NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A029300010048-4
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 15
• Document Creation Date: December 16, 2016
• Document Release Date: January 19, 2005
• Sequence Number: 48
• Publication Date: September 29, 1976
• Content Type: REPORT

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Wednesday September 29, 1976 CI NIDC 76-229C
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National Intelligence Daily Cable for Wednesday, September 29, 1976.
j Ca e is or e purpose i 1 Tr1Z5Y'I1Tl
]The
LEBANON: Situation Report
UK: Pound Still Declining
CHINA: Earthquake Impact
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UN: Gromyko's Speech
PORTUGAL: Labor Movement
PERU: Exchange Rate
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LEBANON: Situation Report
he Syrians attacked the Palestinian and Lebanese
holds of Falugha, Hammana and Qurnayi
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Christian forces moving south from Biskinta also hit
Aynturah and al Mutayn, two hotly contested former Christian
villages, in an effort to pin down and keep the Palestinians
divided. Aynturah and al Mutayn are especially important be-
cause they can be used to control the Beirut-Damascus road and
are a direct link between the Christian provisional capital at
Juniyah and eastern Lebanon.
Heavy shelling continues in Beirut and around Tripoli.
ian offensive has been expected for
Although the Syr
some time, the Syrians have clearly seized on the Palestinian
commando attack last weekend on a hotel in Damascus as a pre-
text for resuming the fighting. Damascus radio has totally ig-
nored Fatah denials of complicity in the raid and have aired
Palestine removal
demands for the first
Or-
of Fatah calling
Liberations
and 1 the for
Arafat as
ganization.
I Arafat sent urgent appeals yesterday to several Arab
leaders, including Egyptian President Sadat and Saudi King
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Khalid, accusing Syria of attacking without provocation and
asking them to use their influence to stop the fighting. Sadat
predictably denounced the Syrian offensive in a speech commemo-
rating the anniversary of Nasir's death.
I I Sadat suggested in his speech that the Syrians may
nave s aged last Sunday's Palestinian commando raid and again
accused the Asad regime of trying to liquidate the Palestinian
resistance and Lebanese leftists. Lebanese leftist leader Kamal
Jumblatt, who arrived in Cairo on Monday for consultations with
Sadat, was present while Sadat spoke.
I I Lebanese President Sarkis continued his round of
meetings with Lebanese leaders in Beirut yesterday, but his
efforts to breathe new life into the deadlocked tripartite
talks have been stopped cold at least until the Syrians either
obtain their military objectives in the Mount Lebanon area or
the Palestinians agree to accept Syrian terms for a cease-fire.
UK: Pound Still Declining
//The pound continued to decline yesterday, even
after Prime Minister Callaghan's unusually stern speech to the
annual Labor Party Conference. It fell to a low of $1.63, be-
fore rebounding slightly to close at $1.6355, down 4.5 cents
from its Monday close.//
//The recovery came after Chancellor of the Ex-
cnequer ea ey and Governor of the Bank of England Richardson
delayed their departure for the Commonwealth finance minister's
meeting in Hong Kong to meet with senior officials yesterday.
