WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011300190001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 21, 2016
• Document Release Date: July 18, 2008
• Sequence Number: 1
• Publication Date: May 7, 1976
• Content Type: SUMMARY

Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
Next 1 Page(s) In Document Denied
DIA review
completed. State Dept. review completed
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
Secret
Weekly Summary
Secret
CI WS 76-019
No. 0019/76
May 7, 1976
Copy N! 70
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
ice of Current Intelligence, reports and analyzes signi
WEEKLY SUMMARY, issued every Friday morning by
frequently includes material coordinated with or preparf
by the Office of Economic Research, the Office of Strategic
the Office of Geographic and Cartorap
Lebanon; USSR - Middle
East; Rhodesia; Nigeria
6 Asia
USSR-China; China;
7 USSR: Ustinov as Defense Minister
9 Brazil: Economy Facing Another Bad Year
11 China: Interest in the South Pacific
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
MEXICO
In a major shift of policy Mexican
Secretary of National Patrimony Alejo
announced on Tuesday that Mexico
would join the Organization of Petroleum
Exporting Countries as soon as it is in-
vited and that the country's oil wealth is
substantially greater than previous
government statements had indicated.
Mexico already is marketing its oil at
OPEC price levels and probably will not
be constrained in its production policy by
OPEC membership. On the other hand, if
Mexico follows through on Alejo's an-
nouncement and is admitted to OPEC, it
will be excluded from trade preferences
under the US trade reform act of 1974.
Of even greater significance is Alejo's
statement that Mexican oil reserves
probably are on the order of 30 to 60
billion barrels. This would put Mexican
reserves on a par with Kuwait's and
roughly three times the proved reserves of
the US, excluding Alaska.
Mexico's announced figures are in line
with our own current estimates of Mex-
ican reserves. We expect, moreover, that
with two more years of exploration, Mex-
ico will confirm reserves at the 60 billion
barrel level. This would assure a feasible
production rate of 2.75 million barrels per
day in 1980 and probably as much as 6
million barrels per day by 1985.
convince the international financial com-
munity that its economic prospects are
bright. While the announcement will
bolster the peso in the short run, the un-
derlying pressures for devaluation will re-
main.
The announcement of its oil potential
will probably result in domestic pressure
on Mexico City to pursue a maximum
development effort. Disaffected groups
will now probably pressure the govern-
ment to undertake massive oil-financed
socio-economic programs. To finance in-
itial expenditures on the highest priority
projects and perhaps a 10 to 12 percent
economic growth rate, Mexico would
have to increase oil exports to an es-
timated 4.0 to 4.5 million barrels per day
by 1985-a level that is feasible given its
oil potential.
The election of a new Lebanese presi-
dent, originally planned for May 1, was
abruptly postponed late last
week-primarily at the insistence of leftist
leader Kamal Jumblatt, who has been ac-
cusing Syria of exerting unacceptable
pressure on members of parliament to
vote for its favored candidate, Ilyas
Sarkis.
The vote was rescheduled for May 8,
but fighting in Beirut throughout most of
the week and the continuing impasse
between Jumblatt and Damascus may
cause further delay.
To underscore their defiance of the
Syrians, Jumblatt's leftist forces launched
a major offensive last weekend against
Christian positions in Beirut's port dis-
trict. Heavy fighting involving sharp ar-
tillery duels had by midweek spread to
adjacent Muslim neighborhoods and to
Ashrafiyah, the Christians' only remain-
ing stronghold in the capital.
Although the Lebanese- Palestin- 25X1
ian-Syrian truce committee finally an-
nounced a new cease-fire on May 5,
Jumblatt's show of force has left
Lebanese politicians pessimistic about
prospects for convening parliament.
A group of uncommitted parliamentary
deputies headed by speaker Kamal Asad
searched all week for an alternative can-
didate to Sarkis and Jumblatt's choice
Raymond Edde, who faces stiff opposi-
tion from Syria. The effort to strike a
compromise failed, however, because the
The announcement coincided with the
concerted efforts of Mexican officials to
Paae 1 WEEKLY SUMMARY NAnw 7 71
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
Syrians flatly rejected the idea of a "third
choice" nomination.
Palestinian chief Yasir Arafat-who
has considerable leverage over both
Jumblatt and the Syrians--holds the key
to breaking the current impasse. Arafat
strongly favors holding the elections on
time.
