WEEKLY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001000070010-9
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 26
• Document Creation Date: December 27, 2016
• Document Release Date: May 6, 2010
• Sequence Number: 10
• Publication Date: July 26, 1974
• Content Type: REPORT

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Weekly Review
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26 July July 1974
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The WEEKLY REVIEWssueei every Friday morning by the
Office of Current I ntelligehce, reports and analyzes significant
developmer.ts of the wet through noon on Thursday. it
frequently includes mate(' I coordinated with or prepared by
the Office of Economic Res,larch.; the Office f Strategic
Reseal?ch, and the Directorate of Science and lOchnology.
Topics requiring more comprehensivetreatment and therefore
published separately Special Reports are listed in the
contents. -
CONTENTS (July 26, 1974)
MIDDLE EAST
AFRICA
EUROPE
EAST ASIA
PACIFIC
WESTERN
HEMISPHERE
1 Cynrus
6 The Middle East
8 Libya: Qadhafi in Retreat
9 Ethiopian Military Puils the Strings
10 Italy: Austerity Politics 25X1
11 Spain: Looking Beyond Franco
12 East-West Talks Adjourn
13 Iceland: No Coalition Yet
14 West Berlin: New Threats
14 Polish Shipbuilding Increasing
16 Soyuz Cosmonauts Return
17 Philippines: Reassessm-..nt Time
18 Vietnam: More Fighting
19 Cambodia: A Weary War
20 Laos: Maladies
21 Mexico: Latin Solidarity
22 Peru: Important Changes Ahead
23 Cuba: Castro Speaks Today
24 Panama: Still Going Strong 25X1
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CYPRUS
The Turkish invasion of Cyprus on July 20
set off a chain of events that culminated in gov-
ernment shake-ups in Athens and Nicosia. In
Greece, disagreement over how to react to the
invasion and deal with the military regime's inter-
national isolation led to the junta's stepping aside
and the transfer of power to a civilian government
headed by former conservative prime minister
Constantine Karamanlis. In Cyprus, Nicos
Sampson was replaced as president by Glafkos
Clerides, president of the House of Deputies and
constitutional successor to Makarios. The failure
of the Turkish military to obtain all its objectives
quickly has resulted in some recriminations
?
A? '.
rt
r ??? Zif ,411 7
Turkish paratroopers take up positions
within military and political circles in Ankara, but
the Turkish government views the invasion and its
consequences as a diplomatic triumph for its
policies.
THE POLITICAL REPERCUSSIONS
Greek President Gizikis announced on July
23 that the military, which had ruled Greece since
1967, was withdrawing from politics and turning
over power to a civilian government headed by
Karamanlis. The decision was reached after ex-
tended discussions with former prime ministers
and other prominent politicians and was probably
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aniki
GREECE
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MEDITI,RRANEAN SEA
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CYPRUS
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Karamanlis
sparked by the senior officers' disenchantment
with the result of Greck strong man loannidis'
adventuresome policy toward Cyprus. The mili-
tary reportedly agreed to stay out of politics and
give Karamanlis a free hand. In his acceptance
speech, Karamanlis pledged to work for the
restoration of normalcy and democracy. Later in
the day, a government of "national unity" was
formed, cnmprising veteran center-right polit-
icians and government experts. The fact that no
representatives of the left were included probably
reflects the desire of both the military and
Karamanlis. Leftists responded to their exclusion
by organizing a meeting to determine their course
of action. They plan to send a message to
Karamanlis demanding that all parties be repre-
sented in the government.
The new Greek government immediately an-
nounced a series of liberalizing measures and de-
clared that it considers Makarios to be the legal
president of Cyprus. George Mavros, the new for-
eign minister, was dispatched to Geneva to take
part in the tripartite talks with Britain and Tur-
key that will deal with he Cyprus problem.
In Cyprus, the replacement of Nicos
Sampson by Clerides was p;obably inspired by a
desire to improve the government's respectability
and to place it in a better position to negotiate
with the Turks, who had made known their
strong objection to Sampson. It was also linked to
the changeover in Athens. One of Clerides' first
acts as president was to meet with Turkish
Cypriot leader, Rauf Denktash, to seek ways of
enforcing the UN-sponsored cease-fire.
Speaking in New York, Archbishop Makarios
expressed pleasure over Clerides' elevation to the
presidency but added that he expected to return
to Cyprus in a few weeks to resume his duties as
president. Cierides later said it would be unwise
for Makarios to return to the island, but Athens'
announcement of support for Makarios leaves
Clerides' tenure in doubt. Under the Cypriot con-
stitution, the president of the House of Deputies
assumes the role of acting president in the event
of the incapac;ty or absence of the president,
pending new elections. These must occur within
45 days.
In Turkey, the decision to invade was met
with widespread popular approval, but the US
embassy reports F. growing undercurrent of feeling
that the Turkish military did not pe; km as well
as had been expected, despite official statements
to the contrary.
When the three-power talks open in Geneva
this week, Ankara intends to call for the creation
on Cyprus of a federal government that would
no!. involve partition of the island.
THE MILITARY SITUATION
Turkish troops landed on the north coast of
Cyprus at dawn on July 20. Troops from about
40 ships vid [arming craft went ashore near
Kyrenia, some 15 miles north of Nicosia, and
paratroopers were dropped in the vicinity of the
capital itself. The Turkish forces quickly met stiff
resistance from the Greek Cypriot National
Guard.
The Turics continued to move troops to
Cyprus on July 21. They secured their position
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on the beachhead around Kyrenia, but made little
progress in consolidating newly won territory
between the beachhead and Nicosia. By nightfall,
the Turks had not achieved any of their major
objectives, and the momentum appeared to be
shifting to the Greeks. Throughout the rest of the
island, the Greek Cypriot forces?better equipped
and far more numerous?clearly had gained the
upper hand in the intercommunal fighting, as
Turkish Cypriot resistance in most areas began to
collapse.
The Greeks and the Turks used the last
hours before the cease-fire to continue strength-
en!ng their forces on the island. The Greeks
landed paratroopers at Nicosia airport?the first
commitment of regular Greek forces in the war.
At the same time, the Turks landed additional
troops near Kyrenia.
The uneasy truce was marked through mid-
week by several clashes and occasional exchanges
of small-arms fire as both sides moved to improve
positions or gain ground in areas where they had
the upper hand. The Turks continued to transfer
forces to Cyprus, and were close to achieving
their major objectives by the evening of July 23.
The level of fighting had decreased sub-
stantially by July 24, although the Turks were
pressing to gain control of Nicosia airport from
the UN forces. Late that day, the Turkish am-
bassador to the UN stated that Turkish forces
would not attempt to seize the airport, although
the situation there remained tense. The Turks also
continued to reinforce their troops on the island
through most of the week, with the apparent
intenticn of meeting their original goal of putting
about 25,000 troops ashore.
