Foreign Relations of the United States, 1952–1954, General: Economic and Political Matters, Volume I, Part 1

S/S–NSC files, lot 63 D 351, NSC 135 Series

Report Prepared by the Office of the Director of Mutual Security (Harriman)¹

[Extract]

top secret
NSC 135 No. 3

[Washington,] August 18, 1952.

The Mutual Security Program^*

[Here follows a table of contents.]

i. summary evaluation

1. European NATO Area and Western Germany. Since the submission of NSC 114/2,² the major U.S. policy objectives in the NATO area have been modified by a material change in the method of programming the force build-up.³ Instead of continuing to plan with reference to the Medium Term Defense Plan force goals for 1954 it was decided to predicate programs and policy objectives upon force commitments undertaken year by year by NATO partners, after a thorough collective review of their politico-economic capabilities in relation to force goals which the NATO Military Committee and Standing Group proposed as militarily desirable. In line with this new approach, the NATO countries adopted at Lisbon in February a series of force goals for December 31, 1952, to which each country firmly committed itself, together with preliminary goals for 1953 and planning guides for 1954.

On the basis of information received from U.S. military authorities in Europe, there will be a shortfall of at least 15 divisions in the Lisbon goal of 43⅔ divisions for the European NATO countries (i.e., excluding the U.S. and Canada) which were to be raised and brought to prescribed standards of combat readiness by December 31, 1952. M-Day divisions will be only 2⅓ short of the 19-division goal, the balance of the shortfall being in divisions in readiness categories M+3 through M+30. These latter divisions are substantially all in being, but it is not anticipated they will meet the prescribed readiness standards by December 31.

As to air forces, slight shortfalls are anticipated in the numbers of aircraft—about 90 out of the total goal of 3,276 frontline aircraft (excluding U.S. and Canada). The fact that no allowance for combat reserves has been made, coupled with deficiencies in training and organization, makes the situation considerably less satisfactory than these figures would indicate. Prospective shortfalls in navy goals are restricted to escorts, minesweepers, and submarines, but are nevertheless deemed significant in view of the missions contemplated.

One important factor in the shortfall is the delay of the European nations in raising and, especially, in effectively training forces. Another factor which, while less important as of June 30, 1952, threatens to become more serious in coming months, is the delay in deliveries from the U.S. of MDAP military matériel.

Targets indicated in NSC 114/1 were that the FY 1952 MDAP program (worldwide) would be delivered by December 31, 1952, with the exception of certain aircraft and other long-lead items. Consistent with this forecast, the U.S. agreed, during the TCC review last fall, to the adoption, for planning purposes only, in connection with setting NATO defense budgets and force goals, of the assumption that end-item deliveries from U.S. and Canada to the NATO area in FY 1952 and 1953 combined would total $9.8 billion. Current estimates indicate that actual deliveries during this period will not exceed $6 billion. Continuance of Korean attrition, general shortfalls in U.S. munitions production, and the recent steel strike have all been factors in reducing the total supply of materiel available.

On January 9, 1952, the President issued a directive to the Secretary of Defense concerning priorities to be given to deliveries of MDAP material, the key passages of which are:

“… It is essential that a policy of allocating military equipment be established which will assure that U.S. forces in Europe and NATO forces, as well as other forces of certain foreign countries, which in the case of war are most likely to be first engaged with the enemy, are adequately equipped.…⁴

“Material in current inventories and production on and after 1 January 1952 will be made available for this purpose subject to overriding priority for combat consumption requirements of UN operations in Korea and operations in other active combat areas as determined by the Joint Chiefs of Staff, and subject, of course, also to the limits of financed mutual assistance programs so far as concerns the material to be furnished non-U.S. forces.”

Allocation procedures have been worked out, and a review is now in progress to identify the high-priority NATO requirements to which allocations should be made. To date the altered priorities and revised allocation procedures have apparently had only a limited impact on the total monthly volume of MDAP shipments.

NSC 114/2 indicated that, though a substantial amount of productive capacity for munitions was available in the NATO area, inadequate provisions in country defense budgets for the financing of major matériel procurement made it impossible fully to utilize this capacity. The U.S. Government during the last half of fiscal 1952 placed in the NATO area over $600 million worth of offshore procurement contracts. It is anticipated that this financing—along with a substantially higher rate of contract placement expected to be financed during fiscal 1953, both through off-shore procurement and through country defense budgets—will take up a large part of the slack in European defense production potential.

NSC 114/1 noted that lack of political cohesion and resoluteness on the part of the NATO countries in the adoption of and adherence to defense build-up programs was a major limiting factor in the accomplishment of U.S. objectives in the NATO area. The successful completion of the TCC review of politico-economic capabilities last fall, coupled with the adoption of firm December 31, 1952, force goals at Lisbon, were encouraging steps toward remedying these deficiencies. Securing the adoption of adequate legislation on military service, and assuring that defense budget expenditures meet the levels required to support the scheduled forces, remain major problems. There have been strong pressures for a stretch-out of the defense build-up period, particularly with respect to defense production. While periods of conscription have generally been lengthened since Korea, serious difficulties are being met in extending them to fully adequate levels. In summary, still to be accomplished is the basically political task of reconciling the high military requirements of NATO defense with the limited capabilities of the NATO countries to meet these requirements.

Despite these difficulties, the past year has in many respects been a period of remarkable progress in NATO. Problems which a year ago appeared insoluble have now either been solved or are well on the way toward solution. NATO has been given a sense of direction and a concentration of purpose which it previously had lacked. In addition to the TCC exercise and adoption of the Lisbon force goals, two notable accomplishments were the adherence of Greece and Turkey, and laying the groundwork for bringing the Federal Republic of Germany into the European defense scheme through the EDC treaty and related arrangements. The difficult task of securing the ratification of the EDC treaty still remains. Its accomplishment is of major importance to the success of the entire NATO plan.

The validity of certain of the conclusions in this report and the accuracy of the evaluations made are limited by the existence of major problems and unresolved issues with respect to deliveries of U.S.-furnished end-items and to the adequacy of European defense expenditure levels. As regards deliveries of U.S.-furnished end-items, the following problems have been encountered:

a. No objective measure is available of the importance of delays in the delivery of MDAP matériel as a factor contributing to the shortfall in meeting force goals. Data on the estimated number of divisions, aircraft, and vessels meeting readiness standards as of June 30 and as of December 31, 1952, are compiled from briefly summarized judgments submitted by MAAG chiefs. These judgments have mentioned various important factors contributing to the shortfall, rather than presenting (as would probably be impossible) quantitative data on these factors.

b. Scanty information is available on the extent to which delays in the delivery of MDAP matériel have discouraged individual countries from calling up more forces or increasing defense budget expenditures. Evaluation of this factor must inherently be subjective.

c. In the light of the two limitations above, no attempt has been made to judge what impact on the attitudes of European governments might be expected as they become aware of the anticipated $3.8 billion shortfall (below TCC assumptions) in total U.S. matériel deliveries in fiscal 1952 and 1953. Nor is it possible to appraise quantitatively what effect the currently prevailing level of deliveries (not over $200 million per month) has had in discouraging the Europeans from making greater efforts—i.e. what confidence would the European governments feel in U.S. forecasts of a shortfall of $3.8 billion, when a continuation through fiscal 1953 of prevailing delivery rates would mean a shortfall of $5.7 billion?

d. The validity of the stated delivery forecasts is crucially dependent on the accuracy of the underlying assumptions as to U.S. production and as to requirements of U.S. forces, particularly those in Korea.

e. Whether the new allocation procedures will be effective in adequately increasing deliveries to NATO, is not yet known. As indicated previously, total U.S. production, and total higher-priority requirements, are factors which cannot be accurately forecast.

As to whether European defense budget expenditures are reaching levels adequate to support the planned force build-up, major problems of analysis encountered are:

a. Originally stated defense expenditure “goals” were not precisely computed in terms of their adequacy in supporting specified force levels. The Screening and Costing Staff estimates relied on certain assumptions which it is known have not fully materialized. The TCC “desirable levels” of defense expenditure were developed in aggregate terms, with emphasis on appraising the country’s general financial capacity rather than on determining the precise forward requirements which would correspond to the desired force goals and readiness standards.

b. While the attainment of goals in country defense expenditures for major matériel procurement is still a substantial factor in contributing to the over-all success of the U.S. objectives of stimulating defense production in Europe, the large-scale activation of the offshore procurement program promises increasingly to take up the slack in cases where physical capacity is idle for lack of European financing.

Despite the uncertainties involved in making an accurate estimate of over-all U.S. military matériel production during the coming year, and despite the fact that there is now little basis for determining how effective the revised allocations procedures will be in channeling matériel to the NATO area, it can still be stated categorically that vigorous efforts will have to be made if the U.S. is to meet even the substantially reduced end-item delivery targets outlined in this report. Furthermore, if the major objective of building up the European defense production potential is to be realized, the responsible agencies of the U.S. Government must take major steps to secure the placement of offshore procurement contracts in a pattern consistent with this objective.

2. Austria, Yugoslavia and Spain.

a. Austria. The political stability which has characterized Austria since 1945 continued during the past year. However, since the major parties have concentrated on the protection of the interest groups which they represent, Austrian economic policy has been one of compromise and expediency, satisfactory to neither party and frequently detrimental to the interests of Austria as a whole. Pressures by the U.S., U.K., and France to conclude a peace treaty with Austria have proved fruitless. The Soviets have refused to attend a meeting of the Treaty Deputies since 1950 and have rejected an Allied proposal for a short-form treaty. The 1946 Control Agreement⁵ continues to serve as the occupation statute, and the Allied Council retains supreme power.

A military aid program of $70 million (Stockpile A) was set up in fiscal 1950, the plan being to turn the matériel over to Austria when a peace treaty was signed and an armed establishment was authorized. So far, there has been no implementation of the program, except for the issuance of small arms and personal equipment for the training of gendarmérie cadres.

Under the postwar bilateral programs, Austria has received more than $1.5 billion in grant aid. Since Austria is prohibited from engaging in a defense program, this aid has been primarily directed toward assisting Austria to achieve the productive potential to achieve economic viability. This objective has been accomplished in large measure. Despite this evidence of progress, basic problems still await resolution. Among these are inflation, continuation of balance of payments deficit, low productivity, and the general rigidity of the economy, which has impeded expansion of the economic base.

b. Yugoslavia. The stability of the Yugoslav Government has not changed to any significant extent during FY 1952. The hostility between the Kremlin and its satellites, on the one hand, and Yugoslavia, on the other, did not lessen during the year. The rift between them still appears to be unbridgeable. Yugoslavia’s relations with Italy have become more hostile and more potentially explosive as the result of the U.S.–U.K.–Italian understanding concerning Zone A of the Free Territory of Trieste. On the other hand, Yugoslavia’s relations with Greece and Turkey became markedly more cordial in the period.

Yugoslavia had on hand, as of June 30, ground and naval forces of approximately the size contemplated in JCS force goals. Considerable expansion of air forces is planned. Combat effectiveness of all services is rated as low by U.S. standards, the greatest weakness being lack of modern equipment.

