NFAC CONTRIBUTION TO DCI ANNUAL REPORT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP83B00100R000100090001-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 12, 2016
• Document Release Date: December 28, 2001
• Sequence Number: 1
• Content Type: REPORT

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NFAC CONTRIBUTION TO DCI ANNUAL REPORT
1. 1978 in Intelligence
B. New or Altered Emphases in Analysis
1978 was not a year dominated by foreign crises requiring extraor-
dinary intelligence efforts, but significant new trends caused us to
sharpen our attention or shift the emphasis of our analysis in several
substantive areas. These areas ranged from traditional intelligence
concerns, such as the strategic balance and China, to newer global
preoccupations, such as the changing oil picture and the state of the
world economy. Every year has its share of regional troublespots--
some old, some new. In 1978 changes in the African and Middle Eastern
situations led to shifts in analytic emphasis, while recently quiet
areas such as Indochina, Afghanistan, and Iran became subjects of
renewed attention.
The Strategic Balance and Perceptions About It
Increased attention, as well as some alteration in analytical and
presentational methods, has been prompted in part by developments in the
USSR and in part by US policymakers' needs. Rough strategic equality
and continued Soviet force modernization have confronted the Administra-
tion with more sophisticated and more complex issues revolving around
the relationship between Soviet and US/NATO strategic capabilities.
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The Congress is no longer satisfied with intelligence contributions
that treat Soviet developments in a vacuum. Ongoing Soviet R&D programs
in both strategic offensive and defensive systems have focused addi-
tional attention on the breadth and continuity of these Soviet efforts
and on the uncertainties attached to our projections. Five substantive
areas are especially noteworthy:
-- In NIE 11-3/8-77 early this year, Soviet intercontinental
offensive forces were examined and compared with US forces in
terms of theoretical potentials to strike soft area and hard
poi"'nt targets, both before and after hypothetical counterforce
strikes. Without preempting the policy prerogative of full
force interaction analysis, the presentation graphically dis-
played foreseeable trends in comparative quantity and quality
of forces, and illustrated the large and growing asymmetries
in their composition.
-- In a DCI presentation to the President, the implications
of Soviet military R&D policies and management practices were
described. This was the result of several years' research
into the 20-year history of major Soviet design bureaus and
their work.
-- In a memorandum for the President in September, warning
was given of probable near-term increases in Soviet ICBM
countersilo capabilities, owing largely to prospective accu-
racy improvements greater than had been anticipated. This
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memorandum disaggregated the elements of evidence, analysis,
and logical assumption which contributed to the revised
estimate, to help the recipient judge its validity for him-
self. It spelled out the uncertainties and forecast whether
and when they were likely to be resolved.
-- In analytic research programs this year, greater stress
has been placed on Soviet perspectives on the strategic balance
(drawing in part on in-depth study of Soviet military literature
and exercises); Soviet capabilities for warning, command, con-
trol, and communications; and ways to measure the implications
for US forces of Soviet programs and capabilities in air defense
and antisubmarine warfare. Most of this work is still in its
formative stages.
-- In NIE 11-6-78 this fall, the Intelligence Community
published for the first time a comprehensive estimate on trends
in Soviet intermediate range strategic offensive forces and
their implications, including a detailed analysis of the prob-
lem of comparing such forces with those of the West and China.
New Directions in China
Since the death of Mao, China has been in transition from a decade
of "Maoist revolution" toward a future likely to be marked by greater
stability, accelerating modernization, and more pragmatic approaches
to economic growth and national development. The most dramatic aspect
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of this transition was Premier Hua's unveiling in March of an ambitious
program of modernization over the next eight years, with unprecedentedly
high goals for production, investment, scientific advance, and education,
and accompanied by a considerable easing of long held "self reliance"
constraints against a foreign role. Crucial elements for success in
this program are improvements in economic management and a restoration
of productivity of the labor force. These elements were the most notable
failures during the past decade or so--and are recognized as such by the
present leaders.