On the mainland, the Greeks had completed
military mobilization by mid-week, and their
forces in northern Greece an Thrace were ready
to begin combat operations. The Turks also had
moved additional forces up Lo the border in
Thrace, but their primary goal appeared to be to
improve defensive positions in the area. Neverthe-
less, there were some signs of reduced tensions,
and both sides had opened up some areas to
normal sea and air transport by July 25.
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THE TURKISH INVASION
?M111.10?011,
The Turkish military operltion on
Cyprus did not go as Well as projected. The
principal Turkish military objective, accord-
ing to President Ecevit, was to establish a
"balance of forces" on Cyprus by placing
about 25,000 men on the island. Their
tactical objectives were to reinforce the
Turkish community in Nicosia, secure the
Kyrenia-Nicosia road, and take control of
the Nicosia airport. To accomplish this, the
Turks planned to transfer approximately
10,000 troops from th3 mainland on the
first day. The remaining 15,000 troops
apparently were to be brought in over a
period of several days.
The strategy seems to have lacked
military logic and was clearly dictated by
political considerations. In an attempt to
land at a point closest to the largest Turkish
Cypriot enclave, the Turks chose one of the
poorest tactical locations for an amphibious
assault. Turkish military planners also badly
misjudged their capability to transfer troops
quickly to Cyprus. The Turks continued to
send reinforcements as late as July 25, six
days after the initial landing, apparently in
an attempt to meet their original
goal of
putting 25,000 men on the island, And
finally, the Turks evidently misjudged both
the fighting ability of the Greek Cypriot
National Guard and the ability of outlying
Turkish Cypriot enclaves to hold out. As a
result, two of the limited objectives that the
Turks set for their main forces were not
achieved until the fourth day. The objective
of seizing the airport may now be hpvond
reach.
SOVIET REACTION
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Moscow's response has been cautious. A gov-
ernment statement released on .;uly 20 called for
the withdrawal of all foreign troops and bitterly
criticized Greece and "some NATO member
countries" for the coup, but avoided any bellicose
threats.
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The Soviets were openly sympathetic to
Ankara's invasion, probably because they hoped
that it would prevent enosis and cause disruption
in NATO. The Soviets were worried, however,
that the invasion would lead to partition.l
The Soviets are pleased about the resignation
of Sampson, but they have been circumspect in
discussing their views of Clerides. Clerides' op-
position to partition and his neutralist interna-
tional views may eventually lead Moscow to find
him acceptable. The Cypriot Communist Party,
which in the past has followed the Moscow line
on most issues, has already indicated in private
that it plans to support Clerides. Soviet diplo-
mats, nevertheless, continue to see Makarios in
New York, and Moscow will probably keep on
expressing support for him.
Meanwhile, Moscow has charged that the US
and Britain had initially attempted to paralyze
effective Security Council action and are now
trying to pose as "peacemakers." One Tass com-
mentary asserted that Soviet diplomatic de-
marches and pressure in the UN were largely
responsible for the cease-fire. Moscow has been
careful, however, to avoid actions that would
strain East-West relations; they formally denied a
report that "al!" their forces were on alert.
The Soviets evacuated some of their citizens
from Cyprus on July 24. A Soviet cruise ship was
diverted to pick them up.
DEVELOPMENTS AT THE UN
The UN has focused on calls for a cease-fire
and on support for its peacekeeping efforts on
Cyprus. Early in the week, the Security Council
unanimously passed a resolution calling for an
immediate cease-fire and for the withdrawal of all
foreign military personnel whose presence was
not in accordance with international treaties?an
implicit reference to the Greek officers in the
National Guard. The expected credentials battle
between the representatives of the short-lived
Sampson regime on Cyprus and the former
Makarios government did not materialize after the
council conditionally recognized Makarios as the
head of government. The council met again on
July 23 at the request of Greece to discuss alleged
Turkish violations of the cease-fire and reaffirmed
its call for a cease-fire.
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The safety and effectiveness of the peace-
keeping forces on the island was also discussed by
the council. Secretary General Waldheim pre-
sented his views on the necessity of augmenting
the peacekeeping forces already on the island and
requested Austria, Australia, Canada, Denmark,
Finland, Ireland, Sweden, and the UK to increase
the size of their contingents. Although Waldheim
requested that the present 2,300-man force be
doubled, the contributing states have yet to offer
a sufficient number of troops to meet this goal.
NATO'S ROLE
The Turkish decision to land troops on
Cyprus and the threat of a military clash with
Greece confronted NATO with what the US and
Belgian representatives termed "its most serious
crisis." The North Atlantic Council met almost
continuously to keep NATO members informed
on moves by the US, the UK, and the EC Nine
under French leadership to head off an armed
clash between Greece and Turkey.
Consultations among the allies were en-
hanced ay the establishment early in the week of
a special Cyprus group, which included Secretary
General Luns and representatives of the US, the
UK, and the EC Nine. Formation of this group
enabled consultations and an exchange of infor-
mation to proceed without the presence of the
Greek and Turkish representatives, whose com-
peting interests had hindered NATO cooperation
in earlier Cyprus flare-vs. At week's end, most
members seemed satisfied with the effectiveness
of the consultations, in marked contrast to the
bitter recriminations that followed the Middle
East and oil crises.
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Sadat (right) greeting Husayn
THE MIDDLE EAST
THE ARABS: HARMONY AND DISCORD
King Husayn won a far-reaching concession
from President Sadat last week in efforts to acsert
Jordan's right to negotiate an Israeli withdrawal
from the West Bank. In a joint communique
issued on July 18 at the conclusion of Husayn's
talks with Sadat in Alexandria, Egypt not only
agreed that disengagement on the Jordanian front
should be the next step in negotiations with
Israel, but also recognized Husayn's right to speak
for Palestinians living within the "Hashemite
Kingdom of Jordan." Sadat thus backtracked
from Egypt's earlier support for the Palestine
Liberation Organization as the representative of
all Palestinians, a position formally established
the Arab summit meeting ;n Algiers last Novem-
ber.
In a minor concession, Husayn agreed to
support the participation of an independent PLO
delegation in the Geneva talks at an unspecified
"appropriate time." The King was already on
record as having no "objections" to the PLO
attending the peace conference.
