THE PRESIDENT'S DAILY BRIEF 22 JANUARY 1974

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006007653
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 14
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: January 22, 1974

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The President's Daily Brief
January 22, 1974
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Exempt from general
declassification schedule of E.O. I 1652
exemption category 5B( I
declassified only on approval of
the Director of Central Intelligence
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FOR THE PRESIDENT ONLY
THE PRESIDENT'S DAILY BRIEF
January 22, 1974
PRINCIPAL DEVELOPMENTS
The French franc declined sharply relative to the
dollar and other European currencies yesterday..
Gold was fixed at $138 an ounce in London after
reaching a record $141.74 during trading. (Page 1)
?Chinese military elements remain active in the
Paracels, but no additional fighting with South
Vietnamese forces has occurred. The North Vietnani-
.ese have taken unofficial note of the incident.
-(Page 2)
Chinal
/ (Page 3)
Tokyo registered a $10.1-billion balance-of-payments
deficit for 1973, in contrast to a $4.7-billion
surplus in 1972. (Page 4)
some poppy cultivation must be allowed in southwest-
ern Turkey. (Page 5)
Notes on Australia's plans to recognize North Korea
and the Lao prime minister's expectations for a new
coalition government appear on Page 6.
Recent major political developments in China are
reviewed at Annex.
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10
5
0
5
?10
?15
?20
25
?30
Percent Change In the Value of the US Dollar
Relative to Selected Foreign Currencies
Compared With January 2, 1973
?
Br
?
tish Pound
'. ?
, % ?
Change in
Average Value
the Trade
of the
-Weighted
Dollar'/
,
?
,
Japanese
Yen
,
4
French
?Franc
.
I 1
iii
?
-
ill
flii
ill
German Mark
I Ili lll
-
III
11111l11
II I'
? 4
Mar . 'Apr May Jun Jul Alla _gen Oct New
11 18 21
?
?
*Based.on nonofficial bank trading
**Relative to 16 major currencies
555111 1-74
Jan
= r n r rei r ri. F-1 M r71 r"-1
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INTERNATIONAL MONETARY DEVELOPMENTS
The French franc declined sharply relative to
the dollar and other European currencies yesterday'
following Paris' decision to float the franc. Gold
was fixed at $138 an ounce in London, up more than
$8 over Friday but below the record $141.74 reached
during trading. The Paris and London currency ex-
changes were open Monday, but official exchanges in
the seven remaining joint float countries plus
Austria and Japan were closed to give officials
time to assess the situation;
The weakened European joint float will resume
today when the remaining members reopen their cur-
rency exchanges. The decision to continue the float
was reached in Brussels.yesterday after a meeting
of the finance ministers of the five EC participants;
the two non-EC participants, Norway and Sweden, con-
curred in the decision.
The decline of the franc--4.5 p9rcent relative
to the dollar--came despite a reported $75 million
in official dollar sales on the Paris exchange.
The French apparently will attempt to slow the
franc's depreciation through moderate intervention.
Paris also moved to reduce speculative pressure on
the franc by strengthening its foreign exchange
controls. Other European currencies traded on the
London exchange declined by smaller amounts. Ster-
ling again closed at a record low relative to the
dollar.
Japan ordered the Tokyo foreign exchange mar-
ket to close for an unspecified period. The Japa-
nese will pay particular attention to the course of
the German mark before reopening the Tokyo market.
If the remaining joint float currencies are allowed
to depreciate further, Tokyo will almost certainly
allow the yen to decline relative to the dollar.
Fears are spreading that the franc float will
touch off a round of competative devaluations by
nations seeking a trading edge to offset their
higher oil bills. International action will be
needed to stem these fears.
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VIETNAfl-CHINA
Chinese military elements remain active in the
area of the Paracel Islands, but no additional fight-
ing with South Vietnamese forces has occurred.
? Saigon is seeking ?an emergency meeting of the
UN Security Council on the matter; but it may have
considerable difficulty finding -.1.1e necessary nine
votes to convene such a session.
