NEAR EAST AND SOUTH ASIA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP05S02029R000300820003-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: December 22, 2016
• Document Release Date: May 23, 2012
• Sequence Number: 3
• Publication Date: August 15, 1986
• Content Type: REPORT

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Directorate of
Intelligence
Near East and
South Asia Review
NESA NESAR 86-019
1 S August 1986
~o~y 3 2 4
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Near East and
South Asia Review
Articles Arabian Peninsula: Prospects for Political Change
The traditional authoritarian governments of the Arabian Peninsula
will face increased political, economic, and social pressures over the
next decade, and most, if not all, regimes probably will undergo
political change before the end of the century.
The Israeli economy has made great strides toward economic
recovery in the past year, but continued progress will hinge on the
government's willingness to reduce spending while holding the line
on budget deficits. Israel's debt structure, although currently not a
great burden, may in the next few years present serious problems for
the government.
Economic Austerity in Iraq
Economic austerity measures are beginning to take a toll on the
Iraqi people. The rapid decline in oil prices is forcing Iraq to
implement measures that probably will lead to a significant decline
in the fairly good living standards Baghdad has maintained for its
populace since the beginning of the war with Iran.
Iraq recently began calling up at least 200,000 men, probably
because it is concerned about improved Iranian military capabilities
and believes that the next Iranian offensive could decide the war.
Bolstering the Army with new soldiers will not compensate for poor
leadership and may eventually undermine support for the regime.
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MESA NESAR 86-019
IS August 1986
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Iraq: Removal of Ba`thist Hardliner Na`im Haddad
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The recent dismissal of Na`im Haddad from the leadership in Iraq
represents a further erosion in the influence of party ideologues. His
removal and his replacement by a moderate Ba`thist bode well for
Western interests in Iraq.
In a hypothetical letter to an Iranian friend who left the country
after the revolution, aWestern-educated technocrat describes
conditions facing returning emigres, outlines how his colleagues
have coped with Islamic radicalism, and speculates about the future.
Afghanistan: The Private Sector in a Socialist Economy) 25
Recent public statements by Afghan officials emphasizing the role
the private sector plays in Afghanistan's state-controlled economy
are motivated by economic necessity and a desire for public support
and do not represent a slackening in the regime's commitment to
socialism.
India: Split in the Akali Dal
Three months after Punjab Chief Minister Barnala removed a band
of Sikh extremists from the Golden Temple, his moderate Akali Dal
Party has split and his political future is threatened. The split will
hinder New Delhi's ability to implement last summer's Punjab
accord and allow extremists to exploit dissent among the moderates.
Bangladesh: Tribal Unrest in the Chittagong Hills 33
An upsurge in fighting this spring between settlers from other parts
of Bangladesh and indigenous tribals in the Chittagong Hill Tracts
forced India to take in some 24,000 refugees, but the unrest poses
little political danger to President Ershad because it is remote from
main population centers.
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will be designated as noncoordinated views.
normally will be coordinated as appropriate with other offices within CIA.
Occasionally an article will represent the views of a single analvst: these items
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Near East and
South Asia Review
for Political Change
The traditional authoritarian governments of the
Arabian Peninsula will face increased political,
economic, and social pressures over the next decade,
and most, if not all, regimes probably will undergo
political change before the end of the century. The
smaller Gulf states are the most vulnerable to political
unrest and upheaval, but even the Saudi monarchy is
likely to undergo significant change that will reduce
royal family control over decisionmaking. Political
change would not necessarily be inimical to US
interests, but instability probably would invite
meddling by external elements hostile to the United
States
of the traditional authoritarian regimes of the
Arabian Peninsula-Saudi Arabia, Kuwait, Bahrain,
Qatar, the United Arab Emirates, and Oman-
frequently are overlooked or discounted by political
observers because of their recent impressive record of
political stability. Comparisons with the Iranian
experience are minimized because of the extensive
differences between Persian society, culture, and
politics and those of the Sunni regimes on the Arab
side of the Gulf. Denials of an Arab-Persian parallel
ignore the fragility of these states, however, and
usually result in overly optimistic assessments of their
influences, most internal changes were merely
cosmetic. Significant structural change was initiated
only in Bahrain and Kuwait-the most urban and
socially developed of the Gulf states-in the form of
labor unions, political parties, legislatures, and formal
constitutions, but even these limited changes were
eventually blunted by ruling families unwilling to
jeopardize their political control.
The political stability of these states over the past 30
years has been particularly remarkable in light of the
rapid and extensive economic and social development
they have undergone. This stability was the product of
a confluence of factors that made these states unique
within the Middle East and enabled traditional ruling
families to maintain political power:
Persian Gulf region over the past 30 years has been
oil-generated economic prosperity. The standard of
living of most residents of the Gulf states has
increased dramatically, and political leaders have
been able to buy supporters and co-opt potential
critics with petrodollars. Consequently, economic
disaffection, frequently a source of political activism
in other Middle Eastern states, has been
insignificant.
ability to weather the political challenges ahead.
Foundations of Stability
While labor unions, student groups, Islamic
organizations, nascent political institutions, leftist
movements, and secular ideologies were transforming
the internal politics of most Middle Eastern states
beginning in the 1950s, the political development of
the Arab Gulf states moved at a glacial pace.
Although most Gulf states experienced limited effects
of these regional political developments and
Small, rural, and mostly uneducated populations.
Inhospitable climates, poor medical care, virtually
no resources other than oil, and terrain unsuitable
for agriculture kept populations mostly sparse and
scattered until the 1970s. Moreover, literacy rates
and educational levels were extremely low, and
indigenous intelligentsias were numerically
insignificant. Burgeoning public and private sectors
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l5 August 1986
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easily assimilated the few university graduates
among the native populations, usually at highly
inflated salaries.
? Undeveloped political institutions. The simplicity of
the tribal political system and the lack of a tradition
of popular participation in government allowed the
ruling families to rule virtually unchallenged. The
few politically significant interest groups that did
exist were generally co-opted by regimes once oil
money began to flow with some regularity in the
1950s. Political power in these states traditionally
had been the preserve of tribes that controlled the
greatest resources-men, herds, water, trading
routes-and Western political institutions like
political parties, elections, free press, and legislative
bodies were foreign concepts that had little popular
support or relevance. Bahrain abandoned its
parliamentary experiment in 1975, and Kuwait's
ruling Sabah family dissolved the National
Assembly in 1976 and again in 1986 when it began
to challenge the authority of the regime. This dearth
of channels for political participation helped thwart
nascent political activism throughout the Gulf
states.
? Limited.foreign exploitation. Although all of the
Gulf states had some experience of foreign
occupation and influence, outside powers made little
attempt to colonize the region. Unlike the Levant,
Egypt, and North Africa, where there was extensive
exploitation and development of indigenous
resources by colonial powers, the Gulf states were
valued only for their ports and trading routes.
Consequently, tribal systems were allowed to
flourish, and traditional ruling families were in
control when modern nation-states were founded in
the 20th century. Foreign powers dealt mainly
through existing tribal leaders, helping solidify the
political control of traditional ruling families.
? Fledgling military.Jorces. Despite a strong martial
tradition among the tribes, the fledgling military
forces of the Gulf states have been artificial and
usually imported creations of the central
government that pose little political threat to their
stability. Native professional military officers
frequently pursue their private business pursuits
with greater vigor, and the politization of junior
officers that occurred in Egypt, Libya, Syria, Iraq,
and the Yemens has not been imitated in the Gulf.
These factors and generally judicious rule have
abetted political stability in the six Gulf states. The
few abrupt internal political changes that took place
in Saudi Arabia (1962), Abu Dhabi (1968), Oman
(1970), and Qatar (1972) were internal family matters
that displaced generally inept rulers. Although
antiregime sentiment has been prevalent in the Gulf
states for the past 30 years, no regime has been on the
brink of collapse because of internal pressure.
1986-2000: A Period of Political Adjustment
The foundations of political stability of the past 30
years are eroding and becoming increasingly
irrelevant, and changing political, economic, and
social environments are likely to stimulate increased
political activism in most Gulf Arab states before the
end of the century. Ruling families will face more
complex challenges to their rule as they try to meet
the growing and frequently unrealistic expectations of
increasingly educated and heterogeneous populations.
Most-if not all-of these authoritarian regimes will
be unable to meet these expectations and, as a result,
will probably undergo significant change in their
political systems. Some regimes may even be replaced.
The principal factors contributing to increased
political activity are:
? Economics. Even if oil export earnings were to
increase over the next several years, the economies
of the Gulf Arab states would rebound only
gradually and are unlikely to return to the boom
years of the 1970s. Government spending will
remain below previous levels, and the growth of the
private sector will continue to be slow. At the same
time, a steadily increasing number of young and
miseducated Gulf Arabs will be entering the labor
market, only to be disappointed at the lack of
business and employment opportunities. The
resultant increase in underemployed Gulf Arabs will
contribute to heightened political restiveness among
youth. Moreover, conspicuous ruling family
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spending no longer offset by unbounded oil-induced
prosperity will increase criticism of the regimes.
Unlike in the 1970s when regimes co-opted critics
and maintained popular support by freely
dispensing petrodollars, lower revenue levels will
prevent governments from employing the same
strategy to alleviate economic and political
problems.
