WEEKLY REPORT

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A010800070002-6
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• Content Type: SUMMARY

Approved For Release 2008/04/29: CIA-RDP79-00927A010800070002-6
S.W Secret
Weekly Summary
State Dept. review
completed
NAVY review
completed.
Secret
10 May 1974
DIA review(s)
No. 0019/74
completed.
Copy N2
62
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CONTENTS (May 10, 1974)
;er.t Ir.eiligence, reports and analyzes sigrsif-
k through noon on i hursday- It
the Office of Strategic
of Science and Technologfy.
peC6al Reports are listed in the
MIDDLE EAST
AFRICA
5 Portugal: Filling the Gap; Africa
7 EC Ponders Italian Import Curbs
8 Bonn's Record Trade Surplus
9 International Money
10 MBFR: Beginning Again
11 UK: Government-Labor Honeymoon
12 Canada: Trudeau Toppled
13 Czechoslovakia: Presidential Succession
14 Italy: Divorce Divides
15 USSR: Navy Active
16 A Troublesome May for Kremlin
16 USSR-India: Annoyance Anew
17 USSR-Egypt: Military Deliveries Curtailed
1-8 Egypt: Postwar Economic Boom
19 Jordan: Good Economic Prospects
19 India: Railway Strike
21 Iran-India: Better Friends
22 Israel: Still Trying
22 Recycling Arab Oil Dollars
23 Greece-Turkey: A Respite
EAST ASIA
PACIFIC
24 Cambodia: The War Intensifies
25 Laos: Pulling and Hauling
26 China: Non-informative May Day
27 USSR-China: The Bear Growls Carefully
WESTERN
HEMISPHERE
Comments and queries on the contents of this
publication are welcome. Theymay be directed to
the editor of the Weekly Summer
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 Giscard d'Estaing
France
karly polls on the second round of the
French presidential election between Francois
Mitterrand and Valery Giscard d'Estaing on May
19 indicate that the outcome may be very close.
The French electorate clearly wants economic
and social changes, and both candidates are
promising reform. The voters must decide if they
prefer Giscard's moderate proposals or if they will
back Mitterrand's more radical program despite
his links with the Communists.?
In the first round Mitterrand took 43 per-
cent and Giscard 33 percent of the votes. Despite
a record turnout, Mitterrand failed to improve on
the proportion of first round votes usually won
by the left. Inasmuch as the left was almost
completely united in the first round, it is thought
that Mitterrand will not gain many votes in the
second round. Giscard must work hard, however,
to prevent abstentions on the right that would
give the victory to Mitterrand.?
() (The resounding defeat of Jacques Chaban-
Delmas, who won only 15 percent of the votes,
probably spells the end of Gaullism as the prime
political force in France. Most Gaullists agree that
their party is in trouble, but they disagree on how
the damage might be repaired. The realists know
they must now back Giscard if they want to go
on participating in the government, and the party
has officially announced its backing of Giscard in
the second round, The strong feelings between
those who differed over their support for Chaban
or Giscard in the first round will add to earlier
grudges, however, and divide the movement for
years to come.
'7 (The Gaullists are now split into three fac-
tions. The first, led by Interior Minister Chirac,
never did join Chaban's cause and embittered
other Gaullists by aiding Giscard. This group
claims the allegiance of about 70 of the 183
Gaullist deputies. It will probably soon merge
with the second group, led by Housing and Devel-
opment Minister Guichard. This group claims 80
deputies. Guichard stayed out of the first round
infighting, but now believes the Gaullist move-
ment will totally disintegrate if it does not come
to terms with Giscard. Guichard hopes to become
the spokesman for all Gaullists in the between-
the-rounds negotiations with Giscard, and has
been widely touted as a possible prime minister
under Giscard)
The third and smallest faction is led by the
Gaulli t old guard which has resented Giscard for
years~IA member of this faction, the party secre-
tary-general, has in fact now endorsed Giscard,
but this decision probably reflects fear of a leftist
victory rather than a move to repair party unityi
(o [Regardless of which candidate wins the race,
the legislative electoral law, which favors the
Gaullists, is likely to be amended. Both Giscard
and Mitterrand favor representation in the Na-
tional Assembly based on the population of elec-
tion districts. This plan would reduce the number
of rural districts where Gaullists are strong and
increase urban districts from which the other
major parties draw their strength. The Socialists
and Communists-as well as Giscard's Independ-
ent Republicans----would expect to gain many
seats at Gaullist expense under a proportional
system.
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Syria-Israel
Fighting on the Syrian front this week was
down substantially from that of previous weeks as
both sides took steps to limit military activity,
apparently because of Secretary Kissinger's
Middle East trip to mediate an Israeli-Syrian dis-
engagement. The area round Mount Hermon con-
tinued to be the focal point of the actionl
)The heaviest activity occurred on May 2
when Israeli aircraft attacked Syrian and fedayeen
targets in the Ayn Ata-Shaba area of southeastern
Le _b a n o nt I s r a e l i aircraft continued attacks
in this area on May 3 and 4, returning again later
in the week for strikes in the same general area
j llsraeli long-range artillery shelled Syrian
military camps at Qatana and Al Kiswah on May
2. Both camps are well behind Syrian lines. Tel
Aviv claimed that the shelling was in retaliation
for Syrian fire that killed four Israeli soldiers and
wounded two others.
Both Israeli and Syrian aircraft carried out
combat missions over the front on May 6. The
..Israelis struck Syrian positions south of the sa-
lient into Syria, while the Syrians attacked Israeli
targets behind the battle lin67
By mid-week, fighting had again scaled
v down, with only light tank and artillery fire being
I r, exchanged along the front?
Syria continues to receive large amounts of
military equipment from the Soviet Union. Dur-
ing the past seven weeks, Moscow has provided
Damascus with a wide assortment of air and
ground forces equipment, some of which may be
from a new aid agreement obtained by Syrian
President Asad during his visit to Moscow in mid-
April. At that time, the Soviets reportedly agreed
to provide Damascus with substantial amounts of
additional military equipment)
I Since mid-March, over 120 T-62 medium
tanks, some 45 fighter aircraft, large numbers of
armored personnel carriers, and FROG unguided
rockets have been delivered to Syria. M
Press
reports out o Beirut late last month claimed that
Syria was using "multi-headed" surface-to-air
missiles recently supplied by the USSR. These
reports may have been referring to the vehicle-
mounted SA-7 system.
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JCI.RC I NNor
iA flowering of new political parties and
groupings has created a fluid political situation in
Lisbon and has added to the junta's difficulties in
deciding who will participate in the provisional
government it has promised to form by mid-Maya
)Thousands of returning political exiles and
recently freed political prisoners have joined with
other citizens in contributing their energy and
political talent to a number of newly created
political groupings. A majority of these new
parties have a leftist orientation. Their organizers
have emerged from hiding after years of clandes-
tine operations
s socialist Party leader Mario Soares, who has
been very active since his return from exile,
traveled to European capitals last week to meet
with various heads of state and to drum up finan-
cial and technical support from European Social-
ists. He apparently met with some degree of suc-
cess, because Georges Dubunne, the vice president
of the International Confederation of Free Trade
Unions, has said that he and other European labor
leaders will visit Portugal soon to demonstrate
their support for Soares. British Labor Party lead-
ers also have promised aid to Soares and his partv.7
I ``f"' (Soarer is in favor of including Communists
in the provisional government on grounds that it
will be better to have the Communists share cabi-
net responsibility than leave them on the outside
to criticize. He emphasized that the Communists
would be denied sensitive portfolios such as the
foreign, defense, and interior ministry posts.
Soares implied that he would become prime min-
ister.)
IMeanvvhile, the climate of political tolerance
in Lisbon has sparked a rash of political dem-
onstrations and seizures of public institutions.
One large group demonstrated in front of junta
headquarters for better pay and shorter hours.
Last week, well-organized employee groups took
over operations of the telephone company, the
government airline, and some local, government
off ices./
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The junta reacted to this activity on May 5
by issuing a toughly worded statement warning
that such acts will be considered "insubordination
and a crime against the Armed Forces Move-
ment." The Portuguese Communist Party issued a
similar warning, but it has become apparent that
the party is unable to exercise effective control
over the extreme left
T)emonstrations and seizures have dimin-
ished this week, but concern is growing within the
business community that the country is headed
for a period of economic disorder. To reduce the
flow of wealth abroad, the junta on May 8 im-
posed a series of belt-tightening economic meas-
ures, reinforc d by the threat of heavy jail terms
for violations
During the past week the junta leaders began
to amplify their policy toward Portuguese Africa.
