WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011300120001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 25
• Document Creation Date: December 21, 2016
• Document Release Date: January 30, 2008
• Sequence Number: 1
• Publication Date: March 19, 1976
• Content Type: SUMMARY

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SwOk Secret
Weekly Summary
Secret
CI WS 76-012
No. 0012/76
March 19, 1976
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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 Cerrtographic
Research, and the Directorate of Science and Technology,
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CONTENTS (March 19, 1976)
MIDDLE EAST
AFRICA
1 Egypt-USSR: Sadat Abrogates Treaty
4 Lebanon: Syria Steps in Again
5 Saudi Arabia - South Yemen: Relations
6 Nigeria: Settling Accounts
7 French Territory of Afars and Issas
8 Libya-Egypt: At It Again
9 USSR-US: Reading the Returns
9 Portugal: Electioneering Under Way
11 France: Socialists Gain
12 UK: Search for a Successor
WESTERN
HEMISPHERE
14 Canada: Drilling Activity Rises
15 Argentina: Opposition; Debt Financing
EAST ASIA
PACIFIC
17 Philippines - Eastern Europe: Relations
17 Japan: Industrial Mergers
19 North Korea: Anti-US Campaign
19 China: Marking Time on Tenq
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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EGYPT-USSR: ON THE ROCKS
President Sadat's abrogation this week of the
1971 Egyptian-Soviet friendship treaty indicates
that he has virtually written off hope of putting his
relations with Moscow on an even keel. There are
also indications that he will soon terminate Soviet
access to naval repair facilities at Alexandria. The
Egyptian leader's advisers are publicly main-
taining, however, that there is still room for con-
tinued cooperation between the two countries.
Sadat announced his desire to cancel the
treaty during a speech on March 14, and the
People's Assembly ratified the abrogation by an
overwhelming 307-2 vote the following day. Sadat
cited Soviet failure to supply Egypt with arms and
spare parts as the prime reason for his move. He
has been particularly angered by Moscow's re-
cent refusal to continue overhauling MIG-21
engines and its refusal to permit India either to
overhaul the engines or to provide Egypt with
spare parts for the aircraft. He is also con-
vinced-although he did not mention this in the
A1'
President Sadat acknowledges applause of assembly
delegates following treaty abrogation announcement
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speech-that the Soviets are attempting to fo-
ment unrest in Egypt in an effort to overturn his
government.
Until now, Sadat had refrained from tamper-
ing with either the friendship treaty or the agree-
ment that gives the Soviets access to naval
facilities at Alexandria, probably in the belief that
they gave him some leverage to press for a
resumption of Soviet arms shipments. Sadat seems
now to have given up any hope that more arms
will ever be forthcoming. In recent months, he
tried to make a tentative peace with the Soviets,
even to the point of publicly affirming that he
had stopped the propaganda war with them and
of openly acknowledging the existence of some
points of similarity in Soviet and Egyptian policy.
Moscow's answer was to increase the pressure on
the Egyptians by further restricting its arms flow.
Sadat has long had a personal obsession
about the Soviets, and he probably concluded
that he had little to lose by abrogating the treaty.
Any economic retaliation taken by Moscow
would cause some disruption, but would do
minimal real damage.
At present, Egypt needs Soviet technicians to
run the Hulwan steel mill, the Naj Hammadi
aluminum plant, and the Alexandria shipyard, but
this assistance could easily be replaced from the
West. Egypt's principal trade with Moscow is in
items that are difficult to market in the West; part
of its export earnings from the USSR are used for
debt repayment, but less than $150 million of the
exports is bartered directly for Soviet goods.
Financing for the purchase of substitute items
from the West would have to be secured.
Sadat will, of course, have to be alert to possi-
ble unrest among the Egyptian military as a result
of his virtual foreclosure of any hope for further
Soviet arms. Some Arab commentators have taken
a cynical attitude toward the treaty abrogation,
viewing it as a move undertaken at US behest for
little return, and there is some danger that Egypt's
military establishment will take a similar view if
further Western arms deals are not concluded.
Sadat will be in considerable trouble if his military
leaders come to the view expressed by one Jorda-
nian newspaper that has blamed the Soviet-Egyp-
tian impasse over arms solely on Sadat and ac-
cused him of trading "thousands of tanks, planes,
and rockets" for six US C-130 aircraft.
The US embassy in Cairo has reported that
large numbers of Egyptians are applauding Sadat's
move as "long overdue." Foreign Minister Fahmi
put the full weight of his support behind the trea-
ty abrogation in a speech to the People's
Assembly the day after Sadat's announcement. He
cataloged a long list of grievances against Moscow
as just grounds for the move and emphasized in
particular the Soviets' constant carping at Egypt's
alleged deviation from the "socialist path" and
from the tenets of Nasir's "revolution."
Fahmi emphasized, however, that continued
cooperation is still possible and indicated that the
Egyptians may now seek to avoid further damage
to the relationship with Moscow. People's
Assembly speaker Sayyid Mari, a close confidant
of Sadat's, also stressed that the abrogation should
not impede the growth of friendly relations. Both
expressed the hope that trade relations will con-
tinue, pointedly noting that it is through the Egyp-
tian trade surplus that Cairo is currently paying off
its debt to the Soviets.
Israeli leaders have not commented on the
Egyptian action, but Israeli press commentary has
been extensive. An editorial in a daily with close
ties to the ruling Labor Alignment mirrored the
ambivalence that most Israelis probably share
concerning the possible impact of Sadat's action
on their country. On the one hand, the article
welcomed Sadat's action as strengthening the US
position in the Middle East at Soviet expense. On
the other, it expressed concern that improved
US-Egyptian relations might result in renewed
US pressure on Israel for further territorial and
political concessions to the Arabs in peace
negotiations, as well as greater su port by
Americans for US arms sales to Egypt
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move as another blow by the Egyptian leader to
Arab unity.
Sadat's abrogation of the treaty will
nevertheless have important symbolic, and
perhaps practical, consequences for Moscow. The
Soviets place more stock in such treaties than
their substance warrants; they regard a friendship
pact as a tangible expression of the desire for, if
not necessarily the fact of, a close and congenial
relationship. Egypt's action will be interpreted not
only as a declaration of current antipathy, but also
as a bad omen for future bilateral relations. The
Soviets will also be discomfited by the fact that it
was Sadat, not they, who took the initiative, and
the abrogation will revive memories of the ig-
nominious expulsion of Soviet advisers from
Egypt in 1972.
Moscow's initial press reaction to Sadat's
abrogation was confined to a short and straight-
forward Tass statement issued on March 15; the
statement appeared to be no more than a holding
action until the Kremlin had determined how to
respond.
Tass put the blame on Sadat for the downturn
in Soviet-Egyptian relations. It described the
abrogation as a new manifestation of the "un-
friendly" policy toward the USSR that Sadat had
been pursuing for a long time.
