CENTRAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A025800020001-3
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 20
• Document Creation Date: December 15, 2016
• Document Release Date: October 3, 2003
• Sequence Number: 1
• Publication Date: December 6, 1973
• Content Type: REPORT

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Top Secret
Central Intelligence Bulletin
Top Secret
C 204
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6 December 1973
Central Intelligence Bulletin
CONTENTS
ARAB STATES - ISRAEL: Cairo may be reassessing its
position on peace talks. (Page 1)
USSR-FEDAYEEN: Moscow cautious on Palestinian issue.
(Page 4)
KOREA: Propaganda from both capitals remains low
key. (Page 5)
CANADA: Government's handling of energy problem
under fire. (Page 6)
ARGENTINA: Peron orders strong measures to protect
foreign companies from terrorists. (Page 8)
ISRAEL - LATIN AMERICA: The war has hampered Tel
Aviv's campaign to sell arms in Latin America.
(Page 9)
SRI LANKA: Government reportedly will ease food
austerity measures in some cities. (Page 10)
Chile's Economic Recovery Program: (Page 11)
FOR THE RECORD: (Page 16)
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ARAB STATES''-' ISRAEL: CThe Egyptian Government
may be reassessing its position regarding peace ne-
gotiations. The sticking point is what it considers
Israeli "stalling"--the same issue which earlier
caused it to break off the disengagement talks.
On 5 December, Egyptian authorities notified
the UNEF commander, General Siilasvuo, that Cairo
has so far made no decision on the question of the
resumption of talks at Kilometer 101. The Egyptian
foreign minister also summoned the US and Soviet
ambassadors to meet with him separately yesterday
to discuss the continuing tension on the Suez front
and the forthcoming Geneva peace conference.
Well-informed sources in Cairo said that unless
the two superpowers adopt a firmer attitude toward
Israel's "stalling attitude" at the military-level.
talks, it will be difficult for Egypt to attend a
peace conference. These sources indicated that it
is unlikely the Kilometer 101 talks will be resumed
before Secretary Kissinger's visit to Cairo on 13
December. In addition, they would not discount the t-
possibility that Egypt is seriously considering post-
poning the Geneva talks until Israel has met all the
conditions of the six--point cease-fire agreement.
The People's Assembly is scheduled to meet in
Cairo on 8 December to hear the gornment'siddraft
t
policy statement on general Egyptian
foreign and domestic fields for the next several
years. This draft has been in the works for some
months. The Assembly will also hear a statement by
the War Ministry on the military situation. intended
sources had previously suggested that Egypt p
to "freeze" the situation pending the outcome of
Secretary Kissinger's visit, to which they attach
great importance. )
Cairo's Al Ahram sounded a warning note yester-
day about expectations for secretary of State Kis-
singer's second visit. The commentary called into
question the extent of US willingness to pressure
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Israel. It also challenged US definitions of a
"reasonable peace," the return of "almost" all oc-
cupied territory, and a "complex" formula for Jeru-
salem, labeling the latter point incompatible with
Security Council resolutions.
Al Ah.ram appeared to be interpreting the stale-
mate at Kilometer 101 as a failure by the Secretary
of State to follow through on pledges made during
his first visit to Cairo. Asserting that respon-
sibility for the breakdown must be fixed before the
Secretary returns, the paper concluded that the Arabs
cannot trust US efforts to effect a settlement if
the results of the second visit are no better than
those of the first.
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(continued)
6 Dec 73
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CAccording to press reports from Tel Aviv yes-
terday, the Israeli Army has not permitted corre-
spondents or television crews to visit the cease-
fire line for the past few days; future visits will
be authorized only after formal application is made
and approved.
A Soviet press officer in Cairo claimed recently
that a few MIG-23s and MIG-25s are in Egypt with So-
viP_t pilots to carry out reconnaissance missions.
The Foxbat is a much netter
reconnaissance aircraft than the Flogger; the Is-
raelis have only a marginal capability to down the
Foxbat.
