WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A010700030001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 36
• Document Creation Date: December 21, 2016
• Document Release Date: July 15, 2008
• Sequence Number: 1
• Publication Date: February 1, 1974
• Content Type: SUMMARY

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low ~Me
Secret
Weekly Summary
DIA review State Dept. review
completed. completed
Secret
1 February 1974
No. 0005/74
Copy N2 59
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t inteiligence,reports and analyzes signif-
the week through noon on Thursday.
nomic Research, the Office of Strategic
norehensive treatme--nt and there-
Special Reports are listed in the
WJ , R IN 1N(
at security of the United States. within
18, sections 793 and 794, of the US
transmission or revelation of iis con-
CONTENTS (February 1,1974)
4
EC: From Floating to Drifting
5
International Money
i
9
Belgium: Revolving Governments
West Germany: Ostpolitik
Stumbles On
West European Communists Confer
EAST ASIA
PACIFIC
12
Indonesia: Political Aftershocks
13
Japan-China: Air Pact Moves Slowly
14
South Korea: Economy Faces Slowdown
WESTERN
HEMISPHERE
15
Bolivia: Peasant Protest Crushed
16
Grenada: An Inauspicious Beginning
17
Mexico: Promoting the Charter
18
Nicaragua: The Economy Recoups
MIDDLE EAST
AFRICA
19
The Saudi Hand in Yemeni Politics
19
United Arab Emirates: No Panacea
20
Cyprus: A Factor Removed
21
Turkey: The New Cabinet
SPECIAL
REPORT (Published Separately)
Malaysia-Singapore: Neighbors with
Different Perspectives
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"MOO, V L V R L 1 ti
THE MIDDLE EAST
DISENGAGEMENT PROCEEDS [Among problems probably dealt with and
pp rently satisfactorily resolved before disen-
1) 2 )Kilometerl0l this week became once again a gagement began was the construction, within the
mere marker on the Cairo-Suez road. The historic last three weeks, of five Egyptian surface-to-air
negotiating spot was returned to Egyptian control
on January 28 as Israeli forces completed the first
phase of their withdrawal from the Suez Canal's
west bank. The Cairo-Suez road and the city of
Suez were officially opened by the Egyptians on
January 29, thus lifting the three-month siege of
the city and of the encircled Egyptian Third
Army on the east bank.1
2, The withdrawal process formally began on
January 25 after the two sides had initialed a
detailed implementation agreement outlining the
timing of the several phases of disengagement
',.L- (Under the implementation accord, Israel's
withdrawal from the west bank will be completed
in stages by February 21, rather than February 12
as Israeli sources had originally announced. A
further pullback to the designated disengagement
line inside the Sinai Peninsula will occur by March
5. The Egyptians have carefully avoided public
mention of arrangements for a reciprocal thinning
of Egyptian forces, but the Israelis announced in
mid-week that the Egyptian Second Army had
begun moving some of its troops from the north-
ern sector of the east bank.
missile sites in the Second Army area. The sites,
capable of housing either SA-2 or SA-3 units, had
~.? not been occupied, but construction work had
continued after the disengagement agreement was
signed on January 18. The Israelis complained to
the US defense attache in Tel Aviv last week
about the Egyptian action, but the fact that they
later agreed to terms for the implementation of
the disengagement accord indicates that they
obtained some satisfaction from the Egyptians on
the issue
I 2__~ Both the Egyptian and the Syrian fronts
have been relatively quiet since disengagement
was agreed upon. The cease-fire on the Suez front
was reaffirmed as part of the accord, and viola-
tions dropped off markedly after it was signed.
No clashes were reported on the Syrian front
until last weekend, January 26-27, when the
Syrians initiated minor artillery duels with Israeli
forces that continued for five successive days)
FAHMI RETURNS FROM MOSCOW
k1 Egyptian Foreign Minister Fahmi and the
Soviet leaders sought to resolve differences during
Fahmi's visit to Moscow on January 21-24, but
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JCLF W1
Km
St Mi
NM
---- Line of limited Israeli forces
-?- Line of Israeli forces
.
28 lanuary * IMitla Pass
tl All Israeli forces to be
withdrawn to the east
rrtA_ f, March
Sir Jifjafah
Vacated Suez '
r'
probably did not achieve any lasting easing of
strains. 1'
The Soviets were primarily interested in
reassbrting Moscow's ascendancy as the super-
power champion of the Arab cause during nego-
tiations and in registering their displeasure with
Egypt's failure to permit 'them this role during
disengagement talks. Fahmi was chiefly interested
in mollifying the Soviets enough to avoid en-
dangering their support when Egypt needs it, but
without forfeiting Cairo's freedom to conduct its
affairs, particularly the negotiations, in its own
way 1
,Although the communique issued at the con-
clusion of the visit speaks almost exclusively of
the benefits of past Egyptian-Soviet cooperation
and the desirability of future coordination in
negotiations, the words were an inexpensive
gesture for the Egyptians. They are satisfied with
the role the US played during the disengagement
talks and are hopeful of constructive US efforts in
future negotiations, thus seeing no need at pres-
ent for Moscow's direct aid. Therefore, while the
communique calls for Egyptian-Soviet coordina-
tion at "all stages" of the Geneva conference, it
also emphasizes that this cooperation "cannot
inflict damage on anyone"-a clear reference to
the US and its role at Geneva.1
The Soviets take some satisfaction from the
irnag of closer coordination that the com-
munique presents, and they probably intend to
take advantage of Egyptian reassurances by
pressing for a greater role in planning Egyptian
strategy at Geneva. They are undoubtedly under
no illusions, however, that their fundamental dif-
ferences with Egypt have been resolved, and they
apparently made no concessions in the area of
military aid, where Egypt is most anxious for
Soviet assistance]
. Pc Jlhere were more signs from Damascus this
week that President Asad is preparing the ground
for Syria's eventual attendance at the Geneva
peace conference
Asad plans shortly to hold-a congress
of the National Progressive Front-an umbrella
organization encompassing all of Syria's major
political parties. At this meeting, Asad reportedly
intends to announce a long-awaited cabinet
change and to obtain approval for Syria's partic-
ipation in the peace talks. There have been
rumors recently that Foreign Minister Khaddam,
who is strongly opposed to negotiations with
Israel, is slated to be dropped from the cabinet,,
tSyria's minimum conditions for participating
in the Geneva conference are still unclear. Asad
will probably not commit his government until a
Syrian-Israeli disengagement agreement has been
worked out and the related Israeli POW issue has
been resolved. Tel Aviv has insisted that the
Syrians must at least hand over a list of their
Israeli prisoners of war before disengagement or
any other talks can begin. 1
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jt.- C r. he Syrians, still determined to use the
prisoners as a bargaining chip, have at times
linked the transmittal of a list to the return of
Syrian refugees to their homes in areas occupied
by Israel during the October fighting. At other
times, Damascus has taken a much tougher posi-
tion, insisting that, before it will yield on the
prisoner issue and engage in any talks with the
Israelis, Tel Aviv must first agree in principle to
negotiate a total withdrawal from the Golan
Heights.?'
ISRAEL: DOMESTIC POLITICS
) ( ;(-* jrhere was no respite for Mrs. Meir's care-
taker government during the past week. Critics
sniped at its foreign and domestic policies, eco-
nomic problems continued to plague the country,
and talks on the formation of a new coalition
government dragged on:]
iUD The opposition Likud called for an urgent
Knes et debate because of press reports that the
government was negotiating with Amman for an
Israeli withdrawal from the Jordanian West Bank.
itures in the face of the steep rise in the military
budget brought on by the October wary'
in spite of these and other difficulties, the
?75-y ar-old Mrs. Meir formally agreed on January
0 to President Katzir's request that she attempt
to form a new government. Under the law, she
j //will have 21 days to do so, with a 21-day exten-
sion if required. She may need it. Almost a month
of informal negotiating has not produced an
agreement between Mrs. Meir's Labor Alignment
and potential coalition partners. The National
Religious Party is still holding out for a firm
pledge that the next government will support
legislation establishing standards for conversion to
Judaism only in accordance with orthodox prac-
tice. The recent spate of rumors about negotia-
tions with Jordan could also be contributing to
the delay in reaching an agreement.
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According to an Israeli paper, Tel Aviv had also
agreed with Jordan to establish military and polit-
ical negotiating teams within a few weeks. A
government spokesman denied that any contacts
have occurred this year between Israeli and Jorda-
nian diplomats. The possibility of negotiations
with Jordan is an extremely sensitive political
issue in Israel. Likud strongly opposes the return
of the West Bank to the Arabs and so does the
National Religious Party, which Mrs. Meir needs
as a partner in a new coalition government.)