The tripartite aid programs have in large part enabled Yugoslavia to maintain and enlarge its army and preserve minimum living standards, despite the disruption of trade patterns as a result of the 1948 Cominform break and the 1950 drought. In addition, the U.S. Government has directed its influence toward securing a consolidation and reduction of the unrealistic Yugoslav investment program, and a postponement of large loan repayments during the period of aid. The aid has, nevertheless, enabled the Yugoslav Government to continue its development program along more modest lines by encouraging the long-term financing of capital imports by the International Bank.

c. Spain. The Spanish Government has been stable and the strength of the Communist Party as a disrupting influence in Spain is considered to be insignificant. Economically, the major problems faced are low production, maldistribution of income, and inflation. To date, the only U.S. aid program to have been implemented in Spain is the $62.5 million loan authorized in fiscal 1951. Administered by the Export-Import Bank, substantially all the loan funds have now been committed, about half for basic current imports and half for capital development.

In fiscal 1952 the Congress appropriated $100 million exclusively for military, economic and technical assistance to Spain under terms and conditions to be established by the President. So far, none of these funds have been allotted or obligated, pending the outcome of negotiations currently under way with Spain for conclusion of necessary bilateral aid agreements for military and for economic assistance. These agreements are, in turn, contingent upon the broader negotiations now being carried on with the Spanish Government in connection with base rights.

3. Near East and Africa, Including Greece and Turkey. Military assistance in the Near East and African areas was extended during FY 1952 to Greece, Turkey and Iran, continuing programs which had been in existence since 1947 in Greece and Turkey, and since 1948 in Iran.

The Greek forces as a whole are considered well-led, satisfactorily trained, and, except for some matériel shortages, prepared to carry out their wartime mission. With steady progress in combat worthiness, with the aid equipment already granted and with the materiel to be delivered against FY 1953 program requests, Greek forces are believed capable of repelling attacks by Soviet satellite forces and causing a maximum delay in such an attack even if it is directly assisted by the USSR.

Turkish forces are regarded as capable of defending successfully the areas to which they have been assigned against the types of units which are likely to be employed against them, unless they are overwhelmingly outnumbered. Their mission is essentially one of defense of Turkey. Units are not equipped or prepared for overseas movement, although consideration is being given to the possibility of Turkish participation in the defense of neighboring Middle Eastern territory.

The military program of the Iranian Government is designed for maintenance of internal security with but limited capacity to resist aggression. With regard to JCS standards, strength in terms of manpower is within 5% of the approved goals. Equipment is generally adequate, considering training and capacity to absorb. Serious deficiencies in leadership, planning, training and logistical support restrict military effectiveness to the maintenance of internal order.

Cumulative deliveries to the three countries against FY 1950–52 programs amounted to $320 million—36% of the total programmed amount.

The admission of Greece and Turkey into NATO took place only at the Lisbon meeting in February. Consequently, neither country’s military contribution enters into the so-called Lisbon force goals. Nevertheless, both Greece and Turkey have raised and maintained force levels up to approved JCS standards, and far beyond their ability to support without continued U.S. or other assistance. Both lack the industrial and technical base to supply military matériel on a large scale or to provide a substantial proportion of the “common use” items required by the armed forces: petroleum products, medical supplies, and even some food and clothing items. Economic aid programs in Greece and Turkey were adjusted to take account of defense requirements, which consume about 40% of the total government budget in each country.

Economic aid programs throughout the balance of the Near East and African area were keyed to meet the crucial Arab refugee problem, the neutralism in international relations which has characterized the Arab world, and the deterioration in Israel’s economic capabilities during a period of rapid economic expansion and heavy absorption of immigrants. $50 million were provided under Section 205 of the Mutual Security Act of 1951 for refugee relief and resettlement in Israel. In addition, $13.5 million was made available for economic assistance to Israel. Critical foreign exchange shortages made it necessary to provide the bulk of such aid in the form of reimbursements to the Israel Government for expenditures already made toward these ends.

Point Four efforts in the area ranged from relatively small efforts in Iraq and Saudi Arabia to more elaborate proposals for Iran, Israel, Jordan and Lebanon. Programs have been kept small in oil-rich Iraq and Saudi Arabia, but maintained to induce the adoption of mutually beneficial projects which would not otherwise be undertaken. In the less-fortunate neighboring states and in North Africa, where the need for technical assistance is equally pressing, the United States is accepting a larger portion of the financial burden. Throughout the area, however, the main accomplishment of the year was the final signature of Point Four general agreements and the determination of specific program needs. There was relatively little substantive progress to report. Notable exceptions are the Israel trainee program, the U.S. finance team in Saudi Arabia, the well-advanced Liberian program, and Iranian “impact” programs in locust control, malaria control and well-drilling.

Communist influence in most of these countries during FY 1952 has been negligible or non-existent. In most countries the Communist Party has been officially outlawed. Party organization appears to be weak and ineffectual throughout most of the area. Communist strength, however, made itself felt in Iran and Egypt. In both countries, nationalist extremists joined forces temporarily with Communist groups in outbursts of violence against government forces. In Iran the Communist (Tudeh) Party shows evidence of recent gains in strength and organization. In each case the nationalist group broke with the Communists after a brief period of common cause, but the speed and success with which the Communists united with nationalist fanatics to whip up anti-Western emotion gives cause for concern.

The political unrest in Iran is inextricably bound up with the economic crisis brought about by expropriation of British petroleum properties. Western defense planning has had to be adjusted in the light of the total loss of Iranian oil. The Iranian economy has been seriously disrupted by the loss of oil revenues. The FY 1952 Iranian Point Four program included a $5 million U.S.-financed commodity import program under the fairly flexible Act for International Development interpretation which obtained during the year. A further extension of this type of economic assistance seems inevitable. To avert the possibility of Communist domination in Iran, the United States may have to extend special economic assistance.

Progress in initiating development projects under the technical cooperation program was, in the main, disappointingly slow, particularly in the Arab States. The underdeveloped countries of the area showed considerable reluctance in committing themselves to joint programs of technical cooperation. Arab resentment over the volume of assistance accorded to Israel complicated the problem, In addition, the task of locating, hiring and securing clearances for technicians created a further barrier to progress. Less than 50% of authorized U.S. personnel were on duty in the field as of June 30, 1952.

There is now insufficient legal authority to carry on the types of economic development programs designed to meet the long-range problems of the area. Some countries, e.g., Syria, require, in addition to present programs for technical education, long-range programs for capital development. The Act for International Development is now limited by Congressional action in connection with the FY 1953 appropriation requests to the furnishing of “technical assistance” in the sense of technical demonstration work. Commodity and capital assistance is generally limited to programs directly related to this basic educational objective. If the United States is to contribute more directly to the solution of the long-range development problems, the scope of presently legal economic aid activities would have to be broadened by law to include assistance for fundamental economic development.

4. Far East and South Asia. Political instability and threats to internal security are significant factors in most of the countries of this area. One of the major objectives of U.S. policy is, accordingly, to increase popular support for the governments. With the possible exception of Thailand, and in spite of occasional temporary setbacks elsewhere, there is growing evidence that the presence of American aid missions is steadily creating a climate of opinion that enables local governments to push ahead courageously with internal economic and social reforms without which the loyalty and the faith of the people in the cause of the free world, and their willingness to fight for that cause if necessary, cannot be expected to exist.

To further the U.S. objective of strengthening against aggression the present moderate and western-oriented governments of this area, the U.S. has undertaken major military assistance programs for Indo-China and the Chinese Nationalists. JCS force goals for Indo-China were set on the assumption that there would be no invasion by the Chinese Communists. Measured against these goals, good progress has been made. The build-up of French forces has approximately attained these goals. 50% attainment is reported with respect to the native forces of Vietnam, Laotia [Laos], and Cambodia. Nevertheless, despite the highest priority having been given to allocations of military matériel, less than ¼ of the army program so far financed (exclusive of Lisbon off-shore procurement) had been shipped by June 30, and less than 15% of programmed air force matériel.

As to Formosa, forces are numerically about at the level prescribed in JCS goals, which assume that their mission will be the defense of Formosa. However, available equipment is scanty and combat effectiveness of all three services is rated at 20–25%. Enough MDAP matériel was programmed through fiscal 1952 to supply about 50% of the equipment needs of ground forces Shipments by June 30 had reached 30% of the amount so far programmed. Out of the $120 million air force program, shipments were 1%.

About 15–20% of the programs approved for the Philippines and Thailand (about $100 million each) had been shipped by June 30.

In Indo-China, Formosa, the Philippines, and Thailand, the U.S. had undertaken economic and technical assistance programs designed to strengthen the financial and economic fibre of these countries, thereby permitting their governments to maintain internal security and stability and provide a solid base for their defense efforts.

U.S. economic and technical assistance programs in Indo-China have three main purposes: (a) provide economic support for the French and Indochinese anti-Communist military forces; (b) at the same time assist in securing a greatly improved effectiveness on the part of the newly created governments of the Associated States, without which nothing better than stalemate appears possible; and (c) help increase production and pave the way for future economic development. Critically needed support has been given to the military forces through repair and maintenance (little actual improvement has been possible) of highways, bridges, ports and waterways; through care and resettlement of refugees from combat and guerrilla areas; and in various indirect ways. Although the governments have far to go in recognizing and forcefully grappling with their responsibilities for providing leadership and basic services to their people, the MSA Program has registered some initial gains on this front. Production, particularly of rice, has been assisted to some extent.

In Formosa the principal purposes of economic aid programs are: (1) to support the military establishment, (b) to maintain a standard of living adequate to insure support of the Government by the general population and prevent unrest that would endanger internal security, and (c) to help the island become independent of outside economic assistance in a relatively short period.

The program has effectively buttressed the military effort by bringing in common-use imports and supplying counterpart to cover the associated local costs, and by helping to rehabilitate vital transport and power facilities, etc. Through heavy commodity imports (mainly producer goods), active participation in the work of the Economic Stabilization Board, and support of the many-sided work of the Joint Commission on Rural Reconstruction (JCRR) among the peasants, the program has also had a marked degree of success in offsetting the heavy economic strain imposed by military expenditures. Economic stability has been substantially maintained. Price curves have tended to flatten out. Notwithstanding multiple burdens on the farmer, he appears, on balance, to be at least as well off as pre-war. Communist-inspired unrest is of negligible proportions. The program has contributed substantially to the industrial expansion now in process. Aid to basic utilities, help in building fertilizer production capacity, importation for sale of vital raw materials and manufacturing equipment items, and the financing of a broad engineering advisory contract with a private American firm have all played a significant part. The point has just now been reached where joint consideration with the Chinese of a timetable for termination of economic aid appears feasible.

In the Philippines, economic and technical assistance is designed to: (a) improve the efficiency, integrity and vitality of government administration; (b) institute economic and social measures for the improvement of the living standards of the people, both as a necessary means of achieving internal security and in order to strengthen the permanent foundations of a democratic society; (c) build up production both for local use and for export; and (d) spark an economic development program involving diversification of activity and affording maximum opportunity for private enterprise. The program has secured measurable improvement in tax assessment and collection, customs, and import controls; stimulated a broad effort to raise competence in public administration generally; been partially responsible for a marked rise in agricultural production; launched promising campaigns in public health and education; and made a successful start in assisting in the settlement of the large and fertile island of Mindanao, which is proving an important factor in pacification of the Huks. A vigorous effort to promote industrial expansion and diversification, on a private-enterprise basis, is about to begin. Social reforms, however, are encountering difficulty, despite earlier pledges. For lack of political support, success is not being achieved at the moment in securing needed legislation to ameliorate the lot of the farmer and laborer.