Callaghan is being kept fully informed on the progress of these
talks but a government spokesman said no statement was likely
to be issued. Traders saw the consultations as a sign that the
UK might enact some emergency measures to stem the pound's
fall.//
//Although there are reports that the Bank of Eng-
land re-entered the market yesterday after a 19-day hiatus, a
sustained intervention effort is unlikely. Britain's foreign
exchange reserves could be quickly exhausted, given the large
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sterling balances held abroad. Britain's $1 billion in drawings
against the $5.3 billion standby credit also come due in early
December.//
//A number of measures to correct the economic
situation are now apparently under consideration. These are
aimed at either restricting imports or limiting the growth of
the domestic money supply. General import controls still are
not being seriously considered since they would not only invite
retaliation by other countries but also would only postpone the
need to bring about necessary structural changes. Selected im-
port controls such as those imposed last week on television
sets from Taiwan are more likely.//
I //Some left-wing Laborites are calling for higher
corporation taxes in order to limit the public sector borrowing
requirement and, consequently, growth in the money supply. This
step is highly unlikely because it would be a tremendous blow
to industrial confidence.//
//A frequently cited alternative is an import de-
pose sc e e similar to that recently imposed by Italy. Such a
scheme would discourage imports, thus slowing the outflow of
sterling. It would also absorb some of the excess liquidity in
the private sector and would probably meet with less resistance
from either the IMF or the EC.//
//The measure could be supplemented by an addi-
tional IMF loan, which would provide reserves and require fis-
cal and monetary restraint on the part of London. Including the
additional credits provided by the 45-percent increase in quotas
agreed upon earlier in the year, Britain could borrow up to $3.8
billion from the IMF.//
I //No consensus within the cabinet has yet been
reached on what measures, if any, should be adopted to halt
the fall of sterling. The import deposit scheme seems the most
likely, although it is apparently opposed by Chancellor Healey
and Trade Secretary Dell. Moreover, it is doubtful an import
deposit scheme would be as effective in halting sterling's de-
cline as it was the case of the decline of the Italian lira be-
cause of the large sterling balances held outside the UK.//
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//In his tough speech yesterday, Callaghan empha-
sized again that the UK could no longer spend beyond its means
and that the British would need to tighten their belts. He also
stressed that tax cuts and massive public spending were no
longer a viable option in guaranteeing full employment.//
//The Prime Minister gave notice to the trade
unions and the Labor left wing that the government will not
waver in its efforts to curb the rise in public spending and
borrowing. At the same time, Callaghan provided some assurance
to Britain's creditors, particularly the IMF, that his govern-
ment will resist the demands of Laborites who are calling for
a cancellation of the government's budget cuts already sched-
uled for the next fiscal year as well as further nationaliza-
tion of rif-Ish industr
y.
CHINA: Earthquake Impact
//The recent earthquakes in China will retard
industrial growth and end Chinese hopes of a good start for
the five-year plan (1976 to 80).//
//The area affected is the third most important
industrial area in China, after Manchuria and Shanghai. Some 3
to 4 percent of industrial production will be lost for up to
two years.//
//The quake on July 28 (8.2 on the Richter Scale)
probably was the worst of the century in China in terms of cas-
ualties and damage. The destruction of nearly all housing in
the area--particularly at Tang-shan city (population 1 million)
and Feng-nan County (population 400,000)--indicates that casu-
alties were extremely high. Estimates of fatalities range from
100,000 to 800,000.//
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//The quake closed both rail lines into Manchuria,
cut many roads, and disrupted port operations. Although most
have now been restored to limited service, it will take a year
or more to regain full capacity.//
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I Post quake priorities also affected water, road, and
air g s. Hsin-kang, one of China's largest ports, was put
out of operation, forcing diversion of ships to Dairen, Tsing-
tao, and Shanghai, creating some congestion. By late August,
however, ships were moving in and out of Hsin-kang port.
//A massive relief effort involving hundreds of
thousands o soldiers and civilians from all over China got
under way immediately after the shocks.//
I //The Chinese now assert that transport, power,
communications, and some industry in the area--notably cement
and steel--have resumed partial operation; we believe such as-
sertions are symbolic or at best exaggerated.//
//Compounding the problem, three large quakes hit
zec wan Province in west China in August. These quakes dis-
rupted transportation but caused far fewer casualties and less
industrial damage than the Tang-shan quake. Economic activity
in much of the province slowed in late June when precautions
began, fell precipitately during the quakes, and turned up only
slowly afterwards.//
//Rebuilding will require an enormous investment
in resources and time. Reconstruction and relief costs as well
as production losses will total more than $10 billion.//
//The balance of payments may suffer in the short
run. Later, as the ports and inland transport facilities are
cleared of relief priorities, China may increase petroleum ex-
ports to earn the hard currency needed to import additional
steel and equipment.//
//At a minimum, five-year plan goals will have to
be adjusted to include rebuilding Tan -shan and to offset pro-
duction lost to the quakes.//
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UN: Gromyko's Speech
I In his address to the UN General Assembly yesterday,
oreign Minister Gromyko invited the US to begin discussing
ways to reduce Soviet and US military activity in the Indian
Ocean. This marks the first such bid from a high-ranking Soviet
leader.
I Gromyko did not mention the US by name, but said the
USSR was "ready to look, together with other powers," for ways
of reducing the "military activity of nonlittoral states in the
Indian Ocean."
