CENTRAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A026000160001-5
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 22
• Document Creation Date: December 15, 2016
• Document Release Date: March 19, 2004
• Sequence Number: 1
• Publication Date: January 24, 1974
• Content Type: REPORT

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Central Intelligence Bulletin
State Department review completed
Top Secret
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January 24, 1974
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January 24, 1974
Central Intelligence Bulletin
CONTENTS
EGYPT: President Sadat urges lifting of oil embargo
against nst US. (Page 4)
JAPAN: Inflation Japan's most immediate economic
problem. (Page 6)
INTERNATIONAL MONETARY DEVELOPMENTS: Yen subjected
to heavy downward pressure. (Page 7)
CAMBODIA - NORTH VIETNAM: Sihanouk probably will
discuss Communist dry-season campaign while in Hanoi.
(Page 8)
EC - MIDDLE EAST: The Nine discuss proposals to set
up joint EC-Arab committees on cooperation. (Page 10)
CHILE: New regulation prohibits activities by polit-
ical parties. (Page 12)
ARGENTINA: Peron gains popular support for anti-
terrorist campaign. (Page 13)
CHINA: The Party Commands the Gun. (Page 15)
FOR THE RECORD: (Page 19)
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EGYPT: President Sadat has been urging the
Arab oil producers to lift their embargo against the
US once a Syrian-Israeli disengagement has been
implemented.
The Egyptian ambassador in Abu Dhabi told the
US charge that Sadat recommended this course in his
talks last weekend with United Arab Emirates Presi-
dent Shaykh Zayid,
Sadat publicly implied
his feelings on a lifting of the embargo when he
remarked in an Algiers press conference on January
22 that every change in US policy toward the Arabs
should bring a corresponding change in Arab policy.
Sadat is working for an early easing of oil
restrictions in response to US mediatory efforts
in the disengagement negotiations. He cannot press
too hard, however; not only does he not control the
oil weapon, but he must also avoid giving the im-
pression that oil, having served Egypt's own ends
thus far, need no longer be used to serve the in-
terests of other Arabs.
Sadat thus made it clear in his talk with
Shaykh Zayid that his recommendation is that the
embargo be lifted only after Syria has accomplished
the same type of disengagement that Egypt has just
concluded. Sadat was also careful to leave the
final decision to the oil producers themselves, and
he has avoided direct comment on the issue in public.
His Algiers statement was not explicitly tied to the
oil embargo, and reference to any Arab quid pro quo
was dropped completely from the Arab press and radio
coverage of the press conference.
(continued)
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Sadat gave Zayid no indication that his deferral
to Damascus' sensibilities is being repaid by Syrian
willingness to begin negotiations with Israel.
Recounting his discussion with President Asad on
January 19, Sadat expressed particular pleasure with
Asad's reasonable attitude but indicated that a num-
ber of other Syrian leaders are skeptical of Egyp-
tian intentions and may be ready to sabotage any
peace agreement.
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Despite Sadat's apparent rapport with Asad, his
remarks about other Syrian leaders indicated that
Damascus has still not reached a final decision on
whether to negotiate with Israel. Queried by Zayid
on what would transpire if Syria decided against
negotiations, Sadat remarked pointedly that this
would be a decision for which Damascus would bear
the consequences.
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JAPAN: Although the country is facing serious
balance-of-payments problems, government officials
and businessmen appear to be coming around to the
view that the domestic economy will not suffer as
serious a setback from the energy crisis as previ-
ously feared. Industrial production is believed to
have declined about 5 percent in December and is
expected to register another 2.5-percent decline in
January. At its November peak, however, industrial
production was 17 percent higher than a year earlier,
and growth probably will resume in the second quar-
ter of this year.
Economic disruption from the oil shortage has
been much milder than was anticipated at one time.
A number of key semimanufactured items--for example,
rolled steel, paper, plastics, and chemicals--are in
short supply, but some of the shortages predate the
energy crisis.
Inflation remains Japan's most immediate prob-
lem. Because of supply problems at home and higher
import prices, the wholesale price index in December
was about 30 percent above the level of December
1972 and consumer prices were up almost 20 percent.
To slow the price spiral, Tokyo has moved-to tighten
fiscal and monetary policies in recent weeks. There
is a strong possibility that these moves, in combina-
tion with swelling oil import costs, will slow real
economic growth even more than is required by the
energy supply constraint.
Substantial inflation will persist, whether or
not the government continues to restrain demand.