The North Vietnamese have taken unofficial note
of the fighting, and their treatment indicates the
trouble they are having with the issue. According
to a French press report, "authorized sources" in
Hanoi stated that preserving territorial sovereignty
is a "sacred cause" for every nation, but that "the
frequently complex disputes over territories and
frontiers between neighboring countries demand care-
ful and circumspect examination." While Hanoi does
not have any direct claim to the Paracels, it does
not want in any way to recognize Saigon. To scotch
any hint of de facto recognition, the sources reit-
erated that Hanoi recognizes only the Provisional
Revolutionary Government as the legitimate represent-
ative of the South Vietnamese.
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CHINA
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JAPAN
? Tokyo registered a $10.1-billion balance-of-
Payments deficit for 1973, in contrast to a. surplus
of $4.7 billion in 1972. Official foreign exchange
reserves have been drawn down by one third to a
level of $12 billion.
Both trade and capital accounts deteriorated.
The trade surplus fell to $3.8 billion from $9.0
billion in 1972 as a business upswing and soaring
commodity prices pushed up the import bill by 70
percent. Exports rose nearly 30 percent, but the
growth of export volume was slowed by resistance to
higher prices on some products and by an inability
to keep up with demand for others. The trade surplus
with the US apparently dropped even faster than the
surplus with the rest of the world.
? The net outflow of long-term capital swelled
from $4.5 billion in 1972 to a record $9.7 billion
in 1973. Investment abroad increased in response
to Tokyo's relaxation of capital controls and ris-
ing production costs in Japan. Tokyo also encour-
aged Japanese banks to expand substantially their
overseas lending during the year.
Japan's balance of payments will register an-
other large deficit in 1974. Higher oil prices
alone will increase import costs by at least $11
billion, and Japan's exports will have to increase
relatively fast to avoid a trade deficit. Tokyo has
already moved to discourage capital outflows and en-
courage inflows, and further efforts to limit this
year's payments deficit can be expected. The imbal-
ance, however, will remain large and should mean
continued downward pressure on the yen, at least
in the months immediately ahead.
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TURKEY
some opium-poppy cultivation must be
permitted in order to improve the economic situation
of peasants in former opium-producing areas in south-
western Turkey. An easing of the ban now in force,
even if stringent controls are imposed on cultivation,
would jeopardize recent progress in eliminating Tur-
key as a major source of illicit opium.
Although the ban was not a major issue during
the election campaign last fall, all major parties
.promised to help the farmers in former poppy-growing
areas. Opposition to the ban has remained strong in
those areas despite efforts by Ankara, with US finan-
cial backing, to compensate farmers for their lost
income. The farmers have still lost money because
they have not been able to sell various opium by-
products.
With the onset of the spring planting season,
pressure to ease the ban on Opium-poppy cultivation
will increase. It will probably be some time, however,
before the new coalition government reaches a defini-
tive decision on the matter.
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NOTES
Australia-Korea: Australia informed Seoul yes-
terday that it will proceed with negotiations to
recognize North Korea. Canberra will wait until
Seoul has a chance to respond, but the Australians
have made clear that their decision is firm. Aus-
tralia has reassured South Korea that it will not
downgrade ties with Seoul and has attempted to ease
South Korean annoyance by promising to encourage
socialist countries to recognize Seoul.
Laos: Prime Minister Souvanna now expects the
new coalition government to be formed early next
month. According to Souvanna, Soth Phetrasy, head
of the Lao Communist delegation to the Joint Central
Commission to Implement the Agreement, says that the
Communists' chief political negotiator will return
to Vientiane later this week with a list of Pathet
Lao ministers for the new government. Souvanna has
been urging such a step for weeks.
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CHINA: "THE PARTY COMMANDS THE GUN"
The new year has already seen two major devel-
opments in China--the unprecedented rotation of
eight high-ranking military men, in effect dislodg-
ing nearly all of them from well-entrenched provin-
cial bases, and the reinstatement of the once-dis-
graced Teng Hsiao-ping to the Politburo and his
appointment to the important Military Affairs Com-
mission. These moves are at least as important as
the reconstitution of the Politburo at the Tenth
Party Congress last August.