Egyptia Foreign Minister Fahmi was quick
to add, after th,?. Sadat-Husayn discussions, that
Egypt still recogoiled the PLO as the legitimate
spokesman for Palestinians in Gaza and the West
Bank, and that Jordan simply held the West Bank
"in trust." In thus attempting to exploit the com-
munique's ambiguity to reassure the Pi:lestinians,
however, Fahmi could not explain away Egypt's
ag ;eement with Husayn that Jordan rather than
the Palestinians is responsible for negotiating at
least the first step of a West Bank withdrawal.
Fahmi's attempt at explaining Egypt's posi-
tion did little to assuage Palestinian radicals or
even fedayeen moderates, almost all of whom
condemned the communique. Fatah, the largest
fedayeen group, labeled it a "retreat" from the
Arab summit's recognition of the PLO as the
"sole" representative of the Palestinian people.
The Syrian-controlled Saiqa organization echoed
Fatah's stand.
Yasir Arafat, chief of both the PLO and
Fatah, has withheld public comment on the Egyp-
tian-Jordanian statement, but it has clearly placed
him and other moderates, who have supported
Sadat's policies in fedayeen inner circles, on the
defensive. The communique makes the moder-
ates' task of marshaling Palestinian support for
direct talks with Husayn or for Palestinian partic-
ipation in the Geneva talks even more difficult
than before. Arafat has already postponed his
projected visit to Egypt in hopes of buying time
to find some way out of his la..est dilemma.
In exchany9 for Egyptian support, Sadat
nrevailed on a reluctant Husayn to request a post-
ponement of the Arab summit meeting, scheduled
for early September. The Egyptians argued that
they needed more time to work out a rapproche-
ment between the fedayeen and Jordan. Sadat
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obviously also wants to avoid exposing himself to
criticism from Damascus by asking for another
postponement, as he did last spring in spite of
Syrian objections.
Amman sent a formal request for a post-
ponement to the secretary ger ral of the Arab
League and dispatcheci two special envoys to
Damascus at the same time to try to secure Presi-
dent Asad's support.
Earlier this week, Syrian Foreign Minis-
ter Khaddam issued a public statement opposing a
postponement of the Arab summ.c, ond Arafat
requested that the conferenct.: :.,..noved up.
Asad has tried to woo both the PLO and
Jordan, and he undoubtedly sees Sadat's latest
moves as an effort to outmaneuver and isolate
5.-;yr! The Syrian President told the Jordanian
vrys that he did not understand the reasons for
Sadat's acceptance of the Jordanian position, but
he advised them that the Egyptians would prob-
ably disavow their support or try to confuse its
meaning at the first opportunity. Husayn has his
own doubts about the constancy of Cairo's sup-
port, but he believes that Egypt's new posture
strengthens Jordan's hand in negotiations with
Israel.
THE ISRAELIS: CAUTION IN THE CABINET
Reflecting the traditionally cautious Israeli
approach to Middle East peace talks, Prime Min-
ister Rabin's cabinet issued a statement on July
21 saying that the government is prepared to
work toward a settlement with Jordan, but only
on the basis of its previously outlined, tough
negotiating position.
The statement,
presumably meant to reflect the govern-
ment's initial bargaining stance, reiterated Israel's
opposition to a separate, independent Palestinian
state between Jordan and Israel. It affirmed that
only two states can exist in this area: Israel, with
a united Jerusalem as its capital; and a Jordanian.
Prime Minister Rabin
Palestinian state east of it, within borders to be
determined by bilateral Israeli-Jordanian nego-
tiations.
The cabinet rejected by a vote of 11 to 5 a
libei al proposal to acknowledge explicitly the
possibility of conducting talks with Palestinian
"factors" that are willing to recognize Israel and
its independence on the basis of agreed-upon and
secure borders. This rejection, however, would
not appear to bar Palestinian participation in a
Jordanian delegation. Moreover, it does not seem
to foreclose the possibility?outlined in mid-July
by Information Minister Yariv?that the govern-
ment might be prepared to talk .dfith the PLO in
the event it ceases its terro:is' activities and
acknowledges the existence of the Jewish state of
Israel.
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Although the cabinet reportedly ruled out
negotiating an interim settlement with Jordan like
those concluded with Egypt and Syria, the gov-
ernment is only in the first stages of working out
its position on the Jordanian question, and key
issues of substance and timing remain open.
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LIBYA: QADHAFI IN RETREAT
President Qadhafi?sobered by his ex-
periences over the last several months?has re-
treated to an overseer role in Libyan politics.
Since he transferred many of his formal duf:ies to
Prime Minister Jallud in early April, the Libyan
leader has spent most of his time on unpubticized
tours of the countryside or in seclusion at his
home in Tripoli. Qadhafi apparently is not p3-
pared to abdicate his primacy on the ruling Rev-
olutionary Command Council, nor have his col-
leagues pressed him to do so. Unlike his "staged"
retreats in the past, however, Qadhafi appears to
be seeking both a respite from his difficul'ries and
the safety of shared leadership.
Qadhafi's difficulties .Are essentially of his
own making, brought on by his unwillingness or
inability to adapt to a new mood in t'ne Middle
East. His audience at home and in other Arab
countries is no longer responding V-) the militant
promises and brash actions that once were a pop-
ular salve for Arab frustrations. Qadhafi's unco-
operative attitude during the October war and his
efforts to obstruct a united Arab negotiating
policy have isolated Tripoli from all but the most
extreme Arab circles.
Even before the war, the Libyan leader was
running into trouble. His unsuccessful attempt to
push an ill-conceived union on Egypt not only
damaged Qadhafi's prestige both at home and in
the Arab world, but also jeopardized Libya's in-
ternal development, which depends heavily on
Egyptian manpower and expertise. Perhaps the
most serious blow was the fiasco iurrounding
Qadhafi's bid for merger with Tunisia last Jan-
uary. His attempt to manipulate President Bour-
guiba further discredited the Libyan as a serious
proponent of Arab unity and provoked criticism
from other Arabs, who were angered by his
meddling in Tunisia's domestic affairs.
Qadhafi's failures have badly shaken the con-
fidence oi other members of the ruling council,
and they are now less willing to tolerate his arbi-
trary actions. For some time, they and key mili-
tary officers have been pressing him to moderate
his free-wheeling approach to foreign policy and
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to share major decision making with them. Al-
though the fundamentals of Libyan policy are
apparently not at issue, Qadhafi's style, judgment,
and priorities are. These grievances?although not
new?are now being expressed more forcefully,
and Qadhafi is not in a position to ignore them.
Not only is Qadhafi facing new political con-
straints, but more importantly, he is confronted
with the first major chalienge to his world view.
To accept an Arab world prepared to treat with
Israel would require a complete reordering of his
religious and political convctions?a task that
would necessitate greater flexibility and perspec-
tive than Qadhaf; has yet dec.ionstrated. He
apparently intend: to struggle in private with his
doubts and drives and, for the time being, let his
colleagues struggle: with the country's problems.