The Tass statement contained no threats, and
included the platitude that Moscow will continue
to work for friendly relations with Cairo and the
Egyptian people.
Subsequent Soviet press treatment of the
abrogation has concentrated on replaying Arab
criticism and Western satisfaction over Sadat's
Foreign Minister Fahmi
e A YY\ Q_,r*_ rJ2_ SS LOY
The Soviets may be withholding comprehen-
sive comment until they see how far Sadat is going
to push the deterioration in relations. If the
Soviets are of a mind to avoid doing anything, at
least publicly, to worsen the situation, they may
have drawn some comfort from Foreign Minister
Fahmi's mildly conciliatory remarks on future
relations with the USSR when he was before the
People's Assembly. Moreover, the Soviets
evidently have not yet been told to end their
naval repair activity in Alexandria.
The Egyptian action will reinforce the view in
Moscow that good Soviet-Egyptian relations are
impossible as long as Sadat remains in power. The
logical deduction would seem to be that the
Soviets will do eveything in their power to bring
Sadat down. This could cause Moscow to attack
him openly and frontally, perhaps by ending
economic relations and withdrawing its people
from Egypt. But the Soviets may want to make a
fresh and redoubled effort to work covertly
against Sadat, which might. necessitate keeping as
many personnel as possible in the country. It may
be that, in the end, the Soviets will try to hang on
in Egypt, retain such influence over the situation
there as they can, and hope that sooner, rather
than later, the many problems of Egypt will prove
fatal to Sadat. 25X1
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The Syrians took steps this week to wrest the
initiative back from forces that supported the
limited coup on March 11 by Brigadier Ahdab, the
Muslim garrison commander in Beirut. Ahdab,
proclaiming himself a "temporary military gover-
nor" threatened to oust Christian President Fran-
jiyah by force if he did not resign. After forceful
new action by Damascus, however, Ahdab on
March 17 publicly withdrew his threat and
promised to await the outcome of Syrian-spon-
sored negotiations.
About a thousand Syrian regulars, disguised
as Palestinian units, were sent into Lebanon last
weekend to reinforce the Syrian-controlled Saiqa
and PLA forces already there. These combined
units moved quickly on March 15 to block an
attempt by pro-coup forces, including elements
of Lieutenant Khatib's renegade Muslim army, to
storm the presidential palace at Babda. Franjiyah
has holed up there, defying Ahdab's demand.
Damascus was initially inclined to support
Ahdab's power play because Franjiyah has been
obstructing Syrian efforts to halt the disintegra-
tion of the Lebanese army and to organize a
broad-based cabinet to implement the Lebanese
political accord Damascus arranged last month.
The Syrians later concluded, however, that the
forces backing the relatively obscure Ahdab-lef-
tist leader Kamal jumblatt and Palestine Libera-
tion Organization chairman Yasir Arafat-were
working to reduce Syrian influence rather than
support mediation efforts.
Damascus remains primarily interested in
restoring order and political stability in Lebanon
and ensuring the support of the main Muslim and
Christian groups for Syrian mediation. The Syrians
also want to move the Lebanese politicians
toward rapid implementation of the reform
package they agreed to in mid-February.
By midweek the focus of attention had
shifted abruptly to Damascus where consultations
were going on to devise a way for Franjiyah to
step down gracefully and a successor to be
selected. Various Lebanese and Palestinian
leaders-including Arafat, a Phalangist delega-
tion, and Khatib-had responded to calls from
Damascus to meet with President Asad. Only
Jumblatt refused.
One solytion being given serious considera-
tion by the Syrians would have Franjiyah name a
prominent Maronite Christian to head a caretaker
government, thus paving the way for his resigna-
tion and the election of a new president. This for-
mula was used in 1952 to resolve a similar con-
stitutional crisis.
Ilyas Sarkis, the governor of the central bank,
is apparently the front runner to replace Fran-
jiyah. He reportedly has the support of Damascus,
the Christian Phalanges Party and the Lebanese
army high command. His candidacy, however, is
likely to be strongly opposed by Jumblatt and
some other Muslim and leftist leaders who sup-
ported Ahdab's move. More Syrian arm-twisting
is likely to be necessary to bring Jumblatt and his
followers around.
The Israelis reacted cautiously to reports of
Syrian regulars intervening in Lebanon. Israeli
military spokesmen maintained that they could
neither confirm nor deny the presence of Syrian
regulars, but professed to believe that these
reports refer to Syrian-controlled Palestinian
forces.
Unless Damascus injects substantially more
Syrian regular forces into Lebanon-which seems
unlikely-the Israelis probably will remain con-,
tent to issue warnings against outside interven-
tion, while tacitly accepting the fact that some
regulars are alre, iy there.
The Israelis appear to recognize that ad-
ditional Syrian pressure was necessary to stablize
the situation. Their primary concern remains the
security situation in southern Lebanon. Defense
Minister Peres warned last week that although
Israel will remain a "passive observer" of
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LEBANON: SYRIA STEPS IN AGAIN
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developments in Lebanon, any changes affecting
the security of Israel's border or the safety of
Israeli settlements would require
"countermeasures."
SAUDI ARABIA - SOUTH YEMEN
Normalizing Relations
Saudi Arabia and South Yemen announced
last week their intention to normalize relations.
The move was the result of more than 18 months
of negotiations in which the Egyptians acted as
go-between. The two countries have been at odds
since South Yemen became independent in 1967
under the leftist National Front.
In a communique issued on March 10, the
two countries renounced interference in each
other's internal affairs and held out the promise
of cooperation in cultural and economic matters.
The communique also called for an end to
"foreign interference" on the Arabian Penin-
sula-a reference broad enough to encompass
the Saudis' objection to the extensive Soviet
presence in South Yemen and Aden's opposition
to Iran's military role in Oman. Normalization ap-
parently will occur in stages and take three
months to complete-if everything goes well.
The Saudis, for their part, are apparently
prepared to begin fairly soon to extend
large-scale financial assistance to Aden. Riyadh
evidently hopes that it can create a relationship of
financial dependency; this would then be used as
a lever to gain political concessions-the Saudis'
main aim being the reduction of the Soviet role in
South Yemen.
Hard-line Marxists, however, are in impor-
tant positions throughout the party, government,
and military apparatus in South Yemen. The
willingness of the National Front to negotiate the
agreement was probably due largely to economic
considerations. The National Front may have
reasoned that it had little to lose and money to
gain by making the deal.
The governments of Oman and North
Yemen, like some Saudi leaders, are skeptical
about Riyadh's chances of bringing about any
significant modification of South Yemeni policies,
but they have publicly welcomed the reconcilia-
tion. Sultan Qabus of Oman has responded by
also announcing a 60-day amnesty during which
Dhofari rebels in South Yemen may return
without penalty to Oman.
Aden, eager to find other sources of aid, will
probably move in the near term to establish
diplomatic relations with the small Arab states of
the lower Persian Gulf. Until now, Bahrain, Qatar,
and the United Arab Emirates have been slow to
respond to overtures from South Yemen, arguing
that they did not want to anger Riyadh by getting
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MOM
NIGERIA: SETTLING ACCOUNTS.
