NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A030900010124-1
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 14
• Document Creation Date: December 20, 2016
• Document Release Date: September 18, 2006
• Sequence Number: 124
• Publication Date: December 15, 1978
• Content Type: REPORT

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Central
Intelligence
National Intelligence Daily
(Cable)
State Dept. review completed
Top Secret
CG NIDC 78-0291C
ecem er
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COPY ~. ,
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National Intelligence Daily (Cable)
CONTENTS
IRAN : Domestic Situation . . . . . . . . . . . . . 1
MOROCCO: Challenge to Hassan . . . . . . . . . . . 3
CUBA-AFGHANISTAN: Coordination . . . . . . . . . . 4
UK: Survives Vote of Confidence . . . . . . . . . 5
BRIEF . . . . . . . . . . . . . . . . . . . . . . . 6
Japan
FEATURE ARTICLE . . . . . . . . . . . . . . . . . . 7
JAPAN: Changing Economic Signals
LATE ITEM . . . . . . . . . . . . . . . . . . . . . 10
ARGENTINA-CHILE: Beagle Channel
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//The Shah of Iran is trying to seize the initiative
from his domestic opponents by meeting with independent
and opposition political figures. The military govern-
ment is also orchestrating pro-Shah demonstrations and
encouraging religious leaders to break with the opposi-
tion. The Shah's initiatives are unlikely to have any
real impact unless he is willing to make some fundamen-
tal concessions that would sharply reduce--if not eli-
minate--his role in ruling Iran.// 25X1
The Shah met yesterday with former Prime Minister
Ali Amini amid widespread speculation that he may name
Amini Prime Minister soon. It is unlikely, however, that
a government headed by Amini would appease any signifi-
cant element of the opposition. He is not a member of
an opposition group, and his appointment as Prime Mini-
ster in 1962 is po larly believed to have been at the
request of the US.
//Conversations between US officials and members
of the National Front indicate, moreover, that the oppo-
sition is not considering any conciliatory strategy and
is continuing to insist that the Shah give up virtually
all his powers. Indeed, National Front leader Karim San-
jabi on Wednesday told the press after meeting with the
Shah that he had rejected an offer to form a coalition
government.//
Relatively small pro-Shah demonstrations have been
held during the last two days in many provincial capi-
tals, and pro- and anti-Shah demonstrators have report-
edly clashed in the streets of Shiraz and Tabriz.
Oil production has been running at about 1.1 or 1.2
million barrels per day since 11 December, compared with
5.9 million barrels per day at the beginning of the month
oil company executives are pessimistic about the possi
bility of near-term increases in output, and the few Ira-
nian workers still on the job have told supervisors they 25X1
are willing to produce only enough crude to meet domes-
tic requirements, although it is not clear whether oil
workers could obtain information on domestic needs.
These workers have threatened to walk out, and some
strikers have threatened violence, if the consortium of
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 oil companies that produces most of Iran's oil attempts
to increase production or if military technicians are
brought in to work with them. About 150 naval technicians
are now manning two oilfields by themselves.
The labor problems at the major refinery at Abadan
threaten a serious deterioration in the supply of petro-
leum products to the domestic market; local shortages of
gasoline, oil, and kerosene have already developed. Some
imports are trickling in, but these will not be enough
if production at the Abadan refinery is much reduced. fl
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MOROCCO: Challenge to Hassan
Moroccan King Hassan is facing the first signifi-
cant demand that he Loosen his firm grip on power since
he Launched a program of political Liberalization three
years ago. The Leftist Socialist Union of Popular Forces,
one of Morocco's two major parties, has made a bold caZZ
for modifications of the monarch's heretofore unques-
tioned authority. The assertiveness of the Socialist
Union may be symptomatic of problems that seem likely to
surface in Morocco next year. 0 25X1
The Socialist Union made its move in a declaration
unveiled at the end of the congress the party held this
week. The government's initial reaction was to seize the
party's newspaper to prevent publication of the declara-
tion, which in effect characterized the monarchy as
feudal. If the Socialist Union does not pull back from
its challenge, however, the King will not hesitate to
revert to the repression of the early 1970s, when he or-
dered the arrest of several hundred dissidents. II 25X1
Press reports indicate that Hassan has abruptly
postponed his private visit to France allegedly because
of illness. He may in fact want to monitor the situation
personally. II
The Socialist Union has privately lobbied for polit25X1
ical and economic reforms that would substantially re-
duce the King's autocratic powers, but until now has is-
sued no public call for fear of provoking the King.
