WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011400100001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 21, 2016
• Document Release Date: September 17, 2008
• Sequence Number: 1
• Publication Date: August 27, 1976
• Content Type: SUMMARY

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State Dept. review completed
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Secret
Weekly Summary
State Dept. review completed
Secret
CI WS 76-035
No. 0035/76
August 27, 1976
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The WEEKLY SUMMARY, issued every Friday morning by the
Office of Current intelligence, reports and analyzes sigr-ifi-
cant developments of the week through noon on Thursday. It
frequently includes material coordinated with or prepared
by the Office of Economic Resecarch, the Office of Strategic
Re-arch, the Office of Geographic and Cartographic
Research, and the Directorate of Science and Technology.
CONTENTS
1 Middle East
Lebanon;
States
2 Africa
South Africa; Namibia
3 East Asia - Pacific
Korea; Thailand;
China; Japan-USSR
6 Western Hemisphere
Chile;
Argentina; Cuba
7 Europe
France; Greece-Turkey:
12 Nonaligned States Conclude Conference
13 North-South Dialogue
18 USSR-Eastern Europe: Hard-Currency Debt
25X6
25X1
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LEBANON
Neither the threatened "massive"
Palestinian reprisals nor the Christian
offensive against Palestinian strong points
in the Mount Lebanon range have
materialized in the wake of the fall of the
Tall Zatar refugee camp. All sides con-
tinued to mark time this week as fighting
was limited largely to sporadic heavy ar-
tillery exchanges and ground skirmishes
in and around Beirut and Tripoli.
The Syrians reportedly reiterated their
terms for a settlement-a Palestinian
withdrawal from the mountain area east
of Beirut, the end of Palestinian
propaganda attacks on Syria, and the par-
ticipation of pro-Syrian Shiite Muslims in
a four-party committee to supervise any
new cease-fire. The Palestinians have con-
sistently refused to withdraw from their
mountain strong points except in the con-
text of an overall peace settlement. Leftist
leader Kamal Jumblatt flatly rejected the
Syrian demands, insisting that the leftists
would fight on indefinitely.
There have been recent signs of Palesti-
nian weaknesses, however, that might
make them more willing to reach an ac-
commodation with Syria. Palestinian
leaders, for example, have had to in-
troduce conscription, suggesting that they
are suffering a severe manpower shortage.
They may also take seriously recent
Syrian threats to start a new offensive.
The Syrians would probably be willing
to entertain any new Palestinian offer io
negotiate at least until president-elect
Sarkis has assumed office. Damascus
seems confident that President Franjiyah
will step down when his term ends on
September 23. Franjiyah does appear
ready to step aside at that time.
After so many broken cease-fire
agreements, however, the Syrians are un-
likely to try to restrain the Christian
militias until Damascus is convinced that
the Palestinians are ready to cooperate
and are not simply playing for more time
to rearm and fortify their positions. Syria
seems almost certain to insist on some
tangible evidence of Palestinian sincerity
rather than vague promises.
Should the Syrians and Palestinians
finally reach a genuine accommodation,
Damascus might find it difficult to rein in
the more extremist Christians, such as
Interior Minister Shamun, who seem con-
vinced that they can win militarily. Any
Syrian-Palestinian agreement, in fact,
would arouse Christian suspicions that the
PLO and Damascus have reached a secret
understanding detrimental to Christian255X1
interests. For the moment, therefore, the
prospects for a negotiated settlement re-
main precarious at best.
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ARAB STATES
Arab financial institutions have relaxed
their self-imposed ban against par-
ticipating in underwritings led or co-
managed by "Jewish firms." The Arab in-
stitutions found that they were losing
lucrative business opportunities by
abiding strictly with the Arab League
boycott.
The Saudi Arabian Investment Com-
pany was recently listed as an underwriter
of an issue of UK National Coal Board
notes managed by Warburg and Com-
pany and Rothschild and Sons-both
blacklisted firms. A Saudi-Japanese firm
and the Saudi Arabian Investment Com-
pany also have reportedly joined in
offerings with blacklisted firms.
The Arab boycott against these finan-
cial houses was never very effective.
Blacklisted firms-well-connected in the
international banking community-con-
tinued to close lucrative deals. The real
losers were Arab investment institutions
that excluded themselves from participa-
tion in or management of large inter-
national offerings.
SOUTH AFRICA
A three-day work stoppage among
Soweto residents this week showed that
student militants are making significant
headway in their effort to involve South
Africa's urban blacks in a disruptive
protest movement against the apartheid
system. Some blacks in Soweto, however,
have reacted violently against the
militants' tactics.
On August 23, roughly 80 percent of
the 200,000 industrial workers who usual-
ly commute from the black township to
Johannesburg were absent from their
jobs. Absenteeism declined only slightly
during the week. The latest militant effort
in Soweto was well organized. Student
leaders called meetings in high schools
late last week to recruit other students
who distributed leaflets over the weekend
calling for the work stoppage.
