WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A010700040001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 21, 2016
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• Content Type: SUMMARY

Approved For Release 2008/04/29: CIA-RDP79-00927A010700040001-1
Weekly Summary
State Dept. review completed
Secret
Secret
8 February 1974
No. 0006/74
Copy N2
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AAW
CONTENTS (February 8, 1974)
LAST ASIA
~'ACIFIC
5 The Energy Conference: Prelude
6 USSR: Economy
8 Eastern Europe: A Prospect
of Prosperity
9 MBFR: Talks Bogged Down
10 Base Issue Stirs Iceland
11 Italy: Labor Draws the Line
12 Peking, Moscow, and Confucius
13 Laos: Negotiations and Demonstrations
Cambodia: More Inconclusive Combat
South Korea: Silencing Critics
.Japan - South Korea: Oil in
Troubled Waters
18 China: Poised for Oil Profits
19 Singapore: Oil vs. Israel
MIDDLE EAST
AFRICA
WESTERN
HEMISPHERE
22 Cuba-USSR: Brezhnev Goes Home
23 Costa Rica's New Broom
24 Chile: The Army Way
?Q9Y.
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South Vietnam:
Quarreling Over Islands
.i_ (-hina and South Vietnam have stepped up
their war of words over the Paracel and Spratly
Islands, but thus far there are no signs that fight-
ing will resume. This week, Peking reacted to
Saigon's dispatch of a small naval task force to
the Spratlys with a tough statement charging that
the South Vietnamese action is a "new military
provocation," and asserting that China will not
tolerate such infringement of its territory. Sub-
sequently, Saigon stated that its action in the
Spratlys, which lie some 400 nautical miles south
of the Paracels in the South China Sea, is a
natural defensive measure following Chinese
"aggression" in the Paracels)
Saigon now has at least 200 troops in the
Spratlys, and more troops may be on the way;
South Vietnamese military spokesmen have stated
that their troops are now on six of the islands.
China has no forces in the area and has not
Paracel
Islands
Spratly
Islands
patrolled the islands. Taiwan and the Philippines,
which also claim the Spratlys, have had troops on
several of the islands for some time, and both
countries have protested Saigon's action'
[South Vietnam's reinforcement of the
Spr tlys is almost certainly designed to under-
score its claim in the event that oil exploration
ever becomes a serious possibility. Saigon seems
reasonably confident that under present circum-
stances its action will not be contested, other
than verbally. Military operations such as oc-
curred in the Paracels would be hard for any of
the claimants to undertake because the Spratlys
lie near or beyond the outer reach of their mili-
tary range, especially for air cover]
:L[A forceful reaction from mainland China
cannot be ruled out, but there are no signs of
preparation for such action. In addition to logistic
difficulties, a military response would present
complicated diplomatic problems for Peking.
China wants to avoid a clash with Taiwan, which
would risk involving the US and disrupt relations
with China's neighbors in Southeast Asia. Trouble
with Manila would also upset the countries of
Southeast Asia.
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)King Husayn was forced to cut short a visit
to London and hurry back to Amman this week
to quell an army mutiny. The insurrection-or-
ganized by disgruntled non-commissioned offi-
cers-has developed into the most serious internal
crisis for Husayn since the showdown with the
fedayeen in September 1970.11
1; IThus far, the army's loyalty to the King has
held firm and there has been no bloodshed. But
the rebellious troops have made far-reaching de-
mands that have won widespread sympathy
among the lower ranks of the armed forces and
apparently among the civilian population as well]
jJ The trouble started last weekend when en-
listed personnel from the elite 40th Armored Bri-
gade, which had just returned from Syria, muti-
nied and demanded to see the King's brother,
Crown Prince Hassan. The mutiny seemed to sub-
side almost as quickly as it began after Hassan
listened to the dissidents' grievances and promised
to take their case to Husayn. Before the King
returned, however, the insurrection picked up
momentum again and spread to other units.\
In addition to a pay raise and a general
rollback of consumer prices, the mutinous troops
are calling on Husayn to dismiss both the army's
unpopular chief of staff, Sharif Zayd bin Shakir,
and air force commander Brigadier Abbud Salim.
The dissidents want Husayn to appoint Sharif
Nasir, the King's uncle and an influential figure
among Jordan's Bedouin tribesmen, as both com-
mander in chief of the armed forces and prime
minister. They are demanding the resignation of immediate pay increase for the army and for the
Prime Minister Zaid Rifai and several other civi- internal security service, but thi step may not be
lian officials whom they hold responsible for esca- Jnough to cool the situation.jUnless the King
lating living costs.] dismisses Bin Shakir and Rifai, which he is appar-
ently resisting, the two men will almost certainly
continue to be the focus of smoldering resent-
Since his return on February 5, Husayn has ment, not only among the rank-and-file but
t$eer making the rounds of rebellious army units among those at higher levels in the army who also
trying to restore discipline and prevent a threat- resent the chief of staff's and prime minister's
ened march on Amman. Husayn has promised an aloofness and high style of living.
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THE ENERGY CONFEREN(G,~ PRELUDE
(fJC scone))
rMost of the nations participating in the
Washington energy conference next week favor
some form of international cooperation on energy
matters but are reluctant to undertake any ac-
tions that might antagonize the oil-producing na-
tions. Perhaps the subject of strongest common
interest to the visiting participants-the EC-nine,
Canada, Japan, Norway, and top officials of the
EC and OECD-will be the proposals to develop
alternative sources of energy. The most conten-
tious issue is likely to be the question of whether
the group of industrialized, oil-importing coun-
tries should meet periodically to review energy-
related problems.
The opening plenary session on February 11,
which will be devoted to the present energy situa-
tion and its impact on the world economy, prom-
ises to be time-consuming but non-controversial.
EC officials expect to explain their view of the
causes and consequences of the changed relation-
ship between supply and demand as well as the
basic causes and significance of price movements.
The fact that others, including the US, may wish
to cover much the same ground has added to
skepticism about whether the two-day conference
will be able to explore any new territory. Some
may welcome a lack of time for debate; a senior
British official, for example, has expressed the
hope that ample time would be provided for the
ministers to "talk themselves dry."
A subsequent foreign ministers' session-in
parallel with separate sessions of finance, energy,
and technology officials-will have to deal with
the repeatedly expressed anxieties of almost all
participants over relations with the oil producers
and the lesser developed countries. Paris may seek
to crystallize these worries into support for the
proposals for a special UN conference on energy.
The EC position paper calls for discussions with
developing and producing countries to begin by
April 1, a decision apparently designed to get
talks with producers under way before the next
OPEC ministerial meeting later in April.
The widespread desire to broaden the dis-
cussions to include producers and developing
countries will make it extremely difficult to reach
any agreement on further high-level meetings of
the February 11 group. The Nine have left the
door open, however, for setting up short-term
working groups to examine certain specific topics;
the other participants would not balk at this.