5. American Republics. U.S. programs in this area must be conducted against a background of far-reaching political, social and economic adjustments. These adjustments have afforded nationalist and Communist groups a wide opportunity to provoke dissension in existing political institutions and to associate the so-called economic imperialism of the United States with the underdevelopment of the area. While political instability has been no worse than in the past, most of the governments have been preoccupied with domestic problems.

Despite this preoccupation, the majority of Latin American governments favor collective defense of the hemisphere. U.S. Military Grant Aid programs for the Title IV countries (first provided for in the FY 1952 MDAP program) have been designed for a very limited objective: to meet equipment and training deficiencies of selected units of certain Latin American nations which these nations have agreed to earmark for specific missions of hemisphere defense, missions which would otherwise, in the event of war, require the deployment of U.S. forces. Bilateral military assistance agreements have been or are being negotiated with the more important governments. 7 have been signed to date. As of June 30, no shipments of military assistance matériel had been made to Title IV countries, since program refinements and matériel deliveries were delayed by agreement negotiations. Programs totaling more than $34 million had been established, however, and the initial shipment went forward on July 25.

The FY 1952 technical cooperation program was predicated upon the demonstrated ability of the Latin American governments effectively to utilize Point Four type assistance, coupled with the manifest need to encourage political stability. Another major purpose was to increase the production of strategic materials. The $19 million in available funds (including carry-overs from FY 1951) provided an important contribution to the attainment of U.S. political and economic objectives in the region. But the total program, amplified by private and public loans, private investment and expenditures of local governments, was enormously larger. Against the availability from U.S. funds of $19 million, the Latin American governments contributed about $28 million toward the cost of technical cooperation programs, a less favorable ratio than had obtained in FY 1951. This ratio did not reflect a smaller total participation in program cost, but rather a larger U.S. participation. The 1951 ratio of three to one is expected to be reattained.

6. United Nations Programs. Of the many international programs conducted by the United Nations and affiliated specialized agencies during FY 1952, three were of particular significance in that they complemented or paralleled activities in one or more sectors of the Mutual Security Program: The UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), the U.N. Technical Assistance Program, and the U.N. International Children’s Emergency Fund (UNICEF).

UNRWA was established in 1950 to resolve the problem of 850,000 Arab refugees from Palestine who have been recipients of relief from the United Nations since 1948. Its activities are concentrated in Lebanon, Syria, Jordan, Egypt and Iraq. During FY 1952, refugee relief has been provided at an over-all cost of $3 per person per month. U.S. contributions to UNRWA and its predecessor, U.N. Relief for Palestine Refugees, have totaled over $93 million, against $64 million from 41 other nations. The contribution in FY 1952 was $50 million. The UNRWA program for the three years ending June 30, 1954 calls for $250 million, of which $200 is earmarked for rehabilitation and $50 for relief. Relief expenditures are to be reduced from the level of $27 million in FY 1952 to $18 million in FY 1953 and to $5 million in FY 1954. Plans are well under way for the integration into the Near Eastern Economy of some 150,000 refugee families.

The $20 million 1950–51 U.N. Technical Assistance program, to which the U.S. contributed over $12 million, was supported by 55 countries and operated in 69 countries. 64 countries have pledged support for the “second financial period” (calendar 1952), and 81 countries have requested technical specialists or training services. The U.S. pledge for 1952 is $11 million. As of June 1, 1952, 681 experts were working in the field under the U.N. Technical Assistance Program, and 758 trainees were studying abroad. This U.N. program has several advantages for the U.S.: it has demonstrated its ability to operate in areas where activity would be difficult for the U.S. alone; it costs less to operate since the U.S. pays only part of the expense; and it makes possible the utilization of foreign specialists in fields where U.S. technicians might be difficult to find. It is true, however, that U.N. programs have been carried on in many of the countries where the U.S. has also been operating. There is an important need for program coordination to prevent duplication of U.S. and U.N. efforts.

The emphasis in the U.N. International Children’s Emergency Fund (UNICEF) program has been directed away from its earlier focal point—the assistance to child victims of aggression in countries which had received UNRRA aid—toward long-range programs for children in underdeveloped countries. Three-fourths of its present funds have been apportioned to Asia, Africa, Latin America and the Eastern Mediterranean countries. All programs in Eastern Europe are terminated or in the last stages of completion.

ii. european nato and western germany

1. International and Internal Political Developments

a. Stability of governments. NATO governments, with the exception of France, are rated as being generally stable and as giving reasonable promise of continuity for at least the next year or so. The Pinay government is relatively more stable than recent French governments, although the chances for its survival for a considerable period after the Assembly reconvenes in October are not rated as particularly good. The Governments of the United Kingdom, Belgium, and Denmark do not enjoy very comfortable margins in the parliamentary majorities at their command, a fact that frequently weakens their ability to take a firm, all-out stand on issues related to the fulfilment of their NATO commitments. In the U.K., however, the defense program was initiated by the Labor government and receives the support of the Labor Party, except for the Bevanite minority. The Italian Government is prevented from taking positive action on many issues because of the forthcoming national elections. Aside from communism, there are no serious threats to internal political stability in any of the European NATO countries. The rising power of the right in Italy and the royalist question in Belgium are potential threats to internal stability, although neither of these is felt to be immediate.

b. Communist strength. The Communist Party appears to be a major threat only in France and Italy. In other NATO countries, notably the Scandinavian members, the Netherlands, and the U.K., the Communist potential for undermining internal security and contributing to governmental instability is almost non-existent. Although not a serious threat, there are some areas of Communist strength in certain other countries, such as Belgium and Western Germany. For example, controlling Communist infiltration of the key labor unions remains a troublesome problem in Belgium.

Communist Party membership and voting strength in Western Europe have declined sharply since the early post-war years. Total membership in the European NATO countries and Western Germany is estimated to have declined from 3,500,000 in 1946 to 2,600,000 at present. In countries other than France and Italy, Communist voting strength has been about cut in half during the past four or five years.

The French Communist Party remains a powerful and cohesive organization claiming around 650,000 members, and is rated as having a high capacity for subversive activity. In the case of Italy, the recent elections indicate that the government parties have lost 25% of their electoral support since 1948. This has caused the Italian Government to postpone or avoid positive action on a number of vital matters until after the national elections in the spring of 1953.

For the coming year, the outcome of next year’s national election will be not only crucial for Italy but extremely important for the West as a whole. Should the Democratic parties fail to command a working majority in the new parliament, the road to Communist domination will be open. Should the Democratic elements be placed in a minority, a Communist take-over would be nearly immediate unless prevented by an alliance of the Center parties with neo-Fascists or other extreme right elements or both. In either case, the NATO and united Western front would be seriously shaken.

c. Developments in NATO. One year ago NATO was in a critical situation. Despite many long months of discussion in Council meetings and elsewhere, no agreement had been reached on such pressing problems as German participation in Western defense and the admission of Greece and Turkey into NATO. NATO had no adequate knowledge of where it stood or of where it was going. There was widespread feeling that military requirements, as embodied in the Medium Term Defense Plan, were not realistic. Too much emphasis was placed on long-range planning and not enough on the need for a rapid build-up to meet the immediate danger. There was no clear idea of the political and economic capabilities of the NATO countries. Confusion as to the scope of the North Atlantic Treaty led many Europeans to think that NATO was being used by the U.S. solely as a military alliance without regard for the development of closer political and economic ties. Finally, there were serious defects in the organization of NATO which resulted in duplication of effort and general inability to reach decisions and take action. All these factors produced dissatisfaction and discouragement, and, as a result, NATO was for a time unable to move ahead at an adequate pace in many areas.

One of the major achievements of the past year in clearing the way for further progress in the defense build-up was the work of the Temporary Committee of the Council. As a result of the TCC’s work, NATO gained several things which it previously lacked. First, it gained a realistic and carefully screened statement of its military requirements, as prepared by the Screening and Costing Staff (SCS). Second, an over-all program was drawn up which, for the first time, tackled the problem of reconciling military requirements with the political and economic capabilities of the NATO nations. The TCC force recommendations were accepted by the NATO countries with a minimum of political strain, although the Belgians at first objected strongly to the approach used. These recommendations formed the basis for the 1952 force goals agreed to at Lisbon. The force goals placed emphasis on the immediate build-up, rather than on long-range plans for the distant future.

The Lisbon agreements did a great deal to restore confidence in the NATO program. Governments were given definite targets and a firm basis for future planning, as well as assurance that the U.S. would not try to push NATO countries to the point where they would be threatened with internal collapse. As a result, the people in the European countries gained confidence that NATO was succeeding. The advantages gained from the TCC experience are to be continued in the future through the Annual Review process.

A second major accomplishment of the past year has been the negotiation and signing of the EDC Treaty,⁶ the NATO–EDC Protocol, and the convention on relations with the Federal Republic of Germany. These three related agreements are the key to solving a major problem in the defense of the NAT area—German participation in Western defense—while at the same time avoiding the problem of German membership in NATO. The German convention,⁷ when ratified, will restore Germany to the degree of independence necessary to insure German willingness to participate; the EDC Treaty will make it possible for Germany to participate within the context of an integrated Western Defense Force in a manner acceptable to those countries which fear a resurgence of German militarism; and the NATO–EDC Protocols will tie the EDC to NATO so as to insure reciprocal guarantees between Germany and NATO. Ratification of the Schuman Plan⁸ and preliminary steps toward establishing Schuman Plan institutions have further reinforced this progress. It should be emphasized that the difficult tasks of securing ratification of the EDC Treaty by all members and ratification of the German contract by France and Germany still remain.

The U.K. has not joined either the EDC or the Schuman Plan (primarily because of its ties outside the continent of Europe and its policy of avoiding identification as a strictly European power), but has nevertheless agreed to cooperate closely with these continental institutions.

Thirdly, as a result of action initiated at Ottawa,⁹ Greece and Turkey acceded to the North Atlantic Treaty. This brought to a successful conclusion prolonged efforts on our part to strengthen NATO’s southern flank by bringing these countries into NATO. Inclusion of Greece and Turkey was for a long time opposed by some of the smaller nations, particularly Denmark, Norway, and the Netherlands. Their eventual agreement to bringing in Greece and Turkey was obtained without unduly straining internal NATO political relationships, although there would be strong resistance to further extension of the NATO area.

Changes during the past year in NATO organization resulted in improvements in NATO’s ability to reach decisions and take action. At Ottawa for the first time Council meetings were attended by the Foreign, Defense and Finance Ministers of each country. Although Council meetings as a result became somewhat large and unwieldy, this disadvantage was more than compensated for by the fact that Council decisions received broad support from key ministries within each government. The major reorganization plans agreed at Lisbon should further strengthen NATO, provided they work out in practice. Centralization of NATO headquarters should improve general efficiency. Creation of a high-level Permanent Council is designed to enhance NATO’s ability to reach important decisions. Creation of an International Staff and a permanent Secretary-General should make it possible for NATO to become a more effective operating organization.

Some progress was made during the year in developing the non-military objectives of NATO, although there is strong feeling among the European members that more should be done in this field. A working party of small nations established at Ottawa developed a set of recommendations which was accepted by the Council at Lisbon. The Council at Lisbon also passed a strong resolution on the importance of non-military objectives. Council discussion of political matters has increased and has served a useful purpose in demonstrating to the European members that NATO is something more than a purely military organization.