Police authorities encouraged Soweto
residents who want to continue working to
arm themselves with clubs to, fend off
harassment by the militants. Hundreds of
Zulu tribesmen living in Soweto's
bachelor barracks attacked student
militants on August 24 and 25.
Many of the pamphlets distributed in
Soweto last weekend reportedly carried
the name of the African National
Congress, the outlawed revolutionary
25X1
organization that has been suppressed in- 25X1
side South Africa since 1960, although its
exiled leaders have maintained a prolific
propaganda apparatus. Evidence is in-
conclusive, but remnants of the Congress
inside South Africa could be asserting
some influence over the student move-
ment that has burgeoned since June.
The government continues to round up
prominent black adults who are suspected
of involvement with student militants.
Within the past two weeks, at least 100
such blacks have been arrested, including
teachers, clergymen, physicians, and a
school principal who had been among the
Soweto residents who consulted with
government leaders last month.
The recent disorders seem to be forcing 25X1
even the conservative leaders of the tribal
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homelands to side with the forces for
change. On August 21, the leaders of
seven of the nine tribal homelands met in
Johannesburg and issued a statement
demanding not only better living con-
ditions for urban blacks, but release or
fair trial of all blacks now under deten-
tion. The manifesto also denounced the
government's plan to grant nominal in-
dependence to the homelands without
providing adequate resources-a stand
that will further discredit the Transkei
and Bophutatswana leaders who have
agreed to early independence on the
NAMIBIA ':~:
The statement publicized the South
African government last week setting
December 31, 1978 as the target date for
Namibian independence is an agreement
only in principle and leaves crucial issues
dealing with the territory's future un-
resolved.
The US embassy in Pretoria believes
South Africa put pressure on white con-
servatives in Namibia to agree to the
statement in an effort to avert further
attempts at the UN to impose the terms
of Namibian independence. Early this
year, the Security Council set August 31
as the deadline for South Africa to
arrange UN-supervised elections in the
territory.
The UN Council for Namibia has con-
demned the statement for failing to com-
ply with the Security Council's order.
According to the statement, which was
issued by a committee of the multiracial
constitutional conference that South
Africa set up last September, an interim
government will be established in
Namibia only after a constitutional
"foundation" has been agreed upon.
During the interim period, the details of
the constitution will be worked out and
preparations made for a transfer of power
to a permanent government.
Black and mulatto representatives at
the conference reportedly hope a mul-
tiracial interim government can be es-
tablished by March 1977. They have the
support of white moderates, but white
conservatives who control the Namibian
branch of the ruling National Party are
not reconciled to losing control of the
territory.
The moderates had hoped to capture
leadership of the party at a congress held
this week but failed in their effort. Fearful
whites in Namibia will now be reassured
that Pretoria will not be stampeded into
precipitate action on the future of the
territory.
The South-West Africa People's
Organization, which is leading the in-
surgency against South African control of
7Namibia, immediately condemned the
statement. There is some sentiment within
the constitutional confere
i
nce to
nvite
SWAPO to participate, but thus far
SWAPO has indicated it would refuse.
KOREA
Tensions eased along the Demilitarized
Zone in Korea following the UN Com-
mand's tree-clearing operation at Pan-
munjom last weekend. North Korean
soldiers made no attempt to interfere, and
Pyongyang moved promptly to defuse the
crisis atmosphere.
Three hours after the tree-clearing
operation, the senior North Korean
representative on the Military Armistice
Commission conveyed a private message
from President Kim II-song to the UN
commander. The message termed the in-
cident on August 18 that resulted in the
deaths of two US army officers "regret-
table" and urged both sides to make ef-
forts to avoid future incidents.
At a meeting of the Military Armistice
Commission on August 25, the North
proposed that the two sides physically
separate their security personnel in the
Joint Security Area. The proposal is
designed to create a favorable impression
abroad of Pyongyang's "reasonableness."
The North Koreans, in effect, are taking
up a proposal made years ago by the UN
Command. The UN has no guard posts in
the North's sector, and only the North
Koreans would have to pull guard posts
back in order to implement the propo-
sal. The meeting was businesslike and
devoid of the usual communist invective.
UN forces felling
North Korean media Conti to oen depict 25X1
the US as the major source of tension on
the Korean Peninsula. This is part of
Pyongyang's overall political strategy to
build pressure for a withdrawal of US
forces.
Both the USSR and China have
adopted a low profile on the Korean situa-
tion. Pravda has carried brief press items
noting increased tensions in Korea, but
the USSR has yet to replay any of the
North Korean accounts of the recent ac-
tions at Panmunjom. Chinese media have
reported some North Korean statements
but have not commented directly.
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THAILAND Prime Minister Seni to reward military
leaders who stood by the government last
With the departure of former military week.
strong man Praphat on August 22, the
Seni government has successfully gotten
past its first serious political challenge.