US proposals for a session of finance offi-
cials have met widely varying reactions. Bonn was
particularly favorable, although a senior German
official hoped the meeting could discuss a roll-
back of oil prices "as a means of reducing the
complex and interrelated problems of oil pur-
chase and international finance." Paris has been
so negative that, as late as February 1, a con-
cerned French official was unable "to ignite even
a flicker of interest" in preparing for French
participation.
A proposed session devoted to emergency
sharing, which is to be taken up along with con-
servation, restraints on demand, and alternative
sources of conventional fuels, could attract par-
ticular interest in view of the fact that the Nine
agreed to include this topic in their position
paper. Britain, however-along with Canada and
Norway-is likely to favor discussion only of
those supplies that enter international commerce.
Participants in the proposed session on
science and technology are likely to pursue their
interest in gaining access to US technology for
enriching uranium. A feasibility study is under
way for a projected Canadian gaseous diffusion
facility. The project has some Japanese and
German financial support for its initial study,
while the US Atomic Energy Commission is giving
technical advice. The backers of the project
would be interested in longer term US assistance.
The French Atomic Energy Commission has
opposed efforts to seek US help for the French-
sponsored Eurodif consortium's facility but Italy
and Belgium, who are also backers, are interested,
as is the principal French utility company.
Britain, the Netherlands, and West Germany co-
operate in the rival-and more experimental-
Urenco project for an enrichment facility using
the centrifuge process. US technological help evi-
dently would be particularly helpful to this
grou P, F_
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VINTAGE YEAR FOR SOVIET IET ECONOMY
The Soviet economy recovered sharply in
1973 from its exceptionally poor performance
the previous year. An 8 percent surge in gross
national product was largely due to the record
performance in the agricultural sector. Industry
also recovered from its 1972 slowdown, with
most of the gain occurring in the machinery
sector. Substantial growth is scheduled for 1974,
but Moscow's prospects for achieving the original
goals of the 1971-1975 plan are extremely bleak.
Exceptionally good weather and increased
supplies of fertilizer were mainly responsible for
the surge in farm output. The record grain har-
vest, together with continuing grain imports, will
enable the Soviets to rebuild stocks and to export
some grain to non-communist countries. More-
over, the bumper harvests of wheat and corn will
help alleviate shortages of feed grains for the
expanding livestock herds and promote increased
meat production this year.
The output of all industrial materials, except
energy products, grew at higher rates than in
1972_ Depletion of the more easily exploitable oil
and gas reserves accelerated last year, requiring
more new capacity to maintain previous levels of
1971
1972
1973
Major aggregates
GNP
4.2
1.7
7.9
Industrial production
6.0
5.2
5.9
Agricultural production
0.3
--7.2
15.3
Energy
Coal
2.7
2.2
2.0
Oil and Gas
6.9
7.3
6.9
Electric: power
8.0
7.1
6.7
Per capita consumption:
3.5
1.5
3.7
Food
3.2
0.1
3.9
Soft goods
3.3
1.3
2.1
Durable goods
4.2
6.0
5.3
Housing
2.3
2.4
2.1
New fixed investment
7.2
7.1
4.0
Gross additions to
fixed capital
6.3
3.4
7.7
Volume of unfinished
construction
10.3
12.6
2.8
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output. The increases in fuels and power, how-
ever, were enough to assure continued self-
sufficiency in energy.
In the machinery sector, gains in the pro-,
duction of passenger cars, vacuum cleaners, and
furniture led the field of consumer durables while
generators, instruments, and agricultural machin-
ery posted the greatest gains for producer dura-
bles. Consumer nondurables made a substantial
recovery, aided primarily by large increases in soft
goods.
Soviet consumers benefited from substantial
increases in food supplies-especially fruits, vege-
tables, and dairy products. Meat consumption re-
mained at about the 1972 level, as increases in
meat production apparently were deferred in
order to expand livestock herds. Consumption of
soft goods recovered from near stagnation in
1972, and construction of new housing in 1973
more than offset the deterioration of existing
housing and the population growth.
The chronic economic problems of slow
assimilation of.new technology and delayed com-
pletion of new facilities persisted in 1973. Never-
theless, programs to curtail the proliferation of
new construction projects and to concentrate
investment in projects nearing completion were
more successful than usual. Gross additions to
new fixed capital stock increased at nearly twice
the rate of the previous year, while the increase in
unfinished construction dropped from 13 percent
to less than 3 percent.
Soviet trade with the developed West in-
creased by about one third in 1973 after a 25-
percent increase in 1972. Moscow's trade with the
West grew faster than its trade with the com-
munist countries; it exceeded $9 billion, including
large imports of machinery, equipment, and grain.
Soviet imports from the West continued to grow
much faster than exports; the hard currency
deficit in 1973 was a record $1.7 billion. The
USSR financed this deficit by selling gold and by
drawing on Western credits.
Moscow's economic goals for 1974 indicate
that the economy will continue essentially on its
present tack. The major thrust of the 1974 plan is
to ensure an uninterrupted supply of fuel to in-
dustry while providing an additional boost to
consumer-goods production. Although the
scheduled industrial goal (6.8 percent) is within
reach, prospects for achieving the planned 7.3
percent gain in agricultural output are dim unless
the above-average weather conditions of last year
are matched in 1974.
The original goals of the 1971-1975 plan
called for continuous upward growth, with par-
ticularly high rates scheduled in the final two
years. The 1972 slump delivered a severe blow to
these plans, and the recovery last year only par-
tially made up the deficit. Thus, despite the con-
tinued expressions of optimism in the Soviet
press, Moscow cannot realistically expect to
achieve many of its original goals.
Harvesting wheat
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EASTERN EUROPE: A PROSPECT OF PROSPERITY
fhe economies f the six embers of the petroleum and to deal with long-standing in-
Council for Mutual Economic Cooperation in efficiencies in fuel consumption. Romania's ra-
Eastern Europe grew rapidly last year and ambi- tioning program also is designed to generate more
tious plans have been announced for 1974. Ful- hard-currency oil exports.
fillment depends on avoiding balance-of-payments
pressures as a result of higher world prices for raw
materials and on achieving the substantial gains
slated for agricultural output.
1he 1973 targets for national income, in-
dustry, and agriculture generally were met or
exceeded. Romania, Bulgaria, and Poland
achieved the fastest growth rates; Czechoslovakia,
East Germany, and Hungary recorded moderate
growth. All countries had good harvests-even
Bulgaria and Romania, which fell short of pro-
duction goals.
East European consumers came in for their
share of the growth in 1973. Most of the coun-
tries have increased domestic supplies of meat and
consumer goods, and all of them continued to
hold the line on retail prices. Retail trade is in-
creasing faster than national output, however, and
imports of consumer goods are on the rise
throughout the area. These gains have helped to
ease the pain of longer term problems such as the
shortage of housing. Waiting time for apartments
still approaches eleven years n some major cities
and huge investments will be needed to reduce
the lag noticeably. The consumer fares worst in
Romania, where an increased output of consumer
goods has been largely siphoned off into exports.