Although Arafat has only a slim
chance of succeeding before the weekend,
he may be able to win some concessions
from Damascus that would induce
Jumblatt to accept Sarkis.
If Arafat fails, there is little hope for
elections this week, and it is doubtful that
the shaky cease-fire will hold up.
0
USSR - MIDDLE EAST
Moscow's latest bid to reverse setbacks
to its position in the Middle East is a
government statement, issued on April 28,
that presses for reconvening of the Geneva
conference.
This extensive review of the Soviet posi-
tion on a settlement is a reminder that the
USSR has its own program for resolving
the Middle East conflict. The Russians
are concerned that abrogation of their
treaty with Egypt and continued US
diplomacy in the Middle East-this time
Ambassador Brown's mission in
Lebanon-have again conveyed an im-
pression that Moscow is an outsider look-
ing in.
The statement seems timed to keep the
Geneva forum prominent during dis-
cussions next month regarding renewal of
the UN observer force on the Golan
Heights. The Soviets value their position
as co-chairman with the US of the Geneva
conference and have been disappointed
when the focus of Middle East
deliberations has shifted to the UN.
The moderately worded statement
opens up the possibility of new Soviet
flexibility regarding the conference. It
calls for separating the Geneva talks into
two stages-the first dealing with
organizational and procedural problems
and the second with substantive issues.
The Soviets, in effect, are now accepting
the US proposal for a preliminary session,
which they rejected late last year. This
suggests they would be content with even
a brief meeting as long as it puts Geneva
back in the limelight.
The text calls for PLO attendance at
both stages of the conference, but omits
earlier phraseology demanding PLO par-
ticipation "from the very beginning" and
"on an equal footing" with other parties.
Soviet officials have privately confirmed
that the new wording is another indication
of their flexibility. They have also hinted
that they would like the Arabs to develop
a compromise formula that would make
PLO participation more palatable to the
US and Israel.
The Soviets have told US officials that
the document is not merely for propa-
ganda purposes, but is an attempt to
generate real progress toward a settle-
ment. They have admitted, however, that
because of the Arabs' preoccupation
with Lebanon and the deadlock over the
Palestinian question, prospects for
RHODESIA // 11 I
Prime Minister Smith's government
announced new military mobilization
measures last weekend. When fully im-
plemented they will improve Rhodesia's
counterinsurgency capabilities, but will
keep civilians away from vital jobs for
prolonged periods. Reservists who have
completed their national service in the
territorial forces are to be called back to
duty for an indefinite period. The govern-
ment also extended the national service
period for white Rhodesian youths from
12 to 18 months.
The mobilization will probably be
followed by new operations against the in-
surgents along the Mozambique border.
For the most part, Rhodesian forces have
only been reacting to the guerrilla forays
since the insurgency intensified in late
January. An offensive may be intended as
much to reassure white civilians as to dis-
rupt guerrilla operations, particularly
since the insurgents reportedly plan to
reduce their activities until the current dry
season ends next fall.
Tribal and personal rivalries persist
among Rhodesian black nationalists. The
factionalism is a serious obstacle to the
nationalists' efforts over the long term to
expand the insurgency against the Smith
government.
25X1 25X1
n....,. %Airriii v ni IN AN A A rl\/
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
0c I
25X1
Since the collapse of Joshua Nkomo's
talks with Smith last March, the rival ex-
ternal- and internal-based wings of the
African National Council have continued
to squabble. Nkomo, the leader of the in-
ternal faction, apparently has lost con-
siderable support among Rhodesia's ur-
ban black population. Bishop Muzorewa,
the titular leader of the external wing,
may have gained prestige among urban
blacks, but his influence within his faction
apparently remains limited.
he fac-
guerrilla camps in Mozambique. Rival in-
surgent groups reportedly have clashed in
the camps, and some guerrillas have been
killed.
NIGERIA 1Z
Dissension among Nigeria's military
rulers appears to be growing amid reports
that the country's reluctant head of state,
Major General Obasanjo, is still actively
seeking to resign.
Several reports
up
Supreme Military Council has become ex-
tremely bitter since the abortive coup last
February and that the council is badly fac-
tionalized.
The fate of the hundred or so alleged
coup plotters still in custody reportedly
remains a significant issue in the council.
