WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A006100080001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 35
• Document Creation Date: December 20, 2016
• Document Release Date: May 2, 2006
• Sequence Number: 1
• Publication Date: December 1, 1967
• Content Type: SUMMARY

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secret
DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
State Dept. review completed
Secret
- 5Q)
1 December 1967
No. 0318/67
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C ONTENTS
(Information as of noon EST, 30 November 1967)
Far East
THE WEEK IN PERSPECTIVE
VIETNAM
Military activity has slackened considerably in the
central highlands after three weeks of fierce fight-
ing around Dak To. Elsewhere, Communist forces in
III Corps continue to menace allied positions, and
numerous acts of harassment have occurred in the
delta. In Saigon, there are indications that sev-
eral key generals are dissatisfied with recent gov-
ernment policies and appointments.
CAMBODIA FEARS SPREAD OF VIETNAM WAR
Prince Sihanouk is voicing alarm that the war in
South Vietnam may be extended into Cambodia.
VIOLENCE CONTINUES IN CHINA WHILE PEKING VACILLATES
Leaders in Peking seem reluctant to take decisive
steps to stamp out civil disobedience, clashes be-
tween rival Red Guard groups, and other disorders.
MALAYSIA HIT BY RACIAL RIOTING
Long-standing communal tension has been fanned into
widespread violence by pro-Communist Chinese elements
protesting the government's recent currency devalua-
tion.
PEKING AND LONDON TAKE STEPS TO REDUCE TENSION
A relaxation of restrictions on diplomats in Peking
and London and an informal Sino-British agreement
on Hong Kong border issues suggest that Peking is
willing to return to more normal diplomatic rela-
tions.
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JAPAN'S PRIME MINISTER SATO STRENGTHENS HIS POSITION 9
The new Japanese cabinet and ruling party leadership
appointed on 25 November are potentially the strong-
est team yet assembled by Prime Minister Sato.
Europe
THE WEEK IN PERSPECTIVE 11
WESTERN EUROPE RESPONDS TO MONETARY CRISIS
Western Europe has demonstrated an impressive degree
of support for the British devaluation of the pound
sterling as well as for efforts to prevent the de-
valuation from leading to massive pressure on the
dollar.
SOVIET DEBATE OVER RESOURCE ALLOCATIONS PUBLICIZED
Despite the formal agreement in October on a plan
and budget for 1968 and goals for the following two
years, signs of discord over the allocation of eco-
nomic resources in the near future are appearing in
the Soviet press.
POLITICAL OVERTONES IN EAST-WEST GERMAN TRADE
Recent changes in East-West German trade may lead to
new arrangements implying greater recognition of East
Germany's existence as a separate state.
Middle East - Africa
12
13
15
THE WEEK IN PERSPECTIVE 17
CYPRUS CRISIS EASES
The latest Cyprus crisis appears to have been defused
although there may still be hitches--and more debate--
before the island settled down under new security ar-
rangements.
INDIA'S STATE POLITICS HEATING UP
In less than two weeks, three feeble non-Congress
coalitions have fallen with an assist from the Con-
gress Party; two states were replaced with Congress-
backed governments and one with direct rule from New
Delhi.
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INDEPENDENT SOUTH YEMEN FACES SERIOUS HURDLES
On 30 November the British protectorate of Aden be-
came the independent People's Republic of South Yemen.
The new government formed by the National Liberation
Front faces economic and political problems of im-
mense proportions.
EGYPTIAN PRESIDENT'S SPEECH INDICATES SOME MODERATION
Nasir's speech on 23 November, although harsh, left
some indication that Cairo would cooperate with UN
efforts to achieve an Arab-Israeli settlement.
Western Hemisphere
THE WEEK IN PERSPECTIVE
OPPOSITION ALLIANCE FORMED IN PANAMA
Four parties have bolted President Robles' eight-
party coalition and have joined forces with Arnulfo
Arias' mass-based Panamenista Party in a National
Unity Front that will run Arias as its presidential
candidate in the elections next May.
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22
23
25
26
CHILEAN LABOR PROBLEMS CONTINUE UNABATED
The general strike of 23 November was partially
successful, and labor agitation is expected to con-
tinue. President Frei's success in dealing with
these problems will be an indication of how much
political influence he retains after three years in
office.
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FAR EAST
Communist military activity in South
Vietnam's western highlands declined last
week following the fierce three-week battle at
Dak To, but Communist forces maintained pres-
sure on allied positions to cover the rede-
ployment of North Vietnamese units involved
in this action. Viet Cong attacks throughout
the delta, as well as the aggressive Commu-
nist posture in II and III Corps areas, sug-
gest, however, an intention to sustain a higher
level of offensive action throughout South Vietnam.
The rivalry between President Thieu and
Vice President Ky was manifested in private
expressions of discontent with the new Saigon
government by some senior military officers
aligned with Ky. These officers reportedly be-
lieve that Ky's power position is deteriorating
and that Thieu has reneged on his alleged promise
that the military would continue to dominate
the government. This dissatisfaction is con-
fined to a small group of ranking officers and
does not appear to pose a threat to the new
government's stability at this stage.
Press reports of the discovery of a Viet
Cong base on Cambodian territory prompted Prince
Sihanouk to warn that the war may soon be ex-
tended into Cambodia. He repeated previous de-
nials that there are permanent Communist facili-
ties in Cambodia but conceded that his forces
cannot prevent Commnist units from passing
through isolated border areas. Although Sihanouk
is under some domestic pressure to adopt a more
"neutral" course, there is no indication that he
is prepared to press the Viet Cong to limit
their presence in Cambodia.
