NATIONAL INTELLIGENCE DAILY WEDNESDAY 5 NOVEMBER 1980

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82T00466R000500030018-7
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 23
• Document Creation Date: December 22, 2016
• Document Release Date: April 5, 2010
• Sequence Number: 18
• Publication Date: November 5, 1980
• Content Type: REPORT

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4f""*, Director of 1
'g'{ f
1* J) Intelligence
National Intelligence Daily
Wednesday
5 November 1980
CO NID 8O-26OJX
Copy ? 2 3 6
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Situation Reports
Iraq-Iran . . . . . . . . . . . . . . . . . . . . . . . . . 1
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Briefs and Comments
USSR: Ustinov's Illness . . . . . . . . . . . . . . . . . 6
USSR - Western Europe: Demarches on China . . . . . . . . 7
Libya-Chad-Sudan: Concern Over the Libyan Threat. . . . . 8
Yugoslavia-USSR: Status of Relations. . . . . . . . . . . 9
Netherlands: TNF Developments . . . . . . . . . . . . . . 10
South Korea: Major Loan . . . . . . . . . . . . . . . . . 11
Israel-France: Aircraft Purchase . . . . . . . . . . . . . 12
Special Analysis
Poland: Balance-of-Payments Deficit . . . . . . . . . . . 13
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land subject to inundation
Kuwait
Abadan Island
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Iraqi President Saddam Hussein, speaking before the National
Assembly yesterday, portrayed Iraq as a nation rreDared for a long
war if Iran does not give in to its demands.
Saddam reiterated Iraq's willingness to withdraw
immediately from Iranian territory in return for "com-
plete" recognition of Iraqi rights. He did not spell
out his conditions, but Baghdad has consistently pressed
for full sovereignty over the Shatt al Arab, restoration
of disputed territory in the central border region, and
a pledge of noninterference in Iraqi domestic affairs.
Baghdad is unlikely to display any public flexibility on
its terms to end the fighting so long as Tehran continues
to demand a complete withdrawal of Iraqi troops before
a cease-fire can take place.
The Iraqi leader said his regime would not become
isolated politically and that Iraq had "friends" who
would supply it with more arms if needed. Saddam was
somewhat defensive about the slow pace of Iraqi military
progress, claiming that Baghdad's strategy was designed
to conserve military strength for the long haul.
The US Interests Section in Baghdad reports that
the popular mood continues to be one of considerable
forbearance toward the war. Saddam has been working
hard at improving domestic civilian and military morale.
His well-publicized visits to families of soldiers at the
front or who have been killed in the fighting have appar-
ently been effective.
Diplomatic Activity
The meeting of the Nonaligned Movement foreign min-
isters in Belgrade ended yesterday with little progress
in setting the groundwork for mediation. The ministers
agreed to meet again in India and urged Cuba and the
Palestine Liberation Organization to continue their con-
sultations with Iran and Iraq.
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Consultations also continue at the UN, but there is
Tehran is still insisting that any resolution on the
crisis call for complete Iraqi withdrawal from Iranian
territory.
Soviet Views on Mediation and Hostages
Moscow, however, may doubt the nonaligned effort will
be successful and is adjusting its propaganda line on the
hostage issue to the new mood in Iran favoring the hos-
tages' release. A broadcast on Monday on the Soviet-
sponsored National Voice of Iran asserted that Iran should 25X1
realize its "legitimate demands" and that Iran has no "need"
for the presence of the-US hostages.
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Possible Iranian Oil Shortages
Iranians will face severe deprivation over the next
several months if Iraq succeeds in putting Iran's three
remaining refineries--Shiraz, Esfahan, and Tehran--out
of operation. Imports could only fill a fraction of
Iran's average prewar oil consumption of about 550,000
barrels per day. Winter needs add an additional 100,000
barrels to daily consumption. Iran could import some
50,000 barrels per day from Western sources, but only
at the expense of other imports, such as food. Should
the USSR make the major political and economic commitment
to supply oil products, total imports would still amount
to no more than 70,000 barrels per day.
Widespread consumer shortages would be likely by
January. Hardships would be especially severe in urban
areas where substitute fuels needed for heating and
cooking are not readily available. Even if consequent
public discontent forced Iran to accept a cease-fire,
relief would not be immediate, especially if Iraa had
destroyed Iran's remaining refineries.