2. Progress in Build-Up of Military Forces

a. General Review. In February 1952 the NATO countries agreed at Lisbon on firm goals for the build-up of their ground, naval and air forces through December 31, 1952. Provisional and planning goals were established for the periods through calendar 1953 and 1954, respectively. The goals were stated in terms of combat-ready forces, and stiff criteria were established as to the standards of readiness to be used in measuring the extent to which force commitments were being met. These standards measure units against a required combat-readiness on M Day for air units; and at stated periods ranging from M to M+30 days for Army units, and from M to M+180 days for naval units.

Although less than 5 months have elapsed since the Lisbon meetings, the current status and the current rate of build-up of NATO forces provides some basis for estimating the probability of attaining the Lisbon goals for December 31, 1952. The prospects of meeting these goals are discussed below separately for ground, naval and air forces. Generally, in cases where shortfalls in ground forces are predicted as of December 31, 1952, the units required to meet force goals will be actually in existence but will not yet meet the required readiness standards.

Estimates are based on information and judgments provided by the Military Assistance Advisory Groups in each of the NATO countries, as revised and analyzed by JAMAG. The Department of Defense is engaged in a comprehensive analysis of the status of NATO forces as of December 31, 1952 in connection with the development of the U.S. position for the NATO Annual Review. The results of this study should be available shortly as supplementary data.

b. Ground Forces. On June 30, 1952, European NATO countries (i.e., NATO countries excluding Greece, Turkey, the U.S. and Canada) had available for commitment by SACEUR 22 M–through–M+30 divisions. By December 31, 1952 it is estimated that these countries will have available 28⅔ divisions or about ⅔ of their Lisbon goals of 43⅔ divisions;^† with an additional 16⅔ divisions available on an M+30+ basis in varying degrees of readiness. The anticipated shortfall of 15 divisions is due to failures to provide active-duty personnel, training, and (to a lesser degree) equipment sufficient to bring the units up to the required standards.

Substantial agreement between anticipated performance by December 31, 1952 and the Lisbon goals is indicated for divisions in readiness categories through M+3. However, a shortfall of almost 50% of units at M+15 to M+30 standards of readiness is expected. These are the forces designated to augment and back up the covering force of M-Day and M+3 which will have to bear the initial brunt of any aggression in Western Europe. In view of the fact that the Lisbon goals are admittedly militarily inadequate, the expected shortfall in augmenting these covering forces means serious impairment of SACEUR’s ability at the end of the current year to contain an enemy attack for more than a very limited period.

It should be emphasized that these estimates with respect to the number of effective divisions through M+30 take no account of the adequacy of combat and logistic support or of wartime reserves. Both elements are admittedly inadequate or on an extremely austere basis, a situation which inevitably sets serious limitations on the ability of combat ready units to sustain operations for an extended period. For purposes of analysis, however, these problems are separable from the question of the adequacy of organic combat divisions in terms of trained personnel and equipment, which were the only readiness criteria established at Lisbon for major combat units.

The following table¹⁰ summarizes the actual June 30 status, and anticipated December 31, 1952 status of NATO ground forces, by type of division and by readiness category. Figures are only for divisions to be contributed by European NATO countries. Seven and two-thirds U.S. and Canadian divisions are not included. Addition of these .7⅔ divisions to the 43⅔ divisions indicated in the table would give approximately the 50 divisions which constitute the popularly known Lisbon goals.

c. Naval Forces. As of June 1952, the only substantial present and prospective shortfalls in meeting Lisbon goals for December 31, 1952, for naval units related to escorts, minesweepers (AM and AMI) and submarines. Between June 30 and December 31, some closing of the gap for ocean minesweepers available by M+180 is indicated, as well as a small increase in available inshore minesweepers at M+180.

The expected shortfall in inshore minesweepers at M+180 is appreciable (approximately 25% of the Lisbon goal) and stems primarily from the French decision to eliminate, as impracticable and unsatisfactory, 31 fishing boats previously scheduled for conversion to fill their M+180 commitment for that type of vessel. With the exception of these inshore minesweepers, it appears probable that the Lisbon 1952 naval force goals will be substantially met and, in certain cases, exceeded. This general conclusion should be accepted, nevertheless, with certain reservations with respect to special conditions in specific countries.

Total shipments as of June 30 were $340 million out of a cumulative program of $1,200 million, or about 28% in dollar value. Table 2 on the next page¹¹ indicates the numbers of major vessels programmed through fiscal 1952, number shipped through June 30, and anticipated total shipments as of December 31, 1952.

As far as is known, delays through December 31, 1952 in delivery of items in the FY 1950–FY 1952 Navy matériel programs which can be considered as contributing to NATO shortfalls in meeting Lisbon goals will have occurred only in the case of 6 PC’s for Denmark and the Netherlands, and sonar equipment for Portuguese patrol craft.

d. Air Forces. The number of effective front-line aircraft available as of June 30 was more than ⅓ below the December 31, 1952 Lisbon goals. By December 31, this shortfall is expected to be reduced to somewhat less than 6%. The shortfall, however, appears concentrated in the critical categories of interceptors and fighter-bombers and amounts to nearly 16% of the Lisbon goal for Interceptor Day Fighters-Fighter Bombers (IDF/FB). The situation in summary is as follows:

	Effective 30 June 1952	Estimated Effective 31 Dec 1952	Lisbon Goal 31 Dec 1952	Anticipated Shortfall or Overage
Total Front-Line Aircraft (M Day)	2,038	3,087	3,276	–189
Interceptor Day Fighter	878	1,225	1,243	–18
IDF/FB	624	1,053	1,238	–185
All-Weather Fighter	117	294	326	–32
Light Bomber	28	66	66	0
Medium Bomber	139	144	144	0
Tac Recon	127	161	109	+52
Transport	123	142	144	–2
Maritime	2	2	6	–4

Actually the above table exaggerates the shortfall (185) in the IDF/FB category, at least in so far as the mere number of aircraft available is concerned. At least 94 of this shortfall will be on hand in Denmark. It is the lack of unit training in this case which precludes their being included as effective front-line aircraft. On the other hand, a rigorous application of readiness standards would probably reduce further the figures on effective front-line aircraft from those given in the above table. There is evidence, for instance, that inadequate pilot training and unit training, lack of organizational equipment, and even failure to approximate authorized personnel strengths for certain air units, singly or together, seriously limit the combat readiness of one or more air units in nearly all the NATO countries. The above figures must therefore be regarded as upper limits on the probable number of effective front-line aircraft which European NATO countries will be able to contribute by December next towards meeting their 1952 Lisbon commitments.

It should further be emphasized that, in estimating the number of effective aircraft to be available by December 31, 1952, no allowance was made for requirements for combat reserve aircraft. Such reserves are, of course, virtually non-existent except for the U.K. The present estimates of front-line aircraft refer, therefore, to units in what has frequently and appropriately been dubbed a “one-time” air force. This fact should not be overlooked in appraising the considerable progress which it is anticipated will be made by December 1952 towards meeting the Lisbon goals.

Total shipments as of June 30 were valued at $300 million, 13% of cumulative programs totaling $2,300 million. Table 3 on the next page¹² indicates the numbers of aircraft (by type) programmed through fiscal 1952, shipped through June 30, and anticipated total shipments as of December 31, 1952.

The projected shipment of unit equipment aircraft through December 31, 1952, indicates that sufficient aircraft will be on hand in each NATO country to permit activation of units as scheduled and to meet most of the peacetime attrition requirements. The remaining shortage in peacetime attrition aircraft will have been eliminated by June 30, 1953.

While delays in MDA shipments of ground handling equipment are reported to have interfered with the ability of some countries to obtain maximum effectiveness of aircraft on hand, the point is in sight where delays in pilot training in the NATO countries may be a limiting factor and may even require postponement of MDAP aircraft shipments to avoid non-utilization of MDAP-supplied matériel.

3. Economic Situation.

Throughout fiscal year 1952 several continuing major problems were encountered in administering the Mutual Security Program. First, every possible support had to be given to the military buildup. Second, there had to be taken into consideration the fact that the build-up was imposing a heavy economic burden on countries that were just emerging from war and postwar economic and political disruptions, and were vulnerable to drastic economic dislocations. Third, it had to be recognized that while the build-up required an immediate economic and military effort, further effort would be required to maintain the forces after the higher levels had been reached. The force in being after 1955 would continue to impose a heavy economic load on the European countries, and if they were to carry this load their economies would have to be further strengthened. Fourth, the program had to safeguard and continue to promote the long-term aims of U.S. foreign policy in Europe which began with the Marshall Plan.

The long-term objectives are solvency—ability to meet the required import level without extraordinary U.S. aid—and the progressive unification of Western Europe. Concurrently with the promotion of these specific aims the program had to consider the desires of the European people for a rising living standard and their reasonable hope that Western Europe would at some early date achieve sufficient economic strength to tackle some of its most pressing social and economic problems, among them the continued large structural unemployment in Western Germany and in Italy; the under-development of Greece, Turkey and Southern Italy; and the persistence of large Communist parties in Italy and France.

a. Growth of Economic Base. Despite the burden of the rearmament effort, further progress has been made in expanding Western European trade and production. Coal and steel production, agricultural output, and the foreign trade of the NATO and associated countries all rose to new postwar highs, and most of them were well above prewar.

The most spectacular advances were made in steel and electricity production. Output of steel ingots and castings for the NATO countries and Germany, which had begun to exceed 1938 levels as early as 1949, continued to grow from 48.3 million metric tons in 1950 to 53.6 million tons in 1951, and electricity output rose from 192 billion KWH in 1950 to 214 billion KWH in 1951, thus more than doubling prewar production. Motor vehicle output showed only a slight increase during the year under review, but with 1.5 million units produced, stood almost two-thirds higher than prewar. The combined industrial index for the NATO countries and Germany rose from 135% of 1938 to 144% during the year reviewed.

Significant advances were also made in coal production. Output for the NATO countries as a whole grew from 338 million tons in 1950 to 342 million tons in 1951, for the first time exceeding 1938 production. Germany also increased its coal output by 7.6 million tons to 118.8 million tons, but production was still considerably below the 136 million tons mined in the Ruhr area in 1938. Total coal production for NATO plus Germany amounted to 460.6 million tons, still about 14 million tons short of 1938 levels.

Substantial increases were also scored in agricultural production. Output of milk, meats, fats and oils, and bread grains all rose, raising the index of gross agricultural production for the OEEC countries from 103% of 1938 in fiscal 1950 to an estimated 112% in fiscal 1952. Foreign trade of the NATO countries and Germany increased sharply from a monthly average of $1.4 billion in 1950 to close to $2 billion in 1951.

The continuous growth of Western Europe’s economic base had an important politically stabilizing effect. It proved that a measure of rearmament could be carried on while still expanding the economy as a whole. Most important of all, the continuous economic expansion made it possible for most of the NATO countries to carry the armament burden without serious inroads on the living standards of their people. In most of the NATO countries standards of living—admittedly lower than desirable—continued to improve somewhat, although at a far lower rate than before the Korean war. A notable exception is the United Kingdom where living standards declined slightly.

b. Balance of Payments. The year was marked by serious balance-of-payments crises in the two principal NATO countries. France lost $100 million in reserves, and the U.K. lost $2 billion in gold and dollars. The weakness of the French and British gold and dollar reserves has been an important factor in the stretch-out of the armament program of these countries. Most of the other NATO and associated countries ended the year with reserves that were equal to or slightly higher than the reserves in the preceding year.