The immediate objectives are to put the insur-
gents on the political defensive and to reassure
the sizable white populations of the major terri-
tories that Lisbon will not abandon them:j
In press conferences in Angola and Lisbon,
General Costa Gomes, the number two man in the
junta and chief of staff of the armed forces, urged
the insurgents to stop fighting and participate in a
free political "dialogue" along with other political
forces in the territories and the metropole. His
offer was, in effect, a challenge to the rebels to
prove in the open their long-held claims of wide
popular support. It also was apparently intended
to let the insurgents know they cannot expect
Lisbon to defer to them on the basis of their
alleged military strength or control of territory/
j-I jIthough insurgent leaders immediately re-
jected Costa Gomes' offer, they clearly have been
put off balance by the sudden switch in Lisbon to
a regime advocating major changes in African
policy. They are under strong pressure to com- )Y gust prior to Costa G omes' arrival in Angola,
promise with the junta from independent African the junta dispatched a special representative to
leaders who have supported them over the years : Mozambique to serve as an adviser to the local
and who now sense a possible way out of a II administration. Costa Gomes is planning to visit
black-white military confrontation. At the same Mozambique shortly. Lisbon announced on May
time, however, a number of insurgent organi- 8 that General Spinola will visit Angola in the
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of territorial control and public support they
command, which is much less than claimed,
brought out into the open.?
I Rather than risk such exposure they may try
to force Lisbon to the negotiating table, par-
ticularly in Portuguese Guinea and Mozambique,
where the rebels have strong military positions. In
Angola, however, rebel groups are internally
divided and in sharp competition with each other.
The level of insurgency has been low for several
years, and the rebels may be forced by their own
limitations, and by African pressure, to enter the
political arena as their only hope./
JCosta Gomes' press conference in Angola
was in part an attempt to "show the flag" in
Africa and calm fears of local whites in both
Angola and Mozambique that Lisbon might aban-
don them. The liberal policies of the junta have
sharpened misgivings long held by whites over the
strength of Lisbon's commitment to stay in
Africa
White apprehension has been particularly
noticeable recently in Mozambique. There, a
single unified insurgent movement has been
making slow but steady military gains, which have
now brought them into areas of heavy white
settler concentration, leading the whites in recent
months to demonstrate for stronger military pro-
tection7
JCosta Gomes' visit to Angola was marked by
reassuring public speeches and was followed up
by warnings from local officials that civil disor-
ders would not be tolerated. In the present period
of political euphoria, the junta is anxious to avoid
clashes among social and political organizations
that are certain to emerge in response to the
junta's desire for political liberalization.]
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EC PONDERS ITALIAN IMPORT CURBS
%jin failing to agree this week on a common
response to Italy's import restrictions, the EC
Council gave further evidence of the community's
present ineffectiveness. Using its right under the
community treaties, however, the EC Commission
has sanctioned the Italian measure, subject to
certain limitationq
Commission President Ortoli said after the
meeting that the commission's acceptance of the
Italian action on "a strictly temporary basis"
brings it within the community framework. The
commission's authorization, however, was
described as a device to
camouflage the inability of the ministers either to
approve Italy's independent action or agree on
practical alternatives,
France and Germany, the two EC countries
hardest hit by the move, blocked a council stamp
of approval, primarily because of the impact on
their own agricultural producers/
The preparation by the commission of
special recommendations to harmonize Rome's
policy with the demands of the common agri-
cultural policy will be of primary importance.
German and French objections to the controls
placed on beef exports will force the commission
to report back J~o the council if an alternative
cannot be found.,
" I )The commission will also now suggest fur-
ther moves 'Rome might take to curtail Italy's
staggering balance of payments problem. The
commissioners feel Italy should limit the expan-
sion of its money supply, increase taxes, stimulate
savings and control public expenditures. The com-
mission will work with Rome to develop an EC
approach to the Italian problem and by June 30
will review the entire series of measures and
products affected:?
The council also took no action on a pro-
posal to turn Italy's short-term EC credit line-
which expires in September-into a medium-term
borrowing facility. The move had been opposed
by the EC monetary committee, and in any case,
Italy expressed little interest at this time. The
matter of credit extension, however, is likely to
remain under discussion as Italy will be hard
pressed to repay its $1.8 billion debt to the EC on
schedule
-' 0 The new Italian measure requires the deposit
of fifty percent of the value of imports in a
non-interest bearing account for six months.
Forty percent of Italy's annual imports are af-
fected. The two largest categories-meat and
motor vehicles-are also the EC's primary exports
to Italy. US exports to Italy will be relatively less
affected than those of the EC.]
`) if The deposit scheme aims at curbing Italy's
eco omit problems on three fronts: cutting the
trade deficit; fighting inflation by reducing the
money supply; and inducing capital inflows from
foreign suppliers i tent on retaining their share of
the Italian market
While the move will probably have a bene-
ficial effect on all three counts, it is unlikely to
prove decisive in solving Italy's dire economic
problems. It is designed primarily to help the
economy muddle through to the end of the yeari
1~ .1 Rome nevertheless had to adopt some form
of import restrictions to curb Italy's rapidly
deteriorating balance of payments position. De-
spite heavy borrowing, Italian foreign currency
reserves were dwindling at a rate unacceptable to
both Rome and its creditors. Alternatives to the
scheme were rejected for a variety of reasons. A
sharp lira devaluation would have intensified the
record-breaking rate of inflation while offering
only a delayed improvement in the trade balance.
Differences within the ruling coalition over the
wisdom of using deflationary monetary and fiscal
policy made this course nearly impossible, while
more extreme import restrictions would have vio-
lated the EC treatiesi
-0 ` V'The Nine thus had little choice but to accept
Rome's import restriction plan. While the short
notice given its partners may have violated the
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spirit of the Rome Treaty, the emergency meas-
ure was not illegal. The indecisiveness of the
council debate again demonstrates the divergent
interests of the member states and their inability
to act in concert. The commission action never-
theless does prevent Italy from being isolated
from the community at a time when the EC is
already reeling from a succession of blows, the, 1.1
most recent being the Brandt resignation only the
night before the ministers met/
By bringing the Italian controls under the
EC treaties, the community is not only com-
mitted to search for an EC remedy to the Italian
problem, as required by the treaties, but it can
also defend Italy in the several international
bodies investigating the propriety of the restric-
tions. By emphasizing the severity of Rome's
problem, and making a point of its special nature,
the commission may hope to discourage the use
of restrictive trade measures by other states also
faced with continuing inflation and balance of
payments proble_ s.
BONN'S RECORD TRADE SURPLUS
`Bonn continues to rack up record trade
surpluses, despite an increasing oil bill and the
faltering economies of its major trading partners.
The first-quarter surplus hit a record $4.9 billion?
he large surplus last year resulted in part
from German ability to make timely deliveries.
Unlike other countries, where consumer demand
was high throughout the year, Germany experi-
enced a slowdown, freeing industrial capacity for
export production. The ability of German pro-
ducers to hold export prices down also contri-
buted to rapid sales growth. Imports, on the other
hand, grew relatively-slowly because of stagnating
domestic demand.'
Extraordinary circumstances in the early
part of 1974 accentuated these basic trends. In-
dustrial strikes in Italy and a three-day workweek
in the United Kingdom diverted orders to West
German industry. Release of chemicals and other
materials, which had been held off the market by
German traders during the Arab oil cutback in
anticipation of price rises, also boosted sales.?
First-quarter exports rose 44 percent com-
pare with the same period last year; imports
increased by 29 percent due entirely to higher
prices. Import volume actually declined, while
export volume rose by about 15 percent. West
Germany's trade performance has been a major
factor in the recent strengthening of the mark.
The mark has appreciated 15 percent against the
dollar since January.'
As the special factors fueling the huge first-
quarter surplus fade, the trade balance probably
will narrow. Returns for March showed a decline
in the surplus from the level in February. For this
year as a whole, West Germany will probably have
a surplus of about $11 billion-$2 billion off from
last year's record total. Much higher prices, parti-
cularly for oil, will push up import costs. Slow
domestic growth, however, will keep import
demand depressed. Export growth will probably
be down appreciably; automobile sales, parti-
cularly to other European countries, have already
fallen off sharply. The growth in orders for other
export goods is also decling.
WEST GERMAN FOREIGN TRADE
Quarterly 1973/1974
($ Millions)
Exports
(f.o.b.)
Imports
(c.i.f.)
