WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011300020001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 28
• Document Creation Date: December 21, 2016
• Document Release Date: March 11, 2008
• Sequence Number: 1
• Publication Date: January 9, 1976
• Content Type: SUMMARY

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Secret
Weekly Summary
Secret
No. 0002 / 76
January 9, 1976
CI WS 76-002
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The WEEKLY SUMMARY, issued every Friday morning by the
Office of Current Intelligence, reports and analyzes signifi-
cant developments of the week through noon on Thursday. It
frequently includes material coordinated with or prepared
by the Office of Economic Research, the Office of Strategic
Research, the Office of Geographic-- and Cartographic
Research, and the Directorate of Science and Technology.
25X1
CONTENTS (January 9, 1976)
MIDDLE EAST
AFRICA
1 Angola
3 Middle East: UN Debate
5 Lebanon: Downhill Again
6 India: Pressing Ahead
/ FTAI: Independence Bound
9 Morocco Seizes Soviet Ship
10 Spain: Wage and Amnesty Demands
13 USSR: Hard Currency Deficits
5 Soviets Speak Out on SALT 25X1
15 CSCE Implementation
EAST ASIA
PACIFIC
17 Thailand: Khukrit Still Surviving
WESTERN
HEMISPHERE
18 Panama: Riot Anniversary
18 Peru: Difficult Decisions Ahead
20 Argentina: Falklands Loom Again
20 Chile: Removing the Competition
22 Growing OPEC Arms Purchases
23 Loans to Developing Countries
24 IMF: Oil Facility to Expire
Comments and queries on the contents of this
publication are welcome. They may be
directed to the editor of the Weekly
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1/3
ANGOLA
The Popular Movement for the Liberation of
Angola scored some significant military gains
during the past week, especially in the northern
battle zone against the National Front for the
Liberation of Angola. The Front's losses could be
politically damaging at the Organization of
African Unity's emergency summit that is to begin
in Addis Ababa on January 10.
Military Situation
Last weekend, Popular Movement forces,
backed by Cuban-manned T-34 tanks and
multiple rocket-launchers, captured Carmona
(also known as Uige), the Front's second largest
operational base in northern Angola. On the way,
Movement troops took Negage, a former
Portuguese air base that had been the Front's
major supply point for operations in the northern
sector.
In addition, Popular Movement forces
advanced a little toward the National Front's main
headquarters at Ambriz. On January 3, the small
Popular Movement contingent that crossed the
Lifune River earlier gained control of Tabi and
Onzo. The Movement apparently has not yet
crossed the river in strength because heavy rains
and lack of equipment have delayed efforts to
restore bridges destroyed by the National Front.
In west-central Angola, the Popular
Movement has broken the siege of Quibala by
the National Front and its ally, the National Union
for the Total Independence of Angola. Popular
Movement forces have mounted a drive to the
Southeast. Their objective is the town of Andulo,
a gateway to the heavily populated central
highlands, where the National Union draws its
tribal support.
In the east, neither side has made any notable
gains recently, although heavy fighting between
the Popular Movement and the National Union
has been taking place near Teixeira de Sousa for
two weeks. Movement troops, in an apparent
move to protect themselves from a possible attack
from the east, have destroyed a railway bridge at
Teixeira de Sousa, ensuring that a reopening of
the important Benguela Railway is a long way off.
Political Developments
The loss of Carmona, a district capital within
the area inhabited by the National Front's tribal
supporters, is a major political as well as military
setback for the National Front. The Popular
Movement's propaganda machinery is heralding
its capture as a blow against National Front
"oppression" in the north. The Popular Movment
will probably play heavily on this theme as it
campaigns for recognition as the only legitimate
Angolan nationalist organization at the OAU
COW
Ambrizbte eteating~~rman Uige)
Ambrizi \.Nega
Tab' yOnza
Captured
d
L
uan
a;
Popular Mo vement
P puler Move me nt
uibela~Drive
Andulo
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meetings that began with a preparatory foreign
ministers' session on January 8.
The Popular Movement has strong support
within the OAU, but its success at the summit is
apparently not assured. During the past week
announcements by Libya and Chad that they had
recognized the Movement's government at
Luanda raised to 19 the number of OAU members
that have taken that action. A two-thirds majority
of the organization's 46 members, however, is
required to pass a resolution recognizing the
Popular Movement. African states that are wary of
the Movement and of Soviet intentions, led by
Zaire and Zambia, are pushing hard behind the
scenes to keep such a resolution from-surfacing.
The participation of South African forces in
the civil war in support of the National Union and
National Front is certain to draw emotional
denunciation at the meetings. Unless Pretoria and
the allied Angolan groups are able to convince
African leaders that South African troops are
withdrawing, a number of uncommitted
members-perhaps enough to give the Popular
Movement majority support-may announce
recognition of the Luanda regime during the
The Soviet central press is continuing to give
extremely heavy play to developments in Angola.
Signs of some possible new facets of
Moscow's position on the civil war in Angola
appeared in an unsigned Pravda commentary on
January 3. The Soviets repeated their tough
language on US, South African, and Chinese in-
volvement in Angola and firmly defended the
USSR's own role there as consistent with Soviet
anticolonialist traditions, with UN and OAU
resolutions on decolonization, and with the re-
quest of the "lawful government" of Angola.
Pravda went on, however, specifically to dis-
claim any Soviet interest in seeking military bases,
economic gains, or other advantages in Angola. It
repeated previous calls for the "termination of
foreign armed intervention, " but left unstated
the extent of Moscow's and its allies' current role
in the war.
The Angolans, Pravda said, should be left to
settle their futures themselves-if need be, by
consolidating "patriotic and anti-imperialist
forces" that favor "genuine independence and
territorial integrity." This formulation seems to
exclude at least the top leaders of the National
Front and National Union, but leaves the way
open for Moscow to approve a solution to the
Angolan dispute that might be reached at the
OAU summit this week. It is also obviously
designed to deflect criticism from the USSR when
the Africans convene to review the problem.
Izvestia, in a hard-hitting front page editorial
three days later, seemed to try to quiet specula-
tion that the Pravda article foreshadowed a major
change in Soviet policy toward Angola. The
editorial emphasized once again that there is no
contradiction between Soviet support for the
Popular Movement and detente and went on to
state flatly that detente and the "struggle against
racism and apartheid"-an obvious swipe at
South African involvement in Angola-are
perfectly compatible.
Izvestia reiterated Moscow's positive ap-
proach to OAU peace-making efforts, but tarred
the National Front and National Union as "tools
of imperialism" and reasserted that the
USSR-and by implication Cuba-has a right to
intervene in Angola. Although the editorial did
not exclude the possibility of an eventual coali-
tion regime in Angola or the cessation of
Soviet-and Cuban-intervention, it offered little
encouragement along either line.
No Pressure from Peking
16_/'
Peking has registered disappointment with
some third-world supporters of the Soviet-backed
Popular Movement, but has apparently stopped
short of any real arm-twisting. Within the past
month Chinese officials have:
? differed publicly over Angola with
visiting President da Costa of Sao Tome and
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Principe, whose government officially
recognizes the Popular Movement;
? walked out on a reception for
Popular Movement representatives hosted
by Guyana's Prime Minister Burnham;
? privately expressed displeasure with
the Tanzanian government over its support
for the Popular Movement.
On the other hand, Vice Premier Li
Hsien-nien and da Costa signed economic
agreements several days after the two clash-
ed verbally at da Costa's welcoming ban-
quet. Moreover, Tanzania is the leading
African recipient of Chinese aid, while
Guyana is the only Latin American country
with an active Chinese assistance program.