The continuing standoff between Maoists and
moderates appears to ..:Inderlie Peking's failure to
take decisive action to suppress Red Guard clashes
and civil disobedience in China. The paramount
influence of the moderates in foreign affairs, how-
ever, seems apparent in moves to ease tensions with
Britain. Peking removed restrictions on the Brit-
ish mission in response to a similar British relax-
ation of restrictions on Chinese diplomats in
London. The Chinese also reached an agreement with
Hong Kong authorities on border issues last week
after protracted talks originally proposed by the
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VIETNAM
The opening phase of the
Communist "winter-spring" cam-
paign in the western highlands
has apparently ended following
three weeks of heavy fighting
near Dak To in southwestern Kon-
tum Province. The final battle
ended last weekend with the US
seizure of Hill 875, the stra-
tegic high point some 14 miles
southwest of the US base camp
at Dak To.
Several small-scale engage-
ments and the shelling of scat-
tered allied positions early this
week have covered the redeploy-
ments of the four North Vietnam-
ese regiments involved in the
Dak To fighting. The Commu-
nists may continue to follow
their strategy of attacking and
engaging allied forces and then
withdrawing to previously pre-
pared positions where they can
concentrate maximum firepower
and inflict heavy casualties on
allied troops.
This pattern of activity, al-
though extremely costly to the
enemy, has nevertheless resulted
in a high number of allied casual-
ties. The Communists have also
succeeded in drawing in and tying
down large numbers of US combat
and support troops from other
areas of the country. These ob-
jectives have been spelled out in
captured enemy documents, suggest-
ing that additional large-scale
fighting may again erupt in the
western highlands.
Enemy forces, meanwhile, are
maintaining their aggressive pos-
ture in the northern portions of
South Vietnam's III Corps area.
During the past week, two Viet
Cong (VC) regiments--the 272nd of
the VC 9th Division and the 275th
of the VC 5th Division--attacked
allied outposts and Special Forces
camps near Song Be in northern
Phuoc Long Province. Elements of
these regiments, together with
the North Vietnamese 88th Regi-
ment, will probably continue to
harass remote allied positions,
staging ambushes along several of
the key highways, and possibly
mounting another multibattalion
assault in the Loc Ninh - Song Be
area.
In southernmost IV Corps,
the Viet Cong are continuing to
demonstrate an ability to coordi-
nate their harassment of allied
installations. Administrative
centers, outposts, bivouac areas,
and airfields have been shelled
and attacked. The recent in-
crease in harassing tactics in
the delta and elsewhere may be
designed in part to shift atten-
tion from the main force units,
many of which are recovering
from severe losses.
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Political Developments
In South Vietnam
Several key generals are
reported to be increasingly dis-
satisfied with the decisions and
appointments of the new Saigon
government. They are said to
feel that Thieu has reneged on
"assurances" that there would be
no reduction in the military's
behind-the-scenes control of the
government.
Although there is undoubt-
edly a feeling of pique and frus-
tration among some of the key
generals, it does not appear
likely that there will be mass
resignations in the immediate
future.
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The concern of some of the
military about the political
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situation is apparently linked to
Police Director Nguyen Ngoc Loan's
resignation, which he submitted
on 24 November. Loan's desire
to resign is ostensibly because
of fatigue, but he admits pri-
vately that the primary reason
is his reservation over certain
government appointees--including
Prime Minister Loc and secretary
to the presidency Nguyen Van
Huong--whom he believes have
questionable and potentially sub-
versive backgrounds. Apparently
at Ky's request, Loan has agreed
to stay for two or three months,
however.
In the National Assembly,
the Upper House has taken serious
exception to the government's
national mobilization decree.
The senators are concerned about
the constitutionality of the gov-
ernment's unilateral action in
promulgating the decree before
the investiture off the legislature.
Substantively, the law has also
come under fire because it lowers
the draft age to 18. The Upper
House has agreed to call on
Prime Minister Loc to appear
before it to answer questions
about the decree.
In the Lower House, mean-
while, a largely Catholic group
of deputies calling themselves
the Independence Group and a
Buddhist-oriented body of repre-
sentatives called the Progressive
Bloc have agreed to enter into a
limited working agreement. The
objective of this 48-member al-
liance is to prevent the domina-
tion of the assembly by the pro-
government Democratic Bloc, which
reportedly has at least 50 mem-
bers. The principal gainer in
this new coalition seems to be
the 15-member Progressive Bloc,
which will acquire new stature by
joining a group more than twice
its size. Au Truong Thanh, the
leftist-leaning former minister
of economy, is also reported to
be attempting to form a politi-
cal bloc from among independents
in the Lower House.
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CAMBODIA FEARS SPREAD OF VIETNAM WAR
Prince Sihanouk is voicing
alarm that the war in South Viet-
nam may soon be extended into
Cambodia.
He told a press conference
in Phnom Penh on 26 November
that the recent spate of US press
reports on Vietnamese Communist
activities in Cambodia are a
form of pressure on the US Gov-
ernment to extend the war across
the border. Sihanouk praised
President Johnson for exercising
restraint but went on to warn
the Cambodian people that they
must be prepared for a "struggle
to the death against the Ameri-
cans." Sihanouk reiterated that
any US move across the border
would force Cambodia to fight
alongside the Viet Cong and the
North Vietnamese.
Sihanouk also issued denials
that there are permanent Communist
facilities on Cambodian territory,
although he went further than he
has before by acknowledging that
Communist units pass through
isolated border areas. Sihanouk
also admitted that Cambodia had
made a "verbal agreement" to
sell rice and other nonmilitary
goods to the Viet Cong. This
is the first explicit statement
that such an agreement has been
reached since mid-1965, when Si-
hanouk revealed that Cambodia -
had been asked by the Viet Cong
to sell them rice.
Phnom Penh has, however,
reiterated flat denials that Cam-
bodia is providing military sup-
plies to the Communists or that
such supplies are moving through
the port of Sihanoukville. Si-
hanouk has taken the position,
that, in contrast to other kinds
of support, providing military
supplies to the Communists would
be in violation of Cambodia's
neutrality.