Trade
Balance
1973 I
13,791
11,846
+1,945
11
15,942
13,401
+2,541
III
18,202
14,041
+4,161
I V
19,471
15,463
+4,008
1974 1
20,183
15,281
+4,902
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INTERNATIONAL MONEY
~ver the last two weeks, the dollar has weak-
ened substantially against most European curren-
cies, while strengthening slightly relative to the
yen. The mark, the guilder, and the Belgian franc
have appreciated more than 2.5 percent against
the dollar, while the pound and the lira also
strengthened substantially. Because of the mark's
continuing strength, the Bundesbank had to pur-
chase Belgian francs and Danish crowns last week
to keep the joint float currencies within the pre-
scribed 2.25 percent band.,/
I -West Germany's continued strong export
rfbrmance in the first quarter this year and its
Percent Change in the Value of the US Dollar Relative to
Selected Currencies Compared With January 2, 1973
"Relative to 16 major currencies.
555819 5-744
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Aug Sep Oct Nov Dec
Following last week's announcement of im-
port curbs, Rome reportedly was able to end its
,massive support of the lira. Market intervention
has cost Italy about $4 billion since the beginning
of the year. Whether Rome can stay out of the
market, without the lira declining sharply, de-
pends largely on the success of the import meas-
ures./
1 ,11._1 I I I I I L, I I I__i
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success in bringing inflation below the US rate are
major factors in the rise of the joint float cur-
rencies. Last Friday, Bonn announced a trade
surplus of $1.8 billion for March, which brought
the first quarter surplus to a record $4.9 billion.
These trade figures again sparked rumors that the
mark would have to be revalued:?
)Uncertainties surrounding the French presi-
dential election have caused the franc to depre-
ciate sharply against other European currencies
during the last two weeks. As in the past, fear of a
leftist government has caused the flight of capi-
tal.
MBFR: BEGINNING AGAIN
The East-West force reduction talks resume
in Vienna this week with little to indicate that the
new round will show more progress than the
previous one. Although the chief Soviet represen-
tative, Ambassador Khlestov, recently said that
the negotiations were "condemned to succeed,"
neither side seems prepared to advance much be-
yond the proposals presented last fall.
The West wants a two-phase reduction lead-
ing to a "common ceiling" on ground forces.
Because the Warsaw Pact has considerably more
ground forces in Central Europe than NATO
does, the pact would be required to make greater
reductions to reach the common ceiling. Under
the allied plan, US and Soviet forces would re-
duce in the first phase and other participants in
the second. The Soviet proposals foresee reduc-
tions that would be less asymmetrical than those
proposed by NATO, with the forces of all partici-
pants reduced from the beginning, including air
and ground forces as well as nuclear weapons.
This negotiating round is likely to continue
the pattern of plenary meetings for the formal
presentation of views and informal sessions for
more candid discussion. The Soviets will probably
continue to push the idea of initial symbolic
reductions-primarily designed to include West
European forces from the start. To entice the
allies, the Soviets have said these symbolic reduc-
tions could be very small and might only cover
ground forces. But the allies remain opposed to
even symbolic initial reductions of their forces.
In pressing their basic proposal and their
symbolic reductions idea, the Soviets will con-
tinue to emphasize the importance of including
West German forces from the very beginning.
Ambassador Khlestov recently remarked to Am-
bassador Stoessel in Moscow that, for the Soviets,
this is not just a military but a psychological
necessity.
There may also be new attempts by the
Soviets to deal bilaterally with the US, a move
that would be staunchly resisted by the Western
allies, who recently have been more cautious on a
number of specific issues. While this caution is
likely to increase as the negotiations become
more complex, British skepticism may be some-
what relaxed.
The caution of the West Europeans about
the force reduction negotiations may be exacer-
bated by the uneasiness many of them feel about
the course of the European security conference in
Geneva. Some suspect that the West has already
given away too much to get agreement on the
"inviolability of frontiers," and they are con-
cerned about how the subject of most importance
to them-the freer movement of people and ideas
between East and West-will be treated. Although
the East has reportedly decided to be more flex-
ible, the conference is currently stalled on the
freer movement issue. The Eastern side may in-
tend to make last-minute concessions, since it still
desires a summit-level conclusion to the security
conference this summer.
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UK: GOVERNMENT-LABOR HONEYMOON
Prime Minister Wilson appears to be gam-
bling that by meeting some of the trade unions'
current demands he will be able to keep industrial
peace, at least until the next election, without
resort to inflationary wage increases. Thus far,
most union leaders have been responsive, al-
though this week one of Britain's largest unions
challenged the government by calling a one-day
strike over a non-wage issue. Wilson is still under
pressure, particularly from the left wing, to call
an election in June, but other party leaders are
urging the prime minister to wait until fall after
vital labor legislation has been passed and EC
negotiations are under way.
Shortly after taking office, Wilson proposed
a "social contract" to leaders of the Trades Union
Congress (TUC). Under such an arrangement, the
unions would agree to keep wage demands within
the limits of Stage Three of the previous Tory
government's counterinflation program. In return,
the government would try to hold down prices
and rents and enact some social welfare measures.
It also agreed to abolish the controversial In-
dustrial Relations Act enacted by the Tory
government.
The Wilson government lived up to its part
of the bargain and last week Employment Sec-
retary Foot introduced legislation to repeal the
Act. Secondary boycotts will once again become
legal, and the closed shop will be given a new
lease on life. Other union demands, however, such
as the restoration of former picketing rights-
opposed by both the Tories and Liberals-were
not included in Foot's bill. To console the unions
for not pressing this demand, the government
proposed cancelling more than $20 million in tax
debts incurred by unions refusing to register
under the Industrial Relations Act. The failure to
register deprived them of tax exemptions. The
opposition could oppose the tax cancellation
scheme, but the Tories, in particular, are not
prepared to bring down the Labor government in
the near future.
Wilson has promised to hold talks among the
TUC, Confederation of British Industry, and the
government to discuss "a wide range of policies of
which the question of incomes is only a part."
Subsequently, he plans to introduce an em-
ployment protection bill, which would establish,
among other things, new conciliation machinery
and provide for voluntary arbitration.
The only real challenge to Wilson's labor
policy thus far has come from the militant
Amalgamated Union of Engineering Workers,
which called a brief strike earlier this week. The
union decided to strike because of a decision by
the National Industrial Relations Court confis-
cating some $500,000 in union assets. The court
action grew out of the union's refusal to pay
more than $117,000 in damages to a small engi-
neering plant as ordered by the Court. The strike
was called off after the Court accepted
anonymous offer to pay the damage levy.
Wilson's courting of the unions may result in
a period of labor peace for the present, but a
protracted honeymoon is not assured for a num-
ber of reasons. Inflation almost certainly will con-
tinue to plague Britain, increasing the chances
that the unions will insist that wages keep at least
abreast of price rises. Inflation contributed to the
abrupt end to labor's cooperation with the last
Labor government. The unions, particularly the
TUC leadership, have a poor track record in main-
taining discipline among the rank-and-file who
undoubtedly would prefer cash to cooperation.
Moreover, more unions now are headed by mili-
tants who are likely to take a tougher line toward
employers as _well hovernment F_
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CANADA: TRUDEAU TOPPLED
Prime Minister Trudeau's minority adminis-
tration fell on May 8 when his New Democratic
allies joined with the Progressive Conservatives to
reject the government's budget proposal. Follow-
ing his parliamentary defeat, Trudeau asked Gov-
ernor-General Leger to dissQlve parliament and set
national elections for July 8!
(Political tension has been building in Ottawa
Tor the past month as Tory MPs hammered away
at Trudeau's economic policies. April was a bad
month for the Liberals: new statistics showed
another rise in the cost-of-living; the prime lend-
ing and home mortgage rates increased; and wide-
spread labor troubles were blamed on the govern-
ment's inability to control inflation. Throughout
this period the Liberals appeared to be flounder-
ing about without any serious direction. At one
point Trudeau even gave his critics some addi-
tional ammunition by taking a week's vacation-a
development few Tories overlooked in charging
that the government was leaderless)
)The Liberal New Democratic alliance had
been showing signs of strain since the beginning
of the year. In the face of this increasingly effec-
tive attack on the government, the New Demo-
crats reassessed their position and decided it was
time to dump the prime minister. Many New
Democratic MPs were concerned that continued
association with Trudeau's policies had become
more of a liability than an asset, particularly
among the party's traditional supporters
If the tone of the budget debate is an indica-
tor, the election campaign is likely to be hard-
hitting. The dominant issue will be inflation; the
cost-of-living rose 9.1 percent in 1973 and is run-
ning at about 10 percent this year?