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The free trade union Solidarity has again committed itself to
a symbolic strike unless the Supreme Court delivers an acceptable
verdict on the union's appeal of a lower court's unilateral revision
of its charter.
The official Polish press agency yesterday reported
that Solidarity's appeal has reached the court, which the
regime has pledged will act by 10 November. The decision
on whether to strike will come the day after the court's
decision; if there is a strike, it will consist of a
series of two-day work stoppages in Warsaw and Gdansk
and then spread throw hout the country in the course of
a week.
Solidarity's decision represents a compromise among
union leaders: it allows them to intensify their pressure
on the regime without resorting to a general strike that
would further damage the economy and that might provoke a
severe response from the regime. The temperance of the
threatened action, however, may only encourage the regime
to believe it is freer to deny Solidarity some of the
rights and privileges it seeks.
Soviet and East European Attitudes
A strike--even a symbolic one--would heighten concern
among Warsaw's allies about the ultimate outcome of
Poland's domestic crisis. East Germany and Czechoslovakia
already are maintaining a constant flow of inflammatory
commentary. The East German party daily yesterday re-
printed a Czechoslovak commentary from the weekend that
accused the Polish unions of being linked with anti-
Communists and of threatening the Warsaw government.
The Soviet media have for the first time referred
to events in Hungary in 1956 and in Czechoslovakia in
1968 in connection with current developments in Poland.
In a TASS item on Saturday and a Moscow radio broadcast
to Poland on Monday, the Soviets condemned the alleged
role of Radio Free Europe and other Western broadcasts
for aggravating the Hungarian and Czechoslovak crises
and claimed that their "role" in Polish events is "equally
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5 November 1980
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ominous." Although Moscow's statements support the Kania
regime's own media campaign against alleged Western inter-
ference in Polish affairs, they also seem designed
deliver an implicit warning to the Polish people.
Assistance to the Unions
Solidarity apparently is receiving at least some
modest assistance, such as printing presses and funds,
from Western trade unions. The International Confedera-
tion of Free Trade Unions is playing a coordinating role,
maintaining communications with Polish union leaders and
passing along requests to those of its affiliates that
wish to furnish funds and equipment.
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Defense Minister Dmitry Ustinov
photographed during October 1980
Supreme Soviet session
First Deputy Defense Minister
Nikolay Ogarkov photographed
during May 1980 Warsaw Pact
meeting
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A Soviet source has told US Embassy officers in Moscow that
Defense Minister Ustinov is suffering from cancer and will step
down soon.
Since early last April, the 72-year-old Ustinov has
missed several important meetings and ceremonies and has
been absent from public view for extended periods. His
attendance at the Supreme Soviet sessions on 22 and
23 October marked his first appearance since early Sep-
tember.
Although Ustinov received the Ethiopian Defense
Minister late last month, he failed to join other Polit-
buro members at award ceremonies for President Brezhnev
and Ethiopian leader Mengistu. The next meeting he would
be expected to attend comes tomorrow, when Soviet leaders
gather for a ceremony preceding the anniversary of the
Bolshevik Revolution.
One of Ustinov's principal deputies, Marshal Nikolay
Ogarkov, 63, probably has the inside track to succeed him.
Ogarkov has filled in for Ustinov with increasing regu-
larity, most conspicuously during visits last month by
Syrian President Assad and Afghan Prime Minister Karmal.
He also canceled an official visit to Finland in October,
claiming that he was needed in Moscow to act as defense
minister because of Ustinov's illness.
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USSR - WESTERN EUROPE: Demarches on China
Following the recent flurry of visits to Beijing by West Euro-
pean leaders, Moscow appears to have Launched a new campaign to
deter several NATO allies from helping China to modernize its econ-
omy and build up its armed forces.
Soviet diplomats in Bonn, Paris, and The Hague
recently have delivered demarches warning that China's
military posture on its Siberian border and adjacent to
Vietnam endangers detente. They also have insisted that
Western steps to arm China would force the USSR to take
the necessary measures to secure its frontiers and to
prevent any change in the balance of forces unfavorable
to Moscow.
In Copenhagen, Oslo, and Rome, other Soviet diplo-
mats have made the same points in informal conversations
and have also suggested that growing US-Chinese military
cooperation could have "very grave consequences" for
US-Soviet relations. At a minimum, the Soviets probably
hope that some West European leaders will urge the US to
be more restrained in its dealings with China on security
Although the Chinese lack the funds at this time
to make extensive purchases of major weapon systems,
the Soviets may fear that the recent high-level visits
to Beijing could pave the way for substantial arms deals
in the future.