Nigeria's military rulers no doubt hope the
execution last week of 31 military officers and
non-commissioned officers for their alleged roles
in the recent abortive coup will wrap up the
affair and allow the regime to ease its preoccu-
pation with security. The events of the past
month, however, have surfaced problems that are
unlikely to dissipate quickly.
The special military panel that investigated
the abortive coup has asserted it grew out of plot-
ting by two separate groups that were put in
touch with each other by former chief of state
Gowon, who has been in the UK since his ouster
last July. Speaking for the ruling Supreme Military
Council, Brigadier Shehu Yar Adua, now the
number two man in the regime, announced that
the plotters were angered by the recent
promotions of top officers and entertained wild
notions that Nigeria was "going communist." He
said they wanted to restore Gowon to power and
rehabilitate a number of discredited former state
governors, and hoped to thwart any demobiliza-
tion of Nigeria's 250,000-man army. Yar Adua
went to great lengths to dispel fears of any rapid
or indiscriminate demobilization, indicating that
the council views this as a particularly explo-
sive issue.
The public executions were clearly designed
to warn other plotters, but also seem aimed at
placating the Muslim Hausa peoples of the north
who had seen another of their prominent
sons-the late chief of state Murtala
Muhammed-killed by officers from other ethnic
groups. The bloody riots in northern Nigeria that
followed the killing of Hausa leaders by southern
Christian Ibos in 1966 doubtless are still fresh in
the minds of those who now run the country.
Despite the surface appearance of decisive
action by a unified leadership, the secrecy of the
investigations and trials and the hasty executions
suggest a degree of insecurity. The impression is
reinforced by the council's near frantic effort im-
mediately following the coup attempt to squelch
any mention of ethnic or religious fears, and by its
willingness to allow the press and students to raise
the foreign scapegoat with allegations of UK and
US involvement in the plot.
The ethnic factor may well be the main con-
cern in Lagos. The alleged coup leaders were all
officers from the small Christian and pagan tribes
of central Nigeria that provide about a third of the
army's personnel. Dissatisfaction among these of-
ficers apparently had been building in the weeks
prior to the coup. Some of them had come to
believe that Muhammed was deliberately
weakening the position of political pre-eminence
these tribes had enjoyed during the nine years
General Gowon was the country's leader. One
prominent minority officer, Major General
Bisalla-who was executed as one of the
ringleaders of last month's coup plot--had com-
plained bitterly about being cut off from
deliberations of the Supreme Military Council.
Mutual suspicions among Nigerian military
officers undoubtedly have grown as a result of the
coup and executions. The brigade of guards, the
primary military security force in Lagos, which is
composed mainly of soldiers from minority tribes,
has been sent out of Lagos on maneuvers; many
of its personnel reportedly will be reassigned to
other units. The brigade's security duties in the
capital reportedly have been assigned to army un-
its from other parts of Nigeria, including two from
the north that are predominantly Hausa.
Within the military council, officers from the
small tribes are said to be lying low until the feel-
ing against them dies down. Hausa members of
the council, on the other hand, reportedly are
asserting themselves, especially Brigadier Yar
Adua. Lieutenant General Obasanjo, who
accepted the top job reluctantly, has maintained a
relatively low profile since he took over. Obasan-
jo, a Christian Yoruba from western Nigeria, is
regarded by some officers from central Nigeria as
easily manipulated by the Hausas.
Meanwhile, the Nigerian press has eased up
somewhat on its anti-Western rhetoric, although
this may change if the government pushes for the
extradition of Gowon from the UK. Nigerian
spokesmen say they are seeking Gowon's return,
but Lagos has not filed a formal request with Lon-
don. The British seem certain to reject any such
request.
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2
FRENCH TERRITORY OF AFARS AND ISSAS
independence Timetable
French President Giscard appears to have
decided to speed up the timetable for granting in-
dependence to the French Territory of the Afars
and Issas. He also seems prepared to relinquish
French base rights there -rather: than become in-
volved in a potential military conflict.
The French gave no timetable last December
when they announced their decision to grant in-
dependence to the territory, but French officials
then implied that the process could take up to
two years.
According to several French diplomats
stationed in east Africa, Paris now plans:
? To make clear to local leaders that
permission for French forces and facilities to
remain is not a precondition for in-
dependence.
? To call a meeting of the two local
political parties and rival liberation
movements, one backed by Ethiopia and the
other by Somalia, to plan for independence.
? To hold a referendum, possibly
supervised by observers from the UN, the
Organization of African Unity and the Arab
League, as soon as this June to elect a new
government.
A personal representative of Giscard will visit
Somalia, Ethiopia and, apparently, some Arab
capitals in the next few weeks to discuss the com-
position of a local government and problems
relating to the territory's security after in-
dependence.
Paris' policy shift began taking shape several
weeks ago. France had hoped to transfer power to
a government led by Ali Aref Bourhan, the
pro-French leader of the territorial council. As
Aref's political weakness became increasingly evi-
dent, however, France strengthened its contacts
with the only legal opposition group in
Djibouti-the African People's Independence
League-and began pressing Aref to reach an ac-
commodation with it.
France has apparently drawn further away
from Aref by suggesting a willingness to withdraw
all troops after independence. Aref is still calling
for a French military presence, which he believes
is essential if the territory is to maintain its in-
dependence.
Somali and Ethiopian Positions
Neighboring Somalia is determined to pursue
its long-standing aim of annexing the territory.
Ethiopia is equally determined to prevent the
Somalis from dominating the territory and its port
of Djibouti, the terminus of Ethiopia's only impor-
tant rail link to the sea.
Paris obviously hopes that talks among the
four local political groups will produce an agree-
ment that will last at least long enough to allow a
peaceful transition to independence.
President Siad of Somalia has reacted
favorably to the French initiative because he
believes the withdrawal of French troops would
enhance Somalia's ability to gain control of the
territory.
Ethiopia, on the other hand, will consider the
French plans as favorable to Somalia, and will
almost certainly begin giving serious con-
siderations to means of forestalling a Somali
take-over in Djibouti.
Djibouti is France's only major naval base
remaining in the Indian Ocean. Its strategic loca-
tion near the entrance to the Red Sea enables the
French to protect key oil supply routes to the
West and monitor Soviet naval activity in the Gulf
of Aden. Operating out of Djibouti, the French
Indian Ocean flotilla is the largest Western naval
force in the ocean and is nearly the same size as
the Soviet contingent.
If the French are forced to relinquish the
base, they almost certainly will have to increase
the number of supply and support craft assigned
to the area-at least for the near term. They also
will be forced to rely more heavily on their
limited support facilities at La Reunion, an island
east of Madagascar.