Analysis of Egyptian claims to have ten Egyptian-
made Zafir mis Iles housed in silos and manned by
E tian crews
indicates that the claims
not valid. There is no evidence of missile silos
in Egypt, and such technology is currently beyond
Egyptian capabilities. In the early 1960s, West
German technicians helped the Egyptians' attempts
to develop two single-stage liquid-fueled ballistic
missiles, but neither of these ever became operational.
There is no information available to substantiate
the Egyptians' claim that French technicians have
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USSR-FEDAYEEN: Yasir Arafat's cautious reception
in Moscow last month suggests that the Soviets hope to
exploit the Palestinian question but do not want the
complex issue to disrupt movement toward a peace con-
ference.
The relatively cautious approach taken by Moscow
probably reflects its unwillingness to get out in
front of Arab governments on the Palestinian issue as
well as the frustrations it has encountered in dealing
with the fractious Palestinian movement. Ponomarev
visited Iraq subsequent to his discussion with Arafat,
possibly with the objective of trying to persuade
Iraq to moderate its opposition to a Palestinian state
and temper Baghdad's support for radical fedayeen
elements who are opposing Arafat over this issue.
The Soviets probably see their interests served
by support for the Palestinian movement, since this
will give them increased leverage in the negotiations
and a potential channel of influence in the Middle
East.
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KOREA: Propaganda from both Korean capitals re-
mains 7=now key, and the North-South Coordinating
Committee meeting yesterday apparently passed in a
businesslike manner. A detailed report on the meeting
is not yet available, but Pyongyang expressed satis-
faction that Seoul had removed former ROK CIA director
Yi Hu-rak as its chief negotiator at the talks and
implied that it now had a more positive attitude to-
ward continuing the dialogue.
North Korean naval patrols continue along and
below the Northern Limit Line. Yesterday's scheduled
South Korean resupply run to the islands was canceled
t.o.,~?ao n f hard waa -hEar . but today's left as scheduled.
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CANADA: Prime Minister Trudeau's minority gov-
ernment sfacing political difficulties over its
handling of energy problems.
The main opposition party, the Progressive Con-
servatives, will introduce a no-confidence motion on
10 December on the energy issue. The government is
under attack for its plans to lift petroleum price
ceilings next February and for its failure to consult
with provincial governments before announcing both
an export tax on crude oil and plans for building a
Toronto-Montreal pipeline. The Liberal Party leader-
ship is also being criticized for its optimistic es-
timates of petroleum shortfalls in the wake of Arab
production cutbacks.
Recent opinion polls have led the Tories to
believe a trend against the Liberals is setting that
among the electorate. It is doubtful, however,
the Tories want elections in mid-winter. Their aim
is probably to keep Trudeau's informal coalition
under pressure until. next February, when the new
parliamentary session begins. Several no-confidence
votes usually are introduced at the opening of a
new session, and by that time the New Democrats, who
hold the balance of power in Parliament, may have de-
cided that it is no longer to their advantage to be
associated with the government. The informal nature
of the coalition often places the New Democrats in
the paradoxical position of preserving the government
on critical votes while denouncing it in parliamen-
tary debate.
Energy policy has been an important political
issue in Canada since last summer. The New Democrats
have had a hand in shaping the government's views.
The party's influence on government policy appears to
be declining, however, while at the same time public
criticism of the government's energy policy--or lack
thereof--is growing. Many New Democratic MPs are un-
happy with this situation, and party leader David
Lewis will face a sharp debate when the parliamentary
caucus meets prior to next week's no-confidence vote.
(continued)
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Trudeau has already softened his stance on petroleum
price ceilings--a central issue---and a compromise
may be in the works. Nonetheless, significant dif-
ferences remain, and the key question for Trudeau is
not if but when the New DemQnrats will withdraw their
support of the government.
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ARGENTINA: President Peron is ordering strong
measures to protect foreign companies and their per-
sonnel from terrorists, following a major US firm's
threat to close down operations.