Current plans reflect the successes of last
year; even higher growth rates are earmarked for
national income and industrial production than
were planned for 1973. Meanwhile, as long as the
results continue to be favorable, the governments
of the East European countries are not likely to
rock the boat by instituting economic reforms.
Import prices of agricultural products and
other materials not related to the energy field are
probably of more importance to the 1974 plan.
Eastern Europe is banking on a good harvest to
reduce its agricultural import bill, which almost
doubled last year. Czechoslovakia is planning for
a 33-percent increase in the price of imported raw
materials, while Hungary and Romania expect
similar increases. If prices increase faster, or if
harvests do not meet planned levels, balance-
of-payments strains will occur. Some adjust-
ments-such as cutting imports of machinery and
equipment or reducing consumer imports--might
be necessary.
Communist Economic Growth
The plans for this year should not be seriously 110
affected by energy shortages, since the USSR will
continue to supply almost all of Eastern Europe's
oil needs under trade agreements due to run icc
through 1975. Some conservation measures have
been taken to hold back hard-currency imports of
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/.
1973 1974
Preliminary Plan
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_ 1*5LUKt I
MBFR: TALKS BOGGED DOWN
J INo progress has been made in resolving the
major substantive differences at the force re-
l duction negotiations that resumed in Vienna on
4.Ll ~_._........ 17 T4,.. n1 IT(1 and \A/arca\A/ Pact nartici-
forces. The Soviets, however, have done little to
speed the pace of the talks. They initially rejected
4- pants are each questioning whether the other is ,4~> crecnriev ul -u'ly -yu--
The Soviet delegates and MBF in a speech during his visit to Cuba, re-
iti
i
ts pos
hardening
on.S
boss Brezhnev have signaled Mos-
rt
i
t
y
pa
ov
e
cow's impatience about the lack of progress and-
about what the Soviets believe is a reluctance on
the part of the West Europeans to reduce their(rt
a proposal that the unproductive plenary sessions
be curtailed and negotiations be conducted in
informal meetings of small groups; the Soviets
then reversed themselves and agreed to such a
meeting this week
? with the exception of the US, the West-
ern allies no longer appear interested in re-
ducing their forces7
flected this reserved attitude toward force reduc-
tions and the less enthusiastic Soviet approach to
detente in generaaLln informal bilateral meetings,
however, the Soviet delegates in Vienna have con-
tinued to suggest that the Pact might accept the
NATO proposal that a first phase of reductions
involve only US and Soviet forces. The Soviets
insist that they must receive iron-clad guarantees
that there will be a second phase of reductions,
and that the West Europeans-particularly the
West Germans-will cut their forces
5- yNothing the Soviets and their allies have said ~ IThe Soviet representatives have also indi-
suggests that they have altered their goals, the cated interest in the NATO "common ceiling
principal one being to obtain reductions of West e approach, while continuing to stress that air force
European-and particularly West German-forces. L(;manpower must be included if a common ceiling
In the plenary sessions, the Pact representatives , is to be established. They have also suggested that
have made two general points: L( the common ceiling should be set at 800,000 men
rather than 700,000 as NATO has proposed. A
? they have examined carefully the West- Soviet delegate has also admitted that, according
ern proposals presented on November 22 and to Soviet analysis, the Pact has about 50,000
found them wanting; more men under arms in central Europe than
NATO doesl
? the Soviet draft agreement, submitted
on November 8, can serve as the basis for a 2_5 fhe Western allies, for their part, have used
rational reduction scheme that will not en- the plenary sessions to present various aspects of
danger the security of any state. their proposal in greater detail, but have pre-
sented nothing new. Now that the Soviets have
In particular, the Pact spokesmen have em- agreed to hold informal meetings, the allies will
phasized that: 1-? propose that the negotiators focus their attention
on a first-phase agreement that would lead to
? all parties to an eventual agreement must 25 reductions in US and Soviet ground forces. To
simultaneously reduce their forces and partici- win Soviet acceptance, the allies have agreed to
pate in all phases of reductions; inform the Soviets that a first-phase agreement
could contain a provision for a second phase of
? the Pact's superiority in ground forces is negotiations and that the other direct partici-
balanced by NATO's superiority in nuclear pants-the West Europeans-would participate in
and air forces; a second phase of reductions leading to a com-
? hence, air forces and nuclear weapons
must be reduced;
mon ceiling
27 The Soviets are having problems with some
of their allies, particularly the Romanians. The
? there should be sub-ceilings on individ- latter have made clear to Western representatives
ual European as well as US and Soviet forces; that they are the odd men out on the Pact side,
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and have suggested that they would leave the
talks if they were not included in discussions of
substantive problems?
'15- rOn the Western side, the British remain the
most skeptical about the negotiations and are
reluctant to concede anything to the Soviets.
They have advocated submitting detailed informa-
tion to demonstrate that the Soviets have greatly
increased their forces in central Europe since
1968. Such a course of action would probably
25X1 lead the Soviets to bring up allied force improve-
ments and could lead to arguments about data
BASE ISSUE STIRS ICELAND
_. The question of whether to close the NATO
base at Keflavik or simply reduce the number of
US personnel is the consuming foreign policy
issue in Iceland today. Unlike the fishing dispute
with the UK, which united all Icelanders, the base
issue has not only split the coalition but has also
fragmented the political parties. The initial suc-
cess of a pro-base petition campaign is worrying
opponents of the base, particularly the Commu-
nists, and has increased pressure on other govern-
ment leaders to resolve intra-party differences and
proceed with the base negotiations.?
their own anti-base drive. The signature campaign
also prompted Progressive leaders to finally put
together a counter-proposal to the US position. It
calls for sharp reductions in base personnel now
round three times1
.Y f The pro-base petition has collected some
30,00 names since it was started in mid-January,
leading the Communists to step up the tempo of
and, eventually, total withdrawal of US forces.
This stimulated the party's dormant right wing,
which backed the signature campaign, to increase
support for the base against the wishes of the
party majority. Progressive Prime Minister Johan-
nesson is now desperately trying to keep the left,
center, and right factions of his party together.]
