NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A029800010024-5
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 11
• Document Creation Date: December 20, 2016
• Document Release Date: August 2, 2005
• Sequence Number: 24
• Publication Date: February 14, 1977
• Content Type: REPORT

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Monday February 14, 1977 CG NIDC 77-036C
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NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
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National Intelligence Daily Cable for Monday February 14, 1977.
The NID Cable is : or the purpose o in orming
senior US officials.
CONTENTS
LEBANON-PALESTINIANS: Restrictions Page 1
ITALY: New Labor Law Page 2
EGYPT: Containing Consumer Pressures Page 3
DENMARK: Election Forecast Page 5
PORTUGAL-EC: Membership Prospects Page 7
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I I The series of new restrictions on Palestinian ac-
tivity Lebanon apparently agreed to on Saturday by the quad-
ripartite committee--representatives of Syria, Egypt, Saudi
Arabia, and Kuwait charged with overseeing the Lebanese cease-
fire--appear designed to bring the fedayeen movement under
closer Syrian control and to limit the ability of the Pales-
tinians to obstruct the peace process.
Under the new curbs, put forth in what is said to be
a new agreement on applying the Cairo accord of 1969, which
governs the fedayeen presence in Lebanon, the fedayeen would
be prohibited from possessing arms or ammunition outside "spec-
ified border regions" near Israel. Armament in the refugee
camps would be restricted to "light, individual weapons" to be
carried by the Palestine Armed Struggle Command, the Palestinian
police force. Rallies, demonstrations, and statements to the
press would require authorization at least 24 hours beforehand
from the Lebanese authorities. Fedayeen-operated radio stations
would not be permitted.
The ban on all but "light" weapons in the refugee
camps would appear to be aimed primarily at the "rejectionists."
Syria had earlier permitted the more moderate Palestinian.
groups to move into southern Lebanon, leaving the "rejection-
ists" occupying the camps in the north and central areas of the
country.
I The largely Syrian Arab peacekeeping forces may, in
tact, be preparing to move against the camps near Beirut to
seize the heavy weapons held by the "rejectionists." In an
apparent reference to the camps, the Saudi representative to
the quadripartite committee said on Saturday that "next week
will be the week of raids." Yesterday Palestinian leaders
charged that Arab peacekeeping forces were massed around the
refugee camps.
I The new restrictions also would reportedly limit the
a es inians in Lebanon to the number registered with the UN
in 1969. It is doubtful that this restriction, which would
force some 150,000 of the 350,000 Palestinians in Lebanon to
leave, can be put into effect anytime soon.
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J Leaders of the major Italian political parties and
a or unions have expressed dissatisfaction with the new law
aimed at reducing labor costs. The law, decreed by the Andreotti
government on February 4, must still be ratified by parliament,
where portions of it could face opposition. It seems likely,
however, that a somewhat modified version of it will be approved.
The sources of dissatisfaction with the new law--which
was intended by the government to supplement the two-week-old
labor-management agreement on controlling labor costs--are var-
ied. Some of the ruling Christian Democrats joined the Republi-
cans in criticizing the government for not taking more forceful
action to reduce the inflationary effects of the wage-escalator
mechanism.
I IThe Communists and Socialists, on the other hand, are
distressed at the government's failure to discuss beforehand
with parliamentary leaders the nature of certain tax measures,
as well as the penalties included for companies agreeing to
plant-level wage increases in excess of those provided for in
national contracts. Besides seconding the Communists' and So-
cialists' complaints, trade union leaders are especially irked
that the new law prohibits the value-added tax increases from
being reflected in wage rates via the cost-of-living escalator.
I I Although there was an initial angry labor reaction
prompting an outbreak of localized strikes, national labor fed-
eration leaders--with strong backing from both the Communists
and Socialists--vetoed a nationwide general strike. Instead,
they decided to rely on leaders of the political parties--with
whom they will meet on Wednesday--to modify the objectionable
parts of the decree law during parliamentary debate.
I I Despite the criticism, all parties know that failure
to ratify the law could jeopardize Italy's efforts to obtain
financial support from the International Monetary Fund and the
European Community and might also precipitate a government cri-
sis. They will therefore be under considerable pressure to vote
for it or abstain.
Moreover, Prime Minister Andreotti--who expects action
on t e decree law within two weeks--has already displayed some
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sensitivity to the parties' complaints by expressing his will-
ingness to make further modifications. Christian Democratic
party secretary Zaccagnini has even broached the possibility of
the parties' parliamentary leaders' resolving outstanding dif-
ferences.
