WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011500190001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 21, 2016
• Document Release Date: July 1, 2008
• Sequence Number: 1
• Publication Date: May 13, 1977
• Content Type: SUMMARY

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Weekly Summary
ON FILE USDA RELEASE
INSTRUCTIONS APPLY
State Dept. review completed.
Secret
CG WS 77-019
May 13, 1977
COPY N? 83
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EKLY SUMMARY, issued every Friday morning by the
Reporting Group, reports and analyzes significant
rnents of the week through noon on Thursday. It fre.
includes material coordinated with or prepared by the
Regional and Political Analysis, the Office of Eco-
search, the Office of Strategic Research, the Office of
Intelligence, the Office of Weapons Intelligence,
Office of Geographic and Cartographic Research.
CONTENTS
1 Africa
Ethiopia-USSR; North
A"rica; Zaire
3 Asia
Pakistan; China
3 Middle East
Israel
4 Western Hemisphere
Argentina; Peru; Brazil
5 USSR
USSR-Sweden
6 Djibouti Independence Plan Endorsed
8 Syria: Views on Middle East Negotiations
10 Zaire: Problems Ahead for Mobutu
12 Japan: Trade Surplus Mounts
14 Argentina: Promising Oil Potential
15 Youth Unemployment in Industrialized Countries
Comments-and queries on the contents of this
publication are welcome. They may be
directed to the editor of the Weekly, Code 143,
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ETHIOPIA-USSR 1-2) 1
The growing relationship between
Ethiopia's leftist military regime and the
USSR advanced another step during
Ethiopian leader Mengistu's state visit to
the Soviet Union last week. The visit
resulted in a joint Political document com-
mitting each side to develop bilateral
relations. Economic, cultural, scientific,
and consular agreements were also signed.
The political document is probably
similar to Soviet agreements with other
third-world and some Western countries.
These usually contain statements of
mutual willingness to work for closer
political, economic, and often military
relations.
The Soviets signed such documents
prior to concluding friendship treaties
with Angola and Mozambique. At pres-
ent, however, Moscow is probably reluc-
tant to conclude a friendship treaty with
Ethiopia-even if Mengistu were
willing-for fear of further antagonizing
Ethiopia's arch rival, Somalia, where the
Soviets have important military interests.
Moscow's concern about Western and
moderate Arab efforts to profit from
Soviet troubles with Somalia was evident
in President Podgorny's speech at his
dinner for Mengistu. Podgorny blasted
unnamed "imperialists" for using some
Arab countries, especially Saudi Arabia,
to try to establish control in the Red Sea
region.
Mengistu's visit and the joint political
document probably have offended
Somalia nonetheless and could reinforce
President Siad's determination to loosen
ties to Moscow by improving relations
with the West and the Arab states.
Mengistu, for his part, probably values
the document in part for the negative im-
pact he expected it to have on Siad.
Mengistu may also hope the agreement
will lead to substantial additional Soviet
military aid.
President Podgorny (I) with Ethiopian leader Mengistu reviews
Soviet honor guard last week at the Moscow airport
The fact that Soviet military aid offi-
cials met Mengistu indicates that military
aid was discussed, but it is not yet known
how much-if any-new assistance
was arranged.
NORTH AFRICA2 J-2- Z.-
A severe drought is causing a sharp
drop in grain yields in Algeria, Morocco,
and Tunisia. The three countries will have
to divert funds intended for economic
development to purchases of at least 3
million tons of grain-a million more
than last year.
In Algeria, the US agricultural attache
estimates that the wheat crop is down
some 30 percent; the yield will be about
1.4 million tons, compared with 2 million
tons in the last crop year. To meet
domestic requirements, Algeria will have
to import at least a million tons of grain
this year-an increase of 200,000 to
300,000 tons over last year.
Morocco's wheat crop is likely to fall
some 15 percent from the already de-
pressed level of 2.1 million tons in the
1975-76 season. Imports will probably rise
20 percent from the million tons im-
ported last year. This will strain Mo-
rocco's port and distribution facilities
and add to its already serious bal-
ance-of-payments problems.
In Tunisia, the wheat crop is likely to
reach only 600,000 tons at best this
season. Output last year was about
800,000 tons after a record 1.3-mil-
lion-ton crop in 1974-75.
Domestic requirements in Tunisia run
around 1.5 million tons a year. Imports
needed to make up the difference, in addi-
tion to imposing a heavy cost, would ex-
ceed the capacity of Tunisia's port and
distribution system.
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Zairian and Moroccan forces renewed
late last week their drive to reoccupy
towns in southern Shaba Region held by
the Katangaan troops who invaded from
Angola last March. Nigeria, meanwhile,
is continuing its efforts to arrange a
political settlement between Angola and
Zaire.
The Zairian-Moroccan force that set
out in a westward direction from Kolwezi
last month reportedly entered the impor-
tant town of Kasaji on May 12 after it had
been abandoned by the Katangans.
Fighting between the invaders and the
government force apparently did occur
last weekend east of Kasaji. The reoc-
cupation of Kasaji leaves Kisenge and
Dilolo, on :he Angolan border, the only
significant :owns in southern Shaba still
in Katangan hands.
Zairian propaganda efforts, aimed at
attracting stronger support both in Zaire
and abroad. are continuing to play heavily
on charges by President Mobutu that the
Shaba incursion is an act of armed
aggression supported by the Soviets and
their communist allies. Last week,
Mobutu "suspended" diplomatic
relations wth East Germany because of
its alleged involvement in supplying arms
to the Katangans. Over the past few
weeks the Zairians have captured and put
on display small amounts of Soviet-made
equipment. There has been :io hard
evidence, however, of direct Soviet in-
volvement with the invaders.
Mobutu's efforts to attract wider sup-
port could be offset by stories of atrocities
against civilians by undisciplined Zairian
troops that are being circulated by local
residents and missionaries in Shaba.
Attempting to head off expected inter-
national reaction, Mobutu has reportedly
given strict orders to commanders to pre-
vent massacres and has publicly assured
Shabans of their safety. Zairian troops,
however, are prone to see every villager as
a Katangan sympathizer and are often
beyond the control of their officers.
Nigerian Foreign Minister Garba
recently concluded a second round of
talks with Mobutu and Angolan President
Neto aimed at getting the two antagonists
to negotiate a settlement of their
problems. Garba told the US ambassador
in Nigeria that he had made "a bit of
progress," but that Mobutu and Neto are
still far apart on what Garba described as
the principal item at issue-a proposed
border patrol by a force of neutral
African observers.
According to Garba, Mobutu views the
establishment of such a force-as a precon-
dition for negotiating the entire range of
Zairian-Angolan problems, while Neto
insists that the border patrol be con-
sidered only as part of an overall settle-
ment. Nigerian-arranged talks between
ministerial-level representatives of the
two sides began in Lagos early this week.
A discussion of the impact of the Shaba
crisis on basic problems in Zaire appears
in the feature section of this publication.