)_`7 Journalists and some politicians have sug-
gest d submitting the base issue to a referendum
as a way of minimizing fragmentation within the
parties, but most leaders are reluctant to face the
finality of a referendum. Next to fishing rights,
the base is the only foreign policy issue of any
consequence in Iceland, and even the parties of
the center have been able to use it to advantage in
the past.?
fThe current situation seems to favor the
supporters of the base. Although Foreign Minister
Agustsson recently reiterated his hope that ways
could be found to fulfill Iceland's NATO obliga-
tion without having foreign troops in the country,
a member of his party's right wing stressed the
necessity and desirability of having the US forces
remain. The leader of the Liberal Left Organi-
zation said he believed that Iceland's defense prob-
lems could still be handled best by the US and
NATO, with perhaps some minor reductions.7
1(p The opposition Independence Party-Ice-
land s largest-favors retention of the base but it
'
has not been in the forefront of the signature
Valks between the US and Iceland began last11 campaign in order to avoid "scaring off" moder-
Nove ber in Reykjavik. The Icelandic side was ates from other parties. The other opposition
represented by Foreign Minister Agustsson of the group, the small Social Democratic Party, is be-
Progressive Party-the main ipartner in the three- lieved to have drafted the pro-base petition. While
party coalition that includes the Communist not calling for maintainance of the status quo at
People's Alliance and the Liberal Left Organiza- the base, the Social Democrats probably seek
tion. The talks were adjourned after a few days, only minor changes in the agreement with the US:1
however, and Iceland has postponed the second !
L';? According to Article VII of the US-Icelandic
basd agreement, either signatory must give a one-
year notice before the forces can be withdrawn. If
the current Icelandic Government is to honor its
coalition agreement to have the defense force
leave during the current tenure, it will have to
make a decision about the base before summer
because its mandate expires in June 1975.
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,q fPrime Minister Rumor's credibility with or-
ganized labor is being tested by top union leaders
who are demanding faster progress on a broad
range of social and economic reforms. Italy's
three major unions called a general strike this
week in Milan and have threatened a nationwide
strike if they are not satisfied with the results of a
meeting with Rumor on February 8.3
30 [Labor's continued cooperation is essential to
umor's efforts to solve the country's serious
economic problems. Since his center-left coalition
of Christian Democrats, Socialists, Social Demo-
crats, and Republicans took office last summer,
Rumor has benefited from labor's moderate
policy of refraining from major strike activity and
excessive wage demands. The main impetus for
labor's restraint has come from the powerful
Communist Party, which is seeking to demon-
strate, through its influence with the unions, that
Italy's economic and social problems cannot be
solved without Communist participations
3 o [Labor leaders were able to defend this policy
to their militant rank-and-file until the energy
shortage wiped out some of the government's
progress against inflation and began to erode ear-
lier wage gains1 As compensation for these set-
backs and to keep the militants in check, union
chiefs have been calling for the immediate imple-
mentation of a series of social and economic
reforms that would improve worker benefits and
create more jobs)
36 [Action on reforms, however, has been held
up by long-standing differences among the coali-
tion parties. They differ over the priority that
should be assigned to expensive social programs at
a time when the government is trying to stimulate
economic recovery. As usual, the main dispute is
between the Socialists, who vigorously defend
labor's demands, and the Republicans who, as
advocates of budgetary austerity, insist that
costly reforms be put off until the economic
situation improves. I
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j LLabor leaders have reportedly lost confi-
dence in Rumor's ability to resolve differences
among the coalition parties-a trend illustrated by
one top union official's characterization of the
Prime Minister as a "cadaver." In their view,
Rumor's government is becoming increasingly
preoccupied by issues unrelated to labor's prob-
lems, such as the im ending national referendum
on legalized divorce.
shortcomings.
growing pressure on the Communist leadership
from the rank-and-file was reflected in the resolu-
tion that emerged from the party's last direc-
torate meeting. Although the resolution stopped
short of calling for Rumor's ouster, it was the
party's harshest attack so far on the government's
The government's failure to deliver on re-
forms might also force the Communist Party to
stiffen its opposition. Much of Communist chief
Enrico Berlinguer's prestige is riding on his pro-
gram of increasing cooperation with the governing
parties. Continued refusal by the coalition to im-
plement reforms would make this policy less de-
fensible in the eyes of the party membershiplEfhe
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PEKING, MOSCOW, AND CONFUCIUS
~
ign
eking's current propaganda ca np
againt Moscow is focusing largely on domestic
political issues in both the USSR and China. Not
only have the Chinese vociferously condemned
Moscow's handling of its own internal affairs, but,
more significantly, they have injected an anti-
Soviet line into the still boiling "anti-Confucius
campaign," an on-going political movement
within China that is almost certainly connected to
differences within the Chinese leadership.
The current round of attacks began with a
blast against Moscow occasioned by the publica-
tion in the West of Solzhenitsyn's Gulag Archi-
pelago. After having avoided comments on dissi-
dents in the USSR for a number of years, Peking
accused Moscow's leaders of being "fascists" and
of administering a police state. While Solzhe-
nitsyn was not mentioned by name, it is clear that
they had him in mind and that they were intent
on adding to the problems of the Soviets on this
sensitive issue.
This broadside was followed closely by the
expulsion of five Soviet diplomats on espionage
charges, the first such action, since the Cultural
Revolution. Peking drew special attention to this
incident by publishing a lurid account of the case
and followed with a harshly worded official note
protesting Moscow's retaliatory action of "ex-
pelling" a Chinese diplomat already on his way
home. Rubbing salt into the wounds, Ambassador
Tolstikov was then involved in an auto accident
which he-and many in the diplomatic commu-
nity in Peking-considered to be a deliberate prov-
ocation.
Running through the Chinese polemics on
the "spying" incident are charges that Moscow
not only is conducting espionage against China,
but that it is attempting to fish in troubled Chi-
nese political waters. Just five days after the ex-
pulsion of the Soviet diplomats, People's Daily
republished an article charging that Moscow was
"worshiping Confucius" as a means of subverting
the Chinese regime, restoring capitalism, and turn-
ing China into a Soviet "colony." "Worshiping"
Confucius, the article added, was the equivalent
of backing such modern Chinese Confucians as
Liu Shao-chi and Lin Piao, both of whom were
accused of having "pro-Soviet" views after their
disgrace. Significantly, the recent diatribe against
Italian film-maker Antonioni's 1972 video docu-
mentary on China also charged the Italian film
maker with spying and with doing the bidding of
the Soviet Union.
These developments strongly suggest that
the current, well -orchestrated accusations of So-
viet meddling in Chinese domestic affairs may in
part be designed to discredit elements within the
Chinese political hierarchy. In the past several
years, and particularly since the Tenth Party Con-
gress last summer, Chinese officials have ex-
pressed considerable concern that Moscow might
try to exploit disagreements within Peking for its
own ends. Peking may now be preparing to make
specific allegations along these lines. This is at
least one conclusion that could be drawn from a
recent remark by Vice Foreign Minister Chiao
Kuan-hua that Peking has "bigger fish to fry" in
connection with the spying incident.