These new developments have caused a corresponding shift in our
analytical effort away from classic power politics--"pekinology"--toward
analysis of the imposing ideological, generational and economic problems
the post-Mao leadership faces in implementing its policies. Personal
animosities and disagreement over the distribution of political power
by no means have disappeared. But our major analytical efforts over
the past year have focused on the highly political issues of national
development, such as investment priorities, the proper relationship
between economic and military modernization, the role of material incen-
tives in achieving growth, and the reform of China's wrecked educational
system.
In foreign affairs, anti-Sovietism continues as the underlying
theme, but the greatly increased tempo and imagination of Chinese for-
eign policy, and particularly, Peking's historic decision to seek the
foreign technology and trade necessary to sustain modernization, are
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presenting us with a far more complex analytical challenge. The emer-
gence of a more active and potentially powerful China promises to alter
Moscow's perception of the threat from that direction, and perhaps sig-
nificantly change the strategic triangular relationship among Peking,
Moscow and Washington. Looking to the future, we must begin to assess
the viability of Peking's new policies and the longer-term effect of
this latest opening up of China on Chinese society and politics.
The Uncertainties of Energy Analysis
Three factors this year have tended to deepen public disbelief in
the reality of a much-heralded looming oil stringency: (1) sluggish
economic growth in the industrial countries, greatly softening the
demand for oil; (2) the coming on stream of North Sea and Alaskan oil,
providing a relatively ample supply; and (3) a reduction in the real
price of oil to a number of countries as a result of sharp dollar depre-
ciation in foreign exchange markets. These factors have further veiled
the dangerous longer-term trends of increasing US dependence on OPEC
oil and the continuing high risk of a serious shortfall by the mid-
eighties.
The main thrust of our energy analysis in this period was to keep
the policymakers' attention focused on these longer-term trends. In
the process, we developed a deeper understanding of the real determi-
nants of future oil supply and demand. On the supply side, we became
increasingly aware that the key to future production was not the technical
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capability to prove up new reserves or to extract oil from difficult
or recalcitrant fields, but rather the political willingness of govern-
ments to expand their oil production capacity. Governments in the most
important producing countries are taking an increasingly conservative
and conservationist view toward capacity growth, seeking to preserve
the patrimony for future generations and fearing the economic and social
consequences of too rapid expansion. Actual output in future years thus
may fall far short of what would be technically feasible. On the demand
side, we have become aware of the difficulty of distinguishing between
repressed demand because of low economic growth, and reduced consumption
because of deliberate conservation by individuals, households and enter-
prises. Accordingly, we have launched an intensive effort to analyze
energy consumption patterns by sector and industry in order to determine
shifts in historic trends in energy savings and conservation potential.
Finally, we have become more sophisticated in the treatment of
uncertainty in our energy forecasting. Rather than making predictions
based on a single "most likely" set of assumptions, we have tried to
identify the main determinants of future supply and demand--rates of
production, growth and conservation--treating each explicitly in terms
of range of likely developments. This enables us to display alterna-
tive future market conditions over a wide spectrum of possibilities.
The process', of course, does not eliminate uncertainty, but it greatly
reduces the risk of misleading the policymaker.
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Managing the Global Economy
Policymakers in the developed countries have become increasingly
concerned about their ability to "manage" global economic problems.
After four years of trying to cope with the post-1973 economic environ-
ment, they find that by and large they still suffer from a lackluster
economic performance, high unemployment, rapid inflation and unstable
currencies. While the necessity for closer cooperation in preparing
economic policies has been recognized by individual leaders and major
international organizations for some time, the current troubles have
made such moves imperative.
Strong efforts were made in 1978 to reduce the sharp differences
in inflation rates and foreign payments positions, to lessen currency
fluctuations, to minimize protectionist pressures and to allow "sick"
industries (steel, textiles, for example) to adjust as painlessly as
possible to new market realities. Many of these endeavors were
thwarted by the need of each government to consider the domestic
repercussions of any international economic move it might take. West
Germany, for example, has been hesitant to increase foreign purchases
by stimulating domestic activity, fearing that this will boost the
pace of domestic inflation.