? Demographics. The increasing urbanization, youth,
and education of Gulf societies will present new and
complex challenges to ruling families. Urban
maladies like increasing crime rates, narcotics, and
inadequate housing already are affecting major
cities, and urban lower and lower-middle classes are
the fastest growing segments of Gulf populations.
The austere social environments of the Gulf states
also are promoting restiveness among youth, who
have been exposed to Western cultures but will be
increasingly unable to afford diverting jaunts to
Western playgrounds. At the same time, the
growing literacy and educational levels of these
populations-nearly one out of every four Gulf
citizens is a student-will contribute to more
politically astute, informed, and demanding
populations.
? Interest groups. Rapid economic development in the
Gulf has increased the influence and resources of
several traditional and new interest groups-for
example, the religious establishment, military and
security services, major merchant families,
technocrats, youth, women, and urban middle
classes. Intelligentsias, the traditional spawning
grounds of political activists in other Middle
Eastern states, also are appearing throughout the
Gulf states, and their scrutiny of government
policies and their dissatisfaction with being
excluded from participation in government are
likely to mount. Also increasing will be interest
group identification, especially if grievances with
regimes become more pronounced and economic
austerity leaves interest group expectations unmet.
If governments continue to inhibit the development
of political institutions that could serve as controlled
channels for popular frustration, some interest
groups may choose to engage in clandestine political
activities.
? Social tensions. Growing tension between
modernists and traditionalists in the Gulf Arab
states will complicate regime efforts to satisfy their
minimum and frequently contradictory demands.
Although the forces of Islamic fundamentalism and
social conservatism have been buttressed by the
Iranian revolution, the forces of modernization and
Westernization remain formidable. Social
conservatives will try to prevent forcefully the
growth of Western influence, increasing the
likelihood of confrontation between the two groups.
? Regional developments. Another Arab-Israeli
conflict, a widening or intensification of the Iran-
Iraq war, a sharp upsurge in anti-US sentiment in
the Arab world, or confrontations among Gulf states
over border issues-all distinct possibilities before
the end of the century-have the potential to
weaken the political stability of the Gulf ruling
families. The increased prominence and influence of
these states in regional affairs increase chances they
will become embroiled in regional conflicts. Their
involvement will be closely evaluated by their own
populations, and unpopular responses or failed
policies might prompt domestic backlashes. These
states also might become increasing targets of
externally sponsored terrorism or sabotage, which
would spark popular criticism of ruling family
inability to provide protection from outside threats.
Implications for US Interests
The gradual dilution of ruling family political power
in the Arab Gulf states would not necessarily harm
US interests. The inclusion of more commoners in
decisionmaking-whether in executive or legislative
bodies-and the development of more representative
governments probably would have the greatest impact
on internal policies. Nonetheless, relations with the
United States probably would be subject to greater
internal review and approval, and foreign policy
decision making almost certainly would be slowed as a
result. Stronger governmental criticism of US Middle
East policies also probably would surface, but
bilateral ties probably would not suffer a serious
setback.
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A transfer of political power to established Western-
educated elites like nonroyal government officials,
technocrats, businessmen, or military officials
probably would have little significant impact on
bilateral relations with the United States or US
economic and commercial interests in the country.
Although such regimes probably would try to
legitimize their rule by lending greater vocal support
to popular Arab and Islamic causes, they probably
would maintain the foreign policy orientation of
current regimes. The major exception might be
Bahrain, where a government controlled by the Shia
majority probably would expand ties to Iran and seek
to reduce Western influence in the country.
US interests would be most threatened by political
instability that resulted in interference by countries or
external groups hostile to the United States. Iran and
fundamentalist Islamic, particularly Shia,
organizations probably would try to exploit political
unrest in any Gulf state by carrying out terrorist
attacks or instigating trouble in Shia communities.
Radical domestic groups probably would receive
external support, and their antiregime activities
probably would include an anti-US focus.
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Israel: Will Debt Spoil the
Economic Outlook?
The Israeli economy has made great strides toward
economic recovery in the past year, but continued
progress will hinge on the government's willingness to
reduce spending while holding the line on budget
deficits. The budgetary process will come under added
pressure in the final years of this decade when the
government is scheduled to repay about $4.7 billion to
bank shareholders stemming from the bank share
scandal-and subsequent stock market collapse-of
October 1983. If the economy is not sufficiently
stabilized, the large anticipated repayments, when
combined with an already large outstanding debt
repayment schedule, may strain the budget to the
point that further spending cuts become
problematical.
foreign reserves-stood at 60 percent of GNP in
1985, up from 51 percent the previous year.
Debt maturity length is not currently a problem, but
it could become more serious as the decade draws to a
close. At the end of 1985, short-term debt constituted
14.7 percent of total debt, medium-term debt 15.3
percent, and long-term debt the remaining 70 percent.
If the economy fails to achieve sustained economic
growth and additional budget cuts are not
forthcoming, debt maturity length may become
important, especially if revenue shortfalls are made up
by increased borrowing through short-term loans.
Increased borrowings in 1986 and 1987 may further
compound financing problems in 1988, when the bulk
of the bank share repayment is to take place.
Israel's debt structure, although currently not a great
burden on the economy, may in the next few years
present serious problems for economic decision
makers. This appears especially likely if borrowing,
which constituted about 41 percent of total
government revenue in Israeli fiscal year 1984/85,
continues to play a leading role in financing
government expenditure. If borrowing levels have to
be increased-in response to greater revenue needs
stemming from insufficient budget cuts-the
government will find an ever-growing portion of the
budget devoted to debt repayment.
Debt Structure
Conversations with Israeli officials indicate that the
government is most concerned about domestic public
debt growth. In 1985, domestic public debt-defined
as total private-sector claims on the public sector-
stood at 143 percent of GNP, up from 123 percent of
GNP in 1984. This ratio is likely to increase greatly in
light of the large anticipated bank share repayments
the government will undertake from 1987 to 1989.
The government appears more confident that it can
handle foreign debt because of its smaller relative size
in the overall debt structure. Foreign public debt-
total claims by foreigners on the public sector minus
Bank Share Debt Fallout
The bank share scandal and subsequent stock market
collapse of October 1983-caused by the questionable
stock trading practices of Israel's leading banks-
were resolved when the government agreed to
purchase shares from individual holders at the full
value of the shares, thereby assuming a large future
debt obligation. Under terms of the bank stock
guarantee program, the government promised to
purchase from shareholders shares worth $6.5 billion.
To date, the government has redeemed about $1.8
billion, leaving $4.7 billion still to be purchased.
Current plans call for the government to absorb $1
billion in either 1987 or 1989, while redeeming the
remaining $3.7 billion in 1988.
The bank stock purchase of $1 billion in 1987 or 1989
should not overly strain the economy, but the 1988
payment of $3.7 billion may have negative long-term
implications. The government's most likely approach
will be to redeem the $3.7 billion in shares through a
firm created by the government and eventually resell
them to the public. The government would lend the
firm the necessary funds to buy the shares. By 1993
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NESA NESAR 86-019
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Manageability of external debt by a country is
generally determined by the ability to service the debt
on a timely basis. This entails making interest and
amortization payments as scheduled. This, in turn,
depends on several factors, including ir~ows of
foreign capital, growth of exports, control of import
growth, and exogenous factors such as commodity
prices and interest rates. Countries therefore can
run into debt problems through their own
mismanagement or.from external economic
conditions.
Various ratios may be used as indicators of debt-
servicingproblems. The traditional debt-service ratio
indicates what share of'exports, the principal foreign
exchange source for most countries, is being devoted
to servicing the debt. A ratio of 50 percent or higher
usually signifies a strain on a country's resources.
Similarly, total debt compared with gross domestic
product generally indicates the burden of the debt on
a country. Another key indicator is the ratio of net
foreign capital inflows to debt-service payments. As
long as this ratio is greater than one, the country
should be able to meet its debt obligations. (f the
.figure jails below one, the country would have to run
a trade surplus or draw down foreign exchange
reserves to avoid a liquidity problem.
Thus, external debt problems will arise if a country's
international payments cannot be balanced without
major changes in the level of either imports or debt
servicing. In general, a problem can be traced to
specific components oj'the balance of payments. Such
items could include: export shortfalls due to
declining commodity prices or world recession,
reductions in worker remittances, excessive imports
due to an overvalued exchange rate or price rises,
higher interest payments because of increasing world
interest rates, a slowdown or cessation of foreign
capital inflows, capital.flight, or a bunching of
amortization payments.
With regard to domestic debt, the main concern is
with choosing a maturity structure for new debt
issues that minimizes debt-servicing interest costs
and at the same time enhances monetary stability.
Problems occur when interest costs are high with debt
at long-term maturities and when a large volume of
short-term debt at low interest rates acts as a
substitutefor money and continually needs to be
refinanced.
How Does Israel Stack Up?
By using the various debt ratios outlined above,
Israel does not appear to have significant debt-
servicing problems. The debt-service ratio, which
expresses debt-service payments as a percentage of
export earnings, stood at 42.1 percent in 1985, up
only marginally from the 1984.figure of 41.8 percent.
Furthermore, the ratio of total debt to GNP was 139
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the firm would have to repay the government, or the
government would have to reclaim the shares or
transform the $3.7 billion loan to the firm into a
grant.