There is no evidence that the Chinese have
made any significant efforts to use this
leverage either to persuade Burnham's
government to stop refueling Cuban aircraft
involved in the airlift to Angola or to dis-
suade Tanzanian President Nyerere from
championing the Popular Movement's cause
in the Organization of African Unity.
X-161 17-2-1
MIDDLE EAST: UN DEBATE
On January 12 the UN Security Council will
begin the debate on the Middle East that it
scheduled last November, largely at Syria's
behest. The Palestine Liberation organization is
expected to take advantage of its special
invitation from the Council to participate fully.
Arab strategy apparently calls for a relatively
restrained approach, at least initially. Their goal is
to make a persuasive case for Security Council
recognition of Palestinian "national rights" and
the participation of the PLO in any future Middle
East peace negotiations. The Israelis, who
continue to be adamantly opposed to any
dealings with the PLO, plan to boycott the
proceedings.
The Arab Approach
Syria and the PLO, which pushed some of the
anti-Israeli resolutions passed in the last General
Assembly session, appear to be casting about for a
way to achieve their objective without forcing a
US veto. Failing that, they may seek broad council
support for a temperately worded resolution
designed to emphasize US and Israeli isolation on
the Palestinian question and create further strains
between Washington and Tel Aviv on this issue.
One of Syrian President Asad's close political
advisers indicated this week that Syria wished to
demonstrate its willingness to seek a
"constructive" approach to a peace settlement
that included the PLO. His claim that Syria does
not want to embarrass the US and is ready to
explore "every possible avenue" suggests that the
Syrians may be looking for the US to come up
with an acceptable compromise proposal.
The Syrians may be willing to settle for a
vaguely worded resolution if they believed it
maintained the momentum of their efforts to
promote PLO participation in the peace
negotiations. The US statement last November
underscoring the importance of the Palestinian
problem and Washington's willingness to allow
the PLO to participate in the Security Council
debate have probably encouraged Damascus to
believe that the idea of PLO participation is
gaining greater tacit acceptance within the US
government.
The PLO, which has probably coordinated its
strategy to some extent with Damascus, may take
a similar tack. Ideally, the PLO would like to see
the council adopt a resolution calling for the
return of Palestinians to their homeland and for
the restoration of Palestinian national rights.
Resolutions incorporating those points have been
passed by the General Assembly. There have been
indications, however, that PLO leaders would also
like to avoid a sterile polemical debate and a US
veto in the Security Council. Consequently, they
may be receptive to some kind of compromise.
The PLO's UN spokesman told an Egyptian
newspaper this week that the group saw the
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Foreign Minister Allon
best means of calling Israel's bluff, and they are
fearful that a Syrian-Palestinian effort either to
shift negotiations to a UN forum or to amend
Security Council resolutions 242 and
338-accepted by Israel as a basis for
negotiation-will in the end undermine Egypt's
agreements with Israel. In an unusually forthright
statement issued early this week, Fahmi
announced that Cairo does not believe the
Security Council can provide an alternative to the
Geneva conference and will not go along with
amendment of the two resolutions.
Israel vigorously opposes holding the Securi-
ty Council debate and particularly the expected
participation of the PLO. The Israelis are looking
to Washington to hold the line by vetoing any
Arab-Soviet attempts to push through a resolu-
tion that could provide an opening for the inclu-
sion of the Palestinians as separate participants in
future Arab-Israeli negotiations.
Foreign Minister Allon's trip to Washington
this week was specifically designed to coordinate
tactics and nail down a US commitment to protect
Israel's interests in the debate. The Israelis are
reasonably confident that the US would veto any
Arab-Soviet effort to change the essentials of
resolutions 242 and 338, which Israel maintains are
the sole basis for Arab-Israeli peace negotiations.
They are much less confident that Washington
would block an attempt-considered likely by
Israel-to pass a moderately worded council
resolution calling for consideration of the rights
of the Palestinians. The Israelis contend that, as
stated in Resolution 242, the Palestinian issue is a
refugee problem, and they insist that it can only
be solved in the context of negotiations with Jor-
dan.
Hoping to take some of the steam out of
the council debate and perhaps precipitate an
inconclusive session, Israel has proposed a
resumption of the Geneva conference to consider
the possibility of an overall Arab-Israeli
settlement. The PLO is not a oarty to the
debate as a means of educating US public opinion
and would express its views in a "constructive,
quiet way."
Egypt, still at odds with Syria over the second
Sinai accord, is concerned that an intransigent
Arab position in the debate would be
counter-productive and is counseling moderation
in its contacts with PLO leaders.
he gyptians e--eve
that - the PLO and Syria give the impression of
being interested only in putting pressure on
Israel, the sole result will be to obstruct
negotiating progress by stiffening Israeli resolve.
The Egyptians, in media commentary, have
recently been advocating Arab flexibility as the
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23
LEBANON: DOWNHILL AGAIN
Heavy fighting erupted this week in almost all
Beirut suburbs following the collapse of
negotiations to end the Christian blockade of two
Palestinian refugee camps that began on January
4. The clashes are threatening to draw in large
fedayeen units, which until now have stayed on
the sidelines, and are likely to spread again to
central Beirut and the hotel area. Meanwhile, the
private negotiations among interested parties for
a political solution to the Lebanese crisis have also
reached an impasse.
The Palestinians believe that right-wing
Christians are attempting to start a fight to em-
barrass the Palestine Liberation Organization on
the eve of the Middle East debate in the UN
Security Council next week and to force the
council to focus on Lebanon. Palestinian and
Syrian leaders are eager to forestall a resumption
of heavy fighting. They realize that the prolonged
strife has already played into the hands of the
Israelis, who cite it as evidence that the PLO's
professed goal of a "democratic secular state" in
Palestine would not work.
The Phalanges Party militia alleges that trucks
carrying food to the blockaded camps have also
been bringing in arms. According to Amin
Jumayyil, son of Phalangist leader Pierre Jumayyil,
their militiamen will continue the blockade until
the Palestinians withdraw from disputed residen-
tial and industrial areas and permit some 60,000
displaced Christians to return to their homes.
Jumayyil charged that the Palestinians are work-
ing to divide Beirut in a way that would end the
Christians' ability to travel from their strongholds
in the city to larger Christian enclaves in the
mountains north and east of the capital. In
elaborating these charges, Amin Jumayyil
acknowledged-as no other important Christian
leader has-that the Christians have over the past
several months lost control of much territory in
north Beirut.
If the Christians do not lift their blockade,
Fatah and Saiqa fedayeen units may for the first
time enter the battle in force. Leaders of these
groups almost certainly consider that they cannot
bow to the Phalangists' demands or permit the
Christian militias to interdict access to the camps.
The major fedayeen groups could, within days,
commit as many as 4,000 to 5,000 troops to the
fighting in Beirut. This would upset the rough
balance of Muslim and Christian military strength
that has prevailed over the past several months.
The balance could not be redressed by involve-
ment of the Lebanese army, which probably has
no more than 2,000 additional troops available for
security duty.
Palestinian forces so far have concentrated
on heavy shelling from one of the blockaded
camps into adjoining Christian areas and on at-
tacking the predominantly Christian Horsh
Thabet district that controls important routes to
the camps. Less intense clashes have occurred
throughout the mixture of Christian and Muslim
neighborhoods east of the Beirut River. The
Palestinians are threatening also to blockade a
large Christian district in central Beirut.
With the resurgence of fighting, normal
political activity has again come to a halt. The
cabinet failed to hold its weekly meeting on
January 7, and Prime Minister Karami's "higher
coordination committee"-the only institution
that has regularly brought leaders of the warring
factions together-was boycotted by leftists and
Palestinians protesting the Christian blockade.
The negotiations among the Christians,
Muslims, and Syrians on political issues underly-
ing the protracted crisis also settled into a
deadlock this week. The Christians acknowledge
that their position has hardened, but claim that
the next move is up to the Muslims and Syrians.
