NEAR EAST AND SOUTH ASIA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000200760001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 82
• Document Creation Date: December 27, 2016
• Document Release Date: July 27, 2011
• Sequence Number: 1
• Publication Date: February 14, 1986
• Content Type: REPORT

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Directorate of
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Near East and
South Asia Review
14 February 1986
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NESA NESAR 86-005
14 February 1986
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Near East and
South Asia Review
14 February 1986
Page
Articles Arab-Israeli Affairs: The Outlook From Tel Aviv
In the next several years, the Arab-Israeli conflict may well be
highlighted by failure to achieve a Jordanian-Israeli peace
agreement, another Syrian-Israeli war, intensified Palestinian-
Israeli conflict within Israel and the occupied territories, and
growing Israeli dependence on the United States.
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Israel-Syria: Missile Crisis
The continued presence of missiles along Syria's border with
Lebanon has been a source of concern in Israel, but, barring an
inadvertent clash, neither Israel nor Syria seems ready to force the
issue?suggesting the missile crisis could drag on for some time.
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Israel-USSR: If Moscow and Tel Aviv 9
Restore Diplomatic Ties
Israeli officials continue to look for signs that Moscow may soon
ease restrictions on Jewish emigration and normalize bilateral
relations. Although not imminent, such changes could have a major
impact on Israel's political and economic situation and the prospects
for achieving a US-brokered peace settlement in the Middle East.
Syria-Turkey: Uneasy Relations
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Syria and Turkey, which in the past have moderated their bilateral
disputes because of pressing national security threats on other
frontiers, appear to be inching toward confrontation over water
rights to the Euphrates River and Syrian support for Turkish
dissidents.
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Jordan: Curbing the Growth of Islamic Fundamentalism
King Hussein has begun a serious crackdown on the growing
expression of Islamic fundamentalism?particularly within
government circles?which he views as a possible threat to his
policies and the Middle Eastern peace initiative.
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Egypt: Problems for Mubarak
Opposition to President Mubarak, while not strong enough to topple
him, is growing and causing him serious concern. The credibility of
his regime hinges largely on its economic performance at a time
when the economy is steadily worsening, and popularity is hostage to
any Israeli and US actions perceived as anti-Arab.
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Libya: Economy Under Siege
The slide in world oil prices and US economic sanctions are the
latest jolts to the Libyan economy, and they come at a time of
unprecedented popular discontent over Libyan leader Qadhafi's
misguided economic policies and penchant for costly foreign
adventures.
The Libyan Oil Industry: Dependence on Foreign Companies
Foreign operating companies form the backbone of the Libyan crude
oil industry. These companies not only provide infusions of badly
needed capital but also bring Libya essential technical skills and
managerial experience.
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Abu Abbas: Isolated and Dim Prospects
Palestine Liberation Front leader Muhammad Abbas, responsible
for the Achille Lauro hijacking, appears to be settling down in
Baghdad, but he is likely to have little, if any, freedom to operate
because of restrictions laid on him by PLO Chairman Arafat and
the Iraqi Government.
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Iran?Soviet Union: Bearish Economic
Relations Reflect Political Differences
Economic ties between Iran and the Soviet Union have declined
since 1983 largely because of the chill in political relations.
Although neither side is willing to make the political concessions
necessary for a substantial expansion of trade, recent diplomatic
contacts are likely to lead to gradual improvement in economic
relations.
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Afghanistan: Masood and the Civilian Population in the Panjsher
The civilian population in and around the Panjsher Valley
contributes toward insurgent effectiveness by paying taxes, aiding
insurgent resupply, building military facilities, and providing
intelligence, and insurgent chief Masood takes pains to cultivate
their support.
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Pakistan: Narcotics and Tribal Politics
Islamabad's crackdown against tribes along its western border and
in the North-West Frontier Province in December disrupted some
tribal drug traffickers activities and forced others to move their
bases into Afghanistan, but it probably will not decrease the overall
amount of drugs produced, processed, or trafficked through the
area.
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India: Gandhi Tackles Congress Party Problems
Prime Minister Gandhi's recent top-level party appointments and a
highly critical speech he gave to party regulars at the end of 1985
suggest he has made reorganizing and revitalizing the moribund
Congress Party one of his major domestic goals for 1986.
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India's Bureaucracy: "A Fence Eating the Crops"
Bureaucratic foot-dragging and inertia pose a serious obstacle to
Indian Prime Minister Gandhi's domestic agenda; to his interest in
improving Indo-US relations; and his ability to reduce inefficiency,
redundancy, and corruption in public service is limited.
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Sri Lanka's Tea Estate Tamils: Adding to the Communal Stew
An agreement reached last month between New Delhi and Colombo
granting Sri Lankan citizenship to stateless Tamil teaworkers has
provided a boost to Indian diplomacy, but has also fueled communal
violence and provided the opposition with a rallying point against
the government.
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Briefs
Lebanon: Balance-of-Payments Surplus
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Libya: Oil Industry Adjustments
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Water Project Slowdown
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Morocco: Cash Crisis Continues
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Syria: Financial Troubles Mount
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Tunisia: Cash Crunch t
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Oil Crisis
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Articles
Arab-Israel Affairs: The Outlook
From Tel Aviv
The Arab-Israeli conflict will be highlighted by the
following trends in the next several years:
? A Jordanian-Israeli peace agreement is unlikely,
even if direct talks between Amman and Jerusalem
can be arranged. Should negotiations commence,
regional instability will intensify. Should they begin
and then fail, the regional equilibrium could
collapse.
? Another Syrian-Israeli war is likely unless Syria's
succession problem debilitates the country
significantly. Such a conflict could be an aerial war
of attrition, another encounter in Lebanon, or a full-
scale war. Israel will win any major conflict, but the
cost will be high.
? The Palestinian-Israeli conflict within Israel and the
occupied territories will become more intense and
bitter. Large-scale violence is unlikely. Periodic
outbursts of disorder will become more frequent,
possibly seriously eroding civil order in mixed cities
such as Jerusalem.
? Israel's dependence on the United States will grow.
US prestige in the region will suffer from failed
peace initiatives. Close contact with Syria is
essential but not sufficient to prevent fighting with
Israel.
The Peace Process
In retrospect it is clear Jordan's King Hussein
embarked on an important peace initiative in early
1984 to legitimize Jordan's policy of nonbelligerency
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with Israel. In a series of steps?reconvening
parliament with West Bank participation,
reestablishing ties to Egypt, allowing the convening of
the Palestine National Council, and signing the 1985
agreement with the Palestine Liberation Organization
(PLO)?Hussein signaled his willingness to engage in
a dialogue on a peace settlement. The process bogged
down over procedural issues?none of them new?and
the King's rapprochement with Syria may indicate he
is backing away from his initiative.
Because the King's initiative never got beyond
procedural issues, Israel and Jordan did not discuss
the substantive gap facing them concerning the West
Bank and Jerusalem. In fact, the gap on the
substantive issues of sovereignty and land is widening.
Moreover, it is the King's appreciation of the size of
the gap?not simply the procedural issues?that
restrains him from direct talks. The gap is widening
because Israeli perceptions of their minimal
requirements in the disputed territories are expanding
steadily under pressure of the facts on the ground,
while Arab perceptions are frozen. Israelis will not
surrender today what they were ready to give the
Arabs in 1967 or 1977. It is critical to note that a
whole generation of Israelis is entering political life
with no memory of an Israel without the West Bank.
Many of these Israelis cannot conceive of an Israel
without the West Bank, and a few are prepared to
fight other Jews to hold onto it. A sizable bloc of
Israeli voters, represented by Likud, is unwilling to
make any territorial compromise in the West Bank.
Among those in Labor who favor a compromise, there
is a rough consensus that all of Jerusalem, the Jordan
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Valley heights, and the key settlement areas around
Ma'ale Adumin and Gush Etzion should not be
returned to Jordan. As for the Gaza Strip, Labor
insists on retaining the settlement bloc between the
frontier with Egypt and Gaza city. All of Labor's
reservations reflect security concerns and/or well-
established facts on the ground.
King Hussein, however, can only accept a settlement
in which virtually all of the West Bank, including part
of East Jerusalem, is returned to Arab rule. A
truncated West Bank, deprived of its capital of East
Jerusalem and virtually surrounded by Israel, is not
the King's goal nor a peace he could sell to other
Arabs. A settlement on Labor's lines, for example,
would leave the northern and southern parts of the
West Bank linked by roads running through Israeli
Jerusalem. Hussein's critics would compare such an
agreement critically to Sadat's peace treaty with
Israel in which he received all of Sinai. The King can
settle for no less than Sadat, but no Israeli
government can approach these terms.
Nor can the King agree to a settlement based on
shared sovereignty or autonomy. All such deals would
appear to most Arabs as fig leaves to cover Israeli
annexation. Moreover, any such arrangement would
face massive problems in workability, compounded by
the fact that, on the Israeli side, the most interested
participants in such arrangements?the settlers?
have the most to gain from obstinacy and
obstructionism.
Finally, any peace agreement faces a critical problem
of who would enforce it and prevent the creation of
terrorist cells in the West Bank and Gaza. If the
Israel Defense Forces stay, few Arabs will back the
agreement. The Israelis do not trust international
forces, whose track record against terrorism is poor.
Furthermore, not many states are likely to volunteer
troops. If the Israelis allow a sizable Jordanian
military presence, it could ultimately pose a threat to
Israel. A small force could not stifle Palestinian
nationalism and irredentism.
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Should Jordanian-Israeli talks begin, Syria and its
allies are certain to react by stepping up terror and
assassination, by heating up Israel's Lebanon frontier,
and possibly by attacking or threatening Jordan or
Israel. Should negotiations begin and fail, the King's
domestic legitimacy will be weakened, despair will
grip the moderate Arab front, Egypt will again be
isolated, and the fragile equilibrium of regional
stability will be eroded. The de facto Israeli-Jordanian
peace could be undermined. In this regard, it should
be noted that Hussein's initiatives were a major factor
in causing the outburst of international terrorism in
1985 in the Middle East as rival Palestinian groups
sought to demonstrate their commitment to armed
struggle.
Syrian Ambitions
Since Egypt's withdrawal from the Arab-Israeli
confrontation, Syria and Israel have engaged in a
struggle for dominance of the Levant. Whether by
design or accident, another war between the two is a
strong possibility in the late 1980s or early 1990s.
Syrian leaders, particularly President Assad,
constantly reiterate their objective of achieving
strategic parity with Israel. This is not simply
rhetoric. It reflects deeply held hostility to Israel and
a conviction that only the restoration of a balance of
power will force Israel to make major concessions to
the Arabs.
Syria is in the process of a massive arms buildup to
buttress its position. In part, this is a belated reaction
to Israel's post-1973 buildup, but it also has an
offensive objective. Assad probably is willing to
consider a surprise attack for limited military goals to
reorder the political map of the area. This is the
strategy he and Sadat agreed on in 1973. In Assad's
eyes, Sadat began betraying their common cause
when he failed to agree to Soviet efforts to halt the
1973 war in its early days when the Arabs were
winning. A key Syrian objective in a new war will be
to destabilize the Egyptian-Israeli peace and the
moderate regime in Cairo.
Most Israeli-Syrian watchers, both in and out of
government, are convinced Assad will try again, if he
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lives long enough, to complete the buildup. A
prominent Israeli specialist on Syria speculated
recently that Assad may move in mid-1987,
coincident with the 800th anniversary of Saladin's
victory in 1187 over the Crusaders, which will be a
period of major symbolic importance for Syrian and
Arab nationalism.
These Israeli perceptions form the backdrop to events
like the continuing Israeli-Syrian missile crisis. Well-
informed Israeli academic Syrian watchers believe
senior military and government officials have already
discussed the pros and cons of a preemptive war to
halt Syria's buildup.
The struggle between Syria and Israel for
preeminence in the Levant has focused in recent years
on Lebanon. Syria scored major successes against
Israel in this rivalry in 1984 and 1985, but it would be
a mistake to believe the Israeli-Syrian conflict in
Lebanon is over. Powerful Israeli bureaucracies,
including Mossad and the Israel Defense Forces'
Northern Command, remain involved and interested
in Lebanese politics, although their interests are not
identical. Israeli national interests remain very much
at stake, despite popular disillusionment. A change of
leadership in Jerusalem or an upsurge of violence on
the frontier would lead to new confrontations. For its
part, Syria is determined to make Lebanon part of the
confrontation front against Israel?a commitment
specifically outlined in the recent Syrian-backed
Tripartite Agreement to end the Lebanese civil war.
Lebanon's internal collapse in the mid-1970s was in
large part caused by the destabilizing impact of the
increasingly stronger Assad regime in Syria. A similar
internal upheaval in Syria is much less likely, but a
debilitating succession struggle after Assad's death
could postpone indefinitely Syria's showdown with
Israel. On the other hand, a weak successor regime
could seek enhanced legitimacy by attacking Israel.
Under almost all scenarios, Damascus (not Moscow)
will retain its independent decisionmaking authority.
A future war will be costly. Many Israeli military
experts believe Syria will use its strategic weapons?
Scuds and SAM-5s?if war breaks out on the Golan
Heights. Both sides also have some chemical and
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biological warfare capability. The Syrians remember
vividly that in 1973 Israel bombed Damascus and
other Syrian cities. As proved in the 1981 Hamah
uprising and often in Lebanon, Syria has no scruples
about waging war on civilians. Israeli officers express
respect for the defensive stamina of Syrian troops,
especially commando units, and admit future clashes
will be hard fought.
Within Israel?Two Societies
Nineteen years after the Six-Day War, Israel and the
occupied territories are a political and economic entity
divided into two societies. One society is relatively
rich, armed, and powerful, while the other by
comparison is poor, defenseless, and impotent. It is a
potentially explosive combination.
Economic integration is considerable. Tens of
thousands of West Bank and Gaza Arabs do the
menial chores of the Jewish state. Hours before dawn,
convoys of laborers leave Gaza, for example, to build
homes, pick fruit, and collect garbage around Tel
Aviv. Although it is illegal for Arabs to stay overnight
inside Israel proper, thousands do. An Israeli
newspaper estimated 50,000 Gazans, or 1 out of 10,
sleep every night in Tel Aviv.
Israeli occupation has brought some prosperity to the
territories?a key factor in their relative quiescence?
but the economic crisis in Israel is increasing
unemployment in the territories. Cutbacks in oil
production by the Gulf states are also eroding
opportunities for Arab youth. This economic
conjuncture threatens to add fuel to the political
confrontation.
Political extremism in the guise of religious
fundamentalism and radicalism is growing on both
sides. Among Gazans and West Bankers,
fundamentalism exerts its hold on the young,
especially the generation that has been born under
Israeli rule. These radicals are first attending to
changing the social mores of Palestinians. The
confrontation with Zionism has been deliberately
postponed until a new Islamic man is ready.
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On the Israeli side, religious extremism is a fast-
growing phenomenon manifested in Kahanism and
the legislative trend against secularism. An Israeli
journalist predicted last year that by the mid-1990s
Jerusalem will be divided into an Arab eastern sector,
a secular Jewish southern sector, and an Orthodox
Jewish northern sector with deep faultlines between
them. Allied to the religious right stands the so-called
new Zionism of rightwing extremists like Ariel
Sharon and the Tehiya organization.
Last summer witnessed an unprecedented wave of
Arab terrorism against individual Israelis in the
border towns on both sides of the pre-1967 lines,
where commercial interaction between Jew and Arab
is most frequent.
The Israel Defense Forces quieted
the territories by October 1985, but all sides recognize
another wave of violence is inevitable.
Just as the complex interactions between Israel and
the occupied territories erode the prospects for a
Jordanian-Israeli peace, they also carry the potential
to foster more frequent episodes of violence. Both the
fedayeen and Jewish terror underground will seize on
opportunities to create crises. Some Israelis fear
mixed cities, especially Jerusalem, could become the
Belfasts of the Middle East.
Major Arab unrest is unlikely because of internal
cleavages among the Palestinians and the military's
ability to deport troublemakers to Jordan.
Nonetheless, the situation is dynamic. There is little
reason to believe that the two societies tied together in
Israel can avoid growing violence.
Implications for the United States
No peace and tension with Syria means Israel, the
United States' closest ally in the Middle East, will
grow more dependent on US assistance. Large
defense budgets will keep the Israeli economy
unbalanced. Financial aid to Israel will remain high,
as will the related US aid to Egypt to keep the
southern front quiet.
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As dependence grows, so will the complexities and
contradictions that are part of the peculiar
relationship between Washington and Tel Aviv. The
United States will continue to face tough choices
between its commitment to Israel and its other
interests in the Arab world.
US prestige and credibility in the area is inherently
tied to the peace process. To the extent the United
States emphasizes that connection and meets almost
certain failure, its credibility will suffer. Quiet
probing for opportunities will be less costly in the long
run but will fail to satisfy moderate Arab demands for
more pressure on Israel.
A key US role in the area is to serve as a reliable
channel for Syrian-Israeli dialogue. The United
States can help to develop limits of behavior?for
both sides?to manage this confrontation. Improving
US channels to Assad is an essential, but probably not
sufficient, mechanism for averting another war. US
failures in Lebanon in 1982-84 were primarily a
reflection of the insufficient emphasis placed on the
Syrian factor and lack of timely communication with
Damascus. Another such error could be more costly.
Syrian leaders need to be deterred from adventurism,
while Israeli policymakers must recognize Syria's
legitimate concerns. Only the United States can play
an intermediary role.
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Israel-Syria: Missile Crisis
The Israeli shootdown of two Syrian MIG-23s last
November was the proximate cause of what has
become a test of wills between Israel and Syria. After
the clash, Damascus reacted decisively?first by
briefly fielding mobile air defense missiles in Lebanon
and later by deploying missiles along the border with
Lebanon. As the Israelis ever more vociferously
denounced their presence and Damascus moved closer
to pushing the principal Lebanese factions into
signing the Tripartite Agreement, the Syrians
responded by reintroducing surface-to-air missiles
into Lebanon.
The threat of Israeli retaliation against Syrian clients
in Lebanon for their involvement in the terrorist
attacks in Rome and Vienna apparently led Syrian
President Assad to withdraw the missiles from
Lebanon. The Israelis, however, continue to complain
about the missiles on the border, and Syria shows no
signs of removing them?suggesting the crisis could
drag on for some time. The Israelis apparently believe
they cannot drop the matter without emboldening
Damascus to press them on other issues, and the
Syrians apparently believe they will be able to garner
additional political and possibly economic support,
regardless of whether the Israelis attack.
The Air Clash. During a reconnaissance mission over
Lebanon on 19 November 1985, Israeli F-15s shot
down two Syrian MIG-23s flying defensive patrols
over Syria. Israeli spokesmen contend the F-15s acted
to protect Israeli RF-4Es, claiming the MIG-23s were
preparing to fire on the reconnaissance aircraft. The
Israelis argue that in the days preceding the
shootdown, Syrian forces had become bolder in
reacting to Israeli reconnaissance flights over the
Bekaa Valley. They maintain that on 18 November,
MIG-23s operating in Syrian airspace fired at Israeli
planes flying over Lebanon.