Likud's popular new Knesset member, Re-
serve General Arik Sharon, who led the Israeli
breakthrough to the west bank of the Suez Canal,
launched a strong attack in the press on the Israeli
military leadership and its performance during the
early days of the October war. He called for the
resignation of Chief of Staff Elazar and charged
that his own military career had been curtailed
for political reasons. The cabinet, expressing full
confidence in Elazar, roundly condemned Sharon
for his public attacks?
It,D The government this week took the polit-
icall unpopular step of reducing its subsidy for
some basic foodstuffs. The action caused a major
price increase in such items as bread, sugar, milk,
butter, eggs, fish, and riceel The move was
/ cprompted by Tel Aviv's desire to curb expend-
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SECRET Aft
the smaller countries that look to the community
to protect their interests. The Germans are the
best candidates to provide some leadership, but
they still exhibit hesitancy about using their in-
fluence, and their generally parsimonious ap-
proach is in sharp contrast with their ambitions
for the community. Nevertheless, in agreeing to
double its contribution to the regional fund, Ger-
many again stressed the need for closer economic
cooperation among the EC members. It will al-
most certainly make greater policy harmonization
a condition for resurrecting a common float or
changing its opposition to a pooling of commu-
nity monetary reserves]
. The present monetary disarray within the
EC contrasts with the members' awareness that
solidarity may now be more necessary than ever
in order to cope with the effect of increasing oil
costs on their balances of payments and their
widely varying debt and reserve positions. There
are calls from many quarters to revive monetary
cooperation by increasing the price of gold used
`3, in intra-EC transactions. The general idea is that
)t..jthis would make Germany's large foreign-
currency reserves available to the other countries
2 s for settling their payments with oil producers.
The EC Commission, France, Italy, and Belgium
have all expressed interest in exchanging gold
between national banks within the community,
and the British may also be interested)
France's decision to set the franc free from
the joint float of EC currencies continues to send
shock waves through the community. The deci-
sion of the Benelux countries and-outside the
EC-of Norway and Sweden to remain in a float
with Germany, has resulted in a Deutschemark
zone, symbolizing Germany's growing strength in
West European affairs]
z France, through its monetary action and its
recalcitrant attitude toward the contentious re-
gional development fund, has become increasingly
isolated. Bonn has been willing to increase As
contribution to the fund, which would principally
benefit the UK, Italy, and Ireland, and has there-
by succeeded in putting Paris on the spot.
l hrough bilateral approaches on the oil-supply
question, the British, like the French, seem bent
on giving priority to their national needs, how-
ever, and the Germans and Italians are now mov-
ing along the same path
}The community in consequence seems to be
drifting and directionless, a situation that disturbs
The gold-price question may be discussed by
the EC monetary committee next week, but reso-
lution of the problem is likely to depend on
developments at such international forums as
those on monetary reform and the energy crisis-
where the relationship between oil prices and
compensating monetary action by the consuming
nations will be discussed. The US, for example,
has been opposed to anything that would seem to
give gold a longer lease on life within the inter-
national monetary system, and this-or, at least,
the uncertainty of gold's future role-could be an
important factor in determining Bonn's attitude
toward the use of gold within the commu-
nity.
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Nawl SECRET `''
-a ~7)
fhe appreciation of the d llar since the
French decided to float the franc independently
has now been reversed in most European markets.
Only the franc and the lira remain below their
levels of January 18. Sterling has rallied, reaching
its highest point since January 4. The pound's
strength is due primarily to high domestic interest
rates rather than any significant improvement in
Britain's economic outlook.
The recent easing of controls on capital in
West Germany, Belgium, Switzerland, Canada,
Luxembourg, and the US is the major factor in
reversing the dollar's rise. Other European coun-
tries are likely to follow. Consequently, the dollar
should continue to weaken somewhat. Neverthe-
less, market reaction has probably been excessive
Percent Change In the Value of the US Dollar
Relative to Selected Foreign Currencies
Compared With January 2, 1973
10 -
because underlying economic conditions should
contribute to the dollar's long-term strength.
In Tokyo, the dollar has also drifted down-
ward, allowing the central bank to remain out of
the market for the fifth consecutive day. Discipli-
nary action last week against three of Japan's
biggest banks for speculating against the yen
helped ease the situation. Hints of oil price cuts, a
slightly more optimistic outlook for the Japanese
economy, and the removal of restraints on the
flow of capital out of the US have also played a
role. Heavy dollar sales by the Bank of Japan
earlier in the month probably left trading com-
panies and others with sufficient dollar hold-
ings.
I I I I I I I I I I I I I I I I I I I I I J__1_
Sep Oct Nov Dec 4 11 10 25 30
Jan
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King Baudouin dissolved the Belgian Parlia- 3 -2 The minor ethnic parties are the most im-
men on January 29 following the failure of Leo portant opposition bloc, and they will probably
Tindemans, leader of the Flemish wing of the continue to gain strength by appealing to Flemish
Social Christian Party, to form a new coalition. sand French-speaking ethnic sentiments. They will
Negotiations to form a new government-Bel- gnot, however, be in a position to shoulder their
gium's 22nd since World War II-will follow na- way into a coalition where their presence would
tional elections now set for March 10. j be strongly opposed by Socialists and Wallonian
' J Spurned by the Socialists, Belgium's second
Social Christians
largest party, Tindemans attempted to form a `3-)- -The political turmoil in Belgium does not
transitional government composed of his own appear to threaten US interests significantly, at
Social Christians, the Liberals, and three minor-) s least in the short term. Belgian positions on
ethnic parties. The primary purpose of this shaky NATO and the EC are unlikely to be affected by
coalition would have been to empower Parliament j election results. In the meantime, Leburton's
to enact reforms hastening the development of `I caretaker government will send Minister of For-
regional autonomy originally provided for by the eign Affairs Van Elslande to the Washington
constitutional revision of 1971. These reforms are 3_' energy conference in February as planned.
opposed by the Socialists and by the French-
speaking wing of the Social Christians, who
believe they might encourage further separatist
demands by extremists in the ethnic parties.
Tindemans' failure to overcome the French-
speaking opposition in his own party constitutes a
defeat for the acceleration of regional autonomy.
Furthermore, this internal division of the Social
Christians, compounded by a further schism
within the Flemish wing, bodes ill for the party's
prospects in the coming election.)
The Socialists hope to win enough additional
seats in Parliament to allow formation of a two-
party coalition with the Social Christians. They
will doubtless try to capitalize on their champion-
ship of an ill-fated Belgian-Iranian refinery ven-
ture, which was intended to bring economic
revival to the coal and steel area of eastern
Wallonia. By appealing to Wallonian dissatisfac-
tion with the pace of industrial expansion, the
Socialists hope to strengthen their position in the
government while laying the groundwork for state
intervention in the energy sector:)
3`1 `West German optimism over prospects for
making new strides in Ostpolitik, following the
establishment of relations with Bulgaria and
Hungary last December, was somewhat prema-
tu re.]
3A The economic talks between Poland and
West Germany ended in a stalemate last week
following a Polish decision to reopen the issue of
'`]the size of credits it was seeking. The Polish tactic
was mildly surprising to German officials, who
had expected quick progress following prelim-
inary talks in November, and the Germans balked
at going higher than their original promise of
about $400 million. The two sides evidently in-
tend to meet again, but no date or place was set.]
3 , jln earlier talks, the Poles had asked for
[The Liberals, the third member of the out- credits totaling $1.2 billion, using as leverage the
going coalition government, are badly split on 7large number of ethnic Germans residing in
regional and linguistic issues and seem incapable Poland who wish to emigrate to the Federal
.of presenting a united front in Parliament. Their Republic. Polish Deputy Foreign Minister Czyrek
conservative views are unpopular with the Social- is now in Bonn for talks on emigration, but the
2:Lists, and they will be less important in a new Germans expect little progress until the credit
coalition, if, indeed, they are included] issue is resolved.]
