NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A029900010042-4
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 23
• Document Creation Date: December 20, 2016
• Document Release Date: April 13, 2006
• Sequence Number: 42
• Publication Date: March 24, 1977
• Content Type: REPORT

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NATIONAL INTELLIGENCE DAILY CABLE
Thursday March 24, 1977 CG NIDC 77-068C
State Dept. review completed
NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
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National Intelligence Daily Cable for Thursday March 24, 1977
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e D Cable is for the purpose of informing
senior US officials.
UK: Government Survives
CHINA: Drought
OPEC: Keeping up with Inflation
CONGO: Tribal Tensions
EC SUMMIT: Representation
FRANCE: Aircraft Carrier Cruise
US-USSR: Trade
CEMA: Investment Bank Seeks Loan
SOUTH KOREA: Human Rights
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I IDomestic political pressures on Italian Prime Minister
An reotti have been building markedly during the past few weeks.
These pressures are adding to the atmosphere of tension that
surrounds his current talks with political and labor leaders
over the terms of a $530-million credit negotiated with the In-
ternational Monetary Fund last week. The odds favor a compromise,
but the risks of government collapse are greater now than at
any time since Andreotti took office last August.
I The IMF is insisting that Italy retain as part of its
economic program a decree law that has come under increasing
fire from the unions and the leftist parties. The decree--which
must be approved by parliament within the next two weeks to
stay in effect--is designed to discourage companies from grant-
ing further wage increases this year and to prevent certain tax
increases from triggering automatic cost-of-living wage hikes.
I Prior to the conclusion of the IMF negotiations, gov-
ernmen , party, and union officials appeared inclined to seek
some sort of modification of the decree law. In the course of
discussions with IMF negotiators, however, Andreotti apparently
decided to force the issue by agreeing to insist on the reten-
tion of the decree, or some equivalent anti-inflationary meas-
ure.
The IMF agreement has thus had the effect of narrow-
ing An reotti's room to maneuver. This comes at a time when
discontent appears to be growing in both Andreotti's Christian
Democratic Party and the Communist Party over the generally co-
operative relationship that has developed between the government
and the Communist leadership.
I ICommunist Party supporters have from the outset har-
ore misgivings about the decision of their leaders to support
Andreotti indirectly by abstaining in parliament. These mis-
givings have grown as Andreotti has gradually implemented an
austerity program requiring substantial sacrifices by Communist
supporters at a time when the party does not appear to be mak-
ing significant progress toward a more formal role in the gov-
ernment.
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sharper focus during the recent round of student violence, when
the party was unable to assert any control over student mili-
tants, some of whom branded the Communists as part of the es-
tablishment. That experience intensified debate in the party
over the merits of its cooperative stance toward the government.
The debate in turn has led the Communists to step up pressure
for new political concessions.
I I Although the Communists are calling for membership in
a roe government of "national emergency," they would appar-
ently be satisfied with something less, such as a formal agree-
ment on a government program among the parties that support
Andreotti. The party's push for such a concession will be hind-
ered, however, by its clear desire to avoid responsibility for
provoking a government crisis.
I While many Communists believe that Andreotti has not
conceded enough to their party, a growing number of Christian
Democrats argue that he has gone too far in accommodating the
Communists. This disenchantment is particularly pronounced in
the right wing of the Christian Democratic Party, with some
leaders, such as senate president Fanfani, making no effort to
conceal their dissatisfaction. Disgruntled Christian Democrats
say, for example, that Andreotti's desire not to offend the
Communists has led him to water down his austerity program and
avoid harsh measures in dealing with the country's growing po-
litical violence.
The misgivings of many Communists were brought into
No Christian Democrat appears to have a realistic
plan for replacing Andreotti with a government less dependent
on the Communists. Some of Andreotti's party rivals might be
willing to risk another early election, however, hoping that the
Communists have lost some of the momentum they had a year ago.
