NATIONAL INTELLIGENCE DAILY WEDNESDAY 30 SEPTEMBER 1987

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88T01079R000300260001-9
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 22
• Document Creation Date: December 27, 2016
• Document Release Date: October 26, 2012
• Sequence Number: 1
• Publication Date: September 30, 1987
• Content Type: REPORT

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Central
Intelligence
National Intelligence Daily
Wednesday
30 September 1987
CPAS NID 87-228JX
September
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Contents
USSR: Tougher Line on Drugs ...................................................... 3
Central America: Progress on Regional Parliament .................. 4
Argentina: Economic Malaise Deepens ...................................... 5
Chile: Pinochet on Offensive ........................................................ 6
USSR: Gorbachev May Have Been III .......................................... 8
USSR: Midyear Trade Results ...................................................... 8
Fiji: Coup Leader Declares Republic ............................................ 11
Pakistan-Saudi Arabia: Pakistani Troops May Leave ................ 11
Ecuador: Colombian Guerrillas Threaten Oil Facilities ................ 12
Peru: Bank Nationalization Bill Passes ........................................ 12
Special Analysis
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USSR: Tougher Line on Drugs
Moscow, concerned that domestic drug abuse may be growing, is
intensifying antinarcotics operations and offerin reater
cooperation with the West on drug suppression.
in transit.
Soviet officials admit publicly that narcotics consumption in the USSR
has almost doubled since 1984, with 50,000 citizens currently listed as
addicts. the government has
distributed a million leaflets cautioning young people against
experimenting with narcotics. Recent Soviet press accounts include
articles on the imprisonment of Soviet officials dealing in drugs on the
USSR-Afghanistan border and reports of the interdiction of narcotics
USSR.
During a subsequent meeting the
Soviets admitted that heroin was being transshipped to es e
Europe through Soviet territory. They also expressed interest in
Western expertise and equipment to aid control efforts. -4e-
_IAn
Recent Soviet press reports indicate that
a joint operation between Moscow and Ottawa resulted in the seizure
of 5 tons of hashish en route from Pakistan to Canada across the
blame the West for the drug problem c i~ -t S-efi~~s l
The Soviet delegation at a UN narcotics conference in Vienna this
summer disagreed publicly with efforts by Cuba and Nicaragua to
USSR is also likely to be reflected in drug abuse.
Comment: Moscow is anxious to project a more positive international
image regarding drugs. Published Soviet figures on abusers probably
still mask the extent of the problem, but admission of its existence
indicates that it has attained proportions impossible to hide. The
social malaise that has contributed to widespread alcoholism in the
prove even more difficult to control than imports.
The narcotics problem probably will prove difficult to control. Central
Asian minorities have a history of narcotics use and have drug-trading
expertise and cross-border ties sufficient to maintain a trafficking
conduit. Extensive domestic sources of drugs such as hashish may
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CENTRAL Progress on Regional Parliament
AMERICA:
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The Central American nations are close to agreement on the
draft treaty for a re ional parliament, but few believe it will be an
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Central American Vice residents, Foreign Ministers, and legislators 25X1
will meet in GuatemalaL4wa"4w-
4to make slight revisions in the draft
proposal preparatory to forwarding it to their Presidents for signatu re~
' A
at a summit in January , ~-- 25X1
-Guatemalan Vice President Car i Lt-e-11-1--bassy last-wee that 'me,
,be ieves ristian Democratic parties will be able to dominate the
parliament and thereby keep pressure on Nicaragua for democracy,
while deterring military coups in the other countries. Carpio, who
has played a key role in Guatemala's campaign to establish the
parliament, claims the organization will foster political integration by
choosing government representatives for regional economic
institutions. 25X1
The Vice Presidents agreed when they last met three weeks ago that
the parliament would have 110 members-20 delegates from each
country as well as the president and vice president of each of the five
states. Proposals for a smaller body were rejected to ensure
proportional representation for all ideological positions. Carpio does
not expect elections to be held for at least a year, allowing for
ratification by the legislatures, the selection of candidates, and a
three-month campaign.
Comment: Guatemala considers the parliament its contribution to
peace efforts and has been pushing hard to wrap up the negotiations.
Although there is not a lot on the table to fight about, the other
democracies are unenthusiastic because they believe the parliament
will be more a forum for debating vaguely worded, nonbinding
resolutions than a mechanism for advancing democracy or resolving
regional disputes. Increasing the size of the parliament probably will
make it more representative but less responsive to government
The schedule Carpio outlined does not meet the Central American
peace accord's specification that elections be held in the first half of
1988 and thus avoids an early test of Nicaragua's commitment to free
elections. Moreover, the democracies are not likely to amend
provisions that allow each country to set its electoral rules. They 25X1
probably calculate that the presence of international observers-as
required by the peace accord-will ensure fair balloting.