Since early Apil, Prime Minister Jallud and
other council members have ..:s.sumed most of
Qadhafi's executive and administrative functions.
The absence of any official comment following
the Syrian-Israeli disengagement agreement and
the sober tone of the Libyan media suggest that
the council is acting more forcefully in an at-
tempt to rectify past mistakes. Qadhafi, however,
still has?and is recognized as having?thP final say
on important matters. There is considerable evi-
dence, for example, that he had carefully directed
Prime Minister Jallud's negotiations with the
Soviets during his visit to Moscow in May and
that he has handled the substantive aspect of talks
with visiting Middle East leaders.
The new division of responsibility between
Qadhafi and the councii is an uncomfortable one
for both sides. For the first time, Qadhafi must
listen seriously to his colleagues, and they, in
turn, can take the initiative only cautiously,
knowing thi.,t he can still override them. Loyalty
to their leader remains the only force that unites
them, and they are unable?and probably unwill-
ing?to challenge him directly.
As long as these uncertainties exist, any
major departures from current policy are un-
likely. Deferring to Qadhafi when necessary and
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moving only slowly on his own, Prime Mi:iister
Jallud will make only minor ldjustments in the
tone and style of Libyan policies. Whether this
will be sufficient to end Libya's isolation from
the other Arabs ;e questionable.
Qadhafi, for his part, would like to gain
more time and distance from formal duties to sort
out his dilemma. He has already begun to re-
capture his home audience by appealing directly
to local communities and showing a greater in-
terest in their problems. A more responsive atti-
tude toward these people, to whom he has had
great appecil, will go a long way in helping the
Libyan leader regain his popularity.
How and when Qadhafi will try to reassert
himself in Middle East politics is another matter.
The restraining influence of his colleagues and his
own recognition of past failure should certainly
make him more wary. Moreover, he wants to
regain a close alliance with Egypt and may be
ready to compromise when and if Cairo demands
it. Fundamentally, however, Qadhafi's motiva-
tions for changing his ways are probably not
strong enough to influence greatly his narrow.
emotional outlook. When he does attempt a
comeback, it may be punctuated by some dra-
matic action desigied to underscore his own
brand of Islamic nationalism.
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Ethiopia:
MILITARY PULLS THE STRINGS
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Emperor Haile Selassie has appointed a new
Prime Minister, handpicked by Ethiopie's politi-
cally dominant Armed Forces Coordinating Com-
mittee. Mikael lmru, who rep!aces Endalkatchew
Makonnen, is an aristocrat whose views are com-
patible with those of the moderates running the
committee. They hope to restore momentum to
the drive te,r a new constitution and for far-
reaching political and social 'Menges.
The committee's action ended several weeks
of stalemate resulting from the mutual distrust
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between it and Endalkatchew. The deposed prime
minister, already under suspicion by the military
because of his association with former regimes,
was suspected of being involved in an abortive
attempt by conservatives to regain control. Late
last month, the conservative maneuvering
prompted countermoves by the military, includ-
ing the detention of a large number of former
officials.
In contrast to Endalkatchew, Mikael is not
tainted by corruption, nor is he a large land-
owner. His ability to restore leadership to
Ethiopia's demoralized civil servants and to meet
popular expectations for social change win de-
pend upon the degree of authority the committee
allows him. Additional cabinet changes are ex-
pected, and Mikael's status may be clarified by
whether the committee permits him to make his
own choices or whether it selects the new minis-
ters itself.
The committee, formed in late June, is ap-
parently providing an institutional framework for
the military moderates that heretofore they have
conspicuously lacked. lite committee appears to
consist of junior and middle-rmking officers as
well as non-commissioned officers, and it seems
less amorphous than some of the ad hoc groups
through which the military woi -ed in the past.
Earlier this month, the committee secured the
Emperor's approval for a program of far-reaching
changes, including a new constitution to be com-
pleted by the end of the year. A commission of
inquiry was selected last week to try the arrested
former officials for corruption and dereliction of
duty.
The announcement of Mikael's appointment
was couched in terms that foreshadow the figure-
head role intended for the Emperor in the new
constitution. Nevertheless, the committee appar-
ently would like to avoid pushing the Emperor
and his conservative supporters too far. For ex-
ample, the former deputy commander of the navy
and a grandson of the Emperor, Iskinder Desta,
was on the list of people to be arrested, but when
the Emperor refused to surrender him, the corn-
mittep did not oress the noint
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ITALY: AUSTERITY POLITICS
The dominant Christian Democratic Party
has papered over its internal differences, but the
political and economic situation remains un-
settled as the Communist Party and organized
labor seek to force changes in the government's
austerity program.
Developments at the Christian Democrats'
National Council meeting late last week should
postpone further challenges to the party leader-
ship until the fall. The outcome also deferred the
question of closer ties between the government
arid the Communist Party, But the Christian
Democrats' internal troubles, although under con-
tr )1 for the moment, are far from resolved.
The Christian Democratic left stressed its
dissatisfaction with the party leadership, but it
was apparently constrained by the realization that
an open left-right split within the party could
jeopardize Prime Minister Rumor's efforts to steer
the government's economic program through par-
lament. In addition, the party's most influential
left-of-center leader?Foreign Minister Aldo
Moro?decided not to break with party chief
Prime Minister Rumor
LOA I
Amintore Fanfani at this time and thus made it
impossible for leaders further to the left to turn
their dissatisfaction into an effective challenge.
The left joined in s:ipporting a bland resolu-
tion that affirmed traditional party positions in
general terms and emphasized once again the
ideological differences separating the Christian
Democrats and the Communists. Some left-wing
leaders, however, made it clear during debate that
they favored a more open attitude toward the
Communist Party. Minister of Industry De Mita
went so far as to call for an undefined "accord"
with the Communists, while others labeled the
Communists "democratic" and argued that na-
tional sovere;gnty would not be "wounded" if
they were to enter the government.
Just before the Christian Democrats met, the
country's three major trade union confederations
decided to press for changes in the austerity pro-
gram. The changes that labor wants resemble
amendments to the program now being pushed in
parliament by the Communists. Their common
goal is to reduce the impact of the program on
lower income groups and to increase the burden
on the ?Aealthy. The Communists are trying to
achieve this objective by a parliamentary strategy
designed to exploit differences among and within
the governing parties without causing a formal
split in the coalition. There is some concern in
Communist circles, however, that Socialists in the
coalition who support the Communist effort
could precipitate a government crisis by pressing
too hard.
