THE PRESIDENT'S DAILY BRIEF 26 FEBRUARY 1975

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006014731
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 19
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: February 26, 1975

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The President's Daily Brief
February 26, 1975
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Exempt from general
declassification schedule of E.O. 11652
exemption category 5B( 11,0),(3)
declassified only on approval of
the Director of Central Intelligence
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FOR THE PRESIDENT ONLY
February 26, 1975
Table of Contents
Cambodia: The Khmer communists have launched a
major, push against Phnom Penh's southwestern
defenses. (Page 1)
Israel -Egypt:
several violations of the disengagement
agreement by the Egyptians, but none by the Is-
raelis. (Page 2)
Ethiopia: The Eritrean rebels are likely to re-
taliate against US interests if military aid
is extended to Addis Ababa. (Page 4)
Inflation: The price spiral in major foreign
developed countries shows signs of breaking.
(Page 5)
Iran-USSR: Moscow and Tehran have signed their
largest economic cooperation agreement to
date. (Page 7)
Notes: Portugal; Jordan-Oman (Page 8)
At Annex
Soviets1
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Luong
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CAMBODIA
The fighting around Phnom Penh is
spreading and the situation in the cap-
ital could soon become critical. The
Khmer communists have increased their
attacks against Phnom Penh's southwest-
ern defenses and pose a serious threat
to the army's main ammunition dump and
to Pochentong airport.
Almost all government units in the southwest-
ern sector have been engaged in heavy combat for
the past two days and a number of positions have
been lost. The Cambodian army high command has
committed some reinforcements to the front, but
relief operations are being stymied by stiff in-
surgent resistance--including some howitzer fire.
With the communists continuing to press the cap-
ital's northwestern defenses and with renewed fight-
ing occurring along the Mekong northeast of 'Phnom
Penh, the situation in the capital area could be-
come critical soon.
In the north, government troops yesterday
pulled out of the town of Oudong on Route 5, some
20 miles northwest of Phnom Penh. Oudong was re-
duced to ruins during heavy fighting last spring
and summer and has been only lightly defended
since mid-January. Most of Oudong's defenders ap-
parently withdrew to the nearby base at Lovek,
taking four 105-mm. howitzers with them. Lovek
is now the only major government position near the
Tonle Sap River between Phnom Penh and the provin-
cial capital of Kompong Chhnang.
Elsewhere, the Khmer communists are continu-
ing to shell the navy base at Neak Luong in the
Mekong River corridor, and civilian casualties
there are beginning to mount. Communist gunners
south of Neak Luong yesterday destroyed two navy
craft trying to resupply a beachhead which later
fell. The navy has been able to get supplies to
a larger beachhead nearby, however, and convoys
continue to reach Neak Luong from Phnom Penh.
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ISRAEL-EGYPT
(continued)
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The continuing construction of permanent SA-6
sites is such a blatant violation of the disengage-
ment agreement that it probably was undertaken with
political as well as military motives in mind. It
is doubtful that such an action would be the result
of an unauthorized initiative by the local commander.
President Sadat, who presumably authorized the
construction, may have done so as an indirect signal
to Israel and the US that his patience with the slow
pace of step-by-step negotiations is not unlimited.
He may also have taken this action to reassure Egyp-
tian military commanders who are worried lest a
breakdown in the negotiations leaves them vulnerable
to an Israeli attack. But there is really no satis-
factory explanation for a step that will inevitably
raise Israeli concern about Egyptian intentions and
strengthen the arguments of those who oppose further
Israeli withdrawals.
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ETHIOPIA
The Eritrean rebels--well aware of
the Ethiopian government's request for
additional military aid?are likely to
attempt to retaliate if the aid is forth-
coming.
The US naval communications facility in Asmara
is vulnerable to rebel attack. Its fuel supply
came under fire earlier this month when the rebels
attempted to prevent the fuel from being used for
Asmara's electrical generators.
Osman Saleh Sabbe, leader of one of the main
factions of the insurgent movement, has repeated
an earlier appeal to the US to stop providing Ethi-
opia with military supplies. Sabbe said yesterday
that Syria, the only major Arab country openly
supporting the rebel demand for complete independ-
ence, is ready to provide military training to the
Eritrean insurgents. It has long provided them
with arms.
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DEVELOPED COUNTRIES: Composite Price Trends (Excluding the United States)
(three month moving averages, seasonally adjusted)
3
M onthly
Percent
Change
Wholesale
Price Index
1973
565282 2-75
1974
DEVELOPED COUNTRIES: Price Trends
Monthly Percent Change
(three month moving averages, seasonally adjusted)
150
140
130
120
110
100
West Germany
Index: Dec 1972=100
WPI
1973
2
CP1
1974
United States
Wholesale
Price Index
Consumer Price Index
1973
1974
United
Kingdom
Canada
WPI
1973 1974
565267 2-75
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INFLATION
The price spiral in major foreign
developed countries, now almost three
years old, shows signs of breaking.
