NATIONAL INTELLIGENCE BULLETIN
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CIA-RDP79T00975A030200010035-7
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Publication Date:
June 21, 1977
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NATIONAL INTELLIGENCE DAILY CABLE
Tuesday June 21, 1.977 CG NIDC 77-143C
NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
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National Intelligence Daily Cable for Tuesday, June 21, 1977.
IT he NID Cable is tor a purpose or in.EU.ElLL-Lliy
senior o als.
ISRAEL: Begin Cabinet Approved
CHINA: Effects of the Drought
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SPAIN: Cabinet Formation Ending
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CHINA: Record Trade Surplus
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ISRAEL: Begin Cabinet Approved
I I The Israeli parliament yesterday approved by a 63-53
vote the narrow right-wing coalition presented by Likud Leader
Menahem Begin. The new government includes Ezer Weizman, Begin's
second-in-command in Likud, as defense minister and the contro-
versial Moshe Dayan as foreign minister. Begin will run the new
government with a strong hand; he is unlikely to come under any
pressure from his cabinet to modify his hard-Line position on
those issues he regards as fundamental in the Arab-Israeli
dispute.
I IThe National Religious Party holds the key domestic
minis ries of interior, religious affairs, and education. The
orthodox Agudat parties have declined to participate in the
cabinet, although they have pledged to vote with the new gov-
ernment in parliament.
Begin is temporarily holding open the social welfare,
justice, and communications portfolios in case the Democratic
Movement decides to join his coalition. These posts, however,
are not likely to satisfy the Democratic Movement's demand that
it be given a real voice in the new government.
I As prime minister, Begin probably will deal with his
government in the same autocratic manner by which he has long
ruled his own party, especially on Arab-Israeli issues. Through-
out his unsuccessful coalition talks with the Democratic Move-
ment, he kept Likud under full control, overruling the desire
of some in the party's Liberal wing to seek compromises in the
interest of broadening the new government's parliamentary ma-
jority. Begin's offer of the Foreign Ministry to Dayan, made
without consulting the Liberals and maintained in the face of
opposition from the Democratic Movement, is another indication
of his inclination to rule by fiat.
Dayan and Weizman, both assertive personalities, have
thus far gone out of their way to avoid friction with Begin.
Dayan, having severed his long-standing ties with the Labor
Party, has little choice but to preserve close relations with
Begin. He, like Weizman and Liberal leaders, probably will con-
tinue to follow Begin's lead, although they may jockey behind
the scenes in anticipation of an internal power struggle should
poor health force Begin to step aside.
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Many Israelis welcome indications that Begin will
provide s rong and unyielding leadership on peace issues, which
they see as essential to deal with growing Arab sophistication
in negotiating tactics and to meet anticipated US pressure for
large-scale territorial withdrawals.
I I The principal constituents of the new government--im-
migran s from North Africa and eastern Arab states and the or-
thodox religious community--are likely to rally enthusiastically
behind Begin's personal leadership. The immigrants generally
harbor bitter memories of their experiences as minorities and
strongly support Begin's hard line.
I I There are some in the National Religious Party who
private y favor a more flexible approach to the Arabs, but the
hawkish youth wing, which fully agrees with Begin's views on
the West Bank, effectively controls the party. Although the or- 25X1
thodox Agudat Israel party has supported Labor on negotiation
questions in the past, it seems unlikely to raise objections
with Begin over Arab-Israeli issues as long as he defers to the
narty's demands for strict enforcement of religious laws I I
CHINA: Effects of the Drought
//Rain since April has brought some improvement
in growing conditions in most areas of China, but drought con-
tinues to threaten some crops. Although the drought has ended
in the North China Plain, the major winter wheat area, parts
of the northeast are still very dry. Rice-growing areas in the
south lost some early rice, but growing conditions now appear
to have returned to normal. Wheat imports have increased dra-
matically since last year and are approaching the record levels
of 1973 and 1974.11
//Above average rainfall in May and June relieved
the drought in the North China Plain. Southwestern Shantung is
still dry. Irrigation has helped ease the effects of the drought;
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//The winter whei~t harvest is nonetheless o
from last year's record crop.
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It is still too early to assess the effect of the
drought on the summer and fall-harvested crops, which account
for the bulk of China's grain. Transplanting of early rice in
Kwangtung was affected to some extent, and there have been a
few reports of switching from double-cropping to single-crop-
ping of rice. The continued drought in the northeast may have
some adverse effect on spring wheat, miscellaneous grains, and
soybeans. There has been some talk of drought in Szechwan, but
weather data show adequate moisture.
Imports of wheat scheduled for delivery in 1977 now
total million tons. Grain imports in 1975 and 1976 were ex-
ceptionally low--2.6 million and 1.9 million tons respectively---
because of good crops in 1974 and 1975 and the deliberate at-
tempt in 1976 to hold down grain imports because of balance-of--
payments problems. We do not expect China to import much more
grain this year since imports scheduled between July and Decem-
ber approach the limits of port capacities.