There is room for compromise between the
two sides. The government could accept some of
the proposed changes in the austerity program
without seriously jeopardizing its goal to boost
taxes by $4.7 billion. A few of the proposals,
however, such as reducing the increases in utility
rates, would cut into the heart of the program by
undermining the objective of reducing domestic
demand.
The conflict over the austerity program
could still cause trouble, but this appears unlikely
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because of a widespread desire to keep Rumor's
coalition in place, at least through the August
holiday. Labor has scheduled a review of its posi-
tion on the austerity measures for September.
One of the coalition parties is on record in favor
of a review of the political situation at about the
same time. The Communists have scheduled a
national congress for early 1975, so they too will
be taking stock in the fall.
SPAIN: LC OKING BEYOND FRANCO
The doctors treating General Franco claimed
this week that he will "totally 1%. cover" and leave
the hospital soon. They added that the phlebitis
and other medical problems would have no effect
on Franco's capacity to govern. Such announce-
ments seem to be somewhat too optimistic, con-
sidering Franco's age and the severity of his
relapse last week.
As it became apparent that his illness might
leave him unable to carry out the duties of chief
of state, Franco temporarily transferred the
routine functions of the office to his designated
successor, Prince Juan Carlos, as provided by the
constitution. Juan Carlos will assume full powers
as king only when Franco dies, is incapacitated,
or retires. He performed his first official act by
signing the joint declaration of principles on
European defense cooperation with the US.
The press has stressed the ease with which
the constitutional provisions for the temporary
transfer of power were carried out. If Franco
should die, Juan Carlos' succession is expected to
be equally smooth. The government would
remain under the leadership of Prime Minister
Arias. Arias might submit his resignation to the
king as a courtesy following Franco's death, but
he is not required to do so. Only last January, the
Prime Minister was appointed to a five-year term
by Franco, and Juan Carlos would probably
decline to accept the resignation in order to
minimize the degree of change involved in the
transition.
Franco and Juan Carlos
Arias is expected to remain in office for
some time unless his policies provoke widespread
public disorder. If Juan Carios were to decide to
remove the Prime Minister, however, the constitu-
tion requires the consent of the Council of the
Realm. The kirg must select the new prime min-
ister from among three canglidates proposed by
the 16-member council composed of military and
other influential officials.
Speculation about the future government
comes at a time when Spaniards are divided on
the question of how to deal with dissent and the
implications of the events in Portugal. Conserva-
tives are prepared to resort to harsh measures to
keep order, while more liberal Spaniards believe
that there must be a gradual loosening of the
political system so that Spain can assume its place
in the West European community.
Prime Minister Arias proposed a program of
moderate political and social changes last Febru-
ary. Only a bill providing for the direct election
of mayors has been approved by the parliament
so far, and it was weakened by an amendment
that excludes Madrid and Barcelona. This week,
the National Movement, established by Franco as
Spain's sole political organization, approved the
formation of new political associations that could
serve some of the functions of political parties.
The association, however, would be under the
direct control of the Movement. These moves
indicate that while change will come to Spain, the
pace will be slow and deliberate.
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EAST-WEST TALKS ADJOURN
The Vienna force reduction talks adjourned
last week with the two sides still deadlocked on
basic issues. Prospects are somewhat brighter for
the European security conference in Geneva that
recesses this week. It may be possible to wind up
the conference by the end of the year.
After nine months of negotiations, there has
been virtually no substantive progress in the
Vienna talks, and both sides are holding fast to
the proposals they made in the fall. The Eastern
representatives began this negotiating round by
taking a hard line, but than proceeded to outline
a "first step" agreement in an attempt to move
the West in the direction of the basic Eastern
proposal. By the Lid of the round, Eastern repre-
sentatives had suggested that such a "first step"
agreement would provide that:
? The West would not incur obligations to
go beyond the "first step" because it would
not be a part of the East's basic proposal.
? Reductions of 20,000 would be made by
each side, although other figures were not out
of the question.
? The bulk of reductions in a "first step"
could be taken by the US and the USSR.
? Although all direct participants would
make a commitment to reduce, the US, the
Soviet Union, and perhaps others would ini-
tiate reductions, with the other direct partici-
pants cutting their forces later.
The East has argued that its "first step"
suggestion is the best way to break the deadlock
in the negotiations because the agreement is genu-
inely neutral, containing elements of the pro-
posals of each side. The Allies, however, feel the
suggestion is clearly in line with the basic Eastern
position, since it calls for equal reductions by the
two sides. The West also thinks that such a first
step would codify the existing balance of forces
in central Europe. This would undercut the Allied
argument that the Warsaw Pact has far more
ground forces in the region than NATO, and that
the security situation must be improved by ar-
riving at a "common ceiling," or upper limit, for
the ground forces of each side. In addition, the
Allies believe that the Eastern offer to let US and
Soviet reductions begin first does not represent
FRENCH MISSILE SUB OPERATIONAL The third French nuclear-
powered ballistic-missile submarine,
Le Foudroyant, is now operational.
The submarine was turned over to
the navy on June 6, according to
press reports.
Le Foudroyant probably will
be sent on patrol to replace the
Redoubtable, which is scheduled for
a15-month overhaul. France's fourth
missile submarine, L'Indomptable,
will be launched in mid-September.
French missile submarines
carry 16 missiles with a range of
about 1,300 nautical miles and a
warhead of 450 kilotons. Later this
year, the French are expected to
begin replacing these missiles with
versions that have a range of about
1,600 nautical miles.
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much of a concession. One important Western
requirement continues to be a clearly defined
first-phase agreement in which only US and So-
viet reductions would be made.
The Western tactic during this round has
been to offer assurances in order to get the East
to agree that reductions by direct participants
other than the US and the Soviet Union could be
deferred to a second phase of negotiations. Most
importantly, the Allies have said they would con-
sider a commitment that second-phase reductions
would include the ground forces of aIl non-US
direct participants on the Western side. Eastern
representatives claim that the Western suggestions
are "nothing new."
Little movement on the Soviet side can be
expected at the force reductions talks until the
European security conference has concluded.
That conference is approaching its summer recess
with a bit more optimism than has been evident
for some time. The participants are close to agree-
ment on the preamble to specific texts in the
troublesome area of the freer movement of
people and ideas, as well as on two of the specific
texts themselves. Delegates are hopeful that fur-
ther compromises in the fall will resolve the dif-
ferences between the West, which wants signifi-
cant agreements in the freer movements area, and
the East, which is wary of interference in its
countries' internal affairs. There are few signs of
progress on military "confidence-building"
measures, however. Only a minor measure on
exchange visits of military personnel has been
agreed upon.
Meanwhile, the Western delegations?at US
initiative?have undertaken to define precisely the
least they will accept on the freer movement issue
as well as in other areas of conference activity.