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LIBYA-EGYPT. AT IT AGAIN
The feud between the Sadat and Qadhafi
regimes, relatively quiet in recent months, has
flared again, bringing this time a threat to the
many Egyptian workers in Libya. Cairo's concern
for the safety of its citizens may provide it with
new incentive to try to overthrow the
troublesome Libyan government.
The latest contretemps began two weeks ago
over unsuccessful attempts by some of Qadhafi's
agents against two Libyan Revolutionary Com-
mand Council members who have been living in
exile in Cairo. On March 6, three Libyan agents
boarded a plane in Cairo that they believed was
carrying one of the council members, Abd
al-Munim al-Huni, to Rome, intending to hijack it
to Libya and kidnap al-Huni. Al-Huni, who has
been living in Egypt since August, had switched
planes, however, after being advised to do so by
Egyptian authorities as a precautionary measure.
When the three Libyans arrived in Rome they
were arrested for carrying arms and grenades.
Almost simultaneously, the Egyptians
arrested seven Libyan commandos allegedly sent
to Cairo to assassinate Umar Muhayshi, another
exiled command council member. Muhayshi fled
Libya in August after failing in an attempt to
overthrow Qadhafi. Twenty more Libyans, all
allegedly involved in the effort to assassinate
Muhayshi, were rounded up during the following
week.
The defection of the two members of his rul-
ing clique is a continuing embarrassment for
Qadhafi, and he was apparently ready to go to
great lengths to silence Muhayshi and force
al-Huni to return. The move against Muhayshi
was probably prompted by Cairo's threat several
weeks ago to publish what were billed as lurid
memoirs of Muhayshi's experiences under
Qadhafi. Al-Huni is not so anathema to Qadhafi
-in fact, he is still officially Libya's foreign
minister-and Qadhafi evidently wanted only to
get him to return to the fold, even if under duress.
Efforts to cajole him into returning in January had
been to no avail.
Qadhafi CRS
Although the issue is essentially an internal
Libyan one, the Libyans have infringed on Egyp-
tian sovereignty in pursuing errant members of
their flock, and the Egyptians have used this, with
no small measure of glee, as an excuse to pullout
all stops in a new anti-Qadhafi propaganda
barrage. Among other commentary in the press,
Cairo began a week ago publishing the Muhayshi
"memoirs." Although they hardly constitute the
lurid fare that had been promised, they provide
an interesting and somewhat embarrassing ac-
count of Qadhafi's idiosyncracies.
Libya has retaliated by expelling over 12,000
Egyptian workers who the Libyans claim, probably
with some justification, include illegal residents
and some "spies." Were it not for the fact that
some of those expelled have apparently been
mistreated in the process and that the welfare of
the almost 200,000 Egyptians remaining in Libya is
threatened, Cairo might be willing to let the feud
subside again. The danger to the remaining Egyp-
tians, however, will cause Cairo considerable con-
cern. Qadhafi can hold them hostage to Egypt's
good behavior, but the threat to their safety could
increase Sadat's inclination to find a wa to get rid
of Qadhafi
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USSR: READING THE RETURNS
Moscow is rapidly moving away from its
cautious, low-key coverage of the US presidential
election campaign to relatively extensive, partisan
commentary. The Soviets, who continued to pull
their punches until emboldened by the results of
the early primaries, were evidently prompted to
join the fray by the growing debate in the US over
relations with the USSR.
The Soviet media assure their audience that
the policy of "detente" enjoys the overwhelming
support of the US public. At the same time,
however, Moscow warns of intensified attacks on
that policy. In the Soviet view, popular will in the
US runs a constant risk of being submerged by
those "certain circles" (e.g., military industrialists,
Zionists, monopolists) whose interests are served
by anti-Soviet policies.
In the aftermath of the Florida vote, Moscow
began to inform the Soviet people in some detail
of the course of the US campaign. In particular,
Moscow reported the consensus of "US
observers" that after Florida President Ford was
almost certain to win the Republican nomination.
Governor Reagan's defeats were attributed in
large measure to his opposition to the ad-
ministration's policy toward the USSR.
Moscow found the Florida Democratic
primary equally heartening. The media have
pointed out that in that state, a "bulwark of con-
servatism," no candidate holding "extreme right"
views won. In contrast to their total silence on
Senator Jackson's first-place finish in
Massachusetts, the Soviets noted his and Gover-
nor Wallace's "defeat" in Florida.
Senator Jackson, nevertheless, remains a
serious concern to Moscow. On March 11, the
military organ Red Star published a long and un-
usually vituperative attack on him. Governor
Carter has also begun to draw criticism from
Moscow, although not of the same order as that
directed at Jackson, Reagan, and Wallace. Little
has been said of the other Democratic candidates.
Moscow has in the past normally preferred
continuity in Western capitals to the uncertainties
associated with a change of leadership. For this
reason, it probably prefers to see President Ford
returned to office.
The Ford administration has nevertheless
been subject to considerable criticism; much of it
sharp and explicit. Secretary Rumsfeld, for exam-
ple, has been taken to task recently for his "cold
war views." The Soviets are also suspicious of the
implications of the administration's dropping of
the term "detente," although publicly they
profess indifference. In a Pravda commentary this
week Moscow observed that the strengthening of
peace is too serious a matter to be subordinated
to "any tactical considerations in the sphere of
domestic activity."
PORTUGAL: ELECTIONEERING UNDER WAY
The campaign for legislative elections is
swinging into full gear with election day still five
weeks away. Fourteen parties have entered can-
didates in the race on April 25, but the bulk of the
vote will go to just four parties-the Socialists, the
centrist Popular Democrats, the conservative
Social Democratic Center, and the Communists.
The shift to the right since last November is
expected to work to the advantage of the Popular
Democrats and the Social Democratic Center,
which polled 26 and 8 percent respectively in last
year's constituent assembly election. The
Socialists, who last April won with 38 percent of
the vote, are expected to lose some of their sup-
port to the more conservative parties since they
are no longer viewed as the only effective
safeguard against a Communist take-over.
The biggest battle of the campaign appears to
be shaping up between the Socialists and the
Popular Democrats for first place and the possible
selection of the winning party leader as the next
prime minister. Socialist leaders are discounting
the possibility of post-election cooperation with
the Popular Democrats-or with any other par-
ty-in an effort to establish themselves as the
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alternative to a coalition of the two leading con-
servative parties. The Socialists also want to dispel
any fears that they would invite the Communists
to participate in the government.
The Popular Democrats, who expect to widen
their margin of support with ex-Socialist sup-
porters on the left and conservative Angolan
refugees and northern farmers on the right, have
left open the coalition question until after the
elections. They believe the Socialist pledge to
"govern alone or not at all" is probably no more
than campaign rhetoric and realize that Socialist
participation may be necessary for an effective
government. A coalition of conservative parties
only would have no effective line of communica-
tion to labor, thus opening it to anearly challenge
from that sector.
