NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A030100010042-0
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 16
• Document Creation Date: December 16, 2016
• Document Release Date: February 3, 2005
• Sequence Number: 42
• Publication Date: May 25, 1977
• Content Type: REPORT

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NATIONAL INTELLIGENCE DAILY CABLE
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Wednesday May 25, 1977 CG NIDC 77-121C
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NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
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National Intelligence Daily Cable for Wednesday
May 25, 1977.
The NID Cable is for the purpose o in orming
senior US officials.
CONTENTS
ARAB STATES: Reaction to Israeli Election
SPAIN: Basque Prisoners
FRANCE: Socialist Economic Plans
OECD: Export Promotion
SWEDEN: Labor Problems
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ARAB STATES: Reaction to Israeli Election
Arab leaders are predictably apprehensive about the
Likud Party's election victory in Israel. Party leader Begin's
tough statements about retaining portions of Israeli-occupied
territories have fueled Arab media attacks on the Israeli lead-
ers, who are characterized as being intransigent. The more mod-
.erate Arabs, however, are determined to maintain the momentum
toward a negotiated solution to the Arab-Israeli problem and
are emphasizing the need for increased US pressure on Israel.
I Despite pessimism in Arab media, as well as some
gloomy private remarks by officials, moderate Arab leaders ap-
parently are determined not to overreact and thereby raise new
obstacles to US Middle East peacemaking efforts. The moder-
ates, such as Egyptian President Sadat, are publicly saying
that nothing has really changed because all Israeli leaders
take a hard line on settlement issues.
These leaders maintain that the US still holds the
ey to exacting concessions from Israel, and that it is up to
Washington to ensure that a new Israeli government does not
block peacemaking efforts. Some Arab commentators have even
called the Likud victory a positive development because it
firmly establishes the intransigent nature of Israeli leaders,
and thus will force the US and other Western powers to apply
pressure on Israel to make the compromises necessary for peace.
I IThese themes are intended by the moderate Arab lead-
ers reassure their constituents that the decision to pursue
a resumption of negotiations was correct despite the results of
the Israeli election. The Arabs also seem to be serving notice
to the US that it must act even more decisively to save the
peace process. The moderates are further underscoring the need
for continued political efforts by warning that if the diplo-
matic offensive becomes hopelessly bogged down they will turn
to more forceful means to restore Arab rights.
I I Threats of renewed warfare or use of the "oil weapon"
May o be intended to parry the criticism by Arab militants
who have steadily opposed any peaceful settlement with Israel.
The militants probably feel strengthened by Begin's victory
and the prospect of an Israeli government willing to offer
little or no compromise to the Arabs.
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The Iraqis, for example, have welcomed the Likud
victory as confirming their view of Israel as an "expansionist
entity." They seem to expect the election results will lead to
the collapse of settlement efforts and the consequent weaken-
ing of Arab leaders who favored negotiations, and that Iraq's
influence will grow in the Arab world. The Iraqi leadership
may also see Begin's victory as a chance to test Washington's
commitment to the principle of Israeli withdrawal from occupied
territories.
Moderate Palestinians probably are concerned about
une en ancement of "rejectionist" influence, particularly
within their ranks. One medium-level Palestinian official said
that the election results weaken the general line of modera-
tion within the Palestine Liberation Organization. Another
stated that war was now more likely in the Middle East.
The Soviets, meanwhile, are trying to exploit Arab
apprehension about the Likud victory. Pravda has charged that
Begin will be "more rigid" than his predecessors and that Likud
has an "openly expansionist platform." Izvestia and Soviet
Arabic-language broadcasts have concentrated on Begin's remarks
in order to argue that the search for a political settlement
will be more difficult and the chance for renewed hostilities
greater.
I IThe Soviet leaders will presumably welcome the effect
of Begin 's victory, which they see as isolating the US as a
supporter of Israel and complicating US diplomatic efforts in
the area.
SPAIN: Basque Prisoners
I IThe Spanish government's decision Zast weekend to
sena Zve Basque prisoners into exile appears to have calmed
the situation in the Basque provinces, where demonstrations
demanding amnesty for "political prisoners" had overshadowed
and unsettled pre-election politics. Terrorists remain intent
on upsetting the election process.
The five Basque prisoners were freed by Prime Minis-
ter Suarez on the condition that they accept exile; they ar-
rived in Brussels on Sunday. All of the 18 remaining Basque
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prisoners, most of whom were jailed for acts of terrorism,
have taken the first steps in having their cases processed.
They have formally requested pardons or, failing that, exile.
I I-The major Basque political parties have characterized
e decision to exile the most controversial prisoners as less
than the full amnesty they wanted, but have publicly acknowl-
edged that the government's move has calmed the situation. Both
the Basque Nationalist Party and the Basque Socialist Party
have affirmed their intention to participate in the parliamen-
tary election on June 15. Even some of the more radical Basque
groups, which had earlier announced their withdrawal from the
contest, are now having second thoughts.