Without any forewarning of Praphat's
arrival and mindful of his own limited
powers in dealing with the military, Prime
Minister Seni seems to have moved
carefully to take advantage of the fac- Seni's first major parliamentary test o
tional rivalries within the military to strength will come in mid-September
secure Praphat's departure and to disarm when the government's budget bill come
an explosive situation. up for a final vote in the Nationa
The death of two students and the Assembly.
wounding of another 30 to 40 in civilian
disturbances sparked by Praphat's return
gave the government leverage to bring
pressure on Praphat and his supporters to
cut short his stay.
Seni nevertheless has given the impres-
sion of a man reacting to events ove
which he had little control, and confident
in his leadership has been eroded. Th
formerly moribund student dissiden
movement, moreover, has been reviv
and reunited.
The sketchy evidence suggests tha
Praphat's presence precipitated politica
maneuvering aimed at bringing down th
Seni government. General Yot, com
mander of the 1st Army garrison i
Bangkok where Praphat stayed, an
several other generals are suspected o
conspiring to this end with the leaders of
conservative political party, the Thai N
tion Party. Thai Nation party leade
Praman, who is a deputy prime ministe
was widely thought to be part of a grow
that tried to overthrow the Khukri
government last February.
Seni kept Praman in line last week b
appointing him and two of his politic
cronies to a government committe
tasked with getting Praphat out of th
country. The government, supported b
army commander Bunchai, also warne
the 1st Army garrison not to follow an
illegal order from General Yot.
The resignation of Thai Defen
Minister Thawit, who cooperated wit
allies of Praphat during the politic
maneuvering, may open the way f
25X1
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CHINA
Economic factors may be working to
the advantage of Chinese moderates in
their efforts to check the campaign
against former vice premier Teng Hsiao-
ping and his supporters.
A People's Daily editorial published
August 23 appears to reflect a growing
concern within the Chinese leadership
over the effects of the campaign on in-
dustrial production. It calls for tighter
party control over anti-Teng activities, for
more leniency in dealing with other al-
leged "capitalist roaders," and for an end
to factionalism. These guidelines take
the hardest line against disruptive activ-
ities since Teng first came under attack
and may reflect rising moderate influence.
Campaign-related factionalism and
wall poster attacks on provincial leaders
have been evident in a number of places
for some time, particularly in Fukien and
Chekiang provinces. As early as June,
there were indications that Peking was
starting to slow the campaign and re-
emphasize productivity.
the Chinese media
have devoted more attention to a variety
of economic conferences throughout the
country and have played up the impor-
tance of meeting production goals.
The recent earthquakes in China have
also probably worked to the advantage of
the moderates who are undoubtedly con-
tending that substantial industrial losses
make it imperative that production
receive high priority. This argument
seemed to be tacitly acknowledged in a
People's Daily editorial two weeks ago
that warned against using the quakes to
divert attention from the anti-Teng cam-
paign.
The moderates may now be in a better
position to defend certain economic
policies closely associated with Teng that
General Secretary Brezhnev meeting with Japanese businessmen in the Crime
JAPAN-USS
General Secretary Brezhnev's recent
decision to stand in for ailing Premier
Kosygin and meet with a group of Japan's
top industrialists underscores the impor-
tance Moscow attaches to its economic
relations with Japan.
Brezhnev was trying to give new im-
petus to the USSR's economic ties with
Japan and to elicit additional Japanese in-
volvement in Siberian development pro-
jects. The Soviets may calculate that the
Japanese industrialists will be receptive
because of their pessimism about
short-term prospects for increased
Brezhnev surprised the Japanese
visitors with his knowledge of the joint
cabinet-level economic committee. The
Japanese countered with a suggestion that
Brezhnev accept Prime Minister Miki's
invitation to visit Japan as soon as possi-
ble and implied there should be movement
on the Northern Territories problem.
2rvA
25X1
and proposed the establishment of a joint 25X1
projects in Siberia. He urged Japan to
grant the USSR untied, government-
to-government credits of 10 to 15 years
brighter. Last year, Japanese sales to the
USSR reached a record $1.6 billion, and
Japanese sales through May of this year
25X1
25X1 1
25X1
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on such issues as human rights and the
economic plight of the poor in Chile. One
result may be to encourage other critics of
the military government, such as Chris-
tian Democratic followers of former
president Frei, to step up their attacks.
The church has blamed the government
for the hostile demonstrations that
greeted three prominent Chilean bishops
when they returned home from a recent
conference in Ecuador. President
Pinochet denied allegations that security
agents orchestrated the anticlerical
The church
reacted by excommunicating security per-
sonnel accused of roughing up the
bishops.
Later, the church issued a sharp attack
on the government for the summary ex-
pulsion of two prominent civil rights at-
torneys on August 6. It censured the
government for practices that create a
"moral, problem" on which the church
cannot remain silent. It charged that the
junta's refusal to define the grounds for
the lawyers' expulsion was "unacceptable
and closes the road to all reconciliation."