The Christians allege that Karami has been unable
to secure general Muslim backing for a list of
specific reform proposals he promised President
Franjiyah and that Damascus is refusing to accept
a Christian proposal that any comprehensive
agreement be guaranteed by an international
police force that includes Saudis and Kuwaitis as
well as Syrians.
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Indira Gandhi
-24Z. (P
INDIA: PRESSING AHEAD
Prime Minister Indira Gandhi, speaking at her
Congress Party's national conference last week,
made clear her determination to reshape the
country's political and economic life and to brook
no opposition while doing it. To facilitate her task,
she extended for an indefinite period the state of
emergency proclaimed last June and apparently
will postpone for at least a year the national
elections that were due in March.
At the conference, Gandhi once again
demonstrated her complete domination of the
Congress Party, receiving its unanimous support
for the extension of the emergency and deferral
of elections. Other resolutions passed by the
compliant delegates strongly indicated that the
Prime Minister is planning major changes in the
country's 26-year-old constitution and that she
intends to pursue the economic program she
introduced last July to win popular support for
the emergency.
To justify extending the emergency, Gandhi
professed to see the Indian political system still
threatened by internal and external "forces of
destabilization." She maintained that extremist
political organizations continue to represent a
danger that must be eliminated. Gandhi
produced no specific evidence of foreign
interference in India, but it was clear she was
accusing Western nations, particularly the US, as
well as Pakistan and China. Charges against
Washington reflect her long-standing personal
bias and her acute sensitivity to foreign criticism
of her crackdown last summer. They are also
another instance of her use of foreign scapegoats
to justify controversial political moves at home.
So far, Gandhi has not revealedany details of
the constitutional changes she intends to sponsor.
I ier plans may be presented to the current session
of parliament, which is scheduled to end on
January 31. An unofficial proposal circulating in
New Delhi-and reported in the censored
press-calls for a switch from the present
parliamentary system to a presidential form of
government headed by a strong chief executive
elected by direct popular vote. The plan also
advocates establishment of a "superior council of
the judiciary" composed of government officials
and presidential nominees who would assume the
power the Supreme Court now has to review
constitutional amendments and other legislation.
Gandhi is particularly anxious to weaken the
judiciary. Her administration is locked in a power
struggle with the courts that can probably be
resolved only by basic changes in the
constitution. The conflict revolves around recent
legislation shelving fundamental individual rights
while the emergency is in force. State courts have
handed down decisions against the government
in cases involving freedom of assembly, habeas
corpus, and the freedom of the press. The lower
courts' right to rule on such issues is currently
under review by the Supreme Court, at the
request of the government.
The Congress Party's two-thirds majority in
parliament ensures quick approval of the
measures Gandhi wants passed. Furthermore, as
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long as the emergency remains in force
parliament can legally prolong its own life for a
year at a time by a majority vote. Twenty-two
presidential ordinances that Gandhi's
government originated since the last
parliamentary session in August are due for early
ratification. These include sharp restrictions on
the press, such as the lifting of legal immunity on
coverage of parliamentary proceedings and harsh
penalties for reporting considered objectionable
by the government. The government will
probably also introduce measures designed to
limit further the opposition's right to participate
in parliamentary business.
The small and splintered opposition parties
are again talking about uniting in a single national
organization. The opposition, however, suffers
from a lack of experienced and dynamic
leadership since most of its prominent leaders
were arrested shortly after the emergency went
into effect and are still in jail.
FTAI 2 7 , 2 7
independence Bound
Paris announced on December 31 that it will
grant independence to the French Territory of
Afars and Issas, but intends to retain its military
base at Djibouti. The process of decolonizing the
last French foothold on the African continent,
which Paris hopes to complete by June, could
trigger serious internal unrest and intensify
foreign competition for influence in the territory.
The announcement was made after a meeting
in Paris between President Giscard and Ali Aref
Bourhan, the president of the territory's local
governing council. After years of defending
French control, Aref in early 1975 came out for in-
dependence. He has been careful, however, to
orchestrate his position with that of the French.
The specifics of the transfer of power are still
to be negotiated. Paris presumably will try to
avoid any arrangements that might throw into
question Aref's shaky leadership. Anti-Aref
groups in the territory are already demanding an
important role in the negotiations with Paris. They
are particularly concerned about plans for elec-
tions; if refused a role, they might attempt to oust
Aref. He was the target of an assassination attempt
early last month.
The likelihood of trouble in the territory dur-
ing the next few months is enhanced by the fact
that no leader-including Aref-can speak for a
majority of its populations. There is a fundamental
conflict between the Afars and the Issas, the two
major ethnic groups, and factional splits exist
within each group.
Military Force Supported
Aref supports the French decision to main-
tain a military force in Djibouti. He realizes his op-
ponents will use this against him, but he believes
the French force is necessary to ensure the
territory's security against threats from Somalia.
Although Mogadiscio has given lip service to the
concept of independence for the territory, Presi-
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dent Siad's government hopes to incorporate it
into Somalia; the Issas are ethnic Somalis.
France has pledged to guarantee the integrity
and security of an independent territory. Paris,
however, does not want to be alone in this role
and has stated its intention to seek additional
guarantors from international and regional
organizations and among the states bordering the
Red Sea.
Somalia has rejected the French plans for a
military presence, charging that the territory
would not be truly independent if France retains
its military base. The Somalis have also made it
clear that an independent government led by
Aref would be unacceptable to them. Somalia
may back up its denunciations by increasing its
support to the African People's Independence
League, an opposition party that Mogadiscio
claims is the territory's authentic nationalist
movement. The Siad regime might use the League
or the smaller Front for the Liberation of the
Somali Coast to foment subversion or back
guerrilla incursions into the territory. The Front is
an Issa group, headquartered in Mogadiscio, that
cooperates with the League.
Ethiopia, which is anxious that the territory
not fall under Somali control, last year renounced
its own claims to it and is working closely with
Aref. Addis Ababa would consider a new govern-
ment that was either pro-Somali or sympathetic to
the Afar rebels in eastern Ethiopia a direct threat
to Ethiopia's national interests. The vital rail route
from Addis Ababa to the Red Sea ends at Djibouti.
All Aref Bourhan (1) at recent meeting with President Giscard
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MOROCCO SEIZES SOVIET SHIP
The Soviet fishing trawler Sapfir continues to
be held at the Moroccan port of Agadir. The
Moroccan navy stopped the ship over a week ago
off Cape Rhir, some 10 miles northwest of Agadir.
Local press stories continue to vary on the
reason for the seizure of the ship. Most evidence
suggests that Rabat believed the ship was involved
in running arms to the Polisario Front, a Saharan
independence movement backed by Algeria. The
US embassy in Rabat reports that the Moroccans
boarded the ship during the night of January 6,
but found only fish. US embassy officials presume
the boarding and search were conducted with the
Soviet captain's approval and expect the ship to
be released shortly.
The Soviet embassy in Rabat has issued a
low-keyed denial of Moroccan press allegations
that the Sapfir carried a load of weapons and had
three Algerian officers on board, as both sides
continue to minimize the incident. The US
embassy in Rabat nevertheless believes the
incident should be a signal to the Soviets that they
must tread lightly with the Moroccans, who are
hypersensitive to the possibility that the Saharan
guerrillas are being reinforced from the sea. In
mid-December Polisario troops fighting with the
Mauritanians for the Saharan border town of
Guera reportedly were resupplied by ships the
Moroccans claimed were Algerian or Soviet. As a
result of this alleged aid, Rabat reportedly sent a
unit to Guera in order to help Nouakchott
dislodge the guerrillas.