I I The Basque Fatherland and Liberty organization, or
at east some faction of that terrorist group, seems intent on
making a last-ditch attempt to derail the election process. A
member of the group reportedly called a radio station to take
credit for the kidnaping last week of a conservative Basque in-
dustrialist as well as for the murder of a policeman in San
Sebastian on Thursday and vowed that the Fatherland and Liberty
group would continue its armed struggle. The Basque Nationalist
Party asserts that it has information that "ultra-left Basque
elements" are planning to kidnap a senior party leader.
Right-wing terrorists also have an interest in seeing
the pre-election atmosphere disturbed and have recently become
more active--especially in the Basque region, where they have
retaliated for Basque terrorist actions. With the Basque par-
ties, as well as the Communists and Socialists, calling for an
end to the violence, the terrorists have little chance of seri-
ously disrupting the election and the continued dismantling of
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//Leaders of France's opposition alliance--Social-
ist Francois Mitterrand, Communist Georges Marchais, and left
Radical Robert Fabre--met last week to update their "common pro-
gram." Eonomic problems, the most difficult for the alliance,
may have to be resolved at another summit.//
//Mitterrand, who used the summit meeting to under-
score is leadership of the alliance, does not want any major
additions to the coalition's program, fearing that such changes
might cost the left the crucial swing votes that it needs to
win the March 1978 legislative elections. Mitterrand's tough
stance was prompted in part by his annoyance at the Communists
for publishing an extravagant cost estimate of the common pro-
gram, which he publicly disavowed. The Communists said the
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program would entail an enormous increase in government expen-
ditures that would be financed largely by taxing gains in busi-
ness efficiency.//
//Socialists consider these estimates to be hope-
ess y unrealistic and believe that the Communists published
the estimate in order to gain publicity, detract from Mitter-
rand's reputation as leader of the left, and from "sheer nasti-
ness." Mitterrand made it clear that the Socialists are pre-
pared to make only a limited number of compromises, implying
that these do not include many of the changes in the program
that the Communists want.//
//The Socialists, who are trying to reassure French
businessmen about the left's intentions, hold the trump card of
greater electoral strength; their partners cannot come to power
without them.//
//The sharpest clash will come on the issue of na-
tionalization. Mitterrand will not agree to the Communist pro-
posal that the steel and automobile industries be added to those
slated for nationalization. There is also sharp disagreement on
the related issue of compensation for shareholders in national-
ized firms. The Socialists would give the shareholders new non-
voting stock, thus allowing them to continue sharing profits
but not control.//
//The Communists want compensation to be in the
form ot ixe -income bonds. A possible compromise might be to
give shares, not in individual companies, but in a national in-
dustrial trust.//
//The two parties should be in closer accord on
unemployment, which has become a far more important issue since
the original common program was drafted in 1972. Both agree
that unemployment--currently averaging about 1 million--must be
reduced substantially but differ as to what is attainable. The
Communists have mentioned a target of 200,000 unemployed by
1980; the Socialists doubt that joblessness can be cut below
500,000. Even the Socialist goal is optimistic: it assumes crea-
tion of 500,000 jobs during the first year of a leftist govern-
ment.//
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//Although foreign exchange controls are not likely
to be mentioned in the common program, the Socialists intend to
impose them immediately in order to impede capital flight
The
.
specific measures will be kept secret until the left is in power
so that methods of evasion cannot be devised in advance. A likely
possibility--used by past French governments--would be to impose
a punitively high exchange rate on the transfer of financial as-
sets out of France.//
I I The Socialists plan to permit foreign banks to con-
tinue operating in France--albeit under close surveillance--in
part because of the access they provide to the international
capital market. Socialist economists believe Paris may have to
borrow abroad during the first two years of a leftist government
to offset capital outflows. Foreign banks would be expected to
disallow any large-scale transfers, which presumably would be
made to evade controls on French banks.
The summit set up a 15-member working group charged
with reaching a consensus on those issues where it is possible
and laying the groundwork for final negotiation at the summit
level on those issues where no agreement can be reached. The
deadline for the completion of the group's work is early July.
//Economic problems will be the most difficult for
e a iance to resolve. Such matters as the extent and timing
of nationalizations and the priorities to be accorded economic
and social programs will probably have to be resolved at another
summit. Each partner in the alliance will put up a stiff fight
for the revisions it wants, but none will push to the breaking
point with legislative elections only 10 months away.//I
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OECD: Export Promotion
/Efforts by industrialized countries to discour-
age import barriers have prompted many governments to adopt new
measures to promote exports. Adoption of such measures is not
limited, however, to countries with the most severe trade and
payments problems.//
//Italy and the UK, which are among those count-
ing most eavily on export-led growth, are doing little more
than others. The Japanese, who pushed economic recovery with
exports last year by rapidly expanding official credits and by
slowing yen appreciation, are now concentrating on sales of
whole plants to less-developed countries. Tokyo is still expand-
ing official export credits but at a much lower rate than a
year ago.//
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//Meaningful quantification of programs is diffi-
cu t. West Germany, for example, appears to be giving more new
official credit guarantees to exporters than France, which has
a sizable trade deficit. Paris, however, still gives incentives
to a much greater share of exports than does Bonn.//
I //Since the beginning of this year, several gov-
ernments nave expanded export credit facilities for underwrit-
ing both buyer and supplier credits. West Germany has raised
its funding ceiling by $44 billion, an increase of $14 billion,
citing increased demand by German exporters for official guaran-
tees on export contracts, particularly those with the Soviet
bloc and members of the Organization of Petroleum Exporting
Countries.//
//The UK recently raised the funding limit on its
Export Credit Guarantee Department by $12 billion, to $45 bil-
lion, with a, provision for an additional increase of $27 bil-
lion. London also will begin extending foreign currency loans
directly to overseas buyers of British goods.//
//The Netherlands plans a 30-percent increase in
oan guarantees for exports of capital goods and will begin
subsidizing private chamber of commerce operations abroad.