Partly because of higher oil costs, wholesale prices
are expected to rise 15 percent this year and con-
sumer prices almost as much. The price spiral al-
ready is posing a serious political problem for the
Tanaka government, and Finance Minister Fukuda has
expressed determination to slow it even at the cost
of some economic growth. Earlier this week, Fukuda
appealed publicly for support for government efforts
to dampen inflation and counteract the impact of
hi her oil costs on the balance of payments.
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INTERNATIONAL MONETARY DEVELOPMENTS:tDownward
pressure on the yen eased in early trading today.
During the first hour, the volume of trade amounted
to $45 million, compared with $250 million yester-
day when the Bank of Japan sold a total of 50 mil-
lion to maintain the yen at 300 per dollar.,The
Tokyo market had been closed since the announcement
last weekend that the French franc would be floated,
but trading was allowed to resume apparently because
of the relative calm prevailing in European financial
centers on Tuesday.
CThe Japanese Ministry of Finance wants to avoid
a series of competitive devaluations, but depreciation
of the v en is likely if strong downward pressure
resumes. Some Japanese officials, including Vice
Ministe of Finance Inamura, suggested earlier in
the week that a rate of 320 yen to the dollar might
be necessary to bring equilibrium to the market.
Others have suggested a return to the Smithsonian
rate of 308.
The dollar strengthened somewhat on European
exchanges yesterday. The mark declined by 1 percent
and the franc by almost as much despite French dollar
sales of $130 million. The Bank of France has now
sold about $250 million to slow the decline of the
franc since Paris decided to float its currency. The
Bank of Italy, which last week sold an estimated $350
million to support the lira, has withheld support
this week, allowing the lira to decline with the
franc. For the second day in a row, gold declined
slightly in price--to $134.50 an ounce.
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CAMBODIA - NORTH VIETNAM: Sihanouk's current
visit to Hanoi, which began on January 22, is his
first trip outside China since September, when he
attended the nonaligned conference in Algiers. Al-
though the visit has become an annual event that
allows him to celebrate Tet with his hosts, the
Prince undoubtedly will use the occasion to discuss
the Khmer Communists' dry-season campaign. It is
unlikely, however, that the discussions will result
in a major shift in the insurgents' hard-line strat-
Sihanouk's two visits to Hanoi in 1973 coincided
with key developments in the Cambodian situation.
In late January the Prince tried unsuccessfully to
persuade the Khmer Communist forces to respond posi-
tively to Phnom Penh's call for a cease-fire--an
approach he said was endorsed by both Peking and
Hanoi. In early April, Sihanouk returned to Hanoi
following a one-month trip to Cambodia that was de-
signed to dramatize his position as nominal head of
the insurgency, as well as to put his troubled re-
lations with Khmer Communist leaders in a more pos-
itive light.
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EC - MIDDLE EAST: Despite their disarray on
community matters, the Nine are increasingly thinking
about a future joint role in the Middle East. Taking
up a commitment made at last December's summit, the
EC members are discussing proposals to set up a num-
ber of EC-Arab committees on cooperation in industry,
agriculture, energy, technology, education, and raw
materials.
The French have been lobbying heavily for some
expression of Arab-European cooperation. The other
members are also generally in favor of a more sub-
stantial, and joint, European presence in the area,
but some--the Dutch for example--are concerned about
conflicting with US efforts in the Middle East.
In recent meetings, the community's Political
Committee and a Middle East working group have ad-
dressed the question of cooperation with the Arabs,
along with peace guarantees and economic aid to Pal-
estinians and "war-devastated areas."
If enough progress were made on cooperative
projects to justify a conference of EC-Arab foreign
ministers--a possibility the EC is weighing for
later this year--and if the Nine could formulate a
meaningful aid program, Western Europe's effort to
play a part in guaranteeing an eventual peace settle-
ment would be strengthened. The EC position would
be represented by France and Britain, through their
roles in the UN Security Council.
A German official, however, has described the
work of the Middle East experts as being still at an
early stage and "rather academic." The discussion
of economic aid, he said, revealed the members' re-
luctance to accept new obligations.
The discussion on peace guarantees is essentially
an effort to update a set of ideas worked out in 1971.
The proposals remained "in the files" after news of
their existence occasioned a public row among the EC
members, who at that time were more divided than now
in their attitude toward the Arab-Israeli conflict.
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CHILE: The government this week issued a regu-
lation Wining specific activities by the moderate
and conservative political parties that it declared
in "recess" after the junta took power. The leftist
parties were outlawed at that time, and their status
has not been changed.
The new regulation, carrying on the regime's
effort to "depoliticize" the nation completely,
defines the "recess" as a "situation of inactivity
that affects all attempts to achieve the goals of a
party, without actually ending its existence." This
restricts even the Christian Democrats who have coop-
erated with the government.