Despite the growing uneasiness in political circles,
most party leaders still seem inclined to step back from the
brink and seek some sort of compromise. The major party leaders
who discussed the IMF issue with Andreotti earlier in the week
were noncommital, but all avoided inflammatory rhetoric in com-
menting on the talks. In addition, Andreotti is reportedly in
close touch with the Communist hierarchy behind the scenes in
an effort to work out an agreement.
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The caution of the leftist parties is a positive sign,
but it also reflects their reluctance to get out of step with
generally more militant labor leaders who have not yet completed
consultations with Andreotti. Andreotti will probably have a
harder time securing the cooperation of labor, whose initial
reaction to the IMF terms was harsher than that of the parties.
Labor protests frequently persuaded the left to stiffen its
line in earlier talks on Andreotti's program.
Thus, while Andreotti has many factors working in his
avor--the reluctance of all parties to topple him, the absence
of an alternative to his government, and Italy's clear need for
financial assistance--he will need all his formidable negotiat-
ing skills to kee
t
i
p
ens
ons in check.
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//The British Labor government, with the support
o the Liberal Party, won the confidence vote in Parliament
yesterday by 322 to 298.//
//Prime Minister Callaghan secured the vctes of
ail 13 Liberal Party members earlier in the day when he and Lib-
eral Party leader Steel announced that their parties would enter
into regular and formal consultations "in pursuit of economic
recovery" for the UK. Agreement was reached to maintain the ar-
rangement until the end of the current parliamentary session,
when both parties will decide if it should be continued.//
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//Under the plan, a joint committee will meet once
a weer to examine Labor and Liberal proposals before they are
presented to Parliament. The leaders of the two parties will
meet when necessary.//
//Callaghan also promised to introduce legislation
during this session of Parliament to facilitate direct elections
to the European Parliament, and he agreed to consider Liberal
Party views on proportional representation and home rule for
Scotland and Wales.// ,
//Although Labor Party left-wingers criticized the
greemen with the Liberals on the grounds it would impede the
introduction of additional "socialist" legislation, they main-
tained party discipline in the confidence vote.//
//Although the confidence vote highlighted the
fragility of Labor's position in Parliament, the pact it forced
with the Liberals will probably assure Labor's continuance in
power at least until November.//
//Conservative Party leader Thatcher will undoubt-
edly come under attack for failing to unite the opposition par-
ties, particularly when Labor had had such limited support in
Parliament. The decision to force a confidence vote at this
time will probably also be seen as or tactical blunder.
CHINA: Drought
Drought in key growing areas of the North China Plain
con inues to threaten the winter wheat crop that accounts for
15 to 20 percent of China's annual grain output. Substantial
rainfall during the next three weeks could still save most of
the crop.
China's leaders, already faced with the task of re-
covering from the slow agricultural growth, poor industrial
performance, and devastating earthquakes of 1976, reacted to
the drought situation by convening a nationwide emergency tele-
phone conference last weekend. Referring to the drought as the
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worst since 1949, Peking has launched a highly publicized mass
campaign to mobilize the peasants and the People's L:_beration
Army to conduct antidrought work in those areas most seriously
affected.
I I Rainfall at this time is important because the winter
w ea crop is usually close to the wilting point in spring.
Winter rain and snow cover--important sources of moisture for
the re-emergent wheat--were below average in all the key growing
areas except for Hopei Province and the outskirts of Peking.
A poor winter wheat harvest would not be catastrophic
for China, but it would aggravate current tight supply condi-
tions. Peking may feel compelled to compensate for losses with
increased imports, but it is unlikely to make additional wheat
purchases in the next month or so.
I I China's total output of grain last year probably was
280 million tons, about the same as in 1975 and an increase of
2 to 3 percent over 1974. Wheat imports scheduled for this year
so far total 5.1 million tons; most will be arriving before
July. This is more than double the imports in 1976, but only
about average for the last 10 years.
Antidrought measures being taken are aimed at using
a available water resources to the fullest and include efforts
to dig new wells, locate and tap new springs, and install and
maintain water pumping equipment, as well as traditional tech-
niques of hand-carrying water to fields.
