THE PRESIDENT'S DAILY BRIEF 20 AUGUST 1974

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006007796
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 16
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: August 20, 1974

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The President's Daily Brief
August 20, 1974
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Exempt from general
declassification schedule of E.O. 11652
exemption category 5B( 11,14(3)
declassified only on approval of
the Director of Central Intelligence
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THE PRESIDENT'S DAILY BRIEF
August 20, 1974
PRINCIPAL DEVELOPMENTS
The Karamanlis government yesterday carried out a
purge of military officers, focusing on those iden-
tified with the last regime's Cyprus policy. The
military situation is quiet in Cyprus. (Page 1)
Stepped-up communist attacks north and west of Sai-
gon appear to indicate the start of a limited mili-
tary campaign. Despite some recent tactical setbacks
and disruption of rural pacification efforts, the
government retains firm control over the country's
population centers and major highways. (Page 2)
Zairian President Mobutu reportedly will meet with
Portuguese President Spinola later this week to dis-
cuss the future of Angola. Portugal probably re-
gards Mobutu as its best hope for ending an impasse
between the two leading rebel groups in Angola.
(Page 4)
West German Chancellor Schmidt is considering travel-
ing to Peking sometime after his visit to Moscow
this autumn. (Page 5)
At Annex we discuss the outlook for the international
economy with special attention to new circumstances
caused by the abrupt and massive increase in the
price of oil.
FOR THE PRESIDENT ONLY
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GREECE-CYPRUS
The Karamanlis government yesterday put distance
between itself and its discredited predecessors with
a major purge of military officers. The purge fo-
cused on officers identified in the public mind with
the last regime's Cyprus policy.
--Ousted were armed forces chief General Bonanos
and army chief General Galatsanos, as well as
several other senior military officers.
--The new armed forces chief is General Dionysios
Arbouzis, who commanded the Greek army contingent
in Korea. He has been retired since shortly after
the first military coup in 1967.
--Lieutenant General Davos, a critic of the last
junta who is believed to have been instrumental
in the recall of Karamanlis, was named army chief.
--Lieutenant General Gratzios, also a Karamanlis
man, was named commander of the key army corps
in Thrace on the Turkish border.
The appointments appear designed to consolidate
Karamanlis' hold and ease the fears of those who
viewed the continued presence of key junta leaders
as evidence that the civilian government was not in
full control.
Defense Minister Averoff told the US ambassador
in Athens that leadership of the navy and air force,
not as closely associated with the previous military
regimes, will not be affected by the shakeup.
Averoff said that strongman Brigadier General
Ioannidis, who is on six months leave but is fre-
quently seen in army headquarters, has "not yet"
been affected by the changes.
The military situation in Cyprus remained quiet
early this morning.
The situation is reportedly under control in
Nicosia, following a day of violent demonstrations
that led to the death of US Ambassador Davies. Pres-
ident Clerides has banned public meetings and the US
embassy is being guarded by contingents of the Cyp-
riot national guard, Cypriot armed police, and a
small UN force.
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SOUTH VIETNAM
Stepped-up communist attacks north and west of
Saigon appear to indicate the start of a limited
military campaign in Tay Ninh, Binh Duong, and Bien
Hoa provinces. The Viet Cong, according to captured
documents hope to eliminate Sai-
gon's presence in some of the more remote areas of
these provinces to get closer to population centers
and food-producing areas.
The upsurge in fighting together with govern-
ment setbacks in the northern provinces, where a
second district capital has been lost in less than
two weeks, is causing the South Vietnamese high
command some nervousness. Contingency plans already
have been drawn to protect the capital region if
the communist campaign proves too much for government
forces already in the area.
South Vietnamese forces, however, appear capable
of handling the stepped-up fighting. Despite some
tactical setbacks and disruption of rural pacifica-
tion efforts, the government retains firm control
over the country's population centers and major high-
ways.
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IRAN-IRAQ
The Shah appears determined that any Iraqi op-
erations against the Kurds that s ill over into Iran
will be met with force.
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Two squadrons of F-4 Phantom fighters are
at the base and presumably will be used to defend
Iranian airspace against any violations by Iraqi
aircraft attacking Kurdish targets near the border.