)In the campaign, the Liberals will stress their
budget proposals, which are aimed at increasing
corporate income taxes and providing hard-
pressed consumers with some relief from higher
prices. The Conservatives are committed to
instituting temporary wage and price controls, to
be followed by a comprehensive program to com-
bat inflation. The New Democrats will advocate,
among other things, an excess profits tax, special
reduced home mortgage rates for moderate to low
income families, and a two-price system-domes-
tic and international-for basic commodities
produced in Canada.?
It seems likely that neither the Liberals nor
the Tories will be able to win a majority of the
parliamentary seats in July. Much will depend on
how the electorate reacts to Trudeau's per-
formance during the campaign. In 1968, his color-
ful style caught the voters' imagination and he led
the Liberals to an overwhelming victory. In 1972,
however, he chose to run a more subdued cam-
paign and his aloofness contributed significantly
to heavy Liberal losses
The course of Canadian-US relations should
remain unaffected by the results of the election.
All parties favor-to one degree or another-
Ottawa's present policy of trying to achieve
greater independence from the US.
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PRESIDENTIAL SUCCESSION
U Czechoslovakia's 78 Year old Pre dent Gen-
era Ludvik Svoboda, is gravely ill and his death
could occur at any moment. Finding a replace-
ment for the widely respected Svoboda is a tick-
lish problem for the regime because the selection
risks altering the leadership's delicate balance be-
tween moderates and hardliners.
The issue of Svoboda's successor has plagued
the regime for some time. Last year, he was
persuaded, to ac-
cept a second ive-year term mn spi .e or is failing
health. Svoboda's progressive arteriosclerosis has
now worsened, and he has been under intensive
care in a Prague hospital since April 25. The
regime has recently begun issuing daily statements
that Svoboda's respiratory and circulatory mal-
functions have further weakened his health.
In selecting Svoboda's successor, the party
presidium (politburo) must at the same time
maintain the delicate political balance, meet Mos-
cow's desires, and satisfy the constitutional
requirement that parliament elect a new president
no later than 14 days after the office becomes
vacant.
The issue of nationality further complicates
the problem. The new President should be a
Czech, because Gustav Husak, the current party
chief, is a Slovak. The two most likely Czech
candidates are Chairman of the Federal Assembly
Alois Indra and Premier Lubomir Strougal. Each
is a Presidium member, but neither would prob-
ably want to take up the largely ceremonial office
of President. If both refuse, the choice might fall
to a less prominent party figure such as Federal
Deputy Premier Josef Korcak, who is also Premier
of the Czech lands.
Another, though less likely, possibility
would involve inducing the 61-year old Husak to
relinquish his job as party chief in order to as-
sume the presidency. There has been recent
speculation that some party leaders believe Husak
too moderate; they would like to kick him up-
stairs in order to install a hardliner as the party's
secretary general. Conceivably, Moscow might
approve such a step as a means of further tighten-
ing discipline in the face of the presumed dis-
ruptive effects of detente on Eastern Europe.
An even less likely option would be for
Husak to assume the presidency while retaining
the top party post. This arrangement existed dur-
ing the 1960s under Antonin Novotny, but his
downfall discredited the practice.
Masaryk.
The most remote possibility is that the
regime might abolish the presidency entirely. This
would make Indra, as chairman of the Federal
Assembly, titular chief of state, much as Nikolay
Podgorny fills that ceremonial post by virtue of
being Chairman of the Presidium of the Supreme
Soviet. Such a step would, however, offend most
Czechoslovaks to whom the post of President of 25X1
the Republic retains some of the prestige given it
after 1918 by its first incumbent, Thomas
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Italian voters go to the polls on May 12 to
decide on repeal of a 1970 law that legalized
divorce. The outcome of the referendum, how-
ever, may determine more than the fate of a
specific law. Most politicians are playing for
higher stakes, and the battle over divorce could
further divide Italy's ruling parties and affect the
Communist Party's drive for a role in the national
government!
The referendum has been postponed twice
on technicalities since 1971 when anti-divorce
activists collected enough signatures to schedule a
national plebiscite on the divorce law. Attempts
to postpone it again failed early this year, and the
campaign has been under way since early April/
At the outset, most participants expressed
their preference for a "civil and responsible" cam-
1 paign. The contest in its last week, however, has
transcended the divorce issue, triggered violence,
and acquired the air of a general political cam-
paign.
The campaign has split the Christian Dem-
ocrats-Italy's largest party-from their three
coalition partners. The Christian Democrats are
campaigning hard against the law while the Social-
ists, Social Democrats, and Republicans want it
reta i nedl
i?. [The referendum has also fostered embar-
rassing ad hoc alliances between the coalition
members and opposition parties on the right and
left. The neo-fascist Italian Social Movement, for
example, is the only party that supports the
Christian Democrats' anti-divorce stand. The
other coalition parties are uncomfortably lined up
with the Communists in favoring divorce
rThe divorce issue has thus been nearly sub-
merged as the themes of anti-fascism and anti-
communism have taken the spotlight. The polar-
11
ization of the campaign has been encouraged by
recent bomb attacks linked to right-wing ex-
tremists and the kidnaping of a prominent public
official by extraparliamentary leftists.']
' [A personal struggle between the leaders of
Italy's two largest parties-Christian Democrat
Amintore Fanfani and Communist Enrico
Berlinguer-has added an additional dimension to
the campaign. Berlinguer tried to get Fanfani to
go along with a plan to cancel the referendum as a
means of avoiding an open fight with the Chris-
tian Democrats. Berlinguer had been arguing since
October that the time was ripe for better relations
between the two parties, a necessary prerequisite
for Communist admission to the government.
Fanfani's refusal to compromise, however, gave
substance to the concerns of more militant Com-
munists who think Berlinguer has gone too far in
his efforts to "compromise."I
The political impact of the referendum will
depend largely on the margin of victory for the
winning side. Most observers expect the outcome
to be close. Both sides would be hard-pressed to
make much of a narrow win. A large pro-divorce
verdict, however, would encourage Communist
chief Berlinguer to keep up his pressure for an
accord with the ruling parties. A resounding
defeat for advocates of divorce would expose
Berlinguer to criticism from Communist hard-
liners. It would also put the Christian Dem-
ocrats-Fanfani in particular-in an even stronger
position)
-/,r, ~ egardless of which side wins, the Christian
Democrats will retain the initiative in the political
"stocktaking" following the referendum. If ten-
sions produced by the referendum cause the gov-
ernment to fall, the Christian Democrats will
probably try to form still another center-left
coalition with the Socialists. The record of center-
left governments over the last decade is unimpres-
sive, however, and a win for the Communist side
in the referendum would inevitably increase pres-
sure for a broader coalition-including the Com-
munists-to deal with Italy's pressing social and
economic problems.
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USSR: NAVY ACTIVE AGAIN
YS the beginning of May, the Soviet Navy
has again become active in various areas of the
world.
A group of Soviet ships-two guided-missile
destroyers, a diesel-powered ballistic missile sub-
marine, and a tanker-arrived in Havana on April
30 to begin a series of port calls and operations
with the Cuban Navy. This well-publicized event
is the eleventh visit by Soviet warships to the
island since! 1969.
On May 6, the Soviet helicopter carrier
Moskva, accompanied by a destroyer and a sub-
marine, began a five-day port call at Rijeka,
Yugoslavia. This is the first time that one of the
USSR's two helicopter carriers has visited a for-
eign port other than Egyptian. The visit further
points up the value that the Soviets place on using
their most modern ships for "showing the flag."
There are indications that a rotation of
diesel submarines in the Mediterranean may be
getting under way. An F-class submarine and a
submarine tender, sighted off the Norwegian
coast early this week, may be the first units of the
replacement group that usually consists of six or
seven submarines. The sighting of only one sub-
marine to date is unusual, but there are probably
additional units following the tender that have
not yet been detected. Submarines in the Soviet
Mediterranean Squadron are usually relieved
every six months, but the group currently in the
Mediterranean has been there well beyond the
normal period.
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In the Soviet far east, a similar rotation is
taking place. Several ships of the Pacific Fleet are
heading south in the South China Sea to replace
units that have been in the Indian Ocean for as
long as a year. This relief force-due to enter the
Indian Ocean next week-is made up of a de-
stroyer, two escort ships, two minesweepers, and
at least one submarine.
Moskva helicopter carrier
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A TROUBLESOME MAY FOR THE KREMLIN
The Soviet leaders face a busy public sched-
ule his month, at a time when difficult and
perhaps controversial policy questions in several
areas have come to the fore.