The parties have survived three months under the
original "recess" decree, but if the long list of
activities specifically prohibited by the new regula-
tion is strictly enforced for an extended period of
time, they will suffer severely. The long-range
effect of the regulation will depend on what strate-
gies the parties can devise to circumvent it so as to
ensure their survival, and on the length and strength
of the junta's commitment to strict enforcement.
The junta's broad disdain for politics and
politicians apparently continues to outweigh entreat-
ies by the Christian Democrats that only the Commu-
nists and other leftists skilled"In the art of clan-
destine activity stand to gain from a strict politi-
cal moratorium.
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ARGENTINA: President Peron's dramatic call for
a nationmobilization to destroy terrorism has, at
least temporarily, united a large part of the frac-
tious Argentine community behind him and isolated
his opponents.
The audacious, bloody attack by Marxist People's
Revolutionary Army guerrillas on a military garrison
last weekend has resulted in shock and outrage, even
in a society inured to growing violence. The raid
also was a tactical disaster, and the terrorists are
publicly admitting it. Although there are conflicting
reports, as many as 20 terrorists may have been killed
and hundreds of suspected extremists rounded up in
large-scale police operations.
Military leaders seem reassured by Peron's tough
response. Although their role in the counterterror-
ist drive is still not clear, most officers see
recent developments as a watershed that will mark the
end of Peron's policy of restraint toward the extrem-
ist groups. The President's blast against unidenti=
fied provincial authorities for being soft on
leftists--a clear move to force the ouster of admini-
strators who are out of step with his policies--was
particularly welcomed by the military.
The left-leaning governor of Buenos Aires Prov-
ince, where the guerrilla incident occurred, resigned
yesterday, and there are press reports that the prov-
ince will be taken over by central government offi-
cials. Similarly, the governor and leftist labor
leaders in Cordoba Province are under fire and will,
at least for a while, be more cautious in their oppo-
sition to policies of the federal government.
The left-wing youth of the Peronist Movement,
and even the Peronist guerrilla organization, have
denounced the terrorists' actions, but they have
also condemned as "repressive" the draft laws now
before Congress which are aimed at tightening anti-
terrorist legislation. While they may continue
demonstrating against the laws, their position has
been weakened and the legislation will undoubtedly
be promulgated soon.
(continued)
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Although recent events clearly have presented
Peron with a unique opportunity to strike a hard
blow at the terrorists, there are dangers inherent
in the situation. Heavy-handed actions in political
purges of his movement or in security operations may
soon undercut the psychological advantage he now
holds and drive the Peronist left wing into the
extremist camp. The military could also quickly
become disenchanted if Peron does not follow up his
pronouncements with further action.
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China: The Party Commands the Gun
The new year has already seen two major develop-
ments in internal Chinese politics--the unprecedented
rotation of eight high-ranking military men, in ef-
fect dislodging nearly all of them from well-
entrenched provincial bases, and the reinstatement
of the once-disgraced Teng Hsiao-ping to the Polit-
buro and his appointment to the highly important
Military Affairs Commission. Taken together, these
moves represent an evolution in the-domestic polit-
ical scene at least as important as the reconstitu-
tion of the Politburo at the Tenth Party Congress
last August.
As a result, prospects for convening the long-
postponed National People's Congress now seem
brighter, and it may also be possible to fill long-
vacant central military posts. Moreover, there has
almost certainly been a reduction in the danger that
certain disgruntled military leaders in the prov-
inces might combine with ultraleftists in Peking in
opposition to moderate policies that have been in
effect at home and abroad for the past several years.
Nevertheless, the recent moves do not signal the
end to political problems within the leadership;
indeed, they may run the risk of creating new ones.
Military Commanders Shifted
The rotation of military commanders speeds up
what had been a gradual effort to ease military
leaders out of top provincial party and government
posts. As early as the spring of 1971, Chou En-lai
had expressed uneasiness over the pervasive role of
the military in provincial affairs, and the question
of the army's proper place in politics was unques-
tionably a major element in the fall of Defense Min-
ister Lin Piao the following autumn.
In the aftermath of that imbroglio, a return
to civilian party leadership in the provinces was
never really in doubt; the only question was how
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rapidly it could take place. A selective purge of
military men in provincial leadership posts--
comprising men who had somehow been linked to the
Lin "conspiracy"--began at once and did not run its
course until the summer of 1972. The pace of re-
ducing the power of provincial military leaders then
slowed considerably, and few were replaced outright.