A banner at a government-organized rally last month reflects President Mob
charges that the USSR and Cuba are responsible for the Shaba crisis
May 13, 77
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PAKISTAN Z % ~, ZS`
Prime Minister Bhutto appears to be
deliberately delaying a compromise settle-
ment with the opposition Pakistan
National Alliance in the belief that time is
on his side and he need not make the con-
cessions that would be required to bring
an early end to the country's political
crisis.
Bhutto has tried to give the impression
that he wants to negotiate a solution as
quickly as possible, but some of his moves
have seemed to belie this. Early this week,
he attempted to have the opposition
negotiate with members of his cabinet, a
procedure that almost certainly would
have proved time-consuming. After the
opposition rejected this proposal, Bhutto
agreed to meet alliance leaders himself,
telling reporters he "hoped" some conclu-
sion could be reached in a day or two.
The talks, which reportedly began on
May 11, presumably are focusing on
Bhutto's future status. The opposition's
latest proposal, formally communicated
to Bhutto late last week, calls for him to
resign 30 days before a new national elec-
tion. In earlier ;negotiations, Bhutto
offered to hold new national and provin-
cial elections, but made no commitment
to leave office. Both sides seem to feel that
if Bhutto remains prime minister during
the election campaign, he can determine
the results of any new vote.
With the military apparently still will-
ing to support him, Bhutto probably sees
little need to work for an early com-
promise. The longer he delays, he
probably believes, the greater the chances
that deep differences among the opposi-
tion leaders will surface or that their street
campaign against him could die out.
Although the opposition continues to
stage demonstrations and strikes, some of
them violent, it has not been able to match
the widespread violence of April 22 that
threatened to drive Bhutto from office.
To delay a settlement, Bhutto must
continue to hold out the hope that the op-
position can attain its goals through ne-
gotiation. Otherwise, the opposition may
once again take to the streets in force,
and the army-whose support is essential
to Bhutto-could reassess its position.
Drought continues to threaten China's
winter wheat crop, although scattered
rainfall in April improved the outlook for
summer-harvested crops as a whole. Out-
put of winter wheat, which accounts for 15
to 20 percent of China's annual grain
production, will be down at least 10 per-
cent from the record 50 million tons last
year.
Most of the losses have occurred in the
North China Plain. Output in Honan and
Shantung provinces, accounting for near-
ly one half of China's winter wheat, is sure
to be down from last year's excellent
harvest. Kiangsu and Anhwei provinces,
on the southern perimeter of the Plain,
had enough rainfall to ensure recovery of
most of their crops. However, the im-
provement will not offset losses in the
northern half of the Plain.
Last year's winter wheat crop received
a boost from exceptionally high precipita-
tion in February, which encouraged early
greening. This year, February precipita-
tion was at near-record lows, and a
relatively dry March left the crop
vulnerable in April. The Chinese have
reported that cold weather and winds in-
tensified the drought. With the exception
of irrigated areas-and even some of
these lack adequate stored water this
year-yields are certain to be down.
Rain in March and early April
alleviated the drought in at least some of
the key coastal growing areas of the
southern rice-producing provinces. It is
still too early, however, to predict the size
of the early rice crop.
The poor harvest last fall, coupled with
efforts to conserve foreign exchange last
year, resulted in a tight grain situation,
moving the new regime to increase grain
purchases for 1977 delivery. The effect of
the drought this year on grains now being
planted for harvest in the fall will be of
particular importance in determining
further grain imports. If low soil moisture
and insufficient rainfall persist this
month, corn, sorghum, and millet in
North China may germinate poorly.
Should this occur in tandem with a re-
duced late rice crop in the south, China
will be forced to consider additional grain
purchases in the third quarter of 1977.
Chinese leaders will probably elect to
monitor the wheat crop a little longer
before considering purchases in addition
to the 5 to 6 million tons of wheat already
purchased for delivery this year.
Whatever China's grain import needs
may be, foreign exchange does not appear
to be a major problem. China's trade
showed a surplus last year, easing
pressure on the balance of payments.
With the usual 12 to 18 month credits,
payments for this year's grain imports
would be spread into 1979. Significantly
increased grain imports, of course, might
move Peking to delay new urchases of
Western technolo .
ISRAEL 3 6-4Z-
The Labor Alignment-composed of
the Labor Party and an allied
group-seems likely to lose several
parliamentary seats in the national elec-
tion on May 17, but will probably retain
its plurality and with it the mandate to
form the government that will lead Israel
in the Middle East peace negotiations ex-
pected later this year.
Despite soaring inflation, worker un-
rest, and scandals in the Labor Party, in-
cluding the one that led to Prime Minister
Rabin's unprecedented resignation, the
opposition parties have apparently failed
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to establish themselves in the voters' eyes
as credible alternatives. Reports from the
US embassy in Tel Aviv indicate that
Labor appears to many voters to be
"safe" and familiar, especially in foreign
policy matters, which most Israelis
believe will preoccupy the next govern-
ment.
The quick and smooth transfer of
Labor's leadership from Rabin to Shimon
Peres has had a rejuvenating effect on the
party's image as well as on morale within
the party. Moreover, Labor's leadership
change has thrown the right-wing Likud
and the nc:w Democratic Movement for
Change of balance, upsetting their plans
to attack corruption within Labor under
Rabin and weakening their claims to
represent the only parties committed to
reform.
Both Likud and the fledgling
Democratic Movement have failed to
cash in on the overriding issue of change
that has dominated the public's attention.
As a result, neither group has been able to
cut into Labor's strongholds deeply
enough to damage significantly its elec-
tion prospects.
As in tie past, the balloting will be
followed by a period during which the
leading party-it has always been
Labor-will bargain with others to form a
majority coalition. The process is always
a lengthy one and is likely to be especially
protracted and intense this year, in part
because of the emergence of the
Democratic Movement as a new political
factor. Peres has estimated privately that
it could take Labor until mid-July to put a
new government together.
Peres will probably strive to form a
coalition made up of the Alignment, the
National Religious Party-a conservative
group that has traditionally been a
member of Labor-led cabinets-and the
reformist Democratic Movement.
Negotiations to achieve such a coalition
are sure to be difficult and may not
succeed. In that event, a minority Labor
governme it with one of the other two par-
ties or even a national unity cabinet
including Likud are possibilities.
chi"4
The recent arrest of former president
Alejandro Lanusse for suspected financial
wrongdoing in office has strong political
overtones. Three other top officials of the
military government that General
Lanusse headed in the early 1970s are also
being held.
Lanusse's arrest has been linked with
alleged improprieties on his part in con-
nection with a government contract for
construction of an aluminum plant, but it
is clear that political considerations were
uppermost in moving against the former
president at this time. His alleged mis-
deeds were neither unusual nor surprising
by Argentine standards, and arty number
of officials could be called to account for
similar improprieties.
For some time, however, Lanusse has
drawn the ire of the current military
regime, particularly the so-called
hard-line officers who distrust him for his
role in paving the way for the return of
Juan Peron. More recently, Lanusse's
criticisms of the government's harsh
security practices, his high public profile,
and his apparent ties to prominent
newspapermen have contributed to
suspicions that he is appealing to impor-
tant civilian sectors as a potential political
leader. The regime is not now prepared
even to consider a return to normal
politics.