Late this month the 23 top leaders will begin
a round of electoral speeches preceding the
Supreme Soviet elections on June 16. Selection of
the right formulations for these speeches will be a
serious matter in light of the impending US-Soviet
summit, recent signs of fluidity in cultural and
social policy, and discussion of new measures in
economic management. The resignation this week
of West German Chancellor Brandt adds yet an-
other element of uncertainty for policy spokes-
men. The "general line" on some of these issues
has not been set, and a Central Committee
plenum before the election oratory begins would
thus seem appropriate. Since the issues involve
many unknowns and potentially divisive ques-
tions, however, the leadership may prefer to delay
any formal stocktaking.
The leaders' schedule for the last half of May
is already crowded: the Libyan prime minister's
visit (tentatively "mid-May"), party secretary
Ponomarev's visit to the US (tentatively May
19-29), the Yugoslav party congress which a
senior Soviet leader is expected to attend (May
27-30), and a visit to Moscow by the Austrian
chancellor ("end of May"). If a plenum is to be
squeezed in, it may have to be held soon.
Ponomarev, who is also a candidate member
of the Politburo, will be heading a parliamentary
group scheduled to meet with members of Con-
gress. His delegation will include such officials as
the chairman of the state committee for publish-
ing, the director general of the news agency Tass,
the chief editors of Izvestia and Literaturnaya
Gazeta, and a Pravda political observer. These
men are responsible for how the world is inter-
preted to the Soviet people, and undoubtedly will
be seeking a first hand look at the US political
scene.
An elaborate celebration of the 250th
anniversary of the Soviet Academy of Sciences
has been postponed until later in the year. Hun-
dreds of invitations had been sent to prominent
foreign scientists for the festivities from May 14
to 20 in Moscow and Leningrad. The Academy
notified foreign guests that the observances would
conflict with preparations for the Supreme Soviet
elections.
It seems more likely, however, that the
regime wanted to avoid embarrassing incidents in
a period of political stocktaking.
The ill health
o Academy President Mstislav Keldysh may also
have been a contributing factor in the decision to
delay the celebration.
j ~ (The warm atmosphere generated by Brezh-
nev's visit to India last November has now dis-
sipated, to no one's great surprise, and the two
countries are again sniping at each other
IMoscow is unhappy about the improvement
in US-Indian relations, Mrs. Gandhi's moves to
the right in domestic affairs, and the Indian De-
fense Ministry's desire to diminish India's depend-
ence on the USSR for arms. When the press in
mid-March reported-erroneously-that India had
concluded a naval aid agreement with the French,'
the Soviets reacted quickly, inviting the Indians
/.:"to send a military delegation to Moscow. New
Delhi does not expect much to be accomplished,
however, because of Soviet reluctance to provide
the kinds of assistance India needs to build up its
armament industry:
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[For their part, the Indians are displeased
because Moscow did not respond to their request
for help in restraining great power naval competi-
tion in the Indian Ocean and because the USSR
has persisted it pressing for special military priv-
ileges in India.I
I I jNew Delhi is also upset because only one
new economic agreement advantageous to India
has been signed with the USSR since Brezhnev's
visit--a contract for one million tons of kerosene
and 100,000 tons of diesel fuel. The Soviets are
charging India the current high market price for
,,` badly needed fertilizer and are turning a deaf ear
to requests for food grain and additional fuell
t Ig ffhe Soviets do not wish to be made a scape-
goat for India's current economic difficulties.
Recently, a Soviet official in New Delhi took the
unprecedented step of calling a press conference
to criticize India's performance in meeting its
commitments for the Bhilai and Bokaro steel
plants, two of the USSR's largest aid ventures in
India. Neither is proceeding as rapidly as planned.
Part of the fault rests with New Delhi, and the
Soviets want to make sure they are not blamed
for the delays
\Such bilateral problems are not unusual, par-
ticularly in the economic sphere. They tend to
surface when New Delhi's relations with its neigh-
bors on the subcontinent are relatively good and
the Indians have no pressing need to curry favor
with the USSR. The present frictions between the
two could become more serious, however, if India
continues to move closer to the US or begins to
try seriously to improve relations with the Chi-
USSR-Egypt
MILITARY DELIVERLES CURTAILED
(The Soviets appea - `~
to be tightening the
screws on President Sadat by halting all arms
shipments to Egypt.
The Kremlin apparently decided to hold
back military shipments in late March or early
April-perhaps in response to Sadat's intense
anti-Soviet polemics, which began about that
time.
The interruption of deliveries is the farthest
the Soviets have ever gone in using their position
as a weapons supplier to apply pressure on the
Egyptians. They apparently began foot-dragging
on military aid questions late last year when it
became clear that Sadat was establishing a new
relationship with the US and was turning to the
right in Egypt's internal affairs.
Sadat has muted his anti-Soviet polemics
during the last few weeks, and he and Brezhnev
have exchanged letters discussing their dif-
ferences. It is possible that, in this somewhat
improved environment, Moscow might be induced
to resume limited shipments of military assistance
as an indicator of its good intentions.
USSR may hope that its military aid policies will
trigger significant misgivings within the Egyptian
military concerning the consequences of Sadat's
Nevertheless, it seems likely that even if
some limited shipments are resumed, the Soviets
will continue to press for policies more favorable
to Moscow by withholding the quantities and
types of military aid that the Egyptians want. The
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EGYPT: POSTWAR ECONOMIC BOOM"
\Most of the serious 'canomic problems that
have plagued Egypt for more than a decade now
seem to have disappeared. Since the October war,
Cairo has received offers of more than $3 billion
in funds from both public and private sources,
creating an urban economic boom unparalleled in
recent Egyptian history. Thus far the boom
appears to be self sustaining, but serious problems
could lie ahead if Egypt cannot quickly renovate
its outdated transportation, communications, and
support facilities as welt as its economic institutions.
War-time aid from other Arab countries trig-
gered the boom. Cash donations of well over
$500 million during the third quarter of 1973
enabled Egypt to repay its most urgent debts.
Subsequently, an improved credit rating, the pros-
pect of peace with Israel, and the possibility of
even more Arab money have focused the atten-
tion of the international financial community on
Cairo. US banks have been in the forefront of the
action. Chase Manhattan has offered an $80-mil-
lion loan and has proposed establishing branch
banks in Egypt. Citibank also is surveying the
Egyptian financial scene, as are other Western
banking institutions.
Venture capital, available for direct invest-
ment, also is pouring into Egypt. Some $2.5
billion in international funds is now available, and
the total is growing daily. Other Arabs, attracted
by Egypt's relative economic sophistication and
by President Sadat's liberalization measures, were
the first to seek direct investment opportunities
in Egypt. In rapid succession, groups from
affluent Persian Gulf states agreed to finance half
of the $400-million SUMED pipeline, all of a
$400-million refinery complex at the pipeline's
northern terminus, and a number of large-scale
tourist ventures. Japanese firms have proposed
some $800 million in joint Egyptian-Japanese
projects.
Cairo has even been relatively fortunate in
the foreign trade sphere. Because Egypt is self-
sufficient in crude oil production, it has been
insulated from rising oil prices. Indeed, Cairo
appears to have benefited, indirectly, from the
energy crisis. Lagging world output of petro-
chemicals and the consequent shortage of poly-
ethylenes has caused an explosion in world
demand for extra long staple cotton, Egypt's
principal export. Because of soaring prices, the
Egyptians have diverted cotton shipments from
Communist countries to the West, enabling them
to more than offset the rising cost of wheat and
other imported foodstuffs on which their urban
population depends.
Internal problems could multiply rapidly,
however, if the investment boom continues at the
present rate. During the prewar foreign exchange
shortage, supporting facilities were neglected in
favor of export industries, import substitution
industries, and other quick yielding enterprises.
Unless Cairo acts immediately to upgrade
transportation, communications, power produc-
tion, and other supporting facilities, expansion in
the industrial and service sector will be stymied
by internal bottlenecks.
Despite the flood of foreign investment
capital now available, Egypt will continue to seek
export credits and other financial support from
other governments. Part of this financing, along
with matching technical assistance, will be needed
to upgrade the country's supporting facilities.
With considerable justification, Cairo fears that
growth financed largely with foreign venture
capital will result in a reversion to prerevolu-
tionary days when Egypt was dominated
economically by outsiders. Sadat is particularly
concerned that Egypt not become the hand-
maiden of other Arabs, a development that would
deny him a free hand in his relations with Israel
and the US. He also does not want to increase his
reliance on the Soviet Union. Accordingly, he will
look to the US and to other friendl Western
governments for necessary assistance.