The growing rivalry between the two parties,
however, promises to make future cooperation
more difficult. The Socialists were first off the
mark when party leader Soares hosted a
star-studded meeting of West European socialist
and social democratic leaders last weekend in the
northern town of Porto. The par-
ticipants-including Brandt from West Germany,
Mitterrand from France, Kreisky from Austria,
Palme from Sweden, and party leaders from five
other countries-promised to work for more
economic aid from the EC and the European Free
Trade Association, as well as increased bilateral
governmentand party assistance.
The show of West European support gave the
Socialist campaign a boost in the north, but in-
furiated the Popular Democrats. Popular
Democratic leader Sa Carneiro, who has failed to
attract support from abroad for his party, tried to
diminish the impact of the conference by charg-
ing foreign interference in a domestic political
campaign and by holding a rally to coincide with
the first day of the Socialist meeting. Popular
Democratic pressure succeeded in convincing
Prime Minister Azevedo to cancel plans to attend
the Socialist gathering, but Sa Carneiro's obstruc-
tionist tactics may have tarnished his image with
undecided voters.
The Communists also criticized the Socialists
for inviting the European leaders as an election
ploy, but chose their words carefully to avoid an-
tagonizing the Socialists, whom they still hope to
coax into an alliance. The Communists realize
they will not do well in the balloting and are try-
ing to preserve a role in Portuguese politics either
through association with the Socialists or by main-
taining some capacity for creating civil unrest.
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FRANCE: SOCIALISTS GAIN
Sharp gains posted by the Socialists in the
two-round French cantonal elections that con-
cluded Sunday have caused both the governing
coalition and the Communists of the opposition
left alliance to reassess their political strategies.
The left won at least 907 departmental coun-
cil seats to about 870 for President Giscard's ma-
jority coalition, with the Socialist Party collecting
498, more than twice the number of any other
party. Although the balloting affected only about
half the electorate, the left appears likely to in-
crease the number of departmental advisory
councils it controls from 30 to over 40 of the 95
total.
The left appears to have benefited from
growing public discontent over France's con-
tinuing high rates of inflation and unemployment,
from the fact that this was the first election in
which 18 year-olds were eligible to vote, and from
a record 68-percent voter turnout.
Socialist Party leader Francois Mitterrand,
who campaigned hard, hails the election results as
a sign of "great progress for the left." Communist
Party leader Marchais sees the vote as a "serious
warning shot for the government,". but is con-
cerned over the continuing reluctance of Socialist
voters to back Communist candidates in run-offs
against centrist or conservative parties. The party's
efforts to develop an image of greater respon-
sibility and cooperation were not successful in in-
creasing the votes it received.
Government leaders, on the other hand, are
saying publicly that the results are only a "light
warning," as Justice Minister Lecanuet put it, and
continue to emphasize the local nature of the
contests. They point out that the opposition has
traditionally done well in cantonal elections and
that these contests have been notoriously poor
signs of voter sentiment in legislative elections.
Both observations are true to some extent,
but the Giscard government is taking the results
more seriously than it is indicating in public. The
government admits that its strategy of playing
down the significance of the elections and of
keeping government leaders out of the campaign
was a mistake.
The cantonal results are likely to spark in-
creased debate within the governing coalition.
Giscard's Independent Republicans made sub-
stantial gains at the expense of the Gaullists, and
this is likely to engender increased defensiveness
and suspicion of Giscard's political maneuvering
among the Gaullists. The government will also be
concerned by the clear swing of Gaullist voters to
the Socialists in many areas.
Within the victorious left alliance, the Com-
munists have already shown concern over
Socialist gains-many of them at the expense of
the Communists-and are likely to step up efforts
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-Fa a.dQ
UK: SEARCH FOR A SUCCESSOR,
The sudden resignation of Prime Minister
Wilson on March 16 triggered intense political
maneuvering in the Labor Party over the selection
of a successor.
Wilson's resignation came without warning,
although he reportedly advised the Queen last
December that he intended to step down at this
time. Wilson's professed reasons were his long
service in Parliament and as prime minister and
his desire to give others a chance to seek the
Labor leadership. He also cited his belief that his
anti-inflation program is off to an impressive start.
There is no evidence that ill-health or other
personal problems played a role. Wilson intends
to remain in Parliament as an ordinary Labor
backbencher.
The opposition Conservatives responded by
calling for an immediate election, but Labor is not
required to do so as long as it maintains its majori-
ty in Commons. The new Labor leader will be
tested almost immediately, however, by a
parliamentary vote of confidence. Members of
the leftist Tribune Group, whose defection last
week led to an embarrassing parliamentary defeat
for Wilson, have been warned by powerful trade
union leaders not to endanger "the gains secured
for workers by the present government." The un-
ion leaders also called for an end to the divisive
personal invective that has characterized recent
intra-party debate.
Labor's search for a successor will focus on
finding a new leader acceptable to all elements of
the party and may require two or three weeks.
Nominations are being made this week and
results of the first ballot will become available on
March 25. Wilson will remain Prime Minister dur-
ing this process.
The initial favorite is James Callaghan,
Secretary of State for Foreign Affairs and long
considered to be the number-two man in the par-
ty. In his political views, Callaghan is identified
with the broad center of the party; he has a strong
pro-American outlook. Like Wilson, Callaghan
has a talent for forging the political compromises
Denis Healey aim
that are so necessary to keep the fractious Labor
Party united. He also has the backing of several
powerful union leaders.
Callaghan's major drawback is his age-he
will be 64 next week-but this is not necessarily a
fatal flaw. Indeed, Wilson may have been trying to
give Callaghan a subtle boost when in the course
of his resignation statement, he pointed out some
of his most distinguished predecessors as prime
minister were over sixty upon coming to office.
Chancellor of the Exchequer Denis Healey
will also be a front runner. His post has been a
traditional springboard to the top and his
economic policies have strong backing from most
Labor members of Parliament and the trade union
leadership. A significant obstacle to Healey's am-
bitions, however, is his unpopularity with leftist
MPs. This would not be a handicap if Labor had a
healthy parliamentary majority, but given the par-
ty's present one-vote margin in that body, the
objections of left-wing Laborites could ruin
Healey's chances.
Whoever succeeds Wilson will probably feel
compelled to seek an endorsement of his
leadership by calling a national election before
the end of the year. It may occur in early fall to
precede the usually disruptive annual party con-
ference. Labor's election prospects would appear
to be relatively good as the British economy
seems to be emerging from its deep recession.
Although unemployment will remain at excep-
tionally high levels, Labor would still benefit from
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the sharp decline in the rate of inflation as well as
a public perception that better times are in store.
These potential gains, however, could be wiped
out by losses to nationalist opponents in Scotland
that would prevent a Labor majority at West-
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CANADA: DRILLING ACTIVITY RISES
Petroleum exploration in Canada is showing
some signs of recovery following a nearly
two-year decline brought on in large measure by
adverse federal tax and pricing policies. The
revival is based almost entirely on gas drilling in
western Canada. Activity on the western Cana-
dian oil front is still under a cloud, and Arctic ex-
ploration this year will remain nearly 40 percent
below the 1973 level. East coast offshore activity is
also languishing, largely because of disappointing
results to date.