Whatever the justification, the Israelis probably
fomented the clash on 19 November to remind Syria
of Israel's continued military superiority despite the
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withdrawal in 1985 of most of its troops from
Lebanon and the recent cuts in its defense budget.
Since the withdrawal, Tel Aviv has been concerned
over the erosion of its ability to control events in
Lebanon and has been distressed by the gradual
increase of Palestinian and radical Lebanese Shia
attacks on Israeli targets in southern Lebanon and
northern Israel. The Israelis believe President Assad
has supported many of these attacks, and his
sponsorship of the well-publicized suicide car
bombings in southern Lebanon probably has been
particularly galling.
Although the Syrians might have caused the 19
November clash, they probably did not do so
purposely. President Assad claimed credit for the
Israeli withdrawal and had been working with some
success since then to increase his control of events in
Lebanon. Moreover, in response to tough-sounding
warnings earlier in the fall by Israeli Defense
Minister Rabin, Damascus apparently put some of its
forces opposite the Golan Heights on alert?
suggesting Damascus was concerned about an Israeli
attack.
Initial Syrian Moves. After the air clash, Damascus
wanted to demonstrate its resolve to defend Syrian
territory and mayi ave initially feared an attack on its
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forces in Lebanon.
Syria
bolstered its air defense coverage over that country by
deploying SA-6s and SA-8s into the Bekaa Valley?
the first such tactical missiles in Lebanon since the
Israeli invasion in 1982.
Damascus
withdrew the low-to-medium-altitude missiles from
Lebanon?presumably because of diplomatic pressure
and to preclude the Israelis from destroying them.
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At the same time, Syria began to move medium-to-
high-altitude SA-2s to the Lebanese border. Although
the Syrians prepared
two SA-2 sites along the border in 1984, they may
have initially fielded the SA-2s as a purely defensive
move. The Syrians probably viewed the SA-2
deployment as a way to buttress their air defenses
without placing greater reliance on their newer, more
capable SA-5s?which, if used, would invite Israeli
strikes deep into Syria.
Assad Ups the Ante. As a result of the deployment of
SA-2s along the Syrian border with Lebanon, the
Israelis shifted their reconnaissance flights westward
from the Bekaa Valley to the Lebanese coast, and on
15 December, they publicly complained about the
presence of the missiles. After denouncing Israel for
attempting to dictate where Syria could station
missiles on its own territory, Damascus redeployed
SA-6s and SA-8s into Lebanon on 20 December,
according to the Israelis. A few days later
he Syrians had established
mixed SA-6 and SA-8 units at three sites overlooking
the valley.
President Assad probably took this escalatory step for
several reasons. First, he apparently believed the
Israelis were likely to attack the SA-2 sites opposite
central Lebanon and recognized the sites were
vulnerable without additional support, particularly
along likely attack routes in the Bekaa Valley.
Second, Assad may have perceived that partial Israeli
and Syrian troop withdrawals from Lebanon lessened
Israeli requirements for intelligence on Lebanon and
wanted to reduce Israeli coverage of Syria and
Syrian-supported groups in the Bekaa. Third, at a
time when his government was pushing hard to get the
three major Lebanese factions to sign an agreement
ending Lebanon's civil war, he probably wanted to
increase pressure on the Israelis to reduce their
presence in and over Lebanon.
Tensions Ease. On 26 December, after Israel publicly
decried the return of Syrian missiles to Lebanon and
after Syria retorted by publicly asserting the right to
defend its troops in Lebanon and accused Tel Aviv of
attempting to sabotage efforts to end the Lebanese
civil war, a clash seemed certain.
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Damascus had again begun to withdraw the SA-6s
and SA-8s from Lebanon?reducing the danger of
imminent conflict. Assad may have calculated that
the Israelis would retaliate for the terrorist attacks in
Rome and Vienna by attacking Palestinian bases in
the Bekaa Valley and decided he did not want to risk
his missile units there.
But a Clash Is Still Likely. Although the Israelis
have moderated their statements since Syria's
removal of the SA-6s and SA-8s and have restricted
their antiguerrilla operations to southern Lebanon
and the coastal areas, they still demand the
withdrawal of the SA-2s from the Syrian-Lebanese
border. They maintain that these weapons threaten
reconnaissance flights they consider vital. But even if
the Syrians optically guide SA-2s to achieve surprise
and nullify the effectiveness of Israeli electronic
countermeasures, the chances of hitting an Israeli
RF-4E reconnaissance aircraft are modest. The
Israelis probably are concerned about maintaining
their reputation for invincibility and do not want to
risk losing a single aircraft.
The Israelis could reduce the possibility that the
Syrians would purposely fire on them by adding
several strike aircraft to their reconnaissance missions
to retaliate immediately against SA-2 launches?
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much as they include F-15s and F-16s to protect
against would-be MIG-23 attacks. So far, the Israelis
have shown no signs they are prepared to include
SAM-suppression aircraft in their reconnaissance
missions, but they have stated repeatedly their
unwillingness to permanently forgo overflying the
Bekaa Valley.
Having made an issue of the SA-2s, the Israelis
apparently believe they cannot drop the matter
without the risk of convincing Damascus that Israel
no longer has the will to defend itself forcefully. No
member of the Peres government has publicly
criticized Israel's restraint in responding to the Syrian
challenge. Even Foreign Minister Shamir, one of the
most prominent Likud hardliners, has said that Israel
must continue its reconnaissance flights over Lebanon
but must also find a solution "through a cautious and
reasoned approach." This apparent unity of purpose
strongly suggests that the inner cabinet has agreed on
a strategy that includes military action if Assad
refuses to relent.
For their part, the Syrians categorically reject Israel's
right to overfly Lebanon and may reintroduce the
SA-6s and SA-8s into the Bekaa Valley?either
periodically to nettle the Israelis or to gain a tactical
advantage in anticipation of an attack.
Damascus is determined to
consolidate its control over Lebanon
Damascus is working to improve
its SA-6 field sites in Lebanon
Barring an inadvertent clash, neither Israel nor Syria
seems ready to force the issue?suggesting the missile
crisis could drag on for some time. Prime Minister
Peres does not want Israel held responsible?
especially by Egypt and Jordan?for derailing the
Middle Eastern peace process through a precipitate
use of force. Israel also wants to reduce its operational
risks to a minimum?a difficult task while Syrian air
and air defense forces are expecting an attack.
Syria suffered a serious setback in Lebanon on 14
January when Lebanese President Gemayel refused to
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support the Tripartite Agreement and is preparing to
use military pressure to bring the recalcitrant
Lebanese Christians to heel. According to the US
Embassy in Damascus, Syria was also outraged by
Israel's interception on 4 February of a Libyan civil
aircraft, which was returning Syrian officials from a
conference and that Tel Aviv erroneously believed
was carrying Ahmad Jibril, head of the Popular Front
for the Liberation of Palestine-General Comman
And the Winner? Assuming the Israelis and Syrians
are successful in confining the arena to Lebanon and
the Lebanese border area, President Assad probably
believes he will emerge from this test of wills as the
winner. If the Israelis refrain from attacking, he could
claim Syria's steadfastness continues to keep them
from Arab soil. Assad probably believes that if the
Israelis attack they would confine airstrikes to the
SA-2s, SA-6s, and SA-8s near the Beirut-Damascus
highway. He would hope to destroy the myth of Israeli
air force invincibility by downing a few aircraft. Even
if his forces were thoroughly drubbed, Assad probably
believes a violent display of Israeli aggressiveness
would provide Syria with additional Arab political?
and possibly economic?support and establish a case
for pressing the Soviets to provide more and better
military equipment.
Although the Israelis clearly recognize that Damascus
would gain from an attack?particularly in the short
term?they probably would regard it as necessary to
buttress deterrence. By striking, the Israelis would
hope to convince Damascus that its quest for military
parity is feckless, to serve notice they will not be
forced out of Lebanon, and to underscore their refusal
to countenance guerrilla attacks against their
northern settlements.
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Israel-USSR: If Moscow
and Tel Aviv Restore
Diplomatic Ties
Israeli officials continue to look for signs that Moscow
may soon ease restrictions on Jewish emigration and
normalize bilateral relations despite their
disappointment at the lack of progress on these issues
since the US-USSR summit meeting at Geneva. The
release this week of Anatoly Shcharansky is likely to
raise Israeli hopes further. Although we believe a
change in Soviet policy is not imminent, the
resumption of ties between Israel and the USSR and
an increase in Soviet Jewish emigration could have a
major impact on Israel's political and economic
situation and the prospects for achieving a US-
brokered peace settlement in the Middle East.
Political Impact
Prime Minister Peres's political standing would be
enhanced if Israel and the Soviet Union resume
diplomatic relations. He could parlay this to boost
Labor's electoral prospects if the national unity
coalition collapses and an early election is held.
US Embassy and Israeli media reporting indicates
that the Israeli public is keenly interested in
reestablishing relations with Moscow and hopes that
this would facilitate closer ties to Soviet Jewry and
increase the immigration of Jews to Israel. Reflecting
the public attitude, the Israeli Government
periodically has reaffirmed its readiness to normalize
relations with the Soviet Union.
The public's reaction would be tempered by the
concessions Israel might have to make in return.
Media reporting indicates that, in the view of most
Israelis, Moscow was responsible for breaking
relations and should take the initiative to correct the
situation. Nonetheless, they probably would support
concessions in areas that Moscow refers to as "anti-
Soviet propaganda"?such as curtailing publicity
about the plight of Soviet Jews or support for the new
Voice of America relay station planned for Israel?
given the probable gains.
9
The generally favorable public reaction to Peres's
peace strategy, which he outlined to the UN General
Assembly last October, suggests Israelis would
support Soviet participation in an international peace
conference as long as it did not substitute for direct
Israeli-Arab talks. In his speech to the United
Nations, Peres declared Israel would agree to
participate in an international conclave that would
include the USSR (and the other permanent members
of the UN Security Council that have relations with
Israel) if Moscow first restored bilateral ties. Peres
has also indicated that Moscow would have to allow
significantly more Soviet Jews to immigrate to Israel
as a condition for convening an international
conference. According to Israeli press reports, Peres
privately told Knesset members in November that he
viewed the resumption of Soviet Jewish emigration as
even more important than the restoration of relations.
The government would not yield on the issue of
returning territory on the Golan Heights to Syria as a
precondition for resuming relations with Moscow.
Most Labor leaders favor some territorial concessions
on the Golan, but Likud adamantly opposes returning
territory there because of security concerns. Labor
leaders, moreover, do not believe Syria would accept
less than a full Israeli withdrawal from the Golan,
which neither they nor Likud contemplate. Although
the condition of Soviet Jewry commands considerable
attention in Israel, the government would not permit
this issue to compromise its basic security interests.
We believe at most, the Israeli Government might be
willing to reaffirm its willingness to negotiate a peace
agreement with Syria without preconditions.
Economic Impact
A large influx of Soviet Jewish immigrants into Israel
would have both economic and political repercussions.
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NESA NESAR 86-005
14 February 1986
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Estimates differ widely as to how many of the
approximately 1.7 million Soviet Jews would choose
to go to Israel if Tel Aviv and Moscow improve
relations and the Soviets relax emigration restrictions.
More than 160,000 Soviet Jews immigrated to Israel
between 1969 and 1980, reaching a high of 33,458 in
1973. In 1984, however, only 345 Jews elected to go to
Israel out of 896 permitted to leave the USSR. Some
Soviet Jews already in Israel claim that "hundreds of
thousands" more would leave the USSR if they could,
but US Jewish organizations active on behalf of
Soviet Jewry estimated last year that only about
20,000 Jews in the USSR were being barred from
emigrating. Israel's Ministry of Immigrant
Absorption reported last October that it had made
contingency plans to absorb "thousands" of Soviet
Jews who might be allowed to emigrate in the near
future.
In the event of large-scale emigration from the
USSR, the Israeli Government would be caught
between its desire to maintain budget austerity and
the need to absorb the new immigrants into Israeli
society as rapidly as possible. Israel's experience
absorbing over 8,000 Ethiopian Jewish immigrants
during the 1984 airlift demonstrates the budgetary
strains that are likely to occur as a result of a large
inflow of immigrants from the USSR. Israeli officials
estimate that absorbing the Ethiopian Jews will cost
over $300 million, with half going toward housing.
Of particular difficulty is the simultaneous provision
of permanent housing and employment for new
immigrants. According to Israeli officials,
development towns with available housing, where new
immigrants ordinarily would be resettled, are already
struggling with unemployment rates of 20 percent or
higher?well above the 7- to 8-percent rate
nationwide. In the large urban areas where jobs are
available, there is little inexpensive housing.
Moreover, economic conditions in Israel are unlikely
to improve soon, continuing the squeeze on jobs and
housing. Tel Aviv is likely to seek US economic
assistance to cope with the problems caused by an
influx of Soviet immigrants.
Tel Aviv might choose to resettle Soviet immigrants
on the West Bank, which has many inexpensive
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apartments within commuting distance of jobs in
Israel proper. This could lead to a political flap with
the United States, as did the resettlement last fall on
the West Bank of approximately 50 Ethiopian Jews
who had arrived in the 1984 airlift. Peres
subsequently stopped the movement of additional
Ethiopian Jews to the West Bank, recognizing the
potential risks to relations with the United States and
to substantial US and foreign Jewish funding for the
absorption program. Vice Prime Minister Shamir, on
the other hand, has insisted that relocating
immigrants on the West Bank is the only feasible
solution to the housing problem. He is also concerned
with courting settlement activists, many of whom are
Likud supporters, at a time when the pace of
settlement construction has slowed considerably from
what it was during previous Likud governments.
The immediate economic costs of absorbing new
immigrants could be offset over the longer term by
the likely improvement in trade relations with Eastern
Europe as a result of resumed diplomatic ties. Israeli
imports from the Soviet Union have averaged a
minuscule $35,000 over the past few years?
apparently books and other reading material?and no
exports have been reported. Trade turnover with
Moscow's East European allies is almost $100 million
annually?of which half is with Romania?but this is
much less than 1 percent of all Israeli trade. Some
moves have been afoot over the last year to improve
trade ties to Poland and Hungary, and renewed
diplomatic relations with Moscow would no doubt
facilitate this.
Effect on Peace Negotiations
The restoration of Soviet-Israeli ties might complicate
the realization of a US-brokered peace settlement if
Israel, in return, drops its opposition to Moscow's
participation in an international peace conference.
Moscow's principal diplomatic goal in the Middle
East has been to reassert its role as a major player in
the region and to obtain a seat at the Arab-Israeli
negotiating table as an equal of the United States. To
that end, the USSR has repeatedly called for a return
to US-Soviet cooperation on the peace process and for
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a reconvened international peace conference. Israeli?
as well as US?opposition has prevented the
convening of such a gathering.
Although Soviet officials have indicated privately that
concern about Syria's reaction has been the major
factor preventing Moscow from reestablishing ties to
Tel Aviv, we believe none of the USSR's allies in the
Arab world would go beyond pro forma protests if
Soviet-Israeli relations were restored. Syria, Libya,
and South Yemen depend heavily on the Soviets for
arms supplies and are unlikely to jeopardize relations
over the issue. Moscow probably would justify its
decision to its allies in terms of strengthening its
ability to exert influence on Israel, to push for a
broader international conference, and to better defend
Arab interests.
Moderate Arab governments would welcome the
resumption of Soviet-Israeli ties, particularly if they
saw it as facilitating an international peace
conference. They support convening such a conference
because of their frustration over the lack of progress
toward a comprehensive settlement and increasing
skepticism that the United States is capable of
playing the role of honest broker. US Embassy
reporting indicates that, although the Egyptians and
Jordanians believe the USSR has little to contribute
to the peace process, they also believe Moscow would
do less damage if it were included in negotiations.
We believe Israel would strive to minimize the Soviet
role in a peace conclave. Peres has stated that he sees
an international conference only as a loose framework
within which Israel would hold direct negotiations
with a Jordanian-Palestinian delegation and with
Syria, if it chose to attend. In his view, the
extraregional parties attending the conference would
not have the power to veto agreements that are
reached in direct Israeli-Arab talks.
11
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Soviet officials have made clear that the USSR would
not attend a conference unless it is accorded a role
equal to that of the United States and unless Syria
and the PLO are represented. We believe Moscow
might attempt to moderate Syrian and PLO positions
if it obtained a significant role at the peace
conference, but it almost certainly would not back a
settlement unacceptable to them. Moscow does not
possess the leverage to make Syria or the PLO sign an
agreement that did not meet their objectives, and it
would not risk damaging bilateral relations?
especially with Damascus?by trying to force their
acceptance.
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Syria-Turkey:
Uneasy Relations
Syria and Turkey, which in the past have moderated
their bilateral disputes because of pressing national
security threats on other frontiers, appear to be
inching toward confrontation over water rights to the
Euphrates River, and Syrian support for Turkish
dissidents. Although there was an increase last year in
Syrian-Turkish diplomatic activity, fundamental and
potentially explosive issues remain unresolved.
Moreover, the opposing superpower alignments of
Syria and Turkey make the long-term prospect for
rapprochement unlikely.
So long as Turkey proceeds with plans to expand its
hydrological projects along the Euphrates River, the
US Embassy in Damascus reports that Syria fears the
projects will substantially reduce the volume and
quality of Euphrates River water flowing south into
Syria and will jeopardize its own ambitious
hydrological schemes. The Embassy reports that
negotiations over water issues have so far amounted to
little more than information exchanges.
Syria is using its 45-year-old irredentist claim to
Turkey's Hatay province; its increased diplomatic
overtures to Greece, Cyprus, and Bulgaria; and its
tolerance of cross-border smuggling as bargaining
chips to bring Turkey to terms on the Euphrates water
rights issue. Turkey, however, seems determined to
proceed with its hydrological plans and will probably
use the specter of future water projects to counter
Syrian intrigues and threats.
Still Waters Run Deep
The question of the division of the Euphrates water
has poisoned Syrian-Turkish relations since the 1960s
and the advent of both countries' ambitious
hydrological programs. Over the years Turkey and
Syria have touted their respective programs as
symbols of national development and a means of
achieving economic self-sufficiency.
Turkey hopes to achieve two long-term goals through
its water policy: to reduce its dependence on foreign
13
Euphrates Water Plans
The Keban, the first of Turkey's Euphrates dams and
the farthest upstream, was completed in 1974 and has
a reservoir capacity of 30 billion cubic meters (bcm)
of water. The Karakaya Dam, about 170 km
downstream, is scheduled to be completed in 1987. It
will have a reservoir capacity of 9.5 bcm and a
production capacity of 7.3 billion Kwh annually.
The Ataturk Dam, located 180 km downstream of
Karakaya near the city of Adiyaman, will be one of
the largest dams in the world when completed in
1993. It will have an estimated production capacity of
8.9 billion Kwh and a reservoir capacity of 48 bcm.
Two smaller dams downstream at Findikli and
Karkamis are still in the planning stage.