I I The leadership attaches great importance to its first
year and has taken several concrete measures to offset
the effects of the drought. They include:
--Tightening grain rations in some areas.
--Use of drought-resistant crops.
--Mobilization of cadre and white-collar workers.
--Control of population movements from drought-stricken
areas.
To make up the shortfall in winter wheat and to
keep even with the population increase, production from the
late harvest must be 4 to 5 percent above that of 1976. This
increase is not unattainable; the late harvests last year were
below average.
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SPAIN: Cabinet Formation Ending
Spanish Prime Minister Suarez may be nearing the end
o Zs consultations with Leaders of his victorious centrist
alliance and could announce his new cabinet by the end of the
week. The composition of the new government will provide clues
as to how Suarez will deal with pressing economic problems and
mounting demands for regional autonomy.
With 95 percent of the votes counted, the Prime Min-
ister's Lion of the Democratic Center apparently fell 11 seats
short of a majority in the 350-seat lower house. Suarez will
have to decide whether to seek a majority or to stick with a
minority government grouped around his followers in the current
cabinet and other Democratic Center leaders.
I The absence of a no-confidence procedure in Spanish
law an the blurring of responsibility between the executive
and the legislature make a minority government feasible. Suarez
could work out a series of shifting alliances with opposition
parties on key pieces of legislation.
I IShould the government be unable to push its program
through parliament, the King has the power to submit conten-
tious matters to the people. Referendum results are binding on
the legislature, which must comply or be dissolved.
I A coalition with the Socialist Workers Party, which
finished a strong second at the polls, seems unlikely. Socialist
leader Gonzalez after the election said that such a coalition
is "almost impossible" and went on to describe his party as
"the principal opposition force" in Spain. Suarez is more likely
to seek a pact with the Socialists on handling the country's
serious economic problems. Austerity measures will be difficult
to enforce without a measure of cooperation from organized labor,
which is dominated by the Socialists and Communists.
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Suarez could turn to various small parties--Christian
Democrats, independent centrists, refugees from the demoralized
rightist Popular Alliance, and moderate regionalists--to build
an absolute majority in the lower house. This, however, would
make the government even more unwieldy; in fact, Suarez will
have trouble enough keeping the disparate parties of the Demo-
cratic Center pulling together. Moreover, the small parties
would probably make unacceptable demands.
Moderate regional parties in Catalonia and the Basque
provinces have enough seats between them to give Suarez a major-
ity, but they would almost certainly demand in return guarantees
that significant autonomy be granted to their regions--a price
Suarez would be loath to pay in the face of stiff military op-
position.
Underlining this determination to press for an auton-
omous Basque nation within a federated Spain, some 30 newly
elected Basque members of parliament, including Socialists, met
on Sunday to pledge unity in working for self-government. A
spokesman for the major Basque party--the moderate, Christian-
Democratic oriented Basque Nationalist Party--said that his
party would join the government only if the Basques were granted
immediate autonomy and all remaining political prisoners and
exiles were granted full amnesty.
I uIn Catalonia, the Catalan Socialist Party--a regional
ally ot the Socialist Workers Party which won 16 of the 47 Cata-
lan seats in the lower house--has called a pro-autonomy meeting
for later this week. Newly elected Catalan deputies and senators
have called a meeting for today to choose a provisional council
to negotiate with the government for the region's autonomy.
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CHINA: Record Trade Surplus
//Sharp cuts in China's imports from the West
e to a recor foreign trade surplus in 1976 and a strengthen-
ing of Peking's hard-currency balance of payments. Despite a
smaller trade surplus this year, Peking will not encounter any
payments problems.//
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//The improvement last year in China's balance
o payments with the non-communist world resulted from a $990-
million current-account surplus and a reduction in Peking's
outstanding obligations. International reserves still declined
by $140 million, in part due to devaluation of sterling hold-
ings.//
//A combination of planned cuts and economic
isrup ions sashed China's import bill, especially in the sec-
ond half of the year. Exports were surprisingly unaffected by
the disruptions, and a $200-million gain in traditional exports
offset a drop in oil sales.//
The new leadership has openly espoused a return to an
active trade policy stressing the importance of foreign tech-
nology imports and the attendant need-to boost exports, includ-
ing raw materials. A new foreign trade plan is still being ham-
mered out, however, and no major round of capital equipment
purchases is likely until late this year or perhaps 1978. Peking
will make every effort to avoid a balance-of-payments crunch
like that of 1974, when record agricultural imports accompanied
sizable major equipment purchases.
I IThe trade surplus this year will drop by perhaps half
e -million peak achieved last year because export growth
will be slow. Any increase in exports will be in traditional
goods. Sales of Chinese crude oil may only match last year's
level of 8 million tons.
Imports will recover, largely as a result of increased
agricuiEural imports that will exceed $1.5 billion; grain con-
tracts alone total at least $900 million. Imports of industrial
goods will remain high and prices will be up. Machinery and
equipment imports, however, will drop again.
