NATIONAL INTELLIGENCE DAILY (CABLE)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A031400250002-4
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 13
• Document Creation Date: December 15, 2016
• Document Release Date: April 30, 2004
• Sequence Number: 2
• Publication Date: May 30, 1979
• Content Type: REPORT

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Intelligence
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National Intelligence Daily
(Cable)
State Dept. review completed
Top Secret
Top Secret
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National Intelligence Daily (Cable)
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NATO: Foreign Ministers' Meeting . . . . . . . . 1
Dominica: Government Threatened by Labor
Unrest . . . . . . . . . . . . . . . . . . . . 2
Thailand: New Government . . . . . . . . . . . . 4
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Turkey: New Foreign Investment Law . . . . . . . 6
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Special Analysis
Less Developed Countries: Impact of Higher
Oil Prices . . . . . . . . . . . . . . . . . . 7
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BRIEFS AND COMMENTS 25X1
NATO: Foreign Ministers' Meeting
//NATO foreign ministers meeting in The Hague today 25X1
and tomorrow will focus on the final provisions of the
SALT II treaty. The West Europeans are likely to inquire
about the Senate ratification debate and will want to be
briefed on plans for the US-USSR summit.//
//The ministers will want to discuss US plans for
bringing up the Mutual and Balanced Force Reduction talks
at the summit, and consider any new proposals that might
be put forward. The West Europeans continue to react
cautiously to recent Soviet bilateral approaches to the
US on MBFR. The allies will reaffirm the West's inten-
tion to maintain its position on force data and to keep
putting pressure on the East. They will also reemphasize
the importance of collective reductions b NATO and the
Warsaw Pact.//
//France's dissatisfaction with the references to
theater nuclear force modernization and arms control in
the draft ministerial communique could spark a heated
debate. Since France does not participate in the mili-
tary business of the Alliance, it objects in principle
to the foreign ministers discussing subjects it regards
as military. The West Germans, British, and Italians
see the communique as an important opportunity to demon-
strate the importance NATO attaches to theater nuclear
matters.//F_ I
//The French are pushing language that the other
allies fear will seem to endorse a recent Warsaw Pact
proposal, on a European Disarmament Conference, rather
than the conference France wants to convene. The French
also disagree with paragraphs in the draft communique
about the Egyptian-Israeli peace treaty. Paris seeks a
statement in the communique supporting a Palestinian
homeland.//
//The allies will also discuss military and economic
aid to Turkey, Greece, and Portugal. These three eco-
nomically troubled countries will be seeking firm commit-
ments on additional aid from the Alliance, but such help
is unlikely.//
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DOMINICA: Government Threatened by Labor Unrest
//After only seven months of independence from the
UK, the eastern Caribbean island of Dominica is facing
serious Labor unrest that could topple Prime Minister
Patrick John. The violent demonstrations yesterday ap-
parently were organized by moderate groups favoring a
new government, but continued instability--which now
seems Likel -will benefit a small rou of ro-Cuban
25X1 Leftists.//` -
//Rioting yesterday resulted in at least one death
and seven serious injuries from police gunfire as pro-
testers tried to prevent John from pushing through the
House of Assembly two bills limiting labor activities.
John, whose government is near bankruptcy, was attempt-
ing to block a prolonged strike by the powerful Civil
Service Union--which brought the government to its knees
in 1977 after a costly 47-day strike.//
Since independence, Dominica's predominantly black,
impoverished population of 80,000 has been confronted by
severe economic problems, and the country faces a growing
potential for political instability. John has not been
able to halt declining production in the agriculture-
based economy, increasing trade deficits, and sharply
rising unemployment--now about 30 percent of the labor
force--that has hit the island's restive young people
particularly hard. If John is forced to call elections,
we doubt that a new moderate government formed by the
present poorly organized opposition party would fare
much better. A small group of pro-Cuban radicals, how-
ever, will continue to make gains among the island's
youth, who are becoming increasingly alienated from both
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The trouble in Dominica, on the heels of the coup
in Grenada in March, will intensify the concern of other
governments in the eastern Caribbean, most of which have
similar problems. Although such instability is in Cuba's
interest, we have no evidence of Cuban involvement in the
25X1 Dominican unrest.
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Prime Minister Kriangsak's new government is off to
a rocky start. A month after the election of 22 April,
Kriangsak finally succeeded in putting together a cabinet,
but it is a stale collection of old faces, minor poli-
ticians, and senior military officers without any genuine
reflection of the civilian political forces that have re-
turned to the scene. Public reaction to the new ministers
has been generally negative, and there already is specuZa-
tion that the cabinet will be reshu led within the next
25X1 two or three months.
None of the four major political parties is repre-
sented. Although Kriangsak reportedly tried to entice
some well-known civilian political figures into the cab-
inet, he apparently was unwilling to make the compromises
they demanded. The civilians may have been hesitant to
join a government they see as faltering; they may believe
their interests are better served by waiting for Kriangsak
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The Economic and Foreign Affairs portfolios are par-
ticularly weak. The Prime Minister holds two key min-
istries--Finance and Agriculture--making him that much
more vulnerable should he be ineffective in handling
Thailand's serious economic problems. To general dismay,
Kriangsak has carried over the ineffectual Foreign Min-
25X1 ister. Kriangsak has dominated foreign policy, however,
and he probabl is comfortable with a loyall
holding the Forei n Affairs portfolio.
