OVERVIEW OF PORTUGUESE POLITICS, ECONOMICS, AND RELATIONS WITH ANGOLA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001100740001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 22, 2016
• Document Release Date: September 1, 2010
• Sequence Number: 1
• Publication Date: September 22, 1984
• Content Type: MEMO

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Memorandum for:
The attached memorandum was sent to
DO/EUR per the DDCI's request.
Distribution:
1 - OD/EURA
1 - WE File
1 - IA File
2 - Production Files
4 - IF1C/CB
1 - Author
tURA/WE/IA
22Sep84
EURA
Office of European Analysis
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22 September 1984
DO/EUR
DI/EURA/WE/IA
DI/ALA/AF/RI
SUBJECT . Overview of Portuguese Politics, Economics,
and Relations with Angola
The Political Scene
The Portuguese party system has kept its shape through five parliamentary
elections and 15 major changes of government since the revolution in 1974. To
the left, the pro-Moscow Communist Party has not managed to exceed 20 percent
of the vote; of Portugal's four major parties, it is the only one not to have
been part of a government. To its right, the center-left Socialists (PS), the
centrist Social Democrats (PSD), and the conservative Social Democratic Center
Party (CDS) have formed a variety of coalitions following each other in and
out of government. Socialist Prime Minister Soares's current Socialist-Social
Democratic coalition, which took office in June 1983, is the first to grapple
seriously with the structural economic problems inherited from the Salazar
years and immediate post-revolutionary period. Like its predecessors,
however, this government has had difficulty dealing with President Eanes -- a
career military officer who sees himself as the guardian of Portuguese
democracy and who has used his extensive constitutional powers to intervene
sporadically in parliamentary politics.
The centerpiece of the current government program has been tough, IMF-
mandated austerity measures. Despite the unpopularity of the government's
economic policies, the Social Democrats have been pressing hard for Soares to
undertake the additional measures they believe are necessary to restore
Portugal's economic health -- primarily, to trim large and inefficient public
sector enterprises, to promote private agriculture at the expense of the
state-backed collective farms that emerged from the revolution, and to make it
easier to fire workers and harder for them to strike. Countervailing pressure
from Socialist trade unions and leftists has made Soares reluctant to go along
with the PSD's demands. PSD frustration with the government had reached the
point earlier this year that Social Democratic Deputy Prime Minister Mota
Pinto -- a principal backer of the coalition with Soares -- appeared in danger
of losing his post as party leader. The disunity of the Social Democratic
dissidents and their reluctance to assume responsibility for precipitating a
governmental crisis have reduced that threat somewhat lately.
EUR M84-10198-X
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Soares's apparent interest in running for President in December 1985 is
another strain on the coalition. A large sector of the PSD would like to run
its own candidate. Some on the party's right would even like to cooperate in
that race with the CDS -- the PSD's partner in the previous government.
Socialists and Social Democrats alike, however, appear increasingly inclined
to postpone potentially divisive decisions on the presidential race until well
into next year.
A basic force for the coalition's stability is the PSD and PS's shared
distrust of President Eanes. Rumors circulate in Lisbon that Eanes is
considering throwing his weight behind a new presidentialist political party
that would compete for votes in the same space on the political spectrum that
the Socialists and Social Democrats now occupy. Even the Social Democrats
most displeased with Soares worry that falling out with the Socialists could
give the President an opportunity to become more involved in party politics.
In any event, the current government's collapse would probably not lead
to a major change in the party system. A new presidentialist party would
remain an uncertain prospect at best, and Eanes -- a cautious leader -- is
almost certainly aware of that fact. The most that he would probably do if
the Socialists and Social Democrats parted ways would be to call for new
elections or to experiment with a government of presidential initiative that
could include independents as well as representatives of the existing
parties. In either case, party politics and government policies would likely
continue to be shaped by much the same leaders who have been around for most
of the past decade.