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LAOS: NEGOTIATIONS AND DEMONSTRATIONS
3.7 The last major sticking point in the pro-
tracted negotiations over procedures for neutraliz-
ing Vientiane and Luang Prabang has been re-
solved. Prime Minister Souvanna this week capitu-
lated to Lao Communist demands that the Joint
Police Force, called for under the terms of. the
September 1973 protocol, assume all the func-
tions and responsibilities of the present govern-
ment's urban police in both capitals. Negotiators
on the government side had for weeks argued that
the metropolitan police must not be disbanded,
and that the Joint Police Force should limit itself
primarily to protecting members of the new coali-
tion government
3 j \Assurances from Soth Phetrasy, currently
the senior Pathet Lao representative in Vientiane,
that resolution of the contentious neutralization
issue could lead to the formation of a new coali-
tion as early as February 21-the first anniversary
of the Laos peace agreement-apparently per-
suaded Souvanna that the time was ripe for some
significant concessions. For their part, the Lao
Vientiane with a list of Lao Communist ministers
for the new government. There is also the still
unresolved question of whether the new govern-
ment can be invested without constitutional ap-
proval by the National Assembly.
~ 6 rMeanwhile, the Prime Minister and other
senior political and military officials are appre-
hensive that student protest demonstrations may
spread from the provinces to Vientiane, possibly
embarrassing the government in its negotiations
with the Pathet Lao. They are also worried that
an unruly demonstration requiring the interven-
tion of security forces might lead to a clash be-
tween government and Pathet Lao troops in and
around the capital
The normally quiescent Lao student cornmu-
i y began peaceful demonstrations against fuel
d- shortages, inflation, and governmental corruption
in the southern city of Pakse on January 23-24.
The demonstrations have since spread to Savanna-
khet and Kengkok in central Laos and to Khong
Island on the Lao-Cambodian border. Leaders of
the Vientiane-based Lao Student Federation,
which has organized and supported the provincial
protests, have threatened demonstrations in the
administrative capital unless Souvanna personal'25X1
attends to their grievances. The Prime Minister
met with federation leaders on February 5, and
reportedly won assurances from them that no
demonstrations would be staged in Vientiane in
the near future
L/ 3 FThe recent exploits of students in Thailand
have apparently had a profound impact on the
Communists have agreed to allow the incumbent a-
civil administrators in the two capitals to remain
in place after the new government is formed) y6
federation, and current economic difficulties in
_
i
iI I
for th
-.--. ----._._._.n
e
r m
rist
t
~y There is no hard evidence that the Lao Commu-
confident that a new government can be formed
in the near future, implementation of the neutral-
ization agreements may require considerable time.
Moreover, the Pathet Lao have yet to return their
chief political negotiator, Phoun Sipraseuth, to
student unrest, but there are indications that Sou-
vanna's opponents in the National Assembly may
be preparing to jump on the protest bandwagon
25X1 25X1
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j' [Cambodian Army units made moderate gains
on Phnom Penh's southern front this week as
Khmer Communist ground units showed signs of
weakening. The insurgents offered little resistance
to a flanking maneuver around the western end of
the battle line along the Prek Thnaot River. At
mid-week, army units in the center of the defense
line had bottled up the few insurgent elements on
the river's north bank.1
5S [Communist artillery units in the south re-
mained within range of the capital, however, and
rained shells on the city's southwestern sector on
February 2, causing more civilian casualties. In-
surgent mortar and recoilless-rifle crews also
carried out daily shellings of Phnom Penh's south-
ern suburb of Takhmau, adding to civilian losses."
VOn the domestic political front, the govern-
ment's cautious strategy for containing student
57
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low ot:urlt: I 11111W
unrest was put to another test with the disclosure
that four students detained by army personnel
have been killed by their captors. The four had
been arrested on charges that they were inciting
panic in Phnom Penh during intense shellings of
the city late last month. The government's public
pledge to investigate the incident fully and the
arrest of the military men involved has helped to
lessen tensions. The recent enactment of tough
new decrees further curtailing such constitutional
rights as freedom of assembly also helped keep
radical students in check?
,},f The Buddhist clergy in Phnom Penh is also
showing signs of restlessness. At mid-week a new
association of neutralist-minded monks began a
hunger strike to put pressure on both sides to
begin negotiations. An association of student
monks had earlier called for the opening of peace
talks. It also asked that the big powers help bring
about a rapid end to the conflict.
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SOUTH KOREA: SILENCING CRITICS
I in the months since President Pak Chong-hui ('3 fPak is increasingly concerned about the ac-
threatened to imprison critics of his regime, most tivities of ministers involved in Christian social-
opposition politicians and dissident intellectuals ' action work. These clergymen are trying to
have sought the safety of the sidelines. Some(, broaden the protest movement to include the
militant clergy and students, however, chose to many working-class people in Seoul who have not
test the government's resolve and have suffered yet shared in the benefits of the South Korean
the consequences] ITwo leaders of a reform cam- "economic miracle." Moving to crush this brand
paign have been sentenced to 15 years in prison- of social activism, the government has arrested
the maximum allowable punishment under the more than 20 ministers. The government-con-
current emergency decrees-and a number of stu- trolled trade union federation has been assigned
dents involved in a mid-January demonstration the task of dismantling the newly formed Protes-
have received terms of u to ten years. More tant-Catholic Labor Affairs Council, which em-
arrests and trials are certain braces 19 social-action groups.
fThe government calculates that tough meas- SIn the effort to undercut his opponents, Pak
ures like these will intimidate the opposition and is willing to use more subtle tactics as well. Rely-
prevent a resumption of campus unrest when the ' ing on tested formulas, he has launched an inten-
universities reopen late this month. Students areG5 sive anti-communist campaign using themes calcu-
now viewed by President Pak as the central ele- lated to appeal to the religious instincts of Seoul's
ment in any effort to challenge his regime. Thus, large Christian community~.f Anti-communism and
government security agents are once again focus- $`1 the Northern threat are also being used to justify
ing on student leaders and professors who sympa- arrests and generally to discredit the opposition.
thize with them' In another political tack, Pak has begun a well-
publicized anti-corruption campaign which he in-
tends to press beyond the limited efforts of the
past. He can also use the campaign to bring waver-
ing government officials into line.
Pak's mix of tactics has not impaired the
resolve of student and Christian leaders to press
for major governmental reform, but they are wor-
ried by what they face. Pak clearly has the upper
hand at this time, and with the extensive powers
at his command, it seems likely that he can con-
tain his critics over the next few months. None-
theless, in Seoul's highly charged political atmos-
phere, Pak runs the risk that some heavy-handed
government move might bring on the sort of
incident-the shooting of a student or the refusal
of a military leader to sanction firing on demon-
strators-that could swiftly ieopardize his com-
mand of the situation.