The incidents will give Chilean and
foreign critics of the government new am-
munition at a time when fresh reports are
circulating of illegal detentions and unex-
plained disappearances of persons in
Cuba Steps Up Conta
VRh s stepped up direct contacts
US companies, despite its public
statements playing down the importance
of the US market.
Since last October, the Cuban govern-
ment has financed visits by represen-
tatives of at least eight US companies to
explore bilateral trade possibilities once
commercial relations between the two
CHILE countries are re-established. It has ten-
tatively scheduled visits by five additional
Church-state relations in Chile have companies within the next two months
become more strained. An open split will and has continued to communicate with a
probably be averted, but the Catholic number of other US firms.
hierarchy is likely to be more outspoken in at least one instance, Cuba has re-
quested a company to waive its claim for
compensation for nationalized properties
in return for future access to the Cuban
market. The Cubans have also hinted at
the possibility of management contracts
and joint ventures.
These Cuban actions appear to be an
effort to undermine the US business com-
munity's support for the embargo. Cuba
can now obtain most of the products it
desires from the US through US-o\25X1
foreign subsidiaries, but lifting of the cui-
bargo would give the Castro government
a psychological victory.
Chile. The UN Human Rights Commis-
sion will probably find new justification
for pressing its mandate to investigate the
Chilean situation.
President Pinochet has reacted by per-
sonally denying that relations with the
church have been impaired. He arranged
a meeting with the Chilean cardinal and
other bishops, and government sources
say it took place in "a climate of
frankness and cordiality." Despite these
disclaimers, the government has banned
any radio or television reporting on the re-
ARGENTINA
25X1
25X11
Leftist guerrillas marked last weekend
with a number of bombings and
machine-gun attacks, but their actions
were overshadowed by killings by security
forces and right-wing groups.
The guerrillas, commemorating the
deaths of 17 comrades at the hands of
government forces four years ago, bomb-
ed or fired on several targets in Buenos
Aires, including local police and subway
stations. No deaths were reported.
Security forces killed some seven
terrorists in official counterinsurgency
cts s with US Companies
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operations in Cordoba and Buenos Aires,
but the bloodiest right-wing action was
the murder of 30 people on the outskirts
of the capital. The vigilantes left signs
describing the victims as leftist guerrillas.
The massacre apparently was in retalia-
tion for the killing of a retired general by
terrorists last week.
The massacre has disturbed the govern-
ment, perhaps more than any other single
such incident, and may even prompt an ef-
fort to curb the vigilantes. A ranking of-
ficial in the office of the presidency told
the US embassy that the government is
absolutely certain who authorized the
crime and has evidence to prove it. He
stressed that those responsible will
definitely be punished and that the em-
bassy will be informed even if the sanc-
tions are not made public.
FRANCE
President Giscard on August 25 named
Raymond Barre as the second prime
minister of his two-year-old administra-
tion. Barre succeeds Jacques Chirac, a
Gaullist, who resigned after increasing
disagreement with the President over
government policy and political strategy.
It was the first resignation by a prime
minister under the Fifth Republic. A new
cabinet was to be named by the end of the
week.
Barre, 52, has no political affiliation; he
listed himself as a member of the
"presidential majority" when named
minister of foreign trade in January.
Barre's appointment does not appear to
indicate that the President is ready for a
break with the Gaullists. The cabinet
shuffle may, in fact, be a holding action,
precipitated by Chirac's determination to
get out. Some reports indicate that
Giscard would have preferred to wait until
after the municipal elections next March
to make major changes in his administra-
tion.
In a press conference that followed the
announcement, Giscard indicated Barre
would be carrying out the President's in-
structions rather than initiating policy.
Giscard also noted that he has asked
Barre to try to enlarge the "presidential
majority," with special emphasis on in-
corporating parts of the center left.
One of the objectives of the new govern-
ment, according to Giscard, will be to
fight inflation. Barre, an economic expert,
can also be expected to address the
problems of unemployment and monetary
stability. All three are of primary public
concern and a crucial factor in the
coalition's chances in 1977 and 1978.
The cabinet and sub-cabinet will have a
Under Chirac, the Justice Ministry was
held by Jean Lecanuet, the leader of the
coalition's centrist parties. Foreign 25X1
Minister Sauvagnargues, who has long
been rumored to be on the way out, may
be replaced by Lecanuet.
GREECE-TURKEY
The prolonged UN Security Council
debate over the Aegean continental shelf
dispute ended with a compromise resolu-
tion this week. The Turkish seismic
research ship Sismik I, meanwhile,
returned to port for repairs before begin-
ning the fourth phase of its operations
next week.
Worded to placate Greece without un-
duly antagonizing Turkey, the resolution
urges both parties to exercise restraint,
calls on them to resume direct
negotiations, and reminds them of the role
the International Court of Justice could
play in settling their differences.
The resolution was passed by consensus
after two weeks of hard bargaining. The
Greeks originally sought strong references
to Turkish seismic exploration in con-
tested areas and to international adjudica-
tion. The Turks fought hard to dilute such
25X1
25X1
references after they failed to fend off a 25X1
that Turkey would not consider Court ac- 25X1
tion as binding. The Turks have declined
to participate in the Court's hearings,
which began on August 25.
