NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A031400230002-6
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 15
• Document Creation Date: December 15, 2016
• Document Release Date: April 6, 2004
• Sequence Number: 2
• Publication Date: May 26, 1979
• Content Type: REPORT

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National Intelligence Daily
(Cable)
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National Intelligence Daily (Cable)
Contents
Brief and Comments
Egypt-USSR: Conciliatory Gestures. . . . . . . 1
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Chile: Improving Economic Picture. . . . . . . 3
China-Japan: Renegotiating Plant Contracts . . 4
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UNCTAD: Developments at the Conference . . . . 5
Poland: Prime Minister's Health. . . . . . . . 6 25X1
Special Analysis
South Africa: Shaky Economic Expansion
Continues . . . . . . . . . . . . . . . . . . 8
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EGYPT-USSR: Conciliatory Gestures
//Egypt recently has made some tentative gestures to-
ward reducing the hostility in its relationship with the
Soviet Union. A significant breakthrough in the near
term, however, is highly unlikely.
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In a speech on 15 May, President Sadat accused Mos-
cow of instigating anti-Egyptian moves by other Arabs but 25X1
also stated that Egypt was willing to "reciprocate friend-
ship for friendship." Sadat made a similar remark to a
group of French journalists earlier this week.
//Egyptian officials probably hope that such offers
will help lessen Soviet opposition to Egyptian-Israeli
negotiations and to the continued use of a UN force in
the Sinai. They may also calculate that even a hint of
movement toward better relations with the USSR would en-
courage some Arabs to consider a less hostile policy
toward Egypt
//Sadat's suspicions about Moscow's intentions toward
him personally run deep, however, and this will make nor-
malization efforts extremely difficult. In a move that
in part reflects Egyptian apprehensions about the USSR,
Egypt's Interior Minister on Thursday publicly expressed
suspicion that the Soviets were involved in a recently
terminated Bulgarian intelligence operation in Egypt.//
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The Soviets would welcome some improvement in rela-
tions with Egypt, but they think they must avoid appearing
too eager because of the hostile reaction of the radical 25X1
Arab states. It is unlikely, in any event, that any bi-
lateral progress between Moscow and Cairo would affect So-
viet opposition to the Egyptian-Israeli peace treaty
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CHILE: Improving Economic Picture
Increased exports, the continuing inflow of finan-
cial credits, and new direct investments have improved
Chile's economic prospects. Chile's stronger payments
position has enabled it to expand imports, initiate new
investments, and build international currency reserves.
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Rising copper prices and surging agricultural, fish-
ery, and forestry exports will enable Chile to improve its
current account deficit, which has increased sharply since
1976. We expect Chile's trade deficit will be cut in half25X1
this year and thereby more than offset rising interest
payments. In turn, the current account deficit probably
will decline by 15 percent to $700 million in 1979.
Private capital inflows this year will likely amount
to $1.8 billion, only slightly below last year's record
total. Backed by its current excellent international
credit rating, Chile recently arranged $350 million in
new credits during the first quarter. Although US banks
managed the bulk of the loans between 1976 and 1978,
Chile this year has aggressively moved to tap non-US
financial markets and has been increasingly successful in
garnering official loans, which had fallen sharply in
recent years. Chile has also secured new lines of sup-
plier credits, mainly from non-US banks, to finance
soaring import requirements. 25X1
Direct investment by foreign corporations is increas-
ing, with natural resource projects attracting the bulk of
the new funds. Direct investments are likely to total
$300 million this year--twice last year's level--as US
corporations continue to increase their stake in Chile.
The rapid inflow of private capital in the first
three months of this year will probably slow by the end
of the year because burgeoning foreign exchange inflows
are undermining government attempts to reduce inflation.
Last month, Santiago imposed reserve requirements on
foreign borrowing to slow heavy borrowing and a growing
debt service burden. Chile's external debt now totals
$6.9 billion--60 percent of its gross domestic product.