Pak Chong-hui
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(M
cl)
Japan - South Korea:
OIL IN TROUBLED WATERS
Japan and South Korea, after several years
of n gotiation, signed two agreements last week
opening the way for exploitation of potentially
rich oil and gas deposits on the continental shelf
between the two countries. About three to five
years of intensive exploration will be necessary to
evaluate the potential of the seabed in this area; if
oil or gas is discovered soon, some production
might be possible by about 1980.
i,~ (The first agreement provides for a perma-
nent+demarcation line, equidistant from the Japa-
nese and Korean coasts, in the Korea Strait. Each
country will develop the seabed resources-
broken into zones for concessionary purposes-on
its side of the line. The second agreement pro-
vides for joint oil and gas development in zones of
the East China Sea where Japanese and Korean
claims overlap. In effect, the agreement by-passes
the territorial issue, thereby minimizing delays in
the exploration of the disputed areas and avoiding
unnecessary provocation to Peking, which also
has claims to the continental shelf in the area of
the East China Sea and adjacent waters1
0 P n deference to the Chinese claim, Japanese
Foreign Minister Ohira during his visit to Peking
in early January informed the Chinese about the
forthcoming agreements. The Chinese made no
comment initially, but later told Ohir that they
reserved their position on the issuel Peking has
never specifically defined the extent of its claims
to the continental shelf, though it was invited to
do so by South Korea last year after the Chinese
accused Seoul of "an attempt to grab China's
coastal seabed resources." At that time, too,
Peking "reserved all rights in connection with the
possible consequences" in the area. It held to this
line in a terse Foreign Ministry statement on
February 4 regarding the new agreements and
added that the issue should be decided "through
consultation." This has again rompted a call
from Seoul to discuss the matter.
oil agreement as a sellout of Korean interests and
declared the arrangements "null and void." Taipei
voiced its reservations in discussions with South
Korean legislators. The Nationalists noted that
the southern part of the joint development zone
overlaps a portion of the continental shelf "under
Republic of China control.'j
0 [Joint exploration of continental shelf areas
without prior settlement of outstanding territorial
claims is an unusual procedure. It could serve as a
useful precedent for future agreements on ex-
ploration of seabed resources in other disputed
areas, such as the Senkaku Islands sector now
claimed by China, Taiwan, and Japan.
[Other claimants have also been quick to
state their positions. Pyongyang denounced the
Area claimed by Korea
I Zone number
Area claimed by Japan
Possible oil area
----- Joint development area
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remier Chou En-lai, Burin' talks with Jap-
anese officials, indicated that China produced 1
million barrels per day of crude oil last year-sub-
stantially more than the 700,000 to 800,000 bar-
rels per day estimated by Western industry and
government analysts. In other meetings with the
Japanese, Chinese officials provided output data
for 1971 and 1972 that also indicates much
higher production than previously estimated; re-
cently acquired data support the Chinese claims.
Production at the rate of 1 million barrels per day
gives added credibility to reported Chinese pro-
posals to increase crude oil exports to Japan from
the 60,000 barrels per day scheduled for 1974 to
100,000. The most recent proposal to increase
exports was put forward by Deputy Premier Teng
Hsiao-ping on January 17.
The Chinese have been quick to use their
available production to profit from disruptions in
the world petroleum market. For example, ex-
ports of petroleum products to Hong Kong have
been stepped up. Moreover, at the expiration of
China's current contract with Japan this March,
Peking reportedly will raise the price of crude oil
to Japan from $3.75 a barrel to $8.60 a barrel.
In earlier discussions with the Japanese,
Peking expressed interest in some form of cooper-
ative development of China's offshore reserves.
There have been a number of reports that negotia-
tions are under way, but Peking has probably
made no final decision. It is possible that, rather
than concluding a bilateral agreement with the
Japanese, the Chinese would prefer to deal with a
consortium of Japanese, US, and West European
firms. Prime Minister Tanaka himself was promot-
ing such an arrangement last fall.
Peking's positive attitude toward cooperative
ventures has been influenced by the alacrity with
which the large international oil firms have moved
into the East and South China seas and by pos-
sible future developments in the Law of the Sea
that could restrict Chinese access to these oil-rich
areas. Peking is apprehensive that, unless it pro-
ceeds with the development of these areas, it may
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SECRET `~
lose out; recent clashes with the South Viet')' \the four include two members of the Popular
namese over control of the Paracel Islands suggest Front for the Liberation of Palestine and two
the degree of China's concern. Lacking the tech- members of the Japanese Red Army, which has
nology to develop deep offshore areas independ- carried out terrorist acts elsewhere in support of
ently, the Chinese are being forced to consider the Palestinian causer Popular Front statement
cooperative arrangements with foreign firms with 7 3 said the sabotage was a consequence of the
the requisite technology. Domestic and interna- alleged anti-Arab stance of both the oil companies
tional politics complicate China's choices with and the Singapore Government.
regard to cooperative ventures, but political prob-
lems will have to be weighed against potential
economic gains.
-18 [The terrorist attack on an oil facility last
week brought home to Singapore the hazards of
its relations with Israel. Besides maintaining dip-
lomatic ties with Israel, Singapore has for the past
eight years employed Israeli advisers in developing
its armed forceq~Although it has come to fear
that their presence might jeopardize continued
deliveries of Arab oil, it decided to keep on the
15 remaining Israelis because the training ar-
rangement is nearing completion and because the
Arabs have not made an issue of the Israeli aids
`19 CSingapore is particularly concerned that its
Israeli ties could become a liability in the energy
crisis. The bulk of the crude oil refined in
Singapore comes from the Persian Gulf, and any
disruption in these extensive refinery and ship
bunkering operations would be a serious eco-
nomic blow. This dependency has prompted Sing-
apore to try to improve its image in the Arab
worlcj.[It joined its partners in the Association of
Southeast Asian Nations in deploring Israeli occu-
pation of Arab territory, and Foreign Minister
Rajaratnam is now on a good will tour of the
Middle East-1
-19 ingapore's forbearance in the difficult and
draw -out negotiations with the terrorists also
"r
reflect~`a desire to avoid antagonizing the Arabs.
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J 4s Mrs. Meir continues her negotiations for a
new governing coalition, most Israelis appear to
believe that the next step toward a peace settle-
ment with the Arabs will be to work out a disen-
gagement pact with Syria. It is generally believed
that this will require the direct intervention of
Secretary Kissinger 1,
lc! lTel Aviv so far remains adamant for the
record at least-that it will not begin talks with
the Syrians until Damascus submits a list of its
Israeli POWs and allows Red Cross visits to them.
Domestic pressures for speedy resolution of the
POW issue are strong, however, and impel Mrs.