In any case, the government will have to make interest
payments to bank stock shareholders on any
replacement bonds or paper issued. Larger interest
payments, when combined with increased total
internal debt, will increase the pressure to
compromise in the budgetary process. Budgetary
inaction, in which no further steps are taken to reduce
the budget deficit, would probably result if the
government were faced with the difficult task of
drastically reducing social services to accommodate
larger anticipated debt service payments.
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4xLaGmNaPI 44b3
4
Aso,
Selected 1985 Debt Ratios?
percent last year, while the ratio of'net.Joreign capital
inflows to debt-service payments was 1.11, both
within the bounds of debt manageability.
Current conditions, however, could change
drastically in the next./ew years. Poor export growth,
when combined with the impending bank share
repayments, may push the debt-service ratio over SO
percent, straining an already financially strapped
Israeli economy. In addition, any decline in US
economic assistance, which makes up a large part of
net.foreign capital irU9ows, would add to a worsening
debt situation.
Outlook
Israel's long-term economic outlook depends not only
on the ability of the economy to sustain meaningful
growth while fundamental changes in the economic
system are implemented, but also on the government's
ability to keep debt growth within manageable limits.
If the economy fails to perform to expectations, the
government will be hard pressed to undertake
meaningful long-term economic reforms. A sputtering
economy may then lead to an increasingly larger
share of the government's budget being devoted to
debt repayment.
The scheduled government rotation in October will be
an important test because, if then Prime Minister
Shamir can build upon the economic gains achieved
by Peres, the economy will be better able to weather
larger debt payments. Given Likud's poor economic
track record, it may encounter serious problems in
coordinating economic policy with Labor, thereby
imperiling the gains made during the past year and
worsening prospects for controlling debt in the future.
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Economic Austerity
in Iraq
Economic austerity measures are beginning to take a
toll on the Iraqi people. The rapid decline in oil prices
is forcing Iraq to implement measures that probably
will lead to a significant decline in the fairly good
living standards Baghdad has maintained for its
populace since the beginning of the war with Iran.
Combined with mounting casualties from recent Iraqi
military losses and increased mobilization efforts for
an anticipated Iranian offensive later this year, the
war is becoming more grim for the populace.
Although additional Saudi and Kuwaiti aid could
moderate the decline in the economy, Iraqis will not
see major improvements until the war ends or oil
prices rebound
Impact of Decline in Oil Prices
The rapid and large fall in oil prices since the
beginning of the year has left Baghdad with little
recourse but to slash nonmilitary spending, including
imports and government subsidies. We estimate that
export revenues-about 95 percent from oil sales-
will decline to about $7.4 billion this year, from $11.4
billion in 1985. In addition, Saudi Arabia and
Kuwait, their own budgets pinched, have reduced aid
so far this year. Defense expenditures have not been
cut and, in our view, are not likely to be reduced,
given recent fighting and Iraq's expectation of a
major Iranian offensive later this year
The heightened level of fighting this year has
increased the burden of the war on the Iraqis.
Military setbacks early this year at Al Faw and more
recently at Mehran, as well as the large number of
casualties, have reduced military and civilian morale.
In anticipation of an Iranian offensive, the
government has increased its mobilization efforts.
Recent attacks by both Iraq and Iran on economic
targets in Baghdad and Tehran have increased the
chances of a resumption of the "war of the cities."
Iraqi Insulation From Economic Hardships Eroding
Lower oil revenues are forcing the Iraqi leadership
into uncharted territory. Following the oil price
increases of the early 1970s, the regime helped
maintain public support for its policies, in particular
the war with Iran, by insulating the public from
economic hardships. The government's policies
included:
? Heavily subsidized public services with some
provided free.
? Subsidies to maintain low prices on basic necessities
such as food and pharmaceuticals.
? Price controls on many other goods.
? Gifts, or sales at below cost, of big-ticket consumer
items to military officers, martyrs' families, and
other politically favored groups.
After oil prices peaked in 1981 and the war dragged 25X1
on, the government gradually reduced its largess.
Baghdad initially softened the decline by using about
$30 billion in accumulated foreign exchange reserves,
drawing on another $30 billion in "soft" loans from
Arab allies, and running up foreign debts of about $10
billion. Although the 1982-83 austerity measures cut
imports in half, the reduction was achieved largely by
canceling, postponing, or curtailing large development
projects rather than cutting consumer goods imports.
By early this year, the sharp drop in oil prices and the
rising debt burden made the regime's policies
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Initial Confusion Delays Austerity
Initial disagreement among the Iraqi leadership over
how to respond to the collapse in oil prices delayed the
full impact of lower oil prices on the Iraqi populace.
President Saddam first created a "Presidential
Committee" to make foreign exchange allocations.
This undermined First Deputy Prime Minister
Ramadan's economic authority-he had long had
responsibility for major economic decisions-and
caused bottlenecks in implementing austerity
measures. In July, Saddam, who also was trying to
manage the war, found that he could not handle the
day-to-day operations of the economy and returned
economic authority to Ramadan.
Secret
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Ramadan Regains Economic Authority
First Deputy Prime Minister Taha Yasin Ramadan
regained broad powers over economic decision
making at the extraordinary meeting ollraq's ruling
Bath Party in July. President Saddam Husayn, who
summoned the party leaders to the surprise session,
returned to Ramadan authority that Saddam had
appropriated,Jor himse(f'earlier in the year.
Ramadan's "victory" over Saddam reflects his
ability to manage economic affairs and control the
technocratic elite in Iraq's extensive-and crucial-
bureaucracy.
Ramadan's Power
Ramadan's power stems jrom his ability to manage
Iraq's economic affairs. Ramadan has been able to do
this, in part, because he had established control over
Iraq's bureaucratic elite. His experts in key economic
ministries carry on the day-to-day operations of the
government and are in charge of strategic economic
planning and budgets. This technocratic corps plays a
key role in Iraq's command economy, in which
practically every area of society is bureaucratized.
The First Deputy not only directs these technocrats
but also has been able to weld them into an effective
political constituency. According to the US Embassy,
Ramadan reacted to his loss of authority to Saddam
earlier this year by refusing to carry out decrees,from
the newly created Presidential Committee without a
direct order from the President. As a result, activity
in the economic ministries practically ground to a
halt.
Western diplomatic sources in Baghdad cite
additional explanations for Ramadan's success in
hanging on to his bureaucratic turf. Theleisty First
Deputy is extraordinarily gutsy-a quality that is
effective in getting his way against Saddam.
Ramadan also has extensive contacts in the party
that have been developed over a 30-year period.
these supporters rallied
behind him at the July meeting and pressed Saddam
to return authority to Ramadan.
Baghdad is cracking down on luxury products out of
respectlor those killed in the war, to weaken
criticism of secular Ba `thist rule, and to saveloreign
exchange. According to the US Embassy, Iraq
imposed much stricter rules during the holy month of
Ramadan this year than last. Alcohol sales and
eating in public were prohibited, all nightclubs were
closed, and about 1,000 Filipino "cultural dancers"
were deported. All security personnel in the Ministry
of the Interior-including police and tresffic
wardens-were empowered to enforce the restrictions.
Since Ramadan, new taxes have been imposed on
luxury items. Although these measures may save
only small amounts of foreign exchange, they help
burnish the regime's Islamic credentials, particularly
among Iraq's majority Shia community, which
comprises about 75 percent of the armedlorces.
year.
Ramadan probably will soon intensify efforts to cut
spending. Ramadan orchestrated the steep spending
cuts in 1982-83, and he is expected to apply the same
determination to the austerity measures needed this
Civilian Imports Are Being Slashed
The Iraqi economy is heavily dependent on imports,
and large cuts will severely curtail economic activity
and the availability of goods. Just to maintain recent
import levels of military goods and food, Iraq would
have to use nearly all of its current monthly oil
revenues and financial aid from Saudi Arabia and
Kuwait. According to the US Embassy, Ramadan has
promised to cut civilian imports by 65 percent. The
full weight will fall on remaining development
projects, imported inputs for industry, and nonfood
consumer items.
Baghdad has banned imports of luxury goods and
semifinished products. In addition, Iraq's private
sector has not received any allocations of foreign
exchange for imports this year, according to the
Embassy. Although the private sector represents a
small fraction of total imports, it is heavily involved in
the domestic manufacture of consumer goods.
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Baghdad's difficult financial position is causing
foreign suppliers to reduce ties to Iraq and is
increasing the threat of shortages of even basic
necessities. According to the US Embassy, spot
shortages of formerly available imported goods began
to appear in Baghdad late this spring. For example,
some Japanese companies-Iraq's leading source of
imports in 1985-have suspended shipments to
Baghdad.
four of Iraq's key pharmaceutical suppliers
ave reached their credit limits, and one US supplier
will not make additional shipments until Baghdad
makes overdue payments. Some European companies
also have halted shipments to Iraq because of
payment arrearages:
? Several Austrian companies have wired their agents
in Turkey to have their trucks stopped and sent back
to Austria.
? Several West German firms have sought to
repossess goods that were shipped to Iraq but never
paid for.