The Syrians began their Euphrates water program in
the 1960s to expand their hydroelectric capability
and to fulfill a Ba'th Party commitment to land
reform. The Tabqa Dam, completed in 1975 with
Soviet aid, has eight 100 MW turbines and a
reservoir capacity of 11.6 bcm. A smaller dam 50 km
downstream at Raqqah is scheduled to be completed
this year, while a third dam to be constructed at the
head of Lake Assad, is still in the planning stages.
sources of energy, easing its trade and foreign
exchange deficits; and to increase the agricultural
productivity in southeastern Turkey, traditionally one
of the most depressed areas of the country.
Talks between Syria and Turkey over the use of
Euphrates waters, first begun in 1962, have contained
little serious discussion of the issues, according to
Embassy reports. Since annual tripartite talks, which
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included Iraq, ceased in 1972, neither country has
attempted to coordinate its projects or plans with the
other. As a result, one estimate indicates that, if all
the projects under consideration come to fruition,
their combined water requirements would exceed the
capacity of the river during certain times of the year.
This demand may be compensated for by dams and
reservoirs, regulating the flow of water throughout the
year.
Syria's fear of the potential damage posed by
Turkey's water schemes to its own Euphrates
development plan has much to do with Turkey's
failure to develop a means of rechanneling irrigation
runoff back to the river above the Tabqa Dam.
such a plan is critical
to ensure sufficient downstream water flows to Lake
Assad in the future. Turkey, although probably
unable to alter its current construction, may want to
leave the issue of future projects open as a bargaining
chip and has already shown a willingness to pay a
price by forgoing much needed financing from the
World Bank, which requires aid recipients to conclude
riparian treaties with downstream users.
Syria has informally accused Turkey of being
responsible for the present low water levels of the
Euphrates, which it claims reduced the Tabqa Dam's
productive output by 20 percent last year. Turkish
officials have attributed this shortfall to drought
conditions in central Turkey and have countered that
Syria's Euphrates developments have seriously
affected Iraq's water supply. Turkish officials claim
that their dams will benefit Syria by regulating the
flow of the Euphrates, whose level in the ast has been
subject to wide seasonal fluctuation.
Disquiet on the Northern Front
The Turks are convinced Syria is backing Turkish
dissident organizations. We have little independent
information on the extent of Syrian ties to these
groups, but we believe Syrian support is significant
and growing. Damascus probably hopes to use
Turkey's perception that it actively supports Turkish
dissident groups as a lever to gain concessions on
other bilateral issues. Syria, however, has been careful
to deny publicly any involvement with these groups to
preserve its diplomatic ties to Turkey and to reduce
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the likelihood of cross-border retaliation. Syria has
attributed the sporadic violence in the border region
to its limited security capability along its northern
frontier.
The most prominent of these groups are
the Kurdish Labor Party, an organization that calls
for a Kurdish state in southeastern Turkey, and the
Armenian Secret Army for the Liberation of Armenia
(ASALA), which seeks an independent Armenian
homeland and revenge for the massacre of Armenians
by the Ottoman Empire in 1915.
and at least
partly fund their activities by drug smuggling.
after having tried
unsuccessfully to obtain Syrian cooperation in
fighting insurgency, has taken unilateral steps to beef
up its border security. The Turks are gradually
installing a system of checkpoints and military guard
posts along the border to supplement the existing
minefields, according to press reports. The Turks have
also begun construction of a 1.5- to 2-meter-high
lighted fence that will eventually extend the length of
the Syrian-Turkish border.
Other Irritants
The US Embassy in Damascus reports that Turkey is
concerned about staunching the flow of smuggling
from Syria. Turkey has responded to this activity by
instituting occasional visa slowdowns. A Turkish
official claims that hundreds of Turks annually
smuggle luxury goods and other contraband from
Syrian entrepots in Tartus, Latakia, and Aleppo past
Turkish customs.
Syria's irredentist claim on Turkey's Hatay province
has been a sore spot in bilateral relations since before
World War II. Syria alleges that the French illegally
ceded Hatay and its port capital, Iskenderun, to
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Turkey in 1939 to ensure the latter's neutrality in the
war. Since that time, migration of the former Arab
majority from the province has made Syrian claims to
the region less tenable.
The present Alawite minority regime in Syria has
shown special interest in Hatay because of the
significant Alawite (Alevi in Turkey) population
residing in the province.
there has been much unrest among the Alevi
minority in Hatay, and many have illegally fled to
Syria.
Syria's attempts to establish closer ties to Turkey's
estranged neighbors, Greece and Bulgaria, have
placed additional strains on bilateral relations. Syria
and Greece concluded a military cooperation
agreement in September 1985 following a visit by
Syrian Defense Minister Mustafa Talas, part of
which provided for Syrian officer training in Greece.
some within
the Greek military hope the Syrians will provide a
second front against the Turks. Syria's friendly
relations with the Greek Cypriots have also irritated
the Turks. The US Embassy in Ankara reports that
the Turks are wary of a Syrian freight transport
agreement with Greece and Bulgaria that they believe
is intended to cut them out of the lucrative Middle
Eastern freight-forwarding market.
Diplomatic Solutions Sputter
In the past year Turkey and Syria have stepped up
diplomatic contacts in the hope of reducing strains in
their relations. The US Embassy in Damascus quoted
a Turkish diplomat there as saying that relations were
not merely normal but "even good." In October 1985,
President Assad made public a directive calling for
the "absolute improving of relations with Turkey."
Syrian Vice President Khaddam was also quoted as
saying "Syria has no benefit in straining relations
with Turkey" and "will not allow an act on its soil
which Turkey would call a destructive one."
The cordial tone of Syrian-Turkish diplomatic
contacts seems to belie the intransigence both sides
15
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have shown on fundamental issues. Although Turkish
Foreign Undersecretary Necdet Tezel described his
meeting in Damascus in March 1985 as satisfactory,
the US Embassy in Ankara reports that Turkish
officials are miffed that Syria has not responded to
Tezel's proposal for a buffer zone to halt insurgent
violence. A subsequent bilateral foreign ministers'
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the Turkish-Syrian Joint Economic Committee
convened in October 1985 to discuss improving trade
and financial relations. The US Embassy in
Damascus reports that Euphrates water issues were
discussed briefly, but officials on both sides seemed
interested in avoiding contentious issues. The US
Embassy in Ankara reported that, while discussing
the water issue, Turkish Minister of State Tinaz Titiz
reiterated Turkey's overriding concern for security
matters.
Military Option
Syrian and Turkish strategic priorities elsewhere in
the region have probably discouraged either side from
using military intimidation to extract concessions on
key bilateral issues. Turkey's NATO commitments,
its continuing rivalry with Greece, and its involvement
in Cyprus continue to take precedence in terms of its
national security. Likewise, Syria would feel hard
pressed to redeploy its forces in Lebanon or in front of
the Golan Heights to its northern border. Syria and
Turkey have contingency plans for committing troops
in an emergency, but both sides normally depend on
security police with small arms to watch over their
common border.
Syrian and Turkish officials have tried to limit their
rhetoric to reduce tensions despite pressure from their
respective militaries to adopt a more aggressive
posture in bilateral relations. The US Embassy in
Ankara reports that Turkish military officers are
concerned about the level and sophistication of Soviet
arms transfers to Syria and have urged their
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government to make an appropriate response. The
Turks have expressed alarm that Soviet-supplied
SA-5 missiles may be deployed in northern Syria, for
example.
The opposing superpower alliances of the two
countries have contributed to tensions and would raise
the stakes in any future military confrontation.
the Turkish military
and parliament have petitioned the government to
request that NATO consider Syria part of the
Warsaw Pact and to include the Syrian front in
NATO exercises in 1987.
Outlook
Syrian-Turkish diplomatic contact is likely to remain
active in the near term, but any warming in relations
will probably be more formal than substantial. Both
governments have calmed their rhetoric in the interest
of maintaining at least the appearance of a
reconciliation, but the absence of real progress in
negotiations probably will soon subvert this process.
Turkey is likely to continue the planning and
construction of its Euphrates water projects while
relying on heightened border-security measures to
offset the dissident threat on its southern border.
Ankara, however, may be willing to modify its current
plans and coordinate future plans with Damascus if
Syria pledges to withdraw its support for Kurdish and
Armenian groups.
Syria would probably agree to curtail its support for
Turkish dissidents in exchange for Turkish
concessions on Euphrates water use. Still, Damascus
is not likely to abandon these groups because it wants
to keep its options open. Damascus, however, will
continue to keep a tight rein on the activities of these
groups to avoid cross-border retaliation by the Turks.
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Pressing national security interests elsewhere in the
region will probably discourage either side from
militarizing their common border as a means of
extracting political or economic concessions. Both
countries probably realize that a significant military
confrontation would invite superpower involvement.
Over the long term, however, should Syria believe
that Turkey's dams are seriously undermining its
economic growth, or if Turkey perceives Syrian-
sponsored dissidents are a threat to its political
stability, either country might embark upon military
brinksmanship.
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Jordan: Curbing the Growth of
Islamic Fundamentalism
Jordan's King Hussein has begun a serious crackdown
on the growing expression of Islamic
fundamentalism?particularly within government
circles?which he views as a possible threat to his
policies and the Middle Eastern peace initiative.
Although Islamic fundamentalism is becoming a
more conspicuous vehicle for political expression, we
believe the movement is not yet organized politically,
lacks strong leadership, and poses no near-term threat
to the stability of the Hashemite regime. King
Hussein in the past has succeeded in appeasing many
of the fundamentalist adherents by addressing their
concerns, but he now appears unwilling to tolerate
increased political activism by the fundamentalist
opposition.
The Fundamentalist Appeal
Jordanians have been restricted in their political
activities since 1957, when all parties were banned.
Since then, opposition political opinion has been
expressed mostly through the Muslim Brotherhood or
clandestine organizations. The King chose not to ban
the Brotherhood because it represented Islamic
elements that endorsed the Hashemite monarchy.
Muslim Brotherhood supporters fought with the
King's forces in 1957 against a rebellion led by Prime
Minister Nabulsi. Moreover, the Brotherhood serves
as a counterweight to Communist and leftist influence
in Jordan.
The fundamentalist movement in Jordan was given a
boost by the overthrow of the secular, Western-
oriented regime of the Shah of Iran and the
establishment of Ayatollah Khomeini's Islamic
republic. Many Jordanians condemn the excesses of
the Khomeini regime but still regard an Islamic
republic as desirable. Fundamentalists in influential
government positions and Muslim imams in mosques
recently have broadened their appeal by exploiting
Jordanian disillusionment with the US-sponsored
Middle Eastern peace process.
Although we believe the fundamentalists have had an
impact on all levels of Jordanian society, they have
17
not yet created a unified or coordinated movement.
They have no charismatic leader and few, if any,
identifiable goals, such as overthrowing the secular
monarchy and founding an Islamic republic. Even so,
the government appears to realize that
fundamentalism is a force to be reckoned with and a
potential threat to the regime.
Fundamentalists are actively represented in
universities, the military, trade unions, parliament,
and professional associations, as well as in most urban
neighborhoods. The US Embassy reports that
attitudes toward the nature of Islam in Jordanian
society appear to differ along class lines?the lower
classes favor a more radical approach than the
moderate reformism popular in the middle and upper
classes.
Universities. The growing appeal of fundamentalism
is most apparent on university campuses, both in
organized student activity and outward expressions of
piety, by the wearing of traditional Islamic garb.
Islamic activists among the student body do well in
campus elections and are highly visible among the
predominantly Western-educated faculty. Embassy
sources say more than half of the female students at
the University of Jordan now wear the head scarf and
long garments that are associated with urban
fundamentalism.
Student demands focus on Islamic activity and
conformance to the Sharia or Islamic law. The
Islamic studies faculties provide a legitimate forum
for Islamic fundamentalist views and fill the void left
by the ban on student political activities. At the
University of Jordan, the medical and social science
faculties also appear to be dominated by
fundamentalists. Despite this Islamic activity, there
does not seem to be a formal network linking the
groups that are active on the campuses.
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Islamic Fundamentalist Groups in Jordan
Group Strength
Goals
Muslim Brotherhood (legal) Estimated 2,000 to 3,000 active membership, Islamic tenets applied to public and personal
possibly 30,000 with supporters realm; creation of an Islamic state
Islamic Liberation Party (illegal) 200 to 300
Violent overthrow of conservative monarchies in
region
Islamic Call (Dawa) (illegal) Unknown, not more than 150
Religious reforms
Supporters of God's Victory 100 to 150
(illegal)
Muslims in support of the Palestinian cause
Takfir wal-Hijra, al-Jihad (illegal) Unknown, small
Islamic state through overthrow of secular regime
Islamic fundamentalism may be more a trend among
the younger generation than a sign of political
frustration. US Embassy sources suggest that some
women are paid to wear Islamic garb on campus,
while others wear the long garments largely as a
defensive measure to ward off pressure from Islamic
activists. In addition, the Dean of Students at the
University of Jordan and the President of Yarmuk
University told Embassy officers that they believe
fundamentalism on their campuses has peaked.
did not have the backing of formal political parties.
The fundamentalists have traditionally focused their
legislative efforts on predominantly religious issues,
such as Islamic banking and law.
In the current legislative session, the fundamentalist
bloc led by Laith Shubeilat championed causes with
wider public appeal. For example, at the
parliamentary meeting last November to draft a
esponse to King Hussein's letter on improved
relations with Syria?which in part blamed
fundamentalist groups for Jordan's problems with
Damascus?the bloc unsuccessfully attempted to
include anti-US and pro-Palestinian language,
according to the US Embassy. In addition, Shubeilat
has been quite outspoken in his public opposition to
the Middle Eastern peace process
Ministries. Fundamentalists in the past have been
permitted to establish a significant presence in the
overnment ministries of reatest interest t
' 1111
the Muslim Brotherhood has its largest
number of supporters in the Ministries of Education,
Youth, Interior and Islamic Affairs.
the Brotherhood considers the Ministry of
Education to be a particularly important stronghold,
and members aid like-minded individuals to obtain
jobs throughout the Jordanian educational system.
Parliament. Byelections for eight East Bank seats
brought three fundamentalists to the lower house of
Jordan's parliament in March 1984. US Embassy
officials credit their elections to a well-organized
campaign that worked well against candidates who
Secret
Military. Members of the Jordanian armed forces
cannot formally belong to the Muslim Brotherhood or
any other political organization. The armed forces
have a well-organized bureaucracy intended to
channel religious activity to strengthen, rather than
undermine, the regime. In fact, the Jordanian
Government allows the deputy commander of the
Army's military chaplaincy, Shaykh Ali al-Fakir, to
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rail against officials for failing to implement religious
reforms. Practice of Islam is encouraged throughout
the military as evidence of support for the throne and
to counter the influence of secular nationalism.
The Government's Response. Hussein has tried to
respond to fundamentalist interests by maintaining a
dialogue with them, co-opting them by allowing
certain freedoms, and publicly demonstrating his
adherence to Islam. In recent months, however, the
King appears to have concluded that the
fundamentalists have strayed beyond acceptable
behavior and pose a serious threat to his own policies,
especially the US-backed Middle Eastern peace
initiative.
The crackdown began in November 1985 with King
Hussein's open letter to Prime Minister Rifal, which
attacked fundamentalists for misusing Jordanian
tolerance by conducting covert operations against
Syria in the late 1970s and early 1980s. We believe
Hussein's letter to Rifal was intended both as a good-
faith gesture to Syria and as a warning to the
Brotherhood and other extremist factions that
Jordanian tolerance would henceforth be diminished.
A series of arrests, transfers, and demotions of
fundamentalists in government ministries, companies,
and schools soon followed. The undersecretary to the
Minister of Education, Dr. Abd al-Rahim Arabiat,
and four others at the Ministry of Education were
dismissed for known Brotherhood affiliation. Prime
Minister Rifal intervened directly to have several
university professors fired from their posts.
In parliament, Rifal pushed through legislation
aimed at curbing Islamic religious excess. The
legislation requires that Muslim imams register with
the Ministry of Islamic Affairs before receiving
permission to preach and forbids imams and mosque
speakers from "incitement and making accusations
against persons and institutions." Moreover, the
government has moved to limit the power and number
of fundamentalists in the lower house of parliament.
Laith Shubeilat lost his position as reporter of the
influential Finance Committee, and other members of
19
the fundamentalist bloc were denied meaningful
committee assignments. A revision of the electoral
law creates electoral districts for the first time within
the governates and will allow the Jordanian
Government to gerrymander district lines and
possibly limit the number of fundamentalists elected.
Fundamentalist activity in the military is being
monitored and channeled.
Outlook
The timing of Hussein's latest moves suggests that he
took advantage of Jordan's reconciliation with Syria
to send a message to his own Islamic constituency that
public opposition to his policies in Islamic forums
would no longer be tolerated. We do not believe that
the fundamentalist movement threatens the
Hashemite regime in the near term. Although many
Jordanians may be unhappy with the secular nature of
the government, most are unwilling to trade the
advantages of Jordan's Westernized society for the
restrictions of an Islamic state. The lack of widely
recognized leaders reduces the danger that
fundamentalism will become a well-organized popular
movement. Despite the growing appeal of Islam
among students, they appear more involved in
religious than in political activity.
We believe the government is unlikely to institute
further restrictions that would give the
fundamentalists fuel to ignite public opposition. In
fact, an imam at the al-Rudha mosque in Amman
directly criticized government officials and policies,
demonstrating the animosity Islamic religious leaders
have for Prime Minister RifaTs measures?an act
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unprecedented in a Jordanian mosque. The US
Embassy reports, however, that the general reaction
among fundamentalists has been to avoid activities
that might antagonize the government. We believe as
long as the government allows open expression of
Islamic views?albeit with a moderate voice?and
grants occasional concessions, King Hussein is likely
to keep the support of most fundamentalists in
Jordan.
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Egypt:
Problems for Mubarak
We do not believe that opposition to President
Mubarak is strong enough to topple him, but it is
growing and causing him serious concern. The
intensified criticism of the President stems largely
from his dealings with Israel and the United States,
whose actions against terrorists since October have
troubled many Egyptians. More demonstrations have
erupted in the past four months than in as many
years, opposition politicians on the left and right are
more vocal, and governmental infighting has
sharpened.
Mubarak has lost considerable standing, and his
position may erode further. Economic conditions, a
key cause of domestic grumbling, will almost
certainly grow worse in the next six months,
particularly in the wake of the precipitous decline in
world oil prices. The President will face debt
rescheduling and subsidy reform decisions that could
lead to an upsurge of street violence. At the same
time, his popularity will remain hostage to any Israeli
and US actions perceived in Egypt as anti-Arab.
Mounting Opposition
Foreign policy crises?Israel's bombing of the PLO
headquarters in Tunis, the US diversion of an
Egyptian plane, the hijacking of an Egyptian aircraft
to Malta, and border tension with Libya?have cost
Mubarak much public support in recent months.
When students demonstrated against government
policy toward Israel and the United States in early
October, official opposition groups backed the regime
in a show of national unity. When, however, the
Egyptian commando attack on the hijacked airliner in
Malta ended in 60 deaths?after Cairo had praised
the operation as a success?responsible opposition
leaders publicly challenged the government moves.