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ZAIRE-PORTUGAL-ANGOLA
Zairian President Mobutu reportedly will meet
with Portuguese President Spinola later this week
to discuss the future, of Angola. Mobutu has been a
principal supporter of the liberation cause in Angola.
He is, however, determined to ensure that the gov-
ernment of an independent Angola is headed by some-
one responsive to himself.
Portuguese negotiations with Angolan insurgents
have been precluded by the rivalry between the two
leading rebel groups. Lisbon probably regards Mobutu
as its best hope for ending the impasse. Mobutu has
been anxious for a meeting with Portuguese leaders,
primarily to determine Lisbon's attitude toward the
Zairian-based National Front for the Liberation of
_Angola and toward the future of Cabinda, an exclave
?of Angola that has oil deposits important to Zaire.
Mobutu has been working behind the scenes to boost
National Front leader Holden Roberto as the leader
of future nationalist negotiations with Lisbon.
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WEST GERMANY
Chancellor Helmut Schmidt indicated during a
newspaper interview on August 14 that he would con-
sider traveling to Peking sometime after his visit
to the Soviet Union this autumn. An article by the
newspaper's Peking correspondent on August 15 indi-
cated that the visit, which has been under discus-
sion for some time between West German and Chinese
authorities, could come at the end of this year.
The Chinese have been disappointed with what
they regard as Bonn's overriding interest in its
relations with the USSR. On a number of occasions
the Chinese have expressed the hope that high-rank-
ing Bonn officials would visit China.
The Chinese have also invited, the. leaders of
West German conservative opposition parties to visit
China, and Christian Democratic Union Chairman Helmut
Kohl will leave for Peking on September 2 for a ten-
day stay.
Schmidt's intention to visit China will not sit
well with Soviet leaders, who remain wary of Bonn's
contacts with the Chinese. The Soviets are con-
cerned that Schmidt may give less emphasis to de-
tente than former chancellor Brandt did
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Oil as a Proportion of World Trade
1974 (Projected)
Oil $120 Billion
1972
Oil $22 Billion
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THE INTERNATIONAL ECONOMIC OUTLOOK
The abrupt and massive increase in the price of
oil has caused a shift in the world pattern of trade
surpluses and deficits unprecedented in magnitude
and rapidity. How to adjust to these new circum-
stances is the major international economic policy
problem for the oil-importing countries. Without a
high level of international cooperation, high oil
prices threaten:
--to encourage excessively deflationary poli-
cies,
--to increase trade restrictions,
--to disrupt the world financial system, and
--as a combined result, to decrease economic
growth and intensify some of the forces of
inflation in the oil-importing countries.
Higher oil prices have already caused large
increases in the prices of fertilizer and shortfalls
in the production of fertilizer, thus aggravating
yet another major international economic problem-?-
high grain prices and uncertainty about the adequacy
of food supplies in some countries
Oil Prices, Production, and Consumption
From mid-1973 to mid-1974 the price of inter-
nationally traded oil increased approximately four-
fold. This staggering rise has reduced the quantity
of oil consumption worldwide. Since the production
of members of the Organization of Petroluem Export-
ing Countries (OPEC) has recovered to approximately
the pre-embargo level, world production now exceeds
world consumption by some 2 million barrels per day
(roughly 6 percent of total OPEC production). There
is little unused storage capacity. Hence, there will
be downward pressure on oil prices in the near future
unless exporting countries reduce production.
--A major reduction of oil prices over the short
term would require a decision by Saudi Arabia to
expand production significantly, but this step
seems unlikely at the moment.
(continued)
Al
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Trade Balance of OPEC and
Selected Industrial Countries
(Billion US $)
West
Germany
5.8
US
1972
Canada
UK 1.3
k
Japan
9.0
OECD
total OPEC
16.6 15.5
?8.9
West
Germany
18.8
US
4.0
?0.7
UK
1974
(First half at annual rates)
Canada
0.2
?12.5
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Japan
?5.5
OPEC
85
OECD
total
?37.4
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--The possibility that the Saudis might consider
such a move derives- from the perception of key
individuals, including King Faysal, that the
current price of oil threatens the economic and
political stability of the-non-communist world.
But the Saudis are reluctant to take such action,
primarily because they want to avoid steps that
would be opposed strongly by other Arab countries
and other oil exporters.