The council is said to have received warn-
ings from several officers that additional
executions could lead to violence in the
army.
During the last two weeks, the Soviets
entered the international grain market for
the first time this year by purchasing
almost 8 million tons of grain from the
US, Canada, and Australia. Grain
purchases for delivery from last year's
crop have now reached 31.8 million tons,
with another 5.2 million tons scheduled to
come from this year's harvest.
Moscow has ordered 4.9 million tons of
corn and wheat from the US-2.7 million
tons of corn are from last fall's crop and
are scheduled for delivery between May
and October. The Soviets have now ex-
hausted 6.5 million tons of the 7-million
ton limit imposed last fall on purchases
from last year's crop. Purchases above
this limit require US approval.
The remaining US grain is from the
1976 crop and is part of the 6 million tons
the Soviets are committed to buy under
the 5-year agreement signed last October.
Delivery of this grain, as well as the 2
million tons of wheat bought from
Canada and I million tons of wheat from
Australia, will begin after October 1.
The purchases last week were probably
prompted by attractive prices and by a
desire to continue corn deliveries-which
would have begun to fall off about
May-during the summer months.
Page 3 WEEKLY SUMMARY May 7. 76
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
Soviet grain prospects this year are un-
certain. Winterkill was above normal, but
a large spring grain crop could overcome
these losses. Even with a bumper harvest,
the USSR may buy substantial amounts
beyond current commitments in order to
replenish reserves and get the livestock
program back on track after last year's
25X1 forced slaughtering.
ITALY ~- C
-t
Party leaders are beginning to plot
campaign strategy following the collapse
of the Moro government last week and
President Leone's decision to dissolve
parliament and hold an election on June
20-21.
Moro resigned on April 30 when it
became-clear during parliamentary debate
that his Christian Democratic minority
government could not survive a vote of
confidence. President Leone has asked
him to stay on in caretaker status during
the campaign.
The Christian Democratic Party is
divided and disoriented on the eve of the
campaign. The Christian Democrats have
spent most of the time since their party
congress in March arguing among
themselves over whether to opt for an ear-
ly election. As a result, the party has yet
to fill all of its leadership positions or to
appoint a campaign manager.
The Christian Democrats disagree
among themselves, moreover, on the
question that will be at the center of cam-
paign debate: the future role of the Com-
munist Party. No Christian Democrats
are calling for actual Communist
membership in the government, but party
secretary Zaccagnini and his allies seemed
willing, during the maneuvering prior to
Moro's collapse, to grant the Communists
an indirect role in national policy making.
Christian Democratic conservatives, led
by party president Fanfani, will push,
however, for a tough anti-Communist line
in the campaign.
The Lockheed scandal has become a
problem of major proportions for the
Christian Democrats. Since the
allegations two weeks ago that a former
Christian Democratic prime minister had
accepted a bribe several years ago, the
Lockheed affair has overshadowed most
other issues in the media. Despite denials
from the three Christian Democrats under
suspicion, the case is generally portrayed
as the most damaging evidence of Chris-
tian Democratic corruption unearthed so
far.
The Communist and Socialist cam-
paigns, by contrast, have already begun to
take shape. While,the Communists and
Socialists will be competing against each
other, they are both likely to emphasize
their portrayal of the Christian
Democrats as worn out, corrupt, and un-
responsive to the country's needs after
thirty years in power.
The campaign is almost certain to
produce further politically motivated
violence by left- and right-wing extremists
who operate outside the regular political
viewe by an increasing number of
Italians as the only party capable of
restoring order, appear best positioned to
benefit politically from an upsurge of
Pane A WFFKI V CI IMAAAPV RAC.. 7 7G
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
25X6
FRANCE
The French helicopter carrier Jeanne
d'Arc was transferred from the Atlantic
to the Mediterranean last week, possibly
as a precaution because of continuing ten-
sions in the eastern Mediterranean. Ac-
cording to the commander of France's
Atlantic squadron, the move was made
for "operational reasons."