The decision to attack the previously sacrosanct
monarchy was made by party militants who are said to be
embittered by the government's manipulation of the na-
tional and regional elections last year. I 25X1
The Socialist Union may have overestimated its pop-
ular support and acted prematurely. The party recently
formed a labor organization and has influence in the Na-
tional Student Union, but it has a long way to go in
strengthening these organizations and regaining the pop-
ular following it had in the 1960s. 25X1
Hassan's base of popular support is largely built
on one issue--his success in forcing Spain in 1975 to
relinquish its Saharan province to Morocco and Mauritania.
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That venture, however, has proved costly in both men and
resources. Popular enthusiasm has cooled, and the issue
is unlikely to divert public opinion much longer from
the chronic problems of inflation and declining wages,
which are already causing labor unrest.
//The visit of Cuban Foreign Minister Malmierca to
Afghanistan late last month apparently resulted in agree-
ment by the two governments to coordinate their foreign
policies, to increase cultural exchanges, and Later to
discuss Cuban technical, scienti ic, and military assis-
Lance to Afghanistan.//
//The basic reason for Malmierca's visit was to get
Afghan support for Cuban positions at the summit meeting
of the nonaligned movement scheduled for Havana next
September. He was also interested in solidifying the
close relationship developed after Cuba's immediate re-
cognition of the new Afghan Government following the coup
in April.//
//Malmierca is said to have given Afghan officials
the impression that Cuba is prepared to provide signifi-
cant civilian technical assistance in a variety of fields.
This possibility is given added weight by the appointment
this fall of Raul Garcia Pelaez--a member of the Cuban
Communist Party Central Committee and a former member of
the party Secretariat--as Ambassador to Kabul.//
//Afghan Foreign Minister Amin has publicly asserted
that his government would seek "from all our revolution-
ary friends" any assistance necessary to thwart threats
to the regime. This could well be an invitation to the
Cubans, who we believe would be willing to provide at
least limited security assistance or counterinsurgency
traininq if requested.//
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//Britain's minority Labor government narrowly sur-
vived a vote of confidence in Parliament Last night that
climaxed two difficult days for Prime Minister Callaghan.
In the long run, it could prove to have been a hollow
victory because the events of the past two days may have
seriously damaged the government's credibility and ef-
fectiveness in carrying out its economic policies and in
dealing with the trade unions. Prospects that the govern-
ment will be able to survive until its mandate expires
next October are substantially reduced.// 25X1
//Support and abstensions from minor parties helped
the government; these parties feared, they would suffer
heavy losses if a general election were called now. Dis-
enchanted leftwing Laborites, whose abstentions on votes
earlier this week helped block parliamentary endorsement
of Callaghan's pay policy, were also unprepared to let
the government fall. December public opinion polls in-
dicate that the government would not fare well if an 25X1
election took place now; the Conservatives have regained
their lead over Labor, and dissatisfaction with the gov-
ernment's economic policies has increased sharply.//
0
//The most important development of the past two
days is that significant parts of Callaghan's economic
strategy now appear to be in shambles and that he may
not be able to pick up the pieces. Early in yesterday's
debate, Callaghan--in a pitch for support--confirmed
that the government had abandoned the use of sanctions
against firms that breach the pay guidelines and hinted
that it would try other approaches--presumably restric-
tive fiscal and monetary policies.//
//The government's ability to control inflation and
to deal with union demands over the next several months,
however, is at best uncertain. The Conservatives are
likely to step up their attacks on Callaghan's handling
of the economy and to attempt to exploit any issue that
will embarrass the government.// 1 -1 25X1
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Japan
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The Japanese Government is apparently contributing
$60 million to a program for developing by 1990 fully
automated factories incorporating various building-bloc
machine tool systems. The funding, matched by another
$60 million from four private Japanese companies, will
cover .a developmental period extending from 1977 to
//Each of the four companies has already developed
a machine tool subsystem designed to form a modular
machine tool system when combined with the other three
subsystems. These units have high-precision, self-adjust-
ing controls that compensate for tool wear and provide
finer control than conventional machine tools. The sec-
ond phase of the program, which has already begun, will
add high-performance laser cuttincr and to the
system in the next two years.//
//If successful, this program could virtually double
the level of precision achieved by current machine tool
operations--partly because of advances in real-time
sensing technology--and the work force involved could be
cut in half. In addition, retooling a factory for a new
product line could be accomplished in days or weeks
rather than the present months or years.//
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JAPAN: Changing Economic Signals
//The makeup of Prime Minister Masayoshi Ohira's
first cabinet may foreshadow a change in Japan's economic
direction. Although the cabinet was chosen largely for
political balance, the economic views of the new minis-
ters may indicate an eventual move away from big budget
deficits. Some ministers will probably push for intro-
duction of a value-added tax--an indirect tax levied on
each stage of production and affecting consumers much
like a sales tax--to boost tax revenues. The ministers
apparently agree on a target of about 6 percent GNP
growth over the next few year but the fer over the
means to attain that goal.// r tff 25X1
The list of economic appointments, in rough order
of importance to Ohira's economic purposes, include:
-- Ippei Kaneko, 65, Finance Minister. A tax special-
ist with excellent credentials, Kaneko favors
implementing the value-added tax to boost gov-
ernment revenues and to avoid a wider budget
deficit. I 25X1
-- Masumi Esaki, 62, Minister of International Trade
and Industry. Esaki has strong ties to business
and to former Prime Minister Tanaka. He will
push for high, domestic-led growth.
