THE PRESIDENT'S DAILY BRIEF 14 FEBRUARY 1975

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006007942
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 14
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: February 14, 1975

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The President's Daily Brief
February 14, 1975
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declassification schedule of E.O. 11652
exemption category 5B(I),(2),(3)
declauified only on approval of
the Director of Central Intelligence
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FOR THE PRESIDENT ONLY
February 14, 1975
? Table of Contents
USSR: Recent statements by influential Soviet
spokesmen are the strongest endorsements of
detente since the November summit. (Page 1)
Cambodia: We present the precis of the latest Na-
tional Intelligence Estimate, Prospects for
Cambodia Through August 1975. (Page 2)
Cyprus: Turkish Cypriots yesterday declared estab-
lishment of a separate state pending agree-
ment on a proposed Cyprus federation. (Page 4)
Notes: USSR; Turkey (Page 5)
Annex: OPEC Investment Policies
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USSR
Recent statements by influential
Soviet spokesmen amount to the strongest
endorsements of detente since the Vladi-
vostok summit in November.
President Podgorny, in an article appearing in
Izvestia on Wednesday, said the USSR wants to improve
still further its relations with the US and other
Western nations. He said Moscow is willing to take
practical new steps to advance military detente, as
well as economic and political cooperation.
On Tuesday, N. V. Mostovets, a key Central Com-
mittee official concerned with US-Soviet relations,
spoke privately to an embassy officer in highly
optimistic terms. He emphasized the urgent need to
build on an already good beginning. Mostovets,
fresh from a trip to the US, professed to be encour-
aged by the vast improvement in US public attitudes
toward the USSR since his visit in 1963. He noted
that congressional action on "discriminatory" trade
legislation had provoked widespread criticism in the
US as well as abroad.
Mostovets predictably stressed that Brezhnev's
foreign policies had been formulated collectively
at the 24th Party Congress in 1971 and continued to
enjoy the support of all the top leaders. He as-
serted that General Secretary Brezhnev would head
the Soviet delegation to a "very successful" summit
this summer.
Mostovets said the avoidance of war is the main
task of our time, a theme that has appeared with
regularity in recent Soviet commentaries on detente.
Amid recent bilateral friction over trade and emigra-
tion policy and persistent mutual suspicions regard-
ing motives in the Middle East, Soviet commentators
have increasingly cited the effort at strategic arms
limitations as the mainstay of detente.
Two major articles on SALT in Soviet journals
this month make the same point. The authors--lead-
ing strategic analysts in the USA Institute--heap
praise on the Vladivostok accords and are optimistic
about the prospects for SALT II. They say the grow-
ing strength of the communist states has forced the
US to negotiate with the Soviets on the basis of
equality. The authors anticipate progress in other
areas of US-Soviet relations as a result of success
in arms limitations.
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CAMBODIA
Following is the precis of the
latest National Intelligence Estimate,
Prospects for Cambodia Through August
1975, which the US intelligence Board
approved yesterday.
The military situation in Cambodia is critical'.
--The Khmer communists have embarked on an am-
bitious dry season campaign aimed at closing
the Mekong River.
--They have severely curtailed the flow of
supplies reaching Phnom Penh via the Mekong.
At this point, there is a three- to fourteen-
day supply of critical munitions items in the
Phnom Penh area.
--In conjunction with this interdiction effort,
the communists are keeping pressure on Phnom
Penh in an effort to prevent the Cambodian
army from reinforcing the Mekong front.
--For the first time, the Cambodian government
faces the threat of collapse from economic
factors because food stocks will cover con-
sumption only through mid-March if convoys
do not make it up the Mekong.
The communists will be unable to interdict the
Mekong continuously, but delays and shipping losses
will continue to be such that the "heavy" airlift
now scheduled--600 tons per day--will be required
to supply the government's minimum ammunition needs
for at least the next few weeks.
--The Central Intelligence Agency and the De-
partment of State believe that this heavy air-
lift will ?be required until the rainy season
widens the Mekong in July or August.