//In addition to attempting to minimize the effects
or the drought, the campaign and the attendant publicity may be
intended to justify a widespread austerity effort tha-: includes
in at least one area a call to reduce family grain consumption.
Losses suffered in the current drought may force additional belt
tightening on the Chinese people. After the purge of the "gang
of four" last October, the public had expected econom,.c improve-
ments.//
OPEC: Keeping up with Inflation
The purchasing power of members of the Organization
or e-ro eum Exporting Countries is not being eroded by Western
inflation, as officials of many OPEC countries had feared.
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Oil price hikes since early 1974 roughly equal the
rise in import prices for OPEC countries. We estimate that from
first-quarter 1974 until March of this year, OPEC import costs
in the aggregate have risen 23 to 24 percent. Over the same
time period, oil prices measured in terms of benchmark crude
have risen at least 25 percent.
J Many OPEC members have argued that a large catch-up
of price increase is needed to offset Western inflation. Price
data gathered in some OPEC countries probably support their
claims. OPEC members' import price data are often distorted by
costs unrelated to Western inflation--such as demurrage charges,
pilferage, and domestic "commissions.
OPEC members' earnings on financial assets also have
equaled or exceeded the increases in OPEC import prices over
the last three years. Measured in dollar terms, we estimate
that OPEC members earned nearly 9 percent on their foreign
assets in 1974 and had returns of 5.6 percent and 5.8 percent
in 1975 and 1976, respectively.
The return on OPEC's foreign assets, however, is low
in comparison to earnings that could be expected from a well-
managed US trust account. The low rate of return reflects the
large proportion of OPEC funds still invested in short-term
assets, which currently carry low interest rates, and the
losses incurred in the dollar value of their portfolio because
of sterling's decline.
Short-term dollar assets, which accounted for about
a t of the OPEC portfolio in 1976, earned an average of 4.8
percent last year. Medium- and long-term dollar assets earned
6.8 percent. OPEC earned 11 percent on its sterling portfolio
in 1976, but the decline of the pound against the dollar re-
sulted in a negative dollar rate of return for the year.
To increase the yield on their investments, some OPEC
mem ers are investing more heavily in longer term assets. This
shift makes OPEC investments more vulnerable to an increase in
Western inflation. By opting now for longer term assets and
higher yields, OPEC members are committing themselves to an
interest rate structure that, unlike short-term yields, will
not rise sharply if Western inflation increases dramatically
again.
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I I If inflation increases substantially, countries with
large financial surpluses, such as Saudi Arabia, the United
Arab Emirates, and Kuwait, will be tempted to cut back oil
production and reduce new investment in the West. Production
cutbacks would robabl raise oil prices and add to inflation,
however.
The death in Congo on Tuesday of the archbishop of
Brazzaville reportedly occurred during his interrogation by the
recently organized military committee. Officially inspired press
reports have stated that the archbishop, who was from the south-
ern part of the country, was killed by relatives of assassinated
President Ngouabi, a northerner.
The archbishop was one of a number of Congolese ar-
rested last week, along with former president Massamba-Debat,
for their alleged involvement in the assassination of Ngouabi.
Radio Brazzaville has announced that Massamba-Debat has con-
fessed to organizing the assassination plot; according to one
report, he may subsequently have been killed.
//The military committee has promised to deal
harshly with the plotters. In doing so, it runs the risk of ex-
acerbating tensions between tribesmen of Congo's northern and
southern regions, which have a long history of animosity.//
EC SUMMIT: Representation
//A confrontation over the question of EC represen-
tation at the London economic summit on May 7 and 8 threatens
to dominate the two-day European Council session that opens in
Rome tomorrow.//
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//EC officials are afraid the debate will shift
the attention of the nine EC heads of government away from sev-
eral.important items, including:
--The development of a Community position on North-South
issues.
--Preparations for the follow-up European security confer-
ence to be held in Belgrade.
--Discussion of the EC's economic and financial problems.
--Trade relations with Japan.