The carrier, which recently completed a
tour of duty in the Indian Ocean, was en
route to the naval base at Brest when it
was ordered to join the Mediterranean
fleet. US military attaches in Paris report
that the Jeanne d'Arc will remain in the
Mediterranean until relieved in June or
July.
o ~-1
o-e 5 \A/PPVI V ci IAA V May 7. 76
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
95-41
USSR-CHINA
The Soviets quickly protested the bomb
explosion last week at the gates of their
embassy in Peking, but they apparently
are not planning to do much more. At
least two Chinese guards were killed by
the blast. A Soviet embassy officer in
Peking said the explosion was apparently
25X1 the work of "madmen." Although he
blamed Chinese authorities for creating
an atmosphere that encouraged such
behavior, he absolved them of direct
responsibility.
Just before the incident, the Soviets had
published in Pravda a lengthy account of
all the efforts Moscow says it has made to
improve relations with China. The ar-
ticle-signed by I. Aleksandrov, a
pseudonym indicating high-level spon-
sorship-was very tough on the Chinese.
It held out little hope for an improvement
in Sino-Soviet relations until and unless
China made concessions.
The author went back to 1964 to but-
tress his case that the USSR has been
conciliatory. He reviewed Soviet
proposals for a summit, increased cultural
and economic exchanges, and agreements
on nonuse of force. Aleksandrov implied
that Moscow had made its last offer and
that any additional progress in
Sino-Soviet relations would be up to the
Chinese.
The article said that the USSR was
willing to resume high-level talks on a
border settlement and eventually to make
some territorial adjustments, but would
not consider withdrawing beforehand
from territory the Chinese claim.
Brief references in the article to recent
political turbulence in Peking focus on
"Mao and his group" as the "sole source"
of China's anti-Sovietism. The author's
message for China's moderates was that
the USSR recognizes that not all Chinese
are anti-Soviet and Moscow hopes things
will improve after Mao goes.
The events in China have given the
Soviets fresh reasons for clearly
delineating their own positions on
Sino-Soviet relations. In late April, the
head of the Soviet Foreign Ministry's
China division, Mikhail Kapitsa, told
Ambassador Stoessel that the Chinese
developments were just one more episode
in an intense struggle for power in Peking.
He said Mao was behind the downfall of
Teng Hsiao-ping and the designation of
Hua Kuo-feng as premier. Kapitsa
suggested that Moscow is content to stand
pat until the situation in Peking becomes
CHINA q~- J~
In what appeared to be a calculated
show of unity, all of the active, Peking-
based Politburo members except Chair-
man Mao appeared in the capital for May
Day festivities. Radio Peking listed them
in their usual order of rank, indicating no
changes in the leadership hierarchy.
This was the first time since Teng
Hsiao-ping's fall that leading moderates
Chu Te, Yeh Chien-ying, and Li Hsien-
nien-all staunch supporters of
Teng-had appeared with leftists in the
leadership. All three appeared individ-
ually on previous occasions.
In keeping with past May Day prac-
tices, the leaders broke up into small
groups to attend celebrations in Peking's
parks. Each group was composed of a
careful mix of moderate and leftist
leaders.
Heightened security procedures, in the
wake of the Peking demonstrations of
April 5, made this a less festive May Day
than usual. Peking's failure to issue a
comprehensive name list of party, govern-
ment, and military leaders in attendance
may have been designed to obscure the
absence of some lesser officials, such as
the minister of education, who may have
fallen victim to the anti-Teng campaign.
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
In a departure from their usual practice the Soviets have
appointed a civilian, Politburo member Dmitry Ustinov, as
defense minister. The speed with which they acted to replace the
late Marshal Grechko suggests that they were anxious to avoid
politicking over the post.
5Jef - 5-S
USSR: Ustinov as Defense Minister
The prompt appointment o Party
Secretary Dmitry Ustinov as minister of
defense-announced only hours after
Marshal Grechko's ashes had been in-
terred in the Kremlin wall-suggests that
the Soviet leadership was anxious to head
off any politicking over the selection of
Grechko's successor.
The choice of Ustinov, a civilian, is
almost certain to provoke an adverse
reaction among elements of the high com-
mand opposed to the idea that a non-
professional should hold the top post in
the ministry. Ustinov may have been less
objectionable to individual members of
the high command, however, than one or
another of the potential military can-
didates would have been.
As a civilian, Ustinov, will probably
have a somewhat different outlook on
defense matters than would a professional
soldier. His background in the armaments
field and in industry may facilitate a
better integration of strategic planning
with resource allocation, research and
development, armaments programming,
and national mobilization than would be
possible under a career military man.