The frustrations of dealing with these hard issues have led to
greater emphasis on direct discussions among heads of state. The
prime example is the various summit meetings at which understandings
are reached on each country's responsibility for pulling the global
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economy out of the doldrums. Another example is the effort by Chan-
cellor Schmidt and President Giscard to achieve closer links among
European currencies, a move which it is hoped will improve the invest-
ment climate within the region.
This kind of multilateral policymaking at high levels has required
the Intelligence Community to place even greater emphasis on assessing
the political and economic forces that influence the decisions of key
leaders. We have examined, for example, what factors are at work in
the decisions related to the European monetary system. We also assessed
attitudes in Europe, toward the recent Bonn Summit,
taking an especially hard look at special interest groups that have the
power to prevent leaders from taking a more forthcoming international
view.
New Approaches in Africa
The main thrust of intelligence support regarding Africa during the
past year has been to try to assure that policymakers are aware of the
indigenous African scene--the limitations, ambitions, objectives, and
above all anxieties of African actors which intersect and interact with
the continuing extension of Soviet and Cuban presence into the region
south of the Sahara.
The general purposes of the Soviets and Cubans have been reasonably
clear, even where their precise role, as in Shaba II, has been in dispute
outside the Intelligence Community. What policymakers, looking for
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openings to play a constructive role, have found unfamiliar is the
special mix of motives and needs in black Africa. Nowhere has the
gap between the public posture and the private assurance been greater;
the special task of analysis has been to indicate, and continually re-
evaluate, the weights to be assigned to each--re the Horn, Zaire,
Rhodesia, Chad, and other less immediate crises.
The fact that each of these situations involved deployments of
military forces, including regular Cuban combat units in the Horn,
has compelled us to put a new emphasis on military intelligence analy-
sis with regard to sub-Saharan Africa. In consequence, we feel somewhat
better prepared for possible future developments in central and southern
Africa.
The fact that political and economic factors are so immediately,
visibly related in the African region has impelled us further toward
an emphasis on interdisciplinary analysis, more particularly since many
US policy options with regard to Africa have a strong economic element.
Our support in specific crises broke some modest new ground. The
policy group formed under NSC aegis to monitor the Ogaden war was sup-
ported, at its request, by a series of bi-weekly interagency assessments
produced as the fighting developed. We put particular emphasis in each
edition on the extent to which our views had shifted since the previous
assessment. During the Shaba II crisis, as well as during the Ogaden
fighting, support also took a more traditional form--formation of NFAC
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task force/working groups and production of situation reports, plus
special studies as called for by the DCI. While NFAC support activi-
ties worked well in these situations, it is important to note that
these were not "crises" on a scale comparable to those which have
confronted previous Administrations, and thus were not real tests of
the crisis support machinery.
Shifts in Regional Emphases
Events in Indochina, in South Asia, and in Iran prompted some
notable shifts in analytical emphasis.
Interest in Indochina revived sharply as the border war between
Vietnam and Cambodia escalated in 1977 and as the subsequent deteriora-
tion of relations between Vietnam and China became evident in 1978.
Indochina was becoming an important theater for Sino-Soviet competition,
and this aroused concern about the impact of events there on the rest
of Southeast Asia. Moreover, the growing ties between Vietnam and the
USSR that resulted from Sino-Vietnamese tension raised the specter of
Soviet access to Vietnamese ports, with consequent serious implications
for US interests in the area.
To meet the increased demand from both Congress and the Executive
Branch for intelligence coverage of Indochina it has been necessary to
augment the resources devoted to the area. The sharp decline in US
interest in Indochina after the end of the Vietnam war in 1975 had been
accompanied by a shift of analysts to higher-priority projects. Nearly
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all of the 15 or so analysts working on the region were reassigned at
that time. This year, with renewed demand for analysis of Indochinese
developments, we have begun to reinforce our analytic strength in this
area.
The nature of the Indochina intelligence problem is, of course,
quite different from our previous wartime concerns. Today the problem
is more broadly based and focuses on the ability of the Indochinese
states to rebuild economically, to establish political control, to
spread their influence elsewhere in the area, and to manage their rela-
tions with the two Communist superpowers.