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There is growing sentiment in government headquarters of the Federal Environmental
circles in Bonn to get Ostpolitik moving. The US Agency in West Berlin. The Germans, however,
Embassy reports widespread feeling that a more feel that the Soviets will stall on outstanding
forthcoming West German attitude on economic Berlin problems until bilateral Soviet-German
cooperation is the only way to do this. Faced talks on economic cooperation show progress sat-
with increased Bundestag opposition to new isfactory to Moscow.1
Economics Minister Friderichs are citing the
Elsewhere in Eastern Europe the prospects
energy crisis to gain support for their moves to for progress appear brighter. Yugoslav President
expand relations with the East. They argue that, F Tito is expected to visit Bonn before the end of
because of threatened energy shortages in Western "June. The West German Foreign Office had earlier
Europe, Bonn must promote economic coopera- 'confirmed Bonn's intention to go ahead with a
tion with the Soviet Union and Eastern Europe:j controversial credit package for Yugoslavia, total-
(Meanwhile, a West German delegation left
ing some $200 million. Tito may use the visit to
for Moscow on January 30 to discuss Berlin prob-
lems, which have plagued Soviet - West German
relations for several months. Bonn apparently
hopes to smooth ruffled feelings in the Kremlin
over the Federal Republic's decision to locate the
put the finishing touches on this agreement, as
well as to gain assurances from Bonn that the jobs
of the nearly 500,000 Yugoslav guest workers in
the Federal Republic will not be jeopardized in
any future cutbacks of foreign workers in West
Germany.
BULGARIAN TRAWLER IN US PORT
-fir IL.1i 1 "+
Sofia's decision to play down the US seizure of a Bulgarian fishing boat off the New Jersey
coast on January 26 reflects its recent efforts to improve relations with Washington. Foreign
Ministry officials have told the US Embassy in Sofia that their government does not consider the
incident particularly serious, hopes it will be brought to a speedy conclusion, and does not intend to
publicize the matter. The 80-man Bulgarian vessel was seized by the US Coast Guard for fishing
illegally within the nine-mile fisheries zone beyond US territorial waters.
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%D LZ %_.1 r"I 1Z 1 Now,
WEST EUROPEAN COMJVIUNISTS CQNFER
f 43 4 - 1 - 14 /
The West European Communist parties con-
cluded their three-day conference in Brussels ear-
lier this week with a 20-page political declaration
that carefully skirts issues particularly sensitive to
Moscow. It repeats the usual communist formula-
tions on current political and economic problems
facing Europe. Portions of the final declaration
published in the communist press indicate that
the representatives of the 19 parties participating
in the conference placed particular emphasis on
the desirability of closer cooperation among com-
munists, the left-of-center parties, and "Chris-
tian" parties. In addition, the declaration acknow-
ledged that differing domestic situations com-
pelled the individual parties to devise their own
tactics in dealing with the European Commu-
nities.
There is evidence of lively debate on touchy
issues such as the Solzhenitsyn affair and China's
position in the international movement. However,
no statements on these topics have appeared in
preliminary summaries of the declaration indicat-
ing that the parties were unable to agree on a
common position.
The absence of references to "cultural free-
dom" and the Solzhenitsyn affair should please
the Soviets, who reportedly feared that this issue
would generate adverse publicity in Brussels. The
last preparatory session in Geneva was followed
by cautiously critical comments on Moscow's
handling of the Solzhenitsyn affair by the Italian,
French, Swiss, and Spanish parties.
One of the few provocative notes in the
declaration is a statement affirming each party's
right to work toward socialism "in complete in-
dependence" and in accord with its national con-
ditions and traditions. Although the Soviets can
live with this formulation, it may make them
uncomfortable since the statement underlines the
fact that certain Western parties will not routinely
accept Soviet guidance.
During preparatory sessions, the Italian and
French parties had tried to secure agreement on a
common document that recognized the "reality"
of the EC but made specific recommendations for
changes in community structure and policy. Some
parties-the British and Scandinavian in particu-
lar-objected to this because they felt that domes-
tic political considerations prevented them from
supporting any document that implied acceptance
of the EC.
The Italian Communists-the main organi-
zers of the Brussels parley-were probably disap-
pointed by the Western parties' reluctance to put
more distance between themselves and Moscow.
They can take some comfort from the declara-
tion's endorsement of closer cooperation among
Communists, Socialists, and "Christian" forces.
The Italians have consistently maintained that
such a strategy held out the promise of increasing
leftist influence in Western Europe. Acceptance
of this view at the regional level should help
Italian Communist chief Enrico Berlinguer in his
efforts to deal with party members who question
the wisdom of his policy of rapprochement with
Italy's largest party-the Christian Democrats.
The call for broadened cooperation with the
non-communist left may, in the long run, be the
most significant step taken at Brussels. Endorse-
ment of this concept may foreshadow adoption
by other Communist parties of the pragmatic
tactics used by the Italian and French Com-
munists to enhance their influence at the national
level.
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f ;,Ground combat around Phnom Penh re-
mained relatively light this week, but Khmer
Communist gunners south of the city launched
the heaviest artillery attacks of the war on the
capital. Over 300 howitzer and rocket rounds fell
on the city, causing nearly 350 casualties. Pochen-
tong airport sustained minor damage, but the
most intense shelling hit the refugee-crowded
southwestern section of the. capital. In the en-
suing panic, thousands of civilians temporarily
fled this area seeking safety in the heart of the
city; most of Phnom Penh's war-weary inhabi-
tants bore up relatively well.)
Jhe Communists were able to move within
artillery range of Phnom Penh last week after
government units withdrew to the north bank of
the Prek Thnaot River. An attempted army coun-
terattack south of the river quickly faltered in the
face of stiff resistance. Late in the week, Commu-
nist commanders-apparently worried about being
outflanked-began to pull back their artillery]
lElsewhere in the capital region, small in-
surgent elements have gained a foothold on the
east bank of the Bassac River within mortar range
Cambodian army troops fire northwest of Phnom Penh.
of Phnom Penh's southern suburb of Takhmau.
On the northwestern approaches to the city, gov-
ernment units continue to hold the initiative, but
a Communist buildup near Route 5 points to a
renewal of pressure on this front soon.;
1)-7 The Khmer Communists' nominal com-
mander, Prince Sihanouk, concluded a brief visit
to Hanoi on January 26. The trip was Sihanouk's
first outside China since last September. Besides
observing the Tet holidays with his North Viet-
namese allies, Sihanouk undoubtedly used his
time with Hanoi's leaders to discuss the in-
surgents' dry-season campaign. The tenor of his
parting remarks indicates that a major shift in the
Khmer Communists' present hard line is unlikely.;
)Sihanouk again vetoed any negotiations with
the Lon Not government and the formation of a
coalition regime. He also reiterated that dip-
lomatic relations between his "government" and
the US could be established once Washington
ceases to "interfere" in Cambodian affairs and
ends all forms of aid to Phnom Penh. Finally,
Sihanouk thanked his hosts effusively for their
aid to the insurgents.)
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Growing tensions and rivalries within the Suharto's eminence grise. Sumitro had used the
military leadership are behind the major govern- power of his office to extend his influence into
ment reshuffle this week. Matters were brought to other spheres, and his ouster is an obvious move
a head by charges of negligence on the part of to circumscribe his political activities. He remains
security and intelligence officials in dealing with deputy commander in chief of the armed forces,
the urban riots in Jakarta that erupted during however, and thus continues to be an important
Japanese Prime Minister Tanaka's visit last month.1 figure in Jakarta politicsl
On January 28, President Suharto announced that
he was taking over personal control of the na- ~s part of the reorganization, General
tional security command from General Sumitro. Murtopo and three others lost their titles of per-
He also fired the head of state intelligence and -- sonal aide to Suharto. Suharto probably hopes
abolished the post of personal aide to the presi )that publicly downgrading Murtopo will help
dent.' mollify Sumitro. Suharto's aides have recently
,been the target of much criticism from other
In the past few weeks, Jakarta has been- 'officials as well as from student and intellectual
buzzing with speculation about serious rivalry leaders. General Murtopo in particular is resented
between Sumitro, long considered the second for his wide-ranging interference in national polit-
most powerful general, and General Ali Murtopo, meal and economic policy. Murtopo's influence
with Suharto, which stems from their long-stand-
ilg personal relationship, does not appear to have
heen affected
Murtopo probably lost less than Sumitro
through the changes. Murtopo retains his position
,as head of special operations within the state
'intelligence organization. The intelligence chief,
General Sutopo who had often clashed with
Murtopo, is being replaced by one of Murtopo's
Sclose associates. Murtopo and others disliked
Sutopo's broad investigations into official corrup-
tion. Sutopo's replacement is reputed to be a
much weaker and less effective individual, and
Murtopo will probably now be free to run his
bureau as a private fiefdomJ
~f Murtopo has managed to retain his former
influence with the President, Sumitro and other
top military men may not accept Suharto's new
changes gracefully. In addition, some generals
may not agree with the rationale that the re-
shuffle was needed because the armed forces were
unable to cope with the recent urban disorders.