The case against Lanusse has been un-
der investigation for several years, but
relatively little has been heard about it
recently, and many Argentines had
assumed the matter would be dropped.
Moreover, the case has been overshadow-
ed by recent developments in the in-
vestigation of alleged connections
between the family of missing financier
David Graiver and other prominent
citizens-including former government
officials-and the terrorist Montoneros.
The conduct of the case against
Lanusse, as well as the Graiver investiga-
tion, could provide a rough gauge of the
relative strengths and weaknesses of
hard-liners and moderates within the
regime. If the campaign becomes more
aggressive and wide-ranging, it will in-
dicate that hard-liners are gaining the up-
per hand.
PERU 9j / ` 5 7i
Peru has indefinitely suspended
anchovy fishing in all but its southernmost
fishing zone, citing a severe scarcity of
anchovies this season. The consequent
reduction in fishmeal production will hurt
Peru's already precarious balance-of-
payments situation and maintain pressure
on world soybean prices.
Peru's National Oceanographic
Institute blames dwindling anchovy
shoals on the weather. During the
past year, sea temperatures have been
above normal, inhibiting the development
of plankton, the microscopic organisms
on which anchovies feed.
During normal years, the Peruvian
anchovy catch accounts, after processing,
for almost 40 percent of world fishmeal
output, making Peru the world's largest
fishmeal producer. Even if normal fishing
can be resumed later this year, world
fishmeal supplies will fall by at least 10
percent for 1977. If fishing is suspended
throughout 1977, supplies could fall by as
much as 25 percent.
Fishmeal and soybeans are the major
sources of protein supplement used in
livestock feeds. Failures in the Peruvian
catch in the 1972-1973 season contributed
to record prices for soybeans, feed grains,
and meats.
Fishmeal prices climbed 20 percent in
the first quarter of 1977 following an in-
crease in soybean prices and a reduced
Peruvian anchovy catch last fall, mainly
because of a prolonged labor strike. With
low Peruvian inventories and the current
ban on fishing, much higher world
fishmeal prices are likely.
Reduced fishmeal output this year
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could cut Peru's foreign exchange earn-
ings by an amount between $100 million
and $300 million; this would raise the
country's current-account deficit by 20 to
50 percent. The reduction in export earn-
ings could almost double the amount of
additional balance-of-payments support
loans needed by Peru this year, increasing
pressure on the government to come to
terms with the International Monetary
Fund in the current negotiations for a
standby loan.
BRAZIL `^' ( r 7 ]~
~ 7 / (((JJJ
Brazil may be maneuvering to maintain
upward pressure on world coffee prices.
Two leading Brazilian newspapers
recently reported that the head of the
Brazilian Coffee Institute had lowered es-
timates for the 1977-1978 crop by 10 per-
cent because of damage caused by a coffee
pest. In addition, Brazilian agronomists
have asserted that an indigenous bacterial
disease affecting coffee trees, first noted
20 years ago, has reached epidemic
proportions in the northeast and has also
appeared farther south.
These allegations conflict with recent
observations by the US agricultural at-
tache and by a foreign agricultural service
coffee specialist. Both reported, after a
two-week trip through Brazil's major
coffee-producing areas last month, that
the coffee trees were in generally excellent
condition. They did not notice any
bacterial or pest damage and predicted
that the coffee yield would reach around
17.5 million bags-almost double last
year's unusually low, frost-damaged crop.
The Brazilian claims of damage have
also been treated with skepticism by the
London press. Prices on both the London
and US markets, which usually reflect
crop prospects, have continued to decline,
indicating that a good yield is expected.
In the past, manipulation of informa-
tion and lobbying by the Brazilian Coffee
Institute have raised suspicions regarding
Brazil's motives and the validity of its
crop reports. This semi-autonomous
government agency regulates Brazil's
coffee trade and has sometimes mas-
queraded as an independent producers'
organization in order to publish
USSR-SWEDEN
Moscow's problems with the new 200-
mile fishing zone are growing. The Soviets
are now at odds with Sweden over a
fishing boundary in the Baltic Sea.
The Swedish government recently sub-
mitted a bill to the legislature that would
permit extension of the country's fishing
zone to 200 nautical miles. If the bill is
passed, Sweden will claim 45 percent of
the Baltic fishing area compared to 10
percent at present.
Sweden wants its zone to extend to a
line equidistant from the USSR and the
Swedish island of Gotland, 80 miles east
of the Swedish mainland. The Soviets
contend that the line should be drawn
between the two mainlands, as provided in
.-, --. ,,....,,,y ,,,,P, ,....., .... y
attended by a stern-trawling factory ship f? `
~7 n~Y 0 50
the Gdansk Convention of 1973, which
regulates fishing between coastal states.
In that case, the delineation would lie less
than 12 nautical miles east of Gotland. 25X1
In recent discussions, Soviet and
Swedish delegations agreed that
negotiations on Baltic Sea fishing should
be resumed soon. The head of the Swedish
delegation has indicated that if no agree-
ment is reached in the immediate future,
however, Sweden may unilaterally declare
a Fishing boundary between the two coun-
tries 25X1
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France's program to facilitate a peaceful transition to in-
dependence for its last colony in Africa appears to be
succeeding, but the territory faces a troubled future because of
internal ethnic rivalries and the designs of covetous neighbors.
q D
25X1
Djibouti Independence Plan Endorsed
rival political groups. The territory, which
has an estimated population of 220,000,
will become the Republic of Djibouti on
June 27.
Ethnic and personal rivalries are
paramount in the territory's politics. The
Issas have a greater affinity for Somalia,
and the Afars for Ethiopia, but each
group is also divided internally.
A predominantly Issa coalition backed
by Somalia will control the first indepen-
dent government; it was the only group to
submit a list of candidates for the new
assembly. The coalition-the National
['he ethnically-divided French
Territory of the Afars and Issas appears
set for a peaceful transition to in-
dependence next month, but competition
between neighboring Somalia and
Ethiopia for influence in the territory
could come to a head within a year.
Paris' program for bringing its troubled
colony to full sovereignty cleared a major
hurdle last weekend when an in-
dependence referendum and legislative
assembly election were held without inci-
dent following a last-minute truce-among
interests against the Issas.
Independence Rally-is composed of the
African People's Independence League,
the Front for the Liberation of the Somali
Coast, and the majority members of the
outgoing legislative assembly, including
Abdallah Kamil, the Afar head of the
local government.
The League, led by Hassan Gouled and
Ahmed Dini, dominates the coalition. Its
members are mainly Issas, but it has also
attracted Afar support. The Front is a
Somali puppet organization with head-
quarters in Mogadiscio; it has legal status
in the territory but maintains a
clandestine guerrilla capability. The coali-
tion groups are united by little more than
their common opposition to the
Ethiopian-backed Afar political groups.