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JORDAN: GOOD ECONOMIC PROSPECTS
The outlook for Jordan economy is favor-
able, barring a renewal of major fighting. The
balance of payments was $20 million in the black
last year and will probably show a surplus of at
least $70 million in 1974. Export earnings, for-
eign aid payments, and the inflow of capital for
development are all expected to increase. Growth
in the cost of imports will probably be held to
about 25 percent because of the reduced need to
import grain and the continued availability of
low-priced petroleum.
Export earnings will probably reach $120
million this year, more than double those of last
year. Phosphates, cement, and agricultural prod-
ucts, constituting 80 percent of total exports, will
account for most of the increase. Because of
world fertilizer shortages, phosphate prices have
soared from $14 a ton to as high as $50 a ton in
the last six months. As a result, phosphate ex-
ports alone, now projected at 1.9 million tons,
may bring in as much as $60 million, quadruple
the amount they brought in last year.
further pressure on the foreign payments account
and leave more funds for Jordan's economic
development program. Jordan will probably also
receive at least $100 million in new foreign loans
for its development program.
Prospects for economic development over
the longer term are also good. Projects already
under way will eventually increase the output of
phosphates and farm products, add to earnings
from tourism, and allow exploitation of Jordan's
considerable copper reserves. Changed political
conditions could alter the long-term prospects,
however. Creation of an autonomous Palestinian
state on the West Bank hostile to King Husayn,
for example, could adversely affect the invest-
ment climate and require additional expenditures
for internal security.
~ rime Minister Gandhi this week has been
face with India's gravest labor dispute since she
Food imports made up 30 percent of Jor- took office eight years ago. A nationwide rail
clan's 1973 import bill, but they should be downs strike, which began on May 8, disrupted the flow
substantially this year. Production of wheat, the of critical food and fuel shipments, intensifying
major crop and dietary staple, should amount to India's economic woes. A reduced rail schedule
250,000 tons? compared with only 45,000 tons was maintained with assistance from the army;
last year. The lower food bill will, in large part, priority went to badly needed fuel for industrial
offset higher import outlays for manufactured use and power plants. Food shortages are ex-
goods and machinery for development projects. pected in urban centers
The cost of petroleum imports-a major infla-
tionary item in the import accounts of most t" 7 j1\t least half the 1.7 million employees of
countries--will not affect Jordan's very much, 0-4the nationalized rail system have rebelled because
because Saudi Arabia is continuing to supply Jor-f an inflationary squeeze that has boosted prices
dan with crude oil at a long-standing price of-'' 25 percent in the last year. The unions have
around $2 per barrel. demanded a steep wage increase that would place
Foreign aid payments, largely from the US,
Saudi Arabia, and Kuwait, are slated to reach
$190 million this year, a 15-percent increase over
1973. In past years, Jordan has diverted budget
support funds to the purchase of defense equip-
ment abroad, which has restrained economic
development. Substantial new funds from the US,
Abu Dhabi, and the United Arab Emirates to
cover expanded military requirements should ease
rail workers on a par with other government
employees. Weeks of negotiations between the
government and rail unions came to a halt on May
2 following the arrest of several hundred union
leaders, including Socialist leader George Fer-
nandes, the primary organizer of the strike. 1
`'g \Mrs. Gandhi has maintained a tough stance
and is willing to risk the economic consequences
in order to discourage other sectors of the
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population from striking for wage hikes. Al-
though the strike could continue for weeks, she
apparently is counting on it fizzling after a few
days as a result of divisions among the highly
politicized rail unions; previous rail walkouts have
been short-lived. The government has threatened
to fire strikers and arrest those who interfere with
train operations or damage rail property.?
lThe strike presents a particular dilemma for
the pro-Moscow Communist Party of India (CPI),
which in recent years has openly supported Mrs.
Gandhi and her populist policies. Its leaders have
become critical of her trend toward more con-
servative economic policies over the past few
months. Continued wholehearted CPI support for
the rail strike may herald the end of cooperation
between the CPI and Mrs. Gandhi's Congress
Party. Mrs. Gandhi can also expect pressure from
the left-wing of her own party, which is unhappy
with her more pragmatic, less ideological response
to the country's economic problems
a1 jWhile the military is playing a key role in
keeping essential rail traffic moving, it resents the
frequent calls to assist the government in such
non-military matters. So far this year, the army
has reluctantly helped quell antigovernment dem-
onstrations in several states. Given India's grim
economic prospects and the likelihood of con-
tinuing civil strife, the military will probably be
forced to play a more active role in maintaining
law and order, and military leaders may begin to
complain more openly about the way the civilian
government is running things.
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-?w ShUKb I Nwwpi
- The fanfare during Prime Minister Gandhi's
state visit to Tehran last week attests to the
considerable improvement in relations between
Iran and India over the past year. In addition to
concluding a number of mutually beneficial eco-
nomic agreements during the visit, the two coun-
tries appear to have overcome suspicions that
have inhibited their relations in the past
\Mrs. Gandhi's trip to Tehran was the first by
an I dian prime minister in 15 years, and the
Iranians went out of their way to make it more
than routine. During her four days in Iran, she
had two rounds of talks with Prime Minister
Hoveyda and was received twice by the Shah,
with whom a warm rapport reportedly developed.
The ceremonial schedule was unusually full.7
,35 J Both sides seem particularly pleased with the
progress made in economic cooperation. Iran
agreed to extend loans to boost production of
Indian iron ore and to survey the feasibility of
producing alumina. Tehran will also provide funds
to help India increase production of cement, steel
products, paper, chemicals, and sugar-materials
sorely needed by Iran. To transport the increased
trade, the two , nations agreed to start a joint
shipping company that might serve third country
ports as well. Mrs. Gandhi welcomed the Shah's
proposal to establish a fund for mitigating the
impact of rising prices on the LDCs.7
The accord also calls for India to provide
Iran with technical personnel, engineers, profes-
sors, and doctors. Iran lacks the trained people to
carry out many of the Shah's development pro-
grams. r
O `'Beyond these specific benefits, Mrs.
Gandhi's visit apparently helped dispel mutual
distrust. Tehran is said to be much less concerned
about the 1971 Indian-Soviet Friendship Treaty
than it once was, and the Indians were also able
to persuade the Iranians that their developing
relationship with Iraq did not imply blanket
endorsement of Iraqi policy, especially with
regard to Iran. New Delhi, in turn, is more con-
fident that Iran would not automatically assist
Pakistan in the event of another India-Pakistan
confrontation. The Iranians apparently indicated
that they have no intention of arming the Pak-
istanis.]
3VThe Shah probably assumes this new detente
with New Delhi will help his plans for regional
security and his aspirations to a larger world role.
India, its internal weaknesses notwithstanding, is
predominant in the subcontinent, and its in-
fluence among third world countries could
broaden support in international councils for
Iranian initiatives. If the Shah intends to pursue
his recently proposed Middle East, African, South
Asian economic union-which he presumably rec-
ognizes will not come soon-he will have to have
New Delhi's cooperation. A promised return visit
by the Shah to India, which may be combined
with his planned trip to Australia this fall, will
enable the Iranian ruler to continue his personal
cultivation of the Indians.'
r JFor its part, New Delhi is principally inter-
ests in the economic and strategic advantages of
closer ties with Iran. India gets most of its im-
ported petroleum from Iran and is pleased with
the terms granted by the Shah last March, which
allow India to defer payment for part of its oil
?purchases New Delhi also sees Tehran as pro-
viding the best opportunity for Hindu-dominated
India to offset Pakistan's expanding contacts with
much of the oil-rich Islamic world, where India
has few close friends
[Some differences in outlook remain. Al-
though both countries endorse the principle of an
Indian Ocean "peace zone," they differ on their
interpretations of the US-Soviet presence in the
area. The Indians believe expansion of US facil-
ities at Diego Garcia is provocative and will lead
to Soviet countermeasures. The Iranians, on the
other hand, view the US activities in the area as a
balance to the Soviet presence and therefore
stabilizing.