He added that Moscow was also read
to "
ti
y
par
cipate
in consultations" for convening an international conference on
the Indian Ocean, but only if the Soviet approach "is taken
into account to the necessary degree." The Soviets are prima-
rily seeking talks that would eliminate foreign military bases
in the area.
The remainder of Gromyko's speech was dev
t
d
o
e
Co dis-
armament, but he stuck closely to the themes expressed in Gen-
eral Secretary Brezhnev's keynote address to the Soviet party
congress in February.
I I Gromyko again called for a reduction in the military
u ge s of the permanent states of the Security Council, a pro-
posal the USSR introduced in the UN in 1973. He reiterated cus-
tomary Soviet references to a non-use-of-force treaty, the
elimination of nuclear weapons tests, and the dismantling of
foreign military bases.
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Gromyko also:
--Called for resumption of the Geneva conference to settle
the Arab-Israeli dispute.
--Called for the immediate admission of the Republic of
Vietnam to the UN.
--Criticized US military programs and Secretary Kissinger's
peace efforts in the Middle East and Africa.
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to ask f -he Chinese to "normalize" relations.
Portugal's ruling Socialist Party may soon begin moves
to set up a labor confederation separate from the Communist-dom-
inated organization, which is pressing for a national congress
to solidify its position.
I I The Socialists have built up a substantial following
in organ zed labor during the past year, but still cannot rival
the organization and discipline of the Communists. One Socialist
Party official has said it may take another year to build an or-
ganization capable of challenging the Communists.
The Socialists do not want to wait that long and hope
to use eir control of the government to pass legislation un-
favorable to the Communists. One of their first priorities will
be to repeal the law permitting only one labor confederation,
leaving them free to set up a rival non-Communist confederation.
They expect to attract a number of uncommitted unions to such a
new organization.
Legislation will also be submitted to ensure free
union e ections by allowing voting during working hours and pos-
sibly by requiring that 60 percent of union members participate
in the balloting. The Socialists hope that such restrictions
will help break the Communists' control of many unions in which
Communist slates have been elected by only 5 to 10 percent of
the membership.
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I I The Communist-dominated Intersindical reports that
nearly half of some 300 to 400 Portuguese unions are affiliated
with it, whereas the non-Communists claim the allegiance of only
50 unions. The Communists apparently hope to use this advantage
at a national congress to tighten their grip on labor.
I I The Socialists originated the idea for a Congress in
e hope of challenging the Communist hold on labor. The Commu-
nists soon gained the initiative, however, and have proposed
rules designed to make the congress appear open and democratic,
but which in fact would make any challenge to the Communists
impossible. The Socialists and their allied unions have now
refused to participate in any congress in which Intersindical
plays the leading role.
I I When the Communists took the congress idea for their
own, the Socialists feared being forced either to accede to
Communist domination or to take the blame for an eventual split
in the labor movement. Public opinion, however, increasingly
favors the Socialists, who have rejected Communist insistence
that the sessions be restricted to all but the "proaressivP"
press d a
n are demanding an open congress.
PERU: Exchange Rate
I I Peru has joined the growing number of Latin American
countries that have instituted a crawling peg exchange rate,
which allows frequent small changes in the exchange rate. Last
week Peru devalued the sol twice by a total of less than 0.5
percent. Peru previously had devalued the sol only three times
in 18 years, including a 31 percent devaluation on June 30.
an is Peru's inflation rate soared to 24 percent last year
increasing at an annual rate of 40 percent this year,
following a 9 percent annual increase between 1970-74. Large
government deficits, stagnant agricultural and industrial out-
put, and harsh import restrictions have been the key elements
in this escalation. The rise in domestic prices greatly stimu-
lated imports and tended to discourage exports, contributing
to the $1 billion current-account deficits of the past two years
and forcing the devaluation in June.
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I I The new exchange rate policy. apparently is intended
e most of the benefits achieved by the June devalua-
tion. The consequent stabilization of foreign exchange expecta-
tions is likely to help avoid a recurrence of the heavy capital
flight that occurred prior to that devaluation. Devaluation, a
thorny political issue, will be less noticeable to the public.
Peru's new exchange rate policy follows precedents
se y a number of other Latin American countries.
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