Shifts in Trade, Deficits and Surpluses
In 1972 the members of OPEC generated surplus.
revenues of about $3 billion. The 1974 surplus is
expected to be over $65 billion A large imbalance
between the foreign revenues of the OPEC countries
and their physical capability to absorb imports will
continue until the end of this decade, if the current
ratiO between the prices of oil and of industrial
imports does not change appreciably...
The major oil-importing countries have not been
able to agree on how the total deficit should be
distributed. A wide range of domestic and interna-
tional economic factors affect this distribution,
and it is difficult to forecast the net effects of
these various factors on the international payment
positions of individual countries.
During the first half of 1974 the balance-of-
payments positions of the US, Germany, and Japan
remained more favorable than would have been pre-
dicted on the basis of increased cost of oil imports
alone. The balance-of-payments positions of the
United Kingdom and Italy worsened by an amount greater
than would have been expected on that basis.
Financing Trade Deficits ?
The ultimate sources for financing the trade
deficits of the oil-importing nations are the trade
surpluses of the OPEC members, but the pattern of
direct capital exports from OPEC states will not
match the. pattern of trade deficits of oil-importing
countries.. In the first half of 1974 the bulk of the
surplus revenues of the oil-exporting countries were
invested in short-term liabilities of banks operating
in the Eurocurrency market.
(continued)
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1972
14.3
11111111111111M
1972
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Reserves of
Major OECD Countries
(Billion US 5)
82.8
78
81.2
1973
VA
A
June 1974 December
1974
Jam
United Kingdom
Italy
France
West Germany
United States
OPEC Official Reserves
(Billion US 5) 72.6
19.3
37.6
Saudi Arabia
Kuwait
Libya
United Arab Emirates
1973 June 1974 December
1974
Iran
Venezuela
Other OPEC
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The flow of funds directly to the US was rela-
tively small, though it is expected to increase
dramatically in the second half of 1974. Most de-
veloped countries, with the notable exception of
Italy, have readily been able to obtain sufficient
private credit to finance their deficits. Italy and
many less developed countries have had to go to pub-
lic institutions such as the International Monetary
Fund to supplement private credit.
There are several reasons to believe that the
present "recycling" mechanism for oil exporters'
surpluses will not be adequate in the future.
--The flow of funds to be recycled will increase
markedly in the second half of 1974.
--There are doubts as to the stability of the
Eurocurrency system itself. This concern has
been intensified, for example, by the failure
of Germany's Herstatt bank. That failure has
concentrated the burden of recycling even more
in the largest banking institutions.
--The pattern of trade deficits is unlikely to
be matched by credit flows based on conventional
standards of credit-worthiness. This mismatch
may come from a government's short-run difficul-
ties in achieving a domestic political consensus
behind economic policies consistent with its
balance-of-payments position (as in Italy).
It may also come from longer run difficulties--
for example, pessimistic expectations of eco-
nomic growth and high debt-service burdens (as
in India, Pakistan, and Bangladesh).
Rapid Inflation, Low Rates of Growth
The oil embargo and increase in oil prices have
played a key role in accelerating rates of inflation
worldwide. Although the cost of certain raw materials
has, now begun to fall, Consumer prices in the major
industrial nations are expected to continue to in-
crease rapidly (roughly 10 to 20 percent annually)
through at least the first half of 1975. Given the
political difficulty of checking the substantial
rises in wages that workers feel are needed to catch
up with inflation, any future reduction in rates of
inflation will be gradual.
(continued)
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There is currently an anti-inflationary focus
to domestic policy in most of the major developed
countries. Recent predictions that the average
growth rate of major countries would rise to 2.8
percent in the second half of 1974 and to 3.7 ?percent
in the first half of 1975 thus appear to be highly
optimistic.
World Supply of Grain
The low level of world stocks of grain and the
effects of bad weather on the US harvest create un-
certainty as to the near-term course of food prices.
Soviet grain production in 1974 will be less than
last year, but we expect the USSR to be able to
satisfy domestic needs and export commitments with-
out major purchases in the world market.
Grain imports by the Peoples Republic of China
will probably increase, however, and bad weather
will reduce the, grain crop in India. Although a
general shortage 'of grain (with the exception of
corn) cannot be predicted at this time, world grain
output in 1974 is not expected to be enough to build
up stocks. Major problems of food supply continue
in areas like Sahelian Africa (along the southern
Sahara) and Bangladesh.
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Top Secret
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