Many of the West Europeans think that it is not
necessary to be too specific until further discus-
sions in Geneva. They warn that it would be
unwise, from the standpoint of negotiating tac-
tics, to present, the West's minimum demands to
the East. How the West decides to define and
present its minimum demands, and how the East
responds in the fail, will determine whether the
conference can move into a final stage at which
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the results would be officially blessed, perhaps at
the summit level.
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ICELAND: NO COALITION YET
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Independence Party leader Geir Hallgrimsson
has failed in his bid to form a conservative-led
coalition. Incumbent Prime Minister Olafur
Johannesson, leader of the Progressive Party, will
be asked to try his hand at putting together a
government. The formation of another center-left
coalition under Johannesson would increase the
uncertainty surrounding the outcome of negotia-
tions with the US to retain the NATO base at
Keflavik.
Johannesson probably can count on the sup-
port of the Liberal Left Organization and the
Communist-dominated People's Alliance, both
members of the previous Progessive-led coalition.
In order to secure a majority, however, Johannes-
son needs the support of the Social Democrats,
led by Gylfi Gislason.
At a special session earlier this week, Gi-
slason was elected president of the new parlia-
ment with the backing of all members except
those of the Independence Party. The vote for
Gislason has been interpreted as evidence that a
deal may have been struck that would prepare the
way for the Social Democrats to join a Progres-
sive-led government. Gislason told the US ambas-
sador, however, that his election was not con-
ditional on bringing the Social Democrats into a
leftist coalition.
Without the Social Democrats, Johannes-
son's coalition would control only 30 of the 60
seats in parliament. Some Social Democratic
leaders indicated earlier that they would not join
any coalition at this time, regardless of whether it
was led by the Progressives or the Independence
Party. This position may not be shared by the
entire party, however, and a four-party, center-
left coalition could materialize. Such a govern-
ment might be more balanced on the bas2 issue
than the previous coalitinn
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WEST BERLIN: NEW THREATS
Last week, the Soviets and East Germans
sharpened their threats to retaliate against the
opening of a West German Federal Environmental
Office in West Berlin. Bonn is nevertheless moving
ahead with the project. Enabling legislation was
signed by Federal President Scheel earlier this
week, and the office is scheduled to open some-
time this fall.
East Germany announced on July 20 that
transit of the office's staff and property across
East German territory will be considered "unlaw-
ful." Pankow's warning came on the heels of a
Soviet Foreign Ministry statement declaring that
establishment of the office in West Berlin would
violate the 1971 Quadripartite Agreement and
that it wouid force the USSR and East Germany
to take "appropriate measures" to protect their
"legitimate" interests.
The Soviets and East Germans have in-
dicated on several occasions that they feel it is
necessary for them to object publicly to the open-
ing of the office. Privately, however, they have
.assured the West that they will act with restraint.
An East German diplomat said earlier this month
that his government is obliged to keep up the
pressure on the issue, but will avoid any "stupidi-
ties." The Soviet counselor in Bonn seemed to
hint at one way around the difficulty. He said
that the staff of the office might not be able to
claim privileges contained in the 1971 Inter-
German Access Agreement, but that he doubted
if staff members would run into any trouble on
the access routes unless they were to disclose
their employment with the environmental office.
Although Bonn quickly protested the East
Germans' threat, it has taken th.a public position
that any discussion of countermeasures will
depend uperi the actiors of the East Germans.
Bonn may be considering a proposal that Moscow
has floated in the past: a guarantee by the West
that the office will be the last federal institution
established in West Berlin.
The Schmidt government, which has been
divided all along about the office, may be willing
to go along with a decision by the Western allies
to give the Soviets some form of assurance. West
Berlin Mayor Schuetz will emphatically oppose
any agreement, formal or informal, that would
hinder efforts to strengthen the city's ties to the
Federal Republic.
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POLISH SHIPBUILDING INCREASING
Ship exports in 1973 totaled $331 million
and were Poland's second leading export earner.
Last year, Poland ranked 12th in world ship
production, building 86 ships totaling almost
740,000 deadweight tons. In a number of cate-
gories?fishing boats, bulk carriers, and general-
purpose dry-cargo ships?Warsaw ranked among
the top three producers in the world. Between 70
and 80 percent of this production is exported.
Production in Polish shipyards has increased
steadily since 1970, reaching new tonnage records
each year. The five year plan (1971-75) called for
the construction of about 350 ships totaling 3.6
million DWT; current trends suggest it will be
surpassed.
The USSR is likely to remain the largest
single customer, but an increasing number of
Polish ships are being sold to Western countries.
In 1970, the Soviet Union purchased about 60
percent of Polish ship production, but by 1973,
its share had fallen to less than 40 percent. This
was the first year that Poland exported a greater
tonnage to the developed West than to commu-
nist countries.
To expand its shipbuilding capacity during
1971-75, Warsaw entered into a number of co-
operation agreements with Western firms, in-
cluding Mitsubishi of Japan for equipment and
technology and International Computers Limited
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The Marszal Budionnyi, 105,000-ton ore-bulk-oil carrier being built
in Gdynia for the USSR
Year
Ships Produced
Number of Deadweight
Ships tons (000)
Ships Exported
Number of Deadweight
Ships tons (000)
1970
53
515
43
400
1971
56
600
39
405
1972
67
700
50
520
1973
86
740
57
610
1974 (est)
106
764
76
550
1975 (est)
100+
1,000+
of the UK for a large computer center. Poland has
attempted to stimulate foreign demand by of-
fering to build a broad range of ships, rather than
specializing in one or two types. Current produc-
tion includes container and semi-container ships,
ore/bulk/oil carriers, and a whole array of general
cargo carriers. In addition, Polish yards have
introduced a line of large, sophisticated fishing
and fishing-support boats.
In the last few years, Poland has demon-
strated an increased technological capability, and
its ships are now equivalent to those produced in
tile West. For example, last year, the Gdynia
shipyard, Poland's largest producer of bulk car-
riers, delivered two 55,000-DWT bulk carriers to
Norwegian owners. This year, Poland launched a
105,000-DWT combination ore/bulk/oil carrier
for the USSR and also began work on a series of
roll-on/roll-off stern loaders for the Soviet Union.
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Warsaw is reportedly offering to build container
ships at prices 25-percent lower than other major
shipbuilders.
In 1973, Poland obtained licenses to build
liquefied natural gas and liquefied petroleum gas
tankers. Poland has reportedly received an order
for two 125,000 cubic meter LNG tankers and is
negotiating additional sales with prospective US
purchasers.