Sihanouk's statements over
the past week indicate that he
intends to continue to portray
Cambodia as the innocent victim
of circumstances beyond its con-
trol. He has underlined this
position by pointed references
to the inability of the allied
forces to control the South Viet-
namese side of the border. At
the same time, he has sought to
demonstrate his good faith by
renewing a standing request for
an expanded International Con-
trol Commission (ICC) with per-
manent sites in border areas.
Previous calls for an expanded
ICC have foundered--as a result
of Soviet and Indian foot-dragging.
Thus far, there are no in-
dications that Sihanouk intends
to bring increased pressure to
bear on the Vietnamese Communists
to limit their presence in Cam-
bodia. Leading Cambodian civil-
ian and military leaders, increas-
ingly concerned that Sihanouk's
policies will cause the war to
spread to Cambodia, have long been
urging him to follow a more "neu-
tral" course. It seems unlikely,
however, that he will be any more
receptive to their counsel now
than he has been in the past.
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VIOLENCE CONTINUES IN CHINA WHILE PEKING VACILLATES
Leaders in Peking seem re-
luctant to take decisive steps
to stamp out civil disobedience,
clashes between rival Red Guard
groups, and other disorders.
Violence and disorder have
been spreading in Manchuria
since early November. Tensions
also reportedly remain high in
such east China cities as
Shanghai, Peking, and Canton.
A Shanghai broadcast on 19 No-
vember complained that Red
Guards were becoming more vocal
and belligerent. In some areas,
Red Guard groups are beginning
to use firearms again.
Although Peking's failure
to take the drastic measures
necessary to suppress disorder
evidently stems from unresolved
conflicts within the leader-
ship, regime propaganda con-
tinues to stress moderation
and a return to order. In the
past week, renewed emphasis was
placed on the need to make full
use of the experience of "old
cadres," who clearly have been
reluctant to resume their re-
sponsibilities after the batter-
ing they received at the height
of the Cultural Revolution.
The regime is probably also
attempting to reassure peasants
that the excesses of the Great
Leap Forward period are not to
be repeated, hoping thereby to
lessen tensions over grain pro-
curement problems in rural areas.
Several recent reports indi-
cate that the regime is consider-
ing covening its long-postponed
9th party congress next summer.
The reports suggest that the
congress, originally scheduled
for 1961, would serve to restore
some of the prestige of the party,
which has been severely eroded
in the course of the Cultural
Revolution. It would at the
same time formalize the removal
of those purged in the past two
years.
Minister of Security Hsieh
Fu-chih, a leading moderate
spokesman who is reported to
have discussed the holding of
the congress in a recent speech,
apparently suggested that some
Red Guards would be allowed to
join the party, but only after
proper screening. Red Guards
would also be allowed to attend
the congress itself. These of-
fers are evidently intended to in-
duce greater cooperation from
militant Red Guard groups as
part of Peking's efforts to re-
store order. There have been
no signs that grass-roots prep-
arations for the congress--
which normally take a year--are
in fact under way.
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MALAYSIA HIT BY RACIAL RIOTING
Long-standing communal ten-
sion has been fanned into wide-
spread violence by pro-Communist
Chinese elements protesting the
government's recent currency de-
valuation.
The violence was triggered
by the government's failure to
revalue the "old" Malayan dollar
whose value is quoted in terms
of sterling. Thus, when the
British pound was devalued by
14.3 percent, the value of the
Malayan dollar fell correspond-
ingly. The "new" Malaysian dol-
lar, whose value is quoted in
terms of gold, was not affected,
however, causing considerable
confusion and furor. This de-
velopment was a particularly hard
blow to many small businessmen
and shopkeepers who tend to keep
their savings in cash. Although
the old currency is in the process
of being withdrawn, it still con-
stitutes a sizable percent of
the money in circulation.
Violence erupted in Penang
on 24 November when pro-Communist
elements in the Labor Party of
Malaya (LPM) attempted to force
a closure of all shops in the
city as a protest move. Chinese-
Malay friction quickly developed,
and at least 80 racial clashes were
reported in Penang on 24 November
alone. Although violence on the
island was largely brought under
control by 27 November, rioting
spread to parts of the mainland
opposite the island and forced the
government to declare limited mar-
tial law in the affected areas on
28 November. The latest police
estimate of casualties is 22 dead
and 250 injured. About 1,000
have been arrested, including a
number of local LPM leaders.
Although the government is
apparently bringing the situation
under control and will take firm
measures against the heavily Com-
munist-infiltrated Labor Party,
the current unrest dramatizes the
inherent communal animosities in
Malaysia and shows how quickly agi-
tation over other issues can de-
generate into racial clashes.
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PEKING AND LONDON TAKE STEPS TO REDUCE TENSION
The Chinese and British have
now taken reciprocal steps to
ease tension between the two
countries. A mutual relaxation
of restrictions on diplomats in
the respective capitals and an
informal Sino-British agreement
on Hong Kong border issues sug-
gest Peking is willing to return
to more normal diplomatic rela-
tions.
The Chinese Foreign Ministry
informed the British charge on
27 November that all restrictions
on members of the British mission
would be lifted as of 29 November,
and that the departure of British
dependents would no longer be
barred. The Chinese move followed
a British initiative on 20 Novem-
ber easing restrictions on the
movement of Chinese diplomats in
London.
The Chinese decision may
also be linked to the border
agreement. Peking originally
broached the idea of negotiations
in late October and after lengthy
talks between Chinese and Hong
Kong border authorities, the Brit-
ish on 26 November reopened a
border crossing and released five
Chinese who had been arrested
after illegally crossing into
British territory. The British
also agreed to remove barbed wire
from along the border and to
provide compensation for alleged
losses by Chinese farmers who
were unable to reach their fields
on the Hong Kong side.
In return, the British ob-
tained the release of two Hong
Kong policemen who had mistakenly
crossed into Chinese territory.