Although our major preoccupation in the Near East and South Asia
area during 1978 continued to be with Arab-Israeli issues, a new element
was introduced in the form of much greater attention to South Asia.
Except for India, this had been an area of few major developments and
relatively less analytical interest during the mid-1970s. The serious
domestic political problems which had surfaced in Pakistan in 1977 re-
quired continued attention, including an NIE, and heightened interest
in Pakistani efforts to develop a nuclear capability led to a number
of studies, including an interagency memorandum.
Afghanistan, previously given very low priority, overnight became a
center of attention with the Marxist seizure of power in April. In
addition to a great deal of reporting to explain a fast developing
situation, an interagency memorandum and a number of studies on specific
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aspects of the problem, particularly Afghan-Soviet relations, were
produced. Afghanistan seems certain to remain a subject of much greater
interest than in the past.
Growing instability in Iran--the first serious threat to the Shah
in 25 years--also required considerable additional analytic effort with
several memoranda and a large number of shorter studies produced. The
stability of the Iranian government will continue to be a key issue in
the area and may well require even more attention in the coming year.
Proliferating Arms Control Talks
The scope of arms limitation negotiations continues to expand, and
with it the need for a wider range of support by the Intelligence Commu-
nity. Intelligence plays an important role now in more than a half
dozen such negotiations, four of which have been launched since mid-1977.
This support includes data and analysis that assist in the development
of negotiating objectives and positions, direct support to negotiating
teams, and--for those agreements already reached--monitoring capabilities.
Because of the greater diversity of subjects under discussion, a
broader range of analytical specialties is involved. The importance of
making the effort a cohesive one has become increasingly clear. We have
taken several steps to ensure that the components supporting the various
talks have a broad understanding of developments across the spectrum of
arms control negotiations.
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The SALT process continues to require a substantial commitment of
intelligence resources, both in support of ongoing negotiations and to
monitor agreements currently in effect. In addition to the NFAC staff
MBFR talks continue to be supported 1 0
During September and October intelligence analysts helped
implement a decision by the SCC to challenge the East to resolve the
East-West desparity in Pact personnel estimates. This move required
that updated NATO manpower estimates of Pact forces--estimates that
would be close enough to the US national estimates that the US delega-
tion in Vienna could use and defend them. Specific guidelines were
prepared that enabled the US delegation to the MCM-76/78 Conference in
October to work out satisfactory NATO estimates.
Antisatellite (ASAT) negotiations began in June 1978 with a session
in Helsinki. NFAC analysts, who have closely followed Soviet antisatel-
lite developments, have supported the NSC antisatellite working group.
An NFAC officer served as intelligence adviser to the US delegation
during the June round.
In the Comprehensive Test Ban talks, the US, UK, and USSR are work-
ing toward~,b treaty banning all nuclear tests. NFAC has provided an
adviser to the US delegation in Geneva and participated in the develop-
ment of issue papers here in Washington. NFAC chairs and participates
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in the nuclear test monitoring working group, which is responsible
for developing CTB monitoring capability.
Four rounds of Conventional Arms Transfer talks between the US and
the USSR have been held in the past year. Intelligence agencies pre-
pared a considerable body of basic data and analysis that was used by
US negotiators in developing their position papers. An NFAC officer
served on the CAT Working Group in Washington and accompanied the US
delegation twice to Helsinki and again to Mexico City.
Intelligence support for the Chemical Warfare talks has been fun-
neled through a CIA-chaired subcommittee of the Weapons and Space Systems
Intelligence Committee. Among the projects undertaken by intelligence
analysts have been detailed stockpile and monitoring studies.
The Indian Ocean arms limitation talks, which required a significant
intelligence input in the latter half of 1977, were largely dormant after
February 1978 because of a Soviet naval buildup in the area at that time.
The talks are expected to resume in the near future.
Finally, the first UN Special Session on Disarmament was held in
June 1978. NFAC participated actively in the work of the SSOD Backstop-
ping Committee,
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