I lUp to now, only the Republican Party has threatened to
vote against the measures, and this may be just a tactical move.
The other parties are seeking further clarifications of the
cabinet decision and probably will attempt to modify the law
during the debate.
The Communists will probably push for some changes in
the decree law, but seem likely to abstain in the vote to avoid
any threat to the government.
EGYPT: Containing Consumer Pressures
I During the last week in January, rioting by Egypt's
norma y docile population focused international attention on
the political-economic tightrope that President Sadat is walk-
ing. The rising expectations of the people constitute the most
pressing problem facing Sadat. and any successor regime.
I I For almost a decade, the discontent among urban Egyp-
tians was kept under control by the threat of war. Both Nasir
and Sadat were prevented by a. lack of foreign exchange from
increasing consumption in the import-dependent economy and
therefore blamed economic hardship on the confrontation with
Israel, in effect promising a. better life when the confronta-
tion ended.
I I To the average Egyptian, however, the Sinai II agree-
ment o975 marked the end of war and the beginning of a per-
plexing new economic era. Relaxation of the economic restric-
tions imposed under Nasir exposed Egyptians for the first, time
in two decades to the conspicuous consumption of a rich elite
and to the uncertainties of market forces.
For a time, the opportunities offered by growth in
the private sector offset both the effect of the excesses of
the newly rich and the impact of worsening inflation. Public
tolerance, however, was pushed past the limit last month by
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the government's badly bungled attempt at further economic re-
form. By summarily slashing consumer subsidies--many of which
had been in place since 1948--Cairo forced consumer prices
sharply upward. Sadat restored the subsidies when serious riot-
inq erupted.
J Sadat now undoubtedly expects substantial amounts of
new cas aid from conservative Arab states to bolster his re-
gime in the wake of the disorders. Even if the new aid tally
is disappointing, Egypt has still begun 1977 in far better fi-
nancial shape than it did in 1975 or 1976. Thanks largely to
rising Egyptian oil output and the resumption of subsidy pay-
ments from other Arab states, Cairo faces an unfinanced foreign
payments gap this year of $1 billion at most, compared with $2
billion last year.
Most of Cairo's 1976 overdue debt service payments
have been paid off with a $250 million direct loan from the
newly established Gulf Organization for Development of Egypt
and a $250 million bank loan guaranteed by the same organiza-
tion. In addition, $570 million in Arab subsidies have been
authorized for 1977, and another $570 million in retroactive
1976 payments may be approved. Other subsidies from Arab donors,
US aid, project aid from other sources, and some private invest-
ment will provide another $1.4 billion.
Armed with the expectation of ample aid but threatened
by the prospect of further civil unrest, Sadat is now seeking
to modify the economic reform package proposed by the Interna-
tional Monetary Fund. The terms of the package--currency devalu-
ation, reduced subsidies, and other measures--are designed to
realign domestic prices, reduce the role of the public sector,
and control inflation. They will also result in reduced consump-
tion over the short run.
I IThe political risks to Sadat of such measures have
peen considerably multiplied by his loss of stature during the
January riots. On the other hand, Sadat feels he can now dilute
the reform program and still count on conservative Arab states
to come up with new cash aid to bolster his regime.
A slowdown in implementing the IMF reforms will force
Egypt to continue to depend heavily on foreign aid rather than
private foreign capital. During the 1978-80 period, at least $5
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billion will be needed to finance the foreign exchange compo-
nent of investment in plant and equipment. Another $5 billion
in balance-of-payments support or debt relief will be required
to provide a small increment in urban consumption levels and to
permit some progress in renovating Egypt's economic infrastruc-
ture. Much more substantial foreign aid will be needed if ex-
pectations for Egypt's major export industries, especially oil
and tourism, are not realized.
//The oil sector is the main question mark.
Since 1967, exploration and development activity in the Gulf
of Suez area has been subject to :Israeli harassment and to the
threat of Israeli drilling in concessions let by Egypt to for-
eign oil companies. Unless it can freely exploit the Gulf of
Suez, Egypt's oil revenues in 1980 may drop to $900 million
(at 1976 prices) instead of the $1.4 billion projected until
recently by Egyptian planners.
//Lags in hotel construction and in expanding
the Suez Canal, moreover, could easily cause eventual earnings
to fall below plan. Export shortfalls might well cost Egypt as
much as $3.5 billion in foreign exchange earnings over the next
four years.//
I Even if foreign exchange supplies are ample, Egypt's
a i i y to increase imports will be limited for several years
by bottlenecks in port capacity and the internal distribution
system. In turn, import constraints will limit the growth of
the economy and of consumption.
