THE PRESIDENT'S DAILY BRIEF 26 JUNE 1975

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006014834
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 14
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: June 26, 1975

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The President's Daily Brief
June 26, 1975
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Exempt from general
declassification schedule of E.O. 11652
exemption category 513(1),(2),(3)
declassified only on approval of
the Director of Central Intelligence
tic di,
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FOR THE PRESIDENT ONLY
June 26, 1975
Table of Contents
India: The government this morning declared a state
of emergency and arrested scores of opposition
politicians. (Page 1)
Oil: OPEC's production decline appears to have
bottomed out; some OPEC ministers are having
second thoughts about abandoning the dollar
as the unit of account. (Page 2)
Chile: President Pinochet is holding to a tough
line against resumption of any normal politi-
cal activity. (Page 3)
Notes: European Security Conference; USSR-Syria;
USSR; Peru (Pages 4 and 5)
Annex: At annex, we discuss growth prospects for
the rest of 1975 in the six major Western
economies.
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INDIA
Prime Minister Gandhi's government,
invoking the country's national security
act, early this morning declared a state
of emergency and arrested scores of op-
position politicians. The severity of
the crackdown is unprecedented in recent
years.
Among those arrested are J. P. Narayan, Prime
Minister Gandhi's foremost critic and leader of the
opposition; Raj Naraian, whose suit against Mrs.
Gandhi resulted in her recent conviction on charges
of corrupt election practices; and Morarji Ddsai, a
former deputy prime minister who broke with the
Ruling Congress Party in 1969.
Press accounts indicate that the arrests num-
ber over 100 and include communist as well as non-
communist politicians and at least one newspaper
editor. The arrests reportedly were made in sev-
eral areas of the country.
The opposition began demanding Mrs. Gandhi's
immediate resignation following the Supreme Court
justice's ruling on Tuesday that she could remain
in office, pending a decision of the full court
on an appeal of her conviction. Narayan and Desai
participated in a rally calling for her resignation
only hours before their arrest. Opposition leaders
had been planning a nationwide protest campaign to
begin this weekend.
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OIL
The decline in production by the
members of the Organization of Petro-
leum Exporting Countries appears to
have bottomed out. Demand for oil
probably is now running a little above
OPEC's production of 26 million barrels
a day. The difference is being covered
from company stocks.
We believe that production will continue at
the current level for the next month or two and
then rise sharply to meet the seasonal upswing in
consumption. If temperatures are normal, consump-
tion of the non-communist states will be about 6
million barrels a day higher in the fourth quarter
than in the second quarter for seasonal reasons
alone. As usual, about half of the increase prob-
ably will be met from stocks. OPEC production and
exports are likely to rise by 3 million barrels a
day by the fourth quarter to help meet seasonal
needs. OPEC production should rise still more when
economic activity in major developed countries
begins to turn up.
The coming surge in oil demand will have an
important psychological impact on OPEC countries,
since it should be under way by the time they meet
to decide on a price increase. At OPEC meetings
over the past year, members price expectations
have been tempered by the slump in oil demand aris-
ing from the recession in developed countries; a
growing market could inflate their price demands.
OPEC members may now be backtracking on their
recent decision to adopt the International Monetary
Fund's special drawing rights as the unit of account
for oil pricing, starting in the fourth quarter of
1975. Iranian Oil Minister Amouzegar, one of the
original proponents of the scheme, has indicated
misgivings, because a strengthening of the dollar
could result in a revenue loss. He stated, however,
that Tehran will not oppose a switch to the new
pricing system. Kuwaiti officials have expressed
similar reservations about pricing oil in terms of
special drawing rights. They, and perhaps the
Algerians, probably would prefer to peg oil prices
to a group of strong European currencies.
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CHILE
President Pinochet is holding to a
tough line against resumption of any nor-
mal political activity. His latest speech
indicates that the junta will brook no
criticism or opposition from any quarter.
Pinochet has said publicly that there will be
no election and warned that defiance of the ban on
political activity will lead the government to abol-
ish the surviving political parties.