These officers believe that the riots stem from
deep social and economic tensions, and that they
cannot be written off as a military or intelligence
failure. Their ultimate reaction to Suharto's re-
organization, however, will probably depend on
whether he carries out his promises of social and
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lihe Japan-China aviation proposal continues
to encounter stiff opposition from both the Tai-
pei government and conservative elements within
Japan's ruling Liberal Democratic Party. Some of
the intraparty opposition is only posturing, how-
ever, and Prime Minister Tanaka hopes to get
party approval in the very near future to begin
serious negotiations with Peking)
,, taipei does not like the proposed pact-
calle for when Tokyo and Peking established
diplomatic relations more than a year ago-be-
cause it replaces the government-owned Japan Air
Lines service to Taiwan with a "private" air link.
Other points that irritate the Chinese Nationalists
are :1
1+ modifying the name of China Air Lines
to include the term Taiwan, implying that the
Chinese Nationalist administration is merely a
provincial government;
? discontinuing China Air Lines' busy and
profitable route to Osaka:
? removing all China Air Lines' offices and
airport ticket counters in Japan, turning over
all business to an agent of Japanese nation-
al ity.1
`~ The Nationalist Chinese are particularly an-
noyed that Peking appears to be dictating the
terms to Tokyo, with the Japanese merely trans-
mitting them to Taipei. By being firm, Taipei
hopes to get the Japanese to compromise, but the
Tanaka government insists that the terms of the
proposal are non-negotiable and that Peking may
balk at any further accommodation.-1
Jln spite of its tough talk, Tokyo clearly
would prefer to save face for Taipei. The Japanese
are not anxious to harm their highly profitable
economic relationship with Taiwan, and Tanaka
himself does not want to alienate supporters of
Taiwan within his own party. Some of these con-
servatives are committed to the Nationalist cause
for ideolo ical reasons
They know that they cannot scuttle the
aviation agreement entirely, but they do hope to
delay it. I
Still other party members-most impor-
tantly, those in the faction of Finance Minister
Fukuda-base their opposition on a desire to see
Tanaka and Foreign Minister Ohira stumble po-
litically. Ohira, whose recent trip to Peking ini-
tiated the current flurry of activity on the avia-
tion issue, is Fukuda's principal rival in the
struggle to succeed Tanaka as prime minister. In
his position as member of the Cabinet, Fukuda
cannot actively oppose the Tanaka-sanctioned
agreement with Peking, but he has released his
conservatively inclined faction to vote their per-
sonal views when the aviation proposal comes up
for party vote.,
.~-With upper house elections coming this
summer, Tanaka does not want to run roughshod
over important segments of his party. He was
careful to consider the sensibilities of these
groups in establishing diplomatic relations with
Peking in 1972, and he will probably follow the
same tactics this time-give the Taiwan boosters
time to display their position publicly before
moving forcefully to vote them down..
,5`"6 \Even if domestic political problems can be
overcome, Tanaka and Ohira still have no guar-
antee that Peking will buy the specific proposals
now being hammered out in Tokyo. But, for the
moment at least, Tanaka seems optimistic that
the aviation agreement can be wrapped up this
spring.
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SOUTH KOREA: ECONOMY FACES SLOWDOWN
/Although South Korea has been promised a
normal supply of oil by Kuwait and Saudi Arabia,
real growth in the gross national product is likely
to slow to about 8 percent this year, compared
with 17 percent last year. Weakened foreign de-
mand for Korean exports of light consumer
goods, shortages of raw material imports, and
rising costs of oil will be major factors in the
slowdown.
[_Lxport expansion, which sparked growth
last year, will be much less impressive this year
because of energy problems in Japan, Korea's
major market. Japan, which purchased 39 percent
of Korea's exports last year, accounted for almost
two thirds of Seoul's export growth. Sales to the
US market will rise, but not enough to increase
total exports as rapidly as in recent years. In fact,
exports are expected to grow only 39 percent this
year compared with 92 percent last year.
At the same time, import costs will rise
sharply because of higher prices. South Korea's
oil bill will triple this year to about $1 billion,
and there will also be increases in the cost of
other imports, especially foodstuffs. The value of
Korea's imports in 1974 will rise by an estimated
44 percent. The trade deficit will increase to
about $1 billion compared with last year's $680
million as a result of the slowing export growth,
and a substantial current account deficit is likely-
Korea should be able to finance a $1 billion
current account deficit without seriously straining
its international financial position. Seoul enjoys
relatively large foreign aid commitments-about
$1 billion at the beginning of 1973. If the coun-
try can continue to attract private capital it
should have only a modest over-all balance-of-
payments deficit this year. Foreign-exchange
reserves are now at a record $1.1 billion, com-
pared with $740 million at the end of 1972.
The domestic economy faces more serious
problems. Wholesale prices rose 15 percent in
1973, with almost half the increase coming in the
last two months of the year. Inflation will get
worse, largely because of higher oil costs, and
wholesale prices are expected to rise 25 percent
for the year. Moreover, because business ex-
pansion has been export-oriented and business
firms have relied heavily on borrowing to finance
their operations, many bankruptcies could result
from a sharp drop in demand.
Because of the decline in Japanese interest in
Korean investments, Seoul is attempting to
attract more US and European investment. Unless
Korea is successful in attracting US and European
capital, however, its long-term plans for devel-
oping heavy and chemical industries may have to
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BOLIVIA: PEASANT PROTEST CRUSHED
resident Banzer has crushed the four-day-
old demonstration by peasants in Cochabamba-
but it may cost him vitally needed political sup-
port. Although Banzer had indicated earlier that
he would not use force, he sent in troops after the
angry farm workers allegedly seized a general dis-
patched by the government to negotiate with
them. I
g 3 At least eight demonstrators were killed by
overnment forces on January 30, according to
Banzer has fabricated conspiracies-with both in-
ternational and domestic connections-to justify
action against his opponents. There may be some
truth in his charges of a conspiracy this time,
although it appears to be a home-grown variety.
Each of the groups ostensibly supporting the
regime-the military, the rightist Socialist Fa-
lange, and the National Revolutionary Move-
ment-is split internally, and all three are con-
cerned over the country's worsening economic
situation. Middle-ranking officers contend that
the government is unwilling or unable to solv125X1
country's worsening economic problems.1
press reports, as troops and armored cars cleared
roads blockaded by several thousand protesters
demonstrating against recent price increases. Mili-
tary aircraft also were used, perhaps to frighten
the peasants as much as for reconnaissance. Even
though Banzer had admonished the troops toy,
keep violence to a minimum, the use of the armed
forces could alienate some of his supporters in the c
military who have long tried to maintain good
relations with the peasants.(
\The government seems uncertain just whom
', to blame for inciting the peasants. In the past,
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With independence less than a week away,
Grenada is on the brink of civil war as Premier
Fric Gairy and his supporters battle a broad-based
coalition of forces opposed to nationhood under
he authoritarian Premier. If the situation deteri-
orates further, the British may decide to postpone
independence, now scheduled for February 71
Gairy, who has had a number of chances
during the past few months to calm the atmos-
phere, continues instead to ride roughshod over
any real or imagined opposition. Although his
more radical opponents demand his resignation,
moderates-by far the most numerous-would
have settled for the disbanding of his secret
police. They made this demand following the
brutal beating of three leaders of the radical
group; Gairy promised to comply but later re-
neged, precipitating a general strike, now in its
fourth week. The strikers stiffened their deter-
mination when Gairy, in an effort to break up the
protest, pushed legislation through the assembly
making it illegal for businesses to close during
normal working hours!
The strike has paralyzed and isolated the
island, as telecommunications, transportation,
and practically all economic activities have
ground to a halt. Dock workers in neighboring
Barbados and Trinidad-Tobago have refused to
handle Grenada-bound cargo, and fuel and food
supplies are nearly exhausted\lLooting, much of it
done by the secret police in retaliation against
merchants who supported the strike, has left the
ipital city of St. George's and two other princi-
pal towns a shambles.;!
There have already been three deaths and
numerous injuries. In an effort to avoid further
bloodshed, the Caribbean Council of Churches
has offered to mediate, taking as a starting point
the original demands of the moderate opposition.
Gairy has accepted the offer, claiming-
incorrectly-that he has already complied with
these demands. The opposition has not replied.
The council's effort has apparently come too late,
since the moderates, realizing that Gairy's word
cannot be trusted, have been driven to collabora-
tion with the radical opponents and now demand
his resignation]
The majority of Grenadians, even many who
a` fevv months ago supported Gairy, feel they
cannot face independence under such a regime.
