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August 27, 1976
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Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Iq State Dept. review completed Next 1 Page(s) In Document Denied Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Secret Weekly Summary State Dept. review completed Secret CI WS 76-035 No. 0035/76 August 27, 1976 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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. o~..o , ~nir~VI v QI IKAKA MV A n'97 7r, Approved For Release 2I \008109/17: Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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. Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 Paae 5 WPPVI V ci I ARAAnv 0, ,, 77 7r- Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 7 WEEKLY SUMMARY Aug 26, 76 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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. Page 8 WEEKLY SUMMARY Aug 27, 76 .. Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Next 2 Page(s) In Document Denied Iq Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Jtk.KC I 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. Page 13 WEEKLY SUMMARY Aug 27, 76 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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- Page 14 WEEKLY SUMMARY Auq 27, 76 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Next 2 Page(s) In Document Denied Iq Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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, Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 SECRET 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 SECRET 10 \A/CF-VI v cl IAAAAARY Aua 27. 76 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6 Secret Secret Approved For Release 2008/09/17: CIA-RDP79-00927A011400100001-6