The gold and dollar drain experienced by France and the United Kingdom was closely related to the violent fluctuations in the prices of commodities that have marked the post-Korean period. In the immediate months following the outbreak of the Korean war, rubber and the coarser wools rose to three times the price they had commanded in early 1950. Other fibers and the non-ferrous metals, especially tin, also showed remarkable increases. As a result, the sterling area, a large exporter of these commodities, was able to raise its gold and dollar holdings from $2.4 billion in June 1950 to $3.9 billion in June 1951. The period of large reserves, however, was short-lived. The drain began when the United Kingdom, which had consumed its inventories in the hope of price break, had to replenish its stocks of raw materials, while the other members of the sterling area, cashing in on their earlier gains, raised the level of their imports from the dollar area. By December 1951 sterling area reserves had fallen to $2.3 billion and by March they had decreased to $1.7 billion, remaining at that level through June 30. EPU gold and dollar settlements accounted for over $400 million of this loss in reserves.

In the case of France the generally higher cost of imports was aggravated by political and budgetary uncertainties which induced a flight from the franc. The result was that France, which had held a net creditor position in the European Payments Union in early 1951, not only became a net debtor in 1952 but was required to make gold and dollar settlements of $130 million during the fiscal year. With the prospect of somewhat greater financial stability, France’s balance-of-payments position has improved in recent months. France’s trade deficit narrowed in the second quarter. Furthermore, the gold loan of the Pinay government appears to have resulted in substantial additions to French gold reserves.

4. Defense Expenditures and Defense Production.

Countries in the NATO area increased their total defense expenditures from $6.2 billion in fiscal 1951 to $8.8 billion in fiscal 1952. The U.S. agencies concerned believe that, by and large, assuming no major change in the degree of international tensions, and leaving aside increments in defense expenditure which may be expected to accompany further expansion of total production, the current orders of magnitude of European defense expenditures are as high as can be supported.

Expenditures by the Federal Republic of Germany were for the most part associated with occupation costs and remained at about the same level as in fiscal 1951. Despite the encouraging overall progress in increasing NATO outlays for defense, expenditures made by France, the U.K. and Italy fell short to some extent of the levels which U.S. Mutual Security agencies had hoped might result from the TCC review. The major area in which expenditures were lower than had been hoped for was in the field of defense budget outlays for procurement of major matériel.

Major matériel expenditures did, nevertheless, rise almost $900 million above fiscal 1951 levels, accounting for 35% of the total increase in defense budgets. In the case of France, budgetary restrictions made it necessary for the U.S. to take over (through the offshore procurement device) the financing of a substantial number of matériel procurement contracts which had previously been entered into by the French Government. As the fiscal year closed the French were making a strong plea to the U.S. for further budgetary relief of this nature. The fact that funds available during fiscal 1953 are not adequate to meet the full French request will mean some further curtailment of their defense production plans in the future.

The U.K. recently took a governmental decision to stretch out the timing of its NATO defense build-up. While fiscal 1952 matériel expenditures were not appreciably affected, defense production levels in fiscal 1953 will have to be decreased unless off-shore procurement financing can be provided. As to Italy, the Government has shown continuing reluctance to increase the overall level of defense expenditures, and has particularly been unwilling to accede to U.S. proposals that expenditures for major matériel procurement be substantially increased.

Outside the field of major matériel procurement, it is difficult to evaluate to what degree limitations in defense expenditures have been a factor in delaying the build-up of forces. It appears clear that in certain cases increased defense budgets might have permitted faster progress to have been made in raising and training forces.

In connection with the Lisbon conference, each country adopted a revised defense expenditure plan calculated to support the agreed force build-up. These defense budget plans were stated in response to suggestions emanating from the TCC review as to desirable levels of defense expenditures for each country. The fact that neither the expenditure levels originally suggested by TCC nor those eventually adopted by the countries have been reviewed by NATO or by the U.S. Government to determine their adequacy to support the Lisbon goals, makes it difficult to establish any meaningful bench-marks against which to measure country defense expenditures. However, since both the TCC Executive Bureau “desirable levels” and the individual defense expenditure plans of the NATO countries have been frequently referred to in the U.S. Government’s appraisals of NATO progress, the following table is presented subject to the major reservations indicated above.

Defense Expenditures of European NATO Countries

(in $ Millions)

	Fiscal 1951 (Actual)	Fiscal 1952 (MSA estimate)	Country plans adopted in connection with Lisbon decisions (Replies to TCC)	TCC Executive Bureau “desirable levels”
Belgium–Luxembourg	200	375	389	530
Denmark	56	90	97	123
France	2,325	3,200	3,271	3,271
Italy	641	820	811	920
Netherlands	228	320	395	395
Norway	67	101	112	112
Portugal	50	58	58	58
United Kingdom	2,665	3,865	4,007	4,007
Total	6,232	8,829	9,140	9,416

a. Defense Production. In general, the activities of defense production in the NATO areas, up to June 30, proceeded at a less rapid pace than had been estimated as possible during the course of the TCC exercise. To some extent, no doubt, shortfalls were the result of administrative red-tape, of the difficulties encountered in conversion and tooling up, and of technical bottlenecks arising from shortages of machine tools, manpower, and critical materials. In its major outlines, however, the failure of European defense production to reach the levels that had been hoped for by NATO and by the U.S. Government was attributable to two main factors: (1) failure of the European governments to provide in their defense budgets adequate financing for major matériel procurement; and (2) delay recognition, by the U.S. Government and by NATO, of the crucial contribution that could be made to the collective effort by large-scale off-shore procurement by the U.S.

Both in France and Italy, “politico-economic” considerations resulted in major delays in government placement of firm defense contracts, and in substantial downward adjustments in the originally hoped-for programs. These two countries together received about two-thirds of the total of $450 million “regular” off-shore procurement contracts placed by the U.S. in Europe during fiscal 1952. In addition French contracts for matériel in the amount of about $180 million were taken on under the so-called “Lisbon commitment” type of off-shore procurement. The fact that the regular offshore procurement contracts were not placed in any volume until the last quarter of the fiscal year, together with inadequate budgetary provisions for major matériel procurement, resulted in a marked under-utilization of defense production capacity in these two countries during fiscal 1952.

In the U.K., financial stringencies have not so far played such a major role as in France and Italy in accounting for lagging defense production. Tooling up delays, and shortages of manpower, critical materials, and machine tools, all of which had to be diverted from industries turning out peacetime goods for export, are seen as the major reasons for the shortfalls experienced to date. The “stretchout” for the balance of the program is, however, prompted basically by financial considerations, both as regards budgetary outlays and as regards protecting from further depletion Britain’s hard currency reserves. That a certain amount of physical capacity is available, given the existence of financial underwriting—and particularly, given the promise of dollar payments to compensate for the loss of foreign exchange when capacity is shifted from production for export—is evidenced by the fact that the U.S. has recently been able to place off-shore procurement contracts in the amount of $65 million for tanks, ammunition, and electronic equipment.

Now that the off-shore procurement program is getting under way on a large scale, the U.S. and the European NATO countries are faced with major policy decisions relating to the establishment of a rational pattern of European production. Among the many factors which must be considered are: (1) comparative cost of U.S. and European output, (2) need to fill gaps in material availability caused by U.S. production shortfalls, (3) strategic necessity of having a nearby source of supply for expendable items such as ammunition and spare parts, and (4) long-range European production needs for maintenance of military equipment.

The problem of developing European production of ammunition is one of the most pressing at this time. Also in an advanced stage of planning and negotiation is a substantial program for the production of fighter aircraft. Combat and transport vehicles, electronics, and smaller naval craft are among the other important fields where production is either planned or is already activated for offshore procurement.

[Here follows Section III, “Austria, Yugoslavia and Spain”.]

iv. near east and africa, including greece and turkey

1. Internal and External Security. With the notable exception of Egypt and Iran, the governments of countries receiving U.S. assistance in the Near East and Africa displayed a considerable degree of stability during fiscal year 1952—a stability which is the more noteworthy because of the widespread tensions in the area. In the face of a heightened nationalism throughout many of these countries, which the Communists have made every effort to exploit, the orientation of their governments remained anti-Communist and friendly to the West.

No state in the area appeared to offer any serious threat to the immediate security of any other state at the end of June 1952. Although Iraq still refused to recognize Syria’s new military government, the danger of overt interference has subsided. The smouldering threat of a “second round” of Arab attack on Israel seems to have lost its force as it has become apparent that no conceivable coalition of Arab states could defeat the Israeli forces. The only serious possibility of danger from external sources remained that of the U.S.S.R.

Turkey continued to be one of the strongest and most stable governments in the area, and Greece demonstrated some evidence of progress toward political stability. In neither country is Communism considered to be a serious threat: Communism has been embraced by less than 1/10 of 1% of the population in Turkey. Recent elections in Greece showed less than 10% of the votes cast for the extreme left-wing parties. In these elections, the extreme left-wing, considered to be covertly Communist controlled, failed to increase its strength over the 1950 returns. There continues to be evidence of Communist activity in moderate left-wing groups and labor unions as well as in distressed tobacco areas in Thrace and Macedonia.

The long standing distrust which has separated the Greeks, Turks and Yugoslavs has subsided. Greece and Turkey, both before and since their admission to NATO, have enjoyed increasingly friendly relations, and the two countries have agreed to a considerable exchange of military information. Both have made efforts to improve generally their relations with Yugoslavia. Yugoslav military leaders have indicated a willingness to engage in military staff talks with Greece and Turkey. It is hoped that such a move would eventually lead to coordinated defense efforts. Greece is now considering revival of a prewar arrangement under which an area in the Port of Salonika is reserved as a free port for Yugoslav use.

Internal security threats have been held in check in most countries. The glaring exceptions are, of course, Iran and Egypt. It is still too early to predict the course to be followed by Premier Mossadeq, who now has virtually unlimited power in Iran, or by Egypt’s military coup regime headed by General Naguib. There is nothing to indicate any tendency on the part of either leader to look to the East, although in Iran there is some evidence that a working agreement between the Tudeh (Communist) Party and some extreme elements of the National Front existed during the anti-Qavam riots. It is possible that the Tudeh Party in Iran may be the ultimate victor if Mossadeq’s somewhat different concepts of economic planning prove faulty.

In Egypt, however, immediate steps were taken by the authorities to ensure that there would be no recurrence of the January 26 riots and burning of Cairo. The drive against the already outlawed Communist Party has been intensified; the Communist Party in Egypt, unlike the Tudeh Party in Iran, is badly organized and lacking in indigenous leadership. Recent reforms in the economic situation and those contemplated in land distribution will probably further decrease strength of the Communists and will certainly dilute the effect of their propaganda.

Assassinations of Jordan’s Abdullah and Pakistan’s Liaquat Ali Khan removed strongly pro-Western leaders and for a time threatened internal security in the two countries. New leaders lack the ability of their predecessors, but have maintained their Western affiliations.