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They also fear that Gairy's lack of planning will
lead to economic collapse of the island
:l
` here are two roads out of the impasse. One
is- Uiry's resignation, which he has refused to
submit. The other is postponement of independ-
ence by the British, which is not planned at the
moment. The British have, however, canceled
plans to be represented at the independence cere-
monies by a member of the royal family, leaving
that honor to the newly appointed acting gov-
ern or.]
IFvan if the nnnnci+ion should succeed in
obtaining Gairy's removal-either through resigna-
tion or assassination-it would be unable to form
a viable government-at least until a strong leader
emerges. The diverse coalition is united in only
the one negative aim, and lack of ideological
agreement would be a serious obstacle to the
economic planning Grenada will need.
MEXICO: PROMOTING THE CHARTER
(~ 1 --
`President Echeverria leaves on February 1
for a two-week swing through central Europe
intended mainly to promote his draft Charter of
Economic Rights and Duties of States. This has
been a major reason for his travels over the past
two years, and he has missed no opportunity to
present the charter before international groups.
His chief audience this time is the Club of Rome,
a private organization that sponsors discussions
on international economic and social issues. For
this meeting, the heads of state from 12 of the
world's lesser powers will be in Salzburg, Austria,
on February 4 and 5.
Echeverria's charter defines the obligations
of developed countries toward developing ones in
the fields of international trade and aid. Among
other things, it calls for nations to:
? renounce foreign economic pressure;
? subject foreign capital to their laws;
? prohibit multinational companies from
interfering in their internal affairs;
? abolish discriminatory trade practices;
? demand larger long-term, low-interest
financial aid with no strings attached.
Echeverria wants the charter to be the basic
instrument for managing economic relations be-
tween the industrialized countries and the Third
World, and he is hoping the UN will approve it
this year. The lesser developed countries, of
course, favor the charter. Developed countries are
much less enthusiastic; not only do they feel that
too much emphasis is placed on the "rights" of
the underdeveloped and on the "duties" of the
developed nations, but they are opposed to a
document that binds them legally. 25X1
From Salzburg, Echeverria will go to the
International Atomic Energy Agency head-
quarters in Vienna to witness the signing of an
agreement by the agency, the US, and Mexico to
supply uranium for Mexico's first nuclear reactor,
which is scheduled to produce electrical power by
1976.
Echeverria's itinerary will take him also to
West Germany, Yugoslavia, and Italy, where he
will be the first Mexican president to meet with a
pope. Since the anticlericalism of the 1920s,
church-state relations have steadily improved. The
meeting with the Pope is being given wide press
treatment in Mexico, leading to speculation that
Mexico may renew formal relations with the Vati-
can. Church spokesmen, however, describe the
audience as "not having official character," and
Echeverria has told the press that he wants merely
to express his gratitude for the Pope's support of
the rights and duties charter.
The European trip, like the President's ear-
lier visits abroad, also reflects the Mexican policy
of seeking broader trade relations, but few spe-
cific benefits are likely to result.
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VLVI \L 1
NICARAGUA: THE ECONOMY RECOUPS
,ontrary to the governrnenrsJ xp fctations,
the Nicaraguan economy did not decline during
the year following the disastrous earthquake of
December 1972, but registered a respectable gain.
Although the estimated 1973 growth of about 3
percent in Gross Domestic Product is below the
rates of preceding years, it contrasts markedly
with earlier estimates of a possible 4-percent
drop. The government forecasts a 9-percent
growth in 1974, as construction activity in Mana-
gua picks up and as industry, commerce, and
agriculture recover more fully from the earth-
quake and the serious drought that preceded it.
oreign trade increased substantially in
1973, with exports up 25 percent and imports up
28 percent. Thanks to a 6.5-percent growth in
agricultural production, traditional exports of
agricultural products-led by cotton, coffee, and
meat-rose some $28 million to an estimated
$205 million, accounting for two thirds of total
exports. Purchases of reconstruction goods and
replacement of merchandise stocks caused im-
ports to rise more rapidly than exports, but the
trade balance remained pos tive by about $20
million. Foreign exchange reserves, already at a
record high of $55.5 million just after the earth-
quake, probably reached nearly $100 million by
the end of December 1973 because the trade
surplus was supplemented both by private and
public capital inflows and by large earthquake
reinsurance payments.
The government's fiscal situation is highly
favorable. Revenues in 1973 were 40 percent
ahead of 1972, mainly because of a 10-percent
emergency export tax imposed after the earth-
quake, but also because normal revenues rose.
1-he government had some $25 million available
to cover about one third of its planned 1973
capital expenditures and had access to loans on
favorable terms from international lending insti-
tutions.
Some problem areas remain, however. Un-
employment, estimated at 11 percent before the
earthquake and the 1972 drought, is at best no
lower now than in 1972. The inflation rate last
year was well above 20 percent, perhaps closer to
30 percert.
Area in downtown Managua devastated by earthquake
SECRET
)espite its problems, Managua ap-
pears to be in a favorable position to
minimize the effects of the energy
crisis on its economy, at least through
this year, because Nicaragua is not
highly dependent on oil. Nicaragua's
foreign exchange reserves should per-
mit an import volume adequate to sus-
tain the construction boom even if
trade results fall short of the govern-
ment's optimistic estimates. Demand
for Nicaragua's chief export crop, cot-
ton, probably will remain strong be-
cause of the world scarcity of oil-
derived synthetic fibers; the outlook
for Nicaragua's 1974 cotton harvest is
particularly good. If demand for Nica-
ragua's other exports slackens and if oil
import prices triple, the $20-million
trade surplus the government is fore-
casting for 1974 could easily be wiped
out, putting the trade balance in the
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_ftv~' 'wool
THE SAUDI HAND IN YEMENI POLITICS
I X \n attempt by North Yemeni President
Iryani to install a left-of-center cabinet headed by
?s 4` former prime minister Muhsin al-Ayni has
foundered on Saudi Arabia's strong objections.
Iryani's failure to replace conservative, pro-Saudi
Prime Minister Abd al-Hajari could stifle Sana's
recent efforts toward rapprochement with South
Yemen.
71 Clryani believes that the Marxist-oriented
regime in Aden will not work seriously toward
resolving differences between the two Yemens
while Hajari, whom Adenis regard as a reaction-
ary, continues to head North Yemen's govern-
ment. Iryani looked upon al-Ayni, an early
advocate of Yemen unity, as the man to develop
further contacts with South Yemeni leaders.
Iryani has met three times since last September
with South Yemen's President All to discuss ways
to reduce the risk of heavy fighting, such as
occurred on the border in the fall of 19721
[Recurring rumors in Sana of the imminent
formation of a new government proliferated again
when al-Ayni, who has headed four cabinets since
the overthrow of the imam's regime in 1962,
returned home in early January from his ambas-
sadorial post in London.!
Sana cannot afford to lose the Saudi dole,
and Iryani is therefore unwilling to override Saudi
objections. Iryani could not have been surprised
at Faysal's stand, however; Saudi intervention was
l 2 "'Aden
/175 -7h
Yemen
(Aden)
the key factor in al-Ayni's removal from the
premiership in late 1972. Al-Ayni returned to his
ambassadorial post last weekend.
25X1 25X1
recent reorganization of the government
of thle United Arab Emirates has strengthened on
paper the central authority of the two-year-old
Persian Gulf federation. The union continues to
be troubled, however, by leadership rivalries and
organizational problems.
Y2 tin late December, following six months of
haggling, Sheikh Zayid, president of the federa-
tion and ruler of Abu Dhabi, was able to push
through a plan for expanding the powers of the
central government. The plan also eliminated Abu
Dhabi's separate ministries and incorporated its
bureaucracy into the rudimentary federal struc-
ture. Abu Dhabi was the only sheikhdom among
the seven making up the UAE that had a modern
governmental apparatus.)
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0L_ LnLL I
The ambitious Zayid is eager for the federa-
ion to succeed, and his goal is to establish con-
trol over it. To accomplish this, he is prepared to
expend sizable amounts of Abu Dhabi's great
wealth-estimated oil revenue for 1974 will be
more than $3 billion. Under the policy Zayid is
Following, the more the other rulers are prepared
to sacrifice their authority to the federation, the
more he is willing to contribute to its treasury.
The central government has no income of its own,
depending on the contributions of the member
sheikhdoms, of which only Abu Dhabi has ful-
filled its obligations.]
lNevertheless, Sheikh Zayid faces a variety of
obstacles to establishing his authority. His fellow
rulers have conflicting ambitions, and several of
them have enough wealth-or expectations of oil
money-to maintain an independent course. In
addition, separatist tendencies are still strong. The
central government's Ministry of Defense, for ex-
ample, has not been able to merge the independ-
ent armed forces of the sheikhdoms with the
union's army. In fact, the sheikhdoms continue to
make plans to upgrade and expand their respec-
tive military units.