Government Austerity Measures
New austerity policies are likely to include subsidy
reductions, tax increases, and cutbacks in
development expenditures that will give short shrift to
consumers. Basic services probably will deteriorate as
development projects take a backseat to more pressing
needs. Several water supply, sewerage, and
transportation projects already have been frozen.
Although Baghdad is concentrating spending on the
war and basic items like food, prices of many goods,
including food, are rising rapidly. To assure equitable
distribution, Iraq's rationing program, previously
limited to food staples, is being expanded.
ration cards are being distributed
for such consumer goods as tea and sugar.
Special groups within Iraqi society have begun to lose
some of their perquisites. Financial benefits given to
government workers, military personnel, and families
of war dead are being reduced. The US Embassy
reports that Ramadan has ordered that cars
previously given to senior government officials will
now be sold to them instead. Ramadan is also
stopping the widespread practice of using government
buses to take workers to and from work at government
expense. Even President Saddam seems to be
curtailing his customary largess by telling petitioners
there is no more money for him to hand out.
practice in the past to reward loyalists and build up
morale-also are diminishing.
Saddam recently refused to
give cars, large cash payments, and plots of land to a
group of former officers who were returning to
military service. The officers, who were being
recruited last May to train student draftees, were
expecting the perquisites and were disappointed when
they were withdrawn. Many former officers also
balked at the low salaries offered-about $500 to
$800 per month. In addition, benefits to families of
war dead also are being curtailed. At the beginning of
the war, the family of an Iraqi killed in battle received
a car, 3,000 Iraqi dinars, and a plot of land.
few
"martyr" families are receiving cars, and most are
being told they will get one "after the war."
Outlook
High prices, shortages, and reduced government
benefits over the coming months are likely to be
accompanied by heightened military activity.
President Saddam's recent open letter to Iran calling
for peace was aimed, in part, at preparing Iraqis for
the next major Iranian offensive and high Iraqi
casualties. This is part of a government drive to
encourage Iraqis to have a more realistic expectation
of future sacrifices stemming from the war and low oil
prices.
An increase in Saudi and Kuwaiti aid for the rest of
the year at best would only ease the economic burdens
on the Iraqi populace. Last month First Deputy Prime
Minister Ramadan toured the Arab Gulf states,
seeking large cash infusions. Although we have no
evidence of specific deals, the US Embassy reports
that Ramadan obtained promises of additional aid.
Most of any new aid, however, probably will be
devoted to the war effort, limiting benefits to the
civilian population.
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Iraq's New Mobilization
Iraq recently began calling up at least 200,000 men,
probably because it is concerned about improved
Iranian military capabilities and believes that the next
Iranian offensive could decide the war. The Iraqis
presumably believe that the increased manpower will
strengthen their defensive lines sufficiently to halt the
Iranians and keep them from occupying more Iraqi
territory. Baghdad's defense-oriented strategy and the
restrictions it places on its commanders have
prevented it, however, from using its forces
effectively. We believe that bolstering the Army with
new soldiers-largely untrained men who may
become nothing more than cannon fodder-will not
compensate for poor leadership and may eventually
help undermine support for the regime.
Manpower Shortage Reflects Defensive Strategy
Iraq has sufficient manpower at the front to man
defensive positions and even to launch offensive
operations. most frontline
units are fully manned. Moreover, in offensive
operations this past spring, Iraqi units generally did
not require additional troops. With over 750,000
soldiers, Iraq's Army compares favorably in size with
the 600,000 to 1 million men fighting for Iran.
Baghdad, however, has dispersed its units to defend
fairly static positions along most of its 1,200-
kilometer border and has limited manpower at any
given point on the border to counter Iranian
offensives, at least in their initial stages. This problem
has been worsened by restrictions on the freedom of
Iraqi commanders to maneuver their forces. Saddam
maintains tight control over even tactical matters and
is reluctant to allow his officers to launch attacks to
break up Iranian preparations. The Iranians, on the
other hand, can concentrate their forces in one area
before an attack, giving them local superiority. Iraq
must then redeploy troops from other regions or tan
its reserve forces quickly to counter an offensive.
Inadequate Reserves
Iraq's loss of Al Faw in February highlighted to
Baghdad the inadequacy of its reserve forces as well
as the importance of strengthening them to support
the current defensive strategy. These units are needed
to respond quickly and with sufficient force to halt
Iranian thrusts in more than one area. This was not
the case at Al Faw. After regular Army units
collapsed, Baghdad called on its small number of
reserves-positioned to defend against a possible
attack farther north-to contain the Iranians. By the
time the Iraqis committed their reserves, however, the
Iranians had already established a strong beachhead,
and, the reserve units
suffere Heavy casua ties ~n counterattacks. Baghdad
most likely concluded that more Iranian attacks like
the one at Al Faw would be disastrous if Iraq could
not increase the number of reserve units near the
front.
Baghdad probably is also concerned about the
military's ability to continue to repel Iranian attacks
over the long term. According to UN demographic
estimates, Iran had almost athree-to-one advantage
over Iraq in military age males in 1985, and it
probably will retain that superiority for at least the
next five years. Moreover, Iraq cannot easily replace
experienced soldiers lost in battle.
Expanding Its Manpower Pool
Iraq has made a determined effort since its loss of Al
Faw to bolster military manpower in existing units
and to form new units. Barring a large number of
desertions, the regime may be able to expand its
ground forces by at least 200,000 men. This increase
means that about 1 million Iraqis-more than 25
percent of the country's military-age males-will be
under arms.
Secret
NESA NESAR 86-0/9
l5 August 1986
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The most significant aspect of Iraq's new mobilization
appears to be the emphasis that Baghdad is placing on
increasing its reserve forces. According to Saddam,
the goal of Iraq's new manpower policy is to create a
pool of trained soldiers who can be quickly sent to the
front when needed. The regime has more than
doubled the number of Republican Guard brigades-
Iraq's elite "strategic reserve forces"-since
February, adding some 12,000 men.
Baghdad has taken the unprecedented move of calling
up some 70,000 university students and teachers for
regular Army training. Traditionally, both groups
ld defer military duty.
the students will be
assigned to regular Army units this fall for at least
three months rather than returned immediately after
training to their universities as reservists.
The regime is also trying to improve its capability to
identify reservists on inactive duty. According to US
Embassy sources in Baghdad, the Iraqi military has
ordered all men between the ages of 40 and 44 with
prior military service to report for registration. The
regime also is trying to computerize information on
reservists up to 45 years old. This effort probably will
facilitate efforts to reactivate men with special skills
needed at the front
Efforts To Replace Losses and Strengthen the Army
The regime will use many reservists and draftees to
shore up regular Army units depleted by this year's
casualties and to reinforce units in areas where it
expects Iran to attack.'
reservists born in 1945 and 1946-some 80,000
men-already have joined Army units this year, and
another 120,000 are eligible for mobilization.
the regime also has more
than doubled the number of Kurdish militia units in
northern Iraq to 112 since February. Baghdad
probably hopes these new units will bolster defenses in
the north.
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Table 1
Iran-Iraq: Military-Age
Population, 1985
example, that in July some students were deserting
because of inadequate organizational and logistic
preparations at training camps. The Army's shortage
of skilled training officers will frustrate efforts to
assign all university students to regular Army units by
Male Iraq
Population
Iran
Total 3,538
10,275
15-]9 838
2,406
20-24 692
2,043
25-29 570
1,712
30-34 472
1,455
35-39 389
1,128
40-44 319
848
even checking men on the streets,
designated "special mission battalions" or "special
tasks" units.
Problems With Implementing Manpower Changes
Despite the buildup of its forces, Baghdad probably
remains undecided about how to organize them.
the regime in
May wanted to form an 8th Corps but failed to recruit
enough skilled retired officers to staff it. Undeterred
by this poor response, Baghdad plans to form a
"special task corps" to replace another corps at the
front or to serve as a strategic reserve unit.
the end of the summer.
Adverse Popular Reaction to Manpower Measures
Baghdad's new mobilization measures are likely to
further lower civilian morale and weaken support for
the regime. US Embassy sources in Baghdad report
that the draftees include technicians and merchants
important to the civilian economy. Moreover, in the
past, most students and those with family ties to the
regime could avoid service or at least frontline duty.
Although eliminating many deferments may assuage
disgruntlement among Shia and other lower-class
Iraqis unable to obtain exemptions, the new draftees
may be more vocal in their protests against military
service.
Outlook
The new mobilization measures will not compensate
for poor leadership. Baghdad does not appear to be
planning to use its new soldiers more aggressively or
effectively than it has in the past. The Republican
Guard probably will remain a "strategic reserve"
force, but its reputation as an elite unit already is
suffering from its increased size, inadequate training
of new recruits, and poor performance at Al Faw and
Mehran. Other draftees will be used to increase the
strength of defensive positions at the front, but their
inadequate training and lack of experience will limit
their combat effectiveness.
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The regime also will have to adjust its manpower
planning because of difficulties encountered in
training and integrating such a large number of new
soldiers. for
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Iran-Iraq: Military Age ~'opulation 185
- Iraq
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Table 2
Estimated Forces
Newly Mobilized
Kurdish battalions
Republican Guards
Special mission battalions
Furthermore, the Gallup of older reservists, students,
and those who previously could avoid service will
increase tensions as it brings the cost of the war home
to more people, including those from influential
families. The Iraqis will bear the increased economic
and human costs of the new mobilization grudgingly
in the short term. Civilians will be reluctant to
maintain the current level of mobilization indefinitely.