Following Colonel Shishikli’s military coup of November 1951, Syria appears to have the most stable government in its seven year history as an independent republic. Although its leaders are in many ways nearer to a pro-Western attitude than other Arab countries, they still have not concluded negotiations for a Point 4 general agreement, for IBRD loans, or for Arab refugee resettlement projects.

2. Attitude Toward Collective Defense. Of the 14 countries in the Near East and African area, only two—Greece and Turkey—are participating in an effective collective defense arrangement. Both are strong supporters of the principle of collective defense and have cooperated fully with the United Nations in its efforts to stop Communist aggression. Both provided combat troops in Korea, with full popular support. Both have acceded to the North Atlantic Treaty and have thus become full-fledged members of NATO.

The only other collective defensive arrangement in the area is the Arab League Collective Security Pact, to which Egypt, Iraq, Jordan, Lebanon, Saudi Arabia, Syria and Yemen are all signatories. This “defense arrangement” of Arab states is less likely to produce actual security than to develop a bargaining position for Western defense proposals. Significantly, three of the first four countries to ratify the pact (Egypt, Iraq, Syria) have already expressed considerable interest in joining the proposed Middle East Defense Organization (MEDO).¹³ Lebanon has unofficially indicated its willingness to participate in MEDO after one of the other Arab League states has broken the way. That the principal interest of Arab leaders is in the chance to acquire military training and equipment in no way detracts from the importance of their interest, which represents a sharp change in the traditional neutralism of the area.

Israel, which has not been approached with respect to MEDO, might find it difficult to enter a collective defense alliance with the Arab states, but has unofficially offered to “cooperate” with them in such an arrangement.

3. Military Assistance and Defense Support to Greece, Turkey and Iran.

a. Greece

Summary of MDAP Programs, FY 1950–52

(In millions of dollars)

	Program FY 50–52	Shipments as of June 30, 1952	Percent Shipped
Army	202.2	82.5	40.8
Navy	70.2	60.3	85.9
Air Force	116.2	23.8	20.4
Total	388.6	166.6	42.9

Greece was just recently admitted to NATO. Lisbon Force Goals were not established for 1952; so program objectives are in terms of JCS-approved forces. From the manpower point of view, the Greek Armed Forces are capable of raising and maintaining the forces approved by the JCS.

The size of the Greek National Army meets the approved JCS force goals with the exception of a shortfall of 2 light infantry regiments. There has been no change in the size of the Greek Army. The arrival of arms and equipment, however, have greatly increased its effectiveness. The Greek Army as a whole is considered well led, satisfactorily trained and, except for some matériel deficiencies, prepared to carry out its wartime mission.

The Greek Navy is organized in accordance with the approved JCS force goals. The training vessels and equipment received in the past year have increased the effectiveness of the Greek Navy by approximately 30%.

The strength of the Greek Air Force has remained unchanged. Aircraft and supporting equipment to complete the build-up of the air force were programmed in the MDAP FY 1953 budget. This force is not considered sufficient adequately to defend Greece from the air, nor is it large enough to furnish sufficient tactical air support to exploit the potential of the large Greek National Army. However, it is the maximum force to which the Royal Hellenic Air Force is considered capable of expanding by December 1953.

Since the advent of the Mutual Security Program, the Greek defense effort has remained at the relatively high level established shortly after the outbreak of the Korean war. The maintenance of this effort has required defense expenditures of about $185 to $195 million per annum, or about 9% of the gross national product and about 40% of total national budget expenditures. This level of expenditures has provided for (a) the maintenance of about ten divisions of land forces, support troops, and a smaller complement of sea and air forces; (b) the requirements of the armed forces for food, clothing, medical supplies, fuels, and other quartermaster items, as well as the creation of reserves of similar items to meet additional requirements related to the mobilization of trained reserves numbering some 300,000 men; and (c) the construction of military highways, airfields, port facilities, telecommunications, and other essential military installations.

The present size of the Greek Armed Forces appears adequate to enable Greece to fulfill its task within NATO and no significant expansion in the Greek defense effort is now contemplated. The goal of the Greek defense effort is qualitative, calling for the continued improvement of the military effectiveness of the existing forces. In fact, the Greek Government has expressed its intention of reducing military expenditures by as much as 10% but has stated that this reduction will be effected without impairing either the size or effectiveness of the defense establishment.

b. Turkey

Summary of MDAP Programs, FY 1950–52

(In millions of dollars)

	Program FY 50–52	Shipments as of June 30, 1952	Percent Shipped
Army	187.5	79.6	42.5
Navy	81.4	34.7	42.6
Air Force	173.6	24.3	14.0
Total	442.5	138.6	31.3

In view of Turkey’s recent admission to NATO, no Lisbon Force Goals were established for Turkey in 1952. However, Turkey’s Armed Forces already exceed JCS goals by about 19%. Present plans do not call for an increase in numerical strength over the present 386,000. Nor will the number of existing units be expanded. Continued modernization, however, will proceed during and after 1952 through programmed shipments of transport equipment, artillery, etc., for the Army, modern submarines for the Navy, and the transition of the Air Force into jets. The main build-up will be in the increased efficiency of existing forces in the field of training and in the arrival of programmed equipment.

The Turkish Army is trained and organized to defend Turkey from aggression by nations which border on Turkey. Therefore, in evaluating the combat potential of the Turkish Army, it is not possible to compare the Turkish divisions and brigades with similar units of the U.S. Army fully prepared for overseas movement. It is felt, nevertheless, that the Turkish organizations are sound and that they can successfully defend the areas to which they have been assigned against the types of units which may be employed against them by Russia and/or Bulgaria, unless they are overwhelmingly out-numbered. The major matériel deficiencies of the Turkish Army consist chiefly of: (a) unit equipment, (b) spare parts and replacements, including annual operating requirements and combat reserves, and (c) training ammunition and combat reserve ammunition. Unit equipment deficiencies include artillery, engineering, motor transport, signal, mechanized, and miscellaneous small arms. FY 1952 and the proposed FY 1953 programs cover these matériel deficiencies.

In the Turkish Navy the major equipment deficiencies are vessels (new replacements and modernization), vessel equipment, electronics equipment, ordnance equipment and supplies, rockets, ammunition, and engineering equipment and supplies. There are also inadequate naval bases and logistic bases, anti-submarine and anti-torpedo nets, shipyards, and underground POL storage facilities. All these deficiencies are due for correction in the FY 1953 Aid Program and Turkish plans.

The major deficiency of the Turkish Air Force is that it is not yet equipped with modern aircraft to act as a real deterrent to an aggressor. Modern jet fighter-bomber aircraft are programmed for the planned forces of the Turkish Air Force to the extent that they can be efficiently utilized. The delivery of this type aircraft has just started and will continue through FY 1953. If all programmed equipment is approved and delivered, it will complete the initial equipping of a Turkish Air Force of 15 squadrons.

The main task of the Gendarmérie—an organized, semi-military organization of approximately 40,000 officers and men—is to assist the police in the country areas and to reinforce the Army in time of war. It is trained along military lines under the Turkish General Staff. The Ministry of National Defense provides administration, supply and part of the pay. The enlisted personnel are conscriptees as in the other armed forces. However the Gendarmérie operates in its police function under the Department of Interior.

There is no system of Organized Reserve, National Guard or similar civilian training organization within the Turkish Armed Forces. Neither officers nor enlisted men receive additional military training after they have completed their required active duty tour of military service. Upon discharge, officers and men are given mobilization assignments. The Turkish Armed Forces reserve system is wholly dependent upon each individual’s ability to retain the knowledge acquired during his required active duty tour of service.

Turkey lacks manufacturing facilities to sustain herself independently in a major conflict. Food, clothing, and most small-arms ammunition can be provided, but major armaments, vehicles, aircraft, spare parts, and POL supplies must be imported. POL storage facilities are marginal, and must be supplemented if extended conflict is anticipated and before any POL support could be provided to allies who may operate in Turkey.

MDAP has exceeded the scope of the originally assigned mission in that the Turkish Armed Forces are being developed beyond Turkey’s economic ability to support them without outside help, yet not to the point where, unaided, they can deter the Soviets from successful all-out aggression. In regard to the economic capacity of the Turks to maintain present forces, unless there is great improvement in the Turkish economic situation, continued aid will be necessary for operational and maintenance purposes over and above that which Turkey’s 500 million lira annual budget will support.

c. Iran

Summary of MDAP Program, FY 1950–52

(In millions of dollars)

	Program FY 50–52	Shipments as of June 30, 1952	Percent Shipped
Army	61.0	14.5	23.8
Navy	—	—	—
Air Force	5.6	1.1	19.8
Total	66.6	15.6	23.4

The development of a first-class fighting force in Iran with a reasonable degree of self-sufficiency is a long-term project requiring basic reform. One of the most serious deficiencies in the Iranian forces is the poor quality of its leadership. Corruption and lack of integrity are widespread and contribute significantly to the inefficiency of the Army. Much procrastination, little supervision and casual compliance with orders are significant characteristics. Better command techniques may be obtained as younger, better trained officers reach key positions. However, there is little delegation of any important authority, probably because of danger of a coup.

The strength of the Army—132,500—is 5% above JCS approved force goals. However, this strength is spread over two infantry divisions and 4 infantry brigades in addition to JCS force goals. Equipment is generally adequate considering the state of training and ability to absorb. Present level of equipment is approximately 35% of planned minimum. Deficiencies include inadequate leadership, planning, training and logistical support. It is estimated that the Army could be logistically supported in combat for only two weeks. The Army is considered to be sufficiently effective to maintain internal order.

The Navy strength is within 5% of JCS approved force goals. Equipment is generally adequate except for repair facilities. The Iranian Navy has virtually no combat capabilities in view of obsolescent equipment and limited size of naval forces. It has limited capabilities for assistance in internal security operations.

The Air Force is within 1% of approved JCS force strength but is not organized in accordance with JCS force goals. The level of equipment is generally adequate except for training aircraft. The Iranian Air Force has no combat capabilities. It suffers from the overall deficiency of the Army, aggravated by the technical requirements of aviation.

The Iranian Gendarmérie is not part of the peacetime military establishment. Dispersed in small squad posts and functioning in non-municipal and non-tribal areas, it lacks communications and transportation. It has no capacity other than day-to-day police functions, little flexibility and practically no reserves. Morale is somewhat better than in the Army because the Gendarmérie has no conscripts and there is relatively better pay and opportunity for graft.

. . . . . . .

v. far east and south asia

1. Internal and External Security. During FY 1952 the Nationalist Government of China and the Government of the Philippines were the most stable in the entire Far Eastern area. There was no internal challenge in Formosa to either Chiang Kai-shek or the Kuomintang. The strength of the present Philippine Government was somewhat impaired by the victory of the opposition party in the 1951 elections. But the cause of good government as well as the stability of the government was considerably furthered because the elections were on the whole conducted honestly and with a minimum of violence, in contrast to previous elections.

The coalition Government of Burma achieved a resounding victory by being reelected by a substantial margin of the popular vote. This clear mandate from the people strengthened the hand of the government and encouraged it to form a more effective cabinet with a more positive attitude toward solving the problems confronting it. It is significant to point out that the government’s endorsement of American economic assistance was an important issue in the elections.