In the meantime, the Soviets are using economic
influence to block West European dealings with Beijing.
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Niger J ;t
,N'DJAMENA
Nigeria ,r.,/
Cameroon
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LIBYA-CHAD-SUDAN: Concern Over the Libyan Threat
The movement of Libyan forces toward the town of Abeche in
eastern Chad poses a potential threat to western Sudan.
extend their control to the Sudanese border.
Minister Habre. If Libyan units were to capture Abeche,
they could interrupt Habre's supply lines from Sudan and
Libya has for some time backed President Goukouni
in the Chadian civil war; Egypt and Sudan support Defense
Libyan forces probably would not cross into Sudan,
but their presence near the border would make it easier
for Libyan leader Qadhafi to support cross-border raids
by Sudanese dissidents and to incite the Sudanese across 25X1
the border against President Nimeiri's regime.
There have been unconfirmed reports since early 1980
that the Libyans have been recruiting men from tribes in
western Sudan for paramilitary training in Libya. Tripoli
also may be trying to cultivate support in the area by
providing the inhabitants with food and fuel, which are
chronically in short supply.
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Relations between Yugoslavia and the USSR appear to be im-
proving, despite continuing differences over key international
Officials in both Belgrade and Moscow evidently
believe that it is in their interest to work for closer
ties. The Yugoslav leadership is anxious to improve bi-
lateral relations during the post-Tito transition and
may be seeking economic assistance. The Soviets, pre-
occupied with Afghanistan and Poland, welcome improved
relations with Yugoslavia, a leader of the Nonaligned
Movement.
Over the past two months, polemics have decreased
while high-level visits have increased. Soviet Planning
Chief Baybakov recently visited Belgrade; Politburo
member Grishin is scheduled to arrive there early this
Nonetheless, major policy differences remain between
Moscow and Belgrade. The Yugoslavs took a firm stance on
Kampuchea during the recent visit by the Vietnamese For-
eign Minister, and Belgrade continues to oppose the Soviet
intervention in Afghanistan and Cuban influence within
the Nonaligned Movement.
The warmer relations between Belgrade and Moscow
also may be having an effect on Bulgaria. A high-level
Yugoslav official recently characterized Yugoslav-Bulgarian
relations as the best in years.
Polemics on the Macedonian issue have virtually
disappeared from the Yugoslav and Bulgarian press, and
Bulgarian leader Zhivkov personally attended the opening
last month of a Yugoslav exhibit in Sofia. Yugoslav For-
eign Minister Vrhovec is scheduled to visit Bulgaria at
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NETHERLANDS: TNF Developments
The Democrats '66 party congress passed a resolu-
tion last weekend opposing cruise missile deployment at
this time in the Netherlands but agreed to reconsider
its decision later. More important to long-range efforts
to strengthen support for TNF modernization, however, is
the indication from Democrats '66 parliamentary leader
Terlouw that the party would not consider joining any
coalition involving the Liberals, the staunchest TNF
supporters among Dutch parties. The Democrats '66 prob-
ably will play a pivotal role in forming the new govern-
ment after the election next May, and Terlouw's statement
encourages speculation that the party wants to form a
coalition with the Christian Democrats, many of whom are
unenthusiastic about deployment, and the Labor Party,
which is opposed.
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SOUTH KOREA: Major Loan
Seoul has secured unexpectedly favorable terms for
syndication of a $500 million Eurodollar loan for the
Korea Development Bank, enabling Seoul to meet its for-
eign capital requirement for 1980 of almost $8 billion.
The loan terms--.875 percent above the London Interbank
offer rate spread over eight years--are comparable to
rates for South Korea's last major syndication in March
and are better than had been anticipated only a month
ago. Despite slim profit margins, there should be little
problem lining up participants; Western bankers feel they
must demonstrate support for South Korea in order to par-
ticipate in future and potentially more profitable syndi-
cations. The favorable terms also reflect weak loan
demand in international markets and the increased confi-
dence within the banking community re ardin stability
under the Chun government.