--A French proposal to improve the workings of the European
Council itself.//
//The five small EC states, with the support of
the EC Commission, insist that the Community be represented at
the London summit by Commission president Jenkins. The French
strongly resist Community representation, arguing that an EC
presence is not required, since no decisions are taken at such
meetings.//
//Although the French have indicated they might
agree to having British Prime Minister Callaghan--the current
president of the EC Council--represent the EC as well as the
UK at the summit, the smaller states have rejected such a com-
promise.//
//The Dutch and the Danes have pushed hardest among
the five for an EC Commission presence at the summit. The Danes
had also been insisting that all nine states be represented, but
recently they backed off from this demand.//
//The Dutch and the Belgian positions may be weak-
enea at in Rome given the caretaker status of their gov-
ernments, although the Dutch parliament last week unanimously
passed a motion urging that strong action be taken at the Euro-
pean Council to ensure EC summit participation.//
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//The West Germans and the Italians support the
principle o EC representation but would like to avoid a major
confrontation with the French over this issue in Rome.
//The British have avoided taking a position prior
to the Rome meeting, saying simply that they will accept Jenkins'
presence if that is the consensus of the Nine.
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France is preparing to send the aircraft carrier
Clemenceau to the Indian Ocean via the Suez Canal. The French
press reports that the ship, carrying fighter aircraft and heli-
copters, will leave the Mediterranean port of Toulon in several
I The carrier will participate in exercises with French
naval forces already in the Indian Ocean and return to Toulon
in early summer. The cruise date reportedly was advanced so
that the Clemenceau could be in the area of the French Territory
of the Afars and Issas at the time of its iindependence in late
June.
I I Although the French maintain small military contin-
gents on Reunion and the Comoro Islands, Djibouti, the capital
of the FTAI, is France's only major base remaining in the In-
dian Ocean. The French may be asked to leave the base after the
FTAI achieves its independence.
Djibouti's strategic location near the entrance
to the Red Sea has enabled the French to protect key oil supply
routes to the West and to monitor Soviet naval activity in the
Gulf of Aden. //The French Indian Ocean flotilla, which numbers
about 15 ships, is the largest Western naval force in that
ocean. Although the USSR usually has a few more naval ships in
the Indian Ocean, the French have the superior military force.
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//Perhaps more than the other French services, the
navy re ects France's perception of itself as a world power--
ready and able to influence international events and protect
French interests around the world. The French have already es-
tablished floating command and support facilities in the Indian
Ocean and appear determined to maintain a sizable naval pres-
ence there regardless of the fate of their Djibouti base.//
Large Soviet imports of US grain pushed US-Soviet
trade to a record $2.5 billion in 1976, according to US Depart-
ment of Commerce statistics. Trade this year probably will be
lower because last year's excellent Soviet grain harvest has
reduced the need for US grain, and no significant increase in
other trade is likely.
US exports to the USSR last year rose 26 percent, to
$2.3 billion, making the US the leader among Western exporters
to the USSR. The poor 1975 Soviet harvest led to imports of US
grain totaling $1.35 billion and of soybeans worth $125 million,
which together accounted for 64 percent of US exports to the
USSR. Machinery and equipment exports to the USSR were up 11
percent, to $605 million. Other important exports were plastics,
structured steel, and textiles.
Soviet exports to the US in 1976 fell 13 percent, to
$221 million; Moscow had hoped improved economic conditions in
the US would help boost Soviet sales over the disappointing
1975 level. Exports to the US in 1976 consisted largely of raw
materials, including platinum group metals, crude and fuel oil,
chrome ore, and diamonds.
The combination of higher imports and slumping exports
combined to produce a record $2.1-billion Soviet trade deficit
with the US. Recently released Soviet statistics show a larger
deficit with the US that would account for almost half of the
Soviets' $4.9-billion global hard-currency trade deficit in
1976.