On the basis of past consumer acceptance of
its high-quality products and relatively low-cost
operation, Warsaw expects to expand export
sales. To meet this anticipated demand, Warsaw
plans to increase its investment in the ship-
building industry over the next few years. In
addition, Warsaw is seeking licenses for advanced
technology?such as liohte,-aboard-shins?frnm
the West.
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PHILIPPINES: REASSESSMENT TIME
Muslim rebels have renewed their offensive
in the southern Philippines, causing President
Marcos to order a reassessment of government
counterinsurgency programs there. The latest
round of attacks began last month, apparently in
an attempt to gain the attention of the con-
ference of Islamic foreign ministers that was
meeting in Kuala Lumpur.
The rebel campaign has continued since the
conference and has included sabotaging of govern-
ment installations as well as the more usual hit-
and-run attacks against the military and civilians.
Marcos finds the new rebel activity particularly
disconcerting because it comes after several
months of political, economic and military effort
by the government to ease, if not resolve, the
Muslim problem.
In trying to come up with a successful policy
for the south, Marcos is being pulled in two
directions. The Islamic foreign ministers issued a
communique on June 25 criticizing Philippine
military operations against the Muslims and call-
ing for a political resolution of the conflict. Phil-
ippine army commanders, however, are pushing
for stronger military action against the rebels be-
cause the armed forces are taking substantial casu-
alties, causing morale problems among the troops
and bickering among the officers.
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Although Marcos wants to increase military
pressure, he is apparently still thinking of linkin
it with a negotiatin effort.
In seeking to25X1
open negotiations with Muslim groups, however,
Marcos faces the problem of trying to determine
which leaders are the most important and how
much influence the mi ht ha
groups.
- ?
The Fifth Islamic Conference
, .
14 MTN SOW WiiiiNCE
iCOPPlipestati?um*
tA mem coma
res Npystnit DES MOS ETRi
EAU LAM p r.
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VIETNAM
MORE FIGHTING
Communist forces have intensified their
shellings and sapper attacks against government
military facilities and have overrun a number of
government outposts in widespread areas of the
country. In southern Quang Nam Province, they
are pressing toward the district capital of Duc
Duc. Government reinforcements have moved
into this sector, but have had little success
pushing the Communists back. The fighting has
forced thousands of I-eft:gees to flee toward Da
Nang and other nearby population centers. and a
few reports indicate the Communists are forcing
some refugees into their areas.
LAOS
DEMILITARIZED ZONE
CAMB IA ?
MILES
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16,
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VIETNAM
ontum.
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25)0
North Vietnamese forces also have increased
military pressure in the central highlands, where
they have attacked two key government outposts
northeast of Kontum City. A surge in fighting
throughout the region has caused the government
to call off its operation to retake territory lost
earlier in Quang Duc Province. 25X1
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CAMBODIA: A WEARY WAR
The Khmer Communists continued to main-
tain a low military profile throughout most of the
country this week, carrying out minor shellings
and ground probes against scattered government
positions in the countryside. In the northwest,
insurgent units in Battambang Province threat-
ened several government outposts as part of their
increased effort to gain control over more of the
rice-growing areas arid the local population.
In some ar_ias, Cambodian army forces are
making good use of the lull. North of Phnom
Penh, government troops at the recently re-
captured town of Oudong and at the nearby
enclave at Lovek continue to consolidate and
strengthen their positions. As a result of govern-
ment battlefield successes in this sector, convoys
of foodstuffs are again being moved down the
Tonle Sap River from Kompong Chhnang City to
Phnom Penh.
Southeast of the capital, government clear-
ing operations along the lower stretches of the
Mekong encountered little opposition and
enabled approximately 2,000 refugees to return
to government-controlled territory. In the far
southwest, however, other government forces
trying to relieve the isolated garrison at Kompong
Seila ran into some strong resistance early in the
week. Kompong Seila has been under steady pres-
sure since mid-May, and about half of its 2,000
defenders have been killed or wounded.
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LAO E: MALADIES
Under the ministrations of a flock of phy-
sicians from six countries, Prime Minister
Souvanna has made slow but steady progress in
recovering from his heart attack on July 12. At
midweek, his prognosis had improved and his
condition was free from serious complications.
Souvanna reaffirmed that he wants no major
decisions to be made during his convalescence,
and that he expects non-Communist Deputy
Prime Minister Leuam Insisiengmay and his
Pathet Lao counterpart, Phoumi Vongvichit, to
share equally in handling routine government
business. That arrnngement got off to an inaus-
picious start last week, however, when the regular
cabinet meeting was canceled because the two
could not agree on who should chair the session.
The political vacuum at the top comes at a
particularly bad time; the new government is con-
fronted with its first major economic crisis. Soar-
ing prices, particularly of petroleum products,
together with the expense of setting up the coa-
kt ion, have lowered the country's foreign-
exchange holdings dangerously, prompting the
temporary closing of commercial banks and the
suspension of foreign currency transactions. The
Leuam Insisiengmay
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Lao Communists have not been much help. They
refused to go along with a large devaluation
recommended by the International Monetary
Fund and proposed instead that the government
seek $2 million in foreign exchange from the US,
China, and the Soviet Union as a stop-gap meas-
ure. When these three countries wee approached,
however, all said no. At last report, a special
cabinet meeting was to be held on July 25 to
discuss International Monetary Fund recommen-
dations for easing the crisis.
In the meantime, prices increased for a num-
ber of commodities, including rice, wh:ch Thai
merchants were holding off the market pending a
new exchange rate. The Vientiane price index
jumpcd almost 14 percent between July 17 and
25, registering a 53 percent increase over year-end
1973. Inflation will continue to accelerate until
the government finds a way out of its fiscal
dilemma.
Playing Politics
Meanwhile, the Vientiane side of the coa-
lition appears to have resolved the problem of
how its nascent political front group should be
organized at the top. Deputy Prime Minister
Leuam, who leads the front, had caused consider-
able controversy by insisting that the organiza-
tion's central committec a.,..-.posed of a
limited number of representatives from within the
coalition structure. Leuam's non-Communist col-
leagues in the cabinet balked at this arrangement,
however, and they insisted ,lhat the committee
include provincial governors, representatives from
various political associations, and members of the
military in order to compete effectively with the
Pathet Lao.
After some acrimonious wrangling, senior
non-Communist leaders finally agreed that De-
fense Minister Sisouk na Champassak?the front's
secretary general?would represent the interests of
the military and of various political and social
organizations on the committee. hi reaching this
compromise, it was evident that many members
of the Vientiane side have become increasingly
disenchanted with Leuam's uncertain leadership.
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President Peron welcomes President Echeverria
MEXICO: LATIN SOLIDARITY
Latin American solidarity against the indus-
trialized nations?and, by implication, the ;S?is
the major message being delivered by President
Echeverria on his South American trip, now in its
final week.