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ISRAEL: STILL TRYING
Prime Minister-designate Rabin's hopes of Minister Meir's caretaker government until after
forming a new government quickly ended early new elections are held [The latter course is re-
this week when the National Religious Party(cportedly favored by a number of stalwarts of the
announced it would not participate. At this point, Labor Party's old guard, including Mrs. Meir her-
Rabin's chances of coming up with a cabinet by self, although she ap rently has not actively
May 17, the date the initial three-week nego- pushed for this solution
tiating period granted by President Katzir expires,
are not good]
[The Religious Party's decision was not final,
ho ever, and the two sides continue to meet in
an effort to hammer out a compromise on the
religious conversion issue, which is the major
stumbling block. Leaders of both parties appear
anxious to break the impasse-Labor to obtain a
comfortable majority and the Religious Party to
save its cabinet representation. Some Labor Party
leaders are also concerned that a final break with
the Religious Party might contribute to the
formation of a strong opposition force consisting
of the rightist Likud group and the three Israeli
religious parties that would pose a ser ous threat
to Labor's chances in the next election)
)An alternate solution being considered by
Rabin is a coalition with the Independent Liberal
Party and the Citizens Rights Movement, two
small liberal parties. Rabin reportedly would
personally prefer this grouping, although it would
command only a one-vote majority in the
120-member Knesset. Rabin probably believes
that even a brief tenure as Prime Minister would
solidify his position as party leader. Such a coali-
tion is opposed by some parts of the Labor Party,
especially its conservative Rafi faction, which fear
it would be too dovish in conducting Middle East
(, [Finance Minister Sapir, who controls much
of the Labor Party machinery, has warned Rabin
that an attempt to form a government with just
the two liberal groups would split the Labor
Party. He maintains that Labor has only two
viable choices: formation of a new government
with the Religious Party or continuation of Prime
47
Post of Labor's leaders remain adamantly
opp sed to the formation of a government of
national unity with the Likud bloc. A minority
government, either alone or with the Independent
Liberal Party, also holds little attraction. The
Labor Party's central committee is scheduled to
meet May 12 and its negotiating team will
presumably have decided by then which kind of
government, if any, it can reasonabl expect to
form.
RECYCLING ARAB OIL DOLLARS
j4 Continuing Arab reliance on the Eurodollar
market is impeding the recycling of oil producers'
surpluses to consuming countries that most need
the money. Financing difficulties are becoming
apparent in developing countries and even in a
few developed countries-notably Italy?
i 7 As oil revenues have flooded in, Arab invest-
ments have continued to be concentrated in pri-
vate Eurodollar assets. Private dollar holdings, pri-
marily bank deposits in London, make up a larger
share of investments now than at the end of
1973. Holdings of European public issues and of
private assets denominated in European curren-
cies remain small. Oil producers remain unwilling
to place their funds directly in non-Islamic devel-
oping countries. Discussions with the World Bank
Group and the International Monetary Fund are
only now beginning to lead to a substantial chan-
neling of funds to these institutions:
J14 The flow of surplus funds into the Eurodol-
lar market is generally adequate to finance the
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Ingle JCUf Iz I NNOV,
oil-induced deficits of consuming nations. Coun-
tries that are creditworthy are easily obtaining the
necessary financing through direct and indirect
government borrowing. France, for example, has
already secured sufficient Eurodollar financing to
offset much of its oil-payments deficit for 1974.
Many developing countries, however, have been
unable to borrow in the Eurodollar market
because of their bleak economic outlook and
poor credit standing; their needs will have to be
handled in other ways']
InrThis experience was a factor in Italy's recent
~ duction of an import deposit scheme, which
should moderate the growth of imports. Even so,
Rome will have to seek further loans from private
or (more likely) official sources this year to fi-
nance continuing payments deficits. In the mean-
time, it may impose further trade restraints while
allowing the lira to depreciate
-7 Y Unless new sources of financing outside the
market are found, other developed countries with
especially large current account deficits-the UK
for example--may also be forced to introduce
trade restrictions.
GREECE-TURKEY: A RESPITE
-/ / jThe differences between Athens and Ankara
over rival claims to possible oil resources in the
Aegean seabed remain unresolved, but tensions
have eased. The media in both countries have
moderated their sabre-rattling on orders from
their governments, thus creating a period of rela-
tive quiet that allows both countries greater flexi-
bility in dealing with each other.,
Pecause Athens has not replied to a note
sent in late February proposing bilateral negotia-
tions to divide the continental shelf, Ankara is
taking steps to establish its claims and to increase
pressure on Athens to begin talks. Representatives
of the two countries met in New York last
month, but Ankara considers the Greek sugges-
tion that they both stop issuing drilling permits in
the disputed area simply a stall. Turkish Foreign
Ministry officials doubt that any decision on
negotiations can be expected soon from the
Greeks, because of the Greek Government's
domestic problems. Athens claims virtually the
entire continental shelf in the Aegean and has
been saying that it is willing to "talk," but that
no country can negotiate its own sovereignty
I_~ VAnkara has been actively seeking a partner-
ship with a foreign firm to conduct oil explora-
tion activities, apparently determined to begin
work this summer. It has already received seven
or eight bids, some from US firms. Actual drilling
is likely to be delayed by a worldwide shortage of
offshore oil rigs. The Turks can, however, con-
duct preliminary studies without a rig, which
would again draw public attention to the prob-
lem.
There is no unusual military activity on
le .r side of the border in Thrace. The US
defense attache in Athens believes, however, that
the Greek Army is putting on a small show in the
north for the Turks by keeping off-duty soldiers
in uniform and moving military traffic about to
give the impression that more units than usual are
in the area. General Ghizikis, the Greek President,
has also just returned from an inspection visit to
northern Greece, the latest in an unusual series of
high-level military visits to the area.?
25X1
7 \ dangerous potential exists. Preliminary
surveys in the disputed waters might spark
cidents.
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IWidely separated military activity continued
this week as the Khmer Communists pressed their
campaign against government enclaves in the
countryside. Northwest of Phnom Penh, insurgent
gunners laid some of the heaviest mortar and
artillery barrages of the war on the government
base at Lovek, but at mid-week Cambodian Army
defenders were making cautious efforts to dis-
lodge Communist elements from the western edge
of the former training and logistics complex. The
Khmer Air Force is committing all available air-
craft to save the refugee-packed base]
t the provincial capital of Prey Veng, fight-
ing has now settled into a familiar pattern of
ground probes and shellings; initial Communist
assaults were repulsed last week. The reinforced
government garrison there has pulled back from
several exposed outposts but has held the main
defense perimeter. Both sides are preparing for a
prolonged battle at Prey Veng:'\
In the far southwest, Communist surprise
attacks along Route 4 overran government posi-
tions along a 20-mile stretch of highway east of
the port city of Kompong Som. Although govern-
ment casualties apparently were light, four
105-mm. howitzers were lost when insurgents
occupied two small towns. The attacks in this
area may presage a Communist move against the
nearby Ream airbase which was a vital support
facility in the government's recent successful de-
fense of Kampot Cityi
Kompong Thom, 75 miles north of Phnom
Pen, may be the next provincial capital to tome
nder heavy Khmer Communist pressureThe
ommunists have been preparing for a pus on
Kompong Thom since early March and may have
as many as 3,000 troops around the city, in-
cluding some seasoned units from the Phnom
Penh area'
The nearly 3,500 government troops at
Kompong Thom are braced for the attacks.
Morale is high as the result of successful
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operations in the spring which freed 33,000 vil-
lagers from Communist controill Communist
t assaults may force Kompong Thom s defenders to
give up some recently won territory, but the city
has survived sustained attacks in the past and
should be able to do so again.
LAOS: PULLING AND HAULING
The Lao calendar is well-stocked with holi-
days,g most of them celebrated with enthusiasm.
The observance of Constitution Day in Vientiane
on May 11, however, may be a rather glum affair.
One of the day's traditional highlights is the open-
ing of the National Assembly by the King, but
that ceremony has been canceled because Prime
Minister Souvanna has bowed to Lao Communist
demands that the assembly not be allowed to
reconvene
I Souvanna gave in on this issue during a cabi-
net meeting last week after Communist First
Deputy Prime Minister Phoumi Vongvichit
stressed that the Communists would not reco-
nize or cooperate with the assembly because it
Phoumi Vongvichit
Prime Minister Souvanna
was an illegal carry-over from Souvanna's previous
government. Souvanna's capitulation has probably
cost him more political points with rightist ci-
vilian and military elements-many of whom are
convinced tI at he is too accommodating to the
Communists(
T_ ISouvanna intends to have the King assume
the assembly's legislative role. After the cabinet
meeting, a government spokesman stated that the
budget and other important documents would be
sent to the King for review in accordance with the
constitution. The King would then issue royal
decrees that would be the legal basis for govern-
ment operations. The King, who reacted calmly
to the decision on the assembly, reportedly is
willing to go along with this arrangement's
[It is unlikely that this formula will go down
,well with the Communists, however. Their attack
on the assembly is based on their determination
to shift its functions to the advisory political
council, whose leadership is weighted in their
favor. I n another effort to undercut the Consti-
tution Day ceremonies, Lao Communist leader
Souphanouvong-the council's chairman-has
called a meeting of the council in Luan Praban
on May 11.