The Associated States of Indochina made significant progress in assuming the responsibilities of self-government within the past year. The government which had been in power for the past two years in Viet-Nam was replaced by a new and stronger government in June 1952. A major part in this change was played by Emperor Bao Dai and is believed to reflect an increasing determination on his part to stabilize the government and improve its effectiveness.

Thailand has had a recent history of governmental change by coup rather than by parliamentary process. Two such coups were attempted in the past year, both of which were engineered within the government itself to consolidate the power of the military leaders. This seeming governmental instability, coupled with the highhandedness and corruption of the governing group, has been a matter of serious concern to the United States Government. There is no reason to believe, however, that the present control of the governing group will be disturbed in the near future.

In Indonesia the government which had given assurances to the United States acceptable under Section 511(a) of the Mutual Security Act was ousted in February, 1952 and was succeeded, after a difficult formation period, by a government which was an uneasy coalition. This government has not yet, after a number of months, been accorded a clear vote of confidence by the parliament. Instead, the parliament has voted the government an “opportunity to work.”

Food shortages and economic difficulties continued to offer the greatest danger to the internal security of existing governments in India and Pakistan, where they are exploited by the Communists. Communist strength was significantly disclosed in India, where Communist-supported candidates drew over 6,000,000 votes in the recent general elections, although the party itself claimed only 30,000 dues-paying members prior to the election. Twenty-seven Communists and Communist sympathizers were elected to the House of the People (total seats—497). The Communists won large blocs of seats in several of the state assemblies. While not by themselves sufficiently strong to be able to form a government in any state, the Communists emerged from the general election with the largest number of elected representatives in opposition to the Congress Party, although the Socialists actually polled twice as many popular votes. The Congress Party drew only 45% of the total votes while winning 74% of the seats in the House of the People. It is possible that the disclosure of Communist Party strength within India has had some effect on the Government’s attitude toward international communism. While India is still unwilling to become directly involved in the cold war or openly to take the part of the West, the Indian Government has shown signs of apprehension regarding the intentions of Red China, and has recently taken steps to strengthen its defenses along the Chinese and Tibetan borders.

In Nepal the quarrels of the Congress Party leaders and a series of minor outbreaks of violence kept the country in a turmoil which was exploited by the Communists.

Turning from the question of governmental stability in terms of constitutional change to the question of overthrow by force, most governments in the area were in the shadow of serious threats throughout most of the period. In Indochina active warfare was waged during the entire year to regain and consolidate control in areas which had been taken over by the Viet Minh. With French financial subsidies and military effort, coupled with U.S. arms aid, the governments of the Associated States were able to retain their control over large portions of the area. The Vietnamese Government has also been increasingly successful in maintaining and extending its political control. Although there has been no overt invasion from Communist China, the military capability of the opposing Viet Minh forces has been increased significantly through arms assistance and technical support and advice from the Chinese Communists.

Burma has long been the scene of a number of concurrent insurrections. The outstanding effect of the government’s victory in the elections was the adoption of a more aggressive attitude toward the insurgents, including considerably more effective efforts against the Communist insurgents, with a corresponding decrease in the attention given to the non-Communist Karen rebels. The government’s forces have prevented the insurgents from improving their position and have succeeded in driving them from some parts of the country which they held for several years.

Indonesia has been in little danger of external invasion, but it has been the scene of widespread dissident action, particularly by a fanatic Muslim group operating in Central and West Java. It is estimated that there are a total of approximately 128,000 dissidents in the country, of whom 70,000 may be armed. The Communist Hukbalahap movement in the Philippines was broken during the past year and is no longer considered to be a major threat to the stability of the government. While Thailand has a large number of Chinese residents, it is nevertheless relatively free from any threat of organized Communist dissidents. Total Communist strength is not believed to exceed 20,000 members and sympathizers.

In considering the security of governments in this area there is always, of course, the ever-present twin danger faced by the Nationalist Government of China on Formosa, in the form of the threat of an all-out military assault by the Chinese Communists from the mainland and the economic difficulties arising from the maintenance of disproportionately large armed forces needed to meet an invasion from the mainland.

Pakistan and India appear no nearer to a solution of the long-festering Kashmir problem; and Afghanistan continues the bitter quarrel with Pakistan over the “Pushtoonistan” issue.

2. Economic Aid and Defense Support. Programs of general economic aid, including the financing of substantial consumer and capital goods imports, were carried on in the following countries:

Country	Approved Programs
Nationalist China (Formosa)	$81.0 million
Indo-China	24.7 million
Philippines	32.0 million
Thailand	7.0 million
Total	$144.7 million

The objectives and general nature of programs in the three major countries are indicated in the Part I, “Summary Evaluation”.

3. Military Assistance to Indochina and Formosa

a. Indochina

Summary of MDAP Programs, FY 1950–52^‡

(In millions of dollars)

	Program FY 50–52	Shipments as of June 30, 1952	Percent Shipped
Army	469.6	144.5	31
Navy	89.1	66.7	74
Air Force	146.2	25.0	17
Total	704.9	236.2	33

Present Army Strengths in Relation to JCS Goals

Force	Men, % of Goal	Units Over JCS Goal	Units Short of JCS Goal
French	100%	1 RCT	1 Inf. Div. (12 Bns.)
		1 Inf. Regt, Armored
		1 Inf. Regt. (Separate)
Vietnamese	50%	4 Inf. Div. (9 Bns.)	7 Inf. Div. (12 Bns.)
			3 Inf. Bns. (Separate)
			1 Airborne Battalion
Laotian	50%	1 Inf. Company (Separate)	4 Inf. Bns. (Separate)
			2½ Airborne Bns.
Cambodian	50%	None	6 Inf. Bns. (Separate)
			1½ Airborne Bns.
Total	86%	(395,803)

Combat effectiveness of French units in comparison to U.S. wartime units ranges from 40% up to 150%. Vietnamese units compare to U.S. forces in the range of 30% up to approximately 100%. As forces are undergoing a profound transition in modernizing their armies, the bulk of the native officers and enlisted men do not presently possess the aggressiveness, initiative and technical skill of U.S. wartime units. The FY 50–52 aid programs involve equipment to supplement the French equipment for 3 French Divisions, provide the majority of the equipment for 6 Vietnamese Divisions, and provide the equipment for the Laotian and Cambodian battalions.

Naval forces are currently at JCS force goals, with the following exceptions:

• Short 8 LSSL (Land ship supp. large)
• Over 3 LSIL (Land ship Inf. large)
• Over 6 CG Patrol Craft (40 foot)
• Vessels 91% of JCS force bases
• Personnel 71% of JCS force bases
• Naval aircraft 100% of JCS force bases

Combat effectiveness of French naval forces varies from 40 to 100% in comparison to U.S. Navy. For instance, effectiveness is 40% for ASW where there is little or no occasion for use, but 100% in river warfare operations where there is daily combat or employment. FY 50–51 MDA programs provide requirements to meet JCS force goals but subsequent programs are relied upon to provide replacement craft and equipment.

The Air Force is currently at JCS force goals, with the following exceptions:

a. Short 1 fighter-interceptor squad. (25 operating aircraft)

b. Short ⅓ Recon. Squad. (16 operating aircraft per squadron)

c. Possess 2 Transp. Squads. Light in lieu of 2 Transp. Squads. Medium specified in JCS goals.

d. Have no fighter bomber attrition aircraft and are 1 plane short in operating aircraft.

Combat effectiveness is rated at 74%. Lack of maintenance personnel and pilots lowers effectiveness of French Air Force.

b. Formosa

Summary of MDAP Programs, FY 1950–52

(In millions of dollars)

	Program FY 1950–52	Shipments as of June 30, 1952	Percent Shipped
Army	139.3	41.6	30
Navy	11.4	5.0	44
Air Force	119.7	1.2	1
Total	270.4	47.8	18

On Formosa all ground force units are now in being but are currently being reorganized into a lesser number of divisions to be in accord with the JCS force goals. The reorganization process was 25% complete by June 30. Over-all combat effectiveness of ground forces is 20%. Ground force units will, upon completion of delivery of FY 1950–52 programs, be approximately 50% supplied with equipment required by new tables of organization and equipment.

Naval forces are now at the level prescribed by the JCS. Combat effectiveness of the Navy is 22%; Marines, 25%. The Navy will be 100% equipped, upon completion of FY 1950–52 deliveries, but there will be a continuing requirement for replacement spare parts and materials for overhaul of vessels.

The Air Force is at the numerical level prescribed by the JCS with the exception of an all-weather fighter squadron. Combat effectiveness is 18% for combat aircraft units, 65% for transport aircraft units. The process of conversion of conventional fighter aircraft squadrons to jet fighter bombers squadrons will be 50% complete when FY 1950–52 programs have been delivered. The Nationalist Chinese Government recently expressed concern over delays in delivery of MDAP aircraft, on grounds that a large number of trained pilots was available without planes to fly.

. . . . . . .

vi. american republics

1. Internal and International Political Developments. Most of the Latin American governments appear to be relatively secure at the conclusion of the period under review. Political stability and continuity of governments are at least superficially no worse than they have generally been in the past. Nevertheless, the past year has witnessed unconstitutional seizures of governmental power in Cuba and Bolivia. The ability of the constitutionally-elected governments in Chile and Ecuador to maintain themselves in control hung at times in precarious balance. In other countries, such as Colombia and Venezuela, those in control were preoccupied with maintaining their power against actual or threatened violence. In still other countries stability was the product of one-man or one-party rule which tolerated no opposition.

Aside from the influence of Communism, there were no external threats to political stability within the Hemisphere. Among the nations of Latin America, none seriously threatened the security of any other.

Internal threats to political stability were apparent in several countries due primarily to the unpopularity of governments with important groups within their countries, economic difficulties, or a combination of the two. The dissatisfaction of important elements was obvious in Argentina, Colombia, Cuba and Guatemala. Economic difficulties were the most important factor in Bolivia, Paraguay and Panama, and a strong contributory factor in Argentina. In Brazil, the development of a strongly nationalist, if not Communist-minded, group in the armed forces was brought under control through effective action by the dominant faction of the military leadership.

The repressive Peron administration maintained control of Argentina despite an abortive revolt by a few military leaders. The demise of politically powerful Eva Peron creates yet another crisis for the regime. In Colombia, government control was firm only in urban centers. Violence and repressive measures were frequent as the Conservative government tried to keep control in the face of Liberal opposition and widespread civil disorder throughout the provinces. In Cuba, the constitutionally-elected government of Prio Socarras was overthrown by a military coup. The possibility of political disturbances in Guatemala was increased by the enactment of a drastic land reform law which continues the government’s attack on the interests of the traditional ruling class.

Nationalist-leftist elements in Bolivia capitalized on difficult economic conditions to overthrow the government after a bloody revolution. Continuing hard times and moves of the new government toward nationalization of the important tin industry create doubt that the revolutionary government will be able to maintain itself. In Paraguay, seemingly insoluble economic problems which have resulted in near bankruptcy and in severe food shortages, would appear to endanger stability where it has been traditional. In Panama, growing unemployment combined with home-grown and imported subversive influences to create an atmosphere of political tension. National elections were conducted with a minimum of disturbance, but the bases for unrest were by no means eliminated.

Venezuela’s military junta remained in power, though without progress toward winning the loyalty of the majority of the people. National elections in Mexico were held early in July 1952 with virtually no disturbance, noteworthy evidence of progress toward political maturity. The recent election in Ecuador was unexpectedly peaceful.