--The Defense Intelligence Agency and the in-
telligence representatives of the US Army,
Navy, and Air Force regard this judgment as
overly pessimistic. They believe that the gov-
ernment will order extraordinary measures to
regain security along the Mekong and that
some essential convoys will get through.
(continued)
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Thus, they believe that a heavy airlift need
not be as prolonged as the Central Intelli-
gence Agency and the Department of State ex-
pect.*
--In either case, the risks to aircraft and
crews will be substantial, since Pochentong
airport would become even more of a priority
target for the communists.
Aside from this immediate supply problem, the
government's ability to get through the whole of
the dry season ending in August depends on its re-
ceipt of supplemental US military and economic aid.
--If no additional aid is forthcoming, the
military situation will deteriorate rapidly,
starting in late March or early April at the
latest. The economic situation will also
steadily worsen. In such a situation, pres-
sures against the government for a settlement,
even on communist terms, could become over-
whelming.
--If the Cambodian government receives addi-
tional aid in this fiscal year, it should be
able to get through to the end of the dry
season. But this situation would offer lit-
tle prospect of the government regaining the
overall initiative and would allow the commu-
nists to further consolidate their control
over most of the country.
--War-weariness is widespread in Cambodia and
increasing numbers of Cambodians are coming
to the belief that there is no relief in sight.
--The chances for a breakthrough on the nego-
tiations front are poor. Although they cur-
rently lack the ability to bring Phnom Penh
down by a frontal assault, the communists ap-
pear to have the incentive, tenacity, and ex-
ternal support to continue the war indefi-
nitely.
*The Department of the Treasury believes that the
estimate is not sufficiently clear regarding the
prospects for delivery of economic aid supplies
up the Mekong in the event the necessary funding
is provided.
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CYPRUS
The Turkish Cypriot declaration yes-
terday establishing a separate state pend-
ing agreement on a proposed Cyprus federa-
tion has prompted the Greek and Greek
Cypriot governments to refer the issue to
the UN Security Council. President Makarios
called the Turkish Cypriot action a "very
severe blow" to negotiations for a settle-
ment of the Cyprus problem
Turkish Cypriot negotiator Denktash, who is
president of the new state, conveyed his proposals
for a settlement to Greek Cypriot negotiator Clerides
and requested another session of the intercommunal
talks on February 17. His proposals presumably call
for a biregional federation with a weak central
government. The size of the proposed Turkish Cyp-
riot region and its share of the island's resources
is likely to be substantially larger than would be
commensurate with the Turkish Cypriot share of the
population, 18 percent.
The Turkish Cypriot actions are apparently in
response to the Greek Cypriot position paper sub-
mitted earlier in the week. It called for a multi-
regional federation and a strong central government
in which the total area controlled by Turkish Cypri-
ots would approximate their percentage of the popu-
lation. The Turkish Cypriots may now be trying to
take back the initiative and place the onus of
breaking off negotiations on the Greek side.
The Greek Cypriot proposals reflect President
Makarios ? belief that international pressure for
concessions by the Turkish side will fade if the
talks drag on inconclusively. Makarios has been
pessimistic about the outcome of the talks for some
time and had threatened to internationalize the
issue if no progress were made by the end of this
month. Proclamation of the separate Turkish Cypriot
state may convince him to abandon the talks alto-
gether, but Athens will probably want to examine
the Turkish Cypriot position paper closely before
breaking off the talks.
In the meantime, Turkish troops in the Nicosia
area were placed on alert in anticipation of a pos-
sible Greek Cypriot military reaction, While this
appears unlikely, demonstrations could occur within
the Greek Cypriot sector and threaten foreign dip-
lomatic missions,
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NOTES
Soviet General Secretary Brezhnev yesterday
made his first public appearance since December 24.
He joined Premier Kosygin and Foreign Minister
Gromyko at the Kremlin for talks with visiting
British Prime Minister Wilson and Foreign Secretary
Callaghan.
Brezhnev did not welcome Wilson at the airport, but
this was not required by protocol. Despite 51 days
out of public view, Brezhnev showed no unusual phy-
sical problems and acted as he usually does in such
situations for the media.
