THE PRESIDENT'S DAILY BRIEF 21 JUNE 1976

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006015142
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 15
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: June 21, 1976

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The President's Daily Brief
June 21, 1976
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Exempt from general
declassification schedule of E.O. 11652
exemption category 5B( 1),(2).0)
declassified only on approval of
the Director of Central Intelligence
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June 21, 1976
Table of Contents
Lebanon:
(Page 1)
Fighting picked up over the weekend near Beirut and else-
where. (Page 2)
Iraq-Syria:
(Page 2)
Saudi Arabia - Egypt - Syria:
(Page 3)
Jamaica: Prime Minister Manley's imposition of a state of
emergency will probably be aimed chiefly at his political
opposition. (Page 4)
Notes: Vietnam; South Africa; Italy (Pages 6 and 7)
At Annex we review the serious economic problems in Italy.
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LEBANON:
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Fighting intensified
yesterday as Syrian
forces attacked Pales-
tinian and leftist posi-
tions near Beirut and
in central and southern
Lebanon.
IRAQ-SYRIA:
According to the US embassy in
Beirut, the current situation sug-
gests both sides are preparing for
increased fighting. The Syrians
are said to be expanding their
positions south of Ayn Sawfar on
the road to Damascus. The Pales-
tinians reportedly are mining
roads in the Syrian path.
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--continued
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SAUDI ARABIA - EGYPT -
SYRIA:
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JAMAICA: The state of
emergency imposed by
Prime Minister Manley
on Saturday will proba-
bly be directed prima-
rily against the oppo-
sition Jamaica Labor
Party. Press reports
indicate that several
opposition leaders
have already been ar-
rested.
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Manley attributed his action to
the need to combat spiraling vio-
lence and resulting economic de-
cline. Gang warfare between armed
supporters of the two political
parties has turned the slums of
Kingston into a battle zone, and
crime is rampant. Last week, the
Peruvian ambassador was killed in
an apparent robbery attempt.
--continued
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Manley's reference in a brief state-
ment to "false allegations" and
"rumor mongering" detrimental to the
government may have been directed at
the US. He has charged repeatedly
in recent weeks that the US is en-
gaging in a campaign to "destabi-
lize" Jamaica.
Manley asserted that the state of
emergency will not interfere with
the national elections that must
be held before next spring. He
seemed to imply, however, that it
will remain in force at least un-
til then. He made little effort
to allay fears that it will be en-
forced in a partisan manner.
--continued
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New measures decreed
in South Vietnam since
the national elections
on April 25 strongly
suggest that the rela-
tively lenient treat-
ment of uncooperative
elements will soon end.
Most foreign observers
have left Saigon.
The South African gov-
ernment's country-wide
ban on demonstrations
expressing sympathy for
those killed and injured
in last week's riots
seems to be effective.
NOTES
The new measures provide for severe
punishment, including the death
penalty, for persons who have vio-
lated the regime's economic and
security regulations, served as
"lackeys" of the US, or deliber-
ately fled to foreign countries.
A debate has developed within Viet-
nam as to the pace at which the
Communists should consolidate their
hold on the south. Public commen-
taries indicate that the issue re-
mains contentious, with Communist
authorities from the south tending
to advocate the gradual approach.
For the time being, those favoring
a faster pace clearly hold the up-
per hand.
No serious clashes have been re-
ported in the black residential
areas around Johannesburg since
Friday. Casualties--mostly black--
probably have exceeded 100 dead
and 1,000 injured.
The UN Security Council on Saturday
passed a resolution by consensus
condemning the South African gov-
ernment's use of violence and call-
ing upon Pretoria to move quickly
to end racial demonstration.
--continued
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Voting for the new Ital-
ian parliament will end
today at 8 a.m. EDT.
In the first day of voting yester-
day, 76.3 percent of the elector-
ate--including an estimated 400,000
emigrant workers who returned to
Italy to vote--cast ballots. Al-
though fragmentary returns may be
available this morning, the final
official tally, including the dis-
tribution of seats among the par-
ties, will not be known until to-
night or tomorrow morning.
--continued
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ITALY
The post-election government will in-
herit an economic situation worsened by
years of neglect. In Italy's fragmented
political system, no party has had the
power or the determination to impose the
austerity needed to deal with the coun-
try's economic ills.