The appointment of Ustinov carries one
step further the trend evident during the
last several years in the creation of
positions at the deputy minister level for
new technology and for systems analysis.
Although the full implications are not
clear, the changes have probably enabled
the ministry to assume a larger role in the
management of the defense effort-a
preserve of the General Staff in the past.
In fact, Ustinov may decide to concen-
trate on resource management, while
delegating to subordinates-primarily the
General Staff and the force com-
manders-much of the direct supervision
previous defense ministers have exercised
over operational matters. Ustinov's lack
of experience in military operational
matters will make it necessary in any case
for him to rely heavily on military
professionals for their operational judg-
ment.
Because he is unencumbered by service
loyalties, Ustinov may be expected to
weigh more impartially the claims on
resources and the advice on defense
matters offered by the various members
of the high command. He might tend to
favor modern strategic weapons, but this
would not necessarily work to the advan-
tage of the Strategic Rocket Forces; Usti-
nov might be more favorably disposed
toward the navy's submarines equipped
with SLBMs or other nuclear missiles.
Ustinov's appointment will probably
not affect the Soviet position on SALT or
M BFR negotiations. His views on SALT,
in which he has been involved, are
probably as tough. as were Grechko's, and
Ustinov will probably be careful to avoid
offending the military under him by show-
ing any signs of softness on MBFR.
The appointment of Ustinov has also
allowed the Soviet leadership to sidestep
the question of whether a military
successor to Marshal Grechko should in-
herit his Politburo seat. It is uncertain
whether Ustinov's expected departure
from the Party Secretariat will result in
the addition of a new face to that body or
the elevation of a "junior" party secretary
to the Politburo as a candidate or full
member,
General Kulikov, the chief of the
General Staff, could still succeed Ustinov
at a later date, Unlike most professional
soldiers at the top of the military
hierarchy, Kulikov, who is only 55, would
still be relatively young even if Ustinov
Page 7 WEEKLY SUMMARY May 7, 76
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
Defense Minister Ustinov (in uniform) appears with senior Politburo members at the Lenin
Mausoleum during May Day celebrations;
were to serve as minister for several years.
The other top military leaders-Marshal
Yakubovsky and Generals Tolubko,
Sokolov, and Pavlovsky-are in their 60s,
and their chances for the top post will
diminish as Ustinov's term continues.
For the moment, however, Ustinov's
appointment means that the military have
been left without one of their own on the
Politburo. Although Ustinov has an ex-
tensive background in defense production
and has been promoted one grade from
his wartime rank to General of the Army,
he is not a professional soldier and has not
had any command experience. He is much
more akin to KGB Chairman Andropov
than to Foreign Minister Gromyko-both
of whom became Politburo full members
with Marshal Grechko in April 1973.
Consequently, Ustinov's appointment
could create a number of problems for the
nation's system of command and control
over its armed forces. Part of the solution,
in addition to the delegation of command
responsibility downward within the
ministry, may be to have Brezhnev, or his
successor, acquire some formal command
authority over the armed forces in
peacetime.
To date, Brezhnev has been the leader
SECRET
designated to act as Supreme Com-
mander in Chief in the event of war, but
there has been no evidence that he has had
any unilateral authority to issue orders to
the armed forces in peacetime. This
arrangement has probably been accept-
able to both the political leadership and
the military hierarchy while a professional
soldier headed the Defense Ministry, but
Ustinov's appointment may prompt the
military to argue even more strongly for
the creation of a unified military-political
command with Brezhnev, or his successor,
C
as Supcm~e manger in Ni
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
It will be another bad year for the Brazilian economy.
Inflation is again on the rise, in spite of government efforts to
contain it, and foreign exchange reserves are falling. In real
terms. there will be little economic growth.
6 ~-72--
BraziL? Economy Facing Another Bad Year
The Brazilian economy is having
another difficult year because of import
constraints and tight credit forced on it by
the energy crisis and by the subsequent
world recession. Foreign exchange
reserves continue to decline, inflation is
again on the rise, and there will probably
be little real economic growth this year.
These trends, which have alarmed
Finance Minister Simonsen in particular,
will prompt the government to maintain
tight economic controls at least during the
rest of this year, although it may relax
them somewhat as municipal elections ap-
proach next fall.
Import Controls
Brazilian authorities have relied heavily
on direct import controls to cope with per-
sistent balance-of-payments deficits.