A more broadly based revival in exploration
will depend on policy decisions in the next few
months. In the case of western oil, much depends
on how domestic pricing and tax policies evolve
from federal-provincial meetings currently under
way. Activity in the promising Arctic regions will
probably remain stagnant, until Ottawa firms up
long-delayed land, tax, and royalty regulations.
Final decisions on these matters will not be made
until well into the year. With the vigor of the ex-
ploration movement still to be tested, Ottawa
shows no inclination to alter near-term energy ex-
port policies.
The nearly two-year decline in Canadian
drilling continued throughout most of 1975.
Despite an upturn toward the end of the year, the
total number of wells drilled was only 15 percent
above the previous year and 8 percent below the
1973 level. Total drilling activity is expected to
recover to about the 1973 level this year. So far
this year, gas well completions are running 50 per-
cent above the same period a year ago, but oil
well completions are down, running about 17
percent below a year ago.
About 225 drilling rigs are currently operating
in Canada, compared with about 170 a year ago,
when exploration activity was at rock bottom.
During the 1973 and 1974 winter drilling season
about 250 to 260 rigs were in operation. Some two
dozen rigs are still inactive; half of this equipment
is located in the Arctic where rig utilization is run-
ning at only 50 percent of capacity. So far the up-
turn in drilling has not been strong enough to at-
tract the return of more than a few of the rigs that
left Canada in 1974 and 1975.
In western Canada gas wells have accounted
for 82 percent of well completions so far this year,
compared with the normal 72 percent. Most of
the exploration has been in Alberta, where atten-
tion is being focused on shallow gas deposits in
the eastern part of the province. Most of these
deposits were delineated several years ago, but
were not profitable to exploit at the time. The
only relatively new area being explored is the
Rocky Mountain foothills region in western
Alberta.
Recent increases in gas prices have made
these fields profitable to drill. Wellhead gas prices
currently run 72 cents per thousand cubic feet,
nearly double the 1973 level. Although tax and
royalty payments take a large bite out of
producer's revenues, returns have improved
enough to spur drilling. Moreover, because ac-
tivity is concentrated in fairly well-established
areas, firms are running relatively few risks of dry
holes.
Drilling for oil in western Canada appears less
active. Limited data suggest that the net return to
oil producers has not improved nearly as much as
it has for gas. Oil prices have risen sharply, but the
cash flow for an oil producer in Alberta now
amounts to $2.60 a barrel, only a nudge up from
the roughly $2.00 per barrel average return in
1973. Inflation has wiped out most or all of the in-
crease.
Although the Trudeau government an-
nounced in 1975 some details of the regulations
governing company activity in the Arctic, it has
yet to introduce the legislation in parliament. As a
result, oil companies are planning to drill only
about 50 wells this year, up from 45 last year, but
still well below the 82 wells drilled in 1973.
Because of inflation, exploration costs could be
up 20 to 30 percent.
The only substantial increase in Arctic ex-
ploration this year will come from deepwater
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drilling in the Beaufort Sea. The $120-million
Dome Petroleum program centers on drilling two
deepwater wells beginning next summer. The
Dome program has been in the planning stage
since 1973. The major firms operating in the
Mackenzie Delta-Imperial Oil (Exxon), Shell
Canada, and Gulf Canada-have indicated that
they plan to scale down their drilling activity until
land regulations are decided on.
Panarctic Oils-the major firm operating in
the Arctic Islands region-is cutting back explora-
tion outlays this year to $35 million compared
with $55 million in 1975. The firm's 1976 drilling
program will concentrate on adding to 13 trillion
cubic feet of already proven gas reserves and es-
tablishing the extent of a recent promising oil
strike on Cameron Island.
Industry interest in the offshore east coast
area has waned since 1973 because of soaring
costs of offshore operations and the lack of major
oil and gas finds. A continuing dispute between
Ottawa and the Maritime provinces over sharing
petroleum revenues has also dampened company
interest. The provinces have repeatedly rejected
federal offers to split future oil and gas revenues
on a 50-50 basis.
Only a handful of wells will be drilled off the
Labrador coast this year. Eastcan Exploration plans
to deploy two, and perhaps three, drilling vessels
in hopes of completing five to seven wells. Activi-
ty is limited to the summer months because
weather conditions off the Labrador coast
deteriorate rapidly by September. Shell Canada,
which has accounted for about a third of the 125
wells drilled off the east coast in the past few
years, is planning a small effort in 1976.
The increase in gas exploration, if sustained,
should improve the supply situation somewhat
over the next year or so. This, together with a
slowdown in domestic gas consumption, would
improve chances that the National Energy Board
will back off from its earlier view that supply cut-
backs to the US market should begin as soon as
1977. Over the longer term, however, supplies of
Canadian gas to the US market will depend
primarily on Arctic production.
The near-term oil supply outlook remains
gloomy. Even if the gas exploration revival carries
over to oil, a far more vigorous program will be
needed to reverse the steady decline in Canada's
proven reserves that has occurred since 1969.
Without a sharp reversal of its proven reserve
situation, there is no chance that Canada will
modify its schedule for phasing out oil exports to
ARGENTINA
Facing the Opposition
c
The administration mounted another cam-
paign this week to deflect criticism and discredit
its opponents by attacking chief Peronist dissident
Vittorio Calabro, unionist and governor of
Buenos Aires Province. Calabro has been accused
of seeking to undermine the latest economic
stabilization program and of plotting against the
government.
Peronist party Secretary General Rocca made
the strongest claims, calling Calabro a plotter who
seeks to bring down the government by
orchestrating labor opposition to the new
economic austerity program. Interior Minister
Ares, who only recently sought to arrange a
reconciliation with Calabro, told the press he now
feels that his efforts to bring the governor back
into the Peronist fold have failed. He hinted that a
more drastic solution might be needed.
Both Ares and the presidential press secretary
have subsequently denied any intention to
remove Calabro from office, an action the ad-
ministration has taken in a number of other
provinces. The denials ring hollow, however, in
the current situation. The complete eclipse of
Calabro is the chief goal of labor confederation
head Lorenzo Miguel, who is once again backing
President Peron.
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Calabro is clearly working to torpedo the
austerity program. He has already denounced it in
public, saying it unfairly penalized workers.
Calabro undoubtedly sees an opportunity to
renew his drive to unseat the current national
labor leadership, closely identified with the ad-
ministration. This has been his goal for some time.
It is questionable whether the government
would risk an attempt to remove the powerful
Calabro from the governorship; he clearly has
significant worker support or at least sympathy
and may have some backing among military of-
ficers anxious to facilitate the splintering of
Peronism. This realization by the administration,
as well as the recurrent shifting of political
alliances, suggests that yet another effort to make
peace with Calabro will be undertaken at some
point.