In Athens, Greek Prime Minister
Caramanlis expressed satisfaction with
the resolution-especially its reference to
the Court-and called on Turkey to abide
by its recommendations. Caramanlis has
formal resolution.
Turkish Foreign Minister Caglayangil,
who along with Greek Foreign Minister
Bitsios is in New York, welcomed the call
for direct negotiations even as he
questioned whether any Council action
was necessary. He added that the Greek
appeal to the International Court was
contrary to the spirit of the resolution and
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staked his prestige on Greece's
simultaneous appeals to the Council and
the Court.
In a meeting after the resolution was
passed, Bitsios and Caglayangil agreed to
resume talks in the near future. The
Greeks had earlier insisted that the
resumption of talks must be preceded by a
cessation of Turkish seismic exploration
in disputed waters. Although Caglayangil
told the press that the Sismik would con-
tinue its exploration, he may have hinted
to Bitsios that the Turks might change the
ship's schedule as a goodwill gesture.
Caglayangil could have difficulty per-
suading his colleagues in Ankara to go
along, however, in light of strong criticism
of the government's handling of the dis-
the political opposition.
USSR-INDI
A long-standing dispute over exchange
rates is threatening to damage the close
political relationship between India and
the USSR.
An official of the Indian External Af-
fairs Ministry whose responsibilities in-
clude relations with the USSR told US
embassy officials on August 23 that he did
not expect an agreement to come from
negotiations slated to take place in New
Delhi next week on the Soviet demand for
a new rate favorable to the USSR.
The official indicated his government is
prepared to agree to a new rate for future
transactions but opposes retroactive
application of any change. The Indians
assert they stand to lose about $500
million if a new rate is applied to out-
standing Soviet loans.
According to the official, the Indian
government considers the issue to be of
great political as well as economic
significance and will not succumb to
Soviet pressure. He added that "very
senior people" in the Indian government
are ready to accept a major change in In-
do-Soviet relations, such as a reduction in
Indian arms purchases and bilateral
trade, if the USSR does not back down.
Recent reports indicate that the Indians
are increasingly dissatisfied with
numerous aspects of Indo-Soviet
economic relations. Repeated Indian
attempts to secure more advantageous
terms on aid and trade have been largely
unsuccessful. India's frustration-at a
time when Indian planners are trying to
spur economic development and have
come to recognize the limitations of
Soviet aid-probably partially accounts
for the emotional overtones that have sur-
rounded the rupee-ruble issue.
The Indian official could be overstating
the willingness of his government to
accept a major change in its relationship
with Moscow. Prime Minister Gandhi is
unlikely to take any action that would
abruptly jeopardize relations with India's
major arms supplier.
Gandhi has, however, permitted a
gradual cooling in Indo-Soviet relations
over the last several years. Her self-con-
fidence has grown as a result of her
assumption of authoritarian power and
India's somewhat improved relations with
China, Pakistan, and the US. Such fac-
tors probably are encouraging the Indians
to stand up to the USSR on a matter in
which they see their economic and
political interests deeply involved.
POLAND
In compliance with the Helsinki Ac-
cord, Poland gave notification last week
of the major military exercise Shield-76, a
multinational Warsaw Pact exercise that
will involve as many as 35,000 ground and
air force troops. It is scheduled to be held
from September 9-16 in western Poland.
Polish officials said troops from
Poland, East Germany, Czechoslovakia,
and the USSR will participate. Observers
from at least four countries outside the
Pact-Austria, Denmark, Finland, and
Sweden-have been invited.
Shield-76 is the first multinational
Warsaw Pact exercise held since the
Helsinki summit meeting last summer.
Poland is the first East European coun-
try to announce a major military exer-
cise-one involving more than 25,000
ground troops-in compliance with the
confidence-building provisions of the
Final Act of the European Security
Conference. Hungary announced a
smaller exercise in April, and the USSR
announced two exercises earlier this year
involving only Soviet troops. Yugoslavia
has announced two exercises.
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The nonaligned summit ended last week with the expected
resolutions critical of the US. Overall, however, the radical
states were unable to push the nonaligned movement much
beyond its earlier positions.
Nonaligned States Conclude Conference
The fifth summit of nonaligned coun-
tries that ended in Colombo, Sri Lanka,
last week approved broad political and
economic declarations that were critical
of US actions on a number of issues, par-
ticularly Korea, Puerto Rico, Panama,
and the Middle East. The section of the
political declaration dealing with In-
dochina referred to "aggressive US im-
perialism" and called on the US to help
"heal the war wounds" of that area.
The political declaration does not
reflect a significantly more leftward shift
in its rhetoric than previous nonaligned
documents. Reports from Colombo in-
dicate that it was hammered out only
after stormy debate in the drafting com-
mittee. Over a hundred amendments
reportedly were submitted to the
moderate draft declaration that Sri
Lanka, as host, had prepared.