Austria's cabinet has approved measures enlarging official ex-
port financing facilities and lowering interest rates on ex-
port loans.//
//Other programs run the gamut from investment in-
centives tor export industries to export inflation insurance
schemes. Paris recently authorized an additional $600 million
in concessionary loans to small- and medium-sized firms that
meet specific export sales targets. Japan is offering an in-
surance scheme to cover performance bonds for plant exports
to developing countries. Portugal has joined the ranks of coun-
tries providing export insurance to cover the risks of exchange
rate fluctuations and increased production costs.//
be exported. Madrid also is considering increasing tax conces-
sions for exporters.//
eign investment law to promote exports; one of the conditions
for greater than 50 percent foreign equity participation in a
new or existing company is that at least half of output must
//The Spanish government has tailored its new for-
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//A number of countries have selected target areas
for major sales promotion efforts. The French have just launched
a campaign aimed at doubling exports to the US by 1981. Spon-
sored by the French manufacturers' association and strongly
backed by the government, the drive will involve at least 12
trade missions to the US, including the one earlier this month
led by Foreign Trade Minister Rossi.//
//Italian cabinet ministers--in a departure from
previous practice--are also on the road in search of markets.
Since the beginning of this year, foreign, industry, or trade
ministers have visited the USSR and numerous OPEC capitals
suggesting government-to-government barter arrangements under
which Italy would offer goods, services, and technology in ex-
change for natural gas and oil.//
I /Japan has pulled back from government-to-gov-
ernment ea s; Japanese companies were unable or unwilling to
follow through on the deals government officials negotiated
with Iraq and Iran after the oil embargo.//
I //Italy is trying in a small way to emulate Jap-
anese trading companies. Some large Italian firms and banks
have for years been forming consortia for major overseas con-
struction projects; now Italy's state petroleum company has
asked government approval to form a separate trading company.//
//The British also have made some limited insti-
tutional changes aimed at boosting exports. In January, Britain's
nationalized industries formed a joint export group to offer
consultation and project management and to set up turnkey pro-
jects for consortia of state and private sector companies. The
National Enterprise Board, established last year to provide in-
vestment aid to industry, is forming a subsidiary company, In-
sac Data Systems, to market computer software abroad.//
//Most governments are careful to avoid unseemly
competition or export markets, although they are aware that
international political reactions are less severe on that count
than those generated by protectionist measures. Export infla-
tion insurance programs are being scrutinized now by a General
Agreement on Tariffs and Trade working party to determine
whether they operate as subsidies to exporters and thereby vio-
late GATT rules.//
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ing any changes.
clined to extend them for possibly six me before '-at-
//Governments of all the major industrial countries
nave g to abide by guidelines aimed at reducing competi-
tion among export credit agencies. The guidelines set terms for
the maximum maturity of credits and for minimum downpayments
and interest rates. Austria, Spain, and Greece, have not joined
the consensus; Austria's plan to lower interest rates for ex-
port credit is in fact contrary to it. The guidelines are due
to expire at the end of June, but most major countries seem in-
//Sweden is facing its worst labor difficulties
to atmosT 70 years, and the threat of a general strike is grow-
ing. If the Swedish employers' association goes ahead with its
planned lockout of selected white collar workers scheduled for
midnight tonight, the white collar unions will retaliate with
a major strike on June 1. Such a strike would paralyze most of
Sweden's industry within a few days and probably force the gov-
ernment to take the unpopular step of imposing a settlement.//
//Talks on a new wage agreement and employee bene-
fits have dragged on since January. Some tentative agreements
with blue collar unions might not survive if the situation de-
teriorates. The center-right government of Prime Minister Fall-
din so far has refused to prevent the lockout. Some government
spokesmen have admitted, however, that the government has the
responsibility to intervene if the strike becomes a general
one.//
//The solution will not be easy. Industry already
suffers from low productivity and extended strike activity will
force productivity even lower. Moreover, increasing production
costs, caused in part by spiraling wages, have cut into indus-
try's domestic and foreign markets.//
25X1n //The question of whether the labor problems could
be better handled by the opposition Social Democrats is sure
to plague the present coalition. The government is already in
trouble over Falldin's policy opposing nuclear energy develop-
ment. The nuclear issue was expected to come to a head next
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year, possibly after a referendum on the subject. If Sweden is
plunged into a lengthy general strike, however, the present
government may not be around for a hearing on nuclear energy.
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