The loyalists' fight with Calabro is the most
dramatic of the continuing splits within Peronism
that are leading to the disintegration of the move-
ment. President Peron, although easily re-elected
as head of the movement at a recent party con-
gress, now leads an organization radically reduc-
ed in size. The US embassy estimates that the
Peronist movement is about one third the size it
was less than two years ago when its founder was
still alive.
The prospect of Peronism's disintegration
may be an important factor staving off a military
coup. Many officers have consistently claimed
that they would move only when Peronism had
thoroughly discredited itself and been repudiated
by the public.
Debt Financing
Argentina may soon be forced to ask for
renegotiation of part of its foreign debt payments
for 1976. Such a move would further erode its
already weak international credit standing.
Despite rumors that Buenos Aires will request a
moratorium on debt payments, we do not think it
will go that far because of the greater harm it
would do its standing abroad.
About $2.5 billion in debt amortization is due
this year, and foreign exchange resources are
meager in comparison. Foreign reserves stood at
only $620 million on December 31,1975, almost all
of it in gold and bilateral clearings, neither of
which is available for general foreign settlements.
The current account, swollen by interest
payments, is expected to be in deficit by $400
million.
Nearly four fifths of the debt payments, in-
cluding private obligations that make up more
than half the total can doubtless be deferred as
the were last year
Debt service poses an immediate problem
because large payments are due in March and
April, before the major portion of receipts from
grain sales from the 1975-76 harvest comes in. The
strict austerity program announced by the
government last week was designed in part to
reassure foreign lenders and thus facilitate im-
mediate borrowing.
Chances of obtaining the needed funds short
of renegotiation are slim, however, because
rapidly mounting opposition to the austerity
measures makes it unlikely they can be carried
out. Labor, which was responsible for destroying
last July's program, has been sharply critical of the
new measures. New strikes and threats of strikes
already have been reported as workers demand
wage hikes four times as large as those allowed
under the program.
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PHILIPPINES
Looking to Eastern Europe
President Marcos over the past few weeks has
been pushing his campaign to develop a more
nonaligned image by establishing ties with com-
munist states.
The Philippines signed a trade agreement
with Poland on February 12 with considerable
fanfare. Trade pacts have also been signed recent-
ly with Bulgaria and Romania, and similar
agreements will probably soon be concluded with
Yugoslavia and Hungary. Marcos pursues these
agreements ostensibly to diversify markets, but he
is also using them to balance Manila's traditionally
close ties with the US.
Marcos says he will travel to Moscow in late
May, and we expect that he will announce the es-
tablishment of diplomatic relations during this
visit. Marcos seemed ready to make this journey
last summer, but it was postponed reportedly
because Moscow would not guarantee meetings
with the three top Soviet leaders.
Since last summer the Soviets have urged that
ties be established before the visit but Marcos has
refused. Several considerations probably con-
tributed to Manila's deliberate pace. Filipino
security officials oppose the opening of several
communist embassies at the same time, fearing
that this will make it much more difficult to cope
with espionage activities, particularly from the
Soviet embassy. They prefer that the embassies be
opened gradually one after the other..
The two sides have been haggling for several
months over a trade pact; Marcos clearly ex-
pected an agreement on this before establishing
diplomatic relations. The Soviets in early March
went a long way toward meeting Manila's needs
by agreeing to purchase between 200,000 and
400,000 metric tons of Philippine sugar-a
welcome development in view of the Philippines
unsold sugar stocks of around one million tons.
Marcos may also have been holding out for
assurances from Moscow that he will be given a
p cT
red carpet reception this summer. A highly
publicized visit would be far more useful in
boosting his nonaligned image than a simple an-
nouncement of the establishment of relations. In
Marcos' view, the trip to Moscow might also help
balance any new agreements on US base rights in
the Philippines that are scheduled for renegotia-
tion this spring.
JAPAN: INDUSTRIAL MERGERS
Two years of recession has further concen-
trated economic power in the hanes of the larger
Japanese companies. The disappearance of
smaller firms through merger or business failure
has been under way for some time in several ma-
jor industries. Although prompted by financial
problems stemming from depressed sales, this
further consolidation of industry will strengthen
the market power of Japanese firms abroad and
help minimize foreign competition at home. The
last major industrial revamping, wh.ch occurred
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following the 1965 recession, was specifically aim-
ed at strengthening Japan's international com-
petitive position.
Mergers involving companies that account
for at least 5 percent of Japanese industrial output
have taken place over the past six months or are
actively under discussion. The largest regrouping
has occurred in the textile industry, where three
of the five largest manufacturers have combined
into the world's largest textile exporting com-
pany. In 1974, these firms accounted for one sixth
of Japanese textile exports.
The three major specialty steel producers also
have merged and discussions are reportedly un-
der way among three of the top six auto manufac-
turers. The proposed auto combine would turn
out half as many cars as General Motors. The six
largest computer manufacturers are merging into
three groups to compete more effectively with US
manufacturers.
The spurt in business mergers in large
measure is an outgrowth of recession, as firms
that have emerged in good financial position see
opportunities to expand their market power. Mit-
subishi reportedly is taking the lead in talks that
could involve the take-over of two auto manufac-
turers that were hurt by the slump in foreign auto
demand last year.
Since late 1973, more than 30,000 firms have
gone under, including 15,000 industrial com-
panies. The failure of small-scale textile and elec-
tronics producers has helped the top 10 manufac-
turers substantially increase their market share
over the past two years. The giant trading com-
panies, which handle 70 percent of Japan's
foreign commerce, are also becoming increasing-
ly dominant. The merger of C. Itoh and Co. and
the financially troubled Ataka and Co. will com-
bine the fourth and ninth largest trading firms to
make the third largest.
Tokyo so far has taken a positive attitude
toward industry consolidation, actively promoting
mergers in some instances. The government is
anxious to avoid the failure of larger firms. When
necessary, it presses financially stronger firms to
bail out weaker rivals through merger. In this ap-
proach the government has been helped by the
major commercial banks and trading firms, which
wield substantial influence within the major
Japanese conglomerates.
The Ministry of International Trade and In-
dustry is considering an overall review of how in-
dustry might be restructured over the longer
term. One key issue concerns the adjustment of
the industrial structure to deal with the slower
economic growth anticipated for the future. The
ministry wants above all to assure a strong inter-
national competitive position for major Japanese
industries. In this vein, the ministry has been the
prime mover behind plans to restructure the
computer industry before Tokyo's controls on
foreign investment are lifted. The ministry is also
the driving force behind plans to reorganize
Japanese-owned oil companies to put them on an
equal footing with the major international oil
companies.
Tokyo seems able to waive antimonopoly
laws to smooth the way for mergers or other
forms of industry reorganization. In the past, the
law has been circumvented to permit the es-
tablishment of temporary market-sharing and
price-fixing cartels. In the last 18 months, formal
cartels have been organized among manufac-
turers of various textile and steel products with an
eye toward avoiding excessive competition dur-
ing the recession. Although the cartels are being
gradually phased out as demand recovers, infor-
mal market-sharing is likely to linger.