Most amendments came from the
radical members of the
movement-Cuba, Vietnam, and Syria,
for example. These states tried hard to in-
clude tougher language in the final
declaration, but they apparently did not
succeed in pushing the nonaligned move-
ment much beyond positions adopted at
earlier sessions. The final resolutions do
reflect a more radical orientation than the
political and economic declarations.
The radicals were not more successful
primarily because the nonaligned
moderates-notably India, Yugoslavia,
and Sri Lanka-played an unexpectedly
active role in opposing their initiatives.
Algeria, usually an effective leader of the
Sri Lankan Prime Minister Bandaranaike welcomes Cambodian le
radicals, was preoccupied with its dispute
with Morocco over Western Sahara, and
the radical wing was thereby deprived of
an influential spokesman.
The moderate nonaligned states may
have worked as hard as they did because
this may have been their last opportunity
to imprint their philosophy of nonalign-
ment on the movement-that is, non-
association with any of the major powers.
The next summit is scheduled to be held in
Havana in 1979, and it is likely that the
Cubans will begin immediately to try to
use this fact to bolster their influence.
The Colombo meeting also marked
renewed participation in the movement by
the communist Indochinese states-Viet-
nam, Laos, and Cambodia-- h cw tried in
private negotiating forums to ensure
recognition of nonalignment as an essen-
tially socialist and pro-communist move-
ment. The increasing prominence of this
emphasis in nonaligned councils may well
lead to some splintering of the movement
between now and its next session.
On Korea, the conference called for
withdrawal of all foreign troops from
South Korea, the closure of all foreign
military bases, the termination of the UN
Command, and the replacement of the
armistice agreement by a peace settle-
ment. It made no mention of last week's
incident in the demilitarized zone.
On Puerto Rico, the conference
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demanded an end to what it termed US
political or repressive maneuvers that
perpetuate Puerto Rico's "colonial
status."
On Panama, the conference reaffirmed
support for Panamanian control of the
canal and stated that US bases in Latin
America "represent a threat to the peace
and security of the region."
On the Middle East, the US was
criticized for its "political, economic, and
military" support of Israel, which en-
courages Israeli "dilatory tactics" and
prolongs the occupation of Arab
territories.
The conference called for an oil em-
bargo against France and Israel because
of their alleged violations of UN
resolutions against supplying arms to
South Africa.
In its economic declaration, the con-
ference broke new ground by emphasizing
actions that the nonaligned and develop-
ing states themselves can take to further
their own development. The usual
criticism of the developed states for their
alleged lack of concern about the
economic problems of the third world still
figures prominently in the declaration.
The rhetoric, however, reflects a more
moderate indictment of the international
economic system than other nonaligned
and developing country manifestos.
The accompanying action program
places strong emphasis on promoting
commercial, trading, and banking
relations among the nonaligned nations.
It calls for feasibility studies on the es-
tablishment of a common third world
currency and commercial banking
system-as proposed by Sri Lanka.
The North-South dialogue, which resumes this fall, has
received some impetus from the decisions reached at the UN
Conference on Trade and Development in May. The major
issues will probably be fewer and more narrowly focused than
they have been, but many participants expect no breakthroughs
until after the US and West German elections.
North-South D alogU125X1
When North-South negotiators begin
another round of meetings this fall, the
major issues probably will be fewer and
more narrowly focused than they were
last spring. Even so, there will be no ma-
jor breakthroughs.
The developing countries have so far
managed to maintain their solidarity in
part by avoiding negotiations on specific
issues that might divide their ranks. The
industrial countries have yet to work out
agreed positions among themselves on the
key issues.
The emphasis will shift from the
Conference on International Economic
Cooperation, where talks are at an im-
passe, to a series of meetings sponsored by
the UN Conference on Trade and
Development.
The decisions made at the UNCTAD
meetings in May will accelerate dis-
cussions on issues the developing coun-
tries consider vital. The conference in
Nairobi agreed:
? To hold a series of consultations
leading to negotiations for formal
commodity agreements.
? To convene a negotiating session
on the common fund for commodities
by March 1977.
? To drop the demands of the
developing countries for a debtor-
creditor conference and for reschedul-
ing commercial debt in return for the
agreement of the developed countries
to discuss debt relief in the Cl EC.
Most developing countries have
become disenchanted with the CIEC, but
they are probably not ready to let it
collapse. They believe the issues are being
studied to death and see little chance for
action before the West German, and more
important, the US elections. The OPEC
countries, particularly Iran and Algeria,
are interested in shifting talks to a
different forum where they will be out of
the limelight and less subject to pressure
from the non-oil developing countries.
The Debt Relief Issue
The 19 developing countries par-
ticipating in the CIEC, believing they
have little to lose, provoked a deadlock in
July in the hope of pressuring the major
industrial countries into concessions.