Efforts at Cooperation
Kamil, an Afar who advocates ethnic
reconciliation, has worked for Afar
cooperation with Gouled and with
Somalia; at the same time, he has main-
tained discreet contacts with Ethiopia in
case the Issas ignore Afar interests. Kamil
has also discussed with leaders of the rival
Afar camp the possibility of forming a
united Afar coalition to protect tribal
Leaders of the National Independence
Rally finally agreed that the electoral list
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for the new assembly would consist of 33
ethnic Somalis, including 6 Front mem-
bers; 30 Afars, including some Kamil fol-
lowers and representatives of the parlia-
mentary majority; and 2 Arabs. This divi-
sion roughly reflects the ethnic composi-
tion of the population, but excludes repre-
sentatives from the rival Afar groups.
Internal Stability
The greatest threat to domestic stability
comes from the split between the
Somali-leaning Rally groups and the
pro-Ethiopian groups-the National
Independence Union, the Popular Libera-
tion Movement, and the Ethiopian-based
Djibouti Liberation Movement.
The Union, led by Ali Aref Bourhan, is
known for its militant opposition to
Somalia. The Popular Liberation Move-
ment is the newest party in the territory;
its leaders profess a Marxist philosophy.
The Djibouti Liberation Movement is an
Ethiopian puppet organization.
These groups decided some months ago
to boycott the May 8 election because, in
their view, France had rigged the
arrangements to guarantee the election of
a government controlled by the Rally.
Just before the election, however, they
decided to support the Rally's slate.
Arers belated endorsement of the Rally
slate was probably only a tactical
maneuver; Gouled and Aref have been
rivals for decades, and there is a great deal
of personal as well as political antipathy
between them. Aref still believes Gouled
and the League are controlled by
Somalia.
Somalia, for its part, would oppose any
attempt by Gouled to form a "grand
coalition" with Aref. Despite Gouled's
desire to remain free of Somali domina-
tion, he is probably too dependent on
Somali support to disregard Mogadiscio's
wishes on such an important issue.
Both Ethiopia and Somalia are
prepared to go to extremes to protect their
interests in Djibouti; each has infiltrated
trained guerrillas into the territory.
Somalia's capability for supporting such
proxies is probably superior to Ethiopia's.
Somalia is not inclined at present to
provoke trouble because political
developments in the territory are moving
in favor of the Somali-backed groups.
Somalia's recently improved relations
with moderate Arab states as it seeks
alternatives to its Soviet support also
argue for a cautious Somali policy. Saudi
Arabia, Egypt, and North Yemen have
used their new influence with Somalia to
urge President Siad not to engage in overt
aggression against Djibouti.
Saudi Arabia has shown particular mn-
terest in the territory. The Saudis have
recently established a consulate in the
capital and have promised economic
assistance. They have held periodic talks
with Gouled in Jidda and appear to have a
close relationship with him. Saudi
pressure was probably instrumental in
getting Gouled to agree to a French
military presence after independence.
The cooperation between Somalia, the
Arabs, and the dominant political groups
within Djibouti may not be lasting.
Gouled and other Djibouti nationalists
will probably seek Arab support for keep-
ing the new state free of Somali control.
An attempt to draw Djibouti closer to
the Arabs at the expense of ties with So-
malia would almost certainly prompt So-
malia to adopt a more agressive policy
aimed at early annexation. Arab-So-
mali cooperation on Djibouti also de-
pends on continuation of the current cool-
ness in Soviet-Somali relations.
The Ethiopians will probably refrain
from trying to upset the new government
until they see whether it is willing and able
to remain free of Somali domination.
While Gouled will probably try to main-
tain his independence, it is unlikely that he
will ever be able to free himself from
Somalia enough to satisfy Ethiopia.
The increasing Arab involvement in
Djibouti-and, indeed, in Red Sea affairs
in general-works against Ethiopia's
adopting a neutral stance toward the new
state. Ethiopian leader Mengistu believes
the moderate Arabs are attempting to
overthrow his leftist regime and dis-
member Ethiopia. He regards growing
Arab influence in Djibouti as much of a
threat to Ethiopia as Somali domination
of the territory. His concern that it will
become a link in the "Arab encirclement"
of Ethiopia has been reinforced by the
Somali-Arab rapprochement.
Ethiopia is thus unlikely to find accep-
table either of the two most likely trends
in Djibouti over the next year: a country
coming increasingly under Somali
domination, or a truly independent one
backed by the Arabs and resistant to
Somali hegemony.
If Ethiopia's leaders perceive their
country's most important interest in the
territory-access to the port of Djibouti,
the terminus of Ethiopia's principal
railroad-to be in jeopardy, they will take
substantial risks to protect it.
In fact, any Djibouti government, even
one beholden to Somalia, will allow
Ethiopia continued use of the railroad.
The railroad is vital to Ethiopia's foreign
trade, but it is also a mainstay of the new
state's economy.
May 11,77
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After a difficult year of embroilment in the Lebanese
crisis, President Asad is now ready to move forward on peace
negotiations with Israel. He is prepared to take some risks, but
will proceed cautiously and drive a hard bargain.
/`1 V
Syria: Views on Middle East Negotiations
Syrian President Asad's international
status has grown in the past year, and he
is in a strong, enough domestic position to
take calculated risks in any negotiations
for a Middle East settlement. He has
practical reasons for wanting peace, has
worked actively to reduce the problems
that stand in its way, and is guardedly op-
timistic that some progress may be possi-
ble.
Within the past year, Asad's initiative
in tackling long-standing foreign policy
problems has improved Syrian relations
with Arab :ieighbors and with the two
super powers:
? The Syrian army has brought a
halt to the Fighting in Lebanon, in spite
of domestic criticism of the move and
the severe strain it has placed on the
Syrian eco lomy.
? The feud with Egyptian Presi-
dent Sadat has been ended.
? Outstanding problems with the
Soviets have been patched up enough
to get arms flowing again.
? An understanding has been
worked out with PLO chief Yasir
Arafat.
? Closer ties have been estab-
lished with Jordan's King Husayn.
? The cuarrel with Iraq, which is
responsible: for Syria's most
troublesome and persistent outside
subversive threat, has been muted.
Asad has also moved to smooth over
relations with the US and has been
pleased with the US cancellation of the
sale of concussion bombs to Israel,
President Carter's apparent interest in a
resumption of the Geneva peace talks,
and with the US President's statements
on final borders and the need for a
Palestinian homeland.
The Syrians clearly would like to see
relations with the US improve in the in-
terest of attracting more investment
capital and acquiring access to advanced
US technology to help Syria overcome its
economic backwardness.
Cooperation with the US in handling
the Lebanese crisis has helped to dispel
some deep-seated Syrian suspicions, but
Asad probably is still concerned that the
US will discount or ignore Syrian views.
Asad's differences with Sadat over
procedural matters, the timing of his trip
to the USSR, and his choice of Geneva as
the site for his meeting with President
Carter early this week all seem calculated,
at least in part, as not-too-subtle
reminders that Syria has a central and in-
dependent role to play if the US is serious
about pursuing an overall peace settle-
ment.
A Shrewd Negotiator
Asad is a tough, shrewd negotiator, ex-
tremely cautious, and unlikely to take the
lead in proposing new negotiating
positions.