Mubarak's failure to retaliate against Libya?after
he publicly blamed Qadhafi for the hijacking and
moved troops to the border?probably reinforced an
image of government indecisiveness and
incompetence
21
The apparent suicide of Sulayman Khatir, an
Egyptian security guard imprisoned for killing seven
Israeli tourists in the Sinai, has worsened Mubarak's
problems. Since the guard purportedly hanged himself
in early January, Egyptians have demonstrated in his
home province and in Cairo. A US Embassy source
says that the cynical Egyptian public suspects the
government arranged his murder with Israeli help and
US encouragement. Right-of-center Wafdists and
leftist parties opposed Khatir's trial and are exploiting
this emotional issue at Mubarak's expense. Cairo's
attempts to block a court-ordered independent
autopsy have heightened the public's suspicions.
The Consequences
The several crises have put the regime on the
defensive and generated governmental infighting. For
the first time in years, the military?Mubarak's most
important constituency?has been criticized. The
Egyptian leader moved quickly to squelch opposition
demands for the resignation of Defense Minister Abu
Ghazala and for an investigation of the bungled
operation at the Malta airport, but the aftermath has
left strains among top military officials and between
themselves and the President. US Embassy sources
say the Defense and Interior Ministries have accused
each other of poor performance in the Khatir affair?
the military for negligence and the Interior Ministry
for mishandling the protest demonstrations.
Opposition newspapers claim the Prime Minister,
frustrated by the internal squabbling, has threatened
to resign.
Domestic criticism has also crippled Mubarak's
flexibility with Israel, forcing him to slow the pace of
normalization with Tel Aviv. He had referred
enthusiastically to a meeting with Prime Minister
Peres once Israel agreed to arbitration of the Taba
dispute. We believe Mubarak now fears that holding a
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summit meeting soon would intensify public
sentiment against him.I I
Short-Term Outlook
We believe Mubarak will find it increasingly difficult
to maintain public confidence through the summer.
The credibility of his regime hinges largely on its
economic performance, and Egypt's economy is
steadily worsening. At the same time, his popularity
remains hostage to any Israeli and US actions
perceived as anti-Arab, while his opportunities to
score foreign policy successes are diminishing.
The Economy. Even before the recent decline in world
oil prices, Egypt's capacity to meet its external
financial obligations was deteriorating. A drop in
world oil prices to the $20 per barrel level will, for
example, result in a $650 million loss of Egyptian
Government revenue in 1986?an almost 30-percent
reduction in hard currency oil earnings from the
previous year. For a country already in trouble over
arrears to international creditors, revenue losses of
this magnitude will worsen debt repayment problems
and make the likely date for a rescheduling agreement
more imminent.
An IMF-supervised adjustment program and the
specter of foreigners dictating Egyptian economic
policies would give opposition groups a potent issue.
An accelerated pace of economic reforms, including
subsidy reductions and price increases, would fuel
discontent within Egypt's lower and middle classes
and possibly lead to an explosive political situation.
The government might be able to deflect some
criticism from itself and shift blame to the IMF and
the United States. This would require, however, a rare
combination of political resolve, skillfully crafted
economic policies, and deft public relations handling
for the Mubarak regime to emerge unscathed
The Rising Costs of Camp David. The odds are at
least even that Mubarak's standing at home will
continue to decline over the next six months because
of his identification with Israeli and US policies. A
growing number of Egyptians seem to believe that US
aid does not outweigh the affront to Egypt's prestige
brought on by spectacular Israeli attacks against
Secret
Arabs and by perceived US support of them. Israel's
killing of some 70 Palestinian combatants and
Tunisian noncombatants in retaliation for the earlier
death of three Israelis in Cyprus has revived Egyptian
hatred of Tel Aviv's reprisal policy. But Israel is
unlikely to change its longstanding policy of
countering Arab attacks. President Mubarak,
therefore, is likely to suffer politically from any
dramatic show of Israeli force.
Even Tel Aviv's nonmilitary actions could inflame
anti-Israel sentiments among Egyptians and heighten
disenchantment with Mubarak's regime. For
example, the issue of ownership of Taba has gradually
assumed symbolic proportions, and the longer
Mubarak fails to retrieve it, the greater domestic
anger at him and at Israel might grow.
Diminishing Foreign Policy Opportunities. The
diplomatic recognition of Egypt by other Arab states
would reduce domestic criticism of Mubarak, but the
chances of such a development are slim. Arab
governments ideologically opposed to Egypt's peace
with Israel?Libya and Syria?will give no quarter.
Other Arab states?including Saudi Arabia, Iraq,
and Algeria?see no direct gains in recognizing Egypt
that would outweigh the political costs of breaking
with the Arab consensus.
Indeed, Mubarak's enemies could weaken his regime
through economic warfare. Recent incidents of
terrorism have already hurt Egypt's tourist industry,
which last year earned some $400 million, and
outbreaks of demonstrations in Cairo almost certainly
would further reduce Egypt's income.
A dramatic breakthrough in the Arab-Israeli peace
process would quiet some of Mubarak's domestic
critics, but this appears unlikely in the next several
months. Key parties?the PLO, Israel, and Jordan?
are reluctant to make concessions that would ease
mutual distrust and give the peace talks a boost.
Limited Options. Mubarak feels beleaguered and a
victim of circumstances. Recent events?beginning
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with his suppression of Muslim fundamentalist
demonstrators last summer?have encouraged
opposition from most segments of Egyptian society.
But the President is unlikely to step down
voluntarily?there have been reports he might do so?
because he believes no successor can do a better job.
Mubarak may be increasingly tempted to take a
tougher line against his critics. But a heavyhanded
policy, reminiscent of President Sadat's mass arrests
in 1981, almost certainly would turn public opinion
solidly against him and encourage radicals,
particularly Muslim extremists, to attack him.
The President may also reshuffle the Cabinet if
infighting among his advisers persists. Such a move,
however, would not resolve the problems the regime
faces.
Meanwhile, Mubarak is likely to put distance between
himself amd US policies that might be viewed in
Egypt as anti-Arab. Cairo
will be silent or
perhaps even criticize US moves that have any chance
of fueling domestic anger.
What if Mubarak Leaves Office?
Elections in 1981 made President Mubarak head of
state until 1987. If he were to die or resign before
then, the Constitution stipulates the Speaker of the
People's Assembly, Rif at Mahgoub, would become
the interim president in the absence of a vice
president. Mahgoub, who was handpicked by
Mubarak, would play a major role in brokering the
succession. Prime Minister Lotfy has neither the
power nor the support of political heavyweights to
contend seriously for the presidency. Defense Minister
Abu Ghazala would be most likely to assert himself,
but he could be challenged by the opposition for
his pro-US stand.
An orderly succession would be likely, but a
contentious one is possible. If Ghazala and other
aspirants could not strike a deal in the backrooms of
the high command, the military could become divided
and opposition groups might try to exploit the
situation. Following a probably brief period of
23
uncertainty, political turmoil, and perhaps some
violence, it is very likely a current or former military
leader would become president. Indicators of this
more contentious succession include:
? Two or more leaders contend for the presidency.
? Factionalism and indecision in the military over
which contender to back lead to a temporary power
vacuum.
? The Cabinet and ruling National Democratic Party
dissolve into rival groupings in support of different
candidates.
? Political rivalries are translated into popular
activism; strikes, demonstrations, and riots ensue.
? The factionalized military quells the unrest but is
itself badly shaken.
? Leftwing and Islamic fundamentalist groups openly
challenge the regime and further organize and
inflame the antiregime unrest.
? A candidate with military ties gains power, but the
new government lacks the consensus enjoyed by its
predecessor.
In either case, if Mubarak left office in an atmosphere
of failure and recrimination, any successor would try
to distinguish his own policies from Mubarak's. This
could mean some loosening of ties to the United
States because Mubarak has relied heavily on this
relationship for economic development, military
security, and achievement of a Middle Eastern peace
settlement. Mubarak's failure in these areas would
make the US connection appear less an asset than
before.
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Libya: Economy
Under Siege
The slide in world oil prices and US economic
sanctions are the latest jolts to the Libyan economy.
They come at a time of unprecedented popular
discontent over Libyan leader Qadhafi's misguided
economic policies and penchant for costly foreign
adventures. The freeze on Libyan assets in US banks
has deprived Tripoli of access to about $700 million
and closed off an important channel for receiving
revenues from the sale of Libyan crude. The sharp
drop in oil prices?unless accompanied by an
offsetting increase in liftings?will leave even less
room for Tripoli to manage the economy this year. A
dip in oil prices to $15 per barrel would confront
Qadhafi with an unmanageable cash shortage unless
he makes politically risky cuts in consumer imports or
swallows his pride and borrows on the international
market. Further reductions in imports almost
certainly would increase the chances of a military
decision to move against Qadhafi.
Less Is More
Qadhafi's speech last September calling for greater
public sacrifice underscores growing concern in
Tripoli over the poor state of the economy. Unlike
previous speeches extolling revolutionary successes,
the Libyan leader urged the people to eat camel meat
and wild game rather than expensive imported lamb
and beef. Qadhafi's uneasiness is supported by recent
statistics that suggest real GDP was off 2 percent last
year, the fifth consecutive year of decline. Per capita
GDP is now below the 1977 level, and inflation is at a
near record high of 15 percent.
Living conditions for the average Libyan continue to
deteriorate.
shelves in most government-operated supermarkets
are empty or poorly stocked except on traditional
holidays. Food lines are longer and more contentious
as people search for staples. Hoarding has become a
way of life for most, and a thriving black market has
evolved despite numerous attempts to control such
activity. Moreover, the quality of health care and
education?hallmarks of Qadhafi's revolution?has
25
fallen off sharply. Although few starve in Libya, most
agree that Qadhafi's economic policies have failed.
The government budget, foreign workers, and foreign
contractors have all been casualties of Qadhafi's
revenue squeeze. Development spending was down by
20 percent, while the administrative budget was cut
for only the second time since 1969. Actual spending
levels probably are as much as 40 percent lower,
based on import figures and press reporting.
Moreover, last
summer's expulsion of 150,000 foreign workers was
intended to save $1 billion in worker remittances. To
shore up Tripoli's foreign exchange position,
payments to foreign contractors have been further
delayed. The slowdown pushed Libyan commercial
arrears to an estimated $4 billion, straining relations
with several of Libya's leading trading partners,
including the USSR.
Nevertheless, work on priority development projects is
continuing. Last summer, government ministries
decided to finish those projects that were more than
half completed and to cancel or delay others under the
1986-90 Plan,
Exceptions to the decision include Qadhafi's priority
Great Manmade River project, an iron mill at
Misratah, and an aluminum smelter at Zuwara.
Qadhafi also has attached increased importance to
agricultural development to limit dependence on
Western food supplies. A benefit of the development
slowdown has been that it has limited the impact of
the sudden loss of large numbers of foreign workers
who filled unskilled or semiskilled positions.
Defense spending also has felt the pinch. Military
imports probably fell to $1.7 billion last year from
their peak of almost $3 billion in 1982. Most of this
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Libya: Economic Indicators, 1981-86
Note scale change
Real GDP Growth
Percent
4
?12
?16
?20
Financial Reserves a
Billion US $
Consumer Price Growth
Percent
20
16
12
I NM
EMI
EINE
Grain Productionn
Thousand metric tons
10
500
8
400
6
300
4
200
2
100
0 1981 82 83 84 85c 86d 1981 82 83 84 85c S6
a End of period; excluding 3.6 million ounces of gold,
b Includes wheat and barley.
Estimated.
d Projected.
306150 2436
Secret
Table 1
Libyan Arrears to Selected
Trade Partners a
Million US $
Total
3,760
Italy
700
South Korea
400
Turkey
400
Japan
350
France
300
West Germany
300
United Kingdom
200
India
120
Spain
100
Denmark
60
Greece
40
Netherlands
40
Other
750
a Estimated.
decline reflects the completion of deliveries under
existing contracts. Other defense-related spending has
remained relatively stable. Qadhafi depends heavily
on the military and security forces to stay in power
and knows that they pose the greatest threat to his
regime. Defense spending probably will not decline
sharply to avoid antagonizing Qadhafi's key
supporters.
Qadhafi's draconian measures to stem the economic
slide have had some positive effects. The sharp cut in
imports and foreign workers, coupled with oil exports
slightly above Libya's OPEC production quota of
990,000 b/d, probably produced a small surplus in the
current account for the first time since 1982. These
factors, in conjunction with delayed payments to
foreign contractors, helped push financial reserves to
$5.5 billion by the end of 1985?equivalent to 10
months of import coverage?from a low of $3.3 billion
in January 1985.
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Political Strains of Austerity
For the most part, Qadhafi is a judicious political
calculator who is capable of patient waiting. He has
often been able to respond flexibly to his political and
economic troubles, tactically changing course without
losing sight of his long-held revolutionary goals. But
when he is feeling under siege or experiencing a
heightened sensitivity that his revolution is failing,
Qadhafi's usually pragmatic decisionmaking can
falter. We judge that Qadhafi is now in such a period,
and Qadhafi's flawed decisionmakin could well
compound his economic problems.
Qadhafi has increasingly surrounded himself with
people he believes he can trust?relatives, fellow
tribesmen, or young radicals committed to his
ideology.
F7professional officials in key positions?
particularly those in the security services?are being
replaced by young extremists who have come of age
under Qadhafi and are considered ideologically
sound. Qadhafi also has staged rallies in tribal areas
to convince both internal and external opponents that
he continues to enjoy popular support. This year, for
the first time, Qadhafi celebrated the anniversary of
his coup in the relatively secure city of Sebha.
Instead of the usual displays of military units, he
featured parades of Revolutionary Committee cadres.
In our view, this reflects Qadhafi's distrust of the
Army's loyalty and was intended to demonstrate to
his adversaries that the Libyan revolution would
continue even if he were personally eliminated.
Another effect of Qadhafi's siege mentality has been
increased infighting among senior officials as they
prepare for a succession struggle.
high-level officers. including
Libya's number-two man, Abd al-Salam Jallud, are
expanding their networks of clients and supporters. In
our view, this jockeying for political position reflects
a lack of confidence in Qadhafi's viability and
threatens the unity of the regime.
Qadhafi's popular base will continue to erode as long
as he responds to the challenges to his regime by
confining himself to a diminishing circle of loyal
revolutionaries. Qadhafi is almost entirely dependent
on the continued loyalty and competence of the
Revolutionary Committees and the security services
to preserve his position. At present, these institutions
appear willing and able to protect him. Nonetheless,
political and economic trends in Libya are running
against Qadhafi, and we assess his chances of
surviving until 1987 as little better than even.
US Economic Sanctions
The freeze on Libyan financial assets has had the
greatest impact among the various US economic
restrictions imposed last month. Libya lost access to
as much as 13 percent of its foreign exchange reserves
and has had increased trouble in servicing contract
payments?especially to oil companies. The assets
freeze wiped out about 30 percent of the increase in
hard currency achieved from austerity last year.
Moreover, Tripoli's attempts to circumvent US
sanctions have met with limited results. Other Arab
states have been unwilling to use their substantial US
investments to support Qadhafi.l
The impact of US sanctions on the oil sector is small.
We estimate that Libya continues to produce 1.1-1.2
27
million b/d of oil. Most US oil workers have left
Libya, but a trained cadre of domestic oil workers and
other foreign technicians probably can maintain
production or even increase production by several
hundred thousand barrels per day.
spare parts shortages
will not hinder oil production because Libya has
adequate parts in stock or can acquire suitable
equipment through non-US suppliers. Moreover,
completion of other Libyan development programs,
including the Great Manmade River project, will be
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Table 2
Libya: Current Account Balance
Billion US $
1981
1982
1983
1984
1985
1986a
Current account balance
-5.3
0.6
-1.0
-1.5
0.6
-1.0
Trade balance
-1.3
4.3
3.5
3.1
4.1
2.5
Exports (f.o.b.)
15.2
13.6
11.9
11.2
11.0
8.8
Imports (f.o.b.)
16.5
9.3
8.4
8.1
7.0
6.3 b
Non-Communist
13.0
5.8
5.9
5.9
4.9
4.7
Military
0.8
1.1
0.6
0.4
0.5
0.5
Communist, nonmilitary
1.8
1.7
1.3
1.0
0.9
0.7
Soviet
0.3
0.3
0.4
0.2
0.1
0.1
Other
1.5
1.4
0.9
0.8
0.7
0.5
Communist, military
1.8
1.9
1.3
1.3
1.2
1.0
Soviet
1.2
1.0
0.7
0.8
0.7
0.6
Other
0.6
0.9
0.6
0.5
0.5
0.4
Net services
-3.6
-3.1
-4.2
-4.1
-3.3
-3.2
Freight and insurance
-2.0
-1.1
-1.0
-1.0
-0.8
-0.7 ,
Investment income receipts
1.5
1.1
0.8
0.4
0.3
0.2
Other
-3.2
-3.1
-3.9
-3.6
-2.8
-2.7
Grants
-0.4
-0.5
-0.4
-0.4
-0.4
-0.3
Change in reserves
-4.1
-1.9
-1.8
-1.6
2.1
-2.0
a Projected assuming average oil exports of 1.2 million b/d at $20
per barrel.
b Based on additional reductions in military and project-related
imports.
little affected because of the substantial participation
of West European and South Korean firms that can
easily replace US firms.
Outlook
Soft oil market conditions pose the greatest threat to
the economy and probably to the regime. Tripoli loses
$400 million annually for each $1 decline in oil prices
at the current export level. Moreover, every 100,000
b/d drop in oil exports costs the regime $730 million
at the current $20 per barrel price.
A $20 per barrel oil price probably would have little
impact on the economy during the next year if current
export levels can be maintained. Assuming that there
is no change in imports, Tripoli could face a current
Secret
account deficit of $1.5 billion this year. Such a
shortfall could be sustained by drawing down foreign
exchange reserves.
An average oil price of $15 per barrel would force
Tripoli to make difficult choices without additional
cuts in spending. Tripoli would face a current account
deficit of $3.0-3.5 billion this year, equal to available
foreign exchange reserves. Hefty reductions in
imports almost certainly would hit both civilian goods
and military equipment as well as priority projects.
Increased popular dissatisfaction could generate
renewed coup plotting and force Qadhafi to rely even
more heavily on his security forces to remain in
power.
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A steep drop in oil prices also limits Qadhafi's ability
to purchase support by reordering economic priorities
and channeling savings into the consumer sector. He
could step up oil production. An increase of 100,400
b/d in oil exports at $20 per barrel would boost
revenues by the amount of import reductions last
year. Such an increase, however, would be difficult to
sustain under current market conditions without price
adjustments. Nonetheless, any improvement in
revenues?provided Qadhafi uses the funds to
purchase basic commodities?would ease mounting
tensions over living standards.
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The Libyan Oil Industry:
Dependence on Foreign
Companies
The Libyan oil industry was developed primarily by
US companies during the 1960s, and production grew
to 3.3 million b/d by 1970. Since reaching its peak in
the early 1970s, Libyan production has fallen to its
present level of about 1.1 million b/d, largely
paralleling the dramatic drop in overall OPEC oil
production as a result of the softening world oil
market. During the same period, production
capability has fallen from more than 3 million b/d to
about 1.6 million b/d because of inadequate oilfield
maintenance and a more conservative approach to
managing Libya's petroleum resources. Nonetheless,
Libya's excess capacity represents about 20 percent of
that outside the Persian Gulf. Moreover, Libya's
crude is premium quality?therefore easily
marketable?having high gravity and low sulfur
content.