A British police inspector, who
had been abducted by the Chinese,
escaped and reached British ter-
ritory prior to the conclusion
of the agreement.
The British adopted a con-
ciliatory approach throughout the
four-week-long border talks,
largely in the hope that any
understanding reached might con-
tribute to an easing of tension
along the border. The British
probably now believe they have
established a channel that might
make it easier to resume a dia-
logue with Chinese border author-
ities in the event of future
trouble.
The British negotiators ob-
tained no firm Chinese commit-
ments to prevent further inci-
dents in the area, but the border
is quiet and Chinese Communist
propaganda has been relatively
restrained. In addition, Chinese
military authorities are main-
taining effective control over
the frontier area.!
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JAPAN'S PRIME MINISTER SATO STRENGTHENS HIS POSITION
The new Japanese cabinet and
ruling party leadership appointed
on 25 November are potentially
the strongest team yet assembled
by Prime Minister Sato. They
include representatives of the
important factions in the Liberal
Democratic Party (LDP) and have
a high level of competence.
Sato, while retaining seven
capable cabinet officials includ-
ing Foreign Minister Miki and
Finance Minister Mizuta, brought
in political figures with wide
experience in high government
posts to head the 11 remaining
ministries. In a simultaneous
reorganization of the LDP, he
kept two incumbents in top posts
and added a prominent member of
a faction that has been a poten-
tial nucleus for intraparty op-
position. In the distribution
of both cabinet and party posts,
Sato seems to have achieved a
harmonious balance between the
right- and left-of-center LDP
factions.
Sato's reshuffling of the
leadership, the fourth since he
took office in 1964, was intended
primarily to strengthen his posi-
tion within the LDP. Japanese
cabinets and key positions in the
ruling party are changed fre-
quently by the prime minister to
reward loyal supporters or to
muzzle critics. Sato probably
decided that it was again time
to play ministerial musical chairs
as some senior party members were
becoming restive and perhaps
eager to take their turn in the
cabinet and to enjoy the accom-
panying status.
A leading opponent of Sato
within the party, Yasuhiro
Nakasone, was appointed minister
of transportation in exchange for
his support, which should help
Sato gain election to a third
term as party president late
next year. Nakasone, for his
part, probably believes a cab-
inet post will enhance his own
chances ultimately to attain the
prime ministership himself. Naka-
sone and the new minister of
health and welfare, Sonoda, also
bring to the cabinet youth and
dynamism that could help to
refurbish the government's staid
public image.
Sato's buttressed intra-
party position will help him
tackle the tough problems he
faces during the next several
months. One task Sato appears
to have set for himself is the
promotion of a heightened de-
fense consciousness in Japan
to help expedite the return of
the Ryukyus to Japanese adminis-
tration. In addition, Sato's
enhanced ability to maintain
party discipline puts him in a
favorable position to prevent
a proliferation of candidates in
the upper house elections next
June. In the past, this excess
of candidates has often hurt the
LDP at the polls.
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EUROPE
During the last week's monetary crisis, West-
ern Europe rallied to support Britain's devalua-
tion and to prevent massive pressure on the dollar.
In his press conference on 27 November, De
Gaulle covered familiar ground, including a call
for a return to the gold standard. He accorded
the US relatively less attention than in earlier
performances, although he expressed dire fore-
bodings about the weakness of the dollar. He ad-
vised the British to forget about negotiations
to join the Common Market, and urged French
Canadians to seek national autonr,my. His re-
marks about the Middle East and Vietnam were
similarly eccentric and unhelpful.
Moscow announced last week a meeting in
Budapest in February to lay the groundwork for
an international Communist conference. Sponsoring
the Budapest meeting will be the same parties--
less the Cubans--that met in Moscow in 1965 in
an earlier unsuccessful attempt to arrange an in-
ternational conference. As many as 60 or 70
parties may turn out in February.
Czechoslovakia and Hungary continue to
evince interest in clnser relations with West
Germany. Bonn is planning to open a trade mis-
sion in Prague in January. The Hungarians are
seeking to induce the West German Social Demo-
cratic Party (SPD) to send a high-level delega-
tion to Budapest for "unofficial" talks.
Marshal of the Soviet Union Yakubovsky ar-
rived in Bucharest on 23 November for what ap-
pears to be a protocol visit. This is his first
visit to Rumania since his appointment as supreme
commander of Warsaw Pact forces earlier this
year. The last visit of a Pact commander to
Rumania was in June 1965.
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WESTERN EUROPE RESPONDS TO MONETARY CRISIS
Western Europe has demon-
strated an impressive degree of
support for the British devalua-
tion of the pound sterling as well
as for efforts to prevent the de-
valuation from leading to massive
pressure on the dollar. This
support shows again that in times
of crisis the major financial
powers can be relied upon to ac-
tivate emergency arrangements in
order to avoid monetary chaos of
global dimensions.
Their cooperation was demon-
strated in Frankfurt on 26 Novem-
ber, when the active members of
the Gold Pool* agreed to a US
request to coordinate support for
the gold-exchange system. This
agreement had the effect of dem-
onstrating solidarity in the face
of French actions, including with-
drawal last summer from partici-
pation in the Pool, which had con-
tributed to the crisis. The
French are participating, however,
in a projected loan to Britain
under the auspices of the Inter-
national Monetary Fund (IMF).
In his press conference on
27 November, De Gaulle reiterated
his call for a return to the gold
standard. His remarks did noth-
ing to resolve any of the ques-
tions regarding international
The US, UK, West Germany,
Italy, Belgium, Netherlands, and
Switzerland.
monetary reform, which is cur-
rently under discussion among the
six members of the European Com-
munities (EC). In particular,
he may have added to uncertainty
on prospects for the plan--agreed
to in principle last September
by all members of the IMF--to
supplement international reserves
with special drawing rights.