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CHINA: NON-INFORMATIVE MAY DAY
May Day is one of five major holidays cele-
brated in the People's Republic of China. The
turnouts on these occasions generally provide
some indication of the political standing of indi-
vidual leaders. The festivities last week, however,
raised as many questions as they answered regard-
ing the course and objective of the anti-Lin/anti-
Confucius campaign.
The Peking celebrations were notably low-
keyed, as they have been each year since the Lin
Piao crisis of 1971. The nation's three major
papers did not publish a joint editorial. Celebra-
tions were limited to the performance of revolu-
tionary plays and songs in the public parks and an
indoor sports rally for top party leaders that
featured tighter-than-normal security precautions.
By the end of the day, all active politburo mem-
bers but Mao, who has not appeared in public
since May Day of 1971, had put in an appearance.
The list of participants published in the
party journal People's Daily the next day con-
tained a few small surprises. Five government
ministers-four of them military men-did not
appear, suggesting some may no longer hold those
posts. Among the five missing ministers was Li
Chen, the head of public security; his failure to
appear lends credibility to rumors that he was
assassinated last year. Li has not appeared in
public since January 1973. One of his deputies
was also missing. The fact that two other vice
ministers of security were listed under party de-
partments rather than the usual State Council
focuses further attention on this troubled min-
istry.
The celebrations in the provinces were high-
lighted by the reappearance in Liaoning of Li
Te-sheng, a vice-chairman of the party and mili-
tary commander of the northeast region. In sev-
eral provinces Li has been attacked in wall posters
as a secret follower of the disgraced Lin Piao and,
according to one report, he was under arrest.
People's Daily published Li's picture on May Day,
indicating he still has powerful supporters in
Peking.
Elsewhere, the event was more notable for
what did not happen. Two thirds of China's prov-
inces failed to broadcast detailed lists of those
attending local functions-in some instances, per-
haps, an indication of the serious factionalism that
exists in those provinces. No new first secretaries
were listed for the eight vacancies, and the first
secretary of Honan was conspicuously absent
from a large celebration there. While there is no
good evidence that he is in trouble, the proviincial
media have made it clear that some Honanese
leader will likely be branded Lin Piao's "sworn
follower."
The surface tranquility of May Day stands in
contrast to recent developments in the provinces.
Although critical posters have been removed in
one province, attacks on several provincial leaders
are continuing elsewhere. They now include civil-
ian as well as military targets, and, in the case of
Kiangsu, virtually the entire provincial leadership.
The attacks do not present a clear picture or
any consistent theme. They are not officially
sanctioned and have in fact been prohibited in
central party documents. As a result, both the
national and provincial media have re-emphasized
party unity, and have called for the overwhelming
majority of the cadres and masses to unite in
order to expose the "small handful of class ene-
mies." Some of the attacks seem to be part of a
nationally coordinated campaign, while others are
clearly locally inspired. From province to prov-
ince, they vary in intensity and the dates of their
inception. Moreover, both "radicals" and "moder-
ates" are being criticized.
The difference between what the party says
and what is being done reflects the divisions that
exist in the national leadership. Some of the
poster attacks in the provinces are the work of
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rival local -factions, but in many instances they
undoubtedly are inspired and abetted by com-
peting groups in Peking. These groups are at-
tempting to exploit the campaign for their own
ends.
The way in which the May Day celebrations
were handled almost certainly indicates that there
will be high-level victims, perhaps including some
Politburo members, as a result of the anti-Lin/
anti-Confucius campaign. Military men may be in
for a particularly rough time; the holiday turn-
outs provided further indications that the eight
military region commanders who were rotated
last December are likely to be excluded from top
party posts in their new provinces. In addition,
many of the former army officers who now head
ministries may be removed or demoted before it
is over. On the whole, more factional strife in the
provinces seems likely, and the nation's top lead-
ers apparently remain deadlocked over a number
of key personnel and domestic policy issues
USSR-China
THE BEAR GROWLS CAREFULLY
Eight weeks have passed since a Soviet heli-
copter and its three-man crew crossed the Chinese
border on March 14 and were seized by Chinese
authorities. Both the Soviets and the Chinese
initially played the incident in low key, but signs
that Peking might be considering a show trial
evidently caused Moscow to take steps last week
to forestall such a development or at least take
the initiative from the Chinese
On May 2, Moscow issued its third and
toughest protest to the Chinese about the in-
cident. The note reiterated Moscow's claim that
the helicopter was on a legitimate mercy mission
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and "insisted" it be immediately returned. The
note said that the Chinese intended to blow the
incident out of proportion, and warned that if it
did, China must assume responsibility for the
"inevitable consequences." As Soviet notes go,
this one was not particularly bellicose, but it was
the first threat Moscow has made on the heli-
copter affair
was also designed to convince the West and Com-
munist parties throughout the world that the So-
viets' hands are clean and that any flare-up of the
helicopter incident will be evidence of Chinese
unreasonableness. Finally, Moscow's words were
also meant to signal Peking that the Soviets are
prepared to act tougher if the Chinese fail to
maintain restraint)
With another Soviet-US summit looming,
Moscow probably hopes to avoid a clear-cut pub-
lic polemic with Peking that would almost cer-
tainly result from a show trial. The situation is
not without some irony, given the fact that the
Chinese, apart from the March 23 charge of So-
viet espionage, have not done or said anything
publicly that is a clear-cut provocation. So far,
the Chinese have not responded strongly to the
new Soviet campaign. They have not answered
Moscow's last two protests over the incident and
have privately equivocated about whether they
will try the Soviet airmen and whether they will
make the trial results public. Given the current
political tensions in China, it may well be that the
Chinese are still undecided about how to play the
family of the helicopter's commander. Some of
this was clearly for home consumption but some
aturnaya Gazeta featured a mawkish story on the
and demanded to see the Soviet crew, but was
told only that the crew would be dealt with
according to "Chinese law." Meanwhile, the So-
viet press began to devote more attention to the
helicopter story. Pravda ran an account of the
ill-starred "mercy mission," and the weekly Liter-
_3 7 FAm bassador Tolstikov in Peking subse-
quently called at the Chinese Foreign Ministry
11 11
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Ifhe inauguration of President-elect Kjell
Laugerud on July 1 does not promise to be a
peaceful one. Disturbances erupted during a labor
rally on May 1 and, although calm has since
returned to the capital, political tensions remain
high and the security situation is fragile. If vio-
lence breaks out again, the government may
resort to stronger possibly extra-legal, measures
to keep the lid on.)
') - The government and the Christian Demo-
crats, the major leftist opposition party, are
accusing each other of inciting the May Day
melee in which at least two people were killed. A
week earlier, the Christian Democrats called for
continued resistance to the government for
rigging the presidential election on March 3; the
government responded by branding the party as
an "international organization in league with
Communists." The press is reporting rumors that
some government offici Is are thinking about
declaring the party illegal.
The tension has been building for more than
a mdnth. During March and April there were
bombings, arson, the killing of a former police
official, and kidnapings of two prominent
Guatemalans aligned with the government. The
Revolutionary Armed Forces, the action arm of
the Communist Party, was responsible for some
of these incidents. Government goon squads
added to the violence by killing two leftists
Manuel Colom
A marked man
considerable political following and has aspira-
tions for higher political office. Clearly, the gov-
ernment intends to disabuse him of this ambition
or, failing that, ossibly mark him for elimination
by assassination.(
1 The government was particularly incensed at
the Christian Democratic Party for calling for the
"people" to gain power this year and for the
army to help in the act. The Christian Democrats
and Mayor Colour appear intent on stirring up
unrest and trouble for the government. They may
b tr in to create
e
\The May Day disturbances prompted the
government to issue ominous warnings: "unscru-
pulous political groups" will not be allowed to
interrupt the normal transfer of power; the full
force of the law will fall on "intellectual" and
"material" authors of violence; and "defeated
leaders" of the opposition will remain within the
law or be dealt with "drastically." The govern-
ment brought legal charges against the leftist
mayor of Guatemala City, Manuel Colom, for
allegedly inciting the violence. Colom, who leaves
office on July 1, has been a major headache for
the government for some time. He commands a
y g
F_b e tore the inaugura-
enough o a public up eava
tion to force the army to take over
he government is inclined to deal with fur-
ther provocations from the opposition with a
heavy hand. The danger is that in doing so it
might cause even more trouble for itself. For
example, if the Christian Democratic Party is out-
lawed, a significant part of the political opposi-
tion would be further alienated. This almost cer-
tainly would lead to more of the ver violence the
overnment is trying to avoid.
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