11.1ELLI plans to explore for oil in the Aegean'
have been temporarily set back.
Ankara has announced that it has canceled a
contract with a Norwegian seismic research company
because the owners refused to operate in disputed
territorial waters. Turkey is now preparing to
equip one of its own naval vessels for the job.
It is likely to take some time to outfit a ship,
however, and the delay will give Turkish and Greek
diplomats more time to defuse the issue. The for-
eign ministers of the two countries are to meet to
determine the specific questions that will be re-
ferred to the International Court of Justice.
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59.56
OPEC
FOREIGN
Billion
5.70
US$
013
0.29
OFFICIAL
6.37
0.14
0.32
7.44
ASSETS
0.23
0.22
11.59
0.44
15.67
0.40
21.12
0.61
17.40
Other
Producers
Nigeria
Iran
Venezuela
Kuwait
Saudi Arabia
4.11
6.72
7.69
8.60
7.64
6.16
15.04
116
4.76
2.45
0.98
4.48
1.76
3.10
2.39
0.64
3.48
1.88
1.54
4.68
111.1.11111?11?111r
2.52
0.93
0.94
1.04
1.60
1.80
0.78
1.96
0.89
2.89
1.69
0.87
1968 1969 1970 1971 1972 1973 30 September 1974
565050 2.75
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OPEC INVESTMENT POLICIES
We present below an analysis of in-
vestment policies and the distribution of
the foreign official assets of the Organ-
ization of Petroleum Exporting Countries'
member, states in 1974. Data for the fourth
quarter are still incomplete, but we have
detected no appreciable change in the pro-
portional distribution of assets, their
location, or the currencies involved. We
estimate that in the fourth quarter OPEC
foreign official assets increased some
$20 billion to $80 billion.
The international investment patterns of in-
dividual OPEC states are quite similar, despite po-
litical, religious, and geographic diversity, and
sharp differences in the size of holdings. Their
wealth is concentrated in liquid assets, primarily
dollar denominated, and is located in the financial
markets of the major developed countries, partic-
ularly in London and New York.
The similarity in investment pattern is due to
a common external environment and shared investment
goals, including:
--Insuring holdings against political seizure;
--Maintaining--or increasing--the real value
of assets; and
--Retaining effective control over investments.
Asset Composition
Almost all of the OPEC members' wealth is in
highly liquid assets. Bank deposits--predominantly
with maturities of less ?than 90 days and often over-
night or on demand--account for about 65 percent of
the total. On September 30, OPEC's bank holdings
approached $40 billion. This is far in excess of
short-term requirements, but bank deposits are rela-
tively safe, easily managed, and can be channeled
through intermediaries to make seizure unlikely.
Moreover, in 1974 the return on short-term instru-
ments was higher than that on many longer maturity
assets.
(continued)
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Another 20 percent of OPEC foreign wealth is in
government securities, largely US government issues.
While subject to greater risk of seizure, government
securities are financially secure and easily managed.
The type of asset held varies little among
producers. Countries with higher-than-average ab-
sorptive capacities for imported goods, such as
Indonesia, Iran, and Venezuela, have a somewhat
larger share of their holdings in the most liquid
assets--bank deposits and government securities.
Even Kuwait and Saudi Arabia, however, with very
large foreign balances relative to foreseeable ex-
change requirements, maintain more than 75 percent
of their holdings in such assets.
Asset Location
The wealth of the OPEC states is located pre-
dominantly in financial markets of major developed
countries. Holdings in London, including the Euro-
currency market, and New York account for about 65
percent of the total. At the end of September,
OPEC members had invested about $25 billion in the
UK and about $15 billion in the US. Most bank hold-
ings are in London because of generally higher in-
terest rates there, particularly on short-maturity
deposits. The share of assets in the US declined
during the oil embargo, but has since grown consid-
erably. About 25 percent of the OPEC states' for-
eign assets is located in continental Europe and
Japan; half of this is in Switzerland. About 5 per-
cent is held through the International Monetary Fund
and the World Bank.