Their immediate pretext was the wording
of the agendas for the CIEC commissions,
which were to resume work in September.
The developing countries insisted on
language that would commit the commis-
sions in advance to meet their demands
for immediate and automatic debt relief
and for indexing commodity export prices.
The developed countries refused.
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At the nonaligned summit that ended
last week, the developing countries
took a somewhat more flexible approach
to economic issues and now may retreat
somewhat from the hard line that led to
the breakdown in CIEC. The nonaligned
meeting rejected a Cuban resolution
critical of the CIEC.
The major industrial countries are
united in their opposition to indexing
commodity export prices for the develop-
ing countries, and the latter have pri-
vately admitted that indexing is a dead
issue. For OPEC countries, justification
of higher oil prices through indexing was
the only significant issue in the CIEC.
On debt relief, the major industrial
countries believe existing methods are
working well and oppose any plan that
would treat the debt problems of all
developing countries alike or that would
provide criteria for automatically trigger-
ing cancellation or rescheduling of debts.
The talks are now likely to focus more on
how to help the poorest developing coun-
tries.
The process of reaching even a limited
agreement on debt relief holds risks for
both sides.
? The developing countries must try to
juggle the conflicting interests of countries
that need debt relief and those that prize
hard-earned credit ratings on commercial
markets.
? The developed countries are divided
on how to treat debt problems of develop-
ing countries. Many West European
governments are willing to grant im-
mediate debt relief-which they can do
simply by treating it as development
aid-in order to gain political points with
the developing countries. The US cannot
link debt relief and aid, since Congress
views debt relief as an unauthorized ex-
penditure.
The developed countries have a stake in
continuing the CIEC. From their point of
view, the issues would be more difficult to
control in UNCTAD or any other UN
forum dominated by the developing coun-
tries. The West Europeans, especially the
French who would lose political face if
CIEC breaks down, are reluctant to give
up the only forum where oil producers and
consumers are meeting together.
The EC attempted to get talks moving
again last month by proposing that the
developed countries take a "positive at-
titude" toward relieving the debt burden
of the developing countries. The unofficial
response from the developing countries
has been that a "positive attitude" is not
enough.
Commodity Agreements
In the next six months, the major in-
dustrial countries will try to cooperate
with UNCTAD efforts to open talks on
commodity agreements and the common
fund, but they will have to stall for time to
develop agreed positions among
themselves. Most recognize that reaching
a unified position-both within the EC
and among the developed nations as a
group-will not be easy in any case and
will be especially difficult until after the
West German and US elections.
The key to EC unity is bridging the
differences between Bonn and Paris. The
fiscally conservative West Germans are
willing to negotiate two or three com-
modity agreements but reject the common
fund. The French, who are inclined to
accept controls over commodity markets,
would go along with more commodity
agreements and could accept a limited
form of the common fund. Although
French - West German talks began
following the Schmidt-Giscard meetings
earlier this summer, they probably have
not progressed very far. Bonn probably
will review its policies after the October
election and might be willing to shift
toward the French position.
The Common Fund
EC members reportedly will study an
EC Commission proposal on the common
fund when they meet on September 20.
According to the Commission, the com-
mon fund should:
? Serve only as a financial
mechanism rather than an overall
regulatory body for the various com-
modity pacts.
? Finance buffer stocks only when
consumer-producer financing proves
temporarily inadequate.
The Commission's position reflects
European concern about turning over
control of commodity agreements to an
international bureaucracy. Most West
European governments, but not the West
German, are resigned to some common
funding of commodity agreements but
want management left in the hands of
producers and consumers.
The Japanese-still opposed to the
developing countries' commodity
demands-are remaining on the sidelines,
hoping for US-EC agreement. They
probably would agree to the EC Commis-
sion proposal only if they were assured of
full support for it by the West European
countries and saw no way to avoid making
even more costly concessions to the
developing countries.
The developing states, for their part,
will be less concerned than the industrial
states about preparing positions for the
UNCTAD meetings because their initial
negotiating posture is unchanged. They
consider the timetable fixed and, believe
the onus is on the developed countries to
respond to their demandsfor commodity
agreements and the common fund.
They will be focusing greater attention
this fall on improving cooperation among
themselves. The Group of 77 will meet in
Mexico City next month to discuss
economic cooperation and try to devise
the institutional structures many states
feel are required to achieve it.
To date, efforts to enhance develop-
ment cooperation among these countries
have had little success. Political and
economic differences among governments
have dominated meetings despite efforts
to focus on specific and practical
measures such as a third world prefer-
ential trading system, import and ex-
port cooperation schemes, or imultina-
tional production enterprises.
Although a 21-member group of ex-
perts is preparing an agenda for Mexico
City and regional groups are likely to hold
preparatory sessions, we do not. expect
much to ensue beyond an affirmation of
the importance of cooperation and the
first steps toward setting up formal in-
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The hard-currency debts of the USSR and the East Euro-
pean countries have been rising since the end of 1973 and are
likely to reach $40 billion by the end of this year. The debt
problem will be one of the many factors tending to slow
economic growth and improvements in living conditions.