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I A trade surplus this year plus larger credit drawings
will ena e China to cover increased imports. Payments on com-
plete plants and debt service on short- and medium-term credits
will total about $600 million this year, down one third from
1976. New drawings on grain and complete plant credits will more
than equal this amount. Any drawdown in China's reserves should
again be small. Gold sales will depend on Peking's views of gold
as a reserve asset.
Fiscal policies will remain conservative; Peking is
unlikely to permit direct bank. loans, foreign investment, or
joint ventures. It is, however, considering a long-term agree-
ment to exchange oil and coal for Japanese steel and machinery,
greater use of hard-currency deposits by foreign banks with the
Bank of China, and one-year overdraft facilities from Japanese
banks. This more liberal approach to the use of credits would
enable China to expand imports more rapidly than by relying on
export growth alone.
Japan's newly expanded maritime interests are
likely to provide ammunition for advocates of enlarging and
modernizing Japan's naval forces. Since the first of the year,
Japan has decided to extend its territorial waters from 3 to
12 miles, established a 200-mile fishing zone, initialed an
interim fisheries agreement with the USSR, and approved an
agreement with South Korea for joint offshore oil exploration
and development. These actions will force the Japanese to pay
increased attention to defending their maritime interests and
monitoring foreign shipping.
Japan has already moved to strengthen its coastal pa-
trol capabilities. The Japanese are augmenting their Maritime
Safety Agency, an 11,000-man Coast Guard - type force that po-
lices Japan's territorial waters. This agency plans to rely
heavily upon air surveillance, making use of long-range, fixed-
wing aircraft and helicopters. Over the next three years, the
agency is planning to receive two helicopter-carrying patrol
ships, five YS-11 patrol aircraft, and 12 Bell-212 utility
helicopters.
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Even with additional equipment,-the Maritime Safety
Agency will have difficulty meeting the demands placed upon it.
Japan's regular naval forces can aid the maritime agency only
under special circumstances and on order from the prime minister.
At the moment, the Japanese government does not want to arouse
a domestic political controversy by proposing changes in the
Self-Defense Force Law. The Japan Defense Agency, for its
part, is trying to keep its options open by encouraging public
discussion of the implications of Japan's expanded maritime
jurisdiction.
I IThe adoption of the 12-mile territorial limit gives
span imp icit control over 60 straits and passages that have
long been considered international waters. Although Japan has
exempted a number of these from its jurisdiction and has limited
enforcement of its fishing zone in the waters adjoining South
Korea and China, it is still faced with the need to monitor in-
creased marine traffic, police other sectors of its 200-mile
fishing zone, and protect future petroleum development opera-
tions on the East Asian continental shelf.
I I This year's naval budget provides for an increase of
about 0 million, or some 12 percent, over that of the pre-
vious year. It includes appropriation for the construction of
two frigates, a 2,200-ton submarine, two minesweepers, and
three support ships. Funds for a new missile-armed destroyer
were withheld.
The Maritime Self-Defense Force consists of about 90
relatively modern warships, including 30 destroyers, 15 fri-
gates, and 16 submarines, supplemented by about 250 auxiliaries.
The 40,000-man navy has little offensive capability and is
hampered by inadequate logistic support. Like the other elements
of Japan's Self-Defense Forces, the navy operates under budget-
ary and manpower constraints. At its current strength, the navy
is probably incapable of operating much beyond Japanese coastal
waters without the support of US naval units.
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The navy would also like to replace its old P-2J
fixed-wing antisubmarine aircraft with the Lockheed P-3C. The
Lockheed scandal set back acquisition of the first of a poten-
tial fleet of 60 to 70 of these aircraft last year; a combina-
tion of political and budgetary limitations prevented a deci-
sion on P-3C procurement again this year. It will cost more
than $2 billion to replace the P-2Js, which will begin to
reach the end of their service life by 1981.
I If political. factors continue to delay the purchase
o the P- 4C, pressures for the design and production of a do-
mestic antisubmarine aircraft are likely to grow. This costly
alternative could postpone availabiliity of the planes until
the late 1980s.
I IBoth the Maritime Safety Agency and the Maritime Self-
Defense Force will require additional strengthening to meet Ja-
pan's seaborne security needs in the coming decade. Progress is
likely to be slow. Proposals for additional naval ships and
antisubmarine aircraft. must compete with equally expensive re-
quests for acquisition of advanced fighter-interceptors and an
airborne early warning system. An attempt to purchase all of
these weapons and systems simultaneously would drive Japan's
defense spending above the politically acceptable threshold of
1 percent of gross national product.
I Nonetheless, Japan's growing maritime interests make
the improvement of the country's naval and coastal patrol force
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imperative. Although Japanese officials continue to resist pres-
sure to play a larger role in balancing Soviet naval power in
the northwestern Pacific, they will no doubt take the steps re-
quired to protect Japan's economic interests in adjacent seas.
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