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CHINA-JAPAN: Renegotiating Plant Contracts
China appears ready to reinstate a large portion of
the $2.4 billion in Japanese plant contracts it suspended
in February. An agreement reportedly has been reached
on the 81 billion in staZZed contracts associated with
the Baoshan Steel Mill, and talks on the 20 suspended
petrochemical contracts are proceeding on a contract-by-
contract basis. The Chinese are pushing to have the con-
tracts reinstated on a deferred payments basis rather
than on a cash basis as agreed to under the initial con-
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UNCTAD: Developments at the Conference
The fifth session of the UN Conference on Trade and
Development--now moving into its final week--probably
will yield many resolutions but few of them are likely
to result in much action. There have been no new pro-
posals attractive to large numbers of developing coun-
tries, and there is a widespread sense that the time is
not ripe for new initiatives on resource transfers. Ma-
jor blocks at the session have been vulnerable to inter-
nal dissension and to attack from other groups. All
sides are seeking to wind u the conference without
diplomatic embarrassment. 25X1
Most industrialized countries are still dodging
demands by the developing countries for adherence to aid
targets, for specific pledges to the Common Fund's com-
modity development program, and for a reopening of the
Multilateral Trade Negotiations. The Communist countries
are trying to deflect attacks from the developing coun-
tries over their low levels of trade and aid by raising
East-West trade issues, and by charging that the indus-
trialize West has done little to help the developing
countries. The developing countries are less tightly
organized this session than they have been in the past,
but they are seeking to preserve sufficient unity to
gain commitment from the industrialized nations to a
few of their proposals.
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//The biggest suprise of the conference occurred
when Costa Rica and other Central American countries
broke longstanding taboos among the developing countries
by introducing the international energy issue. Despite
blandishments from members of the Organization of Petro-
leum Exporting Countries, the Central American countries
refused for more than a week to continue talks in a key 25X1
negotiating group until OPEC members agreed to discuss
the energy problems of the developing countries that
depend on oil imports,
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POLAND: Prime Minister's Health
Premier Piotr Jaroszewicz reportedly is recuperat-
ing from a mild heart attack. His illness will give new
impetus to long standing rumors that Jaroszewicz, a mem-
ber of the ruling team since Gierek came to power in
December 1970, might be replaced because of the country's
difficult economic problems. The 69-year-old Jaroszewicz,
who has a history of medical problems, is closely asso-
ciated publicly with Warsaw's ill-fated effort in 1976 to
raise prices and with subsequent economic stringencies.
Jaroszewicz has shown considerable political durability,
suggesting that his reputation for being trusted by the
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SOUTH AFRICA: Shaky Economic Expansion Continues
South Africa's fragile economic upturn of the past
18 months, which follows three years of declining growth
rates, will probably continue for the rest of 1979. Ex-
pansion this year will be less rapid than the govern-
ments's 4-percent goal, however, because of the cutoff
of Iranian oil, lagging consumer demand, and continued
capital outflows.
The economic troubles of the past five years began
with government overreaction to soaring gold prices and
to strong domestic growth in 1974. Buoyed by these devel-
opments, Pretoria embarked on massive development spend-
ing to expand exports and increase self-sufficiency. The
onset of serious economic problems, however, caused South
Africa to suffer record current account deficits in 1975
and 1976 and stee increases in capital outflows in 1977
and 1978.
-- South Africa lost an estimated $1.3 billion a
year in foreign exchange because of declining
prices and production of gold.
-- South Africa increased defense spending by 74
percent over two years in response to the in-
troduction of Soviet-backed Cuban troops in
Angola in 1975.
-- South Africa's standing in international invest-
ment and lending markets was undermined by the
racial riots in 1976 and by the intensified
international pressures for South African ac-
tion on the Rhodesian and Namibian issues.
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Despite balance-of-payments and financial con-
straints, government expenditures rapidly increased
through 1977, reflecting both military expansion and a
push to meet construction timetables on import substitu-
tion and export-related projects. Pretoria sees both
reduced reliance on imports and heightened Western de-
pendence on South African raw materials as protection
against the threat of future international sanctions.
Most of the $24 billion in projects already on the slate
in early 1977 bore on this goal, particularly projects
for the expansion of electric power and steel output,
coal liquefaction, and interrelated harbor, railroad,
and mining improvements.
growth of 6.2 percent in 1974 to a 0.6-percent contrac-
tion by 1977. With demand falling, manufacturing, con-
struction, and domestic trade declined by 5 to 6 percent
in 1976 and 1977. Investment plummeted as the industrial
capacity untilization rate declined to barely more than
80 percent. Only mining and agriculture showed produc-
tion increases. The net result was a decline in real
growth from 8.2 percent in 1974 to 0.2 percent in 1977.