Pinochet's main target is former president
Frei and the Christian Democratic Party. Frei ir-
ritated the government last month by criticizing
its economic program.
The sensitivity of government leaders to crit-
icism of their economic measures betrays their fear
that problems will worsen as winter intensifies
eo les hardshi s.
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NOTES
The EC foreign ministers on Tuesday responded
with a very qualified "yes" to Soviet party leader
Brezhnev's letter last week proF7FTWF a summit meet-
ing in Helsinki on July 22 to conclude the European
Security Conference.
The foreign ministers stated that it is "de-
sirable and possible" to hold the summit at the end
of July--if a number of outstanding issues can be
resolved quickly. If there is to be a summit in
July, the delegates in Geneva will be under pressure
to resolve the outstanding issues within a few days,
given the fact that the Finns have stated that they
will require four weeks noticeto complete prepara-
tions for the meeting.
Soviet party secretary Ponomarev's week-long
visit' to Syria, which ended yesterday, may have
been aimed at smoothing over differences between
the two countries.
The Syrians/
were dissatisfied with Moscow's inability to find
a solution to the Arab-Israeli problem. The So-
viets, for their part, probably feel that Syrian
President Asad is cooperating too closely with
Egyptian President Sadat and that this could lead
to a decline in Moscow's influence in Damascus.
The USSR is also likely to be uneasy about Syria's
recent grant of offshore oil prospecting rights
to a US company. The Soviets have not commented
on this arrangement, but they are probably con-
cerned that it could lead to further economic lib-
eralization and increased economic dealings with
the West.
(continued)
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Peru
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Developed Countries: Changes in Real GNP
TOTAL FOR SIX
FOREIGN COUNTRIES
1.1
0.7
1.5
-0.8
CANADA
2.9
-2.7
10
LEGEND
Percent change from previous period
Semiannual data at annual rates
Seasonally adjusted
10
1974 1975
Annual
FRANCE
3.9 3.5
1.6
-1.5
ITALY
3.4
4.0
?
kin
-0.8 -0.7
-3.4
JAPAN
0.4 0.2
-1.7
-2.5
UNITED KINGDOM
6.2
1.3 1.2
1.2
-0.4
566291 6-75
-3.3
1974 1974 1975 1975
II 1
Semiannual
4.8
-1.4 -2.0
3.0
4.0
-5.7
WEST GERMANY
-3.4
0.5 0.6 0.7
-1.9
-0.3
-3.9
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DEVELOPED COUNTRIES:
SHORT-TERM GROWTH PROSPECTS
The six major foreign Western econ-
omies--the UK, France, West Germany,
Canada, Italy, and Japan--can expect
little economic recovery through the end
of 1975. Even if the US economy should
grow at an annual rate of 5 percent in
real terms in the second half of the
year, as predicted by the secretariat of
the Organization of Economic Cooperation
and Development, the resulting rise in
US imports will not be enough to spark
an upturn abroad.
Inflation and payments problems are
still inhibiting expansionary action in
France, Canada, the UK, and Italy. West
Germany and Japan are moving cautiously
despite foreign and domestic pressures
to reflate.
We believe that economic activity in the six
countries will rise at an average annual rate of
1.5 percent in the second half of 1975, after de-
clining at a 2.5-percent rate in the first half.
Japan and France should lead with rates estimated
at 4.0 percent and 2.4 percent, respectively. Re-
covery is likely to be feeble in West Germany. and
Italy; a sizable drop in the British gross national
product is in prospect.
Industrial production plunged in the early
months o.f the year, while domestic demand appears
to have been constant. As a result, the excess
inventories built up last year probably were cut
substantially.
The production decline showed signs of level-
ing out in the second quarter, suggesting that the
worst of the inventory adjustment process had ended.
If so, the inching up in demand forecast for the
second half of 1975 would be reflected in a mild
upturn in production.
(continued)
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Private Consumption
Consumer spending during the remainder of the
year is unlikely to grow any faster than the 2-
percent annual rate estimated for the first half.
Although real household incomes are rising as
higher wage rates and unemployment compensation more
than offset inflation and growing unemployment,
consumers are holding down their spending because
of uncertain job prospects.