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x
Economic Malaise Deepens
creditors offer major concessions.
Domestic and international economic problems may force
Argentina to suspend payments on its foreign debt unless
The US Embassy predicts growth of only 2 percent this year, and
business leaders foresee a gloomy fourth quarter characterized by
rising inflation, depressed demand, and lower real wages. The
Embassy believes the trade surplus will shrink to $1.2 billion in
1987-little more than half of last year's figure-as farm output and
agricultural prices fall and imports rise.
bridge loan during his current visit to Washington.
the Argentine press is
speculating that Economy Minister Sourrouille will ask for a $1 billion
Under the commercial bank accord signed last month, Buenos Aires
can draw $750 million next month but, because it is out of compliance
with its IMF agreement, it will need a waiver or a renegotiation of IMF
goals to obtain a second $750 million tranche. Although Argentina is
maintaining a nonconfrontational approach to debt issues, Sourrouille
and Foreign Minister Caputo intend to press for new solutions to the
problem. They want to reduce interest payments by nearly half to
$2.5 billion yearly
waiver or a bridge loan.
Comment: Despite President Alfonsin's generally moderate stance
on the debt, a foreign exchange squeeze may force Buenos Aires to
suspend interest payments by early next year. Sourrouille is aware
that the international financial community is likely to reject his
suggestion that the discounted value of debt instruments be used as
the basis for interest computation. He probably hopes that raising the
specter of radical action will at least press creditors to help Buenos
Aires out of its financial crunch through traditional means like an IMF
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President Pinochet's forceful efforts to promote his candidacy
for the presidential plebiscite in 1989 appear to be making
headway with his Military Junta despite his sagging popular
standing.
Pinochet has been campaigning aggressively for the nomination even
though he has not officially announced his candidacy. He portrays
himself in interviews and numerous public appearances as a bulwark
against Communism and the only alternative to political chaos.F--]
Public opinion polls demonstrate that Pinochet's popularity remains
low despite these efforts. Two recent surveys showed only 12 and
22 percent of the respondents voting for the President
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Gorbachev during meeting with
French officials, 29 September.
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USSR: Gorbachev May Have Been III
illness.
General Secretary Gorbachev received a group of senior French
officials yesterday-his first public appearance since 7 August.
According to reporters who were present, Gorbachev quipped that he
had earned his monthlong vacation and made light of rumors of his
Comment: In the television coverage Gorbachev appeared tanned
but somewhat thinner and not well rested
USSR: Midyear Trade Results
equipment, steel, and other industrial products.
Recently released trade data indicate the USSR recorded a
$1.2 billion hard currency trade surplus during the first half of this
year, as contrasted with a $1 billion deficit during the same period last
year. Hard currency exports climbed 9 percent, to $13 billion, largely
because of an estimated 25-percent increase in the volume of oil
exports. Imports dropped 8 percent, to $11.8 billion, because of a
lower grain import bill and cutbacks in purchases of machinery and
on imports for the remainder of this year. Confusion and inactivity
resulting from this year's reorganization of the Soviet foreign trade
Comment: Improved oil revenues will bring hard currency export
earnings to their highest level in two years but still below the levels
achieved during 1982-84. So far this year, Moscow has not resorted
to the increased borrowing and gold sales used over the past two
years to help offset declining oil revenues. Barring major problems
with the Soviet grain harvest, Moscow is likely to continue its tight rein
apparatus may have helped reduce imports.
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Consequences of Leaving the Commonwealth
Fiji faces possible serious political and economic repercussions in
withdrawing from the Commonwealth, an issue likely to figure in
discussions at the Commonwealth heads-of-state summit opening on
13 October in Canada.
- Suva could lose as much as $9 million annually in foreign aid
from Commonwealth members.
- Markets in the UK, Australia, and New Zealand for sugar, Fiji's
major foreign exchange earner, may also be at risk.
- Fiji would lose an experienced judiciary that is part of the
Commonwealth and the politically neutral advice of the
Governor General.
- India would be likely to veto any Fijian petition to return to the
Commonwealth because of Fiji's racial discrimination against
ethnic Indians.
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FIJI: Coup Leader Declares Republic
Coup leader Lieutenant Colonel Rabuka yesterday declared Fiji will
be a republic, thereby suspending the constitution and effectively
severing links to the British Commonwealth. Although the Governor
General Ganilau has refused to resign, Rabuka nonetheless
reportedly will establish an interim military council that will include
some prominent civilians. According to press reports, the UK's review
of the $1.6 million in annual aid it provides Fiji has prompted a Libyan
offer to make up any shortfall. Australia and New Zealand are also
cutting off assistance, and their labor unions have promised to do
what they can to disrupt trade with Fiji.