Asad prefers to stake out a hard public
line and stay one step behind Egypt's
Sadat in order to retain as much room for
maneuver as possible. He shuns the role of
initiator, preferring to let others offer
their proposals first. He also places a
lower premium on public diplomacy than
Sadat; it is not his style.
Although he and Sadat, for example,
have encouraged the Jordanians and
Palestinians to reach an accommodation,
Asad has carefully avoided endorsing
Sadat's proposal for the establishment of
a link between the West Bank and Jordan
before the resumption of the Geneva talks
as a means of finessing Israeli objections
to dealing directly with the Palestine
Liberation Organization. In part, this
simply reflects Asad's natural tendency to
drive a hard bargain, but it also reflects
his belief that Syria holds few trump cards
and must play them with utmost care and
attention to timing.
Asad does not want the Palestinian
representation issue to scuttle the Geneva
talks and is urging the PLO to accept his
idea of going to Geneva as part of a single
Arab delegation. Unless he gains some
assurances that Syria stands to regain all
of the Golan Heights, however, he is un-
likely to press the PLO very hard to
accept a compromise solution. The issue
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of final borders is critical in determining
the degree of Syrian flexibility.
Cooperation with Cairo
For the present, the Syrians seem
genuinely pleased by the restoration of
cooperation between Cairo and Damascus
and determined to support Sadat's
diplomatic efforts and to avoid splits in
Arab ranks that the Israelis could exploit.
The second Sinai accord, however, was a
bitter pill for Syrian leaders to swallow,
and it has left a residue of distrust.
Asad has always differed with Sadat on
basic strategy, believing that the Arabs
should try to strike a balance between the
US and the USSR in order to expand
their room for manuever and to maintain
their credibility as, a military threat to
Israel. Although he shares Sadat's convic-
tion that the US holds the key to a
negotiated settlement, he believes Sadat
has been unwise totie himself so closely to
the US and to sever all but his formal ties
with the USSR.
Asad also feels frustrated playing sec-
ond string to Sadat and is determined to
increase his voice in the formulation of
Arab strategy. His advocacy of a single
Arab delegation and of functional rather
than territorial committees at Geneva to
discuss the shape of a final agreement
appear in part designed to increase his
leverage.
The Egyptians and Saudis are probably
counting on Saudi financial
leverage-which is considerable-to keep
Asad in line. The Syrians have become in-
creasingly dependent on Saudi largesse as
a result of the high cost of their interven-
tion in Lebanon. Syria's foreign exchange
reserves are still low-a situation the
Saudis could quickly remedy but have
not, presumably in order to keep Asad as
tractable as possible.
Interest in Peace
Asad's desire for an end to hostilities is
firmly rooted in practical considerations;
his acceptance of Israel's right to exist is
grudging at best. Like most Syrians, he
believes that a great injustice has been
done to the Arabs, especially the
Palestinians, by the implanting in the
Middle East of an alien, expansionist
Jewish state. Asad also accepts the fact
that Syria and Egypt cannot hope to
defeat Israel militarily and that their
repeated efforts to do so have brought the
Arabs little but grief-and dependence of
one sort or another on outside powers.
Asad aspires to make Syria a regional
power, able to lay claim to its "rightful"
place of leadership in the Arab world. To
do so, Asad realizes Syria must develop
economically and to do that he believes
Syria must first make peace with Israel.
Asad's idea of making peace is quite
different from that of the Israelis. Ideally,
he would prefer to sign an end-of-war
agreement and forget that Israel exists.
He does not regard diplomatic recogni-
tion or free trade-Israel's terms-as
legitimate subjects for peace negotiations.
He is probably pragmatic enough,
however, to understand that he will have
to accept some practical, implicit steps
that lead in the direction of "nor-
malization." He has already said he is
prepared to accept the demilitarization of
the Golan Heights to satisfy Israel's
security needs provided a comparable
zone is established on the Israeli side.
Presumably he would have little trouble
abandoning the Arab economic boycott
or ending hostile propaganda attacks on
Israel. How far and how fast he is willing
to move toward more normal relations
with Israel will obviously depend in part
on Israel's meeting Arab demands and on
how these practical steps would be im-
plemented.
Domestic Considerations
The past year has been difficult and has
severely tested Asad's domestic political
strength. His intervention in Lebanon was
neither popular nor well understood by his
enemies or his supporters. It put him at
loggerheads with the PLO, antagonized
Syria's Sunni Muslim conservatives, and
eroded his support among his own minori-
ty Alawite sect.
Asad's security services have increased
their efforts to deal with clandestine
terrorist groups that have carried out
bombings and assassinations of lower
level Alawite officials. Foreign Minister
Khaddam was nearly killed by assassins
in December, and attempts have been
made against other senior Syrian officials.
This dissident activity, however,
probably does not represent a serious
threat to Asad or a constraint on his abili-
ty to negotiate. None of his enemies,
either individually or in any likely com-
bination, appears to have the strength to
dislodge Asad. His involvement in the
negotiating process may in fact help keep
his opponents off balance.
The Alawite-dominated armed forces
remain Asad's mainstay of power, and his
brother Rifaat's Defense Companies are
the most important deterrent against a
coup attempt. Although the army's loyal-
ty was strained by Asad's decision to in-
tervene in Lebanon and further shaken by
the arrest of several Alawite officers last
December for alleged coup plotting, Asad
app rs to have weeded out or transferred
tial malcontents and to have mended
cnes ith the most important con-
st'tue es in the military.
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The h"atangan incursion has imposed new burdens on
Zaire's sorely troubled economy and also increased doubts
among Zairians in and out of government about President
Mobutu's leadership.
Zaire: Problems Ahead for Mobutu
Even if Zaire's President Mobutu sur-
vives the challenge brought on by the
Katangan incursion, his worries will be
far from over. In addition to several old
problems to which he will have to return,
he will face a number of new ones brought
on by the incursion. I n his efforts to tackle
them, he is likely to tighten central con-
trol over domestic affairs and to shift
Zairian foreign policy away from its
long-time close ties with the US.
The military advances by Zaire's
Moroccan-backed army and the
government's ability to mobilize popular
support for Mobutu after a sluggish start
no doubt have increased Mobutu's con-
fidence, but they have probably done little
to improve his credibility, which was on
the downswing when the Katangan incur-
sion started last March.
In recent years, Mobutu has been living
on his reputation as the man who brought
Zaire out of the chaos that followed in-
dependence and into relative prosperity
and national security. His image as an
economic savior was tarnished even
before the Katangan incursion, however,
and the myth that Mobutu-and by ex-
tension, Zaire--was safe from attack has
now been called into question as well.
Thus, doubts about his leadership on
part of the public, as well as from the
ivilian and military officials wio carry
out his policies, are likely to -increase.
Mobutu's failure to recognize this could
lead him to dangerous political mis-
Page 10 WEEKLY SUMMARY
calculations.
The Katangan incursion has added new
burdens on an economy already seriously
weakened by production cutbacks,
balance-of-payments deficits, foreign-ex-
change shortages, and a $3-billion foreign
debt that Zaire was failing to meet.