Sheikh Rashid, vice president of the union
and puler of Dubai, is Zayid's main rival and an
influential force against speedy amalgamation.
Rashid is anxious to preserve the identity of
Dubai. He fears that swarms of federal officials
and a proliferation of federal laws would en-
Cypriot guerrilla organization. The guerrillas have
been waging a terrorist campaign against the gov-
ernment of Archbishop Makarios since early 1972.1
brivas and Makarios were once co-leaders of
the underground movement that fought the
British in Cyprus in the 1950s with the aim of
uniting Cyprus with Greece (enosis), but split
when Makarios accepted the arrangement that led
to Cyprus' independence in 1960. Three years
later, Grivas was recalled from Greece to head the
Greek and Greek Cypriot forces following the
outbreak of fighting between the majority Greek
and minority Turkish communities. In 1967, Tur-
key insisted that he be banished from the island
for his role in raising the level of intercommunal
violence to the threshold of war between Greece
and Turkey. Grivas returned clandestinely to
Cyprus in 1971 to renew his efforts to gain
enosis, using violence to deter Makarios from
reaching an accord with the Turkish Cypriots that
might forever separate Cyprus from Greece. -I
Grivas' terrorist campaign has raised tensions
nd caused some bloodshed over the past two
years but has failed to arouse the majority of
;reek Cypriots, who have become lukewarm to-
ward enosis. Now, with Grivas gone, the future of
uis organization has been thrown in doubt al-
though his followers have expressed their determi-
nation to fight on. A struggle among rival claim-
ants to the vacant leadership is probable and may
hasten the disintegration of the movement1 ;The
danger his sheikhdom's traditional autonomy and'; organization's announcement early this week that
threaten the laissez-faire economics on which it it would suspend operations for the time being
has thrived. Within the Supreme Council of was probably prompted as much by the urgency
Rulers, Rashid-like Zayid-has a veto over pol- / of the leadership question as by the trauma of
icies of the central government and this gives him Grivas' death
some check on Zayid. Rashid's ability to counter
Zayid's influence is less than it might be, how- ? { Magnanimous gestures by President Makarios
ever. Dubai, even with a good oil income, has yet . in honoring Grivas' contributions to Cyprus may
to make a contribution to the central treas- Y J further hasten the dissolution of the general's
ur
y.
25X1
CYPRUS: A FACTOR REMOVED
The death of General George Grivas on Janu-
ary ~7, reportedly of a heart attack, is likely to
deal a severe if not fatal blow to his Greek
military organization. On January 28, the govern-
ment freed 123 Grivas men from prison and of-
ered amnesty to some 70 wanted terrorists. The
r;etback to the enosis movement should
strengthen Makarios' hand in his dealings with the
'Greek Government, and will also enable Makarios
to concentrate his attention on the Turkish C p_
riots.
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,-/O Drime Minister Bulent Ecevit has named a
coali ion cabinet composed of 17 members of his
left-of-center Republican Peoples Party and six
members of the Islam-oriented National Salvation
Party. Ecevit will present his proposed cabinet
and legislative program to parliament this week
for a vote of confidence that is expected finally
to end the political stalemate that has persisted
since the indecisive elections last October.)
('.~ O) The social-democratic views of Ecevit's party
clearly predominate in the new government's
program, but its conservative junior partner has
been given a substantial voice in economic affairs
and six ministries: interior, agriculture, com-
merce, industry, justice, and one of the ministries
of state. The leader of the National Salvation
Party is deputy prime minister
,J1r The coalition partners had a difficult time
agreeing on a cabinet, with the National Salvation
Party reportedly accepting a compromise one day
and reneging on it the next. At one point the
negotiations almost broke down, suggesting that
the future course of this coalition will not be an
easy one.]
c o )The cabinet is made up of relatively young
technocrats, only two of whom have had minis-
terial experience. Professor Turan Gunes, who has
been associated with the Republican Peoples
Party for a long time, will head foreign affairs,
while Hasan Isik, a career diplomat, will be in
charge of defense. Two of the ministers are re-
tired army officers.]
)The protocol of cooperation agreed upon by
the two parties gives high priority to promoting
"social justice" and to amnesty for political
prisoners, including those sentenced by martial
law courts during the past three years. Ecevit has,
however, publicly reassured "influential quar-
ters"-an allusion to the military-that the am-
nesty will not be sweeping and will exclude in-
dividuals convicted of terrorist activities.]
(.f / CThe protocol is equivocal on repeal of the
ban on opium-poppy cultivation, promising only
changes that will provide for "humanitarian con-
cerns" while ending the "unfair treatment" of
rtnu:,, ~. In ld
3
Z
a
F AND WILL THEY LIVE HAPPILY EVER AFTER?
poppy farmers. The US Embassy believes that the
matter is still negotiable, and that Ecevit will first
,-/,,approach the US for additional funds and aid in
expediting the development of substitute crops.
Since last summer, farmers have been increasing
,T) pressure for an easing of the ban because com-
pensation arrangements have not offset their
economic losses.
3 (rhe new government's program is equally
equivocal on petroleum resources, calling for
revision of the petroleum law but not for outright
nationalization. US companies have over $100
million invested in the petroleum industry in
Turkey
Yg `Turkish membership in Western security
systems will continue under Ecevit's program, but
Ankara plans to develop its own national defense
policies and not rely exclusively on mutual
arrangements. The protocol notes that common
defense bases in Turkey must be under Turkish
control. Within the leadership of Ecevit's party,
there is some questioning of Turkey's long-
standing international relationships, as well as
concern over the implications of US-Soviet
detente] The embassy believes that US military
and military-related operations in Turkey will
probably be given close scrutiny by the new gov-
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Secret
Secret
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Secret
Weekly Summary
Special Report
Neighbors With Different Perspectives
Secret
N2 59
February 1, 1974
No. 0005/74A
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5LUKL I _
MALAYSIA-SINGAPORE
NEIGHBORS WITH DIFFERENT PERSPECTIVES
Summary
I n the eight years since Singapore was expelled from the Federation of
Malaysia, relations between the two states have resembled more a running feud than
a diplomatic dialogue. The severing of many of the -formal economic ties binding the
two countries during the past year will go far toward ending the excessive intimacy
of the past, even though a large measure of informal economic interdependence will
persist. Many people in both countries view this as a healthy development, but a
bedrock of mistrust persists, based largely on racial antagonism between an ethni-
cally Chinese Singapore and a Malay-dominated Malaysia.
This political fact of life is primarily responsible for the many divergencies on
regional issues and defense policies. Although Singapore and Malaysia are nominal
allies in the Five Power Defense Arrangement with the UK, Australia, and New
Zealand, each regards the other as the greatest threat to its own national security.
Singapore is reluctant to see an end to a Western military presence in the region,
believing it serves as a counterweight to the relative power of its ethnic Malay
neighbors, Malaysia and Indonesia. Malaysia, by contrast, is committed to the
neutralization of Southeast Asia. Singapore is also disturbed over Kuala Lumpur's
interest in recognizing Peking, believing that a Chinese diplomatic presence on the
Malaysian Peninsula will increase Singapore's vulnerability to Communist subversion.
For its part, Malaysia resents Singapore's lack of support for recognition of the
Strait of Malacca as an internal waterway.
Such conflicting political outlooks ensure that any improvement in bilateral
relations will be gradual and fragile. But as long as racial antagonism-either within
Malaysia and Singapore or in the region at large-can be contained, there will be a
good chance that a more mature relationship will develop. The alternative is a revival
of tit-for-tat bickering which in the future could take a highly destructive form, a
gloomy prospect that in itself offers a compelling reason for both sides to get along.
Special Report - 1 -
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February 1, 1974
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February 1, 1974
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The distrust and disharmony that mars the
Singapore-Malaysian relationship stems basically
from racial antagonisms. It has been fed by the
intimacy and interdependence of the past and the
relative insecurity of both governments. Although
Lee Kuan Yew's Peoples Action Party exercises
tight one-party control in Singapore and Malay-
sia's government "consensus" is imposed from the
top, neither government is self-confident enough
to tolerate serious criticism or opposition, either
internally or externally.
Despite Lee Kuan Yew's occasional cham-
pioning of the "domino theory," fear of Commu-
nist subversion is not a root cause of this insecu-
rity. The once-powerful Communist movement in
Singapore is virtually moribund. The Communist
terrorists in Malaysia (no more than 3,000 alto-
gether) are generally isolated in remote areas
(mainly in the jungles of the Thai-Malaysian bor-
der region and of Sarawak).