Comment: The economic repercussions of withdrawal from the
Commonwealth are not likely to deter Rabuka from his immediate
goal of ensuring the political dominance of native Fijians. He and his
new government are sure to exclude Indians rather than risk losing
the support of Fiji's traditional Council of Chiefs and the growing
Taukei Movement, a radical group that claims to represent 97 percent
of native Fijians.
PAKISTAN-SAUDI ARABIA: Pakistani Troops May Leave
x
Pakistan and Saudi Arabia apparently are preparing for the
withdrawal of some 8,000 Pakistani combat troops from the Kingdom,
includin air defense units from the Eastern Province
that negotiations are also Under way on the
status o severa tnousand Pakistani military advisers and technicians.
The Saudis have begun preparations to store the equipment used by
the Pakistanis and are recruiting additional Saudi troops to soften the
impact of losing the Kingdom's only fully manned combat brigade.
Riyadh has concluded agreements with Morocco and Bangladesh to
send troops if Saudi Arabia is directly threatened.
Comment: If the troops are withdrawn-probably for financial
reasons-Saudi Arabia would lose its best armored brigade and a
significant part of the army's combat strength, as well as experienced
air defense crews. Riyadh has wanted to replace the Pakistanis since
at least 1985 but might still decide to extend the contract, especially if
there is another sharp rise in tension between Saudi Arabia and Iran
like the one that followed the Mecca riots this summer. Nearly all
Pakistani troops, however, currently are under orders not to fight the
Iranians.
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Insurgent Attacks Near Oil Facilities
Pacific
Ocean
Peru -
? Oilfield
Oil pipeline
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ECUADOR: Colombian Guerrillas Threaten Oil Facilities
Embassy in Quito. The US firm is reevaluating its security procedures,
and some oil crews reportedly are refusing to work in isolated areas.
vehicles of a US-Ecuadorean oil consortium, according to the US
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Incursions by Colombian insurgents have caused concern about the
security of Ecuador's major oil facilities. Guerrillas attacked an
Ecuadorean military outpost last week and ambushed a police unit
that was investigating a series of recent assaults on employees and
Comment: Local press reports blame the Revolutionary Armed
Forces of Colombia, but the attacks may be the work of M-19, which
has had close ties to Ecuador's Alfaro Vive terrorist group. Colombian
rebels have previously targeted Ecuadorean military personnel, but
harassment of oil operators in Ecuador is unprecedented. Increased
guerrilla activity may put US personnel at risk and disrupt Ecuador's
oil production, only recently restored after the earthquake damage in
PERU: Bank Nationalization Bill Passes
The Peruvian Senate has approved President Garcia's controversial
bank nationalization scheme, clearing the way for it to become law.
The measure will nationalize Peru's remaining large private banks,
insurance com anies and financial houses but will not affect foreign
banks.
capital flight is likely to accelerate.
Comment: The bank nationalization will improve Lima's ability to
oversee foreign exchange movements and to finance priority
economic projects but will probably further reduce investor
confidence, depressing savings and private investment. The measure
has already generated fear among businessmen that more
nationalizations and interventions will occur. In an apparent attempt
to regain private-sector support, Garcia has named industrialist
Alberto Vera La Rosa, a ruling-party activist, as Industry Minister, but
business response has been lukewarm. If Garcia continues to
antagonize the private sector, reinvestment of profits will fall off, and
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relations in 1985.
- Press reports Libyan leader Qadhafi to visit Tunisia, Algeria next
week ... likely to discuss joining Algeria's Tripartite Pact with
Tunisia and Mauritania ... his first visit to Tunis since it severed
I- Egypt has arrested suspected members of "Egypt's Revolution,"
group behind attacks on US, Israeli diplomats ... claims to defend
late President Nasir's revolution
extradition of drug traffickers to US.
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Resignation of Colombian Justice Minister p
rompted by -
allegations of fraud in old customs case ... third time post vacated
in past year ... further complicates efforts to work out process for
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vpr %Pwul C.
Key Chinese Industrial Reforms
Enterprise Management
Status: Beijing is implementing "enterprise responsibility systems" in which factories are
granted operational autonomy but are held responsible for their own profits and losses. These
have been established in only about half of the state enterprises. But factories now retain a
larger share of revenues, have greater discretion over how they are used, and can market
overquota production at "negotiated" above-plan prices.
Problems: Debate continues over the role of party secretaries in factories and how to
prohibit excessive investment and wage hikes.
Price
Status: Many prices are little changed from the 1950s. But in the past three years, Beijing has
decontrolled prices of nonstaples, such as vegetables and meat; some durable goods,
including bicycles and refrigerators; and minor commodities.
Problems: Leaders are concerned that price reforms, which have contributed to bouts of
inflation, may stir popular discontent. They differ over the use of administrative price
adjustments or relaxation of state controls to affect price reform.