Basically, Zaire was caught in a squeeze
between declining prices for minerals-its
major source of revenue-and the rapidly
rising cost of imported consumer and in-
dustrial goods. Mobutu's ill-advised
borrowing and nationalization policies of
the early 1970s magnified the problems.
The trouble in Shaba has forced the
government to divert transport equipment
and precious fuel from civilian uses to the
army, which could further slow produc-
tion and create additional losses in export
earnings. The governmentprobably also
will have to use foreign exchange slated
for upgrading mining facilities, thereby
cutting into future production.
Money Problems
Mobutu had turned to the International
Monetary Fund and his Western creditors
for help last year and was responding to
Western economic advice when the incur-
sion took place. The conflict, however,
threatens Zaire's ability to abide by an
IMF stabilization agreement setting strict
ceilings on government expenditures,
credit expansion, and foreign borrowing.
If Zaire fails to observe these restrictions,
it could lose some future installments on
an $84-million loan.
The unstable political climate has also
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affected Zaire's ability to arrange private
bank credits. One large Western bank
recently reneged on its agreement of last
November to raise $250 million for
maintenance of essential imports.
Faced with a $200 to $300 million
balance-of-payments deficit, Mobutu will
be forced to seek additional foreign
assistance and debt relief in the coming
months. Austerity measures will have to
be implemented for two or three years
before sustained economic recovery is
possible.
Mobutu will also face growing social
problems stemming from Zaire's strait-
ened economy. The average Zairian is in-
creasingly restive over shortages of basic
consumer goods, rampant inflation (now
running at an annual rate of 60 percent),
chronic layoffs, and deficient or nonexis-
tent public services.
Although labor walkouts are illegal in
Zaire, a number of wildcat strikes oc-
curred last year over salary disputes, and
the government quickly gave in to worker
demands. Financial problems have
brought the educational system, par-
ticularly on the university level, to a vir-
tual standstill; students and faculty
members are becoming increasingly vocal
in their demand for improvements.
Political Worries
Zaire is far from the cohesive
nation-state Mobutu intended to establish
when he introduced, in 1971, his cam-
paign of "authenticity," which was
designed to promote a sense of national
identity. When the Katangan incursion
came, he would not trust the locally
recruited Zairian troops in Shaba, and he
found that troops from other areas were
less than enthusiastic about fighting for
someone else's territory.
The Katangan incursion has set a
dangerous precedent. Even if the invaders
are dispersed, government forces are like-
ly to face lingering rebel activity in that
area. The incursion may also give en-
couragement to dissident groups in other
areas of Zaire.
The immediate political question once
the crisis is over will be the central
government's relationship to Shaba as
Zairian soldiers are shown setting up roadblock
with a military truck in the Shaba region
well as to other regions of the country.
Prior to the incursion there were in-
dications that Mobutu was considering
some decentralization to give regional
authorities more flexibility in responding
to local needs. Recent events in Shaba are
likely to convince Mobutu that the
regionally based forces that figured so
prominently in the chaos following in-
dependence are still too strong to allow
any loosening of strong central control.
Mobutu's reorganization of the army's
senior levels to improve its response to the
Katangan threat has revived personal
rivalries within the army's officer corps.
The downgrading of Captain-General
Bumba as the senior field officer in favor
of his long-time adversary, General
Babia, has had a salutary effect on
military operations, but it is bound to dis-
rupt the delicate balance Mobutu had
achieved between the two men and the
cliques that surround them.
Already, the two generals are being
criticized by each other's supporters, and
the infighting is likely to intensify once
military operations in Shaba are over
and reputations and careers must be sal-
vaged.
Babia will undoubtedly call for reforms
in the military, which his opponents will
interpret as a purge. Mobutu agrees with
Babia, but he will have to walk a fine line
between the Babia and Bumba factions if
he hopes to win the army's cooperation in
implementing reforms.
Even under the best of circumstances,
change will come slowly. The army's poor
discipline and leadership go back too
many years to be reversed by fiat. In addi-
tion, many of the army's flaws are exacer-
bated by other factors which, in turn,
affect society as a whole. Corruption and
antisocial behavior are widespread not
only because of poor training and dis-
cipline but also because of the inadequacy
of pay, housing, and other benefits for the
soldiers.
Zaire's political bureaucracy will also
face new strains and tensions. Mobutu,
like many other African leaders, expects
unquestioning obedience from his subor-
dinates. He is aware of numerous officials
who have criticized his failure to meet the
Katangan incursion head on. Once Shaba
has settled down, he will probably launch
a major purge of the bureaucracy. Such a
purge could result in a serious loss of
morale and talent in the government and
interfere with its ability to deal with
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Zaire's real problems.
A reform group within the government
is taking advantage of the situation to ad-
vocate eco lomic and political changes
that Mobutu has brushed aside in the
past. The group recommends granting the
regions some autonomy, quickening the
pace of economic stabilization, and
removing Mobutu from the daily
decision-ma.king process by obliging him
to share power with a prime minister and
to give more authority to cabinet
ministers.
The Katangan experience does not
seem to have convinced Mobutu of the
wisdom of the reformers' ideas. As the
loudly self?proclaimed "'Guide" of the
Zairian people, he may be loath to suggest
to the nation and the outside world any
lessening o1' his own personal power in the
wake of the Katangan challenge.
Foreign Policy
The Katangan incursion has driven
home to Mobutu the need to improve
relations with Angola, but he does not
want to appear to be negotiating from a
position of weakness.
Zaire and Angola will continue to
suspect the worst of each other for some
time to come. Mobutu believes Angola is
dominated by the USSR and Cuba and
that it will continue to support anti-
Mobutu dissident movements no matter
what accommodations are reached. The
Angolans, for their part, will expect
Mobutu to retaliate at some point for
Angolan collusion in the Katangan incur-
sion.
Mobutu has won the support of many
other African leaders, none of whom
would like to see the Katangans succeed
either in forcing concessions from
Kinshasa or establishing a government of
their own in Shaba. Privately, some of
Mobutu's chronic detractors--such as
Tanzanian President Nyerere-are
pleased to see Mobutu facing; such a
crisis after his own involvement
in Angola, but even they do not want
Mobutu discredited or Zaire plunged
again into political instability.
On the debit side, the military
operations in Shaba have damaged
Zaire's relations with Zambia because of
footdragging on Mobutu's part over
reparations for a recent Zairian air attack
inside Zambia. The Zambians regarded
Mobutu's attempt to blame "Soviet air-
craft" as an insult.
As for the Soviets and the Cubans,
there is no chance Mobutu will do
anything to improve relations any time
soon. He has singled out the USSR as the
puppeteer behind the Katangans. That
charge has stimulated much of the sup-
port he has already received.
The help provided by France and
Belgium has given those countries-par-
ticularly France-a new importance in
Mobutu's eyes and offered both him and
them new opportunities. Paris has been
working to cement closer relations with
Mobutu for some time now, and French
economic and military support is likely to
increase in the near future, particularly if
US influence wanes. Competition
between the French and the Belgians has
begun to appear, and Mobutu will be
quick to capitalize on that competition to
prompt each into giving additional sup-
Despise the complaints of Western industrialized nations
about Japanese export policy, Tokyo is headed for another
record trade surplus this year.
port.