Moreover, the regime probably cannot expand
mobilization much more without seriously
undermining its support, particularly if the public sees
no gains on the battlefield.
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Iraq: Removal of Ba`thist
Hardliner Na`im Haddad
The recent dismissal of Na`im Haddad, a veteran
Ba`thist, from the leadership in Iraq represents a
further erosion in the influence of party ideologues.
Haddad had been increasingly in disfavor since Iraq
resumed diplomatic relations with the United States
in 1985, and he has been replaced by former Foreign
Minister Sa`dun Hammadi, who is considered more
moderate.
Haddad's Removal
In late July, President Saddam Husayn announced
the removal of Na`im Haddad from the Revolutionary
Command Council (RCC), Iraq's highest governing
body. As is usual in Iraq's secretive society, no
explanation was given, but the US Embassy has
reported rumors that Haddad angered Saddam by
speaking out on issues the President did not want
discussed in public. Saddam and Haddad occupied
widely divergent positions on the Ba`thist political
spectrum. The President is viewed as a practical
politician who rejects ideological extremism, while
Haddad was a leader of the party's hardline
ideological faction.
Hardline Ba`thism
Doctrinaire Ba`thists, such as Haddad, oppose any
accommodation with the West and call for the
destruction of the state of Israel. Within the party,
they oppose increases in presidential power-
particularly marked under Saddam's rule-at the
expense of the party leaders. In 1979 Saddam
executed 21 Ba`thists who were considered hardliners
and who sought to block his assumption of
presidential rule. In 1982 Saddam conducted another
purge of hardliners whom he claimed were plotting his
overthrow. Haddad survived the 1982 purge, but,
according to the US Interests Section in Baghdad, he
barely retained his seat on the RCC.
the Embassy, Haddad's influence within the regime
was considerably curtailed; Saddam entrusted him
with few important assignments. His most important
job was director of the Popular Progressive National
Front, a practically defunct coalition of Iraqi political
parties formed by the regime to foster the appearance
of public support.
Gains by More Moderate Ba`thists
Within days after Haddad's removal, the RCC
underscored the weakness of the hardliners by
appointing moderate Ba`thist Sa`dun Hammadi to
take his place. Hammadi, an expert in foreign affairs,
strongly supports improved relations with the West.
He has numerous contacts in Washington, gained
while serving as Iraq's Foreign Minister in the early
1980s. According to the US Embassy, Hammadi
frequently clashed with the Ba`thist hardliners during
his tenure as Foreign Minister
Hammadi's appointment continues the practice,
begun under Saddam, of elevating technocrats to
leadership posts in the party and government.
Hammadi is an expert in petroleum and agricultural
matters. He received his doctorate in agricultural
economics from the University of Wisconsin in the
1950s.
Haddad's removal-and his replacement by
Hammadi-probably bodes well for Western, and
particularly US, interests in Iraq. We expect that
Hammadi will be used to maintain contacts with US
policymakers and to seek improved bilateral relations
with Washington.
The RCC's decision in 1985 to resume diplomatic
relations with the United States isolated Haddad
within the leadership. He went along, but grudgingly,
according to US diplomats. Thereafter, according to
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NESA NESAR 86-0/9
1 S August l 986
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The following article attempts to provide a view of life
in present-day Iran as seen by aWestern-educated
technocrat. It is presented in the form of a letter from
an Iranian engineer in his midforties to a friend, also
an engineer, who left the country after the revolution
and now resides in France. The friend in Europe has
heard about the government's encouraging the return
of expatriate technocrats and wants to know what to
expect if he returns.
I enjoyed your letter and hope you are well. We
must write more often. I am glad you were able to see
my daughter on her way back to school. Now to try to
answer your questions. The new campaign you
mentioned to get experts like yourselj'to come back is
already running into opposition. It is the same old
conflict that has divided this regime.for several years.
The smart ones in the government have recognized for
a long time that they must reverse the brain drain. I
have heard that as many as 500,000 have fled. Others
keep saying that allowing emigres back means selling
out the revolution. They are afraid oj'what they call
dangerous Western influences. These opponents are
led by a cleric named Khoiniha, the State Prosecutor,
who says that if the exiles return, they will "suck the
blood and wealth " of patriotic Iranians and
undermine the country's stability. I hope you get the
message. A lot of powerful people here do not want
our type around.
Despite what you may hear in Europe, the.few who
have returned have not been welcomed with open
arms. Khoiniha has been issuing monthly broadsides
attacking businessmen and landowners who returned
and regained confiscated property through the courts.
Friends tell me that objections by Khoiniha and his
crowd also have stalled efforts to sell ojj'some
nationalized businesses.
The factions in the government also are at it over
the economy. Conservatives and their bazaar
supporters blame government meddling in the private
sector.for our problems. Radicals say giving the
merchants freer rein would just allow them to gouge
the poor even more than they are doing already. The
charges and countercharges have been extremely
hostile.
Khomeini seems to keep the extreme radicals, like
Khoiniha, under some control, but 1 am worried
about what will happen when the old man dies. The
radicals claim we are a contaminating irtfluence-
"Westoxified" is what one paper calls us-and they
want to eradicate our ideas and values. These
radicals have shown they will use force to put down
opposition and stamp out "corrupting" influences.
Many of them have private militias, and they can call
on gangs oJ'street toughs to bash heads.
You asked why the regime is trying to get experts
to return now, when the economy is in such bad shape
and the government is cutting its budget. I think there
are three reasons. First, although the government is
cutting back on development projects, it still needs
experts.for essential industries such as oil, power,
and steel. Second, the regime wants to make Iran
sellsufficient in industry and agriculture and needs
people who can develop the necessary technology
here. Third, the regime wants to prepare j'or the day
when oil prices go back up and development can be
resumed.
Now, a little of what has happened to me in the last
.few years. You know 1 was fired from my government
job about a year after the revolution. One of the
committees they set up to review government workers'
"revolutionary credentials"found me to be a
sympathizer of the Shah and not a good Muslim. The
part about not being a good Muslim is true, but, as
you know, I wanted the Shah out as much as anyone.
The whole thing was a farce. My accusers were a
couple oj.newcomers to my department who got their
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NESA NESAR 86-0/9
lS August 1986
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jobs because their uncle was important in the
revolution. They did not even have engineering
degrees. They had just taken a few courses at one of
the provincial universities. They were extremely
devout though, never forgetting to say their prayers
and always lecturing me for not stopping work to
pray with them.
Well, a lot of our friends were dismissed about the
same time, and several of us decided to start our own
engineering firm. Ironically, our main business has
been from government contracts. The government has
discovered that religiouslaith and revolutionary zeal
do not keep steel mills and electric generators going.
My firm was doing well until a few months ago-
1983 and 1984 were very good years. Then the
government's budget reductions and the slumping
economy really hit us hard. Several big contracts
with the government have been canceled, and we have
had to put about a third of our people on part-time
and may even have to lay off workers.
Life here has gotten a lot tougher in the last few
years. Inflation has gone out of sight. You have
probably heard about the rationing system. It has
been in effect since the war started and covers .food
and a range of other things, like cars and rugs.
Having a ration coupon does not mean you will get
what you want, though. Lately, all the stores have
been running out of eggs and cheese. Most things are
available on the black market, but the prices are
often 10 times higher. Meat is particularly scarce and
is now a great luxury. I had to postpone buying a new
rug for the dining room this year-perhaps they are
so expensive because the government recently sent
Zimbabwe hundreds of thousands of dollars worth of
carpets.
You would not believe Tehran. The population has
doubled since the revolution-I think it has reached
9 million. The mullahs do not have any idea how to
deal with the situation. Water and sewer services
have gotten very bad-we drink bottled water
exclusively now. Air pollution is much worse than
before, and my doctor friends say it is starting to be a
major health hazard. But they remind me that it is
better than going to the front. Power outages occur at
least once or twice a week, sometimes for several
hours. Traffic is a nightmare. The newspapers claim
that about 1,400 people have died from traffic
accidents in Tehran already this year.
Our social life here is very limited-not like the
old days. The mullahs have made a big effort to
stamp out "corrupt" Western influences and make
everybody behave according to their `Islamic"
standards. They go through cycles in which they
crack down and then ease up. We are in a crackdown
phase right now. In the last couple of months they
have closed scores of boutiques in Tehran and other
cities where lingerie and other `decadent "Western
items were sold. They have also shut down all the
video-game arcades-which had been the rage.
People have been afraid to protest against the war,
but I will wager that losing Pac-Man may bring a few
into the streets. The newspapers say that some 250
people have been arrested for appearing in public in
"un-Islamic" attire, and the cleric in charge has
asked hotels and restaurants not to admit women
who dress improperly. Some Majles members are
even proposing reeducation camps for women whofail
to observe proper Islamic dress.
One has to be careful even in private. There are
"revolutionary committees" in every neighhborhood,
which, among other things, act as local vice squads.