Peron mobilized national police to cope with
violence after a left-wing Peronist group attempted
to extort $4 million from the Ford Motor Company by
threatening to kill its employees if this demand was
not met. The threat: followed the assassination of a
Ford executive in Cordoba last month and prompted the
company to order all of its US personnel to leave
the country. In a recent meeting with Ford officials,
Peron assured them of his concern and said he was set-
ting up a council at the cabinet level to coordinate
the campaign against terrorism. A Ford. spokesman re-
portedly said last night that Ford plans to bring its
people back eventually.3
Privately organized paramilitary groups report-
edly have already moved against the People's Revolu-
tionary Army (ERP) and leftist elements within Peron-
ist Youth. These counterterrorist groups, consisting
largely of retired military personnel, are said to have
Peron's approval and allegedly will take orders from
his wife, Maria Estela Martinez de Peron.
The recent terrorist actions against Ford, the
largest multinational company in Argentina, may have
been aimed at thwarting Peron's announced intention
to attract more foreign investment. They could also
signal a shift by the left from kidnapings to more
violent methods in retaliation against government
efforts to purge the Peronist movement of Marxist
elements.
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ISRAEL - LATIN AMERICA: The Arab-Israeli war
has delayed the delivery of Israeli jet aircraft re-
cently purchased by El Salvador and is likely to im-
pede Tel Aviv's aggressive arms-sales campaign in
Latin America. In mid-1973, Israel concluded its
largest sale of foreign aircraft, a several million
dollar contract to provide El Salvador with 18
Ouragan jet fighters, three Fouga jet trainers, and
several Arava Stol turboprop transports. One Fouga
per month was to have been sent, beginning in Novem-
ber, but delivery has been postponed. The Ouragans,
which were undergoing extensive overhaul, were sched-
uled to be supplied four per month starting in Sep-
tember 1974, but delivery probably has also been
pushed back. The Israelis may be able to meet the
1975 delivery dates for the transports.
At the aerospace show in Sao Paulo in September,
the Israelis displayed products of their aircraft in-
dustry--the Arava Stol, air traffic and control radar
systems, and a small corporate jet liner. While lit-
tle information is available on Latin American reac-
tion to Israel's exhibit, the Central and South
American states that have bought Israeli weapons and
employed Israeli military experts and technicians in
the past have been favorably impressed. As a result
of the war, however, Israeli's arms industry will be
forced to devote most of resources to meeting
domestic military needs. 1 71
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SRI LANKA: Prime Minister Bandaranaike report-
edly hasdecided to ease food austerity measures in
certain urban areas in order to avert s I us disturb-
ances. The decision was reached Monday
The government is planning to double the per
capita free weekly rice ration in key urban areas to
two pounds per week in an effort to defuse the tense
situation. Colombo apparently has adequate rice
stocks to meet this new commitment for the remainder
of 1973. To offset the proposed increases in 1974,
Sri Lanka will ask China for additional rice. on credit
terms during the upcoming barter trade negotiations
in Peking later this month.
Mrs. Bandaranaike's personal campaign to alert
the public to the serious food situation and to arouse
popular support for increasing food production to
achieve self-sufficiency initially blunted adverse
public reaction to sharp ration cuts announced on
28 September. Since then, however, opposition forces
have launched a campaign to discredit her policies,
and public dissatisfaction has been growing. Con-
cerned by the deteriorating situation, the government
has placed all security forces on" full alert. Al-
though Mrs. Bandaranaike's decision should have a
short-run palliative effect, tight grain supplies
will continue pt lp-ast until the major rice harvest
next spring. I __1
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Chile's Economic Recovery Program
The ruling junta in Chile is moving aggressively
to rebuild the economy by adopting a harsh austerity
program and instituting policies designed to return
the country to a market economy. Implementation,
however, has been hampered by disagreements within
the government over how best to deal with the severe
hardships imposed on most of the population, and the
program could generate widespread unrest.