Rabat's frustration with the Polisario Front is
likely to continue as long as guerrilla forces harass
Moroccan troops in Spanish Sahara and inside
Morocco. The latest incident, according to press
reports, occurred on January 3 when Polisario
guerrillas ambushed a Moroccan supply column
about 20 miles south of the, border near Daora on
the road from Tan Tan to El Aaiun.
Meanwhile, the US embassy in Nouakchott
reports that Mauritanian troops are continuing
their movement northward into Spanish Sahara.
3 ~;
Cape Rh'' Agadir
/ Morocco
I Akka?
,
?~.; 0 Y"rfaya,, r T.en Teo
EL AAIUN* Gaore
S3xhara
Thus far, Mauritanian forces have met little
resistance, but both Spanish and US officials ex-
pect them to encounter more serious fighting as
they approach Villa Cisneros. Morocco has not
revealed its own plans for the town, however, and
may insist upon joint occupation.
The Spanish charge in Nouakchott said that
all Spanish military forces were to be withdrawn
from Villa Cisneros and the rest of Spanish Sahara
by January 9. He added that although the Spanish
promised the Mauritanians they would turn over
the town's administrative apparatus to them if
they arrived prior to the Spanish departure,
Spanish forces would not wait around. US officials
in Nouakchott believe that Mauritanian forces
will not reach Villa Cisneros in time, and that it is
possible they will find the town occupied by
Polisario forces. Moroccan troops, however, may
attempt to. occupy the town, first.
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SPAIN: WAGE AND AMNESTY DEMANDS
The Spanish government's new policy of
restraint in dealing with protests is being strained
by illegal strikes over wages and by demands for
further amnesty for political prisoners. The most
serious strike thus far is a work stoppage by sub-
way workers that tied up Madrid this week.
Shortly after his appointment as interior
minister, Manuel Fraga Iribarne-an advocate of
gradual political liberalization-took steps to con-
trol police excesses in dealing with
demonstrators. He announced that "peaceful op-
position" would be tolerated, but "violent op-
position" would not. As a result, the government
in recent weeks has shown greater leniency
toward strikers and demonstrators demanding
greater amnesty for political prisoners. Most
strikes are still illegal, however, despite the
limited right to strike included in the labor law
issued last May. The law's cumbersome
procedures, which prescribe various mediation
and conciliation measures and a five-day notice of
a strike, have been ignored for the most part.
The government's policy of restraint was put
to its most severe rest when Madrid subway
workers, demanding higher wages, walked off the
job on January 5, disrupting the capital's already
inadequate transportation system. Police used tear
gas to evict the strikers from a terminal building
and later from two churches, but refrained from
the more heavy-handed measures familiar under
the Franco regime. Following an extraordinary
cabinet meeting the second day of the stoppage,
the government issued a communique warning
that it could be forced to intervene, mentioning
military mobilization of workers as a last resort.
On Wednesday the government sent troops to
operate the principal subway line. Negotiations
with the workers are expected to continue.
The subway strike and recent work stoppages
elsewhere in Spain may be just a taste of what is to
come. Labor agitation and strikes are expected to
increase during the next few months as workers in
many industries strive for pay increases in new
labor contracts now being negotiated throughout
Spain. Prime Minister Arias' government is pledg-
ed to oppose large pay hikes as part of its program
to curb the country's high inflation rate, and its
handling of the subway workers' wage demands
will be a test of its commitment to that program.
Meanwhile, the government's stand on
amnesty is continuing to draw fire. Interior
Minister Fraga's announcement on December 31
that the government will go slow in granting any
pardons beyond those decreed by King Juan
Carlos in late November has provoked anger and
disappointment. In addition to widespread
demonstrations, several town and provincial
councils have passed motions calling for a far-
reaching amnesty, and petitions from various in-
fluential groups have been sent to the govern-
ment. The Spanish Bishops' Conference issued a
declaration on social justice on December 22 that
also called for an amnesty for all political
prisoners and all political exiles.
In defense of the government's amnesty
program, the information minister announced
late last month that 528 political
prisoners-almost 50 percent of the official total
in that category-have been freed under the par-
tial amnesty decreed by the King in November.
Altogether, 6,370 prisoners have been released,
the minister said, leaving 9,171 behind bars as of
December 21. The opposition disputes these
figures, however, claiming that only 10 percent of
the 2,000 political prisoners have been freed.
43
ITALY: MORO TOPPLED
The collapse of the Moro government this
week, after the Socialist Party withdrew support
that had given the administration a parliamentary
majority, has laid bare the deepening divisions in
Italian politics. The cooperation between Chris-
tian Democrats and Socialists, that formed the
basis for a succession of center-left coalitions
since 1963, has been seriously disrupted and the
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continued dominance of the Christian Democrats
opened to question. When the Socialists aban-
doned Moro on January 7, they were saying, in
effect, that their relationship with the Christian
Democrats must be substantially revised or aban-
doned altogether.
The Socialists' analysis of the developing
political situation led them gradually to the con-
clusion that, unless they seized the initiative, their
survival as a separate party might eventually be
threatened. That analysis flows mainly from the
Socialists' experience in two decisive political
tests: the divorce referendum of mid-1974 and
the nationwide local elections held last summer.
The Socialists were among the leaders in the
battle to uphold legalized divorce in the referen-
dum last year. Although most observers expected
divorce to be upheld by a slim margin, Italian
voters endorsed divorce by a landslide. The out-
come convinced the Socialists that profound
changes were taking place in Italian society and
that these changes foreshadowed a shift to the left
in the country's traditionally stable voting
patterns.
Operating on that assumption, the Socialists
began to orient their efforts toward ensuring that
they would be the chief beneficiaries of such a
shift. In the June regional and local elections, for
example, the Socialists mounted a harsher cam-
paign against the Christian Democrats than did
the Communists. The Socialists, in essence, asked
for the voters' support so that they could force
the Christian Democrats to adopt reforms the
latter had resisted in previous center-left
governments.
Although the Socialists were not surprised by
the marked turn to the left in June, they were
bitterly disappointed when the Communists cap-
tured the lion's share of the new votes gained by
the left. The Communist advance exceeded any
the party had scored in the postwar period and
brought it to within two percent of the Christian
Democrats at the regional level. The Socialists
drew one clear conclusion from the election: that
the Communists had profited from their opposi-
tion status, while the Socialist gains were held to a
moderate level by the party's long association
with the Christian Democrats.
As a result, the Socialists are now insisting
that before they rejoin the Christian Democrats in
government, the latter must agree to programs
that would appeal to the leftist voters the
Socialists are trying to capture. The Socialists also
assert that any new government must consult
more openly and formally with the Communists
in order to associate the party more closely with
government policies and thereby neutralize to
some extent the advantage the Communists enjoy
in electoral competition with the Socialists.
The latter condition is likely to be the major
stumbling block to a new agreement. Although
the Christian Democrats have shown an in-
creasing tendency to seek Communist coopera-
tion behind the scenes in parliament, the ruling
party is deeply divided over the wisdom of deal-
ing more openly with the Communists. A majority
of Christian Democrats appear to feel that such a
policy would make it difficult to avoid broader
and irreversible collaboration with the Com-
munists eventually.
In short, basic political choices are at issue
rather than just a shuffling of cabinet port-
folios-a fact that will make it difficult to find a
way around the impasse created by the Socialist
move. Consequently, a resort to early parliamen-
tary elections is a stronger possibility than in any
recent political showdown.
President Leone, who would have to dissolve
parliament to pave the way for elections, is reluc-
tant to exercise that power until the major parties
go on record publicly in favor of an early contest.