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A Tel Aviv - based domestic airline, Arkia, has
bought a $39 million A-300 airbus from France's Airbus
Industrie under exceptionally good credit terms, includ-
ing 9 percent interest charges on a loan repayable over
10 years. The French consortium, which is making in-
creased inroads into Western aviation markets with the
A-300 and A-310 wide-body aircraft at the expense of US
manufacturers, has often granted easy credit to Middle
.Eastern buyers. With government support, Airbus Indus-
trie will press Arkia and El-Al, Israel's international
airline, to buy additional aircraft when representatives
of each visit France early this month.
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POLAND: Balance-of-Payments Deficit
Poland's trade deficit with non-Communist countries will be
considerably larger in 1980-82 than we previously forecast. We
believe Warsaw has lined up sufficient financing to satisfy its
needs for 1980, but raising the necessary funds for 1981 and 1982
will be difficult.
The strikes last summer, the wage-settlements at
the end of August, and a worse-than-expected harvest
indicate that the trade deficit for 1980 will now reach
some $1.7 billion, about $500 million above our prestrike
forecast. This deficit will also be higher than we had
thought because Warsaw seems committed to appeasing con-
sumers by increasing supplies of consumer goods. Exports
will suffer and imports will have to be boosted. A
below-average grain harvest and a sharp decline in the
potato crop will probably require substantially in-
creased imports of grain and processed foods, notably
meat. With interest payments on the debt expected to 25X1
total about $2.7 billion, the current account deficit
will probably reach $3.8 billion this year.
Outlook for 1981-82
The Polish economic scene is shifting so rapidly
that balance-of-payments projections are hazardous.
The outlook, however, is worse now than it was last
summer. We expect the hard currency trade deficit will
level off at about $1.5-1.6 billion in 1981 and 1982.
The current deficits, because of rising interest pay-
ments, are projected at $4.3-4.7 billion.
The upward revision in our estimate of the trade
deficits in 1981-82 reflect:
--The government's virtual abandonment of its
recent austerity program and consequent re-
direction of resources from exports to per-
sonal consumption.
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--Limits on Warsaw's ability to cut drastically
imports of producers' goods without causing
serious disruption to the economy.
--The impact on production of a shorter work-
week and elimination of round-the-clock work
in the mines that was introduced as part of
the strike settlements.
Financing the Borrowing Requirements
Poland's borrowing requirement this year will total
about $10 billion to cover the anticipated current
account deficit of $3.8 billion, repayments of medium-
and long-term debts of $5.9 billion, and probable in-
creases in assets--net loans and bank deposits--of $300
million. Poland probably will be able to raise the
needed funds. About $7.3 billion in credits has already
been raised or is being negotiated, and the remaining gap
should be easily filled.
Covering the financial gaps in 1981-82, about $12
billion in each year, will be more difficult. Problems
in obtaining a $325-million syndicated loan last August
showed that Western banks are becoming increasingly reluc-
tant to lend to Poland. The Poles had originally sought
$500 million, and the loan includes about $75 million
from Communist-controlled Western banks, which entered
the syndication to prevent the negotiations from collaps-
ing. The syndication could be considered a rescheduling
because the participating non-Communist banks were for
the most part lending amounts roughly equal to what the
Poles were to repay them in the near future. De facto
rescheduling of this sort has been the hallmark of Polish
borrowing efforts for more than a year.
Reluctance to lend to Poland has been intensified
by the abandonment of the government's short-lived
austerity program. If banks refuse to continue rolling
over the Polish debt, a formal rescheduling effort will
be required. At the end of 1979, about $18 billion in
medium- and long-term debt was due for repayment in
1980-82. A multilateral rescheduling, which now seems
likely, will aggravate Poland's problem of finding money
to finance the large current account deficits.
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Poland could continue to receive sufficient external
financing only if several unlikely events occur:
--Commercial banks, rather than face the embar-
rassment of acknowledging bad loans and the
complex procedure of arranging a multilateral
rescheduling, will continue to roll over
Poland's debt informally.
--The banks, under pressure from exporters in
search of markets and from governments moti-
vated by economic and political considerations,
continue to extend government-backed loans to
provide additional funds.
--The USSR and other Communist countries provide
Disintegrating western confidence in Poland, how-
ever, makes muddling through improbable. Warsaw should
be able to tap Communist governments and Western banks
for one-third to one-half of the $9 billion needed to
cover the projected current account deficits in 1981-82.
If this is right, direct Western government aid of as
much as $6 billion will be necessary unless Warsaw under-
takes a crash program to cut imports and to divert pro-
duction from the domestic economy into exports.
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