//The Danish election tomorrow will probably result
in few changes in the present parliament, and the current mi-
nority Social Democratic government will probably continue in
office.//
//Prime Minister Jorgensen called the election
when it appeared that he would have to rely on one-vote major-
ities on several important and controversial bills. With recent
polls running in his favor, Jorgensen hopes to increase the
parliamentary representation of his Social Democrats.//
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//During its two years in office, Jorgensen's gov-
ernment has been forced repeatedly to seek intricate compromises
in parliament with five center-right parties. The large Liberal
Party--second in size to the Social Democrats--finally refused
to go along on a four-part legislative package that included a
four-year defense budget plan, a new housing policy, an employ-
ment program, and a tax scheme to finance the other measures.
The package could probably have been approved without the Lib-
erals' votes, but the Prime Minister wanted a broad commitment
from parliament on issues certain to have only limited support
among substantial elements of the electorate.//
//Nearly all political observers agree that the So-
cial Democrats and the parties of the extreme right and left
will make gains tomorrow. The parties of the center-right, pri-
marily those that have supported the government for the past
two years, are expected to lose parliamentary seats--but prob-
ably not enough to make much difference.//
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//The governing Social Democrats, by gaining seats,
wou strengthen their leadership role among the smaller parties.
Such a gain would also run counter to the recent trend in Scan-
danavia that has brought more conservative governments to power
in Iceland and Sweden.//
//There is an outside chance that the Social Demo-
crats could be forced into a formal coalition with the Liberals
if two or more of the smaller center parties are soundly de-
feated in the election, but most members of the present govern-
ment are acting as if they expect to remain in power.//
//Prospects for a new defense budget plan and Den-
mark's participation in the four-nation consortium established
to purchase and co-produce the F-16--the two issues of direct
US interest that might be affected by the election--appear fa-
vorable. If the Social Democrats can establish a good working
relationship with the Liberals after the election, which seems
likely if the Liberals lose seats as expected, the stalled four-
year defense budget plan probably will be passed.//
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//A Danish Foreign Ministry spokesman assured the
embassy recently that a new plan would be passed by April 1,
the expiration date of the current budget.//
//The F-16 project, on the other hand, could become
a problem later if the Danes fail to get the promised 58-per-
cent share of offset contracts to produce the new aircraft. To
prevent the F-16 from becoming a political issue, the spokesman
said the contracts should help develop Danish technology and
know-how as well.// 25X1
PORTUGAL-EC: Membership Prospects
Portuguese Prime Minister Soares appears convinced
that EC members will ultimately accept Portugal's application
for full membership in the Community without an association
period. He recognizes, however, that despite this political
commitment, any steps to integrate Portugal into the Community
are still many years away.
The EC foreign ministers last week formulated a
ommon position in preparation for Soares' tour of EC capitals,
which begins with a visit to London today. The ministers de-
cided to accept Portugal's right to apply for full membership,
but made it clear that extensive studies of the problems of
economic integration must be made before a date can be set for
beginning the time-consuming negotiations for membership.
In presenting their case for full membership in the
EC, the Portuguese have taken an unusually hard line:
--The Portuguese ambassador to the EC told Community of-
ficials last week that reluctance to accept Portugal as a
member would destroy Soares politically and drive the
country back to a right-wing dictatorship.
--Foreign Minister Medeiros Ferreira recently said that
Portugal would accept only full membership and would re-
ject any form of association status.
--Portuguese ambassadors to EC countries, after a strategy
session in Lisbon last week, implied that EC rejection or
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qualification of the membership bid of a democratic nation
would expose the EC as a group of countries unwilling to
share their privileges.
The Portuguese have countered the arguments of EC
members that Portugal is not economically prepared to join the
Community by stressing the political benefits of a commitment
for eventual membership and arguing that Portugal is too small
to have any detrimental effect on the Community's economic
situation.
I IThe Portuguese objective in aiming for an EC commit-
men to ull membership has been to foster. the image at home
of widespread European support for the efforts of Soares'
minority government. Although early entry seems to be precluded
by last week's decision in Brussels, the promise of eventual
full membership may, nevertheless, have a favorable psycholog-
ical effect on economic recovery and reduce the possibility of
attempts from the right or the left to overthrow the Socialist
government.
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Soares probably hopes a successful foreign policy 25X1
will overshadow growing domestic discontent with his govern-
ment's reluctance to take the necessary measures to improve
the economy. This could involve some risk since the Community
may also insist on difficult domestic measures.
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