So far, all of the parties are publicly opposed, 25X1
although some Christian Democrats and Socialists
are privately urging their parties to push the situa-
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97 57
USSR: HARD-CURRENCY TRADE DEFICITS
In response to continued hard-currency
trade deficits, Moscow is apparently reducing its
current expenditures for industrial goods while at
the same time seeking additional long-term,
low-interest credits from Western governments.
US industrial exports to the USSR are likely to be
especially affected because they are primarily
financed by cash payments or high-interest
credits.
The Soviets probably consider these
measures temporary. There is no indication that
their longer term policy of increasing imports of
high-technology Western products has been
changed.
The USSR had a hard-currency trade deficit
of an estimated $4.7 billion in 1975. The deficit was
covered by a combination of $2 billion in
nontrade revenues, drawings on Western credits,
and a drawdown on existing cash assets. Moscow
ended the year with an estimated medium- and
long-term debt of about $7 billion-up nearly $3
billion from 1974.
This year's hard-currency trade deficit will
probably be well over $3 billion. Soviet grain
imports should rise by more than $2 billion, and
existing contracts ensure a high level of
equipment and steel imports. Soviet exports will
remain limited by sluggish demand in the West.
Cuts in Cash Expenditures
The main Soviet reaction to current foreign
exchange problems has been to trim or postpone
hard-currency expenditures. Limitations on
spending this year appear to be broadly applied.
Available information concerns cuts in cash
outlays for high-priority technology and
equipment, but it seems certain that restrictions
on expenditures for other goods are even more
severe.
Additional Long-Term Credits
Because of the heavy demands for foreign
exchange, Moscow has widened its search for
long-term, low-interest credits. The Soviets have
recently approached the French, Italians, and
Canadians for further credits to plan equipment
purchases and to determine which country's firms
should be approached for specific deals.
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Soviets Temporizing
The reduction and postponement of
hard-currency expenditures is a cautious
approach toward meeting Soviet foreign
exchange obligations. The USSR, with its solid
credit rating, could rely more heavily on short-
and medium-term borrowing, but it prefers not to
pay high interest rates on massive short-term
loans and wishes to retain its flexibility in the
event of further agricultural failures.
The effect on 1976 trade of reducing
hard-currency outlays will depend in part on how
long import restrictions remain in effect and how
broadly they are applied. These restrictions, in
turn, will be influenced by the state of Western
demand for Soviet goods and by the 1976 Soviet
grain crop.
Restrictions placed on expenditures for
machinery will have little immediate effect in
most cases because of long delivery periods.
Cutbacks in smaller equipment items,
intermediate goods, and nonfood consumer
goods will be more pronounced.
Moscow evidently hopes to weather its
financial difficulties without cutting back over the
long run on imports of advanced Western
equipment; these imports are crucial to the
success of the Tenth Five-Year Plan (1976-80). The
recent Soviet overtures to several Western
countries for additional credit lines for machinery
and equipment support this assumption.
Growing Soviet dependence on long-term
credits almost certainly will result in fewer
contracts for US industrial firms. The majority
placed with US firms in 1975 have been for cash.
In contrast, Soviet equipment imports from
Western Europe and Japan have been backed by
long-term, low-interest credits. These
governments, moreover, have extended over $11
billion in credits to the USSR since mid-1974 and
will probably continue to do so.
The US share of total Soviet orders placed in
the West fell from 20 percent in 1973 and
1974-when contracts were often backed by low-
-interest Eximbank credits-to 15 percent in 1975.
Soviet officials recently reaffirmed that a lack of
credits will force them to purchase equipment
elsewhere.
Late in December, Soviet officials said that
some $800 million in equipment for the oil in-
dustry will have to be diverted from US-based
firms to their foreign subsidiaries and/or West
European and Japanese firms. In another instance,
US officials were informed that the bulk of orders
for the Cheboksary tractor plant will be made in
1976 and that a major share of these would be 25X1
placed outside the US.
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SOVIETS SPEAK OUT ON SALT
The Soviet Union, forsaking its usual public
reticence regarding current strategic arms
limitation issues, has recently begun to speak out
on a number of SALT topics being debated in the
US. The Soviets apparently hope to undercut US
critics of SALT agreements with the USSR and to
push Washington toward negotiating positions
acceptable to Moscow. The Kremlin obviously
remains interested in new SALT agreements
regardless of strains and disappointments in other
aspects of detente. Should SALT fall victim to
"enemies of detente," however, Moscow, by
putting its case on the public record, will seek to
avoid any blame.
On New Year's Day, Pravda published an
authoritative "Observer" article denying charges
that the USSR had violated existing SALT
agreements. Taking the offensive, the article
attacked past and present US officials who have
questioned Soviet compliance, accusing them of
trying to frustrate detente for "various selfish
political aims." The article cites statements by
President Ford, secretaries Kissinger and
Rumsfeld, and former secretary Schlesinger to the
effect that Moscow is not in violation of existing
agreements. Without offering specifics, the article
implies that the Soviets themselves have questions
not "fully eliminated" about US compliance.
Pravda endorsed the US-Soviet Standing
Consultative Commission as the proper place to
resolve any ambiguities arising from the complex
ABM Treaty and Interim Agreement.
The article concluded on a positive note,
reaffirming Soviet commitment to the conclusion
of a long-term arms limitation agreement based
on the Vladivostok accord.
Pravda returned to the subject of SALT on
January 7 in a detailed summary of a New York
Times article by a former US official who is critical
of US proposals, specifically those regarding the
Backfire bomber and cruise missiles. This piece, in
an unusual departure from normal Soviet
practice, refers to subjects under current
negotiation. Once again, however, the Soviets
attempt to shift to the US-and, in this case,
"militarist elements" in the US government-the
blame for any difficulties Geneva.
CSCE IMPLEMENTATION
The Soviets have made several new moves to
comply with the Final Act of the Conference on
Security and Cooperation in Europe, approved at
Helsinki in August. On January 4, for the first time
since the signing of the Helsinki accord, Moscow
gave advance notice of a military maneuver, the
most significant of the "confidence-building
measures" provided for in the Final Act. The
notification, which concerned an exercise
scheduled to take place in the Transcaucasus
Military District between January 25 and February
6, precisely fulfilled the requirements set forth in
the CSCE document. The Soviets, however, have
not yet invited foreign observers to an exercise.
This is stipulated in another confidence-building
measure that some Western and neutral nations
have already implemented.
Last week the Soviets also announced an
easing of travel restrictions on foreign journalists
accredited in Moscow. The gesture was a
response to Western concerns on the "Human
Contacts" section of the Final Act which calls, in
part, for liberalized travel rules for journalists. It is
the first time that the Soviets have tried to come
to grips with one of the more imprecise
"atmospheric" provisions of the agreement, in
which there is considerable latitude for
interpretation by each country. Previously the
Soviets had begun granting multiple exit-entry
visas to journalists, as the agreement
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recommends, but this provision is less subject to
interpretation. The new regulations, which go
into effect on March 1, will bring the rules for
travel by journalists approximately into line with
those applying to diplomats. While there will
apparently be no immediate reduction in the
extent of restricted areas, one Soviet official
hinted that some liberalization could be
expected.
The Soviets, however, have suggested that
even these changes will come at a price to the
West. A Soviet spokesman on January 5 corrected
a "misunderstanding" of the earlier
announcement, saying that the new rules would
require reciprocity before they would be put into
effect by the USSR. This procedure would be
similar to the handling of the multiple exit-entry
visas, in which the Soviets negotiated
arrangements on a country-by-country basis
rather than granting them automatically.
The new Soviet moves indicate that, after
considerable hesitation, the Soviets have arrived
at a consistent policy on CSCE implementation.
There is substantial evidence that until about a
month ago they had not yet sorted out their
priorities on this subject, particularly in the area
of confidence-building measures. The Soviets
seemed to be disconcerted by the speed and
vigor with which the West began applying
pressure on implementation and carrying out
CSCE provisions, such as the notification of
maneuvers.
