDENCE PROBLEMS African regional leaders in Nigeria will meet with Brit- ish representatives at a con- ference scheduled to begin in London on 29 September to estab- lish the date for Nigeria's in- dependence within the Common- wealth and to consider the re- ports of commissions which have been studying financial and po- litical problems. They have unilaterally set April 1960 as the date, even though the coun- try still lacks national unity. Nigeria, the largest unit in the British colonial empire, has a population of over 35,- 000,000. Under a 1957 consti- tutional arrangement with Brit- ain, there are a central govern- ment having carefully defined powers and four regional gov- ernments with local self-govern- ment except for such matters as defense, police, transporta- tion, and currency. The central government embraces the office of the federal prime minister, who is assisted by a cabinet which is representative of the leading party of each region, and a federal House of Repre- sentatives. During the past year, Nigeria and Britain have reached agreement on Nigeria's responsibility for its armed forces, a central bank and cur- rency, and arrangements to train Nigerians for the diplomatic service.. Federal Prime Minister Abu Bakr Tafawa Balewa believes the country is in a dangerous mood because of the widespread na- tionalist feeling. He feels London must recognize the 1960 date for Nigeria's independence even though the political lead- ers have not been able to rise above regional religious and tribal differences. Similarly, the British governor general be- lieves Britain must either grant independence by mid-1960 or move in troops. The forthcoming conference is a follow-up to a meeting in May-June 1957 at which Nigeria's future status was discussed. Commissions were set up to study problems such as allocation of revenue between the central gov- ernment and the regions, control of the police, and recognition of the rights of tribal minori- ties by the creation of new po- litical subdivisions. At that time British officials also prom- ised to give sympathetic consid- eration to early independence for Nigeria. Subsequently, how- ever, the Nigerian leaders uni- laterally set 2 April 1960 as the date for independence. The leaders now are report- ed dissatisfied with the Minori- ties Commission's proposal that no new regions be created, some federal control be extended over the minority' -tribal areas; and annual-'reports be'.sub- mitted to 'thb federal House of SECRET fore questionable whether all the emergency measures will sur- 25X1 vive the campaign and be fully carried out. Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 13 of 16 Approved For Relea a 2005/03/1SEQRR '79-00927A00190,1040001-9 Iftw CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 igeria: FRENCH WEST AFRICA Bananas V Cattle Cocoa Cotton cY Peanuts Palm produce Representatives. Each leader wants to carve up the regional bailiwick of opposing politi- cians in order to weaken their influence and destroy their op- portunity to achieve the com- manding national position. In view of Nigeria's heterogeneous tribal situation, any national leader must form a coalition with his counterpart in another region. There are constant ru- mors of political deals but no firm alignments thus far. A united Nigeria has no historic precedent. In 1914, Britain joined its separate pro- tectorates of Northern and South- ern Nigeria into one administra- tion; since then London has tried to develop Nigerian unity while gradually increasing self-govern- ment. This approach has spurred regional demands for greater autonomy, to which London has ? Tin Oil Railroads, selected reluctantly agreed providing the functioning of colony-wide enterprises, such as the trans- portation system, were not ad- versely affected. Regional Breakdown At present there are four regions--each with its own prime minister and legislature. The Northern Region contains over half of the country's population but a smaller proportion' of the wealth. Culturally distinct, the Northern Region is overwhelm- ingly Moslem and politically backward. It is controlled by emirs who rely heavily on Brit- ish guidance. During the 19th century, the emirs and their armies were a threat to the more advanced Christians and pagans of the south. In recent years, however, the Moslems have feared that Nigerian independence would SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 PART III PATTERNS AND PERSPECTIVES Page 14 of 16 Approved For Release'2005/038EOMFTDP79-00927AO01 6040001-9 CURRENT. INTELLIGENCE WEEKLY SUMMARY 11 September 1958 lead to an influx of southern administrators, clerks, and technicians. Northern politi- cians therefore have resisted the drive toward early independ- ence. Their leader, the Sardauna of Sokoto, however, recently joined the other Nigerian lead- ers in their demand for inde- pendence. Southern Nigeria, divided into the Eastern and Western Regions on the basis of distinct tribal groups, now is the scene of the bitterest political skir- mishing. Each region has an am- bitious, foreign-educated prime minister who aspires to dominate a united Nigeria--Obafemi Awolowo in the west, Nnamdi Azikiwe in the east. The governing parties are formed from the dominat trib- al groups, while the opposi- tion's strength is drawn from the minorities. The political situation in the Eastern Region--described by the federal prime minister as virtually "a shambles"--has become increasingly unstable. In June 1958, regional Prime Minister Azikiwe's control was seriously challenged by 31 im- portant members of his party, and the federal prime minister and the Western Region's prime minister are apparently increas- ing their intervention in the affairs of the Eastern Region. If regional opposition to Azikiwe's questionable methods grows, he will probably not become an ef- fective influence on the nation- al scene. The Southern Cameroons is the fourth and smallest region. Its politicians, however, are preoccupied with the question of reunification with the French trust territory of Cameroun and do not play a significant role in Nigeria's political develop- ments. Political. disunity in Ni- geria is:h.virig an adverse effect on the nation's economy, par- ticularly on economic develop- ment. Disagreement over econom- ic policies and a shortage of competent personnel have already forced an extension of the orig- inal 1955-60 development program to 1962. These factors have also restricted the country's rate of economic growth. Nigeria's gross-national product has grown annually by about 5 percent since 1951, but half of this may rep- resent an inflationary rise in prices. The relatively limited for- eign investment in Nigeria is largely British, and Britain ac- counts for about 55 percent of Nigeria's annual trade of $770,- 000,000. This pattern of heavy reliance on the sterling area is not likely to be seriously changed following independence. Falling world commodity prices are having an increasing- ly adverse effect on the economic structure. Restrictions on tin production have caused the lay- off of about 18,000 miners in the Northern Region, while fall- ing rubber prices have destroyed much of the incentive for the peasant rubber producers in the Western Region. A 45-percent decline this year in the cocoa crop--the region's economic main- stay--also damaged the economy, although prospects for the forth- coming crop season appear bright- er. The Eastern Region may suf- fer from a reappraisal of its oil potential now being hinted at by some Shell - British Pe- troleum officials. Considerable development has taken place along the coast, but the high cost of transporting oil to ships and less favorable indications of oil are dampening earlier opti- mism. Despite an estimated $600,- 000,000 in sterling reserves in London, Nigeria may also experi- ence balance-of-payments diffi- culties soon. This is primarily SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 PART III PATTERNS AND PERSPECTIVES Page 15 of 16 Approved For Rely 2005/03 aC c-TDP79-00927A001 90440001-9 V.Mwf CURRENT INTELLIGENCE WEEKLY SUMMARY 11 September 1958 the result of larger imports of heavy capital goods for the eco- nomic development program. In 1956 and 1957 Nigeria had an annual trade deficit averaging about $67,000,000; in the first quarter of 1958, the trade defi- cit was $9,500,000,compared with a surplus of $2,200,000 in the comparable period of 1957. 25X1 SECRET Approved For Release 2005/03/15 : CIA-RDP79-00927A001900040001-9 PART III PATTERNS AND PERSPECTIVES Page 16 of 16 25X1 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9 Approved Foelease 2005/03/1E4-0001900040001-9 CONFIDENTIAL CONFIDENTIAL x Approved For Release 2005/03/15 : CIA-RDP79-00927AO01900040001-9