.The party committees they headed, however, were en-
larged by the addition of civilian party cadre.
Plans for a further large reduction in the num-
ber of soldiers in provincial party posts were prob-
ably made in preparation for the Tenth Party Congress,
but stiff opposition to these plans from at least
one key regional commander threatened to complicate
and perhaps scuttle the congress. Chen Hsi-lien,
then commander of Shenyang Military Region as well
as first secretary of the party committee in Liaoning
Province, sponsored a campaign in the Liaoning media
to oppose the extensive use of university entrance
examinations. The politically astute Chen may have
seized this issue as a ploy to divert the Peking
leadership from its move to reduce the army's polit-
ical role, or even to raise the specter of a poten-
tial radical-military alliance.
The resistance of the military, symbolized by
Chen, may well have postponed a more drastic dilu-
tion of the army's political role than that which
occurred at the party congress. The number of mil-
itary men on the Central Committee was significantly
reduced, but Chen and the others on the Politburo
who were not implicated in Lin Piao's abortive mili-
tary coup retained their positions.
(continued)
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The Return of Teng Hsiao-ping
The complete rehabilitation of Teng Hsiao-ping,
who had been party secretary general before the
Cultural Revolution, very likely was also discussed
about the time of the congress. The fact that he
was not then named to the Politburo strongly suggests
that considerable opposition to such a move had not
been overcome by the summer. This opposition may
have existed among military figures who wished to
retain a significant political role for the PLA as
well as among some ultraleftists who had helped
engineer his downfall in 1966. Teng's appointment
to the Military Affairs Commission also strongly sug-
gests that he will play a significant role in the
formulation of policy affecting the military--quite
possibly in connection with a redefinition of the
army's political role. His posting strongly affirms
the principle that the "party commands the gun."
The final terms for the rotation of the regional
commanders, as well as Teng's appointment, probably
were negotiated at high-level meetings after the
congress. Unlike the provincial military figures
who vanished after the Lin affair, the men involved
were not purged but only changed jobs; the media are
recording their appearances in their new bailiwicks
and have in fact given most of them considerable pub-
licity. Nevertheless, the only titles they now hold
pertain strictly to their military duties. The re-
gime will almost certainly find it easier to appoint
civilian cadre to the leading party and government
posts that have now become vacant in the several
provinces affected by the rotation. This would have
been more difficult had Peking attempted to deprive
these powerful men of their party and government
titles while leaving them entrenched in their former
strongholds.
The Struggle Is Not Over
They were permitted to save face, and this tes-
tifies to the still-formidable strength of China's
leading military figures as well as to the leader-
ship's desire to avoid divisive solutions. Indeed,
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the way the media are currently treating the mili-
tary--giving it only limited praise while emphasizing
the necessity for discipline and party control--
suggests that Peking is wary of that strength and
may anticipate further trouble from among the army's
leaders.
A clearer reading of the regime's attitude to-
ward the army will be possible when the topmost posi-
tions in the military establishment are filled.
Marshal Yeh Chien-ying, a 75-year-old member of the
Standing Committee of the Politburo, is a probable
choice for defense minister. A close associate of
Chou En-lai, Yeh has in effect filled the post since
Lin Piao vacated it. While Teng Hsiao-ping may also
be a candidate for that job, he could instead become
chief of the General Political Department. That post
apparently was vacated by the transfer of Li Te-sheng,
who had held the job for several years, to the
Shenyang Military Region.
There are several possible candidates for chief
of staff. The selection of a professionally oriented
officer would be consistent with the effort to de-
emphasize the military's involvement in politics.
This would also be true if the new chief of staff
had a public security or other quasi-military back-
ground. On the other hand, the appointment of a man
from the ranks of the army's political commissars or
a commander who has been heavily involved in politics
since the Cultural Revolution would tend to accord a
continuing political role to the military.
The selection of the military figures who will
occupy the top posts, as well as some general guide-
lines on the military's role in national affairs,
may well have been part of a bargain reached by the
party and military elements involved before the
shifts of regional commanders took place. Not all
elements in this equation have necessarily been
worked out, however and some further horse-trading
may lie ahead.
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FOR THE RECORD*
Abu Dhabi - Yugoslavia: An Abu Dhabi official
has just concluded a week's visit to Yugoslavia, ac-
cording to a press report. The visit included tours
of munitions factories and demonstrations of Bel-
grade's latest military hardware, and discussion of
additional ground force equipment for the 10,000-man
Abu Dhabi Defense Force (ADDF).
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'These items were prepared by CIA without consultation
with the Departments of State and Defense.
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