In this part of the world, fear of racial con-
flict is the central fact of political life, and it is
Special Report
most acute in Malaysia where Malaysians are not
even a majority in their own Malay land. This
racial uneasiness affects almost all other aspects
of relations between the two states.
Severing Economic Ties
In many instances, bad feelings have been
caused not only by policy decisions but by the
way decisions are translated into action. This was
true of a series of steps that Kuala Lumpur took
last spring to sever many of the economic ties
binding the two countries. Abruptly and with
little consultation, Malaysia ended the inter-
changeability of the currencies of the two coun-
tries, split their formerly joint stock markets and
rubber exchanges, and erected other barriers be-
tween the closely interwoven economies.
For a time these "shocks" tempted Singa-
pore to overreact and engage in a new round of
the bickering that has almost always characterized
Singaporean-Malaysian relations. In the stock
market and currency action last May, the Singa-
pore Government was most upset because Kuala
Lumpur gave it only 30 minutes advance warning.
Although publicly Singapore showed unusual re-
straint, privately tempers boiled.
Key leaders of the Singapore cabinet met
secretly in mid-May to assess what they regarded
as Kuala Lumpur's campaign of "economic war-
fare" and to discuss what action to take should
Malaysia threaten to cut off Singapore's water
supply-a move Kuala Lumpur has never seriously
contemplated. Singapore quickly began to relax,
however, when it became obvious that Malaysia's
actions did not pose a direct, critical threat to
Singapore's economy and that established pat-
terns of trade would be altered only gradually.
Despite the split in the rubber market, for exam-
ple, 55 percent of Malaysia's rubber production
continues to be re-exported through Singapore,
and it will take time to reduce this ratio substan-
tially. Similarly, it will also take time to alter the
existing pattern whereby more than 88 percent of
Malaysian pepper is exported from Sarawak via
Singapore.
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Some Malaysian moves to reduce Singapore's
middleman role in Malaysia's trade have been
more damaging economically to Malaysia than to
Singapore, forcing merchants, manufacturers and
shippers in the southern part. of the peninsula into
a variety of uneconomic practices. Malaysia is
taking steps, however, to reduce the adverse eco-
nomic impact. Malaysia, for example, is building a
port, with timber processing and other industrial
facilities, on the northern coast of the Strait of
Johore and is constructing a new airport in south-
ern Johore. A major shipyard is also being plan-
ned for the strait.
Almost all of these changes are the result of
Malaysia's efforts to reduce its economic depend-
ence on Singapore. Kuala Lumpur rightfully views
the interdependence that has long existed be-
tween the two economies as a carryover from the
British colonial system and, as such, not neces?
sarily to Malaysia's advantage, although Malaysia
has benefited from a variety of Singapore services.
Accepting the New Relationship
Some of Malaysia's actions, of course, have
adversely affected certain economic interests in
Singapore. A number of individual Singaporeans
stand to lose money as a result of some of these
changes. Nonetheless, if these measures add to
Malaysian economic self-confidence, they will
have the effect of easing one of the major irritants
in Malaysian-Singaporean relations. The feeling is
now growing on both sides that the recent sever-
ing of many of the ties that have bound the two
countries economically is a necessary and healthy
development that had to come sometime-per-
haps better now than later.
The growing desire of both governments to
put their sometimes testy relationship on a more
businesslike basis appears to have been advanced
by the two-day visit of Malaysian Prime Minister
Razak to Singapore in November. Official state-
ments and press commentary on the visit reflect a
belief on both sides that differences should not be
allowed to obscure basic common interests, and
each now seems more comfortable over the future
prospect of an even greater degree of independ-
Special Report
ence and separate-
ness. Lee and Razak
apparently had a
frank but easy ex-
change of ideas.
Racial differences
and differences in
style of leadership
will keep some dis-
tance in the relation-
ship between their
countries, but the
greater disposition of
the two leaders to
address basic issues
may improve coordi-
nation at the work-
ing level.
Remaining Interdependence
There are obvious limits to the extent to
which a reduction of the economic interdepend-
ence between Malaysia and Singapore is desirable
at this time: Singapore's $50 million investment
in Malaysia, mainly in southern Johore, cannot be
easily erased. Neither can Singapore's dependence
on at least 120,000 Malaysian day workers. For
its part, Malaysia could not provide alternative
employment to the workers. Malaysia's major
naval base is on the northern coast of Singapore
Island, and alternate facilities are not available on
the Malaysian side of the strait.
Long-standing patterns of trade cannot be
altered quickly without damage to both coun-
tries, and Singapore's dependence on Johore for
75-80 percent of its daily water supply is poten-
tially the most explosive issue dividing the two
countries. Singapore is expanding its existing res-
ervoir facilities on Singapore Island in order to
reduce its dependence on Johore. Even with the
completion of the new facilities, however, Singa-
pore's continually expanding daily requirements
will increase its dependence on sources on the
Malaysian side of the causeway.
That Beleaguered Feeling
Singapore, a tiny Western-oriented state sur-
rounded by numerically superior Muslim
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VLVI iL I
neighbors, tends to view its relationship with
Malaysia and Indonesia as having some parallels to
that of Israel in the Arab Middle East. Not sur-
prisingly, Singapore has adopted an Israeli-type
military strategy and posture, and Israeli advisers
play a key role in arming, teaching, and training
the burgeoning Singaporean armed forces.
Singapore's strategic planners think of them-
selves as hard-headed and practical. They do not
assume that the Western members of the Five
Power Defense Arrangement or anyone else will
bail Singapore out of trouble, and they are deter-
mined to develop sufficient military capability to
deter Malaysia and Indonesia, either together or
separately, from aggression. Lee Kuan Yew de-
scribes it as a "poison shrimp strategy." He has in
mind a combined air/ground attack force that, if
necessary, could secure Singapore's water supply
from southern Johore, and establish clear-cut air
superiority in the region.
This objective could be obtained within the
next two or three years. Singapore already has
numerical air superiority over Malaysia and Indo-
nesia in fighter/ground-attack aircraft, and this
will be greatly enhanced when the first squadron
of A-4 Skyhawks purchased from the US becomes
fully operational by the end of 1974. A second
squadron will be formed by mid-1975. Singapore
is seriously interested in buying F-4 Phantom jets
and a Hawk missile system.
Singapore also has developed a small ar-
mored force that presumably is sufficient to blow
up the causeway and then to bridge the Strait of
Johore at points of its own choosing. Singapore
hopes to improve on this capability by buying
about 60 M-48 tanks.
Sophisticated modern weaponry alone can-
not ensure the success of Singapore's military
program. More fundamental is the molding of its
largely conscript army into a tightly knit, disci-
plined fighting force. The armed forces suffer
from tremendous organizational, command, logis-
tic, and personnel problems. Middle-level manage-
ment, training facilities, and skilled technicians
(particularly pilots and mechanics) are especially
critical.
Special Report
The government is taking steps to ease at
least some of these problems. It has hired experi-
enced Taiwanese pilots to make up for the short-
age of qualified Singaporean pilot trainees and to
reduce its heavy reliance on British expatriate
pilots. The army is using training facilities in
Brunei, Thailand, and Taiwan, and a small mili-
tary/industrial complex in Singapore is being
developed to include the repair and production of
small arms and ammunition and ship and aircraft
assembly.
Malaysian Confidence
The Malaysians, by contrast, are more re-
laxed about strategic planning-perhaps in part
because they are unaware of all the measures
Singapore is taking. Kuala Lumpur sees little rea-
son to build up a significant military machine; it
already has the means to contain its limited com-
munist insurgent threat, and war with Thailand or
the Philippines over the Muslim minorities in
those countries is not considered a serious possi-
bility. The principal reason for its self-confidence,
however, is a belief that it could overwhelm the
Singaporeans with sheer numbers and that, in case
of real trouble, Indonesia, its ethnic Malay "big
brother," would bail Malaysia out. But it is also
true that Malaysia has a disciplined and well-
organized army and a background of military
experience as a component of the British armed
forces-an advantage Singapore lacks. The Malay-
sians are also building up an inventory of sophisti-
cated military equipment-from 105-mm. howit-
zers to the squadron of F-5 Freedom Fighters
that are scheduled to arrive in 1975.