Many are thugs from South Tehran who particularly
enjoy coming into our neighborhood and harassing
people. They hate and envy us. They will break into
private parties to check for drinking or Western
music unless you pay them off in advance. By the
way, some US singer called Madonna is now popular
among teenagers here. Some of these revolutionary
committees have grown rich by confiscating "corrupt"
Western possessions, such as stereos, and reselling
them. [fyou.flout the rules too blatantly-say you
are caught on the street with alcohol on your
breath-you can pay with lashes or a beating.
Several people were stoned to death recently for
committing adultery. One poor fellow managed to
escape from the stoning pit. The judge (I use that
term loosely) ruled that, according to Islamic law,
the fellow did not have to return to the pit, because,
though he had confessed to the crime, there were no
witnesses. Figure that one out.
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The hypocrisy ojthe mullahs is what galls me.
They will not tolerate "corrupt "Western ways but do
nothing to stop government corruption. You cannot
even get a marriage license without greasing
someone's palm. My firm has a terrible problem
ordering parts through the government bureaucracy.
To get your order.filled promptly you must know who
to pay and how much. The clerics are the worst
offenders. I could give you a thousand cases. For
instance, there is a long waiting list to buy cars, but
setting up a bank account in the name ojyour local
mullah can get you to the head of the line.
We have all had to take advantage of the new
"system. " I do not know if my kids told you that they
failed to get into a college here. Their grades were
good enough, but now students must pass a second
exam that tests their Islamic "credentials. "Both my
kids failed. But their grades were not quite high
enough to get into a good school in Europe. fl/'ter
asking around, I found someone in the Ministry of
Education who-for the right price-was willing to
turn Cs into Bs and so on. That is how they made it
to England.
We are all trying to keep our kids out of this
senseless war the mullahs are.f~ghting with Iraq.
Some friends have smuggled their children out of the
country. For a price, Kurds will take them through
the mountains into Turkey. Friends have found
doctors willing to certify their sons as ineligible for
military service. The going rate is about $1,500
(dollars, not rialsJ. I already have the name ojone if
my son gets called up. Some boys have enlisted in the
regular Army and the Air Force, which apparently
have not seen as much combat as the Revolutionary
Guard. Still, a couple ojyour old neighbors have lost
sons. 1 think one ojthem was in the same class as
your boy.
1 am sorry to be so negative, but things have gotten
very bad here. This is definitely not our revolution.
My friends and I talk constantly in private about how
alien we feel here now-and how insecure. U the
radicals ever get complete control, I am convinced the
executions of those, like us, who are seen as a threat
to the revolution will begin again. Your best bet is to
bide your time where you are now. meter Khomeini
dies, it is possible the radical clerics will tear each
other to pieces and open the way for more moderate
voices. But that seems a long way off.
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Secret
Afghanistan: The Private Sector
in a Socialist Economy
Recent public statements by key Afghan officials
have emphasized the role the private sector plays in
Afghanistan's nominally state-controlled economy.
The rhetoric is a sharp shift from past announcements
that concentrated on the achievements of the public
sector. We believe the regime's current emphasis on
private enterprise is motivated by economic necessity
and a desire for popular support and does not
represent a slackening of commitment to socialism on
the part of the Kabul leadership. The private sector
accounts for over 80 percent of Afghanistan's gross
domestic product and is an important source of
revenue and foreign exchange for the regime. In our
opinion, however, the government remains
ideologically committed to expanding the role of the
public sector and will support private enterprise only
so long as it serves regime purposes.
The State's Role in the Economy
The state began to take a more active role in
Afghanistan's traditional economy in the late 1950s
under the guidance of Mohammad Daoud. As Prime
Minister in the 1950s and 1960s, Daoud tried to
encourage modernization and the development of
Afghanistan's industrial base through the formation
of state enterprises in the industrial sector-mainly
heavy industries based on minerals and other natural
resources.
The state's role in the Afghan economy further
expanded after the coup in July 1973 in which Daoud
declared himself President of the Afghan Republic.
Daoud enunciated a policy emphasizing the role of the
state, particularly in developing heavy industries. To
promote this policy, the banks were nationalized.
With the nationalization of the major commercial
bank, Bank-i-Melli, in 1975, a number of private
enterprises in which it had a majority share also
became part of the public sector. The government also
increased its involvement in the economy through
takeovers of ailing or abandoned enterprises. The
private sector, however, remained active in light
industries and handicrafts as well as in retail trade
and transportation.
The Marxist Approach
Despite regime claims that it intended to completely
socialize the Afghan economy and public emphasis on
the virtues of a planned economy, the Marxist regime
in Kabul has quietly pursued a policy of developing a
mixed economy. Immediately following the
Communist coup of April 1978, the Taraki regime
nationalized several large enterprises still in private
hands and attempted to crack down on the private
sector. These actions resulted in strong public protest
and a serious drop in economic activity. To reverse
these trends, the Karmal regime-installed during the
Soviet invasion of December 1979-abandoned a
number of the previous government's antiprivate
enterprise policies. According to the International
Monetary Fund (IMF), the only takeover since April
1978 was a rayon textile factory in 1985, as a result of
bankruptcy.
Although the Kabul regime has focused its attention
on developing the public sector, it has allowed the
private sector to function with relatively little
interference, and recently it has publicly advocated an
even greater role for private enterprise in the Afghan
economy. On 5 July, for example, Afghan Communist
Party leader Najibullah addressed a group of private
entrepreneurs in Kabul and called on them to "step up
their activities in supplying the required goods and in
improving the country's economy and the living
conditions of the people."
The Role of the Private Sector
At present, the private sector accounts for 82 percent
of Afghanistan's gross domestic product, according to
government figures. The agricultural sector, which
accounts for more than half of the national income, is
still largely in private hands, and the regime claims
that the private sector accounts for more than half of
the country's industrial production. Although most
large industrial and mining projects are under state
control, a number of light industries and most of the
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l5 August 1986
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Secret
handicraft industries, such as carpetweaving, remain
in the private sector, according to government figures.
Between 75 and 85 percent of domestic retail trade
and about 45 percent of foreign trade is carried out by
private firms, and the regime estimates that 70
percent of the country's transport vehicles are
privately owned and operated.
The private sector also provides the government with
much-needed revenue and foreign exchange. The
regime relies on taxes collected from businesses in
Kabul and on import duties as important sources of
revenue, according to press reports.
The government suffers from a shortage of foreign
exchange because of chronic payments deficits. It has
turned to the money bazaars to supply it with the
funds necessary to finance foreign trade,
The money bazaars continue to
operate with relatively few restrictions under the
current regime, according to the president of the
Kabul moneychangers union. Moneychangers are free
to set daily market exchange rates, which they
determine by listening to foreign radiobroadcasts of
international currency rates, and to open foreign
currency accounts in banks abroad. Most of the
union's 110 members have partners in Dubayy who
provide them with links to Pakistan. In return, the
moneychangers supply the government with foreign
exchange at a preferential rate. We believe that
regime data understate the extent of private-sector
economic activity because of widespread bartering,
smuggling, and other unofficial economic transactions
that are not reported to government sources.
Regime Support for the Private Sector
In a recent address before the Economic Consultative
Council (ECC), Afghan Prime Minister Keshtmand
announced the regime's plans to adopt a new law on
private investment. While giving few specifics, he
asserted that it would include measures to stimulate
and regulate private enterprise. The regime is
particularly interested in attracting private
investment in industry and in increasing the use of
private vehicles to carry state goods, especially to the
provinces.
The government is trying to encourage private
investment in industry through various incentives:
? Privately owned factories are exempt from taxes for
their first four to six years of operation, according to
official Afghan press reports.
? Interest rates on loans extended by state banks for
private investment in industry are as low as 6
percent-about half the rate for other borrowers,
according to IMF reports.
? An equivalent of $2.3 million in credit was extended
by the state to private industry during 1985,
according to regime figures.
The regime's preferential tax and credit policies are
probably designed to increase private investment in
government-targeted areas.
In addition, Kabul has given prominence to private
entrepreneurs and traders on the ECC. The ECC-an
economic advisory body under the Council of
Ministers-was reconstituted in February to expand
the role of private businessmen in the development of
economic policy, according to government press
reports. The council has no real power; its expansion
was probably mainly an attempt to broaden the
regime's support. The regime has also encouraged the
creation of mixed public and private enterprises with
state participation not to exceed 40 percent, according
to the IMF.
Kabul's Motives
We believe the Marxist regime's support for private
enterprise is motivated by necessity. The regime does
not have the ability to centralize the economy or
sufficient political control to effectively regulate the
private sector. The proposed new private investment
law may be an attempt by the regime to establish
some control over this sector.
The regime also wants to compensate for reduced
Soviet economic aid to Afghanistan. Such aid has
been cut from approximately $703 million in 1980 to
$325 million in 1985, the latest year for which data
are available. Furthermore, this aid has been targeted
primarily at investment in infrastructure and mineral
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exploration and development. As a result, the regime
suffers from a shortage of investment capital for
industrial projects necessary for economic
development.
Kabul's growing public support for private enterprise
may also be an attempt to expand the regime's
popularity and enhance its legitimacy. The
government has tried to gain cooperation from
important economic groups in Afghan society, such as
small businessmen and traders. In June, for example,
party leader Najibullah announced the regime's
support "for private investors and national traders"
and claimed it would "provide all necessary facilities
in this area." He called on them "to put their capital
into circulation for the prosperity of Afghanistan and
the construction of a new society."