The recent changes reduce the danger that dis-
affected provincial military leaders can combine
with ultraleftists in Peking to oppose the moderate
policies that have been in effect at home and abroad
for the past several years. In addition, prospects
for convening the overdue National People's Congress
have now improved, and it may also be possible to
fill high military posts in Peking. Nevertheless,
the latest moves do not signal an end to political
problems within the leadership; indeed, they run
the risk of creating new ones..
Military Commanders Shifted
The rotation of military commanders speeds up
what had been a gradual effort to ease provincial
military leaders out of top party and government
posts. As early as the spring of 1971, Chou En-lai
had expressed uneasiness over the pervasive role of
the military in provincial affairs, and the question
of the army's proper place was unquestionably a
major element in the demise of Defense Minister Lin
Piao the following autumn. In the aftermath of that,
a return to civilian party leadership in the prov-
inces was never really in doubt; the only question
was how rapidly it could take place. A selective
purge of military men in provincial leadership posts
began at once, but did not run its course until the
summer of 1972. The effort to reduce the power of
provincial military leaders then slowed considerably.
Plans for a further large reduction in the num- 25X1
ber of military in provincial party posts were prob-
ably made in preparation for the Tenth Party Con-
gress. These plans, however, evidently met stiff
opposition/
Al
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The resistance of the military
may well have postponed a more drastic dilu-
tion of the army's political role than that which
occurred at the party congress. The number of mil-
itary men on the central committee was significantly
reduced, but those on the Politburo who had avoided
being implicated in Lin Piao's abortive military
coup were able to retain their positions.
The Return of Teng Hsiao-ping
The complete rehabilitation of Teng Hsiao-ping,
who had been party secretary general before the Cul-
tural Revolution, very likely was also discussed at
the congress. The fact that he was not then named
to the Politburo indicates that opposition to such
a move had not been overcome by the summer. This
opposition may have existed among military figures
who wished to retain a significant political role
for the PLA, as well as among ultraleftists who had
helped engineer his downfall in 1966. Teng's ap-
pointment to the Military Affairs Commission also
strongly suggests that he will play a significant
role in the formulation of policy affecting the mil-
itary--quite possibly in connection with a redefini-
tion of the army's political role. His posting
strongly affirms the principle that the "party com-
mands the gun."
Final plans for the rotation of the regional
commanders, as well as Teng's appointment, probably
were worked out at high-level meetings after the con-
gress. Unlike the provincial military figures who
vanished after the Lin affair, the men involved were
rotated, not purged. The media continue to record
their appearances in their new bailiwicks and have in
fact given most of them considerable publicity. Nev-
ertheless, the only titles they now hold pertain
strictly to their military duties. The regime will
almost certainly find it easier to appoint civilian
cadre to the leading party and government posts in
the several provinces affected by the rotation than
would have been the case had it left the military
commanders in place and attempted to deprive them of
their party and government positions.
(continued)
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The Struggle Is Not Over
The military leaders were permitted to save face,
and this testifies to their still formidable strength.
Indeed, the way the media are currently treating the
military--giving only limited praise while emphasiz-
ing the necessity for discipline and party control--
suggests that Peking is wary of that strength and
may even anticipate further trouble from among the
army's leaders.
A clearer reading of the regime's attitude to-
ward the army will be possible when the top positions
in the military establishment are filled. Marshal
Yeh Chien-ying, a 75-year-old member of the Standing
Committee of the Politburo, still seems the logical
choice for defense minister. A close associate of
Chou En-lai, Yeh has in effect filled the post since
Lin Piao vacated it. Teng Hsiao-ping seems a good
candidate for the job of chief of the General Politi-
cal Department, a post apparently vacated by the
transfer to Manchuria of Li Te-sheng, who has held
the job for several years. There are several possi-
ble candidates for chief of staff. All this suggests
that further bargaining lies ahead.
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