In late December, various Soviet officials
implied that a policy line on CSCE
implementation had been resolved, that the
Soviets intended to implement the CSCE
document fully, and that some changes in Soviet
law to facilitate this policy would be forthcoming.
In addition to improvements in working
conditions for journalists, the Soviets mentioned
the possibility of an easing of requirements for
family reunification. The timing of these
developments suggests that the Soviets had made
a significant policy decision early in December,
which was presented and ratified at the Warsaw
Pact foreign ministers' meeting on December
15-16.
The decision to abide by the letter of the
Final Act removes a serious contradiction in
Soviet policy. Moscow has persistently sought to
enshrine the conference as the major diplomatic
achievement of modern European history, but
this position was becoming increasingly
untenable as the Soviets ignored or resisted large
portions of the Final Act. In this sense, the Soviets
were victims of the history of the CSCE
negotiations, in which their commitment to
holding the conference and winning acceptance
of concepts such as the inviolability of frontiers
was so strong that they eventually had to accept,
at least on paper, Western ideas on subjects such
as human contacts and confidence-building
measures which they found somewhat distasteful.
So far, the Soviet moves on implementation
have involved the activity of foreigners in the
Soviet Union or obligations to foreign countries.
It is unlikely that meaningful liberalization will
occur in the Soviet government's control of its
own population.
There are signs that the Soviets are preparing
to carry the battle to the West. Previously the
Soviets attacked the West for alleged failures to
comply with some aspects of the conference,
such as dissemination of the Final Act. Now they
may begin to try to use the provisions on
increasing human contacts and exchanges of
information to their advantage. They reportedly
plan to build a large cultural center in Helsinki,
which may be followed by others in Western
capitals such as Paris. In an article on January 6,
Pravda reiterated Brezhnev's proposals fo125X1
all-European gatherings to discuss environmental
protection, transportation, and energy.
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5tL;Kt i
eRS
Krit Siwara
THAILAND: KHUKRIT STILL SURVIVING (! 7 3)
Prime Minister Khukrit this week successfully
turned aside a parliamentary challenge to his
nine-month-old coalition government, but his
political problems are not over.
Growing disillusionment with Khukrit's
leadership among conservatives prompted retired
army commander Krit Siwara and Democrat Party
leader Seni Pramot to combine forces last week in
a bid to bring down the Khukrit coalition by a
vote of no-confidence. The seriousness of the
conservative challenge was underlined by
evidence that King Phumiphon was prepared to
support Krit's attempt to form a new government.
Khukrit, a skillful politician, succeeded in
dividing his opponents even before they could
muster enough votes to call for a special session
of the National Assembly to debate the
no-confidence motion. He kept one political
party from bolting his coalition by offering an
additional seat in the cabinet, and he brought the
opposition Social Agrarian Party into the coalition
CAS
by promising it three cabinet positions.
Internal discord within the opposition
eliminated any remaining chance Democrat Party
leader Seni Pr,amot may have had of forming a
Critics of the Khukrit seven-party coalition
believe that the government is already too
fragmented and divided to make firm decisions to
deal with Thailand's social and economic
problems. The further expansion of the coalition
seems likely to aggravate this condition. While the
conservatives appear to have lost this round, they
will almost certainly renew their challenge if
Khukrit is not able to demonstrate the strong
leadership they believe is required at this time.
25X1
25X1
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PANAMA: RIOT ANNIVERSARY
The commemoration in Panama of the
anti-US riots on January 9, 1964, will probably be
fairly quiet. No violence is expected partly
because Torrijos is seeking to avoid incidents that
could complicate the canal negotiations or
present problems for him on the eve of his
departure for a six-day visit to Cuba. While there,
Torrijos will have his first meeting with Fidel
Castro, and the trip will serve further to publicize
Panama's struggle for sovereignty over the canal
zone and to boost Torrijos' leftist credentials.
Preparations for the events on January 9 by
the government, communist party, and major
student groups suggest a relatively subdued affair.
Disruption of the activities by radical students is
possible, but their ability to organize is hampered
since the school year is over in Panama. In
addition, fear of retaliation by the national
guard-which closely monitors the student
movement-should dampen extremist appetites.
Torrijos' trip to Cuba will give his domestic
critics on the left something to cheer about.
Inspired in part by the country's continuing
economic slump, Torrijos has been mending
fences with the business community; he replaced
the pro-union labor minister and proposed
revisions in the heretofore sacrosanct labor code.
Worried that radicals could begin to focus on
apparent revolutionary back-sliding, Torrijos
omitted the proposed changes in the labor code
from the end-of-the-year announcement of new
economic measures. He would like to mollify the
left still more with his Cuban venture before
proceeding with another business-oriented
measure.
Torrijos is probably wary of Cuba's strength
and objectives in Latin America and elsewhere in
the Third World, and he assumes his actions will
be closely watched in the US. Indeed, he has
invited a group of US journalists to accompany
him. He realizes that his chances of getting a
satisfactory treaty signed and ratified by the US
will be damaged if he becomes too closely
associated with Castro.
Nonetheless, Torrijos faces a cunning
counterpart, and Castro will be seeking support
on Angola and for Puerto Rican and Belizean
independence. The Cubans have successfully
pressured Torrijos in the past; in 1974 Panama was
backing off from establishing diplomatic
relations, but the Cubans pushed the issue. There
are benefits for Torrijos as well in seeking wider
third-world support-which he believes can be
used effectively to gain US concessions in the
treaty talks. Beyond the expected revolutionary
rhetoric and cooperation agreements in health
and agriculture, Torrijos could find himself
.endorsing a Cuban move that will raise hackles in
PERU
Difficult Decisions Ahead
Serious economic problems facing the
government in 1976 will continue to influence
President Morales Bermudez toward a more
accommodating relationship with the LIS. Within
Peru the economic squeeze will probably bring
further disruptive labor activities. The
government is also likely to be faced with
increasingly restive political parties that are
anxious for the President to follow through on
promises of a more open system.
Reduced export earnings, particularly during
the last half of 1975, are a major cause of Peru's
difficulties, and labor unrest has exacerbated the
situation. Current and anticipated
balance-of-payments difficulties contributed to
Peru's willingness to compromise with the US last
month in reaching an interim agreement
regarding the expropriation in mid-1975 of the
US-owned Marcona Mining Company facilities.
These same concerns are likely to cause the
government to compromise with US investors
regarding development of petroleum resources
and a trans-Andean pipeline. Morales Bermudez
will probably come under pressure to retreat
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Oc
from this more accommodating approach,
however, if other military leaders conclude that it
is not yielding tangible benefits.
In the face of increasingly antagonistic labor
activity, particularly by leftist unions, Morales
Bermudez will probably become less willing to
reach compromise settlements and more
steadfast in implementing economic austerity
measures. At the same time, in an effort to
balance the problems posed by leftist groups, he
may loosen restraints on non-communist political
parties. The return to Lima this week of former
civilian president Belaunde has set the stage for
further political activity by his Popular Action
party and the American Popular Revolutionary
Alliance, Peru's other major party.
The President's economic policies are not
likely to meet with serious opposition by other
military leaders, and we see no serious threat to
his hold on power in the near term. Debate over
particularly sensitive issues, such as continued
radical influence in the government, further arms
purchases from the Soviet Union, and relations
with Chile, however, will test the President's
ability to maneuver within tightly drawn
parameters.
Bolivian Access to the Sea
The announcement late in December that
Chile had agreed in principle to Bolivia's
demands for a sovereign corridor to the sea has
placed Peruvian military leaders on the spot. In
compliance with the terms of a 1929 treaty
between Peru and Chile, Santiago has sought
Peru's consent to such an agreement since the
proposed corridor passes through land Chile took
from Peru in the War of the Pacific a century ago.