Most OPEC states hold more than half their as-
sets in London and New York--except Algeria, Ecua-
dor, Iraq, and Libya. Algeria, because of its ties
to France, keeps a large share of its holdings in
Paris. Ecuador, with relatively few foreign assets,
is believed to rely on the Caribbean and Central
American dollar markets. Iraq is unique among the
OPEC states, having substantial investments in com-
munist countries, as well as in Switzerland and
West Germany. Libya, which for political reasons
sold off most of its sterling in 1972, is believed
to concentrate its investment in Switzerland and
other continental European countries.
Currency Composition
About 70 percent of OPEC's foreign assets are
dollar denominated. Dollar holdings totaled more
than $40 billion on September 30. Producers appar-
ently prefer greater diversity, but a number of
(continued)
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factors have discouraged investment in assets de-
nominated in other currencies. Investment in German
marks and Swiss francs has been inhibited by capi-
tal controls and limited market size. Investment
in most other currencies, including sterling, has
been limited by concern over future value. The
dollar market is presently the only market of suf-
ficient size, depth, and openness to satisfy invest-
ment objectives.
Sterling, the other major reserve currency,
accounts for another 10 percent of the wealth of
OPEC members. Sterling's share declined through
the first nine months of 1974 as British economic
conditions deteriorated and uncertainty about the
pound grew. On September 30, the sterling invest-
ment of OPEC states totaled about $6 billion.
About 15 percent of the wealth of OPEC members
is in other currencies, largely German marks and
Swiss and French francs. Only 5 percent is in gold
and International Monetary Fund assets, including
the Fund's oil facility. No OPEC state has sought
to increase its gold holdings significantly.
Most OPEC states hold at least 70 percent of
their wealth in dollars and 10 percent or less in
sterling. The sterling area countries?Kuwait and
Nigeria--keep a larger share of their holdings in
sterling. The radical Arab states--Iraq and Libya--
hold more of their wealth in assets denominated in
currencies other than the dollar or sterling.
Prospects and Implications
During 1975, the wealth of OPEC states will
increase by about $60 billion to $140 billion, as-
suming oil prices and production remain near pres-
ent levels. Barring a new war in the Middle East,
major shifts in the distribution of existing assets
of OPEC states are highly unlikely.
The share of longer maturity assets will prob-
ably increase in 1975 as short-term interest rates
continue to decline, and OPEC countries gain in-
vestment experience. Purchases of government secu-
rities should rise, and a number of countries may
establish investment funds or offices designed to
invest more heavily in loans, equities, and real
estate.
The US, because of the size and depth of its
financial market, will continue to attract OPEC
investors unless a new Arab-Israeli war increases
(continued)
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the perceived risk of seizure. Direct loans, par-
ticularly in return for technology and other de-
velopment assistance, will absorb a larger share
of the surplus of OPEC states than in 1974--likely
recipients include France and Italy. OPEC member
investment through international organizations will
also grow as a number of multilateral recycling pro?
-
posals now under discussion are implemented.
Changes in the currency denomination of the
holdings of OPEC states will reflect decisions
about the composition of new investment rather
than a change in present holdings. Size and depth
of the market will continue to be a primary crite-
rion. This assures that most assets of OPEC mem-
bers will be dollar denominated. Interest rates
and expectations about exchange rate movements,
however, will also be considered.
Dollar holdings throughout the world will
probably total nearly $100 billion by the end of
1975. The share of the OPEC states' investment
in sterling should decline so long as the pound
continues to appear overvalued. The potential
for shifts away from the dollar and sterling is
limited by the fact that countries such as West
Germany and Switzerland would tighten capital con-
trols rather than allow a major influx of funds
from OPEC countries.
There is little prospect that changes in in-
vestment patterns will ease the recycling problem
significantly. A shift to longer term assets by
OPEC members will not increase private lending
to needy countries because such loans are mainly
limited by their high risk. Direct lending to
importing countries will contribute to recycling
but is likely to cover only a fraction of the
deficits of hard-hit countries like Italy.
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