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Reduced Soviet purchases of US grain indicate that
US-Soviet trade this year will not reach the 1976 level. Soviet
orders placed in 1976 under the long-term grain agreement will
account for $600 million worth of US corn, wheat, and soybeans
to be delivered this year. Under the agreement, the Soviets
will be placing orders for a minimum of 6 million tons from
this year's US grain crop, although only 2 million tons will
actually be delivered to the USSR in 1977 if this year's Soviet
crop is normal. Soviet agricultural imports from the US, would
thus drop from $1.5 billion to about $800 million.
Soviet imports of US machinery and equipment in 1977
will pro ably be at about the same level as last year.
We do not expect any major changes in the quantity or
mix of Soviet exports to the US. Oil exports, which have aver-
aged $85 million annually since 1974 and have consisted mainly
of fuel oil, have the greatest potential for fluctuation. The
Soviets for some time have been interested in shipping crude to
the US; the latest negotiations have been for 12,000 to 15,000
barrels per day, valued at roughly $60 million annually.
Exports of platinum group metals, a mainstay of Soviet
are expected to continue at current levels. The repeal
trade
,
of the Byrd amendment is expected to have little effect on de-
mand for Soviet chrome. Moscow is hoping for a substantial gain
in gold coin sales to the US; this item became important for the
first time last year, when sales totaled $13 million.
The Soviets assert that the US has lost $2 b:_llion in
Soviet business since Moscow's denunciation in January 1975 of
the US Trade Reform Act of 1974, which tied US Eximbank credits
and most-favored-nation tariff treatment to the emigration of
Soviet Jews. Although the Soviet claim is probably an exaggera-
tion, a substantial volume of orders would have been won by US
firms if Eximbank credit had been available. General Secretary
Brezhnev's most recent criticism of the trade act was :Leveled
on Monday.
In a new twist, the Soviet press has recently referred
to US trade legislation in the context of Basket II--the eco-
nomic parts of the Helsinki accords--which calls for increased
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East-West trade and commercial contacts. In a late February
Izvestia interview devoted to Basket II, Deputy Minister of For-
eign Trade Manzhulo cited the "adverse effect on the development
of trade and economic ties" of the US legislation.
Some of the main features of US-Soviet trade in re-
cent years are likely to continue beyond 1977. Soviet harvests
will continue to be the main determinant of annual trade levels.
Moscow's high regard for US technology, which is reflected in
recent contracts and continued negotiations, indicates that
even without Eximbank credits, imports of US equipment should
continue at about the 1976 level. This is likely to be the case
especially in areas in which the US has a clear advantage--such
as various types of oil exploration and pumping equipment, com-
puters, and large earth movers.
I I Several other factors will sustain US-Soviet trade.
The long-term grain agreement calls for the USSR to purchase
at least 6 million tons of US grain--worth about $700 million--
annually through 1980. In addition, a 1973 agreement between
Occidental Petroleum and the USSR provides for the Soviets to
export ammonia, urea, and potash in exchange for several hun-
dred million dollars worth of US superphosphates. Occidental
Petroleum's purchases from the USSR, valued at a similar amount,
will not all be shipped to the US. 25X1
The International Investment Bank of Eastern Europe's
Council for Mutual Economic Assistance is seeking a $300-million
Eurodollar loan from a syndicate led by Commerzbank of West
Germany. This would be the third large Western loan to the bank
since October 1975; the other two, also managed by West German
banks, were of $350 million and $600 million.
The terms and purpose of the loan now being sought are
not known the loan would be
on behalf o s sister bank in CEMA, the International Bank
for Economic Cooperation. IBEC's efforts to obtain a $200-mil-
lion loan were thwarted in January when British legal advisers
to the consortium of lending banks questioned IBEC's legal sta-
tus and the possibilities for legal recourse in the event of
default.
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Although it is possible that some of the loan is for
IBEC, IIB has large financial needs of its own and has been
planning to borrow on the Eurodollar market since shortly before
IBEC failed to obtain its loan. IIB is financing the East Euro-
pean countries' contribution to the gas pipeline being built
from the Orenburg gas field in the USSR to the Soviet-Czechoslo-
vak border. To cover the estimated cost of the pipeline, several
hundred million dollars will be needed in addition to the almost
$1 billion the bank has already borrowed.