-- Tokusaboro Kosaka, 61, Director of the Economic
Planning Agency.
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He has substantial influence with old-line
big business. Ohira probably selected Kosaka to
be a spokesman for Japan in foreign economic
affairs. 0 25X1
-- Michio Watanabe, 54, Minister of Agriculture.
Ohira's choice to coopt.the political power of
the far right wing of the Liberal Democratic
Party, Watanabe will probably have the smallest
role in economic policy formulation. II 25X1
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 //Beyond his immediate cabinet, Ohira may seek eco-
nomic advice from Toshio Komoto, Chairman of the Liberal
Democratic Party's influential Policy Affairs Research
Council. The only Ohira appointee with previous experi-
ence in a cabinet-level economic position, Komoto will
probably use his post to continue to push for more gov-
ernment economic stimulation.//
//Ohira's search for solutions to Japan's economic
problems will probably extend to academicians as well as
the business community. Ohira abolished the post of Ex-
ternal Economic Affairs Minister held by Nobuhiko Ushiba
but is seeking to retain Ushiba at least until Japan
completes negotiations in the multilateral trade negotia-
tions.//
//Ohira will want to reduce the huge government bud-
get deficits and current account surpluses that derailed
former Prime Minister Fukuda's five-year economic plan
after just three years. Fukuda avoided a value-added tax
because of resistance from the opposition parties and
his concern over its inflationary effect; without the
tax, deficit spending soared. Japan's budget deficit as
a proportion of GNP is now more than twice the US or West
German deficit.//
//On the trade front, Ohira will certainly want to
keep the surplus with the US on a steady, if slow, de-
cline. He has made no promise, however, to seek a global
current account balance. Fukuda had promised to strive
for "equilibrium" in Japan's global balance of payments
by 1979--a promise that implied a reduced current ac-
count sur lus offset by long-term capital outflows.//
I
//Ohira will have difficulty coming up with a plan
that simultaneously meets the goals for sustained growth,
more balanced trade, and reduced budget deficits. The
new government needs time before it can adopt a coherent
game plan. As a whole, the cabinet is less experienced
in economic olic aking than the outgoing Fukuda cabi-
net.//
//For the near term, Ohira will have to live with
growing budget deficits to keep the economy going.
Ohira's fiscal year 1979 budget, which will be drafted
by January, will probably call for growth in excess of
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6 percent. Government outlays on the general account may
rise 16 percent over the revised 1978 figure, pushing
the deficit financing requirement to over 37 percent of
the total budget.//
A new medium-term plan including, perhaps, a pro-
posal for the value-added tax should be completed before
the major countries' economic summit next spring. Be-
cause the tax will not apply to goods sold abroad, it
could have a beneficial impact on exports. In addition,
it could help finance the housing and other social wel-
fare expenditures needed over the longer term. Ohira also
may give special consideration to private investment by
cutting corporate taxes at the same time he imposes the
value-added tax. I 25X1
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LATE ITEM
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ARGENTINA-CHILE: Beagle Channel
//No major changes have occurred in the Argentine-
ChiZean situation since the coZZapse of diplomatic efforts
Lo resolve the Beagle Channel dispute, but both sides are
continuing preparations for possible hostilities. Both
countries insist they are still open to possible compro-
mise, but no concrete steps have been taken to avert a
conflict.//
//The balance of forces favors Argentina, which
should be able to carry the day in any conflict. In the
southern region, Chile's 6,000 men would have to contend
with about 21,000 Argentine soldiers, and Argentina also
has the advantage in ships, aircraft and ground force
weapons and equipment.//
//Although Argentina could begin operations as early
as today, the bulk of its fleet probably will not arrive
in the Beagle Channel area before late toda and Army
troops are still being deployed.//
//The possibility of a clash is generating alarm in
other South American capitals. Peru and Bolivia are watch-
ing the situation closely, but have indicated that they
will remain neutral unless military activity spills over
their borders. Brazil also intends to keep out of the
dispute and has formally called on both Argentina and
Chile to redouble their diplomatic efforts.//
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