NATIONAL INTELLIGENCE BULLETIN

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• Document Number (FOIA) /ESDN (CREST): 02992533
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• Document Page Count: 12
• Document Creation Date: December 28, 2022
• Document Release Date: December 12, 2018
• Case Number: F-2017-02496
• Publication Date: October 31, 1977

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NATIONAL INTELLIGENCE DAILY CABLE
Monday 31 Octohpr_1977 cr, NTD( 77/2S20
NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
e
(Security Classification)
Classification)
E2 IMPDET
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Ob)(3)
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The National Intelligence Daily Cable is prepared in the
Central Intelligence Agency in cooperation with the other US
foreign intelligence organizations.
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National Intelligence Daily Cable for Monday, 31 October 1977
Classification abbreviations precede
each paragraph. The NID Cable is for the purpose of informing
senior US officials.
CONTENTS
ISRAEL:
Reform Package
Page
1
DENMARK:
Foreign Minister Visits
Page
3
FRANCE:
Left Alliance
Page
5
FRANCE-POLARISARIO: Kidnaping
Page
7
BRIEFS
Page
8
Namibia - South Africa
Surinam
TO ET
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J. No."
(b)(3)
ISRAEL:
Reform Package
The Israeli Government's new economic
austerity and
30 years of
(b)(3)
reform program marks a sudden shift away from
socialist-oriented policies. Prime Minister Begin and his
opponents recognize that the government faces a major test
of
its political
strength over the new program.
The principal measures in the program allow the Is-
(b)(3)
rae
i pound
to float freely and remove most foreign exchange
restrictions. Israelis can now hold as much foreign currency
as they desire at home and take limited quantities outside the
country. The government also increased fuel prices by 25 per-
cent--bringing gasoline to $2.40 a gallon--and increased the
value
added tax on business by 50 percent.
Finance Minister Ehrlich estimates
that the Israeli
(b)(3)
pound
will
drop from 10.4 to 15 per US dollar and that the rate
of inflation will jump to 35-40 percent--some 10 percent above
the rate expected this year. Prices of basic subsidized commod-
ities such as bread, eggs, milk, frozen meat, electricity, and
public
transportation
are expected to rise by 15 percent.
The government hopes the program will make Israel more
(b)(3)
attractive
to foreign investors. Ehrlich believes that some $3
billion illegally held by Israelis abroad will flow back to
Israel. The government has periodically devalued the pound by
small amounts, and tense minidevaluations may have eroded
confidence in the pound. Devaluations have reduced the value
of the pound from 25 to 10 cents since 1974, one of the largest
currency
changes undertaken by any country in recent years.
Since 1948, Israel essentially has had a socialist,
(b)(3)
labor
-oriented
economy, with strict restraints on the use of
foreign exchange and high consumer subsidies. Moreover, the
Histadrut labor organization owns or controls most of Israel's
major
industries.
Begin is billing the program as a legitimate reform
(b)(3)
that was launched at a time when the economy was recovering
fairly well. Opponents--the Labor Party and the Histadrut--have
attacked the measures as overly austere. They claim that the
1
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Gross National Product is increasing at a desirably moderate
rate and that earlier devaluations, price hikes, and subsidy
cuts already have limited gains in real wages or consumer pur-
chasing power.
We do not expect the program to seriously affect the
economic recovery now underway. We estimate that GNP is cur-
rently rising at about a 5 percent rate. The GNP rise is led
almost entirely by exports, which now equal nearly half the na-
tional product, and the pound float should further stimulate ex-
port industries. Industrial production rose 9 percent during
the first half of this year compared with second half 1976, and
the improvement continued into the third quarter. Inventories
are being worked down, and new investment in plants and equip-
ment has picked up.
The new program will enable Israel further to improve
its balance-of-payments position. We estimate that Israel will
have a $2 billion current account deficit this year--a deficit
which will be more than covered by US assistance and other cap-
ital inflows. Israel should have a $350 million overall surplus
to add to reserves or to reduce short term debt. With further
improvement expected next year, Israel should finally reach a
comfortable reserve position.
The main obstacle to both the reform program and re-
covery efforts is labor. The Histadrut has announced that it
will seek immediate wage compensation for the cost of living
hike and said that it will be hard-nosed when new wage packages
are negotiated in January. More than a "catch up" wage increase
would jeopardize Begin's effort to hold down inflation and achieve
stability of the pound. Protest strikes called by the Histadrut
began yesterday with brief walkouts by postal and communication
workers. Longshoreman have slated a stoppage for today.
The Israelis are beginning to run into serious labor
shortages, which are constraining economic growth. These short-
ages result from the continuing priority the Israelis place on
military manpower requirements, the rising net emigration of
Israeli citizens, and the departure of West Bank Arabs for higher
paying jobs in Jordan and the oil rich states. Without an easing
of the military burden, Israel will not be able to return to the
pre-1973 average growth rate of 10 percent.