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TURKEY: New Foreign Investment Law
Ankara has drafted a new foreign investment law that
is intended to help Turkey attract $1.2 billion in for-
eign private capital over the next five years. Obstacles
to investment, however, including a hostile bureaucracy,
excessive red tape, an overvalued currency, a foreign ex-
change shortage, and domestic political turmoil, are cer-
tain to undermine the new code. Investment by foreign
firms has played a minor role in Turkey's development.
Foreign investment is most important in Turkey's petroleum
refining; over the past few years, however, foreign oil
firms have begun to reduce their involvement.
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LESS DEVELOPED COUNTRIES: Impact of Higher Oil Prices
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The economic outlook for the less developed coun-
tries--not including those who are members of the orga-
nization of Petroleum Exporting countries--is consider-
ably less favorable than in 1978. With the decline in
the economic growth rates of the developed countries,
continued OPEC restraint in development spending and aid,
and, most importantly, the prospect of tighter oil sup-
plies and higher oil prices, the non-OPEC developing
countries face slower real growth, the return of higher
inflation, and sharp deterioration in their current ac-
counts. Increases in debt service for high- and middle-
income developing countries in 1978 and 1979 add to the
less favorable outlook.
Events in oil markets this year have considerably
complicated development planning and economic management
for the non-OPEC developing countries. Those relying on
Iranian oil production have had to scramble to find new
sources while others have had to cope with disruptions
in their petroleum supplies caused by the impact of
Iranian shortfalls on the global distribution system.
Many have had to purchase oil on the spot market to meet
immediate needs.
Non-OPEC developing countries may be able to control
the growth of their needs for crude oil and petroleum
products. Following the price increases in 1973 and 1974,
they managed to hold the annual growth in their oil con-
sumption to about 6 percent. This time, supply con-
straints probably will force them to freeze the net vol-
ume of imports and to reallocate oil from private to in-
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Even with conservation efforts, however, the decline
in economic growth rates in developed and OPEC countries
will present serious current account problems for the
non-OPEC developing countries. Continued growth in im-
ports of intermediate goods, expected slumps in commodity
prices in the second half, and rising service payments by
themselves would cause a substantial widening in the non-
OPEC current account deficit this year from last year's
$28 billion to about $32 billion.
The picture worsens considerably when the impact of
oil price hikes is taken into account. If we assume
that the 24-percent increase implemented thus far this
year will hold through the end of 1979, the further oil-
induced deterioration of the trade deficit for the non-
OPEC group would
amount
to $5 billion. This includes an
increase of $1.6
billion
in the net oil import bill and
$3.4 billion in
indirect
costs incurred through short-
falls in export
earnings
and larger non-oil import bills.
The current account result would be a deficit of $37
25X1 billion.
If we assume a further 10-percent or so rise in oil
prices for the second half of the year, the oil-related
increase in the trade deficit would then be close to
$6 billion, edging the current account deficit toward
$40 billion. About $2 billion would come from the in-
creases in the net oil import bill, with the rest ac-
cruing from the indirect costs.
The outlook this year for real growth among non-OPEC
developing countries--including oil-rich Mexico--is 5
percent. Last year--and over the longer term--the rate
has been closer to 5.5 percent. While this overall de-
celeration is not that awesome, it masks situations in
individual countries--especially in Central America and
sub-Saharan Africa--that are considerably worse.
The impact of oil prices on inflation in non-OPEC
developing countries has been even more striking than the
impact on growth. The oil crisis was the main factor in
boosting the group's average rate of price increase from
a range of 10 to 30 percent in the 1950s and 1960s to a
range of 30 to 55 percent from 1974 to 1978. Last year
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however, was the third year in a row that the performance
had improved; Latin American countries in particular
showed major gains in the battle. This year, non-OPEC
developing countries--excluding Argentina--will suffer
an average 5 percentage point increase in the rate of
inflation. One of the hard-hit areas will be East Asia,
where rigorous, disciplined moneta management has in
the past held inflation in bounds.
On top of all this, the outlook for debt service
is deteriorating, especially for the high- and middle-
income developing countries. After striving to press
their exports, these countries managed to bring debt
service ratios down in 1976 to the levels that prevailed
before the oil crisis of 1973 and 1974. Last year, how-
ever, slow export growth, coupled with the impact of
larger repayments to private lenders abroad, meant that
debt service rose again, a pattern likely to repeat this
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Most of the debt pressure has thus far been faced
by only a handful of countries. In the high-income 25X1
group, Mexico, Argentina, Brazil, and Chile confronted
rapidly rising debt-service ratios last year. In the
low-income group, debt-service ratios were not badly out
of line with the pre-1973 era. In the middle-income
group, however, there is a more generalized problem.
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Given current economic conditions, the strategy of
funding payments deficits by large-scale private borrow-
ing that trades off future growth against current needs
cannot be sustained indefinitely. Average reserve hold-
ings by developing countries and their growth rates will
turn down more shar 1 if OPEC continues to raise the
price of oil.
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