Foreign operating companies, such as Occidental,
AGIP, and the OASIS partners, form the backbone of
the Libyan crude oil industry. Fields involving foreign
participation account for about 80 percent of Libyan
production. These companies not only provide
infusions of badly needed capital, but also bring Libya
essential technical skills and managerial experience.
Crude Production Systems
Libya's crude oil production comes from five
essentially separate export systems with a combined
export handling capacity of at least two times its
current 1.1-million-b/d production level. The
redundancy and the dispersion of the oil system across
Libya with links to five separate terminals along the
coast increase flexibility and reduce the vulnerability
of Libyan exports to disruption:
? OASIS. The OASIS system is the most important,
accounting for more than one-third of Libya's
production, or about 400,000 b/d. The system is
owned and operated by the OASIS Oil Company, a
partnership of three US oil companies?Conoco,
Marathon, and Amerada Hess?and the Libyan
National Oil Company (LNOC), which has
controlling interest.
31
? Occidental. The Occidental system?a joint US-
Italian (AGIP)-operated system, which produces
about 285,000 b/d--is the second-largest producer.
OMV of Austria recently bought 25 percent of
Occidental's Libyan holdings. Occidental
administers its Libyan operations from the United
Kingdom. LNOC has controlling interest in both
Occidental's Libyan holdings and AGIP's Libyan
operating companies. This production system is
well maintained
with the help of foreign operating personnel.
? AGECO. The two government-controlled
companies?Arab Gulf Exploration Company
(AGECO) and Umm al-Jawabi?own and operate
the third-largest system in Libya. Production is
about 40,000 b/d and 185,000 b/d from its western
and eastern fields, respectively. AGECO is used as
LNOC's swing producer because of its significant
underutilized capacity.
?
Sine. The Sirte system was built by Exxon but has
been operated by the government-controlled Sirte
Oil Company since Exxon pulled out of Libya in
late 1981. W. R. Grace?a US firm?has a small
equity position in the Sirte system. I
maintenance programs have
been neglected or delayed for years, and the
Libyans have had some difficulties running the
system since Exxon left Libya.
? VEBA. This is the smallest producing system in
Libya with about 65,000 b/d production. It was
built and operated by Mobil until the company
suspended its Libyan production in 1982. VEBA
Oil?a Mobil partner?and Wintershall, both West
German firms, have small producing fields in this
system. The oilfields in this system are in poor
condition.
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Maintaining Production and Revenues
Despite Tripoli's efforts to nationalize the oil sector,
the industry is dominated by the presence of foreign
companies and workers. Their presence is dictated by
three key Libyan oil industry needs:
? The need for skilled technicians and managers to
handle the more complex operations of the oil
industry, there are
shortages of qualified personnel at all levels in the
Libyan oil industry, particularly in middle
management ranks.
? The need for foreign equipment and services to
repair and upgrade the Libyan oil infrastructure.
Libya has no domestic oil equipment manufacturing
capability and must import all equipment?from
steel pipe to seismic processing computers. Foreign
service companies are required for pipeline
inspection. Foreign technical assistance is especially
critical in Libya's offshore exploration and
development program.
? The need for foreign capital to carry out Tripoli's oil
development programs. The drawdown in Libyan
foreign reserves has necessitated more foreign
equity or barter arrangements that minimize
Libyan capital outflows.
Tripoli is fully aware of its reliance on foreign oil
companies, service companies, and personnel for the
efficient operation of its oil system and has tried to
make working in Libya attractive to foreign
companies and personnel. The government has
regularly adjusted equity margins for its foreign oil
equity partners to maintain their production and
presence in Libya. Foreign equity participation and
barter arrangements are generally viewed by the
foreign companies as particularly profitable
investments Besides
oilfield expertise and capital investment, operating
companies provide an assured crude oil sales outlet.
We estimate foreign companies in Libya lift about
one-third of Libya's production.
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Table 2
Foreign Companies Operating
in Libya's Oil Industry
Activities
Production Oilfield Exploration Construction and Equipment
Services Services Engineering Sales
Comments
United States
Amerada Hess x
Baker Oil Tools
x
Baroid x
Brown & Root x
Christenson Diamond x
Coastal
Combustion Engineering
Conoco
x
Dresser Industries x
Geosource
Halliburton x
Lummus Crest, Inc. x
Marathon
Milcem
x
Occidental
Petty Ray x
Pool Interdrill
Sun Oil x
C. E. Vetco x
Weatherford International x
Western Geophysical x
W. R. Grace
Austria
OMV
x
Voest-Alpine x
Brazil
Braspetro x
France
Coflexip
x Flexible pipeline
Elf x
EMH
x Single point mooring
Forex x
x Neptune drilling services
Dowell Schlumberger x
Technip x
Usinor
x
CGG x
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Table 2 (continued)
Activities Comments
Production Oilfield Exploration Construction and Equipment
Services Services Engineering Sales
Italy
AGIP
Bellili
Jacket construction
Bonatti
Dalmine
Wellheads
Foster-Wheeler
Marconi
Petrochemical plant
Mariani
Refinery equipment
Micoperi
Refinery equipment
Montubi
Jacket construction
Riva Refinery equipment
Saipem
Snamprogetti
Offshore Bouri work
Technimont
Petrochemical plant
Technomare
Jacket design
Turbotecnica
Gas turbines
Japan
Marubeni
Coke facility
NEC
Communication and
computer gear
Niigata Engineering
Yokagawa Electric
Electric controls
Netherlands
Shell
Kuwait
Sante Fe International
Corporation
Norway
EB Communications x Telecommunications
GECO
South Korea
Hyundai x x Topside manufacturer
Samsung x x Oil storage tanks, water
injection
Switzerland
Sulzer
Oilfield pumps, turbines
BBC-Brown Boveri
Oilfield pumps, turbines,
electric gear
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Table 2 (continued)
Activities Comments
Production Oilfield Exploration Construction and Equipment
Services Services Engineering Sales
United Kingdom
Brown & Root (UK)
Davy McKee x Ra's al Unuf refinery
General Descaling x Pipeline inspection
John Brown
Project manager of
Bouri field
SSL
Seismic services
Imperial Chemical
Industries
Weir
Downhole pumps
Motherwell Bridge
Constructors
West Germany
Deminix
Mannesmann
Tubular steel
Siemens
Electrical gear
Prakla Seismos
Uhde
Petrochemical plant
VEBA
Thyssen
Tubular steel
Wintershall
Kloeckner-Humboldt-
Deutz
Eastern Europe
Bulgarian Oil (Bulgaria)
Rompetrol (Romania)
Tsvetmetpromeksport
(USSR)
Gas pipeline
construction
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All Libyan operating companies use equipment and
service companies from the United States, Canada,
and Europe for specialized tasks, including well
maintenance and workover tasks, artificial lift
equipment, installation, and pipeline inspection
services. In particular, US companies provide critical
downhole equipment and perform maintenance and
[pipline inspection services.
the Libyans obtained much of their downhole
equipment through a subsidiary of the Umm al-
Jawabi Company in Houston.
The role of overseas subsidiaries of US companies in
serving Libyan needs is particularly complex. Most
US manufacturers of oilfield equipment as well as US
engineering and service companies have established
foreign operations to avail themselves of lower
manufacturing costs and trade and tax advantages
and as a means of avoiding US export and trade
restrictions. Consequently, although US companies
may be the ultimate source of certain petroleum
equipment and services used in the Libyan oil
industry, the actual equipment and services may be
provided by a foreign subsidiary, usually West
European.
Expatriates comprise up to 40 percent of the work
force of Libya's operating companies,
Based on our estimates,
1,500 Canadians, 5,000 British, 1,500 West Germans,
1,200 French, and 16,000 Italians now live in Libya.
Although we do not have a breakdown by occupation,
we believe many of these individuals have petroleum-
related jobs. Other foreign personnel include
Pakistani, Indian, Philippine, South Korean, Maltese,
and Dutch workers.
Westerners are hired as technicians
(machinists and computer specialists), engineers,
drilling supervisors, and oil pipeline and terminal
operators. Asians are hired for rig operations and as
construction contractors and workers.
increase over the 1985 budget. The key players
include, not only foreign producing companies, such
as OASIS, Occidental, and AGIP, but also companies
holding undeveloped concessions in Libya, such as
Bulgarian Oil from Bulgaria, Rompetrol from
Romania, and Braspetro from Brazil. Many of these
companies rely on vital seismic work performed by
Prakla Seismos of West Germany, Compagnie
Generale de Geophysique (CGG) of France, GECO of
Norway, and Seismograph Services, Ltd. (SSL) of
Great Britain,
US Sanctions in the Near Term
The new, wider ranging economic sanctions
announced by the United States go well beyond the
trade controls imposed in 1982. The US sanctions will
disrupt the Libyan petroleum industry for several
months at least. Any resulting production decline,
however, will most likely be temporary and inflict
limited hardship on the government. The number of
US oilfield workers in Libya, for example, probably
was no more than 300 to 500. The Libyans can rely on
domestic personnel and workers from Western
Europe, Canada, and Eastern Europe for assistance.
Applications by Canadians exceeded demand by a
ratio of 4 to 1 following the withdrawal of US
personnel in 1982, a situation that probably still
prevails. Moreover, most US companies provide
services to Libya through West European
subsidiaries, often using European personnel, so they
may be immune to US sanctions. Occidental might be
able to continue its Libyan operations because they
are administered from the United Kingdom.
Exploration
Although the Libyan operating companies of AGECO
and Sirte have the most active exploration programs,
numerous foreign companies are also involved. We
estimate LNOC has budgeted about $610 million for
oil exploration in 1986, representing a 10-percent
37
Although production might hold up fairly well, the
departure of US operating companies will complicate
the marketing of Libya's crude. Before the sanctions,
US companies received a margin of about $2 per
barrel for lifting as much as 200,000 b/d of Libyan
crude?about 20 percent of current output?as
compensation for their equity holdings. The
companies then either processed the crude in their
downstream operations outside of Libya or sold the
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crude on the spot market. Tripoli must now find
buyers to replace the assured offtake of the US
companies?a move that will probably require price
discounts to attract new customers from existing
arrangements.
Trends over the past few years have reduced the
impact of the removal of US petroleum equipment
companies from Libya. European and Asian
equipment companies?including US subsidiaries?
already are supplying the Libyans with many of the
standard items usually provided in the past by US-
based firms. In addition, Italian, French, and British
companies working in Libya probably can replace
standard supply items, such as drill pipe, needed by
the Libyans. Although replacement parts for US-
manufactured pumps, compressors, and other
equipment might be harder to obtain, suitable
substitutes probably can be procured from European
subsidiaries of US firms or the USSR. If these efforts
fail, the Libyans could replace the equipment at
greater expense with new systems,
Longer Term Prospects
The longer term impact of the US sanctions depends
primarily on the extent to which other countries
follow suit. Among the Allies, the United Kingdom
has few trade and financial ties to Libya, and those
that exist are of little importance to London. Many
factors, however, work against a significant widening
of the scope of the sanctions. Several countries hold
large Libyan debts that can be repaid only through oil
exports. Many countries also see the potential of
gaining large construction contracts in Libya and do
not want to endanger their prospects. Some countries,
especially in the Mediterranean area, probably fear
Libyan reprisals for actions taken in support of the
US sanctions.
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Abu Abbas: Isolated and
Dim Prospects
Palestine Liberation Front (PLF) leader Muhammad
Abbas, responsible for the Achille Lauro hijacking,
appears to be settling down in Baghdad, but he is
likely to have little, if any, freedom to operate because
of restrictions laid on him by PLO Chairman Arafat
and the Iraqi Government. Abbas apparently has kept
some PLF cadre in Tunis and Algeria, possibly in the
hope of escaping his Baghdad exile. We believe,
however, that he has become such an embarrassment
to the PLO that he has little chance of mounting new
operations anytime soon. Baghdad almost certainly
would not allow Abbas to conduct operations from
Iraq, and Arafat has ordered him to stay in Baghdad
and maintain a low profile. Syria and Libya support
other PLF factions, and we believe Abbas would
consider the possibility of realignment with these
groups. Factional rivalry and personal animosities,
however, probably preclude Abbas from realigning
with anti-Arafat PLF factions supported by Syria and
Libya.
Another Renegade for Arafat?
PLO officials still seem to be grappling with the
problem of what to do with Abbas and apparently
hope he will fade from the headlines. Based on
information from a generally reliable source, both
hardliners and moderates in the PLO and Fatah
agreed during December's Fatah Central Committee
sessions in Baghdad that Abbas should be expelled
from the Executive Committee. The moderates
clearly view Abbas's presence on the Executive
Committee as an embarrassment. Fatah hardliners
may fear that Abbas is another Palestinian leader
over whom they have little, if any, control.
Despite this opposition, Abbas has avoided expulsion
from the Executive Committee,
PLO Chairman
Arafat has ordered Abbas to keep a low profile but
has resisted pressure from senior PLO and Fatah
officials to expel Abbas from the Executive
Committee. Arafat believes that Abbas's expulsion
39
Abu Abbas
would elevate Abbas to hero status and perhaps
promote "another Abu Nidal."
US efforts to arrest Abbas have given him a new
degree of notoriety among some Palestinians.
We believe Arafat may be correct in assuming that
keeping Abbas on the Executive Committee affords
the PLO some supervision over Abbas's activities.
Moreover, Arafat is not likely to embarrass Iraq by
ousting Abbas while he resides in Baghdad, much less
risk losing the support of another Palestinian faction.
Diminishing Returns in Tunis
Relations between the PLF and Tunisia, where the
group appears to have been headquartered since late
1983, have never been more than polite. Official
Tunisian policy has been to deal with Arafat as the
sole PLO representative. Abbas,
apparently tried to
boost the PLF's stature last summer by donating a
sizable cash gift to Tunisia, intended as aid for
Tunisian workers expelled from Libya
Following the PLF's gesture, Tunis's attitude toward
the group may have improved marginally,
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Since the hijacking, however, relations
between Tunis and the PLO in general?and the PLF The Abbas PLF Faction
in particular?have cooled considerably.
We believe that Abbas has tried to maintain a token
presence in Tunisia primarily because the PLO still
has its headquarters there and perhaps to give the
appearance that he has options other than remaining
confined to Baghdad. Most PLF members have
relocated to Iraq or Algeria, however, and there are
only some 30 to 40 PLF cadre remaining in Tunis,
This shift appears to have
taken place over the past year, probably as the PLO
increased its presence in Iraq.
A Possible European Net
We believe Abbas's PLF faction has oneratives in
Western Europe,
We doubt that
such a network is large, given the small size of
Abbas's group, nor do we know how well placed its
operatives are to conduct operations in Europe. We
believe that Israel is still the group's primary target,
although hostility toward the United States following
the interception of the Egyptian plane carrying the
Achille Lauro terrorists encourages operations against
US interests. Italy might be considered as a site for
future attacks by the group as part of an effort to
press the Italian Government to free the four
imprisoned PLF terrorists.
Secret
Abu Abbas established the Lebanon-based Palestine
Liberation Front?also known as the Front for the
Liberation of Palestine?in 1977, leading an exodus
of dissidents from Ahmad Jibril's Popular Front for
the Liberation of Palestine?General Command.
Abbas protested Jibril's collusion with Syria against
pro-Arafat Palestinian forces in Lebanon.
Despite efforts by all interested parties in 1983 and
1984 to reconcile ideological and personal
differences, the PLF divided into pro- and anti-Arafat
factions. Abbas, with some 200 members, heads the
pro-Arafat wing. Abbas's support for Arafat,
however, may be based more on anger at Syria and
the lure of the Executive Committee position Arafat
offered him in late 1984 when the Palestine National
Council met in Amman. The opposition PLF factions,
also small, are led by Talat Yaqub, who lives in
Damascus and whose group is a member of the
Syrian-supported Palestine National Salvation
Front, and Abd al-Fatah Ghanim, who may still
reside in Damascus but whose group since 1984
appears to be more closely linked to Libya.
Although his organization is small and does not have
a network or capability anywhere comparable to the
Abu Nidal group, Abbas may well appeal to young
Palestinians seeking involvement in more spectacular
terrorist operations. Abbas's credibility may even be
enhanced among the younger generation because he
has consistently rejected a negotiated Middle East
settlement, as well as Arafat's 1985 accord with
Jordan's King Hussein. According to press reports
following the Achille Lauro hijacking, Abu Abbas is
noted among some Palestinians for his "creativity"?
if not effectiveness?in devising raids against Israel.
In 1981, the PLF, under Abbas's leadership,
conducted two unsuccessful terrorist raids into Israel
using hang gliders and hot-air balloons.
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Future PLF Plans
On 25 December,
however, the PLF office in Tunis issued a warning to
the United States and Israel to discourage further US
efforts to locate and arrest Abbas. We believe Abbas
will comply with Arafat's order to keep a low profile.
Additional threats from him or his group against the
United States may depend on the degree of continued
US pressure for his arrest, or, more probably, the
amount of publicity given to such efforts. We believe
that such threats would be more likely to be boasting
and not a reflection of actual plans. Abbas's stay in
Baghdad depends on his not causing political
embarrassment to Iraq.
Even if Abbas balked at accepting indefinite oversight
from Arafat or Iraq, we believe that he has few
alternative havens open to him:
? Political unrest would seem to rule out South
Yemen.
? We do not believe Algeria would give him asylum,
even though some PLF cadre are there.
? Syria and Libya support two other PLF factions
that oppose Abbas.
If Abbas approached either Syria or Libya for support
or sanctuary, Damascus or Tripoli probably would
press him to reconcile his differences with the PLF
factions they support. We believe he would consider
rapprochement if he received positive signals from his
opponents. Personal rivalries and intergroup fighting,
however, are major obstacles to a reconciliation
between Abbas and other PLF factions.
Even though Baghdad approves of terrorism directed
against Israel, it almost certainly would object to
attacks planned and staged from Iraq. Besides the risk
of Israeli retaliation, such operations would strain
Iraqi relations with the United States. We believe that
Iraq might consider using Abbas's group against
Syria.
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Iran-Soviet Union: Bearish
Economic Relations Reflect
Political Differences
Economic ties between Iran and the Soviet Union
have declined since 1983 largely because of the chill
in political relations. Over the same period, the end of
the Western economic embargo and Tehran's
preference for more advanced technology have
increased opportunities for Western trade and
investment. Although neither Iran nor the Soviet
Union is willing to make the political concessions
necessary for a substantial expansion of trade, both
see trade as an avenue for maintaining proper
relations and eventually improving overall ties. We
expect that recent diplomatic contacts will lead to a
gradual improvement in economic relations, despite
the absence of substantially improved political ties.
Postrevolution Courtship
Following the revolution in Iran in 1979, the Soviet
Union sought to fill the vacuum left by the end of US
influence and made great efforts to expand relations.
Moscow sought increased trade with Tehran and
continued arms deliveries under agreements made
with the Shah to curry favor with the new regime and
to maintain its presence in Iran. In line with this
approach, the Soviet Union suspended arms deliveries
to Iraq following its invasion of Iran in 1980.