2
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The Begin government faces a major test of its politi-
cal strength over these measures, which both the Prime Minister
and his opponents realize could have far-reaching economic and
political ramifications. The badly divided Labor party leader-
ship and its allies in the Histadrut feel especially threatened;
they justifiably believe that these moves are only the first
in a government effort to dismantle the socialist sector of the
economy.
As a result, Labor leaders have temporarily closed
ranks and called for protest demonstrations and more strikes
to force the government to back down, or at least to refrain
from taking further steps they oppose. If they fail, they know
Begin is likely to attempt more direct moves to weaken the His-
tadrut, and by extension the Labor party.
Begin's endorsement of the program has also created
some dissatisfaction within the governing coalition, especially
in his own Herut party. David Levy, a Herut leader, was the only
minister in the cabinet to vote against the economic reform
package. Herut leaders believe that their poor, working class
constituents will bear the brunt of these measures and that
Finance Minister Erhlich, the architect of the reforms, and
his Liberal party business-class constituents will benefit the
most. Although still under Begin's firm control, Herut leaders
are also unhappy about being cut out of important foreign and
economic policy decisions by the prime minister.
DENMARK: Foreign Minister Visits
Danish Foreign Minister Andersen arrives in Washington
today for a three-day visit. In talks with US officials, Ander-
sen hopes to set the stage for greater US-EC cooperation in
1978, when Denmark assumes chairmanship of the EC for the second
time. The Foreign Minister will discuss US-EC cooperation on
various political and economic issues and will exchange views
on NATO and energy problems.
Andersen has long advocated closer US-EC relations,
and he will work to prevent confrontations between the EC and
US. Noting the close correspondence of US and Danish interests,
Andersen wants to be informed of US views well in advance of
meetings among the EC political directors.
3
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Conflicts between the US and EC are most likely to
develop over energy issues. Andersen will probably seek US
views on nuclear waste disposal. He may also urge the US
to push energy conservation in order to reduce reliance on
oil and the bargaining power of the Organization of Petroleum
Exporting Countries.
Andersen and Danish Prime Minister Jorgensen have re-
cently sought to enhance Denmark's image within the EC. Both
stress that Denmark should place less emphasis on purely na-
tional goals and work more to foster Community goals. As a re-
sult, Denmark has been able to minimize frictions with other EC
states, particularly Great Britain.
Many Danes, however, feel the government is caving in
to EC pressure at the expense of Danish interests. The most
recent poll shows that only 33 percent of the populace support
Danish membership in the EC; when Denmark joined the EC, 60
percent of the Danes favored membership.
The growing number of anti-marketeers in the Social
Democratic Party presents Andersen and Jorgensen with a
serious problem. Without the full backing of his party, Jorgen-
sen probably cannot count on the non-socialist parties to con-
tinue to support his minority government. Andersen, then, could
face a situation similar to that of 1973 when his term at the
EC helm ended prematurely after elections ousted his party from
power.
Andersen's political career began with his election
to parliament in 1957. After serving in parliament for 13 years,
he resigned to become secretary general of the Social Democratic
Party. He won a reputation as a superb administrator and party
strategist, and his organizational reforms and ability to mo-
tivate others largely accounted for the Social Democrats' sur-
prising gains in 1971. Andersen became Foreign Minister when
former Prime Minister Krag formed a government in 1971 and has
since served in three cabinets headed by Jorgensen.
Andersen is a staunch friend of the US, although he
criticized the US role in Vietnam. He sees NATO as the pillar
of Danish defense, and backs US positions on detente, disarma-
ment, and human rights.
4
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(b)(3)
He has come under criticism in Denmark for stating that (W(3)
the West should have pre-empted the Cubans in Angola by support-
ing the liberation movement headed by Angolan leader Neto. An-
dersen probably explained these remarks to Cuban President Cas-
tro, whom he met while visiting Cuba over the weekend. He was
the first foreign minister of an EC member-state to visit Cuba.
FRANCE: Left Alliance
//Tactical maneuvering within the French
Left Alliance continues. Each party is trying to expand its
partisan electoral terrain while paying Zip service to the now
defunct Common Program. The left is certain to be defeated in
the election next March unless the parties formulate a simple
electoral agreement; the Socialists are pressing hard for one,
but the Communists have refused to commit themselves. Communist
Leader Marchais has said that the Communists are not "mere
votegetters" and that they may wait until the "very last mo-
ment"--presumably after the first round of balloting next
spring--to decide whether to support better placed leftist
candidates on the second ballot.//
//The Communists are likely to take sound-
ings at their party convention next January before deciding
whether to give the Socialists the strong parliamentary base
that their support will ensure.