Labor
Status: Beijing plans to boost labor productivity by rewarding initiative with higher wages and
by allowing workers increased say in job placement. Last fall, Beijing established guidelines
for hiring new workers under fixed-term contracts that, if followed, would end lifetime job
guarantees for employees in state enterprises. Most managers, however, are still unable to
fire unproductive workers.
Problems: Large state enterprises are entirely responsible for housing, education, and
health needs of their workers. Because local authorities object to bearing these costs if
workers are laid off, Beijing continues to guarantee full employment.
Bankruptcy
Status: Reform leaders want to increase productivity and financial accountability for state
enterprises. Last December, Beijing approved trial bankruptcy regulations, but the.
implementation has been blocked by political infighting.
Problems: Party hardliners believe these reforms are inconsistent with socialism. Others
argue that managers should not be held accountable for losses as long as the price
system is irrational and factory decision making is subject to bureaucratic interference.
Ownership
Status: Last year, Beijing conducted limited experiments with leasing small factories to
individuals and allowed a few enterprises to issue shares to their workers.
Problems: Conservatives strongly oppose allowing state enterprises to issue shares to
workers and believe that private enterprise should be strictly limited.
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Special Analysis
Deng Xiaoping and Acting General Secretary Zhao Ziyang have
publicly asserted that Beijing will quicken the pace of economic
reforms after China's 13th Party Congress, which convenes on
25 October. Because of leadership squabbling and
economy, however, price reform and some key market-oriented
po -cies are likely to remain stalled. Senior reform-minded
Chinese officials fear that, unless Beijing can soon settle
disagreements over reform goals and strategy, economic
problems w ll,1ntensify and popular support for reforms will
Disagreement over economic policy has been intense since the ouster
of Hu Yaobang as party General Secretary in January. The more
traditionalist party officials have attacked a number of reforms as
"capitalist," including the reduction of central planning, the
diminished role of party secretaries in state enterprises, and the
leasing of small factories to individuals. These more orthodox officials
have also taken advantage of rising inflation and a growing
government budget deficit to criticize reformers for economic
mismanagement-arguing that tighter central controls are required
Consequences of Uncertain Leadership
Because of strong inflationary pressure and political opposition,
reform leaders have had to delay market-oriented policies, including
price reform and bankruptcy legislation. This, in turn, has frustrated
efforts to enforce financial accountability by state enterprises, and
managers can still increase investment spending and wages without
corresponding increases in productivity, which adds to inflation.
ministries that oppose market competition.
As a compromise, reform leaders have chosen a lowest-common-
denominator policy that forces state enterprises to sign performance
contracts with upper level economic bureaucracies. Some reformist
officials, however, fear this may strengthen the heavy industry
municipal halls.
Uncertain economic leadership also has hampered reformers from
using monetary and fiscal policies to ease inflationary pressures.
Beijing has been unable, for example, to stop spending by local
governments on low-priority construction projects, such as hotels and
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In addition, branches of China's central bank are ignoring directives
to limit credit and continue to fund whatever projects local officials
want; previous reforms gave local governments a greater share of tax
revenues, making them less dependent on funds from central coffers.
Leaders who are counting on the support of local officials at the party
congress have rejected proposals to restrict provincial control over
ank loans and taxes,,- gto4 e- -E- aeeyW Beijing,
therefore, has been forced to reimpose price contro s on some
products and tighten restrictions on how state enterprises can use
their retained earnings.
.or ers still strongly support reform because living standards have
are the children of senior officials.
Senior Chinese economists nonetheless fear that support will erode
unless Beijing can check inflation and corruption. Some Chinese
officials, by exploiting loopholes in reform policies, for example, have
used their connections to purchase goods at low government-set
prices and resell them at much higher market prices. Public cynicism
reportedly has begun to grow because many of the people involved
risen rapidly over the past few years,
use of enterprise contracts.
Despite these problems, Deng, Zhao, and other reform leaders remain
firmly committed to using market mechanisms to drive China's
modernization. Recently they have claimed that the party congress
will approve new guidelines sanctioning market-oriented policies and
that Beijing will hasten implementation of reforms later this year.
Despite the upbeat rhetoric, a cautious agenda for next year may
already have been set. Vice Premier Yao Yilin, a senior spokesman on
economic policy, argued in a major speech last week that Beijing
must implement an austerity program for several years and focus
reform on improving enterprise operations-such as expanding the
planning.
Decisions by the party congress thus will do little to reduce the degree
of contention over economic policy. By treating the symptoms of
China's economic problems rather than the disease-lack of
accountability to market forces-Beijing probably has delayed
reaching the point when it will have adequate monetary and fiscal
tools to ease inflationary pressures generated by reduced central
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