In summary, Latin America is passing through a period of far-reaching political, social, and economic adjustment, which imposes upon most of the governments a preoccupation with domestic problems. Furthermore, nationalist and Communist groups seize every opportunity to provoke dissention in existing political institutions and to undermine, by propaganda and violent demonstrations, the foundations of genuine democratic development. These groups are also seizing increasingly upon the wave of anti-colonialism which is rising throughout the rest of the world, by associating the underdevelopment of the area with the issue of colonialism and the so-called economic imperialism of the United States.

Communist capabilities in Latin America have been enhanced by growing stresses and strains in the life of these countries. Even where Communist organization is relatively strong, however, its operations succeed only to the extent that local favoring factors exist and strategy is adapted to exploit these factors. Preferred targets of Communist penetration include organized and unorganized labor, and certain white-collar and professional groups. Extreme nationalists have been ready to make common cause with the Communists in front groups that oppose cooperation with the United States on the grounds of “infringement of sovereignty”. The Communist target groups, largely urban, have grown in size and influence with the shift of population from rural to urban areas.

Tensions are greatest in Argentina, Bolivia, and Guatemala, where socially radical doctrine plays a leading part in the nationalist program and the nationalists have teamed with mass elements in a potent political force. To a lesser extent Chile, Ecuador, Venezuela, Panama and El Salvador are experiencing similar stresses and strains. Communist influence still persists in Mexico, although the new order brought about by revolution has matured, the tensions have subsided somewhat and new vested interests are a strong force for stability.

Communist capabilities are presently limited in those countries that are still living in the traditional pattern of Latin American society. Extremist forces have shown considerable strength in Brazil, where nationalists, even including some in the military, have worked with Communists. They are, however, countered by the power of propertied groups and by Brazil’s close association with the United States. In other countries having a traditional or moderate political order, nationalists have tended to ally with propertied interests or the military and have steered clear of Communist association.

Communist party membership, which reached a 1947 peak of one-third of a million in all Latin America, has declined to about 200,000. The important Brazilian, Chilean, and Cuban parties, which had made a strong showing in 1944–47 national elections, have lost more than half their membership strength, accounting for most of the decline in party membership. Official proscription of the parties in many countries reduced vote totals of Communist-supported candidates to a handful from the million registered in 1944–47 national elections in 9 republics. Communist participation in national politics is now significant only in Guatemala and, to a lesser extent, in Chile. The position of the Communists in these countries, while impressive, results only to a limited degree from the strength of national Communist organization. It derives in part from Communist influence in the labor movement which, in Guatemala at least, has no effective political counterbalance, and in part from Communist alignment with proponents of civil liberties or extreme nationalism.

2. Governmental Policies Relating to Defense. Of the Latin American countries included, or proposed for inclusion in the Mutual Security Program only 6—Brazil, Dominican Republic, Chile, Ecuador, Colombia and Peru—have legislation requiring a period of compulsory military service. In Uruguay recruitment is voluntary. A Cuban law enacted during World War II, making military service compulsory, while still on the statutes, is no longer enforced, and registration is no longer required. Three (Brazil, Dominican Republic and Peru) have budgeted expenditures for Defense in excess of one-fifth of their total national budgets. Three (Chile, Colombia and Ecuador) have budgeted defense expenditures in excess of 15% of their national budgets. Three (Cuba, Mexico and Uruguay) have appropriated over 10% of their total national budgets for defense expenditures.

In addition to the normal expenses for the maintenance of defense establishment, these defense expenditures, for the most part, have been applied toward the purchase of spare parts and maintenance equipment for matériel previously furnished these countries under the Surplus Property Act;¹⁴ the purchase of additional equipment under Section 408 (e) of the Mutual Defense Assistance Act¹⁵ or in the commercial market in the United States and, in the cases of Brazil and Peru, toward the start of an extensive ship construction program.

1952 Budgeted Expenditures for Defense by Certain Latin American Countries

(Millions of U.S. dollars)

Country	Total Expenditures	Expenditures for Defense	Defense Expend. as Percentage of Total Expend.
Brazil	1,374.7	445.0	32%
Cuba	299.8	42.0	14%
Chile	937.8	147.1	16%
Colombia	324.4	54.0	17%
Ecuador	38.3	6.8	18%
Peru	135.0	31.1	23%
Uruguay	240.1	24.6	10%
Dominican Republic	82.8	23.1	28%
Mexico	462.3	52.3	11%

All of the American republics have signed, and all but Guatemala have ratified the Inter-American Treaty of Reciprocal Assistance.¹⁶ All are members of the Organization of American States and the United Nations. The policy of support of collective defense was reaffirmed at the Washington Meeting of Foreign Ministers in 1951.¹⁷ While the majority of the Latin American governments thus favor collective defense in principle, the degree of active and affirmative support varies widely. Attitudes and actions are affected by such factors as preoccupation with pressing local problems; the ability of nationalist and Communist political and propaganda activities to influence governmental decisions; resentment that almost all of U.S. assistance in the post-war years has been given to other areas; and the prevalent assumption that the United States will continue to assume the burden of military defense of the Western Hemisphere. Underlying these factors, however, is the fact that existing military establishments are inadequately trained and equipped to engage in modern collective military operations without additional U.S. assistance.

The military grant-aid negotiations carried on in 1952 were predicated on the assumption that willingness to participate in a collective defense arrangement was primarily limited by inability to achieve adequate material preparation without U.S. aid. The essential immediate purpose of United States assistance is to provide the missing component—i.e., the necessary training and equipment to enable these countries to participate in planned collective action in the event of war or emergency. It is noteworthy, therefore, that of the 8 governments (Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Peru and Uruguay) with which negotiations were initiated, the agreements required by policy and legislation have been signed with 7 and are in full effect with 5. Ratification of the Brazilian and Uruguayan agreements remains to be completed. No difficulty is expected in the case of Brazil, and the chances are not unfavorable in Uruguay. The Mexican talks, while unproductive of an agreement, were concluded without prejudice to possible future resumption. Although Argentina is militarily capable of participating in the regional collective defense program, Peron’s policy negates any expectation of Argentine cooperation in any collective military action. No approach has been made to Argentina regarding Mutual Security Program negotiations.

The Dominican Republic has not yet been approached regarding participation in the military grant-aid program. It is expected, on the basis of its general policies and its willingness to negotiate a Guided Missiles Base Agreement, that the Dominican Republic will wish to enter into such a cooperative military arrangement. In general, that Government’s support for the principle of collective security has been adequate.

The Venezuelan Government is essentially preoccupied with the problem of defense of its own territory, which has strategic materials and installations of vital importance to hemisphere and free world defense. In these circumstances, and in view of its limited military capabilities, the problem of participation in hemisphere defense for Venezuela is primarily one of its own protection.

The other Latin American countries—Costa Rica, El Salvador, Guatemala, Haiti, Honduras, Nicaragua, Panama, and Paraguay—have extremely limited capability for military participation in the hemisphere regional arrangement. With the exception of Guatemala, however, policies of these governments are in most respects thoroughly cooperative, both with the OAS and the UN.

[Here follows Section VII, “UN Programs”.]

1. By memorandum of Aug. 22, NSC Executive Secretary Lay circulated this report to the members of the Council, the Secretaries of the Treasury and Commerce, the Attorney General, the Acting Director of Defense Mobilization, the Chairman of the Council of Economic Advisers, the Director of the Bureau of the Budget, and the Federal Civil Defense Administrator. (S/S–NSC files, lot 63 D 351, NSC 135 Series) This report is a component part of NSC 135, a collection of eight reports on the status of national security programs, prepared by appropriate executive agencies and submitted to the NSC between Aug. 6 and 22, 1952. For additional documentation on the NSC 135 series, see volume ii.
2. In transmitting this status report, the Office of the Director for Mutual Security stated that it represents essentially the synthesis of materials separately submitted by the Department of State, the Department of Defense, and the Mutual Security Agency, relative to the segments of the Mutual Security Program administered by each of them. The Office of the Director for Mutual Security did not have an opportunity fully to review and evaluate certain of the important data submitted by the operating agencies, nor, in cases where the data appeared inadequate or unsatisfactory, to secure appropriate revisions therein. Accordingly, the report is presented with the understanding that certain of its major assumptions and conclusions may be subject to modification as the result of more thorough study and more extensive inter-agency coordination. In view of the rigid time schedule there was not any opportunity to have the material, as synthesized by the Office of the Director for Mutual Security, formally cleared by the Department of State, the Department of Defense, and the Mutual Security Agency prior to its transmittal. In the event that either Department or the Mutual Security Agency has any major reservations on its contents, the Office of the Director for Mutual Security will submit a supplemental memorandum, either modifying the report accordingly or indicating any divergent views. A significant portion of the data, forecasts, and conclusions relating to the military assistance program is premised on estimates of total fiscal 1953 end-item deliveries which are at this stage highly tentative and subject to further examination by the Office of the Director for Mutual Security and the Department of Defense. [Footnote in the source text.]
2. For text of NSC 114/2, “Status and Timing of Current U.S. Programs for National Security”, dated Aug. 8, 1951, see Foreign Relations, 1951, vol. i, p. 127.
3. For documentation on NATO force buildup, see vol. v, Part 1, pp. 1 ff.
4. Ellipses in the source text.
5. For documentation on the 1946 Allied Control Agreement under reference, see Foreign Relations, 1946, vol. iv, pp. 348–354 passim.
6. For documentation on the European Defense Community, see vol. v, Part 1, pp. 571 ff.
7. For documentation on U.S. participation in tripartite and quadripartite discussions on establishing contractual relations with the Federal Republic of Germany, see volume vii.
8. For documentation on U.S. interest in the Schuman Plan for a European Coal and Steel Community, see volume vi.
9. For documentation on the Seventh Session of the North Atlantic Council at Ottawa, Sept. 15–20, 1951, see Foreign Relations, 1951, vol. iii, Part 1, pp. 616 ff.
10. Excludes two British reserve divisions available at M+60 and M+90 which were included in Lisbon M+30 goals for accounting purposes only. [Footnote in the source text.]
10. Not printed; it summarized actual and anticipated NATO ground force levels, June 30–Dec. 31, 1952, followed by a three-page discussion of individual readiness categories for NATO ground forces.
11. Not printed.
12. Not printed.
13. For documentation on the abortive efforts to create a Middle East Defense Organization, see volume ix.
14. Excludes “Lisbon plan” procurement, programmed for $129.2 million (practically all for Army), on which shipments were zero as of June 30, 1952. [Footnote in the source text.]
14. Reference is to the Surplus Property Act of 1944 (Public Law 457); for text, see 58 Stat. (pt. 1) 765.
15. Mutual Defense Assistance Act of 1949 (Public Law 329), approved Oct. 6, 1949; for text, see 63 Stat. 715.
16. Opened for signature at Rio de Janeiro, Sept. 2, 1947, and entered into force for the United States, Dec. 3, 1948; for text, see 62 Stat. (pt. 2) 1681.
17. Reference is to the Fourth Meeting of Consultation of Ministers of Foreign Affairs of American States, held at Washington, Mar. 26–Apr. 7, 1951; for documentation concerning the meeting, see Foreign Relations, 1951, vol. ii, pp. 925 ff.