Japan: Trade Surplus Mounts
Japan is well on its way to a record
$13-billion trade surplus this year. Tokyo
may try to slow export growth, lower
selected import barriers, and allow some
further appreciation of the yen, but these
measures will come too late to ap-
preciably trim this year's surplus.
A $13-billion surplus would be $3
billion more than last year's. Despite a
large deficit on the service account, the
current-account surplus will approach $6
billion, only a little below the $6.6 billion
record set in 1972. It was $3.7 billion in
1976.
Prime Minister Fukuda continues to
maintain publicly that Japan will have a
$700 million current-account deficit in the
fiscal year that began in April.
Japanese exports should exceed $77
billion this year, 17 percent above 1976.
More than half the increase will reflect
higher prices, particularly for cars and
consumer electronics. The volume of
Japanese car shipments is expected to in-
crease less than 7 percent; dollar sales will
he up much more because of recent price
hikes.
The volume of steel exports at best will
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only match last year's level because of
higher prices and trade barriers. Overseas
sales of Japanese plants and machinery
should continue strong, particularly in the
less developed world where import de-
mand is reviving.
Japanese imports will reach $64 billion,
14 percent above 1976. Even if Japan
achieves its 6.7-percent growth target for
fiscal 1977, imports will not increase a
great deal.
Oil imports should increase about 5
percent in volume and roughly 17 percent
in value, but prospects are dim for a
revival in machinery or consumer goods
imports at this time because of the low
level of domestic confidence in Tokyo's
reflation efforts. For key commodities
such as coking coal and iron ore, high
domestic inventory levels enable Japanese
firms to pressure suppliers to shave prices.
Japan's heavy dependence on developed
countries to absorb exports will ease this
year because of Tokyo's sensitivity to
complaints by other industrial countries,
new trade barriers by these countries, and
reviving import demand in less developed
countries. In the first half of 1976, sales to
the US and Western Europe accounted
for nearly all of Japan's increase in ex-
ports; by the end of the year the share had
slipped to 70 percent, and it was under 50
percent for the first quarter of 1977.
So far this year, sales to less developed
countries are outpacing the growth in
Japan's total exports. Sales to the Middle
East were particularly strong in the first
quarter because of deliveries on
machinery contracts signed in 1976. De-
mand in more traditional markets, such
as Hong Kong, is also picking up.
Tradle with the US
Japan's surplus with the US in 1977
will be at least as large as the $5.2-billion
imbalance in 1976 and could surpass $6
billion if Japanese machinery imports re-
main sluggish during the rest of the year.
Japanese sales to the US will likely exceed
$18 billion, 15 percent above last year.
The sales returns from moderate volume
gains for cars will be bolstered by higher
prices. Toyota, Nissan, and Mazda have
already announced their second round of
JAPAN: Trade Surplus
01
1970 1971 1972
621554 577
price hikes on 1977 models; Honda is ex-
pected to follow suit.
Japanese TV exports will continue to
do well this year even with Japan holding
color TV exports to the 1.7 million units
recently agreed upon for the year begin-
ning July I-half of the 1976 level. Part of
the drop will be offset by higher prices
resulting from the recent US customs
court decision requiring Japanese firms to
post a bond of 5 to 20 percent on all
Japanese color TVs exported to the US.
By midyear most producers will begin
marking up merchandise because of the
yen's recent appreciation.
Japanese imports from the US are ex-
pected to total about $12 billion. Any in-
crease above this level will depend on
Tokyo's ability to boost business con-
fidence enough to spur investment and
machinery imports. Roughly 30 percent
of US sales to Japan are capital goods.
Food and raw material imports will in-
crease only 3 to 5 percent in volume and
probably less in price.
Tokyo is moving slowly in several areas
in response to pressure from major
trading partners regarding its large sur-
plus. It is considering lowering some non-
tariff import barriers, but not enough to
Billion
US$
Exports
Balance
Imports
13 WEEKLY SUMMARY
boost imports much.
Discussions on easing strict Japanese
auto emission standards are slated to
begin about midyear. Tokyo has lifted its
ban on certain citrus fruit imports from
the US, and it may loosen quotas on beef
imports from Australia. These products
together, however, account for only a
small share-less than 5 percent-of im-
ports.
On the export side, the government is
tightening its already extensive oversight
procedures on Japanese export industries.
Tokyo is concerned because existing pro-
cedures did not predict last year's surge
in Japanese TV shipments to the US.
Despite some pressure from Japanese in-
dustry, Tokyo opted for export restraint
on TVs.
Japan's large trade surplus has meant
continuing upward pressure on the yen. In
the past few weeks, however, Tokyo's
move to cut interest rates as part of a
reflation effort has pushed the yen down
about 2 percent, to 278 to the dollar. Once
interest rates settle, the yen will likely
move back to the 270 level. Tokyo will ac-
tively intervene to prevent further ap-
preciation
May 13, 77
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Potential oil deposits on the continental shelf off Argentina
may be more than double the proven reserves of the whole
Western Hemisphere.
Argentina's vast continental
shelf-four times larger than the US
Atlantic shelf-may be one of the world's
richest oil-Dearing areas. An estimate
done by th-- US Geological Survey in-
dicates that the sedimentary basins on the
Argentine shelf have an oil potential of as
much as 200 billion barrels.
Prospects for large oil finds are es-
pecially good in waters near the Falkland
Islands, which are administered by the
UK but claimed by Argentina. The most
Colorado Basin
Bahia Blanca.
'Austral
E asin ,
'Malvinas
Basin
^'/ FALKL
(SLAP
Argentina: Promising Oil Potential
promising area is located between the
Falklands and the Argentine mainland in
the large Malvinas Basin, adjacent to the
Austral Basin, where oil is already being
produced. The Malvinas Basin is similar
geologically to many areas in the North
Sea.
Seismic data indicate that the Malvinas
formations are likely to yield a high
proportion of oil to gas. Water depths,
however, vary from 150 to 200 meters in
the northern part to as much as 370
meters farther south. The greater depths
would require costly semisubmersible
drilling platforms or drillships fir effec-
tive exploration.
The oil potential of the Falkland
Islands offshore area is played down by
the British, who wish to avoid intensifying
their territorial dispute with Argentina.
Last summer, the UK issued a govern-
ment report incorporating seismic work
done in 1973 and 1974 by a British
geological team. While agreeing that the
Malvinas Basin is promising, the report
dismisses the US Geological Survey's es-
timate.
Argentina is eager to find out the extent
of offshore oil reserves, including those in
contested waters. On April 26, Energy
Secretary Guillermo Zurbaran announced
that Argentina has authorized a US firm,
Geophysical Service, Inc., to start ex-
ploration on the shelf. The company will
conduct seismic prospecting in a zone
stretching from just east of Bahia Blanca
to the southern extremity of Argentina,
2,400 kilometers away. The Falklands
offshore area is implicitly included in the
authorization granted to Geophysical Ser-
vice.