Consumer confidence probably will not improve
much until unemployment begins to decline. The
jobless rate is now about two thirds higher than
a year ago. The rise in employment expected in
the second half probably will be insufficient even
to absorb all new entrants into the labor force.
Government spending, source of one fifth of
aggregate demand among the six, should continue to
increase at about the same rate in the second half
of 1975 as in the first.. Some governments, notably
the Japanese, have quietly boosted purchases in
recent months. Others have made small budgetary
adjustments that will add to purchases later this
year. If government spending rises at the expected
rate of 5 percent, it almost certainly will be the
most dynamic component of demand.
Private capital spending, which fell at a 6.5-
percent annual rate in the first half, probably will
decline again in the second half. Because capacity
utilization rates are extremely low, government ef-
forts to stimulate private investment by lowering
interest rates and providing tax incentives are hav-
ing little effect. The decline in business spending
on plant and equipment could accelerate in West Ger-
many in the next few months. The 7.5-percent tax
credit offered by Bonn in the first half may have
prompted some advance spending that otherwise would
have taken place after midyear.
The Foreign Component
We expect a slight deterioration in net foreign
demand in the second half. Imports, after plunging
12.5 percent in the first half, probably will show
little change in the months ahead. Export volume,
down 10 percent in the first half, is expected to
show a further small decline.
(continued)
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A 5-percent growth rate in the US would in it-
self have little effect on exports and economic.
growth in other' major developed countries and even
though, the West Europeans. and Japanese_tend to exag-
gerate. the diredt effect. of US economic, recovery on
their domestic prospects, tentative signs of a break
in the US recession are doing littleto_improve their
confidence. Foreigniousinessmen are skeptical that
a strong pickup in_US.demand is.in:the offing.. Their
willingness tospend:and. invest:will:not get a lift
until the US recovery clearly is well under way.
Inflation is still viewed as a major threat in
most countries. Payments problems pose additional
constraints, particularly in Italy and the UK. These
considerations still outweigh political pressures
stemming from high unemployment rates. Realisti-
cally or not,.most governments appear to be waiting
for others--particularly the US--to initiate expan-
sionary.measures that will prod their recovery. The
reaction to a rise in foreign demand, once perceived,
would vary:
--Tokyo would be more apt to adopt stimulative
measures of its own if it felt that the result-
ing increase in Japanese imports would be off-
set by a rise in exports.
.--Bonn, more concerned about the trade-off be-
tween unemployment and inflation, would feel
less compelled to take expansionary steps if
it perceived that stimulus from abroad would
soon help revive the German economy.
---London, Paris, and Rome would welcome the
opportunity to deal more comfortably with their
"reflation versus:inflation" dilemma; on bal-
ance, their. reaction. would resemble Bonn's
more than Tokyo's.
Trends
Even if growth accelerates in the first half
of 1976, as seems likely, we believe that recovery
will be slower than from other recessions since
World War II. Underutilization of capacity and
low profits will remain an extraordinary drag on
investment.
(continued)
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The foreign component is unlikely to lead these
countries out of the recession. The sharp upturn in
government purchases or private consumer spending
needed to spark a swift recovery is unlikely to
occur. Governments will still be balancing conflict-
ing price and employment goals in deciding on addi-
tional stimulative action late this year and early
next. Price rises should continue to moderate in
the months ahead, but most governments fear that
strong measures could result in a resurgence of in-
flation, particularly since firms will try to im-
prove profit margins once given the chance. Dis-
appointing growth in the second half of 1975 proba-
bly will tip the scales in favor of cautious addi-
tions to government spending this winter.
A strong pickup in private consumer spending
would depend heavily on a reversal in psychology.
--Despite an abundance of pent-up demand, the
conservative German consumer will hold onto
money until employment prospects improve.
--A pronounced revival in spending could come
much sooner in Japan, where unemployment prob-
ably has already peaked and where the normal
attitude tends to be bullish.
--A recovery in demand in France, more con-
sumption-oriented than West Germany, could
spur investment spending relatively soon be-
cause capacity use has not sunk to the low
levels prevalent in other industrial countries.
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