Diverging Foreign Policies
Regionalism The foreign policies of Malaysia and
Singapore diverge sharply as a consequence of
these fundamentally different military outlooks
and differences on economic issues. Differing
views on regional topics tend to divide the two
even further. Malaysia is a more enthusiastic advo-
cate of regionalism than is the more independent-
minded Singapore. Kuala Lumpur places consider-
able value on its membership in the Association
of Southeast Asian Nations (ASEAN)-Indonesia,
Malaysia, the Philippines, Singapore, and
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SLUKL I
Thailand-an organization that dates back to
1967 and was the first serious attempt at cooper-
ation in the region. Conceived as a point of con-
tact between neighbors of diverse outlooks, its
deliberations were for some years purposely lim-
ited to non-controversial topics. Its development
into a serious forum for consideration of regional
problems has been slow and halting, but as the
members became more at ease in working with
one another, it tackled political subjects and has
become an important forum for discussing foreign
affairs. Malaysia sees it as a handy vehicle for
promoting its pet foreign policy project, the crea-
tion of a Southeast Asian neutral zone. Singapore,
although it actively participates, does so only to
accommodate the other four members in the or-
ganization.
Despite their differing views on the impor-
tance of ASEAN, both Singapore and Malaysia
agree that it is a sufficiently ambitious effort ai.
regional cooperation for the present. Both have
made clear their disinterest in the kind of broac
forum encompassing all the nations of East Asia
pushed by Australian Prime Minister Whitlam.
Neutralization Malaysia and Singapore are also at
odds over the practicality of Kuala Lumpur's neu-
tralization scheme. Malaysia has been vaguely ad-
vocating the neutralization of Southeast Asia for
the past six years without ever clearly laying out
specific objectives. Malaysia calls, for example,
[or Great Power guarantees, but has never ap-
proached the major countries on the subject.
Kuala Lumpur glosses over such knotty problems
as the proposal's compatibility with the US mili-
tary presence in two ASEAN member states--
Thailand and the Philippines-as well as its own
participation in the Five Power Defense Arrange-
ment. The other ASEAN members have unenthu-
siastically endorsed neutralization as a distant ob-
jective, but have resisted any joint efforts to make
it an early reality. This lack of enthusiasm has
caused Malaysia to ease up on its campaign in the
past year.
Even though it accepts its colleagues' reser-
vations, Kuala Lumpur is nettled by what it sees
as Lee Kuan Yew's unnecessary sarcasm in ex-
pressing contempt for the concept. At the Corn-
monwealth heads of state conference in Ottawa
last August, Lee declared that ASEAN members
were "whistling in the dark" and creating a
"Shangri-La in their minds" if they think that the
major powers are about to guarantee Southeast
Asian neutralization.
Big Power Presence The two countries' differing
attitudes toward regional cooperation and neu-
tralization are reflected in the variance in their
views toward a Great Power presence in Southeast
Asia. Singapore, as an extremely small, predomi-
nantly Chinese country that long relied on British
protection against the Malay majority in the re-
gion, sees a continuing Great Power involvement
in Southeast Asia as a counterweight to the rela-
tive power of its Malay neighbors. Malaysia's
visions of a Southeast Asia free of Great Power
rivalries, on the other hand, reflects its belief that
it has little need of protection from its neighbors.
The Razak government in Kuala Lumpur, while
basically pro-West, prefers to keep all the major
powers at arm's length. The Lee government
would like to develop a closer relationship with
the US.
The US connection is becoming increasingly
evident in Singapore. American investment has
grown to 45 percent of all foreign investment and
is approaching a total of about $500 million.
Singapore provides important services for US mili-
tary forces in the region, including ship repairs for
the US Seventh Fleet at the government-owned
Sembawang shipyard and aircraft repairs at Lock-
heed Air Services Singapore. The government has
stopped bunkering US naval vessels or servicing
US military aircraft to avoid inclusion in the Arab
oil embargo, but has turned a blind eye to contin-
ued provision of the services at British facilities
on the island. Moreover, Singapore is becoming
increasingly reliant on the US as a source for
sophisticated military equipment and training.
The Prime Minister is an outspoken advocate of a
continuing US military presence in Southeast
Asia, a reflection of his inclination to draw the
US into the kind of protector role that the British
formerly performed.
Soviet Presence Although they differ on the de-
sirability of a continuing Western Great Power
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presence in the area, neither Lee nor the Razak
government wants the Soviet Union to play a
major role in Southeast Asia. Razak is wary of the
potential threat of Soviet subversion but is inter-
ested in Soviet and East European technical and
economic assistance. Kuala Lumpur is also look-
ing into the possibility of buying military equip-
ment from the Soviets and the Yugoslavs, in part
to avoid exclusive dependence on the West. The
Malaysians know that support of the major mili-
tary powers (the US, China, and USSR) will be
necessary if their neutralization scheme is to be
realized.
Singapore, for its part, welcomes Soviet
commercial vessels and occasional naval auxil-
iaries at the government-owned Keppel shipyard-
a policy calculated more to make money and to
maintain some semblance of a nonaligned image
than to maintain a truly even-handed policy to-
ward the super powers.
The China Question Relations with China are a
sensitive issue for both Malaysia and Singapore
because of their large ethnic Chinese population.
Indeed, Peking's refusal to disavow all ties to the
Overseas Chinese in Malaysia has been the main
stumbling bloc in negotiations over recognition
that have been going on for months between
Peking and Kuala Lumpur. Some compromise on
both sides, however, plus Kuala Lumpur's eager-
ness to establish contacts with Peking, may result
in recognition this spring. The prospect of Malay-
sian recognition has put some pressure on a reluc-
tant Singapore to follow suit. But Singapore con-
tinues to develop close ties with the Nationalist
Government on Taiwan, welcoming Taiwanese
ship visits in exchange for Taiwanese military
assistance in the form of pilots, aircraft mechan-
ics, and artillery training facilities-the kind of
action most apt to alienate Peking.
Strait of Malacca On another regional issue, Sing-
apore and Malaysia differ sharply over the desira-
bility of recognizing the Strait of Malacca as an
internal waterway. The strait is less than 24 miles
wide at two points and comes within the 12-mile
territorial limits claimed by Jakarta and Kuala
Lumpur. Both have pressed for international ac-
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ceptance of their claim to at least some control
over international shipping through the strait. For
its part, Singapore, because of its status as a major
port and because of its dependence on the entre-
pot trade, sides with the major naval and eco-
nomic powers in advocating unhindered free
transit through the strait. The issue has been
downplayed by both sides for the past year, but it
will be raised at the Law of the Sea Conference in
1974.
Other Area Relations Both governments agree on
the importance of building closer ties with Indo-
nesia. Singapore does so largely for economic
reasons. Malaysia, with deeper, more lasting links
of blood culture, has more permanent connec-
tions. Malaysia and Indonesia are already cooper-
ating-in joint military patrols of the Malacca
Strait, in countering the communist terrorists in
Sarawak, and in planning for common air defense.
Singapore pays more attention to improving
ties with the non-Malay ASEAN states, Thailand
and the Philippines. It has arranged for guerrilla
training in Thailand for its elite special forces and
has tried to sell its fast patrol boats to Bangkok
and Manila. Singapore's gestures toward Bangkok
and Manila are in part attempts to offset Indo-
nesian/Malaysian strength within ASEAN and, as
such, arouse some Malaysian suspicion.
Middle East Complications Middle East tensions
have put some strain on the foreign policies of
both governments. Singapore's close ties with
Israel have been a liability in the current world
scramble for oil. Singapore's refineries-upon
which its ship bunkering services are dependent-
obtain the bulk of their crude oil from the Persian
Gulf. In view of this, the government has re-
luctantly joined its ASEAN partners in deploring
Israeli occupation of Arab territory. The Razak
government, on the other hand, has spoken out
forthrightly in support of the Arab cause, both
out of conviction and because politically Razak
cannot afford to lose the support of his sub-
stantial Muslim constituency on the emotional
and potentially volatile issue.
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February 1, 1974
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Prospects
So long as racial antagonism between Malay-
sia and Singapore-or in the region at large-can
be kept to a minimum, it should be possible for
relations between the two states to improve.
There will obviously continue to be many issues
and problems on which their interests will con-
flict, but-with give-and-take on each side-
compromises can be reached and workable solu-
tions found. The alternative to amicable relations
would be more damaging and far-reaching in the
future than it has been in the past. If Singapore
continues to build up its military strength, Ma-
laysia may feel compelled to follow suit, perhaps
looking increasingly to the Soviet Union and
other East European states for sophisticated
weaponry. The revival of any tit-for-tat bickering
between a better armed Malaysia and a militant
Singapore could be highly destructive, and this
specter alone provides the most compelling reason
for both sides to make a determined effort to get
along.
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