public signs that the Communist leaders are having a
hard time selling their intransigent line to the roughly 50 per-
cent of the party members who joined the party after 1972.//
//If the Communists do not accept an elec-
toral accord, both they and the Socialists could lose many seats
in parliament. The Communists, who now have 73 seats, could wind
up with only about 25, while the Socialists, who now have 102
seats, could have only 70. These losses would occur even if some
Communists ignore party orders and vote for the Socialist candi-
dates on the second round. Under such circumstances, a Socialist-
led minority government--a prospect the Socialists have been
discussing recently--would appear unlikely.//
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//Marchais would almost certainly be held
responsible for so thoroughly torpedoing the Left's chances,
and it is hard to see how he could survive as leader of the
Communist Party.//
//The Socialist party is on the defensive
for the first time in its long struggle with the Communists for
control of the Left. Even so, the Socialists can take solace
from the fact that the party has closed ranks and is holding
firm against Communist attacks. In a rare display of solidarity
this month, the party's left wing, which frequently supports
Communist views, agreed with the majority on a joint motion
concerning party policy to be presented to the party convention
in December.//
//Both the Socialists and the Communists
have launched extensive propaganda campaigns to justify their
position to their supporters. The Socialists are emphasizing
loyalty to the Left Alliance and the original Common Program.
The Communists, meanwhile, continue to attack the Socialists;
their latest charge is that the Socialists are trying to expand
the role of capitalism in the French economy.//
//If the warring parties can eventually sign
an electoral accord, the distribution of the votes in the first
round and the deals that are struck to divide the votes in the
second round are likely to decide what promises to be a close
election.//
//The Socialists believe that ecology issues
and the Jewish electorate could be crucial in some districts in
the first round. the
Socialists will stress positions in favor of ecological measures
and their support for Jews in the USSR to expand their first-
round vote.//
//The campaign for the ecology vote has al-
ready begun; Socialist leader Mitterrand called earlier this
month for a moratorium of 18 months to two years on the con-
9truction of new nuclear plants. The Jewish electorate (about
700,000 voters, according to a recent census) has no particu-
lar love for the Socialists, but it can be expected to vote
against the governing coalition's pro-Arab Middle East policy.//
TO
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//Most seats are distributed in the crucial
second round. In the past the disposition of votes has usually
involved the transfer of 90 percent of Communist votes to So-
cialist candidates who are leading, and about 60 percent of
Socialist votes to the leading Communist candidates. If such
a transfer takes place, the Left Alliance has a chance of
winning a small parliamentary majority in March. Recent polls
show, however, that an increasing number of Socialists and
Communists are unwilling to transfer their votes on the second
round because of mutual suspicions; they prefer to abstain or
even vote for the governing coalition.//
//The governing coalition has wisely con-
trolled its jubilation over the Left's disarray. Now that the
possibility of a Left victory is much less certain, there will
be a temptation for the center-right to resume its quarrels,
refuse to shift its votes in the second round, or sink into
apathy. With the election still 5 months away, it now appears
that the contest will probably be decided in 100 or so key
districts where the personal quality of each candidate, as
well as party discipline, will play a key role.
FRANCE-POLARISARIO: Kidnaping
The French government has reacted sharply to the kid-
naping last Tuesday of two more French citizens by the Polisario
guerrillas in Mauritania. Following a cabinet meeting on Thurs-
day, Defense Minister Bourges stated that the government ex-
cluded no means to get the hostages back. The Algerian govern-
ment, which backs the guerrillas, has denounced the statement,
but the Algerians have also offered to aid in negotiations.
Thirteen Frenchmen have disappeared in Mauritania since
1976; they presumably were kidnaped by the Polisario. The French
media have been pressing the government to do more to obtain the
release of the men, and the latest kidnapings have embarrassed
the government and forced it to make a dramatic gesture.
The French Government does not believe that direct
rescue operations are possible, both for technical reasons and
because of France's delicate political relations with Algeria.
7
PAA7P�ST.-GRE_T
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France has decided instead to send air-
craft to Morocco to help in the fight against the Polisario.
No details on the number or type of the aircraft are available.
The French hope that assisting Morocco will induce Algeria to
aid in obtaining the release of the prisoners.
Algeria has reacted angrily to French hints of inter-
vention and issued a veiled warning that bilateral relations
will suffer if France becomes more deeply involved in the Saha-
ran conflict. The Algerian Foreign Ministry, however, tried to
calm the situation over the weekend by suggesting that Paris
use international and humanitarian channels employed in prev-
ious incidents.
BRIEFS
Namibia - South Africa
South Africa has reported a new outbreak of fighting
between its military forces and guerrillas of the South West
Africa People's Organization along the Angolan-Namibian border.
According to an official communique, 61 guerrillas and five
South African troops were killed in a 36-hour battle that ended
on Saturday.
Surinam
Surinam's Prime Minister Henck Arron and his predomi-
nantly black ruling National Party Combination coalition face
a serious challenge in today's parliamentary election from East
Indian patriarch Jaggernath Lachmon and his United Democratic
Parties coalition. This will be the first election since Surinam
gained independence from the Netherlands nearly two years ago.
The campaign's major issue has been how Surinam can best spend
the over $1-billion assistance package promised by the Dutch
at the time of independence. Neither Arron nor Lachmon is in-
clined to alter the status quo in Surinam nor to threaten Alcoa's
subsidiary Suralco, which constitutes the major US investment
in the country.
8
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