Moscow was aided in its efforts to improve economic
ties by the fall in Western trade that resulted from
trade sanctions imposed during the detention of the
US hostages in Tehran. In addition, the war with Iraq
and political uncertainty discouraged private
investment from most countries. The war also
restricted the use of Iran's ports in the northern
Persian Gulf, making Tehran more dependent on
overland routes through the Soviet Union.
A series of economic agreements between 1980 and
1982 reflected efforts by both sides to improve trade
relations:
? In June 1980 the first trade protocol was signed. It
provided for Soviet assistance in 142 projects
(mostly steel, coal mining, metallurgy, power
43
generating, and machine tools) and for the
establishment of technical training centers in Iran.
? An agreement signed in May 1981 called for a
doubling of Soviet exports to Iran. Its provisions
included the expansion of power and steel plants as
well as Soviet shipping to Iran's Caspian seaports.
? In April 1982 an agreement was signed covering
Soviet construction of a new dam, power stations,
and other joint projects.
Relations Sour
In 1982 political relations began to sour as Iran
rebuffed Moscow's bid for closer ties. In March
PRA VDA criticized unfriendly Iranian actions?the
closing of the Soviet Consulate in Resht and a
unilateral curtailing of cultural relations. In April
1982 the Soviet Union tilted toward Iraq by signing a
$2 billion arms deal with Baghdad and openly
attacking Iran's position on the war two months later.
Moreover, articles in the Soviet press chided Tehran
for not appreciating the value of Soviet economic
assistance.
Economic ties began to deteriorate markedly in 1983
as political relations reached a low point. In February,
Iran arrested members of the Tudeh (Communist)
Party on espionage charges and in May expelled
18 Soviet diplomats. That year Iran rejected Soviet
proposals to conclude a new economic agreement,
Soviet arms
deliveries to Iran, which had averaged about
$150 million per year between 1980 and 1983, fell to
insignificant levels in 1984 and 1985.
Since 1982 political relations have remained strained
because of Tehran's concern over Soviet meddling in
its domestic affairs, the resumption of Soviet arms
shipments to Iraq, the increasing influence of
conservative Iranian clerics, and continuing tension
over Afghanistan. Economic ties suffered as Tehran
found that it could better meet its requirements for
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Millions of US $
800
Iran?Soviet Trade, 1975-84
700 ?
600 ?
500 ?
400
300
200 ?.7\
100 ?
0
7-7
1975 1976 1977
V/
Iranian Imports
/\
1978
technological assistance from Western Europe and
Japan.
Recent Iranian Overtures Meet With Little Success
Early last year Iran launched a diplomatic effort to
improve ties to the Soviet Union by emphasizing
opportunities for closer economic relations. In
February, Majles Speaker Rafsanjani told a press
Secret
/\
//`.
/\
/\
1979 1980 1981 1982 1983
NN
Iranian Exports
conference there were good opportunities for
improved trade and industrial relations. In April an
Iranian economic delegation headed by then Deputy
Foreign Minister Hosein Kazempur-Ardabili went to
Moscow, but the trip only yielded agreements for a
meeting of the moribund Iranian-Soviet Economic
Commission and greater commercial use of Soviet
airspace following Iraq's declaration that Iranian
airspace would be closed to air traffic.
Tehran's renewed interest in improving relations
stemmed from a series of military and economic
reversals in early 1985. Ardabili's visit followed the
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260
Secret
USSR Military Exports to Iran, 1980-85
* 1983 estimated to be under $1 million
?
240
/
220
200
180
160 ?
140
120 ?
100 ?
80 ?
60 ?
40 ?
20 ?
0
1980
,
1981
,
1982
failure of Iran's March offensive, Iraq's bombing of
Iranian cities, and several months of lower oil export
earnings. Iran probably hoped offers of improved
economic ties would lead to closer cooperation with
the USSR. The Iranians, however, were unwilling to
make more than token moves in response to Moscow's
demands for a reduction in anti-Soviet propaganda,
an end to Iranian support for Afghan rebels,
replacement of expelled diplomats, and an end to the
repression of the Tudeh Party.
In the absence of significant Iranian political
accommodation, Moscow allowed economic ties to
deteriorate further:
? Over the past year the USSR has put off meetings
of the joint economic commission, which has not
met in the past five years.
45
F-7-7-7-71
1
1984
,
1985*
? Between April and June 1985, the USSR withdrew
nearly all of its 1,000 to 1,500 technicians from
projects, citing concern about their safety from Iraqi
bombing raids. The withdrawal was a severe blow,
especially to Iran's steel and electric industries.
? In September, Moscow rebuffed an economic
delegation led by Deputy Foreign Minister Adeli
that had hoped, among other things, to arrange the
Soviet technicians' return.
The visit to Tehran by Soviet First Deputy Foreign
Minister Korniyenko in early February 1986 centered
on trade discussions but apparently yielded no
significant agreements. Tehran Radio reported that
the joint economic commission would meet soon and
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Aeroflot flights between Moscow and Tehran?
discontinued in 1983?would resume. Tehran also
accepted an invitation to Foreign Minister Velayati to
visit Moscow. Korniyenko's description of the talks as
"frank, comprehensive, and constructive" suggests
that major political differences remain and that
Moscow had low expectations for the trip. Although
Iranian press commentaries on the trip were more
positive, they also noted serious differences over
Afghanistan and Soviet arms sales to Iraq.
Potential Areas for Economic Cooperation
Tehran and Moscow are likely to continue trade
discussions as a way of building closer ties if political
problems can be resolved. Future economic
discussions between Moscow and Tehran are likely to
focus on three major areas of cooperation: Soviet
technical assistance to Iran's industry; natural gas
trade and development; and Soviet transshipment of
Iranian imports.
Technical Assistance. The number of Soviet
technicians in Iran reached a postrevolution peak in
1982 of 2,500 to 3,000 working on some 55 projects.
This compares to the approximately 4,500 advisers
who were present before the overthrow of the Shah.
Moscow radio claimed that as of March 1985 it had
set up 20 training centers and trained 23,000 workers
throughout Iran. By far the largest Soviet presence
has been at power plant construction sites in Esfahan
and Ahvaz and the steel complex at Esfahan. Several
hundred technicians were withdrawn from the Ahvaz
power project in March 1984 because of the war, and
most of the remaining technicians were withdrawn by
June 1985, In addition,
specialists have helped with smaller development
projects and industrial operations.
Several problems could hamper the return of Soviet
experts. Moscow has said publicly that its workers
would not return to Iran until their safety is
guaranteed, but the Soviet Union probably is seeking
Tehran's compliance with a broad range of political
demands. Furthermore, Soviet officials have
complained that their workers have been mistreated
by local Iranian officials, according to the US
Embassy in Moscow.
Secret
Natural Gas Trade and Development. Before 1980 the
primary Iranian export to the Soviet Union was
natural gas, but these sales were ended that year over
a price dispute. Iranian gas exports to the USSR
probably will not be resumed soon. The depressed
energy market makes it unlikely that a price could be
reached that would justify Iranian investments in gas
production and transport. The existing gas pipelines to
the USSR would require substantial time and money
to refit. Moreover, Iran will require substantial
quantities of gas to meet domestic consumption and to
inject into oil wells to maintain oil production.
Press reports indicate Iran is interested in cooperating
with the Soviet Union to exploit potentially large gas
reserves in the Caspian Sea.
Moscow has already begun developing its side, and
Tehran probably seeks to avoid depletion of fields
overlapping the border in the Caspian.
Transit Trade. The Iran-Iraq war, which sharply
reduced Iran's use of its two major ports on the
Persian Gulf, increased its dependence on the USSR
for the transshipment of goods. Tehran has grown less
dependent on the USSR since 1982, however, because
of the expansion of its ports in the southern Gulf.
Moreover, lower import levels since 1983 have
reduced the strain on its transportation network.
Nonetheless, Iran currently imports about 13 percent
of its goods through the Soviet Union, according to
official Iranian data. About 80 percent of these cross
the border by rail at Jolfa. The rest enter by road at
Astara or are shipped through Iran's Caspian ports at
Anzali and Nowshahr.
Outlook
Neither Iran nor the USSR appear willing to make
major political concessions for the sake of improving
economic ties, but both probably see increased trade
as a step toward improved relations. Even if major
agreements can be reached, the Soviet share of Iran's
imports and exports will remain small. Nevertheless,
Tehran probably seeks trade with the Communist
countries as protection against another Western trade
embargo. Iran and the Soviet Union both probably
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1985 Share of Iranian Imports
USSR (2.0%)
Other Communist Countries (10.0%)
Lindeveloped Countries (26.0%)
hope that trade discussions will provide a vehicle for
closer ties in general. For its part, however, Moscow
probably will continue to respond to Iranian overtures
by insisting on political concessions in return for
significantly better economic and political ties.
Developed Countries (62.0%)
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Secret
Afghanistan: Masood and
the Civilian Population
in the Panjsher
The civilian population in and around the Panjsher
Valley contributes toward insurgent effectiveness by
paying taxes, aiding insurgent resupply, building
military facilities, contributing to food supplies, and
providing intelligence.' Civilians, however, also
present Masood with problems. To maintain their
support, he must provide protection and some
financial assistance and must see that they do not
blame the guerrillas for the often brutal Soviet
retaliation that follows insurgent attacks. Masood is
one of a new breed of commanders that takes special
pains to cultivate civilian support by running an
effective local administration, emphasizing Islam, and
separating guerrilla bases from civilian areas. In our
view, these measures, along with his military prowess,
account for his widespread popular support.
Civilian Support to Masood's Operations
Financial Support. Although the Jamiat-i-Islami
organization in Peshawar and private Western
organizations provide a significant portion of
Masood's income, some Panjsher civilians also
contribute to Masood's war chest. For example, an
important source of income for Masood is the
exploitation of precious and semiprecious gems mined
in insurgent-held areas of Parvan, Badakhshan, and
Kabol provinces
mine owners?closely allied with the resistance and
claiming several insurgent commanders in their
families' ranks?pay a 10-percent tax to Masood on
the estimated sale price for lapis lazuli, emeralds, and
rubies sent to Pakistan. Masood's income from this
source could probably pay transportation costs into
the Panjsher Valley from Pakistan for a year.
Kabul traders also provide financial support to
Masood. Because the people of Kabul depend on the
Salang Road being open for Soviet supplies, Masood
has agreed not to block all traffic traveling to Kabul
49
and to limit his attacks to military convoys
In return, Kabul merchants
provide Masood with financial support and
information,
Transportation and Logistics. Civilians in the
Panjsher Valley also make an important contribution
to the resistance by transporting arms and supplies
from Pakistan. Horses are the primary pack animals
in the insurgent logistic system, and a majority of
families in the valley have at least one horse to ferry
arms from Pakistan,1
The Panjsher insurgents
need more horses than are now available and actively
encourage civilians to raise or buy horses,
Food. Panjsher Valley food production also
contributes to insurgent effectiveness. The Andarab
Valley?where Soviet and Afghan forces are strong?
also sells food to the insurgents of the Panjsher
Valley
Most Panjsher farms are in the northern part of the
valley and are having an excellent year,
Farm production
in the Panjsher Valley in 1984 was almost
nonexistent, but yields of wheat and corn have
increased greatly in 1985,
Food supplies from the Andarab Valley will
still be needed, but the plentiful harvest in the
Panjsher Valley should provide the insurgents with an
ample food reserve and a more varied diet,
Morale. The presence of civilians and insurgent
families has a positive effect on insurgent morale in
the Panjsher Valley
Civilians provide
intelligence to the insurgents and serve as laborers to
build local shelters and facilities at newly established
bases in the Andarab side valleys,
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The Problems of Maintaining Civilian Support
The civilian population makes significant
contributions to the insurgents, but they also require
protection and financial assistance from the
resistance. some
Panjsher civilians blame the insurgents for bringing
Soviet retaliation into their area. Masood wants to
prevent the civilian population from becoming
refugees in Pakistan and provides financial incentives
to keep them in place,
Masood pays
5,000 afghanis ($40 at the bazaar exchange rate) per
month per family plus 200 afghanis per child to
civilians deprived of a livelihood by the fighting. Each
family is also provided with a ration card by the local
mountain base that entitles it to support in the form of
food and money when requested and when available,
Insurgents also distribute Western-supplied
humanitarian aid to Panjsher civilians
Masood is one of a new
breed of commanders that recognizes the need to
build popular support for the military struggle. He
does this in part by giving Islam a political
component, by protecting civilians from retaliation,
and by using effective officials in his local
administration. His civilian government, for example,
is in the hands of Muslim clerics, and the courts are
staffed with graduates of Kabul University's Law
School. His efforts to professionalize the insurgent
struggle by creating guerrilla bases away from the
civilian population, moreover, are largely aimed at
shielding his civilian supporters from Soviet reprisals.
Outlook
For these reasons, we believe the 20,000 civilians who
inhabit the Panjsher Valley are committed to Masood
and the resistance. If the Soviets decide to step up
retaliation against Panjsher civilians or launch
another offensive, Masood may again order the
civilians to leave the valley as he did before the 1984
Soviet offensive that ended the cease-fire between
Masood and the Soviets. This would initially reduce
insurgent effectiveness but would not prevent Masood
from launching operations in the Panjsher Valley and
in the surrounding areas.
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Pakistan: Narcotics
and Tribal Politics
A military operation mounted last December against
unruly border tribes in the Pakistani-Afghan border
region was widely touted in the Pakistani press as a
crackdown against illicit drug trafficking, although
we judge that the operation also served important
political purposes for President Zia-ul-Haq. The use
of more than 3,000 Army personnel to destroy the
homes of tribal leaders and establish control over the
main tribal villages provided a highly visible
demonstration to foreign aid donors that Zia is
attempting to reduce narcotics trafficking in Pakistan.
It also demonstrated Islamabad's commitment to
resist efforts by the Soviet-backed regime in Kabul to
strengthen its influence among Pakistan's border
tribes and proved the government's ability to project
force into the traditionally independent border
regions. Furthermore, the operation provided a public
display of Zia's leadership on the eve of national
elections.
Islamabad's crackdown against tribes along its
western border and in the North-West Frontier
Province disrupted some tribal drug trafficking and
forced other traffickers to move their bases into
Afghanistan. The effort probably will not decrease the
overall amount of drugs produced, processed, or
trafficked through the area, however, because the
tribal growers and producers apparently had moved
much of their activity across the border into
Afghanistan before the December operation. The
advent of the new civilian government on 1 January,
in our view, will make future antinarcotics operations
against the border tribes more difficult.
Tribal Traditions and Narcotics
The Pakistani Government has always had trouble
exercising its authority in the western border regions,
making it exceedingly difficult to obtain local
compliance with Islamabad's antinarcotics programs.
Many of Islamabad's problems in maintaining control
in the North-West Frontier Province and the
semiautonomous tribal areas south of the Khyber Pass
can be traced to the administrative practices Pakistan
51
inherited from the British. Responsibility for civil
administration in the main tribal areas stretching
from the North-West Frontier Province south to
Baluchistan is shared between Islamabad and
representatives of the major tribes. Even under the
centralized martial law regime, Zia had difficulty
extending effective central control in the area. Many
tribal areas remain nearly autonomous, much as they
did under the British. Pitched battles between
officials of the local military governor, federal
administrators of tribal areas, and armed tribesmen
have been increasingly common over the last
18 months.
The Soviet invasion of Afghanistan in 1979 disrupted
existing drug producing and trafficking arrangements
in the so-called Golden Crescent and worsened the
already strained relations between the border tribes
and Islamabad. Nearly 3 million Afghan refugees fled
into Pakistan to escape the war; many of them had
been involved in opium growing. The war as well as
shifts in Iranian narcotics production and trafficking
in the early 1980s contributed to changes in
trafficking patterns that resulted in routing much of
the Southwest Asian opiate traffic through the
Pakistani border regions, then south through
Baluchistan and west into Iran.
The war has not disrupted the hold that the Shinwari,
Afridi, and other tribes of the Pushtun ethnic group,
who control much of the territory along the Afghan
border, have traditionally maintained over narcotics
production and processing in the area. The opium
trade offers substantial economic return to tribal
groups, and it adapts easily to wartime conditions
rug growing
and processing have replaced food production in many
of the small valleys between Kabul and the Pakistani
border. Afghan refugees based
in camps in Pakistan can still return home to grow
zi
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Events Leading to December's Khyber Operation
1982
November
1983
Early
1984
June
1985
March
April
Islamabad sends Army to destroy
tribal heroin laboratories in Landi
Kotal near the Khyber Pass.
Members of the Pakistan Shinwari
tribe relocate in Afghanistan at Kabul's
invitation and quickly reestablish their
heroin-processing operations.
Iseeing many
heroin laboratories in the Afghan
provinces bordering Pakistan.
Islamabad sponsors assembly of tribal
leaders (jirga) to announce government
crackdown on narcotics.
Leader of Kukikhel clan of the Afridi
tribe, Wali Khan, stages militant
antigovernment demonstrations in
NWFP tribal areas.
Afridi jirga rejects leadership of Wali
Khan, supports government
antinarcotics program.
September Wali Khan supporters denounce
Islamabad, Washington, praise Soviet
Union for its "support of traditional
tribal prerogatives."
November Islamabad convenes tribal assembly in
NWFP, issues ultimatum to tribes
involved in narcotics to surrender
before December.
2 December Beginning of military operation in
NWFP and Khyber region. Government
forces mount five-day search-and-
sweep operation in NWFP.
4 December Jirga called by Afridi leadership to
denounce Wali Khan. Two hundred
government troops of the Afridi tribe
defect to Wali Khan.
7 December
Government forces attack narcotics
trafficker strongholds in Khyber Pass;
numerous dead on both sides.
13 December Governor of NWFP tells tribal
assembly Wali Khan is an outlaw drug
dealer; encourages others to surrender,
, promises leniency.
15 December Majority of NWFP heroin laboratories
surrender to government; Wali Khan
flees to Kabul.
24 December Zia announces end of operation; 100
houses destroyed, 25 laboratories
smashed.
30 December Zia lifts martial law; elected civilian
government takes over.
and harvest drug crops. Although leaders of many
Afghan insurgent groups are reluctant to allow
narcotics production in areas under their control,
the
insurgents have to accept that until they can establish
firmer control in contested areas, farmers are forced
Secret
to turn to drug growing to guarantee an adequate
income. Poppy is a lucrative crop, and evidence
indicates combat operations in Afghanistan rarely
destroy poppy fields.
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Islamabad Moves Against the Tribes
Pakistan responded to international calls in the early
1980s to limit the flow of illicit narcotics by allowing
concerned foreign agencies to begin a relatively
successful rural development program to induce
Pakistani farmers not to grow opium. These
programs, however, have not been initiated in tribal
administered regions for security and political
reasons. A combination of falling opium prices in
local markets beginning in 1979, a system of subsidies
for compliance with government regulations and
penalties for continued growing, and poor weather led
to a reduction in Pakistan's production of opium from
a high of more than 700 metric tons in 1979 to a low
of an estimated 45 metric tons in 1984, according to
Embassy reports. In 1985, however, production
increased to an estimated 60 to 70 tons as a result of
expanded cultivation in the tribal areas along the
Afghan border.