Britain's devaluation of
the pound undercut one of the
arguments attacking its readiness
for EC membership, but there is
still general concern over the
basic health of the British econ-
omy. Devaluation still leaves
open, moreover, the problem of
sterling's reserve-currency role
in an enlarged Community. The
various proposals for dealing
with this have yet to be formally
submitted, either by Britain
or Community members. Italian
Treasury Minister Colombo, the
author of one proposal for Com-
munity funding of overseas sterl-
ing balances, may bring up the
subject during his five-day visit
to Bonn this week.
In the debate over British
membership, such considerations
are likely to be overshadowed in
the immediate future by De
Gaulle's statements in his press
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conference this week. The French
President not only repeated his
warning that Britain must undergo
"fundamental" and "radical"
changes before being ready for
Community membership, but also
cautioned that negotiations them-
selves would destroy the Commun-
ity.
In reply, Prime Minister
Wilson directly challenged De
Gaulle's "static conception" of
Europe, stating that Britain's
application is still very much
alive and noting the responsi-
bilities of the Six under the
Rome Treaty to respond to London's
bid. Brussels and Rome now en-
vision consultations among the
Five, before the EC Council meet-
ing on 18 December, to concert
views on De Gaulle's latest dec-
larations.
The grounds for a crisis are
present, although it is by no
means certain if or when it will
come. There is little will for a
direct confrontation with De
Gaulle, but it is difficult to
imagine a position on negotia-
tions that all the Six could agree
on.
Although specific proposals
for "association" may yet emerge,
no one seems to have the same
idea about what association means.
Moreover, such proposals would--
at the moment at least--be un-
acceptable to the British. A
senior Dutch official, while not
ruling out some kind of associa-
tion offer, noted this week that
association negotiations lasting
indefinitely would expose the
Five to "all kinds of blackmail"
from the French.
One result of further meet-
ings of the Six could be a de-
cision to tell London that the
Community is unable to reach a
common point of view. Whether
such an outcome would bury the
issue remains to be seen.
SOVIET DEBATE OVER RESOURCE ALLOCATIONS PUBLICIZED
Despite the formal agreement
in October on a plan and budget
for 1968 and on goals for the
following two years, signs of
high-level discord over the al-
location of economic resources in
the near future are appearing in
the Soviet press.
Shortly after the 1968-70
plan guidelines had been approved,
politburo member Polyansky im-
plicitly criticized the reduction
in investment, particularly in
agriculture, contained in these
decisions. Citing Brezhnev's
earlier endorsement of the 1966-
70 program to stimulate agricul-
tural production, Polyansky argued
that this program is as vital as
ever, the two good harvests of
1966-67 notwithstanding.
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At about the same time, an
article by Baibakov, the head of
the State Planning Commission and
a close associate of Premier Ko-
sygin, implied that Polyansky's
concern for agriculture can best
be met by the broad development
of the entire economy.
Baibakov stresses that the
economic reforms, whose chief re-
gime spokesman has been Kosygin,
will result in accelerated tech-
nological progress and greater
efficiency in production "in all
branches of the economy." On
this basis, real incomes allegedly
will rise and the differences be-
tween urban and rural living
standards will be overcome.
Polyansky had argued that this
discrepancy in living standards
was symptomatic of the previous
neglect of agriculture, and that
it should be eliminated by in-
creased investment in the coun-
tryside.
Shortly after Baibakov's
article appeared, Izvestia fea-
tured a long editorial in praise
of greater steel production.
The paper stated that although
further growth in the steel in-
dustry will be costly and dif-
ficult, and although many sub-
stitutes already exist, never-
theless "metal will remain the
basic foundation of the economy
for a long time to come." The
SEC R
editorial expanded on this theme
by noting that the continued de-
velopment of steel and other
metals was essential to further
increases in housing, consumer
goods, chemistry, space programs,
and the like--agriculture, by
implication, is included in this
listing.
The day following Izvestia's
editorial, Pravda championed the
cause of an increased supply of
consumer goods. The editorial
called for greater output of
these products by metallurgical,
chemical, and machine building
enterprises among others, but
it singled out only the Ministry
for Tractor and Agricultural
Machine Building for special
criticism. This is noteworthy
because this ministry has been
particularly derelict in meeting
the production goals for farm
machinery called for in the 1966-
70 plan.
The publication of different
points of view on resource allo-
cation in the USSR does not mean
that distinct factions exist
within the leadership. Continued
special pleading, however, indi-
cates that no single person or
group has yet been able to impose
a clear-cut imprint on the future
course of the Soviet economy.
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POLITICAL OVERTONES IN EAST-WEST GERMAN TRADE
Recent changes in East-West
German trade may lead to new ar-
rangements implying greater recog-
nition of East Germany's existence
as a separate state.
The central aim of East German
policy toward Bonn has been to ob-
tain political recognition. Trans-
formation of the special institu-
tion of interzonal trade (IZT),
which formally treats such trade
as domestic commerce, into some-
thing approaching normal foreign
trade would bring the East Germans
closer to this goal.
The West Germans are eager to
encourage the growth of IZT, not
for economic reasons, inasmuch as
it constitutes less than two per-
cent of their total foreign trade,
but because it is one of the few
remaining links between East and
West Germany. In an effort to
stimulate this trade, Bonn has
eliminated a number of restrictions
to which the East Germans have
long objected. In effect, these
changes blur the old distinction
that the West Germans draw between
IZT and their other foreign trade.
Some Bonn government officials,
including All-German Affairs Minis-
ter Wehner and possibly Foreign
Minister Brandt, are discussing
the possibility of replacing the
present agreement with a govern-
ment-to-government agreement. It
is unlikely, however, that Chancel-
lor Kiesinger would now be willing
to go that far in the direction of
official recognition of East Ger-
man sovereignty.
Although IZT is economically
more important to Pankow than it
is to Bonn, constituting ten per-
cent of total East German foreign
trade, the crux of the situation
still is in its political aspects.