Tariffs have been increased sharply on
many goods, and a one-year, non-
interest-bearing deposit with the Central
Bank equaling 100 percent of imported
value is now required for nearly half of the
country's total imports. Public in-
stitutions have been ordered to cut im-
ports 25 percent this year. Many con-
sumer imports are prohibited. Finally, the
Bank of Brazil has been given broad
authority to deny import licenses.
Brasilia continues to consider a major
devaluation, but it would prefer to avoid
one despite evidence that some major ex-
ports-notably soybeans-are hurt by the
prevailing exchange rate. "Small"
devaluations have been stepped up, but
Finance Minister Simonsen
they reflect increased domestic inflation
rather than a fundamental adjustment.
A major devaluation would have a large
inflationary impact. The authorities also
fear that the exchange-rate losses suffered
by Brazilian borrowers abroad would in-
hibit further borrowing and reduce the
vital inflow of foreign capital. As a partial
alternative to devaluation, new export
subsidies are being considered.
Impact on Domestic Economy
Brasilia is trying to restrain domestic
economic activity by classic fiscal and
monetary means. The federal budget has
been kept in balance or in surplus for the
past few years despite the repeated use of
tax cuts to stimulate selected industries.
Growth in the money supply greatly ex-
SECRET
ceeded target levels last year because of
emergency credits to farmers, as well as
those to bankers which overcame a li-
quidity crisis in the commercial paper
market. Much of this excess liquidity has
now been eliminated.
Central Bank operations have been
cautious. Commercial bank reserve re-
quirements have been raised, as have the
rates at which they can borrow from the
Central Bank. Interest rates and yields on
treasury bills have risen to record levels.
Import restraints have yet to have their
full impact on the domestic economy.
Inventories thus far have been adequate to
compensate for reduced purchases
abroad. Consumer spending during the
first quarter of 1976 was about 10 percent
higher than the depressed level of a year
ago, and industrial production was sub-
stantially above the first three months of
1975.
Crop prospects also are good this year,
with the exception of the frost-damaged
coffee crop. Brazil expects record harvests
of soybeans, corn, and probably wheat.
The import and credit controls are
beginning to pinch, however, and inven-
tories are now being exhausted. Manufac-
turing firms are dropping some product
lines and modifying others because im-
ported materials are scarce or impossible
to obtain. Business firms are having in-
creasing trouble raising working capital,
and consumers are also facing tighter
credit. Not only is domestic credit shrink-
ing, but many firms are also having dif-
Paae 9 WEEKLY SUMMARY May 7, 76
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
SECRET
ficulty borrowing abroad.
Despite the slowing of business activity,
government officials continue to predict
publicly that the economy will achieve
something close to the 4-percent growth it
had last year.
Inflation
Inflation has increased. Retail prices in
Rio de Janeiro and Sao Paulo rose nearly
40 percent over the past 12 months. If this
trend continues, Brazil will suffer its worst
inflation in almost 10 years. Large wage
increases, averaging almost 40 percent
over the past year, account for much of
the price rise. Higher costs resulting from
increased tariffs and the heavy interest on
import deposits have also contributed.
Further inflation and a deteriorating
job market are likely to lead to another
strong showing by the opposition party in
the municipal elections in November. The
Geisel administration is anxious to avoid
such an embarrassment, which would
complicate the President's effort to con-
vince his hard-line military critics that
Brazil is ready to move back. toward
democratic government. Geisel's current
effort to relax repression and to develop a
more open political process already is in
trouble; a weak showing in November
could only add to his problems.
Brasilia has just announced a 44-per-
cent increase in the minimum wage. In
real terms, this is much less than the in-
crease of May 1975, but it is considerably
more generous than the adjustment
granted in 1974 when the government also
was combating resurgent inflation. The
administration apparently feels compelled
to make some concessions to political ex-
pediency despite its decision to maintain
its stabilization program essentially in-
tact.
Balance of Payments Unimproved
The balance of payments has shown lit-
tle improvement so far this year. Even
with import controls, Brazil lost about
$700 million in foreign reserves during the
first quarter. Its credit standing abroad,
while still strong, has declined noticeably
over the past two years. Brasilia knows
that it cannot afford to allow this trend to
continue.