Initial Efforts
Faced with shortages aggravated by heavily sub-
sidized prices, Santiago moved quickly after the
coup on 11 September to remove price controls on all
but 30 basic commodities. The Central Bank also de-
valued the escudo by some 60 percent and simplified
the exchange rate system in an effort to curb import
demand and ease pressures on Santiago's meager for-
eign exchange reserves. As a consequence of the
devaluations and relaxed price controls, Chile's
cost of living jumped sharply in October, bringing
the inflation rate to. about 450 percent for the
first ten months of the year. Price rises during
the last two months of 1973 probably will push in-
flation to over 750 percent for the year.
The elimination of price controls and adjust-
ment of exchange rates caused the black market rate
for escudos to plummet from 2,200 to the dollar to
950. While exchange rates changed and prices rose,
the growth in the money supply was sharply curtailed,
causing a relative scarcity of local currency and a
liquidity crunch for businessmen. To finance busi-
ness activities, holders of dollars are changing
them into escudos at official rates in record volumes.
Over $14 million have been converted since mid-
November, mostly to finance business operations.
Domestic Impact
Despite a healthy increase in the minimum wage,
working-class consumers are finding it increasingly
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difficult to afford even the barest necessities.
Middle income groups are also being hit hard. These
conditions have been worsened in many cases by large-
scale dismissals of relatively unproductive and po-
litically suspect employees hired under the Allende
regime. An unemployment compensation program has
been announced, but it has not been implemented be-
cause of a shortage of trained administrators and a
lack of effective coordination. An extensive public
works program is also under consideration.
The junta has attempted to enlist public support
for the austerity program through a series of public
jawboning sessions and repeated press conferences,
all of them having the theme of highlighting the
dismal Allende heritage and the consequent need for
belt-tightening. Although business is showing some
renewed confidence, consumers and labor appear to
be.less than enthusiastic about the junta's programs.
No 'organized resistance to the junta or its programs
has appeared, however.
Some leftist groups reportedly are planning to
seize upon the wage-price squeeze to foment strikes
and other violence, but the left's ability to mobil-
ize the workers against the regime is questionable,
because organizers and militants no longer have easy
access to the factories, and the days of regular
pay for demonstrating rather than working are over.
There is a risk, however, of widespread unrest and
spontaneous strikes if pressures on consumers and
labor are not eased during the next six months.
External Economic Relations
Chile still faces balance-of-payments deficits
in excess of $250 million in both 1973 and 1974,
even if debt repayments are completely rescheduled
in both years. Unless next year's debt is resched-
uled, the payments deficit could exceed $1 billion.
With the massive $4 billion foreign debt hanging
over Santiago's head, it will at best be several
years before Chile's balance-of-payments position
improves significantly.
(continued)
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The junta has appointed Julio Philippe (foreign
minister during the Alessandri administration) the
chief negotiator on copper compensation.
Copper production has already increased more
than 50 percent above last year's rate through
better worker discipline, a 9-percent lengthening
of the workweek, and improved mine management. Pro-
duction will probably reach a record 750,000 tons
next year, but shortages of spare parts, serviceable
tractors, and trucks constitute a substantial con-
straint to further expansion of production.
Another major problem is how to increase agri-
cultural production rapidly. Agricultural imports,
the largest drain on foreign exchange, are likely
to exceed $500 million in 1974. The recent sharp
increases in agricultural prices provided windfalls
to farmers and merchants but will not significantly
affect output until the.1974/75 harvest, since most
crops are already planted and are well into the
growing season. Chile is importing grain to ease
domestic shortages and has received $52 million in
US credits for grain purchases. Continuing high
world prices as well as adverse world reaction to
the coup have compounded Santiago's problems in ob-
taining adequate grain supplies.
Chile also continues to face shortages of such
critical items as spare parts, transportation equip-
ment, aluminum, ferrous scrap, and petrochemicals
for textile fiber production. The aluminum shortage
resulted from a cutoff in supplies from Hungary and
the USSR. Stocks of ferrous scrap are virtually
exhausted, and Chile will require imports of over
40,000 tons next year. The US has granted hardship
exemptions for the export of 7,000 tons during the
remainder of 1973.