Under international pressure to undertake additional
efforts to control the flow of contraband drugs to the
West, Islamabad began a program of political and
military actions against Pushtun drug traffickers in
the Khyber area in 1985. Embassy sources in
Islamabad indicate that the local representative of
Zia's martial law regime, North-West Frontier
Province Governor Fazle Haq, also saw operations
against the traffickers as a way to enhance his
political standing. Hach who has been governor for
nearly six years, hopes to be offered a diplomatic post
for his success in containing the province's narcotics
problems, according to an Embassy source.
Government attempts to control drug trafficking in
the tribal areas culminated in the December military
operation against trafficker strongholds in the Khyber
Pass region. The particular target was Wali Khan
Kukikhel, a prominent Pushtun leader of the Afridi
clan and a major trafficker who had accepted Kabul's
patronage. Haq's political detractors?who include
the military governors of the provinces bordering the
tribal zone?have charged that he overstepped his
authority in destroying more than 100 homes in Afridi
villages. His critics further charge that Haq misused
the Pakistani military to rouse tribal tensions in the
region to inflate the crisis, hoping to prove the need
53
Secret
Poppies, Opium, and Smugglers
in Pakistan's North-West Frontier Province
Although opium poppies have been a traditional cash
crop for many of the Pushtun tribes on both sides of
the Afghan-Pakistani border, most of the raw opium
produced in Pakistan before 1979 was trafficked
through a series of middlemen across Afghanistan to
consumers in Iran or international traffickers in
Turkey. the growing 25X1
and harvesting of opium poppies and the marketing of
opiates are traditional skills well integrated into the
seminomadic tribal life of the region.
Turkey's efforts to reduce narcotics trafficking in the
late 1970s, the Soviet invasion of Afghanistan in
1979, and falling international prices for opiates in
the early 1980s brought shifts in the traditional
growing, processing, and trafficking patterns in the
Golden Crescent. The disruption of conventional
agriculture in the Pakistani-Afghan border area
resulting from the anti-Kabul insurgency has made
the economic benefits of growing and processing
opium more attractive. Similarly, Soviet control of
the roads linking Afghanistan and Iran has
encouraged new trafficking routes for Afghan opiates
into western Pakistan, then south through
Baluchistan, and finally into southeastern Iran.
Local Pushtun tribes in the Khyber region of the
Pakistani-Afghan border area dominate the
processing and trafficking of opiates along the border.
Large subclans of the Pushtun Afridi and Shinwari
tribes over the last few years have taken control of
the local infrastructure on both sides of the border.
Afridi and Shinwari leaders dominate the smuggling
apparatus to move the heroin through Pakistan to the
world market or overland to transshipment points in
Baluchistan and western Afghanistan for land
shipment to consumers in Iran, the Middle East, and
the West.
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for military intervention. Concerns were also raised
about the security implications of the operation.
Haq's
actions caused other Afridi clans to rally to Wali
Khan's support and led some to appeal to Kabul for
support. By late December, however, most Afridi
leaders had publicly repudiated Wali Khan, hoping to
avoid further punishment by Islamabad. According to
press accounts, some local tribesmen put further
distance between themselves and those producing
narcotics by denouncing Wali Khan and surrendering
arms and drug-processing equipment to the Pakistani
Government.
We believe Hag had the blessing of President Zia to
move against Wali Khan because Zia believed such
an operation could achieve several political goals:
? Demonstrate to foreign aid donors?specifically the
United States?that his regime was prepared to
take a hard line on reducing the amount of
Pakistani narcotics entering the West.
? Demonstrate Islamabad's ability to project central
government authority in a traditionally unruly
section of the country.
? Send a signal to uncommitted Pushtun tribes that
Islamabad was serious about maintaining control in
the contested border area and resisting Kabul's
continued courting of Pakistan's tribes.
? Emphasize his leadership and authority on the eve
of the transition to civilian rule
We judge that the impact of the campaign on tribal
narcotics operations was mitigated because the major
tribes involved in the trade?the Afridis and
Shinwaris?had anticipated Islamabad's actions some
time earlier and had moved much of their operations
across the border. Wali Khan withdrew with his
followers into Afghanistan in December after the
Army destroyed his home village. We believe he has
been given refuge with Afghan Afridi subclans,
themselves involved in narcotics production and
trafficking. Wali Khan, furthermore, has had close
relations with the Kabul regime for several years,
according to Embassy reports. The Shinwaris have
moved most of their processing laboratories into small
valleys just across the border in areas controlled by
Afghan Shinwari tribesmen. A US journalist
traveling through Nangarhar Province in Afghanistan
Secret
in November was taken on a tour of active heroin
laboratories. His guides told him local farmers were
increasing their poppy crops because the Afghan
army does not target opium fields.
View From Kabul
We believe that the Soviet-backed regime in Kabul
supports the Afridis and related Afghan tribes
regardless of their involvement in narcotics in hopes
that their activities will disrupt Pakistani security
efforts in the border area. Wali Khan's son attended a
Soviet-sponsored tribal assembly in Kabul last
summer, and his lieutenants maintain contact with
Afghan Government officials. Other Afridi and
Shinwari leaders, according to diplomatic reports,
have aided Kabul in security operations in
Afghanistan's border regions since at least the
summer of 1984. Wali Khan has spoken out against
Pakistan and the United States on several occasions
and in late December issued declarations through the
Afghan press, vowing that the Afridis would resist
Pakistani attempts to subdue "the traditional tribal
life"?including narcotics trafficking.
In our view, Kabul believes that much of the impetus
behind the December military operation in Khyber
was related to Pakistan's efforts to extend its control
over the border region and that suppression of
narcotics trafficking was secondary. We believe the
Soviet-backed regime in Kabul will continue to court
Afridi and Shinwari leaders, hoping to enlist their aid
against the anti-Kabul insurgents who use the same
border areas to mount operations against the Afghan
Communists.
Outlook
We do not believe Islamabad's recent operations in
the Khyber area will result in a major reduction in the
volume of narcotics moving out of the Golden
Crescent. Not only have the major tribes involved in
processing and trafficking opiates and cannabis
moved much of their infrastructure into Afghanistan,
but diplomatic reports of late January indicate that
local opium prices are rising and leading traffickers
have been encouraging Pakistani farmers to resist
Islamabad's antinarcotics efforts.
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As a result of the December operation, we believe new
political alignments are beginning to develop in the
Pakistani-Afghan border region and that tribal
politics will continue to complicate narcotics control.
Kabul and Islamabad will continue to vie for the
allegiance of the semi-independent border tribes,
whose leaders will set higher stakes to guarantee their
support. Inter- and intra-tribal tensions will continue
as tribes on both sides of the border compete for
shares of the lucrative narcotics trade. The presence
of approximately 3 million Afghan refugees and the
use of the border area by Afghan insurgents to launch
attacks against Kabul will continue to complicate
narcotics control efforts in the region. We believe the
new civil administration in Islamabad faces a major
challenge in attempting simultaneously to extend its
control over the border tribes and not alienate tribal
leaders who will look to Kabul for support against
increased pressure from Islamabad.
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India: Gandhi Tackles
Congress Party Problems
Indian Prime Minister Rajiv Gandhi's recent top-level
party appointments and a highly critical speech he
gave to party regulars at the end of 1985 suggest he
has made reorganizing and revitalizing the moribund
Congress Party one of his major domestic goals for
1986. He appears to be moving toward readying
Congress to bring new blood and local politicians into
the party through its first internal elections in 14
years . Rajiv's efforts to reform the party are likely to
be popular with younger Indian politicians as well as
others who support his "Mr. Clean" image. But he
will have to monitor carefully the many party officials
who have become increasingly disgruntled over his
perceived willingness to sacrifice party electoral
prospects in Punjab and Assam, his highhanded
treatment of party functionaries, and his disdain for
old-fashioned Congress Party politics.
Congress Weaknesses
Although the Congress Party is the largest and most
successful of India's national parties?the
parliamentary election in 1984 returned Congress
with the largest majority it has ever held?its highly
centralized nature has made it systemically weak and
increasingly unable to successfully contest local
elections. Under Indira Gandhi, power within the
party became more and more centralized. Since the
last party elections in 1972, all officeholders have
been nominated by the New Delhi?controlled
patronage system, with the result that few regionally
based, homegrown politicians have been allowed to
emerge. According to US Embassy reporting, there
are no cadre meetings, recruiting, or elections of
officers at state and local levels. Many observers
believe the Congress Party will wither at the national
level unless it reinstitutes a system at the district
level?or below?capable of developing cadres from
which future regional and even national leaders can
emerge.
In our view, systemic and organizational weaknesses
played a major role in the election defeats that the
Congress Party has suffered in the 1980s. By 1983 it
57
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had lost two key southern states?Karnataka and
Andhra Pradesh?both of which had long been
Congress strongholds. Successful regional parties
have also emerged in Assam and Punjab.
Rajiv's Congress centenary speech also addressed
other pervasive and more obvious weaknesses within
the party?corruption and indiscipline. Over the last
year the Indian press has castigated Congress
hypocrisy in projecting a clean image while running
notoriously corrupt politicians for office. In the more
notorious proven cases, successful Congress politicians
in Bihar and Uttar Pradesh have been convicted of
smuggling and running illicit liquor stills and poppy
farms. According to the press, a general secretary was
involved in a police-underworld scandal that rocked
Tamil Nadu and Maharashtra. European newspapers
allege that the Congress Party has largely financed
itself through kickbacks on government contracts.
According to the US Embassy, Rajiv has been able to
put distance between himself and party corruption.
Embassy reporting on Gandhi's popularity outside
New Delhi indicates that his hard-hitting speech
criticizing the rot within the party was very well
received.
Cleaning House
Although Gandhi repeatedly stated during his first
year in office that his aim was to revitalize the
Congress Party, for much of 1985 he was too
preoccupied with other issues. He did deal, however,
with almost constant defections and financial
contributions. Within the first few months, Rajiv
pushed through a bill making it illegal for an
officeholder to abandon the party that elected him
without relinquishing office. Over the years Indian
politicians made a practice of switching political
parties with every parliamentary vote, often selecting
the party that offered the largest payoff.
Secret
NESA NESAR 86-005
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Secret
The influential Times of India
lampoons the public relations
campaign to laud the Congress
Party's centenary celebrations
in the midst of widespread
internal bickering.
/CO LORIOU5
VAS or uNaY,
?INTEGRITY, LOYALTY,
PROBITY. inseam
/
He next moved to make business contributions to
political parties legal and tax deductible?depriving
the Congress Party in general, and individual
politicians in particular, of illegal private coffers and
short-circuiting clandestine business influence. With
no legal avenue for political contributions, business
interests were often forced to contribute clandestinely
to political parties and often quietly bought them out.
Gandhi's record on the character of political
appointments is mixed. Although he turned aside
more than 1,000 officeseekers in favor of "cleaner"
candidates during the parliamentary election in
February 1985, he has retained a number of
notoriously corrupt Congress Party politicians both as
state chief ministers and as members of his Cabinet.
In mid-January he appointed new members to the
party general secretariat and replaced six Ministers of
State in his Cabinet. Press and Embassy reports
indicated that Gandhi had wanted to make wholesale
changes in his Cabinet and the party after the
Secret
centenary celebration but that increasing criticism
about his "isolated" decisionmaking style convinced
him to hold back.
The only pattern to Rajiv's shifts in general secretary
positions is that of satisfying varying constituencies.
The number of general secretaries in the party has
been increased to eight, mainly to provide
representation for various ethnic communities and
important states.
By far the most significant move was the appointment
of Arjun Singh as party vice president. Singh has held
three important posts within the last two years. As
chief minister of Madhya Pradesh, Singh's handling
of the Bhopal crisis brought him to New Delhi's
attention. He also is widely viewed as a chief architect
of the Punjab accord?devised and concluded during
the eight months in which he was chief minister of
Punjab?that brought moderate Sikhs and New Delhi
into agreement as to the future of Punjab. Singh most
recently served as Minister of State for Commerce.
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Secret
U
Singh's reputation is that of an old-style politician
who gets the job done and knows how to woo the
press. He will bring vigor and a canny political sense
to the post of party vice president, according to US
Embassy reporting. Earlier Embassy reporting
indicated that Singh was widely believed to be head of
fundraising for the party, and his selection could
indicate that Gandhi means to follow through on his
pledge to make political parties accountable for the
funds they receive.
A key remaining question for Rajiv is filling the post
of party president. According to US academics who
follow Indian affairs, the president of the party holds
the key position in the party?the most powerful
member after the Prime Minister. Since 1980 that
position has been held by the Prime Minister?first
Indira Gandhi and now Rajiv.
Rajiv's lieutenant, Arun
Nehru, had hoped to remain out of government and to
become Congress Party president, but Rajiv wanted
him in the Cabinet, where he is less of a potential
political threat. Gandhi has indicated to the press that
he hopes to hold elections for party president by July
1986.
Rajiv's moves to cleanse the party have not been
welcomed by all party members and will perhaps
nudge a number of the old guard out of the party
altogether. some
Congress Party members are disgruntled because they
believe Gandhi and his Doon school cronies are
inaccessible and are building a New Delhi clique of
managers to impose their ideas on party members
from the south, west, and northeast. Electoral losses
in Punjab and Assam are blamed directly on Gandhi.
The ousted Congress chief minister in Assam
complained to the press that party leaders in New
Delhi had expected him to fight the election with an
"unloaded revolver." In Karnataka four leftist
members of the Congress Party resigned in late
January; the flamboyant ex-chief minister Gundu
Rao is also threatening to quit, which would cripple
the party there. Several newspapers have reported
that a new party will soon be formed by those who
have been eased out of important positions by the
Prime Minister.
Outlook
India is undergoing a period of increased
regionalization of party politics, and Gandhi will have
59
to find a way both to address regional needs and to
maintain his party's national character. The revival of
the Working Committee and the All-India Congress
Committee (AICC), once major decisionmaking
centers of the party, is crucial to giving the party a
new direction. Gandhi promised in his centenary
speech to revitalize party committees, bring the party
back to its grassroots, and clean up its public image.
According to the Indian press, the Working
Committee and the AICC have been made
responsible for strategy and for involving the states in
plans for party elections and the "go to the masses"
program that Gandhi plans. The press also reports
that, within the next few months, the committees will
plan an offensive against the "party brokers of power
and influence" and draft new guidelines regarding the
lifestyles of party officeholders. The revitalization
efforts of the next few months are designed to
culminate in party elections to be held in June and
lead to the election of a new Congress Party president.
For the near term the party's dominance within
Parliament is unassailable. Congress controls the
largest majority in Parliament that it has ever held,
and opposition parties have been unable, either
through their own efforts or in a coalition, to
challenge Rajiv's dominant position. He will also be
helped by the absence of local elections until 1987,
when balloting is due in Kerala, a state where the
Congress Party is a partner in a shaky coalition.
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Over the longer term, Gandhi faces problems with the
party, whichever direction he goes with reforms. If he
follows through with his promise to clean up the party
and root out corruption, he will be forced to weather
increasing defections of disaffected party members.
On the other hand, if Gandhi fails to carry through
his reforms and/or fails to allow regional voices to
emerge within the national party framework, we
anticipate that the Congress Party will be increasingly
subject to the centrifugal forces of regional politics.
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Secret
India's Bureaucracy:
"A Fence Eating
the Crops"
Bureaucratic foot-dragging and inertia pose a serious
obstacle to Indian Prime Minister Gandhi's domestic
agenda and his interest in improving Indo-US
relations. Gandhi has already begun replacing
officials wedded to his mother's policies and has called
on the 3.2 million people in the federal civil service to
eliminate inefficiency and corruption. We expect that
Gandhi's efforts to sideline recalcitrant policymakers
will be increasingly effective, but his calls for greater
honesty and productivity in the civil service will have
only limited effect on the bureaucracy.
As the number of US citizens traveling to India to
strengthen economic and political ties grows, so will
their frustrations with the Indian bureaucracy. US
businessmen, officials, and tourists regularly return
from India telling horror stories about their
experience with one or another Indian Government
office. Some stories begin with the Indian Embassy
and end with an export license office in the Ministry
of Commerce, others with immigration and customs
officials at New Delhi's Palam Airport.
Prime Minister Gandhi has often been reported to be
exasperated with the inefficiency, corruption, and
footdragging he considers rampant in the Indian
bureaucracy. He has spoken frequently of changing
the goal orientation and work culture of
government?phrases the Indian press suggests come
straight out of Western management textbooks. In
practice, Gandhi has relied on personnel changes,
reorganization, and exhortation to try to make the
bureaucracy work more efficiently. In his first year in
office, Gandhi has acted quickly, undoubtedly
recognizing that he needs a responsive administration
to accomplish his goal of modernizing India.
Gandhi on the Bureaucracy
And what of the iron frame of the system, the
administrative and technical services, the police and
the myriad functionaries of the state? They have done
so much and can do so much more, but, as the proverb
says, there can be no protection if the fence starts
eating the crop. This is what has happened. The fence
has started eating the crop.
We have government servants who do not serve but
oppress the poor and the helpless, police who do not
uphold the law but shield the guilty, tax collectors
who do not collect taxes but connive with those who
cheat the state, and whole legions who are only
concerned with their private welfare at the cost of
society.
They have no work ethic, no feeling for the public
cause, no involvement in the future of the nation, no
comprehension of national goals, no commitment to
the values of modern India. They have only a
grasping, mercenary outlook, devoid of competence,
integrity, and commitment.
The Bureaucracy: An
Obstacle to Gandhi's Agenda
Bureaucratic foot-dragging poses a serious threat to
Gandhi's domestic agenda and his interest in
improving Indo-US relations. Gandhi has encountered
some resistance on both ideological and
61
nonideological grounds from elements in his foreign
affairs, defense, and commercial bureaucracies. His
top priority has been accelerating domestic economic
growth through liberalizing reforms and cuts in state-
run corporations. He also has sought to reduce
regional tensions and improve relations with the
United States without jeopardizing longstanding
economic ties to the USSR to free resources that
could be used to raise India's standard of living and
international prestige.
Secret
NESA NESAR 86-005
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Secret
Some spokesmen for government employee unions,
opposition politicians, and many of Gandhi's Congress
Party colleagues have objected to Gandhi's
liberalizing reforms on the grounds that they will open
India to damaging competition and dependence on
multinational corporations. Moreover, thousands of
government employees in regulatory agencies and so-
called sick state industries are reported in the press to
be worried that Gandhi's drive to lift restrictions on
imports and dissolve failing enterprises will cost them
their jobs. The Indian press regularly runs articles
describing agencies or deficit-plagued state firms that
they hint are ripe for cutbacks or closure.
Footdragging in the foreign policy bureaucracy
probably comes from those who strongly disagree with
Gandhi's assertion that India's best interests will be
served by reducing tensions with neighboring Pakistan
and China and moving to a position more equidistant
between the United States and the USSR. Some
individuals ideologically opposed to Gandhi's foreign
policy initiatives caution against moving too fast in
trusting Pakistan, while others view US overtures
toward India as designed solely to weaken India's ties
to Moscow. Others probably continue to insist on
conducting ministry business by the book? requiring
numerous clearances and approvals before
information works its way to the top where decisions
are made?simply to protect what they perceive to be
their long-term professional interests.