The balance of payments will probably
improve gradually during the coming
months, as reviving economic activity
abroad helps to expand exports while im-
ports remain under control. Export
growth is likely to be slow, however; the
value of coffee exports will increase
because of booming prices, but sugar ex-
ports will suffer following last year's poor
crop and much lower prices. Lower prices
also will affect soybean exports.
Manufactured exports have yet to recover
from last year's stagnation.
Balance-of-payments constraints will
continue well beyond this year. Brazilian
authorities have indicated that they intend
to maintain the import deposit require-
ment until the end of 1977. Some import
controls probably will be required even
longer because rapidly rising debt service
payments will slow the growth of Brazil's
import capacity for some years.
Brasilia plans to cope with continuing
import constraints by encouraging import
substitution industries and by stimulating
agriculture and light consumer goods in-
dustries. These adjustments are likely to
require considerable time, however, and
Brazil's economic growth will continue to
suffer from import constraints for some
years. Moreover, the rapid development
of capital-intensive import substitution in-
dustries probably will strain Brazil's
capacity to finance large investments, and
strong inflationary pressures are likely to
continue. Supply difficulties and persis-
tent inflation will make it hard for the
Brazilian economy to regain the high
growth rates that marked the 70s.
Paae i n tnif:1=u1 v O: I A
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
Peking is preparing to open an embassy in Fiji and is show-
ing interest in the small countries of the southern Pacific. The
Chinese are probably motivated mainly by concern over Soviet
activities in the area.
China is showing greater interest in the
smaller nations of the southern Pacific.
An advance team from the Chinese
Foreign Ministry is in Suva, the capital of
Fiji, making arrangements to open an em-
bassy. It will be the only communist
diplomatic mission in any of the five
nations collectively referred to as the
southern Pacific island countries-Fiji,
Western Samoa, Papua New Guinea,
Nauru, and Tonga. China established for-
mal ties with both Fiji and Western
Samoa last November, At that time Pek-
ing indicated that it would post an am-
bassador to Suva and also accredit him to
Western Samoa.
Prime Minister Somare of Papua New
Guinea would visit China sometime in
May, at which time diplomatic relations
would be established. The Chinese will
probably not be invited to send a resident
ambassador to Port Moresby, however.
Government officials there have been
complaining that they are hard pressed to
service the handful of diplomatic missions
already in the Papua New Guinean
capital.
Some Chinese initiative toward Nauru
may also be forthcoming. The president
of Nauru met with the Chinese am-
bassador in Bangkok during the course of
2 76
China: Interest in the South Pacific
the annual meeting of the UN Economic
and Social Commission for Asia and the
Pacific. This was the first known
high-level contact between the
governments of Nauru and China; Nauru
and Tonga have official ties with Taiwan.
The Chinese moves are probably linked
to concern over Soviet activities in the
southern Pacific region.
Soviet activity in the area has increased
in the past few years but is still quite
limited. Three Soviet cruise ships par-
ticipate in the inter-island tourist trade
during the summer months, and Soviet
oceanographic research ships conduct oc-
casional surveys.
Last month, US officials on the scene
reported that the Soviets have been woo-
Papua New Guinea
Porte5by -.
ing the Tongans-holding out, among
other things, the prospect of Soviet
economic assistance and increased
trade.
The Chinese, once they are settled in
the new embassy in Suva, are likely to
concentrate on learning more about such
Soviet activities. Local officials will un-
doubtedly be getting their fill of an-
ti-Soviet rhetoric from Peking's represen-
tatives. The Chinese leadership has
probably brought up its concerns with
New Zealand Prime Minister Muldoon,
who is currently in Peking, and will
probably do the same with Australian
Prime Minister Fraser when he arrives in
Gilbert Islands
iuya I. (U.K.)
Honiara*'.; SANTA
Guadatcnrlt CRUZ
1Na11t5 and Futuna western
Sa n
aa
ca
m
AS n
(US)
Cook (stands
l
Fiji !F)
Pago
then, xeaiana)
F(JI ISLANDS
01,1 u .
*suea
Tonga
Noya'u
Line of sepa,atian
Igor a i roalmramanooa(aaunds,y or rarraodarnma)
Page 11 WEEKLY SUMMARY May 7, 76
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 25X1 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
 Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8
Secret
Secret
Approved For Release 2008/07/18: CIA-RDP79-00927A011300190001-8