The East German economy could sur-
vive the loss of all its imports
from West Germany without major
disruption because the regime has
shifted its requirements for most
strategic commodities from West
Germany to the Soviet Union.
East Germany, however, has
exploited IZT for advanced tech-
nical equipment and is eager to
continue to do so--but on its own
terms. Many of East Germany's
long-standing demands have been
met but Pankow, as usual, has made
no counterconcessions, and appar-
ently has no intention of doing
so. The East Germans would sac-
rifice the preferential treatment
that their exports receive under
the current agreement for the de-
gree of recognition contained in
a government-to-government agree-
ment.
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MIDDLE EAST - AFRICA
Several international troubleshooters worked
feverishly this week to defuze potentially explo-
sive situations in Cyprus and the Middle East.
Western and UN officials have apparently
been successful in selling to the Greeks and Turks
some sort of an agreed solution over the Cyprus
crisis. Even Cypriot President Makarios is re-
ported to have accepted the agreement in princi-
ple.
The Soviets, besides urging a peaceful set-
tlement on the three main parties in the Cyprus
crisis, demonstrated again that they believe their
interests would be best served if Cyprus remains
an independent state. A key element in Moscow's
attitude is its solicitude for its relations with
Turkey. There were conflicting reports of what
the Soviets were saying privately to the Cypriots
and the Turks, but the USSR's aim was apparently
twofold: to make itself felt without becoming
deeply embroiled while there was a threat of hos-
tilities, and to store up diplomatic credit par-
ticularly in Ankara.
UN Secretary General Thant has sent Swedish
diplomat Gunnar Jarring to the Middle East to
help resolve the impasse between Israel and the
Arab states. Nasir's speech on 23 November indi-
cated that Egypt was prepared to cooperate with
the UN emissary.
The Organization of African Unity's mission
to Nigeria, after endorsing the federal govern-
ment's essential conditions for ending the civil
war, gained Lagos' approval for one mission mem-
ber to talk with the Biafran secessionists. The
mission was immediately denounced by the Biafrans,
however, and its prospects for bringing the two
sides together are not bright.
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CYPRUS CRISIS EASES
The latest Cyprus crisis
appears to have been defuzed, al-
though there may still be hitches--
and more debate--before the is-
land settles down under new se-
curity arrangements.
Basically, the Greek Govern-
ment has agreed to Turkish de-
mands that the Greek forces on
the island--clandestinely intro-
duced in excess of the number
allowed under the London-Zurich
agreements of 1959--be withdrawn
within 45 days, although more ex-
tension of this time limit may
be possible. The Turks also in-
sist on the disbanding of the
Greek Cypriot National Guard, a
force of some 32,000 men includ-
ing reserves that was created
by Makarios in 1963.
Whatever Makarios has agreed
to in principle, he is virtually
certain to try to evade this de-
mand in practice, since the Guard
has been the force backing his
long-term policy of extending
effective Greek Cypriot control
over the entire island. Detailed
negotiations over implementation
of the general agreements will
probably take place in New York,
inasmuch as the UN is expected
to assume a major role following
up on an appeal by Secretary
General Thant to the parties in-
volved to keep the peace.
Beyond the immediate ques-
tions lie the basic issues of
how a reasonable degree of order,
not to mention government author-
ity, is to be maintained on the
island. Makarios almost cer-
tainly will continue his efforts
to extend central government au-
thority over the Turkish Cypriot
enclaves, but he may find it
necessary in the long run to rec-
ognize some sort of Turkish au-
tonomy on a village level.
The two ethnic communities
are probably more deeply divided
now than they were before the
Ayios Theodoros incident. Full
prosperity for the Turks will
require wider participation in
the economic and business life
of the island than has been the
case in recent years, but under
the circumstances this will be
difficult to accomplish. On the
other hand, Turkish Cypriot dis-
appointment at Ankara's failure
once more to solve the problem
by force of arms may convince
some of them they must now work
out a modus vivendi with the
Makarios government.
During the crisis the So-
viets reiterated their support
for an independent Cyprus while
trying to protect their growing
rapport with the Turks. A crisis
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on the island tends to jeopardize
its independence and complicates
Moscow's relations with Ankara:
Thus, Moscow's first public
statements showed apprehension
over the possibility of a con-
flict and urged all parties to
seek a peaceful settlement.
Soviet news media continued
to indicate concern over the
possibility of war while making
as much as they could of the op-
portunity to reinforce Soviet
campaigns against NATO and the
Greek junta. Some Soviet state-
ments, however, had a pro-Turkish
bent and reportedly annoyed Ma-
karios. In an attempt to calm
the protagonists, Moscow criti-
cized the Cypriot Government,
admonishing it to do more to
prevent "a further complication
of the situation." A later
statement by the Soviet ambassa-
dor in Ankara carried the strong
hint that "illegal" Greek forces
should be removed from the island,
which Makarios could only inter-
pret as clear support for Turkey.
Greek-Turkish enmity is
generally to the Soviet liking
because it threatens to weaken
the position of NATO in the east-
ern Mediterranean. Soviet oppo-
sition to a Cyprus settlement
by way of enosis or partition is
partly due to the fact that ei-
ther arrangement could lead to
a Cypriot association with NATO.
Nevertheless, it is not in the
Soviet interest to see friction
develop to the point of hostili-
ties.
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SEC RET
INDIA'S STATE POLITICS HEATING UP
A frenzy of political activ-
ity has gripped several of the
Indian states not controlled by
Congress Party governments. In
less than two weeks, three feeble
non-Congress coalitions have
fallen, with an assist from the
Congress Party. In two of these
states, Congress-backed govern-
ments moved in; the third is now
ruled directly from New Delhi.
In volatile West Bengal--
where on 21 November the state
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MYSORE
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governor dismissed the leftist
United Front (UF) coalition and
swore in a Congress-supported re-
gime--the political battle lines
have been clearly drawn. Follow-
ing the lead of the radical left
Communists (CPI/L), the ousted
UF has embarked on a vituperative,
rabble-rousing campaign aimed at
promoting chaos. The new govern-
ment, however, is determined to
face down the challenge.