In its effort to strengthen the balance of payments,
South Africa concentrated on dampening private domestic
demand to reduce imports. Tight monetary and fiscal
measures curbed private consumer expenditures from a
An upturn in the foreign sector of the economy
pushed total output up by a moderate 2.5 percent in 1978.
Exports climbed at an average annual rate of 11.5 percent
in 1977 and 1978 after stagnating in 1975 and 1976. Non-
gold exports rose dramatically, benefiting from the com-
pletion of large government coal and iron ore export
projects, high international prices for diamonds, and
unexpectedly high iron and steel shipments. Last year,
gold earnings jumped 38 percent to an alitime high of
$4.2 billion. With only a mild pickup in imports, the
surge in exports yielded a record current account surplus
in 1978 of $1.6 billion.
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The post-1974 slowdown in the private sector and
political uncertainties have steadily reduced direct for-
eign investment in South Africa. Net private foreign in-
vestment--which amounted to $457 million in 1975--turned
negative in 1976, and by 1978 the net outflow had reached
$1.3 billion. Heavy short-term borrowing from overseas
currency markets have maintained international reserves
at not less than three months worth of imports. As a
result, private international bank claims on South Africa
have tripled since d of 1974, to more than $8 bil-
lion.
Economic growth in 1979 will probably exceed last
year's 2.5 percent but is unlikely to reach the 4-percent
goal of the Botha government. This moderately bullish
projection faces more downside risks than upside possi-
Gold again is turning out to be a key strong point
for the economy. Downward pressures on gold prices,
anticipated earlier because of sales by the US and the
International Monetary Fund, have been softened by US
Treasury decisions to reduce offerings and by the impact
of the tight international oil situation on investor per-
ceptions of inflation prospects. Gold prices so far this
year have averaged approximately $240 an ounce compared
with $195 in 1978; every $10 change in price means $230
million--on an annual basis--in forei .n exchange earnings
for the South African Reserve Bank.
The 1980 budget, submitted last month, reflects a
determination to reduce the role of government in the
economy, and government spending will probably not be a
major source of economic stimulus. The real rise in ex-
penditures has been set at only about 1 percent; funding
of self-sufficiency and export projects will continue to
receive high priority. The budget includes $950 million
in tax cuts on individual and corporate income, reduces
a longstanding surcharge on imports of consumer goods,
and makes cautious changes in budgetary financing to ac-
celerate the growth in money supply. 1 -1
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Steep fuel price increases, however, plus rises in
administered prices for staple foods, such as corn, are
likely to reduce the real effect of the budget stimulus.
Most of the tax relief, moreover, is focused on middle
and upper income whites, who are more likely to put in-
creased take-home a into savings, thus dulling the im-
pact on demand.
Without a strong upturn in consumer demand, a re-
versal in capital outflow before the end of the year
seems unlikely. The tax cuts will not be implemented
until July, and even a subsequent sharp pickup in private
consumer demand would hardly be translated into promising
opportunities for direct foreign investment before the
end of the year. The lack of a rebound in private invest-
ment outlays would blunt the impact of new incentives an-
nounced in January to attract foreign investment. The
incentives consist of a phased removal of antiquated con-
straints on capital repatriation. So far, the Reserve
Bank's cautious implementation of the reforms has bred
uncertainty among investors over the extent and kind of
opportunities to be expected.
Drought since late 1978 also has depressed growth
and balance-of-payments prospects. We now estimate the
key corn crop at 6.5 million tons, contrasted with last
year's 9.9 million tons. Corn exports during this market-
ing year will drop steeply, theref9re. about 3 mil-
lion to less than 1 million tons.
Prospects for continuing steep increases in oil
costs will also restrain economic expansion. South Af-
rica has no oil wells of its own. The cutoff last Decem-
ber of oil exports by Iran, which had been supplying 80
to 90 percent of South Africa's crude imports, has forced
refiners to purchase oil on the spot market by way of
third and fourth party transactions; the oil import bill
will be pushed up about 50 percent to $2.4 billion to
$2.6 billion. Consumer fuel prices have already soared
.30 percent this year, and the government is reported to
be on the verge of sharply tightening longstanding
rationing measures.
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