The exploration underscores a radical
shift in Argentina's oil policy since the
ouster of President Maria Estela Peron a
year ago. The present military govern-
ment encourages participation by foreign
firms in the petroleum program, while the
Peron government increased the role of
the state oil company.
The existing contractors of the state oil
company probably will be able to improve
their position considerably. These include
three US companies and five private
Argentine firms. The state oil company
has reportedly been authorized to double
the production areas allocated to these
contractors, provided they install modern
equipment and guarantee higher output.
Argentina hopes to bring its oil industry
out of a period of long stagnation.
Production has averaged about 400,000
barrels per day since 1970. In 1976,
Argentina imported more than 50,000
barrels per day, at a cost of some $300
million. Exploration has been slow, failing
to add significantly to the nation's proved
reserves of 2.5 billion barrels.
The government's new targets are self-
sufficiency in oil by 1980 and an export-
able surplus from offshore production by
1985. This year, the government plans to
spend $150 million on exploration, in-
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cluding deep-water drilling by the state oil
company in the Colorado Basin east of
Bahia Blanca. Argentina recently received
from France a new $75-million platform,
which is being used for this project.
Argentina's efforts to broaden and
accelerate petroleum development
through increased foreign participation
may be hampered by wariness on the part
of foreign companies. Argentina's
vacillating attitude toward foreign firms
in the past makes such companies
cautious-especially those which have
had facilities nationalized.
The present government has under-
taken a broad range of economic in-
itiatives in the past year to stabilize the
economy and create a favorable environ-
ment for investors. It has markedly
slowed the rampant inflation, sharply cut
Unemployment among young people is becoming an in-
creasingly serious problem in some industrialized countries. Ef-
forts by governments to alleviate it have so far not provided
much relief.
the huge government deficit, rebuilt for-
eign exchange reserves, and changed the
balance-of-payments current account
from a $1.3-billion deficit in 1975 to a
$600-million surplus in 1976. The govern-
ment realizes that economic progress
could be undercut by a rapidly rising
oil import bill, which could be avoided
with outside capital and tech-
nology.
S~ 2-,
Youth Unemployment in Industrialized Countries
25X1
High unemployment among young peo-
ple in some industrialized countries has
heightened social tensions and increased
demands for remedial action.
Concern over youth unemployment is
shared by both political "ins" and "outs"
and, increasingly, by those responsible for
maintaining domestic order. Even where
large numbers of out-of-work youth have
not yet caused overt disturbances,
authorities fear that feelings of injustice
will mount and social tensions increase as
the wait for jobs continues.
In Italy, more liberal entrance criteria
at the universities have combined with the
paucity of jobs to create chaotic con-
ditions. Extremists have found ready
material to exploit in fomenting violence.
In Britain, youth have been prominent
in racial disturbances, and the new
National Front Party has gathered
strength from resentment against non-
whites competing for jobs.
French Communists are concerned that
youth unemployment may exceed one
million by autumn and result in unrest
that could provoke a right-wing backlash
in the parliamentary election next year.
The French government, on the other
hand, realizes that the unemployment
issue favored the left in recent municipal
elections.
In West Germany, dissatisfaction with
the government's record in providing jobs
may have moved votes of youth to the op-
position in the national election last Oc-
tober.
Organized labor, especially in Italy and
in France, has come under fire for looking
out only for the interests of employed
workers and not those of the young un-
employed.
Aggravated by Recession
The recession of 1974 and 1975, which
pushed unemployment rolls to postwar
records, dealt a particularly heavy blow to
young workers. In Canada, workers under
the age of 25 accounted for nearly one
half of unemployment in 1976, while their
share in the labor force was only about
one fourth. The situation was comparable
in Western Europe. While on an average
constituting less than one fifth of the labor
force, young workers accounted for more
than 40 percent of the jobless total in the
UK, France, and Finland, more than 50
percent in Norway, and over 60 percent in
Italy.
Unemployment rates among young peo-
ple in France and Italy in 1976 reached
nearly 15 percent and in many coun-
tries were more than triple the jobless
rates of older workers. In Italy, the youth
unemployment rate was more than nine
times that of older workers.
Although cyclical factors were largely
responsible for the inordinately high level
of youth unemployment last year, jobless
rates for young workers historically have
been considerably higher than those of
older workers. Moreover, youth un-
employment has been rising in many
developed nations for several years.
The roots of the problem extend far
beyond the influence of the most recent
economic downturn. Most industrial
countries have failed to prepare young
people adequately for the types of jobs
available and have not developed ap-
May 13, 77
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propriate institutions for assisting youth
in job placement and career selection.
Various job security arrangements,
statutory restrictions on employment in
certain occupations, restrictions on
employment in night-time jobs, limits on
the number of hours that young people
way work, and minimum wage rates have
served as farther impediments for young
people.
Japan and West Germany have man-
aged to keep youth unemployment at
relatively low levels during the last
decade. Janan experienced a sharp drop in
its youth labor force during this period-a
trend that has kept young workers in tight
supply. Thi,- youth labor force in West
Germany has been on the decline since
1972.
Moreover, these countries have
well-established apprenticeship systems
and extensive counseling and placement
services for youth. Their educational
systems put more emphasis on vocational
preparation, while social stratification en-
courages young people of blue collar
background to seek blue collar careers.
Corrective Measures
Most governments have taken some
measures cver the past two years to
alleviate youth unemployment. The
limited short-term steps adopted thus far,
however, have done little to improve job
prospects for young people. The UK's
largest program, for example, provided
jobs for only about 5 percent of its un-
employed young people last year, and
most of these positions were temporary.
Youth oriented programs now in opera-
tion abroad include:
? Direct job creation schemes in the
public sector.
? Programs facilitating the early
retirement of certain categories of
workers.
? Extension of compulsory educa-
tion or encouragement to youths to ex-
tend their education.
? Expansion of financial support for
vocational training and apprenticeship
A student riot last February on Rome University's
campus in which more than 20 students were injured
programs.
? Temporary subsidies to en-
courage the employment of youth in
the private sector.
France, Sweden, the UK, Belgium, and
Luxembourg have recently extended their
unemployment insurance and assistance
schemes to cover young people seeking
their first jobs. Governments are exten-
ding social insurance benefits reluctantly,
however, because they regard contain-
ment of their large budget deficits as
necessary to slow inflation and because
prolonged high unemployment is straining
established financing arrangements.
Social expenditures now exceed 30 per-
cent of national income in some West
European countries.
Demographic trends, combined with
relatively slow economic growth, are like-
ly to result in a worsening of youth un-
employment in most industrial countries
over the next five years. In Western
Europe, the peak baby boom years of the
early 1960s will result in a considerable
rise in the number of people reaching
working age. Not until 1985 will the low
birth rates of more recent years begin to
reverse the trend.
Canada will experience a continued,
though slower, rise in its youth labor
force until the early 1980s, after which the
number of young people in the job market
will decline in response to a sharp drop in
the birth rate during the 1960s. Japan
should continue to benefit from a relative-
ly low rate of youth unemployment over
the next decade as a result of a further
drop in its youth labor force.F_
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