Last week the police put down
violent agitation and a two-day
general strike that had largely
paralyzed Calcutta. Another round
of UF-inspired agitation is now
under way, but police--if neces-
sary, with the help of alerted
army units--should be able to con-
tain it. The UF did, however,
win an important tactical victory
on 29 November when its holdover
speaker in the assembly declared
the new government unconstitu-
tional and adjourned the house
sine die before a confidence vote
could take place. The state gov-
ernor is back on the defensive,
and New Delhi may be forced to
resort to direct rule--a move
bound to stir up further unrest.
The two other governmental
changes were much smoother. The
state assembly of Haryana was
dissolved and replaced with direct
rule from New Delhi on 21 Novem-
ber. The move came after months
of aisle crossing between the
ruling Haryana United Front and
the Congress-led opposition had
brought effective administration
to a standstill.
The neighboring Punjab-coa-
lition regime collapsed on 22 No-
vember when defections from its
legislative ranks ended its ma-
jority. The leader of the defec-
tors has formed a new government
with a pledge of Congress Party
support in the state assembly.
Problems are mounting for
at least three other non-Congress
state governments. In Uttar Pra-
desh, both Communist ministers
of the ruling Samyukta Vidhayak
Dal (SVD) coalition resigned on
22 November. To keep Congress
from returning to power, they
intend--at least for now--to
support the SVD in the state as-
sembly. The shaky coalition in
Bihar also shows signs of crack-
ing, and the CPI/L-dominated gov-
ernment in Kerala is experiencing
increased internal strains.
Just how these developments
will affect the over-all Congress
Party position remains unclear.
Although Congress has been able
to accelerate the downfall of
some disintegrating non-Congress
coalitions, its discredited state
units have been unable to fill
the resulting political vacuums.
More state-level political in-
stability seems in the offing,
with direct rule from New Delhi
and mid-term elections likely in
some cases.
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INDEPENDENT SOUTH YEMEN FACES SERIOUS HURDLES
On 30 November the British
protectorate of Aden became an
independent state, renamed the
People's Republic of South Yemen.
The new government formed
by the National Liberation Front
(NLF) faces economic and polit-
ical problems of immense pro-
portions.
The British evacuation, the
closure of the Suez Canal, and
protracted political instability
have left the country in a pre-
carious position economically.
Bunkering activity from June to
October was only about five per-
cent of that of last year. Re-
finery production for 1967 will
be 30 percent less than capacity,
People's Republic of South Yemen
Yemen has no established
boundaries ;n the east.
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YEMEN /
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OMAN
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and refined products exported
are down 40 percent. Transit
passengers have all but dis-
appeared, and the likely end
to Aden as a free port would
destroy the status that attracted
many transit passenger ships.
In a work force of about
81,000 men, 13,000 used to be em-
ployed by the British forces,
7,500 by the port authority, and
11,000 in retail and wholesale
trade. A large number of these
have been left jobless as a re-
sult of the British withdrawal
and the drop in port and commer-
25X1 cial activities./
The key political problem
is the heritage left by years
of civil war. The Front for the
Liberation of Occupied South
Yemen (FLOSY), the rival national-
ist group, although drastically
weakened, retains the ability
to make trouble, especially if
it receives outside help from
Yemen, Egypt, or even Saudi
Arabia. Some of the ousted
rulers of the Adeni sultanates
are hoping to return with Saudi
backing. Although the NLF ap-
parently retains the loyalty of
the army and the police, it
will be hard put to scrape up
the funds to pay the security
forces. Continuing disorder
would destroy any remaining
chance for future economic
viability.
Spokesmen for the NLF Com-
mand Council have explained
that the country's new name is
intended merely to demonstrate
that the regime is for all the
people and is supported by them.
With respect to foreign policy,
they said, the country is non-
aligned. One official indicated
that the political and cultural
heritage of South Arabia has
been so deeply affected by con-
tact with Britain and use of the
English language that there
could be no question of the
development of a "special re-
lationship" with the Chinese Com-
munists or the Soviets. Never-
theless, the regime will presum-
ably have no alternative but
to seek financial help from all
sources, and a request to the
USSR would probably get a favor-
able reception./
EGYPTIAN PRESIDENT'S SPEECH INDICATES SOME MODERATION
Nasir's speech on 23 Novem-
ber before the opening session
of Egypt's National Assembly
contains some harsh statements,
but seems to indicate that Cairo
will afford at least minimum co-
operation to UN efforts to
achieve some type of immediate
settlement with Israel. His re-
marks, however, probably have in-
creased Israeli intransigence re-
garding their use of the Suez
Canal.
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hiLa U,
Beginning with a lengthy ap-
praisal of events since the June
war and with high praise for the
courage of the Egyptian masses
Nasir went on to stress that the
Arabs were not yet out of trouble
and that a difficult struggle lay
ahead. Egypt must rebuild its
military, he continued, for "po-
litical action can only have value
if it is backed by power or the
possibility of power." Although
Nasir did raise the specter of
renewed warfare a number of times,
he balanced these statements by
saying that the Arabs should "not
hesitate to attempt political ac-
tion." Nasir probably reflected
the conviction of the majority of
the Arabs, however, when he added
that they should prepare for mil-
itary action "should this be the
only course left."
Nasir criticized the recently
passed UN Security Council resolu-
tion as "insufficient," but said
that Cairo had it under study.
Striking a note of realism, he
indicated that he was under no
illusions that the UN resolution
alone could solve the current
crisis and that some tough bar-
gaining was ahead. Cairo has
since agreed to receive the UN
special emissary, Gunnar Jarring.