In recent months, the regime has also tried to gain
popular support by portraying its policies as
nationalist rather than Communist. Rhetoric in favor
of private investment may be an attempt to reinforce
this notion.
Outlook
The regime's policies are unlikely to encourage
significant private investment in large-scale
industries. The poor security conditions as well as fear
that the regime will eventually nationalize industries
or otherwise crack down on the private sector make
such large investments unattractive to private
investors. We expect private enterprise to continue to
play a major role in sectors such as retail trade,
transportation, and handicrafts, where investment
costs-and therefore risks-are lower. Smuggling and
other unofficial economic activities will also continue
to flourish. If the regime consolidated its political
control, we believe it would try to manipulate the
private sector and eventually eliminate it in favor of a
state-run economy.
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India: Split in the
Akali Dal
Three months after Punjab Chief Minister Barnala
removed a band of Sikh extremists from the Golden
Temple-Sikhdom's holiest shrine-his moderate
Akali Dal Party has split and his political future is
threatened. The split in the Akali Dal will hinder New
Delhi's ability to implement last summer's Punjab
accord and provide an opening to extremists eager to
exploit dissent among the moderates. Meanwhile,
growing numbers of Hindus are fleeing Punjab for the
safety of neighboring Haryana, and some Sikhs are
moving to Punjab because of Hindu retaliation
against them elsewhere in India.
The Setting
Dissident members of the moderate Sikh Akali Dal
Party have launched a drive for control of Punjab's
state government. The US Embassy in New Delhi
reports that the dissidents last month formally split
with the ruling Akali Dal government of Punjab Chief
Minister S. Singh Barnala, established their own True
Akali Dal Party, expelled Barnala as party head, and
named a former Punjab chief minister, P. S. Badal, to
replace him. As a result, Barnala now controls only 46
rather than 73 members in the 117-member state
assembly. Although he still has control of the
assembly's largest faction, he is now even more
dependent on the support of 38 opposition members,
mostly from Rajiv Gandhi's Congress Party, to
govern.
Barnala's decision last April to remove a group of
Sikh extremists from the Golden Temple and arrest
an additional 300 Sikhs caused the fissure in the
Akali Dal. According to the US Embassy, G. S.
Thora-a former head of the powerful Sikh Temple
Management Committee, which administers the
Golden Temple, and a longstanding opportunist in
Punjabi politics-seized on Barnala's actions to
launch the split in the 65-year-old party. The
dissidents accuse Barnala of defiling the Golden
Temple at New Delhi's behest. Barnala's decision to
atone for the police action in the temple by accepting
a Sikh religious punishment has defused popular Sikh
concern but has failed to a ease Thora and other
Akali dissidents. 25X1
The split comes amid intensified violence by Sikh
extremists over the past several weeks. The killing in
Punjab of 15 Hindus by extremists on 25 July and the
assassination of a retired Indian Army chief of staff
have heightened communal tensions throughout
Punjab and in New Delhi. According to Embassy
contacts, Hindus have stepped up their sales of urban
properties in Punjab, while some Sikhs across
northern India have begun to move to Punjab as a 25X1
result of Hindu retaliation. The Sikh extremists
almost certainly are aiming at expelling Hindus from
Punjab and gathering in Sikhs from across India to
further their goal of a Sikh state.
The dissidents' moves come at a bad time for Barnala.
Blame for the failure of three commissions appointed
by New Delhi to implement key provisions of last
summer's Punjab accord has fallen largely on
Barnala. Editorials in the Indian press accuse Barnala
and his Akali Dal of blocking implementation of the
accord, and the opposition in Parliament is calling on
Gandhi to dismiss him.
Meanwhile, Barnala has had to appease Gandhi by
declaring afull-scale "war against terrorism." This
crackdown has resulted in more killings and arrests of
Sikh youth, fueling Sikh dissident charges that
Barnala is collaborating with New Delhi against
Sikhs.
Akali Dissident Strategy
The dissidents are attempting to gain control of key
centers of political power in Punjab. The president of
the breakaway Akali Dal, P. S. Badal, has called for
new elections to the Sikh Temple Management
Committee. Badal is probably seeking to get a
foothold with newly elected members who would
control the Golden Temple's Akal Takht-the seat of
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NESA NESAR 86-019
l_5 August 1986
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Secret
control of the Akal Takht is a prerequisite for
political power in Punjab. The Embassy reports that
the dissidents have tried to strengthen their popular
base by holding a series of district-level conventions
throughout Punjab to attack Barnala and promote
their own leaders.
The dissidents have also made overtures to Sikh
militant groups. According to press reports, Badal and
two other dissident leaders attended a Sikh memorial
service last month for two militants, sponsored by the
Damdami Taksal and the All India Sikh Student
Federation-Sikh militant organizations. Badal is
also promising to "visit Sikhs in jail and do everything
possible to stop the massacre of Sikh youth" in an
apparent bid to put distance between his breakaway
party and Barnala's security crackdown and win
militant support. The militants remain suspicious,
however, of Badal's motives and are pressing dissident
Akalis to resign from the state assembly to prove their
intentions.
Impact on Barnala
The Akali split is beginning to erode Barnala's
moderate stance on Sikh autonomy. Barnala has
reneged on his promise to transfer 28,000 hectares-
including some Sikh farmlands and water resources-
to neighboring Haryana in fulfillment of the Punjab
accord. Barnala would
face an imme late no-con ence vote m the state
assembly and defections from hardline members of his
Cabinet if he made the transfer. Barnala's reluctance
to risk the support of his constituency probably
reflects his need to counter the dissidents' increasingly
tough rhetoric with his own hard line on the issue.
Barnala's maneuvering, however, is limited by New
Delhi. Prime Minister Gandhi has invested heavily in
Barnala as a guarantor of the Punjab accord and is
probably not prepared to let him scuttle it for the sake
of appeasing the dissidents. Instead, Gandhi is likely
to continue pressing Barnala to cede the 28,000
hectares to Haryana. Barnala will remain limited by
Gandhi's constitutional power to dismiss him at any
time and impose direct rule from New Delhi.
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25X1
The dissidents are also trying to seize control of the
state assembly by attacking Barnala's collaboration
with New Delhi and opposing the remnants of last
summer's accord. According to press reports, the
Akali dissidents have rejected all findings of New
Delhi's three commissions charged with resolving
territorial issues between the states of Punjab and
Haryana and are calling instead for implementation
of a more radical 1973 Sikh resolution on autonomy.
In response to Barnala's crackdown on the militants
and Gandhi's strong endorsement of tighter security
in Punjab, dissident leaders have accused Barnala of
executing Sikh youth and desecrating the Sikh
religion at the behest of New Delhi.
So far, Barnala has managed to retain his tenuous
grip on the state government and even score a
symbolic victory over the dissidents. Last month an
Akali candidate of the Barnala camp defeated a rival
backed by the dissidents in an election to the upper
house of Parliament. The dissidents' defeat suggests
their militant rhetoric and anti-Barnala posture have
failed to win significant popular support in Punjab.
Barnala is likely to
delay reaching a decision on the transfer in hopes of
winning concessions from New Delhi. A delay will
also help him avoid a confrontation with the
dissidents.
The crackdown on terrorism across Punjab is buying
time for Barnala. It has given him an excuse to delay
action on the transfer and an opportunity to call for
unity against foreign-backed terrorism. New Delhi's
strong backing for Barnala's security measures will
reinforce congressional support for Barnala in the
state assembly and could prevent further defections to
the dissidents. The temporary arrest and
imprisonment of Badal and Thora in New Delhi
underscore New Delhi's commitment to the
crackdown but are unlikely to have much effect on the
dissidents' challenge to Barnala.
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Secret
Outlook
The dissidents' increasingly hostile posture toward
New Delhi has limited Barnala's ability to make
concessions. Even if Barnala were to rebuke the
dissidents and follow through on the transfer of
Punjab territory to Haryana, his actions would
probably further weaken his hold on the Akali Dal
and increase prospects for New Delhi's direct rule in
Punjab.
The dissidents are unlikely to develop enough strength
to replace Barnala any time soon. Press reports of the
blatant political opportunism of the dissidents are
likely to cast doubts on their motives and cost them
popular Sikh support. Even if New Dehli imposed its
rule for several months and called new elections in
Punjab, the dissidents probably could not capture
control of the state government without a broader
political base.
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Secret
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Bangladesh: Tribal Unrest in the
Chittagong Hills
An upsurge in fighting this spring between settlers
from other parts of Bangladesh and indigenous tribals
in the Chittagong Hill Tracts forced India to take in
some 24,000 refugees and put this long-festering issue
on the agenda of last month's talks between President
Ershad and Indian Prime Minister Gandhi. Gandhi
declared that India is not supporting the tribals. Even
if the Indian Government is not supporting them, we
believe the Tripura state government is, and Gandhi is
unlikely to crack down on state officials.
Domestically, the unrest poses little political danger to
President Ershad because it is remote from main
population centers, even though it has provided grist
for opposition attacks on the government.
Roots of Conflict
Ethnic and religious differences separate the
Chittagong Hill tribals from other Bangladeshis.