Both Chile and Bolivia now appear to be awaiting
a response from Lima before proceeding with
efforts to reach agreement on specifics.
The Peruvian government will probably
attempt to delay the proceedings in order to
allow Morales Bermudez time to assess military
and civilian sentiment on the matter. While the
President's views on this issue are not clear, there
is evidence that he favors a peaceful settlement of
Morales Bermudez
the tripartite territorial problem and might argue
against those officers who favor an eventual move
to retake at least some of the lost territory. Any
attempt to convince these officers that their views
are unrealistic and would lead to serious
diplomatic problems, however, will not be easy.
Arguments along these lines could raise questions
as to the President's nationalistic credentials, and
his military and civilian critics might very well
choose to exploit such a vulnerability.
In light of these problems, Morales
Bermudez might claim that a military government
such as the Peruvian regime could not properly
acquiesce in a transfer of former Peruvian
territory without first obtaining a clear mandate
from the people. Any agreement by Peru, he
might argue, could be given only after an election
or a plebiscite, neither of which is likely any time
soon. If Peru employs such an argument as a 25X1
delaying tactic, Peruvian leaders probably would
also maintain that the Chilean regime should
consider itself under a similar restraint.
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1~' ~t ~_ - e? ~
ARGENTINA: FALKLANDS LOOM AGAIN
The Argentine government has again raised
the ultranationalistic issue of sovereignty over the
Falkland Islands--which it claims and calls the
Malvinas. The handling of the issue seems in part
designed to divert public attention away from
domestic strife.
A Foreign Ministry communique issued on
January 2 states that Argentina now intends to
take over the British-ruled islands, which lie 400
miles northeast of Cape Horn. The strongly word-
ed announcement, issued following a meeting
between President Maria Estela Peron and her top
military and foreign affairs advisers, accuses the
British of refusing to discuss the issue of
sovereignty in good faith.
January 3 marked the 143rd anniversary of
Britain's contested ownership of the islands, and
the statement was released only-hours before the
expected arrival of a team of British experts in the
Falklands to explore possibilities for economic
development-including the exploitation of
potential oil deposits. A British geological study
has indicated the possibility of offshore oil
deposits near the Falklands, and the Argentines
clearly wish to lay the basis for a claim to them.
The timing of these developments may prove
politically advantageous for President Peron by
providing her an emotionally popular issue by
which she might recapture support-especially
among right-wing military elements. The
Falklands have long been a symbolic issue for ul-
tranationalists, and the British themselves may
well see Argentina's political instability as posing
the most serious threat to the islands.
Economic ties between the Falklands and
Argentina have steadily improved since July 1971,
when Argentine and British negotiators agreed to
discuss issues of common concern in the region
on a regular basis. The British government,
however, has refused to negotiate a transfer of
sovereignty on the grounds that the inhabitants of
the islands, who are almost exclusively of British
descent, should have the right to determine their
future status and because the majority have told
Parliament of their opposition to Argentine con-
trol.
Argentina values its close economic and
financial ties with the UK and is not likely to push
the issue too far. Nevertheless, there already is
some domestic pressure for preliminary steps
toward breaking diplomatic relations. If rich oil
deposits are discovered, these pressures would
increase and the government itself would assume
CHILE T7-167
Removing The Competition
President Pinochet has tightened his grip by
eliminating an important rival within the army.
On January 2 the President accepted the resigna-
tion of General Arellano, chief of the national
defense staff and the probable successor to
Pinochet as army commander. Friction between
the two has been reported for months; Pinochet
had attempted to move Arellano out of the way in
October by packing him off to an ambassadorial
post in Spain. Arellano refused but apparently
remained under heavy pressure to either take a
diplomatic assignment outside the country or
retire.
The popular army general was a leading
planner in the move against Allende, and
Pinochet may have feared that Arellano had turn-
ed to plotting against him. Despite growing
criticism of Pinochet among some senior military
officials, there is no evidence that such was the
case. We believe Arellano will accept his fate
stoically; his concern for Chile's image and army
unity are likely to preclude any political
maneuvering on his part.
The move has nevertheless stirred
widespread speculation in Santiago that Pinochet
is in trouble. A British paper has alleged the ex-
istence of a letter signed by ten Chilean generals
demanding that Pinochet step down. In a special
press conference on January 7, junta member
General Leigh-a frequent critic of
Pinochet-strongly denied that there was any
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truth to the claim, which had fingered him as the
leading force behind the demand. The story is
almost certainly apocryphal and may have been
planted by political elements-perhaps the Chris-
tian Democrats-in hopes of weakening and em-
barrassing the government.
Strains have grown within the junta recently,
but they do not appear to have reached the point
where Pinochet is immediately threatened.
Grumbling is likely to continue among navy, air
force, and carabinero leaders about Pinochet's
overbearing manner and tendency to arrogate
authority to himself, but it will have little impact
as long as the army supports the President.
Dissatisfaction caused by Arellano's departure,
mostly among middle-ranking officers, should
blow over soon,
The longer range threat to Pinochet will
hinge on his performance in dealing with Chile's
serious economic problems and its deteriorating
international image. Chile's isolation, in turn,
appears to be damaging efforts to brighten the
economic picture and relieve the hardships caus-
ed by current austerity measures. If Pinochet is
unable to turn things around on the economic
front or misjudges the extent to which he can im-
pose a personal dictatorship, he may then face
greater defiance from within the armed forces.
Other Developments
In a well-publicized bid to spruce up Chile's
battered image, Pinochet gave formal status to a
"council of state" in a ceremony on December 31,
thereby fulfilling a commitment he made in a
speech last September on the second anniversary
of the military take-over. The council, which is to
be composed of former presidents and dis-
tinguished citizens, is supposed to be a con-
sultative body to serve the president. Although
government spokesmen apparently believe the
council is an innovative democratic institution, its
mandate is severely restricted; it will speak only
when spoken to, the president can ignore its ad-
vice at will, and he has absolute discretion over its
membership.
Two former presidents-Gonzalez Videla and
Alessandri-have agreed to participate, but Chris-
tian Democratic leader Frei rebuffed the offer,
saying that it would not be "honest or loyal" for
him to take part in a body whose basis of origin
and powers of representation were in question.
Frei has grown increasingly more outspoken in
opposing the regime, a course which carries a
strong risk of incurring Pinochet's redoubtable
anger and possible retaliation.
The government apparently intends a modest
reaction to a recently published criticism of its
policies by Frei, which is being circulated by hand
among Christian Democrats and trusted sym-
pathizers of the party. Pinochet probably
recognizes that a harsh response at this time
would merely help the faltering Christian
Democrats and further damage Chile's reputation
abroad. The timing would also be bad because
the government is currently trying to ride out a
diplomatic storm created by charges that Chilean
security forces tortured a British doctor.
Restraint is not the order of the day
elsewhere, however.
the government is engaged in a renewed attempt
to centralize its control over the university system
by extending extreme right-wing influence to key
administrative posts. The recent naming of a
retired air force colonel as rector-delegate of the
University of Chile is seen as a step in this direc-
tion. At the same time, government support of
the universities is being chopped sharply, and
there is convincing evidence that another purge
of faculty members is about to begin. Not only
leftists but Christian Democrats whose loyalty to
the regime is suspect are also likely to lose their
jobs in a new round of politically inspired dis-
missals.