Regarding the canal, Nasir
said, "we shall not allow Israel,
whatever the cost, to pass
through the Suez Canal. Passage
through the Suez Canal is an in-
divisible part of the original
Palestine question. It is not
part of the problem of eliminat-
ing the effects of the aggression."
This would seem to indicate that
Cairo is standing by its previ-
ously indicated position of even-
tually allowing Israel to use the
canal if an "equitable" settle-
ment for the Palestinian refugees
is achieved.
Nasir's speech appears to
have provoked a generally favor-
able reaction among most Arabs,
many of whom saw it as a moderate
expression of the Arab viewpoint.
The tone of Nasir's speech
may not have set well with Mos-
cow, which is supporting the UN
resolution and urging moderation
on the Arabs. Soviet UN Ambassador
Kuznetsov indicated disapproval
to Ambassador Goldberg, saying
that Nasir used poor timing and
too little restraint. Soviet
press coverage has chosen to
ignore Nasir's harsher state-
ments. Moscow may consider,
however, that Nasir was speaking
more for local effect, and he is
probably not included among the
Arab "hotheads" who were the tar-
get of the public admonition
carried later in the Soviet press.
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WESTERN HEMISPHERE
Diplomatic activity in the hemisphere has
centered on efforts to elect a new secretary gen-
eral for the Organization of American States (OAS).
In an unprecedented fourth ballot on 29 Novem-
ber, Eduardo Ritter, the Panamanian candidate,
picked up another vote, but he is still two short
of the necessary majority of 12. US-backed Gabo
Plaza of Ecuador kept the six votes he had on the
previous ballot, and Venezuela's Falcon Briceno
retained his five. Mexico--obviously waiting for
a consensus to develop--again abstained. Intensive
diplomatic pressure is apparently hurting Gabo
Plaza.
25X1
At this point, it looks as if
candidates will remain in the
been some talk of proposing a
date to break the impasse.
the three major
race. There has
"dark horse" candi-
Problems with organized labor continue in
several countries. In Argentina, the conflict
stems from the government's determination to keep
the unions out of political activity. A general
strike in Chile resulted in violence, but the
government appears firm in its stand against un-
ion interference in its economic policies.
Peru is faced with a transportation strike
that could paralyze the capital and lead to vio-
lence. In Uruguay, devaluation of the peso has
led to sharp price increases, and many Communist-
dominated unions are likely to strike for cor-
responding wage hikes.
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OPPOSITION ALLIANCE FOR
Four parties have bolted
President Robles' eight-party
coalition and have joined forces
with Arnulfo Arias' mass-based
Panamenista Party in a National
Unity Front (NUF) in preparation
for presidential elections next
May. Arias will head the NUF
ticket, with two prominent
leaders of the other parties
as first and second vice pres-
ident.
At this point, tne charis-
matic Arias is the strongest
contender in the presidential
race. The five parties backing
him received 197,000 votes out
of the 317,000 cast in the 1964
elections. On the other hand,
the four parties that presently
David Samudio Avila
V
ED IN PANAMA
back Robles' candidate, David
Samudio, received only 83,000
votes. Adding to the strength
of the opposition alliance is
its control of at least 28 of
the 42 deputies in the National
Assembly and the support of more
than half of the major news-
papers and a number of radio
stations.
The Canal treaties are
likely to be a major issue
as the campaign gathers steam.
h1( 1:'I'
Arnulfo Arias Madrid
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it is impossible to
predict how Arias might act if
he should win the presidency.
He has twice been ousted from
the presidency because of his
dictatorial tendencies--the last
time by the national guard in
1951. Since his narrow defeat
in the 1964 election, he has
maintained that only fraud
and the national guard kept him
from occupying the presidency.
This time, in an effort to avoid
past mistakes, he has brought into
his alliance members of the oli-
garchy who have close business
and family ties to national guard
commandant Vallarino.
The announcement of the new
alliance seems to have shocked
Robles into yet another attempt
to solve the political crisis
by offering General Vallarino
the government candidacy and
persuading Samudio to step down.
If this last-ditch effort should
succeed, some of the dissident
parties might desert Arias and
return to the government fold.
CHILEAN LABOR PROBLEMS CONTINUE UNABATED
The 24-hour general strike on
November 23 to protest the Chilean
Government's controversial wage
price policy attracted consider-
able support and no quick end to
the labor agitation is in view.
Rioting during the strike left
five people dead and many in-
jured, providing the labor move-
ment with "martyrs."
The strike was called by the
Single Center of Chilean Workers
(CUTCh), which is controlled by
the Communist and Socialist par-
ties. The amount of support it
received from non-Communist unions
not affiliated with CUTCh helped
strengthen CUTCh's claim to be
the defender of the workers'
rights against the government.
The government's proposed wage
adjustment legislation has pro-
voked opposition from all eco-
nomic and political sectors.
The most controversial provisions
would limit wage increases in
both the public and the private
sectors, and would make part of
the increase payable in bonds of
a government fund. Other pro-
visions, almost equally unpopular,
prohibit strikes for additional
wage increases and impose exten-
sive price controls.
The copper industry is also
facing labor problems as a result
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of contract disputes. The Andes
Copper Company, an Anaconda sub-
sidiary, has been shut down for a
month, and a wildcat strike has
now hit the Braden-owned El Ten-
iente mine. As a result of the
copper shutdown, Chile is unable
to take advantage of the currently
high world copper prices.
The government has initiated
proceedings against leaders of the
strike on 23 November, charging
them with "organizing, guiding,
and promoting" the rioting. Such
action against a union is unusual,
although Chilean labor laws pro-
hibit most strikes. In this case,
Frei may believe that he can turn
widespread revulsion at last week's
violence against the labor move-
ment. Even Christian Democratic
labor leaders are apprehensive
about the new legislation, however,
and labor agitation can be ex-
pected to continue, regardless
of its illegality. Frei's abil-
ity to deal with these problems
will provide an indication of how
much influence he retains after
three years in office./ 25X1
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