Meir to seek a compromise with Damascus
`_ -4Meanwhile, the government is evidently pay-
ing increasing attention to the thorny Palestinian
issue, although any negotiations witl~ he Arabs
on the subject are still some time offliPreferring
-Q/to deal directly with Jordan, Tel Aviv appears to
be trying to facilitate a limited re-introduction of
Jordanian authority on the West Bank in order to
strengthen Amman's position there vis-a-vis the
Palestine Liberation Organization.1
Rumors continue to circulate among West
[an
J
ers that Tel Aviv and Amman have secretly
agreed to a gradual reinstatement of Jordanian
civil control on the West Bank, leaving only the
area's security in Israeli hands. US consular of-
ficials in Jerusalem have learned of recent Israeli
attempts to recruit pro-Husavn West Bank nota-
bles for positions in a West Bank administration
that would be under greater Arab controfj
cf L CA high Israeli Foreign Ministry official also
told the US Embassy in Tel Aviv that Amman
recently resumed paying the salaries of its former
West Bank civil servants who have continued in
their positions under the Israeli occupation and
has taken other steps to improve its position on
the West Bank-aooarently all with tacit Israeli
25X1 blessings.
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Haykal Ousted
O/D fPresident Sadat moved against one of the
most prominent men in the Arab world when he
dismissed Al-Ahram editor Muhammad Hasanayn
Haykal last week. Haykal's contacts with ruling
circles have been sporadic since Sadat assumed
the presidency three years ago, but he was a
power in Egyptian politics during the Nasir era,
and he had retained his prominence in Egyptian
and Arab press circles
L)
D :Although Sadat has appointed Haykal as
presidential press adviser, the assignment is only a
polite cover for an effort to silence the increas-
ingly outspoken journalist. The proximate cause
of his dismissal from Al-Ahram was probably a
column he wrote on February 1 attacking the US,
but Haykal has been giving Sadat cause for dis-
comfort for some time. Since the cease-fire last
October, Haykal has consistently been pessimistic
about prospects for a peace settlement and skepti-
cal about US intentions-opinions that run coun-
ter to Sadat's views and actions.?
96 \Haykal may not be so easily quieted, and
4 ight well refuse the advisory post Sadat is offer-
ing. His ability to cause serious trouble for Sadat
is limited, however, now that he has been de-
prived of his public voice by his dismissal from
the newspaper
0 Any potential discontent in press circles
should be eased by the appointment of Ali Amin
to succeed Haykal as managing editor of Al-
Ahram. Amin is a respected journalist whose re-
turn two weeks ago from nine years of self-
imposed exile evoked widespread acclaim in the
Cairo press. His appointment may also mollify
those among Al-Ahram's intellectual establish-
ment who will be opposed to the paper's new
board chairman, a position Haykal also had held.
Deputy Prime Minister Hatim, an unpopular fig-
ure because of his involvement in a press purge a
year ago, now has the post
Cabinet Reorganization Possibly Postponed
T [President Sadat may have decided to post-
pone his planned cabinet reorganization. Promi-
nent Cairo commentator Ihsan Abd al-Quddus
noted in his weekly column on February 2 that
extensive publicity on the cabinet consultation
last month had given the mistaken impression
that Egypt was in a "state of relaxation" that
would permit full concentration on reconstruc-
tion to the detriment of continued efforts to
regain Arab territory
910 rThe cabinet shuffle was expected to bring
Economy Minister Hijazi to the prime minister-
ship, which Sadat himself has held for the last
year. Hijazi has been heavily involved in a revived
program of economic liberalization that Sadat has
been attempting to implement for some months,
and Sadat's projected cabinet had been widely
billed as a government of reconstruction:?
CIO [Quddus emphasized that his predictions of a
postponement were his own opinion and, despite
the fact that he often reflects Sadat's thinking, he
does not always have the inside track with the
President. He is correct in his assessment, how-
ever, that Sadat does not want to give the impres-
sion that Egypt regards the struggle with Israel as
over and is ready to let down its military guard
and concentrate solely on domestic moves.1
9o This is particularly important to Sadat at
this ime when he is suspected by many Arab
states of having abandoned the Arab cause in
order to seek a unilateral settlement with Israel.
His attempts to convince the Arabs, particularly
Syria, that this is not the case would lose some of
their force if he proceeded with the establishment
of a new cabinet that appeared to be geared only
to Egypt's "postwar reconstruction.'
q0 rSadat may thus feel it advisable to suspend
the cabinet shuffle until after a Syrian-Israeli dis-
engagement agreement has been reached. In the
meantime, with or without a formal reorganiza-
tion, he will probably continue, perhaps less os-
tentatiously, with his plans for reconstruction and
economic liberalization.
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USSR-CUBA: BREZHNEV GOF_S HOME
G
Brezhnev was less tn4Jnthusiastic about his
trip To Cuba to begin with, but after a week of
back-slapping and speech-making an obviously
fatigued General Secretary could take solace that
at least he made some headway with Castro.
There were no dramatic breakthroughs, no major
new agreements, and no evidence that Cuba
would be any less of a drain on the Kremlin's
treasury. Still, the visit did serve to tie Cuba more
firmly to the Soviet orbit, and Brezhnev probably
is now more confident than before that Castro
can be brought to accept, however grudgingly, the
Soviet view of the benefits of detente.
Brezhnev's round of activity on the island
resembled his triumphal tours of loyal East Euro-
pean countries. That tone was evident in the final
declaration, in which the two leaders expressed
"complete identity of views with regard to the
present world situation." The Soviet leader laid a
wreath at the tomb of a revolutionary patriot,
spoke at a mass rally, got an award and opened a
vocational school in Havana.
l-he declaration contained copious refer-
ences to increasing the effectiveness of bilateral
cooperation, wider contacts between Soviet and
Cuban personnel, and the integration of the
Cuban economy into CEMA. The Soviets clearly
intend to keep close supervision over the Cuban
economy. There was no mention of future mili-
tary assistance, but Brezhnev ,probably agreed to
consider Cuban requests for more modern
weapons. Cuban Armed Forces Minister Raul
Castro flew to Moscow the clay after Brezhnev
arrived home.
There had been rumors that the Soviets
would press Castro to improve relations with the
US, and a Soviet news item released after Brezh-
nev's departure hinted at this. Although Castro
praised detente and Brezhnev's personal efforts
toward this goal, neither leader publicly referred
to US-Cuban relations. Castro seems to have been
satisfied that Cuba's interests will not be com-
promised in Moscow's bilateral dealings with the
US. This is evident in the declaration's support
Airport farewell: Brezhnev and Castro
for ending both the "blockade" of Cuba and the
US presence at the Guantanamo naval base.
Neither side criticized China by name, but
Castro's implicit criticism of Peking and his en-
dorsement of Moscow's Asian collective security
proposal brought his regime closer to the Soviet
viewpoint than ever before. While the declaration
endorsed international communist unity, there
was no mention of a world communist conference
and no confirmation that a rumored meeting of
Latin American communist leaders took place in
Cuba during the visit.