While the problems of adequate short-run sup-
plies of raw materials and spare parts must be
solved to boost production quickly, long-run growth
will depend heavily on Chile's ability to attract
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adequate foreign investment. Attraction of substan-
tial new investment, in turn, will depend on the
junta's ability to demonstrate good faith in the
treatment of foreign equity as well as its ability
to instill confidence in Chile's prospects for stable
recovery and growth. A critical first step in this
area is timely settlement of outstanding compensation
claims emanating from the Allende nationalizations.
The junta has stated that it will either return in-
tervened firms to the private sector or, as in the
case of the large copper mines, compensate the pre-
vious owners adequately. Some 88 firms, including
five with US interests, are already in the process
of reverting to their original owners.
The junta has succeeded in lining up sufficient
foreign credits to enable it to purchase capital
goods essential to the recovery of production. Pri-
vate US and Canadian sources have granted nearly
$200 million in new short-term credits, $215 million
has been granted by Argentina, and about $200 mil-
lion by Brazil. Colombia is providing an additional
$15-$20 million in private bank credits.
Prospects
The economic outlook for Chile is cautiously
optimistic as the junta takes steps to correct the
excesses of nearly three years of state socialism
under the Allende regime. The programs are economi-
cally sound and offer a firm foundation for recovery
and growth of the economy. The major policy conflicts
within the government appear to center on the degree
and timing of specific measures rather than problems
of basic policy orientation. There have been dis-
agreements within government circles as to how the
copper compensation negotiations should be carried
out and who should be in charge of them. By con-
trast, there is no disagreement that compensation
should be paid or that the copper mines should stay
nationalized. Another developing area of conflict
is over the degree of austerity to be imposed and
the timely introduction of measures to ease the im-
pact on the poor. (continued)
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There is also maneuvering by various personal-
ities and government agencies for hegemony in policy
matters, including attempts by the navy to increase
its influence in the junta at the army's expense.
Thus, there is friction between the Committee of
Advisers to the President of the Junta (COAP) and
the National Planning Office (ODEPLAN), which is
run by the navy. Reports of dissension within army
circles over the degree of austerity of the junta's
economic program have also surfaced.
In terms of senior economic advisers, Orlando
Saenz, recently reassigned as ambassador to Japan,
appears to have lost out to Raul Saez as chief eco-
nomic adviser. Saez reportedly disagreed with the
price policies initially followed, preferring con-
tinued controls on some 200 items versus the 30 now
controlled. Such a move could have provided a price
rise sufficient to stimulate production without the
degree of consumer suffering under the present pro-
grams. Additional policy positions by Saez appear
to have been somewhat at odds with proposals of the
so-called technocrats--a group of young University
of Chicago "school" economists who provided the
junta's basic economic policy program right after
the coup. The technocrats wanted an even more dras-
ticdevaluation of the escudo and desired to main-
tain dual exchange rates that would be revalued fre-
quently to parallel inflation. The Central Bank,
however, is moving toward a unified exchange rate
of around 600 escudos per dollar.
The emerging dominance of Raul Saez is probably
a positive factor, since the junta's austerity pro-
gram must be tempered if political as well as eco-
nomic recovery and stability are to be achieved.
Meanwhile, Chile is preparing to settle outstanding
compensation issues with the US. Timely resolution
of these issues (including an early settlement with
Cerro Corporation) would go far in improving inter-
national investor and creditor confidence in Chile.
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FOR THE RECORD*
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UN-Cambodia: The General Assembly decided last
night to suspend consideration of the Cambodian rep-
resentation issue until next fall. This ends, at
least for this year, Prince Sihanouk's challenge of
the Lon Nol government's right to represent Cambodia
at the UN.
*These items were prepared by CIA without eonsuZta-
tion with the Departments of State and Defense.
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Top Secret
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