Increases in wholesale prices (in terms
of seasonally adjusted, three-month
moving averages) dropped in the last
half of 1974 to nearly zero. Moreover,
the rise in consumer prices eased to-
ward the end of the year, although the
rate of 12 percent was still uncomfort-
ably high.
Wholesale Prices
Wholesale prices have declined by 5 percent
in Japan since October, by 3 percent in France
since September, and by 1 percent in Canada since
November. In West Germany, Italy, and the US,
prices have been rising at a much reduced rate over
the past several months. Only in the UK have whole-
sale price rises recently accelerated--mainly be-
cause price controls were relaxed.
The break in wholesale prices stems primarily
from a fall in demand rather than a reduction in
cost pressures. While wage rates in such countries
as Canada, Italy, and Japan are still increasing
at a 20-percent annual rate, industrial firms are
no longer able to pass on all the added costs.
Consumer Prices
The continued rise in consumer prices reflects
mainly growing costs for food and services. In-
creases in food prices have recently accounted for
almost half of the consumer price rise in major
foreign economies. Growth in prices for manufac-
tured goods has slowed to a 4-percent annual rate
in recent months, down from the 15-percent rate of
last fall.
Recent declines in wholesale prices of indus-
trial goods should help slow the pace of consumer
price inflation in the near future. The easing of
world food prices will not be felt at the retail
(continued)
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level for several months--and then only if the de-
cline continues. Because stocks of most foodstuffs
remain tight, poor harvests would set off another
round of price hikes.
Wage Rates
Stiff increases in wage rates--the extreme
example being the recent 31-percent hike in the
pay of British coal miners--continue in spite of
depressed demand and rising unemployment. These
increases are attributable to the militancy of
various labor organizations, demands (or contract
provisions) for "catch-up" gains to match soaring
consumer prices, and the weakened resistance of
several insecure governments to inflationary wage
gains. Recent wage negotiations in Germany, how-
ever, resulted in comparatively moderate increases
of 7 percent per year.
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IRAN-USSR
Moscow and Tehran broke new ground
in yesterday's signing of an economic
cooperation agreement--their largest ac-
cord to date. The $3-billion deal was
probably agreed to in principle Last No-
vember during the Shah's visit to Moscow.
The agreement features the first Iranian credit
to the USSR, which is for construction of a paper
complex in the USSR to be repaid by the Soviets with
deliveries of paper products.
Significantly lacking in the announcement was
any reference to Soviet credits in connection with
Soviet-built projects estimated to cost over $2
billion. The $1.8-billion expansion in the Soviet-
built Isfahan steel mill called for in the recent
agreement presumably will be on a pay-as-you-go
basis.
The Isfahan plant, originally built with the
aid of Soviet credits, will eventually have a ca-
pacity of 8 million tons--over half the steel making
capacity currently envisaged by Iranian planners.
Otherprojects include .expansion of the Soviet-built
machinery plant at Arak, construction of electric
power plants, and erection of grain silos.
The announcement also reflected the two sides'
hope for a new five-year trade agreement of no less
than $2.5 billion. On an annual basis, this would
represent a 35-percent increase in their total trade
in 1973. It may involve an increase in the value
of Iranian exports of natural gas, and consumer and
manufactured goods to the USSR. Expanded Soviet
exports will include heavy machinery for projects
being built for Iran together with such traditional
items as cotton, hides, and clothing.
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NOTES
Portugal's major non-Communist parties are op-
posing some parts of the program of the Armed Forces
Movement designed to perpetuate its key role in the
government's decision-making process.
Continued disagreement could interfere with
the elections to the constituent assembly now set
for April 12. One of the points in the Movement's
program requires all political parties to reach an
understanding on certain minimum features of the
constitution before they will be allowed to partici-
pate in the campaign, which is scheduled to begin
on March 3. It is not clear how amenable the Move-
ment will be to changes in its program. In recent
months the Movement has allowed considerable debate
within its own membership, but once a decision is
reached it has grown accustomed to having that de-
cision accepted as final. Moderate parties run
the risk of having their opposition equated with
"reactionary" activity.
Jordanian forces and equipment promised by
King Husayn to assist the Sultan of Oman are be-
ginning to arrive there.
Initial elements of a special forces battalion
arrived on February 23, and the remainder should be
there in a few days. Thirty-one Hawker-Hunter
fighters are being sent this month and in March.
Four Jordanian pilots and a number of technicians
will assist the Omanis.
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SOVIET
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