Moscow's restraining influence on Havana is
most clearly reflected in the declaration's rejec-
tion of the use of force in international relations
and in its call for respect for sovereignty and
territorial integrity in the Western Hemisphere. At
the same time, this language falls short of the
explicit rejection of communist export of revolu-
tion, which Brezhnev included in his Havana
speech. The declaration also includes a con-
demnation of "imperialist" efforts to interfere in
Latin American internal affairs, a statement to
which both sides could warmly subscribe.
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CI( Daniel Oduber of the governing National
Liberation Party emerged victorious in the elec-
tion on February 3 and will be inaugurated on
I May 8 as Costa Rica's president for the next four
years. His program is not expected to differ signif-
icantly from that of the incumbent, Jose Fi-
gueres. Oduber will, however, be concerned with
I streamlining the bureaucracy to make it a more
efficient instrument in promoting his party's
social and economic programs.
97 rA possible hindrance to his objectives will be
the lack of a majority in the legislaturq~Although
the congressional votes will not be tallied for
perhaps another week, most estimates give his
party only 25 to 27 of the 57 seats-the first time
in over two decades that it will not have con-
trolled the legislature, even when it has lost the
presidency. Oduber will, therefore, have to solicit
support from other parties to get his program
through congress
tin developing his campaign platform, Odu-
ber relied heavily on teams of specialists, and he
will very likely staff his administration with many
of these technocrats. Furthermore, his first vice
president, Carlos Castillo, is a respected econo-
mist and is expected to act as Oduber's executive
officer
9'9 cthe years of 1 to 2 percent inflation are
gone, but one objective of the new government
will be to keep inflation well below the 15 to 20
percent experienced in 1973. Oduber's monetary
and fiscal policies will therefore be more con-
servative than those of Figueres, and he is ex-
pected to support new tax measures. In dealing
with rural poverty, he plans to continue many of
the present administration's programs, especially
the agricultural extension service. He will also
concentrate on extension of credit, formation of
cooperatives, and the creation of programs to deal
with unemployment and under-employment.
k I Vhe task of making an efficient team out of
Figudres' sprawling bureaucracy is one particu-
larly suited to Oduber's talents. He is a good
administrator and firm disciplinarian. As foreign
minister from 1962 to 1964, he managed to pro-
fessionalize Costa Rica's foreign service and tailor
it to the needs of the nation. He has been de-
scribed by US officials as a man of action and
intellect. In addition to his personal qualifica-
tions, he has a well-organized party-in which he
swings considerable weight-firmly behind himf
IT8 Costa Rica has been edging toward a foreign
policy more independent of the US, and Oduber
will probably not try to reverse this trend. Never-
theless, he is friendly toward Washington, and the
outlook for continued good relations is favorable.
Because of the extensive influence exercised by
some large US investors in the past, however, his
government will very likely set some new ground
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The junta is firming up its grasp on the levers
of power. Civilian influence on the military gov-
ernment, which has been limited, may be further
restricted as a result. A major restructuring of the
government bureaucracy is under way. Although
lines of authority are not yet clearly defined, the
"Advisory Committee" run by army colonel Julio
Canessa is emerging as a key organization. The
committee ostensibly functions as a governmental
general staff for all the junta members, but Ca-
nessa appears be personally close to junta Presi-
dent Pinochet.]
ilO he committee has been at odds with the
junta s cadre of civilian economic advisers over
the effects of the economic recovery program,
certain aspects of which it suspects are geared to
benefit the civilians' personal interests. There are
also indications that the committee is already
crossing the line between neutral staff functions
and the policy-makers' realm. It is recommending
that the government ease the wage-price squeeze
on lower income groups and pay more than lip
service to its goal of winning over urban workers
and rural carnpesinosI
25X1 U I Pinochet may
be disenchanted with the recovery program and
with the ivory tower thinking of the young tech-
nocrats who designed it. The military's inclination bency reportedly had been agreed upon. Late last
to seek counsel within its own ranks may eventu- year, however, Pinochet apparently had to fend
ally give Canessa's group the upper hand. The off a bid by Admiral Merino, the navy com-
junta's determination to reconstruct Chile the mander and a member of the junta, to advance
military's way seems stronger than ever. Firm the first rotation date to January 1. There are
belief that the cause is "just" has begotten a now indications that Pinochet meant a statement
military self-righteousness that leaves no room for on the non-rotation of the presidency to be taken
political dissent and only a limited opening for literally, and it is doubtful that he will step down
civilian advice on,the first anniversary of the coup on September
11.
1)(j ~Pinochet and the army apparently intend to
retain their positions of dominance in the govern- )C) The army considers itself the armed forces'
ment. Prospects for a rotating junta presidency pre ier service and reportedly considers perma-
consequently have diminished. The navy, air ~ nent army control of the junta presidency to be
force, and national police are unlikely to chal-'Old both natural and proper. The other services may
lenge the army's claim to "first among equals" ii seek to increase their influence in the govern-
statusi ment, but they are unlikely to force a showdown
over the junta presidency. Pinochet's tenure may
i U (An intention to rotate the junta presidency thus be indefinite, at least as long as he continues
was implicit in statements made by the junta to enjoy the army's confidence and avoids a seri-
members just after the coup. A one-year incum- ous falling-out among the services.
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INTERNATIONAL MONEY t.J fc i .
Q
Controls on capital movements have been near its level prior to January 19 when Paris let
relaxed in a number of European countries since the franc float, while other major European
mid-January in an effort to bring in more capital currencies-except the Italian lira-have regained
and help offset the higher cost of oil imports. the levels they held before the announcement of
? Bonn lowered the cost of foreign bor-
rowing while doubling the amount that may
be borrowed;
? Brussels suspended its prohibition
against interest payments on bank accounts
held by non-residents;
? Bern lifted its ban on foreign purchases
of domestic securities;
? Paris relaxed restrictions on foreign bor-
rowing and lowered the cost to French banks
of accepting deposits from non-residents.
These moves reverse the trend toward greater
regulation of capital flows that was evident during
the financial crises last year.
The relaxation of controls on capital in-
flows-coupled with the removal of US restric-
tions on dollar outflows-was reflected in a weak-
ening of the dollar on major exchange markets
last week. The French franc has now returned to
oil price hikes by the OPEC producers.
Over the longer term, the relaxation of con-
trols will increase capital mobility between
domestic and the Eurocurrency markets. This
should facilitate a flow from the Arab oil-
producing countries, which have been accumu-
lating reserves since the oil price hikes, to oil-
consuming countries that experience deficits. The
bulk of the payments deficits resulting from
higher oil prices will probably be financed in this
manner as well as by government borrowing in
the Eurodollar market.
In a related development, the International
Monetary Fund has moved to facilitate short-term
financing of oil-related balance-of-payments defi-
cits. In late January, the fund approved the Bank
for International Settlements in Basel, Switzer-
land, as a holder of special drawing rights. The
Swiss bank, often described as the central bank
for other central banks, will now be able to ac-
cept special drawing rights as collateral in its loans
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