Government hard liners are believed to have
the upper hand in the Education Ministry, and
their policies can be expected to embitter those
in the government who think that official in-
fluence within the educational system has gone
far enough. If Christian Democrats prove to be a
major target this time, Frei and others in his party
may take yet another slam at the Pinochet govern-
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GROWING OPEC ARMS PURCHASES
Massive orders by Iran and Saudi Arabia
boosted total arms purchases by OPEC members
to $20 billion in 1974-75, more than half of which
involved US suppliers. Deliveries reached $2.5
billion in 1975 and are likely to run at about $4
billion a year through 1980.
Because of petrodollar surpluses and the
West's drive to sell arms to cover higher oil bills,
OPEC arms purchases in 1974-75 were four times
purchases in 1972-73. OPEC purchases now ac-
count for two thirds of developing countries'
military buying.
New orders provide for across-the-board ex-
pansion of arms inventories, with emphasis on air-
craft and air defense systems. Sophisticated new
systems include F-14 and Mirage fighters,
guided-missile systems, Spruance-class
destroyers, Chieftain and AMX-30 tanks, and at-
tack helicopters. Only with Saudi Arabia do ser-
vices, such as training and base construction, con-
stitute a large share of the orders.
With sales of more than $10 billion in 1974-75,
the US supplied more than half the OPEC arms
market. Other Western suppliers furnished 35
percent; the USSR supplied 11 percent. Western
Europe and, to a lesser extent, the USSR, have
been emphasizing item sales rather than support
packages. The US has promoted both.
Soviet participation in this market is confined
largely to radical OPEC members-Algeria, Iraq,
and Libya. With more than $1.7 billion in recent
arms orders, Libya is a potential resupply depot
for other Arab states. Under agreements begun in
1967, the USSR sold Iran $250 million in ground
support equipment in 1974-75. This was, however,
less than 5 percent of Iran's total procurement in
the two-year period.
France and the UK sell to a wider market than
either the US or the USSR. Paris, with 14 percent
of the OPEC arms business, was second to the US
in the Saudi market and also did well in six other
OPEC states, notably Libya and Iraq. The 10-per-
cent British market share came mainly from sales
OPED C-OUNTRIES: ARMS ORDERS 1974-75
(Million US $)
Iran
Saudi Arabia
Libya
Iraq
Algeria
Kuwait
Other]
19,563
7,795
5,465
1,715
1,468
1,047
813
482
778
10,358
5,802
4,025
France
2,783
223
1,354
325
462
1,871 2,170 2,381
1,274 250 246
86
15 734 641
128 636 242
500 57
18
442
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to Iran; the UK also garnered a large portion of
the orders from Kuwait and other Persian Gulf
sheikdoms.
We expect arms purchases by OPEC
members to run $5 to $6 billion a year through
1980, well below the average $10 billion a year of
1974-75. The increased pace of deliveries will lead
to greater OPEC dependence on foreign
technical assistance. Saudi Arabia, Iran, and Libya
lack the trained manpower to assimilate the vast
amounts of new equipment.
Iran and Saudi Arabia will continue as the
largest OPEC arms buyers; Kuwait and Nigeria are
likely to expand their inventories at the highest
rate. The US will remain the largest supplier,
assuming no change in its willingness to sell to this
market. Because of OPEC preference for US
equipment and support packages, West European
suppliers will not be able to increase their market
share much beyond the present 35 percent, their
strong sales efforts notwithstanding.
LOANS TO DEVELOPING COUNTRIES
Western bankers are looking more carefully
at loan requests from developing countries as a
result of some repayment problems and a huge
combined current-account deficit. This caution,
coupled with a likely resurgence in credit de-
mand in the industrial economies, may limit the
credit available to the developing countries.
Brazil, Mexico, South Korea, and other
high-growth countries will have comparatively lit-
tle trouble; their creditors are fairly confident in
their future and will be protecting large outstan-
ding loans. Arranging new loans will be more dif-
ficult for countries like Zaire whose exports rest
largely on depressed commodities and whose
financial policies inspire little confidence. Coun-
tries like Argentina whose economies have been
seriously shaken by political disorders will face
the greatest obstacles in obtaining new loans.
Commercial bank credit to the developing
countries has increased rapidly in recent years.
The share of official and officially guaranteed
debt owed to commercial banks by the 75
developing countries that are not members of the
Organization of Petroleum Exporting Countries
but are members of the World Bank has increased
threefold since 1970, to an estimated 20 percent of
the $140 billion outstanding at the end of 1975.
Official lenders hold about 65 percent of this
debt, compared to 75 percent five years ago. The
proportion accounted for by trade credits also has
declined, from 20 percent to an estimated 15 per-
cent. Because commercial bank lending has filled
the gap, developing country debt held by private
banks now totals roughly $27 billion, compared
with $9.5 billion at the end of 1973.
The rapid growth in commercial bank credit
to the developing countries is largely the result of
an expanded Eurocurrency market and increased
foreign lending by US commercial banks. Slack
credit demand from usual customers also raised
the willingness of Western bankers to lend.
Commercial banks tripled their new loan dis-
bursements to the developing countries from $6
billion in 1972 and 1973 to about $18 billion in
1974 and 1975.
The data do not permit accurate calculation
of the resulting debt service burden. That burden
has surely increased since 1973, when principal
and interest payments were equal to about 15
percent of the export earnings of these countries.
We believe that principal and interest payments
may now absorb 20 percent of export earnings of
the developing countries.
Import controls and an increase in exports to
the developed countries would lead to a slow im-
provement in the current accounts of developing
countries this year. We estimate that the com-
bined current-account deficit of these countries
will decline to $34 billion, compared with $39
billion in 1975. Borrowing from official sources
and net direct investment should bring in about
$20 billion and $4 billion, respectively, leaving $10
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IMF: OIL FACILITY MAY FOLD
The International Monetary Fund's oil facility
will expire in spring 1976, barring a last-minute
reprieve, because of waning financial support.
The developing countries will be hardest hit.
The facility was created in 1974 to help
finance higher oil import costs. Through
mid-December it had provided nearly $5.7 billion
to 46 countries, with developed countries the
biggest users. Eight developed countries have
drawn nearly $3.3 billion, 58 percent of the
facility's total lending. Thirty-eight developing
countries have borrowed nearly $2.4 billion. In-
dia, Pakistan, Chile, and South Korea have ac-
counted for half of the borrowing by developing
states.
Members of OPEC provided 86 percent of
the funding for the 1974 facility, but will have ac-
counted for less than 65 percent when the books
are closed on the 1975 facility. Uncertainty over
future surpluses and commitments to other
medium-term investments caused the cutback in
OPEC support. Although developed countries
picked up some of the slack, the 1975 facility will
fall short of its prescribed maximum funding of $6
billion.
The IMF should be able to meet applicants'
requests on the oil facility at least through
February. Present funding commitments,
together with a $560-million carryover from the
1974 facility and about $790 million in funds com-
mitted "in principle," will prove adequate unless
a major borrower such as Italy makes another
application. The IMF expects to have requests for
$1.6-2 billion in early 1976, including a $1.2-
billion drawing by the UK.
Continuation of the facility beyond spring
seems unlikely. Many European countries would
not oppose an extension, and developing coun-
tries undoubtedly would support one. We see lit-
tle hope, however, for the strong OPEC support
that would be necessary to continue the facility
on its present scale.
? Most OPEC pledges to the facility in
the past were made before the sharp decline
in current-account surpluses of many oil
producers, and efforts to secure a second
round of commitments since midyear have
had only slight success.
? The proliferation of lending schemes
within OPEC has siphoned off much of the
potential funding.
? Many OPEC members are disturbed
about their lack of influence in lending
decisions despite their major role in supply-
ing funds.
The impact of the facility's demise on the
developed countries will be blunted if the sup-
port facility of the Organization for Economic
Cooperation and Development is opened before
the end of 1976. The developing countries, many
of which face serious financing problems, will be
harder hit and can be expected to push for
greater access to other forms of official credit.
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