Economic Overview
Lisbon began an 18-month IMF-mandated stabilization program in August
1983 after its current account deficit ballooned from $1.3 billion in 1980 to
$3.3 billion in 1982 and bankers shied away from extending new loans. The
agreement set the following targets:
o Cut the current account deficit to $2.0 billion in 1983 and $1.25
billion this year.
o Pare the budget deficit from 12.6 percent of GDP in 1982 to about 6
percent of GDP in 1984.
o Hold foreign debt to $14.6 billion in 1983 and $16 billion in 1984.
o Restrict domestic credit growth to 27.5 percent in 1983 and 21.5
percent in 1984.
o Slow inflation to 29 percent last year and to 20 percent this year.
To accomplish these goals, the Socialists pushed through Parliament a
one-time 2-percent tax on fourth-quarter 1983 incomes and other tax hikes,
raised interest rates, cut back or abandoned government investment projects,
and curtailed state enterprise borrowing activities.
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The Fund also demanded that Lisbon raise government-subsidized food and
transportation prices, limit wage gains to 20 percent, and begin serious
efforts to reform the financially troubled and overstaffed public sector
enterprises and the Byzantine tax system.
Lisbon met all its quantitative targets last year except for inflation.
A dramatic improvement in trade cut the current account deficit to $1.7
billion. Imports fell $1.3 billion because of drawdowns of petroleum and food
stocks, a 7-percent drop in real domestic demand, and difficulties in
obtaining international financing. Spurred by two devaluations of 2 percent
and 12 percent and an increase in the escudo's monthly rate of depreciation to
1 percent, exports increased $400 million. With its borrowing needs reduced,
foreign debt rose only slightly to $14.3 billion, just within the IMF's
limit. Inflation, on the other hand, accelerated to 34 percent after Lisbon
reduced subsidies on government-controlled prices. While the austerity
program succeeded in regaining bankers' confidence and easing Lisbon's
liquidity problems, it entailed some hardships for Portuguese workers. Real
disposable income fell 5 percent and unemployment rose above 10 percent. Per
capita income -- already the lowest in Western Europe except for Turkey --
fell about 10 percent.
Concerned about the possibility of a deep recession, Lisbon won a
relaxation of the ceilings on domestic credit and inflation from the IMF
earlier this year. In return, the Fund insisted that the Soares government
make good its promise to reform state-owned firms and taxes. While the
Portuguese have not yet agreed to the terms of a World Bank Structural
Adjustment Loan, they have drawn up a three-year restructuring program that
includes plans to weed out unviable state enterprises and to revise tax
codes. According to the plan's macroeconomic projections, private consumption
will not grow at all in 1985 while the current account deficit will stabilize
at around $1.25 billion. This suggests that Lisbon intends to extend
austerity one more year. Whether the Portuguese actually do so depends on the
coalition government's survival and its resolve to attack difficult economic
problems in the face of political opposition, a further deterioration of
workers' living standards, and demands for expansionary policies.
The Portuguese have been somewhat less successful in winning concessions
from the EC during accession negotiations. The Community has agreed to keep
85 percent of Portugal's inefficient agricultural sector out of the CAP for
the first five years of membership and integrate it gradually over the next
five years. On the other hand, the Ten will not allow Portugal's competitive
tomato concentrate and port wine exports free entry initially for fear of
the effects on their own farmers. Similarly, negotiators have settled on a
ten-year period during which the EC and Lisbon cannot fish in each other's
waters, but they are deadlocked on the length of time that Portuguese sardine
exports should be restricted. In negotiations on the last important chapter
remaining open -- social affairs -- Lisbon has accepted a seven-year
transition period for free movement of emigrant workers. Arguments currently
center on benefits to emigrants and on Luxembourg's request to extend the
transition period since Portuguese workers already represent 11 percent of its
population. The Ten cannot give up much ground because it would set a bad
precedent for negotiations with the Spanish.
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With EC entry around the corner -- January 1986 if negotiations are
completed this year -- Lisbon recognizes that it must press ahead with
structural reforms. Reforming the backward and neglected farming sector will
be particularly difficult because of Communist-dominated collectives in the
south. In the industrial sector, uncompetitive firms have survived because of
an array of import barriers and government subsidies. Lisbon's limited
resources, the plethora of such firms, and its reluctance to lay off large
numbers of workers probably will hinder progress.