Public Service as "Comfortable Employment"
Indian bureaucrats share a decades'?even a
centuries'?old tradition of lifetime service?a fact
that strongly inhibits Gandhi from making abrupt or
sweeping bureaucratic reforms. The Indian official
responsible for administrative reforms recently told
the US Embassy that public service in India is viewed
as comfortable employment and that the government
has a social responsibility to its employees?adding
that New Delhi would never consider actions such as
pay cuts, reductions in force, or disciplinary
procedures. To date, New Delhi has announced no
cuts in its 3.2 million federal work force-2.5 million
of whom work in production-sector jobs on the
railways, in transportation, construction,
manufacturing, and utilities, and 663,000 of whom
work in administrative, educational, health, and
scientific jobs.
Secret
The Bureaucracy in India's Labor Force
According to official Indian data for the early 1980s,
public-sector employment in India at all levels of
government involves 15.1 million people. Public-
sector employees outnumbered private-sector
employees two to one in the organized or modern
sector of the economy. It is this ratio that
undoubtedly prompted Gandhi's characterization of
the bureaucracy as a -fence eating the crops.
The organized sector of the Indian economy includes
all civilian enterprises in the public sector and private
nonagricultural establishments employing 10 or more
people. It represents less than 10 percent of India's
223-million-person labor force. Over 90 percent of the
Indian labor force is in the private sector?most in
agriculture, others in small and household industry,
trade, and professional services.
Gandhi Tinkering and Lecturing
Gandhi has already made changes in the leadership
and organization of his administration during his first
year in office and has warned of additional changes in
the months ahead if he finds that particular
individuals or organizational arrangements are not
working. His first move as Prime Minister was to
eliminate a dozen or more third-echelon positions in
the Cabinet to give credence to his election promise to
"trim the fat" from government. Many of those
individuals dropped were reassigned to other
government jobs or positions in the Congress Party.
In October, Gandhi reorganized 29 ministry portfolios
to match ministers more carefully with their talents
and again shuffled Cabinet personnel to bring in 16
individuals he hoped would be more productive and
responsive to his priorities. Gandhi used the
reorganization to institute better use of personnel
performance reviews, management by objectives, and
computer programs to track adminstration progress.
According to Indian press reports, senior officials who
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Rajiv Gandhi and Cabinet Secretary P. K. Kaul "trim the fat"
from India's bureaucracy.
have survived Gandhi's reorganization have
responded favorably to what they view as his modern
management initiatives.
Gandhi has also made changes in adminstrative
procedures and practices to improve bureaucratic
performance. The government's 36-hour week was
collapsed from six to five days, ostensibly to tighten
the decisionmaking process.
all personnel from ministry secretaries
to district-level officers are required to participate in a
one-week sensitivity training program to learn to
appreciate the problems of other officials in their own
as well as in other departments.
according to new regulations, federal
administrative service employees will be transferred
only three times during their first 11 years and then
will be allowed to specialize over the next five years?
changes designed to minimize political pressure
through frequent rotations of career bureaucrats.
Finally, Gandhi ordered that officials down to the
63
undersecretary level have clearly delineated
responsibilities with commensurate authority to act.
Gandhi has made numerous efforts in public speeches
and private meetings to inspire bureaucrats to adopt
more rigorous standards for public service behavior
and to display greater enthusiasm for his vision of
modern India. He has exhorted government
employees to work harder and to show concern for the
public they serve. He has urged them to forgo the
bribes, kickbacks, and money offered by foreign
agents that some Indian officials have come to look
upon as supplementary benefits of public
employment. Gandhi ordered a spate of arrests and
investigations in connection with the spy scandal in
early 1985 to punctuate his calls for greater honesty
and new dedication from government employees.
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Secret
Any Chance of Success?
Gandhi's ability to reduce inefficiency, redundancy,
and corruption in public service is limited. US
Embassy officials in New Delhi are highly skeptical
that his tinkering and exhortation will have any
significant impact on inefficiency and corruption in
the Indian bureaucracy. Indian press coverage of
Gandhi's moves supports the Embassy conclusion that
New Delhi's reforms pose neither the threats nor the
incentives that might shock government offices and
industries into action. The Indian press concludes that
public employees in both the productive and service
sectors will be redeployed rather than sacked, and
that they are unlikely?given the tight government
budget?to be offered the pay raises or performance
bonuses that might reduce corruption or spark
productivity.
Gandhi, however, is likely to have some success in
reducing foot-dragging by senior officials in his
administration. He has shown that he will replace
those who prove obstinate and obstructive with
individuals who share his outlook. In a year or two,
barring unexpected financial or foreign developments,
Gandhi will have named additional senior-level
administrators who will support his domestic and
foreign policy priorities more single-mindedly?
including the pursuit of more evenhanded relations
with the United States and the USSR.
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Sri Lanka's Tea
Estate Tamils: Adding to
the Communal Stew
With Indian-brokered talks between the Sri Lankan
Government and Tamil insurgents deadlocked, an
agreement reached last month between New Delhi
and Colombo granting Sri Lankan citizenship to
94,000 stateless teaworkers of Indian Tamil origin has
provided a boost to Indian diplomacy. The agreement
has also fueled communal violence in the tea-growing
areas of the Central Province, however, and provided
the opposition Sri Lanka Freedom Party (SLFP) with
a rallying point against the government. Widespread
Sinhalese protests over the agreement will make
Colombo even more reluctant to offer concessions to
Tamil militants on autonomy. The government may
even try to seize upon such protests as a sign of
further Sinhalese support for full-scale military
operations against the insurgents.
The Agreement and the Background
The issue of stateless teaworkers has long been an
irritant in Indo?Sri Lankan relations. Beginning in
the 19th century, Britain began importing Tamil
laborers from southern India to work on tea estates in
Sri Lanka, then Ceylon. At independence in 1948,
neither Colombo nor New Delhi was willing to grant
citizenship to the 975,000 teaworkers of Indian Tamil
origin living in Ceylon. Bilateral agreements in 1964
and 1974 committed India to accepting 600,000 tea-
workers as citizens. Sri Lanka was to confer
citizenship on 375,000, plus all those born in Sri
Lanka after 1964. By 1981?the deadline for
accepting citizenship applications?only 506,000
persons had applied for Indian citizenship, leaving
94,000 workers ineligible for either Indian or Sri
Lankan citizenship.I I
Preoccupied with a growing threat of Tamil
separatism and unwilling to add the 94,000 tea-
workers to its original quota, Colombo has done little
to address the teaworker problem during the last five
years. S. Thondaman, leader of the Ceylon Workers'
Congress?the main Tamil teaworkers' union and
political party?brought the issue to a head by
threatening a work slowdown by teaworkers on 14
January. Fearing a catastrophic fall in foreign
65
exchange earnings, Colombo quickly negotiated a
settlement with New Delhi the day after, granting Sri
Lankan citizenship to the 94,000 Tamil teaworkers.
For its part, New Delhi agreed to speed up the
processing of 85,000 citizenship applications from tea-
workers accepted under the original Indian quota but
still awaiting repatriation to India.
Gains for the Government
The threat of a prolonged strike by Tamil teaworkers
forced Colombo's hand, but, in our view, the
agreement provides the government with an
opportunity to drive a wedge between the Tamil tea-
workers and Tamil separatists. By granting
citizenship to the teaworkers, Colombo has laid the
groundwork for the assimilation of a large and
economically important minority. The granting of
citizenship has also given the teaworkers a stake in the
preservation of Sri Lankan unity and will probably
make it even more difficult for Tamil separatists to
recruit them. We believe the government may arm
teaworkers to combat the separatist threat if Tamil
insurgents activate their cells in tea-growing areas to
carry out antigovernment activities, including
economic sabotage.
We expect the granting of electoral rights to Indian
Tamils will bring the bulk of estate worker votes to
the ruling United National Party (UNP) or the
Ceylon Workers' Congress. This would further
diminish the SLFP's already weak standing in
Parliament.
Sinhalese Backlash
The government's decision to grant citizenship to the
94,000 stateless Tamil teaworkers has led to violence
and given the opposition its first major issue since
President Jayewardene restored SLFP leader
Sirimavo Bandaranaike's political rights last month.
Four days of rioting?encouraged by the SLFP
against homes and businesses of Tamil teaworkers in
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Sri Lanka's Indian Tamil Teaworkers
Indian Ta-mil teaworkers are scattered in small pock-
ets throughout the densely populated Sinhalese areas
of the Central Province. Surrounded by Sinhalese
Buddhists, the teaworkers practice Hinduism, speak
Tamil, marry among themselves, and work only on
tea plantations. Different caste origins in southern
India, their relatively recent arrival in Sri Lanka, and
their menial economic occupation have isolated the
Tamil teaworkers from other Tamils in Sri Lanka.
Tamil teaworkers have played an essential role in the
development of the key segment of Sri Lanka's cash
crop economy and now enjoy close political ties to the
Sinhalese-dominated central government. Unlike Sri
Lankan Tamils in the Northern and Eastern Prov-
inces who seek greater autonomy, the teaworkers
have sought to enhance their political standing in Sri
Lanka by forging coalitions at the center. The partici-
pation of the teaworkers' principal leader?S.
Thondaman?in the Cabinet and his shrewd manipu-
lation of their economic clout has given the tea-
workers strong representation and political leverage
in Colombo.
In our view, Tamil separatist groups?already belea-
guered by internal caste and regional divisions?
would be hard pressed to integrate successfully yet
another Tamil group into antigovernment operations.
Although some Tamil separatist groups have estab-
lished cells among Indian Tamil areas of the Central
Province, we have no information suggesting these
cells are intended to recruit Tamil teaworkers. The
insurgent groups, however, are eager to maintain a
presence among the teaworkers to be able to threaten
Sri Lanka's tea exports?responsible for approxi-
mately 30 percent of the country's foreign exchange
earnings in 1985.
the Central Province?forced the government to
impose a curfew and deploy the Army to restore
order.
Secret
With only nine members in Parliament and no
prospect for a general election before 1989, the SLFP
is likely to encourage anti-Tamil sentiment among
rural Sinhalese in a bid to rebuild its political base.
Close ties to village leaders, farmers, merchants, and
members of the Buddhist clergy are likely to form the
backbone of any SLFP attempt to reassert its
influence in Sinhalese rural areas.
Gains for India
The agreement represents the first significant gain for
India from closer Indo?Sri Lankan ties since Indian
Prime Minister Gandhi launched his effort to mediate
the two-and-a-half-year-old Sinhalese-Tamil
communal conflict in June 1985. New Delhi, in our
view, will be able to portray the agreement to the
Indian people, especially the large Tamil population,
as a result of its new "good neighbor" policy in the
region. New Delhi's promise to accelerate the
repatriation of 85,000 Tamil teaworkers to India will
demonstrate good faith to India's watchful neighbors
in view of the costly presence of more than 130,000
other Sri Lankan Tamil refugees already in south
India and unlikely to return to Sri Lanka soon.
In our view, the UNP's successful negotiation of an
agreement resolving the status of the teaworkers
reflects, in part, the close working relationship
between senior Sri Lankan and Indian officials
stemming from months of dialogue on the more
intractable issue of Tamil separatism. Earlier
agreements on the status of the stateless teaworkers
were negotiated under the governments of SLFP
leader Sirimavo Bandaranaike?until recently, New
Delhi's preferred political partner in Sri Lanka.
Impact on Negotiations
The violent Sinhalese reaction to the teaworkers'
agreement suggests President Jayewardene will be
even more reluctant to submit any settlement with
Tamil insurgents to a public referendum?a key
opposition demand. The backlash may also strengthen
the position of hardliners in the Cabinet, like National
Security Minister Athulathmudali?who would
welcome a public mandate for full-scale operations
against Tamil insurgents.
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Nonetheless, we believe Colombo will attempt to
portray its concessions on citizenship as evidence that
a Sinhalese-dominated government is not necessarily
hostile to Tamil interests. To a lesser degree, the
agreement will also add grist to the government's
repeated claims of commitment to a multiethnic, fully
enfranchised, pluralist society.
An alliance between the SLFP and Sinhalese
hardliners in the electorate would complicate New
Delhi's mediation role. New Delhi realizes a
negotiated settlement between the government and
Tamil separatists will require a Sinhalese consensus
on the nature and extent of devolution of central
government authority to Tamil areas. The need to
reach this consensus, coupled with Bandaranaike's
return to the political arena, may force New Delhi to
consult her on negotiations. These consultations would
embarrass Jayewardene, and they could also drag
Indian diplomacy further into Sri Lankan party
politics, reducing further the likelihood of a
negotiated settlement.
The momentum gained by the opposition and the
growth of hardline Sinhalese sentiment poses a long-
term challenge to the government's communal policies
in general. As the government becomes more wary of
making concessions to Tamil separatists, the
Opposition and its allies among rural Sinhalese could
gain a de facto veto over any proposed settlement with
Tamil separatists. Although New Delhi may be able
to wrest concessions from Colombo and broker a
negotiated settlement, we expect the Sinhalese
electorate to remain largely immune to Indian
political pressure.
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Near East and
South Asia Briefs
Lebanon Balance-of-Payments Surplus
Lebanese Central Bank foreign exchange reserves stood at $1 billion at the end of
1985, up almost $380 million from their level in December 1984. Given a probable
current account deficit of slightly more than $1 billion, capital inflows into
Lebanon in 1985 were well in excess of $1 billion. Foreign funding for the various
militias, particularly the PLO, probably accounts for a large portion of this inflow.
Other inflows probably include profits from the black market, exports to Syria,
and money repatriated by Lebanese workers returning from the Gulf states.
Although 1985 was not too bad a year economically, the recent fighting in Beirut
and the failure of the Syrian-sponsored Tripartite Agreement have given 1986 a
bad start. The Lebanese pound has fallen 30 percent in the last three weeks to
about 25 to the dollar. The Central Bank sold $165 million in foreign exchange in
January to slow the pound's fall but had little success. In addition, inflation has
taken off, and capital flight has undoubtedly increased.
Libya Oil Industry Adjustments
Libya is moving ahead with its oil exploration and development program for 1986.
, despite US economic sanctions, the Sirte Oil Company
will drill six new wells in western Libya and proceed with offshore work close to
the Tunisian border. Sirte has contracts with two US firms for all seismic work
planned for this year. Companies in the United Kingdom or West Germany are
good alternatives, although Romanian or Bulgarian crews could do the work,
The withdrawal of US service companies probably will not
delay other planned oil exploration and development work in Libya. East and West
European firms, as well as subsidiaries of US companies, can complete seismic
work, albeit at some delay or increased cost.
Water Project Slowdown
Construction of the main portion of the Great Manmade River project is nearly six
months behind schedule, and bidding on the western phase of the scheme will be
delayed until 1987, Production
problems at the pipe plants as well as management and financial problems are
primary causes for the delays. the Libyan project
manager does not anticipate a significant impact on the project's completion as a
result of the withdrawal of US firms and other US economic sanctions. One US
firm probably will continue to operate through a British subsidiary. The primary
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phase of the pipeline is being constructed by a South Korean construction firm?
Dong Ah?and Japanese and West European companies can fill the orders of
departing US firms. The South Korean contractor probably will not abide by US
quality control measures, which could shorten the useful life of Qadhafi's priority
project.
Morocco Cash Crisis Continues
Morocco paid the remainder of its long overdue $83 million debt to London Club
creditors in late January, exhausting the country's working capital.
commercial creditors are expected to accept the $78
million payment, but lingering disagreements over the Central Bank as guarantor
could delay further implementation of Morocco's 1983/84 rescheduling
agreement. Rabat had to draw down nearly all
cash and credit reserves of state corporations to pay the installment
the failure of traditional Arab donors to honor aid commitments?
particularly the United Arab Emirates, which promised $200 million last fall?
created the cashflow crisis, only immediate foreign aid
injections can resolve current difficulties. Rabat already has had to scrap a deal to
buy two battalions of badly needed tanks from the United States, causing
additional morale problems within the military and criticism of King Hassan.
Delays in meeting impending debt payments could jeopardize the rescheduling of
the country's 1985/86 commercial debt and spell the demise of the troubled $200
million IMF standby loan.
Syria Financial Troubles Mount
The Syrian Government has undertaken a broad crackdown on illegal money-
changing and smuggling. As many as 1,500 moneychangers have been arrested
throughout Syria, according to the US Embassy. The government has closed the
Lebanese border to all but official traffic and prohibited the import of goods from
Lebanon. These moves send a political warning to the Lebanese Christians, who
profit from the contraband trade with Syria, and help slow the precipitous fall of
the Syrian pound. After falling 33 percent in two weeks, the pound temporarily
strengthened to about 16 to the dollar following the government moves.
The recent fall of the pound and rising prices are causing popular concern, even
among average workers who until recently have been sheltered by government
subsidies and price controls. Criticism is being directed at Prime Minister Kasm
and his Cabinet?not at President Assad?and Assad may soon decide to replace
Kasm with Minister of Economy and Foreign Trade 'Imadi. Bread riots, like those
in past years in Cairo and Tunis are not likely to occur, given Syria's extensive
security apparatus and President Assad's popularity. The Syrians will look for
additional outside aid, primarily financial aid from Saudi Arabia, but also oil aid,
as their economic relationship with Iran is strained.
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Tunisia Cash Crunch
The steep drop in world oil prices will have a chilling effect on Tunisia's shaky
foreign exchange position and its ability to meet debt service payments. Heavy
drawdowns on outstanding credit lines helped boost the country's foreign exchange
reserves to $250 million at the end of 1985 from a low of $90 million in July.
Nevertheless, planned budget expenditures early this year probably will cause
reserve levels to tumble. If the $6 per barrel drop in world oil prices holds, coupled
with a weak phosphate market, about $100 million would be added to the current
account deficit this year. A shortfall of this magnitude would wipe out much of the
gain from Tunisia's austerity program and push the country's debt service ratio
above 25 percent. Tunis probably will have to seek additional foreign lending this
year, but creditors may demand even greater fiscal stringency, which will strain
already tense government relations with labor and consumers.
Oil Crisis
The world oil price plunge comes as a severe shock to Tunisia's economy, which is
already under pressure from fiscal austerity and a mounting debt service burden.
Crude oil sales accounted for 40 percent of foreign exchange receipts last year.
The US Embassy in Tunis claims that $20 per barrel oil will increase the budget
deficit by 10 percent, trim 2 percentage points off GDP growth, and increase the
current account deficit by up to $100 million. A price of $15 per barrel would
almost double the impact. Moreover, on the basis of seismic studies
prospects are increasingly bleak for new commercial oil discoveries
that could help offset the effect of declining oil prices. Government options for
accommodating the drop in oil revenues are limited. Additional budget cuts will
affect the ruling party's patronage structure and further erode popular confidence
in the regime's economic policies. Additional foreign borrowing almost certainly
will be at less favorable rates than previously obtained and would push Tunisia
closer to a politically troubling IMF economic stabilization program.
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