Center-left governments largely have ignored the ma-
jor structural and institutional defects that under-
lie Italy's economic difficulties and magnify cycli-
cal downturns. These defects, which defy short-
term solutions, include:
--Chronic underuse of labor.
--Inadequate social services.
--Limited financial markets, handicapped by
regulations designed to accommodate the fi-
nancing of the public debt.
--Persistent regional income gaps between
North and South.
--The increasing dependence of investment and
production on debt-ridden state enterprises.
--A cumbersome and inefficient fiscal system.
Because of the political power acquired by Italian
labor unions, the proportion of national income ac-
cruing to wage earners rose from 56 percent in the
late 1960s to more than 70 percent last year.
Since 1970, unit labor costs have climbed 16 per-
cent annually, the highest rate among major indus-
trial countries.
The sliding scale--Italy's mechanism for linking
wages to prices--makes it practically impossible to
reduce the real earnings of workers. Instead,
prices and wages have been locked in an inflationary
spiral.
The Lira and Inflation
The fruits of Italy's patchwork policies have been
a weak lira and rampant inflation. Following the
--continued
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imposition of the import deposit scheme in early
May, the lira has hovered in the 840-860 range
against the dollar, holding the trade-weighted de-
preciation of the lira since mid-January to 20 per-
cent.
As a legacy of the vain battle to save the lira,
the new government will inherit an estimated for-
eign debt of $16 billion. New lines of credit es-
tablished through the European Community and the
Bank of International Settlements in May will raise
that figure $1.1 billion.
This year alone, Rome is scheduled to repay $3.5
billion in interest and principal. The largest re-
payment due is $2 billion to West Germany on a 1974
gold-backed loan.
Although lira depreciation has restored the competi-
tiveness of Italian exports to 1973 levels, it has
so far done little to benefit the trade account.
The seasonally adjusted deficit for the first four
months of 1976 totaled $1.3 billion, compared with
$1.2 billion in September-December 1975.
Inflation, which averaged 17 percent in 1975, has
accelerated to a 30-percent annual rate, as lira
devaluation has boosted costs of imported fuels and
foods. Monthly jumps in the February-April whole-
sale price index are the largest changes since the
1973-1974 oil price hikes.
On the positive side, the recession apparently is
over. After dropping 9.7 percent last year, indus-
trial output has risen 10 percent (seasonally ad-
justed) since December. Italian exporters are seek-
ing new orders, eager to sell now before the rising
costs of labor and imported raw materials can erode
the benefits of the lira's fall.
Unemployment
Despite the rise in production, unemployment con-
tinues to creep up. Because union strength and la-
bor legislation have made it difficult to lay off
workers, unemployment officially is only 3.5 per-
cent. The total number of workers employed less
than full time, however, increased 27.6 percent in
1975. These workers comprise 5.6 percent of the
labor force.
--continued
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The large number of young people among the unem-
ployed--wooed successfully by the nondemocratic
parties--represents a dangerous element of social
discontent.
The Post-election Period
Economic events after the elections cannot be pre-
dicted with any certainty. The key to economic de-
velopment will be the reactions of Italian business-
men and foreign creditors, both of whom will be
jittery. The longer it takes to form a government
and the greater the role given the Communists in
that government, the larger the outflow of capital.
If the election results in a new center-left govern-
ment with indirect Communist participation, only a
marginal shift in Italy's social and economic orien-
tation would occur.
With Communists excluded from key ministerial posts,
foreign and local businessmen would feel assured
that nationalizations or stringent planning guide-
lines would be unlikely. Many would view Communist
support from outside the government as a means of
enhancing the ruling coalition's credibility. Under
these circumstances capital flight probably would be
short-lived.
With the Communists sharing at least partial respon-
sibility for government actions, the Socialists
would be more inclined to join with the Christian
Democrats in an effective austerity program. The
Communists, moreover, might convince the unions to
accept some type of voluntary wage restraint. The
price of Communist support for such a program prob-
ably would involve revision of spending priorities
in favor of improved social services, tougher taxa-
tion of income, and a greater say for labor unions
in private investment decision.
Whatever the election outcome, economic recovery
will have to proceed slowly. Public investment in
social services and export demand seem likely to
provide the main impetus for growth. Precautionary
saving patterns, newly imposed taxes, and high un-
employment will restrain consumer spending, while
public operating expenditures are expected to rise
only slightly. Political uncertainty, substantial
spare capacity, and tight credit should keep pri-
vate fixed investment depressed.
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Top Secret
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