Relations with Angola
Angola has been attempting for several years to expand its relations with
the West -- with Portugal being one of its key targets -- in an effort to
offset the political and economic influence of the Soviet bloc and Cuba and to
help breathe life into Angola's moribund economy. The effort has been to a
large measure frustrated, however, by Luanda's perceived need for Soviet and
Cuban military assistance in the face of the continuing guerrilla war and by
Havana's and Moscow's effort to keep Angola closely aligned with the
"socialist bloc."
Since taking office in 1979 after the death of Augustino Neto, President
Eduardo dos Santos has moved gradually to increase his power and reduce the
influence of two key factions within the government. One faction, led by the
mulatto Lucio Lara, was firmly committed to backing the SWAPO-led struggle
against South African control of Namibia, strongly supported the Cuban troop
presence, and opposed accommodation with South Africa or UNITA. Another
group, black nationalists known as the "Catete faction," sought to end the
dominance of mulattos in the party and to lessen Angola's dependence on Soviet
and Cuban aid.
In the past four years dos Santos has built his own power base by
downgrading some members of both factions and winning the support of others.
With his enhanced power he created a system of regional military councils last
year headed by senior party members who report directly to him. In early 1948
he created a special "Council for Defense and Security" composed of party
leaders with key security positions and members of the General Staff. The
council was given a charter to deal with key national security questions and
includes firm backers of dos Santos.
The Catete faction is now defunct and the hardline faction led by Lara
has been reduced in power but retains some influence. Because of their
superior education, members of the Lara group serve in many key government
posts and appear to dominate the party's propaganda organs. They receive
significant support from the Soviets and Cubans, who have pressured the regime
on several occasions not to undercut them politically. The Soviets, Cubans,
and East Germans, are also well informed on 25X1
developments within the party and government and probably furnish covert aid
to people they believe to be allies. 25X1
Despite continued factionalism, the leadership shares fundamental
goals. All senior party members appear to seek the creation of a Marxist
state controlled by a party that they will continue to dominate. Most senior
party figures go along -- with varying degrees of enthuasism -- with dos
Santos's effort to negotiate a South African withdrawal from Namibia and a cut
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off of Pretoria's aid to UNITA in exchange for the withdrawal of Cuban troops
from Angola. Most, including members of the Lara group, also probably want
the massive and unpopular Cuban and Soviet troop and advisory resence reduced
significantly as soon as security conditions allows. 25X1
The Angolan leadership believes that one way it can reduce its ties to
Moscow and Havana -- even while Luanda is still locked into a massive military
assistance relationship with both countries -- is to expand political and
economic ties with the West. One country it has attempted to cultivate
especially has been Portugal, which continues to have emotional ties to Angola
and ambitions to regain some influence among its former colonies. 25X1
In 1982, a rapprochement appeared to be well underway following a visit
to Luanda by President Eanes. During the year both countries made an effort
to expand their trade, and Portugal agreed to help Angola in port management,
tourism, professional training programs, oil exploration, and the expansion of
a dam on the Kuanza River. The limits to the relationship were defined,
however, by the limited amount of credit Portugal had available to finance its
aid and trade. The two sides also discussed various forms of military
assistance, and the Portuguese contemplated sending a military force to Angola
to replace the Cubans.
In early 1983 bilateral relations began a serious decline. In shrill
press statements, Luanda began charging that UNITA was being given a
completely free hand in Lisbon. By December, after announcing it would
undertake "economic reprisals" against Portugal, Luanda excluded a Portuguese
oil company from exploring off shore and formed a high level committee to
review all technical assistance agreements with Portugal.
Early this year, Lisbon sent Foreign Minister Jaime Gama to Luanda to
smoothe over relations. Angolan Foreign Minister Palo Jorge lectured him on
aiding UNITA and demanded more foreign assistance. Gama publicly promised not
to allow Portugal to be used as a platform for destablization and subsequently
offered further credits for trade. Angolan press attacks against Lisbon have
subsequently abated, but Luanda has since hosted -- with considerable
publicity -- a delegation headed by the Secretary General of the Portuguese
Communist Party and the bilateral relationship remains cool.
Commercial ties remain limited, although both sides appear to be
interested in expanding trade.
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