I I Syndication of a new IIB loan may be difficult. The
problems encountered with the IBEC loan will make bankers wary
of making a new loan, although research has already indicated
that IIB's charter gives it a legal status more comforting to
the bankers than IBEC's. In addition, the new loan would prob-
ably be carried out under West German law, which is not. as
restrictive as the British law that applied to the IBEC loan.
The leg-al problems may prove to be less an obstacle
to the IIB loan than IIB's credit status. In addition to the
increased reluctance of Western banks to lend to CEMA in gen-
eral because of the East's rapidly growing debt, IIB's past
heavy borrowing--particularly in relation to the bank's meager
capitalization--is likely to complicate the current loan further.
At the least, IIB will probably be asked to pay a high rate of
interest on the loan--possibly a higher rate than the 1.25-per-
cent interest spread over the London interbank rate that the
SOUTH KOREA: Human Rights
The South Korean government and its domestic opponents
are watching closely for any US reaction to the recent confirma-
tion by the South Korean Supreme Court of sentences for the so-
called Myongdong dissidents. The group is named for the cathedral
in Seoul where it issued an antigovernment manifesto a year ago.
I I The government clearly anticipates some form of US
criticism, but one of President Pak's aides has urged privately
that the US refrain from a strong, specific, and public state-
ment.
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s ou the final sentencing of the Myongdong defendants pass
Critics of Pak, on the other hand, are concerned that,
quietly, international and especially US interest in the human
rights issue in South Korea may fade. Pak's adversaries are hop-
ing for a strong US reaction to the court ruling even if its'im-
mediate consequence is a stiffening of political controls. This
helps explain the renewed public challenge of Pak's rule by sev-
eral of the Myongdong group, including former president Yun Po-
sun, immediately after the sentencing.
reportedly believe, however, that amnesty for the Myongdong de-
fendants is still possible at some point, perhaps if the politi-
cal situation remains generally quiet during the next few mont-hs.
The US embassy reports that the South Korean public
I
has reacted calmly so far to the sentencing, and that Pak's more
moderate opponents were not surprised by it. Many South Koreans
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CUBA-AFRICA: Castro Visit
I ICuban President Castro arrived yesterday in Angola,
the a es stop on his tour of southern Africa. Despite Cuba's
extensive involvement in Angola, this is Castro's first visit
to the country, although he has met with President Neto on two
previous occasions.
I I Castro will be interested in discussing, among other
ings, why Neto has not been able to cope with Angola's insur-
gency problem. Cuban troops, together with government soldiers,
have sustained substantial casualties over the past year but
have made little headway in reducing the insurgency.
While in Mozambique, Castro by-passed much of the
sight-seeing that marked his Tanzanian visit and conferred at
length with President Machel and other Mozambican leaders. No
details of the talks have been disclosed, but Castrc was quoted
as saying he was ready to "intensify" the good relations between
the two countries, and the Mozambican press announced that a
"cooperation" agreement had been signed.
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I I There are still indications that Castro intends to go
on to a ia, but no date for his arrival has been announced.
The press in Lusaka has suggested that Castro will hold talks
with Rhodesian nationalists during his Zambian visit. Soviet
President Podgorny, now in Tanzania, is scheduled to arrive in
Zambia on Saturday. F7 I
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J Spain's new electoral law, published officially yes-
terday, is worded in such a way as to allow Prime Minister
Suarez to run in the June parliamentary election if he so
chooses. It specifically forbids current ministers to partici-
pate unless they first resign their government posts, but Suarez
is exempted by virtue of his formal title as President of the
Government.
/Suarez' options thus remain open, pending a
decision by the Su reme Court on whether to legalize the Spanish
Communist Party.
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Top Secret
(Security A sdioddi r Release 2007/03/06 : CIA-RDP79T00975AO29900010042-4
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