While the Ministry of International Trade and
Industry is largely responsible for overseeing in-
dustry reorganization, it faces opposition from
the Japanese Fair Trade Commission, which is
responsible to the prime minister. In the past
three years the commission has been pushing for
more vigorous implementation of antimonopoly
statutes and has had some support from the Diet.
The ministry nonetheless clearly retains the upper
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NORTH KOREA: ANTI-US CAMPAIGN
Pyongyang is attempting to exploit recent US
moves in support of Seoul to build a case for its
own policies at the nonaligned summit in Colom-
bo this summer and at the UN in the fall.
Pyongyang's new anti-US propaganda cam-
paign has focused on the deployment of F-111
fighter-bombers to South Korea by the US last
month. The campaign also features the usual
charges that the US has sent additional troops and
nuclear weapons into South Korea and hits hard
on the theme that military cooperation among
the US, South Korea, and Japan has been
strengthened. Pyongyang described these
developments as having created a "grave
situation" in which "war may break out at any
time."
The North Koreans have used similar
language periodically in the past, but since late
February such warnings have been featured
almost daily in Pyongyang's propaganda.
Moreover, Pyongyang assailed the F-111 deploy-
ment in a formal Foreign Ministry statement, the
highest level North Korean protest of a US action
in South Korea since 1971, and the Supreme
People's Assembly in Pyongyang has sent an open
letter to sympathetic governments around the
world calling for support.
The Third World is an important target for
Pyongyang's campaign; there is considerable
sympathy there for North Korea's claim that the
Korean problem is a colonial issue and that the
source of tension on the peninsula is the con-
tinuing presence of US forces in the South.
Pyongyang has been successful in winning the
support of nonaligned militants, but many Third
World countries remain reluctant to become in-
volved in the Korean dispute. This search for
Third World support strongly suggests that
Pyongyang will press for another confrontation at
the UN General Assembly this fall.
Both Peking and Moscow have been cir-
cumspect in replaying Pyongyang's attacks on the
US. The Chinese have given them a bit more
coverage than the Soviets, but both have exclud-
ed the more inflammatory comment. Peking's
counterpart to the North Korean Assembly-the
National People's Congress-has responded to
Pyongyang's appeal for support, emphasizing
Chinese solidarity with Pyongyang but playing
down North Korean charges about US actions in-
creasing the level of tension. The. Soviet backed
World Federation of Trade Unions and the Soviet
media have issued brief, low-keyed comments on
the North Korean appeal, but so far Moscow has
made no official response.
CHINA: MARKING TIME ON TENG
The new campaign in China has appeared to
mark time in the past week. Media attacks on
Teng Hsiao-ping remain at a high level but have
not gone beyond calls to criticize, rather than
overthrow him. The official Chinese news agency
hinted on March 15, as the media have done in
the past, that Teng can still redeem himself if he
repents, but the propaganda as well as statements
by Chinese officials indicates that he has thus far
refused to do so. The impression that there is
something of a stalemate among China's con-
flicting political forces appears strengthened by
this relative inactivity.
Acting Premier Hua Kuo-feng is the only
national leader to speak publicly on the cam-
paign. At a dinner for the visiting Laotian premier
on March 15, Hua characterized the campaign as
a "debate" in the fields of education, science,
literature and art. Hua's remarks were similar to
those he made at a dinner for former President
Nixon in February and were generally milder than
some of the more blunt media attacks on Teng. As
was the case in February, Hua refrained from
making a personal reference to Teng or from us-
ing the term "capitalist roader," the media's
codeword for Teng.
In the provinces, most provincial leaders
seem to be staying in the background. Only one
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province chief has gone on public record with a
criticism of Teng. Although the party's left wing
undoubtedly would like to broaden the attacks
on Teng to include a number of other officials
who may have been associated with him, thus far
wall posters in the provinces have attacked only
about five provincial leaders by name.
INTERNATIONAL MONETARY DEVELOPMENTS
Currency markets remained unsettled this
week as speculators attempted to evaluate the im-
pact of the French decision to withdraw the franc
from the European joint float.
The French decision came after Paris failed in
an attempt to achieve a general realignment of
parities at a special meeting of European finance
ministers. Paris wanted to couple a franc devalua-
tion with revaluations of some other float curren-
cies, including the Deutsche mark and Dutch
guilder. Bonn, reversing an earlier stand, was
reportedly willing to go along with a small
revaluation, but the Dutch refused.
The immediate cause of France's decision was
the heavy cost of supporting the franc within the
float's narrow limits-roughly $5 billion since the
beginning of the year. Speculative pressure on
the franc began in January as investors bought
traditionally strong European currencies in reac-
tion to problems with the Italian lira and the
devaluation of the Spanish peseta. The
resurgence of pressure two weeks ago was
triggered by a run on the British pound that sent
sterling below the $2.00 level.
France's failure to bring inflation down to a
rate close to those of its major trading partners in
the float and prospects for a substantial French
current account deficit this year have been the
underlying cause of the franc's weakness. French
prices are rising at roughly two to three times the
West German rate. After achieving balance in its
current account last year, France faces a deficit of
roughly $4 billion in 1976.
The decision to pull out of the float further
damages Giscard's image at home. He was per-
sonally responsible for the decision to re-enter
the joint float last July despite opposition from his
advisers who felt the franc was overvalued. The
left will point to the decision to leave the float as a
further indication of the government's inability to
deal with the country's economic problems.
France's exit from the joint float has again
demonstrated the difficulty of proceeding with
currency integration in the EC before economic
policy is harmonized. Widely varying inflation
rates will continue to block a comprehensive
currency union, and it remains doubtful that true
policy coordination among the nine will be possi-
ble for some time. With France out of the float,
some voices may be heard to advocate "two-tier"
economic planning within the Community, per-
mitting advances by the countries remaining in
the float. Never very attractive in political terms,
such notions seem likely to garner even less sup-
port with France and Germany on opposite sides
of the "float line."
Speculative pressure on West European
currencies continued this week in the wake of
France's decision. The French franc traded as low
as 4.78 on Monday and closed at 4.71 on Thursday,
down nearly 3.5 percent from the close on Friday,
March 12. The lira fell to a record low of 888 to the
dollar on Wednesday. According to press reports,
the Bank of Italy helped precipitate the decline by
selling lira on Monday. The lira sales were ap-
parently designed to preserve the lira's com-
petitiveness with the French franc. The Benelux
countries, also under speculative pressure, ended
their narrower band within the joint float.
Speculators continued to put pressure on the
joint float, forcing the Danish krone and Belgian
franc to the bottom of the band and the Deutsche
mark to the top. If the French franc declines 25X1
further against joint float currencies, as seems
likely, pressure will mount for a Belgian franc
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Secret
Secret
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