Poland's problems are particularly serious.
USSR-Eastern Europe: Hard-Currency Debt
The Soviet and East European hard-
currency debt increased from $13 billion
at the end of 1973 to $29 billion at the end
of 1975 and will probably reach $40
billion by the end of this year. The
Western economic recession and inflation
were the main causes, but massive grain
imports also added to the USSR's hard-
currency deficit and increased its borrow-
ing needs.
The USSR's hard-currency trade
deficit reached a record $6.3 billion last
year and a similar deficit is likely in 1976.
Industrial imports, especially of
machinery and steel, are rising; grain im-
ports during this calendar year will con-
tinue at near record levels. There are no
indications that Moscow intends to cut
nongrain imports sharply-the only step
that could substantially reduce this year's
trade deficit.
Eastern Europe incurred a record $6.5-
billion trade deficit in 1975, of which
Poland accounted for about $3 billion.
The other East European countries
recorded much smaller deficits; only East
Germany's exceeded $1 billion.
The East European deficit will
probably decline moderately this year,
reflecting some increase in exports and a
slowdown in import growth. Hungary's
imports will actually decline. In marked
contrast to the rest of Eastern Europe,
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Poland will match or exceed its 1975
deficit of $3 billion.
Financing the Deficits
Moscow had no great difficulty finan-
cing its 1975 deficit. Medium- and
long-term credits covered about half;
most were guaranteed by governments,
but Eurodollar borrowings rose to a
record level as well. In addition, the
USSR had to rely heavily on short-term
financing to cover its unexpected hard-
currency shortfalls. By the end of 1975,
Moscow's medium- and long-term hard
currency debt had risen to $7.5 billion and
its total debt to $10 billion.
The East Europeans also were forced to
draw heavily on the Eurocurrency
markets, and their net liabilities on these
markets rose to $8.5 billion. Poland's
total debt rose to $6.9 billion, and East
Germany and Romania had debts of $3.8
billion and $3.0 billion, respectively.
The prospective hard-currency deficits
for 1976 are likely to raise the Soviet debt
to between $13 and $15 billion and
Eastern Europe's to as much as $24
billion. Although no Soviet or East Euro-
pean borrower has been turned down, the
cost of Western credit and the difficulty in
obtaining it have been increasing. The in-
ternational banking community is becom-
ing concerned about the debt problem and
the persistence of hard-currency deficits.
Most Western governments are con-
tinuing to guarantee long-term credits but
are examining them more closely than in
the past. West European governments
believe they have a political stake in ex-
panded trade with the East and are willing
to provide large credits to sustain its
growth. If Soviet and East European
hard-currency deficits continue for long at
high levels, these countries will have in-
creasing difficulty in obtaining new
credits.
The USSR is still viewed as a good
credit risk while Poland's credit status is
the poorest.
The seriousness of the Soviet and East
European debt problem depends greatly
on whether and how quickly the hard-
currency deficits decline. On the whole,
prospects are good for substantial im-
provement in these countries' hard-
currency trade balance during the next
two years or so.
Export Earnings
Soviet and East European exports dur-
ing 1977 to 1978 will benefit from what
should be a period of rapid economic
recovery and expansion in the West. Even
if Western economic expansion falters in
early 1978, East-West trade would con-
tinue to grow for the balance of the year,
reflecting the sizable lag between changes
in Western economic activity and their
impact on trade flows.
Higher export earnings should allow
the USSR to meet its debt obligations,
reduce its current-account deficit to
manageable levels, and, given good
harvests, still increase nongrain imports
at a respectable rate.
In some countries, export earnings may
prove insufficient both to reduce trade
deficits and to meet increasing debt ser-
vice obligations and import needs.
Poland's problems are particularly
serious. It will likely have difficulty rais-
ing the substantial amounts of credit it
will need to finance politically necessary
import growth.
The debt problem will be one of the
many factors tending to slow economic
growth in the USSR and Eastern Europe.
In the USSR, a slowdown in the growth
of hard-currency imports for two or three
years may hamper achievement of plans
for production and productivity in some
industries, but it is not likely to affect
overall economic growth appreciably. In
Eastern Europe, the improvement in liv-
ing conditions will slow markedly.
Debt problems are bound to complicate
relations between the East European
countries and the USSR. All react to
hard-currency shortages by diverting to
the West as many readily salable goods as
possible-mainly agricultural products,
raw materials, and the relatively small
amounts of quality manufactures. For the
most part, Eastern Europe is not in a posi-
tion to divert such goods from the USSR;
indeed, Moscow is insisting on a better
deal.
The USSR could solve some of its
problems at Eastern Europe's expense.
For example, it could free crude oil and
other materials for hard-currency export
and reduce grain import requirements by
cutting exports of these goods to Eastern
Europe and/or demanding higher prices
for those goods it continues to export.
ors awaiting export to Eastern Europe and the West
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