Unlike the Muslim, Indo-European Bangladeshis, the
tribals are predominantly Buddhist and speak Tibetan
dialects. According to US Embassy estimates, some
400,000 tribals inhabit the 12,950-square-kilometer
hill tracts in southeastern Bangladesh along the
Indian and Burmese borders, where they coexist
uneasily with about 200,000 newly arrived
Bangladeshi settlers.
British colonial rulers granted a special status to the
Chittagong tribals that allowed limited self-rule and
prevented outsiders from settling in the area. This
protection was removed in 1963 when the area was
under Pakistani rule, starting the process of tribal
disaffection from central authority. The US Embassy
in Dhaka reports that this disaffection grew as
development projects-such as the Kaptai Dam, built
in 1962-dislocated thousands of tribals, and bans on
outside homesteaders were lifted.
During the Indo-Pakistani war of 1971, which led to
the creation of Bangladesh, the Chittagong Hill
Tracts were used as a sanctuary by Pakistani loyalists.
The new Bangladesh Government in Dhaka
considered the tribals to be subversive because of their
alleged support for Pakistan, according to academic
studies. At the same time, Dhaka promoted the
transfer of Bangladeshis from the crowded lowlands
to the sparsely populated hill tracts to relieve
overcrowding.
The Tribals Take Up Arms
In 1972, Chittagong Hill tribals formed the Shanti
Bahini (peace force), a guerrilla force dedicated to
driving out Bangladeshi settlers and achieving self-
determination for the hill people. Manabendra
Narayan Larma, a former member of the Bangladesh
Parliament, was leader of the Shanti Bahini as well as
spokesman for the tribals until his death at the hands
of tribal dissidents in 1983. The guerrillas draw most
of their recruits from the Chakma tribal group,
according to the US Embassy in Dhaka. The Embassy
estimates that the Shanti Bahini numbers between
2,000 and 5,000 regulars, with perhaps 10,000 to
15,000 in reserve forces.
Most of the Shanti Bahini's tactics consist of hit-and-
run attacks with hand wea ons on isolated Ben ali
settlements.
operate in groups of 30 to 40
men who loot hill tract villages and kill the
inhabitants with machetes and lathis (long bamboo
staves).
Secret
NESA NESAR 86-0l9
I S August 1986
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The rebels also engage in extortion and kidnapings to
finance their activities, according to the US Embassy
in Dhaka. In 1984, for example, the guerrillas
kidnaped three technicians from the Dutch Shell
Petroleum Development Company who were
exploring for oil in the hill tracts. According to press
reports, the three were freed after the company paid a
$1 million ransom to the Shanti Bahini. Dutch Shell
has announced it will resume its oil exploration in the
area.
Dhaka's Response
The Bangladesh Government has responded to the
Chittagong Hills insurgency with a mixture of
conciliation and violent reprisals. In 1983, after
several attempts at negotiations with the rebels failed,
Dhaka offered an amnesty to the rebels in return for
their laying down arms and surrendering to the
government. This offer was repeated in 1985 and
again this year. Although Dhaka usually asserts
success-it claimed 3,500 guerrillas surrendered
during the 1985 amnesty-we believe these amnesties
have produced meager results. Dhaka also held
formal talks with the Shanti Bahini in October 1985,
but press reports say the government halted the talks
in December and sped up settlement plans for the hill
tracts.
The US Embassy reports that some 10,000 to 15,000
regular Army troops are stationed in the hill tracts
and have been conducting operations against tribal
rebels since 1976. Although details of these operations
are not reported in the government-influenced
during its construction
Bangladesh press, spokesmen for the tribals have
accused the Army of massacring hundreds of tribals,
including women and children. The US Embassy
relates one such uncorroborated account from 1980
when the Army was accused of killing 200 to 300
tribals in retaliation for alleged attacks on Army
units.
Increased Tribal Attacks in 1986
US diplomatic and press accounts indicate an increase
in tribal attacks and Bangladeshi reprisals in the
Chittagong area last spring. Government officials
were quoted in the Western press as saying that 130
Bengali settlers were killed and almost 250 wounded
in Shanti Bahini attacks in April and May, the worst
outbreak of fighting since July 1984 when 200 settlers
were killed. In addition to looting and burning
villages, the guerrillas also kidnaped 30 settlers,
according to the press accounts. The violence tapered
down after Dhaka declared another one-month
amnesty for tribal rebels on 24 May, although there
were several attacks in July and August reported in
the press. Moreover, the US Embassy in Dhaka
reports that there have been several retaliatory
attacks against tribals by Bengali settlers.
offensive because the start of the rainy season made
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25X1
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Secret
pursuit of the rebels more difficult and the guerrillas
were using the attacks to train new recruits. Another
officer told US Embassy officials that the Shanti
Bahini timed its attacks to coincide with Bangladesh's
parliamentary election in May.
The recent fighting has provided an issue for
opposition parties seeking to embarrass President
Ershad's martial law government. Sheikh Hasina,
leader of the opposition Awami League, called on the
government to end the "repression" of tribal activists.
A government spokesman retorted by rhetorically
asking if Hasina was advocating tribal secession from
Bangladesh. The tribal fighting issue has also been
raised in the new Parliament, according to the press.
Tribal Issue Hurts Relations With India
New Delhi claims that the recent spate of fighting has
created a new influx of refugees from the Chittagong
area to India's Tripura state. The Indian press
recently quoted government sources' estimates that
24,000 refugees, mostly Chakma tribals, are seeking
shelter in Tripura. The US Consulate in Calcutta
reports that the Tripura state government is asking
New Delhi for $5 million to run camps for the
refugees. New Delhi has publicly requested that
Dhaka take back the refugees, and the Bangladeshis
say they will take back any refugees who can prove
their Bangladesh citizenship.
Privately, however, Bangladesh accuses India of
providing shelter, arms, and training to the Shanti
Bahini rebels
A senior Bangladesh Army general told the
attache that the Communist state government of
Tripura assists the rebels in purchasing weapons and
that they are also aided by India's border guards.
Bangladesh and Indian border forces met in May to
ease tensions caused by the fighting, according to
press reports, but the results have been inconclusive.
The US Embassies in New Delhi and Dhaka say that
the tribal unrest and resulting refugee problems were
discussed during President Ershad's state visit to New
Delhi in July. US Embassy sources in Dhaka report
that Gandhi admitted to Ershad that some low-level
support is extended to the Shanti Bahini by the
Tripura state government. Gandhi, however, strongly
urged Ershad to halt the flow of tribal refugees into
India, according to the US Embassy in New Delhi.
Outlook
Unrest and violence in the Chittagong Hill Tracts will
almost certainly continue in the near term as the
tribals seek to preserve their way of life against the
encroaching Bengalis. We expect more retaliatory
attacks by the Army and the settlers on the tribals,
thus increasing the refugee flow into India.
The opposition will use the Chittagong Hills issue to
embarrass the government, but we believe this will be
little more than a nuisance to President Ershad. The
opposition parties are weak and fragmented, the hill
tracts are remote from major population centers, and
the tribal rebels do not have the resources to spread
the violence beyond the Chittagong area.
Both the central and state governments in India will
probably continue to provide limited assistance to the
Shanti Bahini. New Delhi probably calculates that
there are fewer national security risks involved in
maintaining some control over the tribals than in
ignoring them or forcing them to return to
Bangladesh. It probably also believes it is not a
serious enough issue to disrupt efforts to improve
Indo-Bangladesh relations in other areas.
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25X1
Declassified in Part -Sanitized Copy Approved for Release 2012/07/27 :CIA-RDP05S02029R000300820003-1
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Near East and
South Asia Briefs
Saudi Arabia is experiencing maintenance difficulties with its newly acquired
Tornadoes that may postpone fielding of an operational squadron. 0
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four of the six Saudi Tornadoes were
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grounded because of leaks in the fuel and hydraulic systems, probably caused by
exposure to the hot Saudi climate.
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sand was causing considerable damage to the aircraft's
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engines, which will require major overhaul much sooner than expected. Saudi
Arabia had similar experiences with F-15s purchased from the United States, but
design changes to the turbine blades corrected the problem. The lack of trained
maintenance crews is compounding the problems. The newly designed Tornado is
probably experiencing more failures than usual because of the desert environment.
The Saudi timetable for deploying acombat-capable Tornado squadron will have
to be extended unless its maintenance record improves. 25X1
Brazil has suspended its $630 million countertrade deal with Iraq-signed in
December 1984-under which 100,000 Brazilian Volkswagens were to be bartered
over 25 months for Iraqi oil. Rio de Janeiro blames domestic labor problems for
the action, but it is almost certain that falling oil prices were responsible. Brazil
agreed to accept a quantity of oil-determined by the spot-market price of $27 per
barrel at the time the contract was signed-and to absorb all transport and storage
costs. With oil prices declining to about $8 per barrel, Brazil faced substantial
losses on the deal even though Iraq raised the monthly amount of oil shipped.
Secret
NESA NESAR 86-019
!5 August 1986
Declassified in Part -Sanitized Copy Approved for Release 2012/07/27 :CIA-RDP05S02029R000300820003-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/07/27 :CIA-RDP05S02029R000300820003-1
Secret
Secret
Declassified in Part -Sanitized Copy Approved for Release 2012/07/27 :CIA-RDP05S02029R000300820003-1