In Costa Rica and Ecuador, Echeverria
harped on the need for a new economic structure
to meet the requirements of less-developed coun-
tries and to ensure world peace and stabiiity?a
theme spelled out in his propcsed charter of
economic rights and duties for states. In Lima last
week, Echeverria played out the theme further by
proposing that Latin American countries form
their own economic organization to defend their
interests against the more powerful nations. He
urged that an "economic forum" be established
for mutual cooperation and consultation.
In effect, Echeverria wants an exclusively
Latin group, separate from the established hemi-
spheric organizations, that would devise strategies
to get better treatment from the US in the eco-
nomic field. Also, the President believes that the
existing Latin forums need to be changed. In
Buenos Aires this week, he told reporters that the
OAS no longer fultilis its purpose and that it must
be revamped and its headquarters moved from
Washington tu Latin America.
The duties of Echeverria's new organization
would be numerous, if not clear cut. They include
defending prices of raw materials, getting capital
goods dnd technology at fair prices, guaranteeing
adequate food supplies, and encouraging scientific
research and the exchange of technicians. Eche-
verria seems most intent on having such an organ-
ization secure better prices for exports. The
object, in the end, may be to control prices by
forming cartels. For example, in Costa Rica he
supported the Oduber government's efforts to get
higher prices for banana exports; in Ecuador he
urged the Rodriguez government to join a multi-
national organization to control coffee sales; and
in Peru he called for silver-producing nations to
cooperate closely and eventually form a cartel to
control r rices.
Although the Latins are in basic agreement
with the general concepts that Echeverria is
advocating, the rivalries for influence in the
hemisphere could pose a stumbling block.
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Countries such as Peru and Argentina have pushed
similar proposals. Others, such as Brazil, resent
the efforts of Mexico in general, and of Eche-
verria in particular, to push forward into a posi-
tion of leadership of the hemisphere. Still others
feel that the existing OAS mechanism and the
developing dialogue with Secretary Kissinger are
the best ways to negotiate with Washir7-
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PERU: IMPORTANT CHANGES AHEAD
President Velasco's National Day speech on
July 28 is likely to contain important clues re-
garding the military's plans for further restruc-
turirg Peruvian society. There is no indication,
however, that any of the programs that he has in
mind could generate the widespread civilian sup-
port that has eluded the military regime since it
took power in 1968.
Unlike last year when he was still recovering
from a near-fatal illness, Velasco now enjoys a
commanding position as head of the military gov-
ernment. The President's medical problems make
his future uncertain, however, and he is likely to
use the National Day forum to emphasize the
enduring, institutionalized, and collective Ciar-
acter of the regime. Although he has made similar
statements in the past. other evidence suggests
that Velasco is engaged in a serious effort to
prepare thr country for continuing the revolution
without h im. The President may be con-
templating stepping down sometime next year,
but he is not likely to announce any specific plans
for doing so.
Since January, Velasco has moved to place
officers personally loyal to him in charge of all
important troop commands. In May, the Presi-
dent forced the navy commander, Admiral
Vargas, out of the cabinet, replacing him with a
less moderate officer who apparently is more
willing to carry out his programs. In what may be
an allied move, Velasco reportedly has ordered
the navy and air force academies to step up
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graduations and to move forward the date for
admitting new students. This may be the
beginning of a long-term program to monitor the
selection process for new candidates more closely
and provide opportunities for a greater number of
cadets from the ;ower classes and of more radical
philosophy to enter the officer corps.
Newspaper owners are likely to be listening
closely to the President's speech. Velasco report-
edly has prepared a decree transferring control of
Peru's major dailies to the government, giving
workers a much greater role in managing these
enterprises. A government take-over of news-
papers would not sit well with the majority of
Peruvians, but would strengthen leftist groups
that have urged such a move for some time.
Velasco himself is acutely sensitive to press crit-
icism, and the more radical members of his
cabinet appear to have convinced him that the
time is ripe to move against the press.
Tighter government control of the news-
papers, of course, would enable the more radical
military leaders t.-) choke off much of whatever
public sentiment for more moderate policies
might arise when Velasco steps down. Even with
the support of government moderates, however,
the public is not now in a position to challenge
any action Velasco may take against the press.
The President may also announce moves to
decrease further the role of private enterprise.
Again, radical government leaders and leftist labor
groups will welcome such a move, but rational
economic considerations may compel Veiasco to
soften the disruptive impact on investment of
such a decree.
The President already has announced that he
will make public what he describes as the mili-
tary's 1968 blueprint for revolutionizing Peru?
the "Inca Plan"?to stress that the process is on
schedule and that, for the foreseeable future, Peru
needs strong military leadership. This particular
plan, if it did exist in 1968, most likely has
undergone numerous revisions. In any case, it will
be used only to justify past policies and to set the
stage for further radical measures.
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CUBA: CASTRO SPEAKS TODAY
Cuba's electoral experiment and improving
hemispheric ties are likely to be the main themes
of Fidel Castro's address highlighting this year's
celebrations on July 26. It is hardly a coincif4ence
that the main festivities marking the "national
day of rebellion" ark for the first time being held
in Matanzas, the capital of the province where the
experiment involving the popular election of gov-
ernment officials at the local, regional, and pro-
vincial levels is taking Sensitive to long-
standing charges that questioned his commitment
to democracy, Castro can now cite the elections
to disarm foreign critics who claim he is afraid to
put his regime to the test of a vote. In light of the
current political climate in Latin America, the
time is ripe for him to make some vague commit-
ment to peaceful rather than violent revolution to
provide ammunition for those hemispheric leaders
who are anx:ous to reintegrate Cuba into the
inter-American community. In the absence of any
recent political or economic setbacks of conse-
quence, the tone of his speech is likely to be
optimistic, confident, and forward-looking.
The prominence of the occasion?the most
important holiday in the revolutionary calendar-
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gives Castro an excellent opportunity to exploit
the growing pro-Cuban sentiment among many
top Latin American politicians. He was in contact
with several influential Mexican officio:), in-
cluding President Echeverria's brother, just prior
to Echeverria's current trip through Latin Amer-
ica and presumably was made aware of, and gave
his blessing to, the President's plan to stump for
elimination of the OAS sanctions against Cuba.
So far during the trip, Argentina and Peru have
joined Echeverria in publicly questioning the just-
ification for maintaining the sanctions.
Castro certainly also knows of Costa Rican
Foreign Minister Gonzalo Facio's efforts to have
the OAS review the sanctions question and
thereby head off the independent restoration of
Cuban diplomatic ties by Venezuela and Colom-
bia. Fearful of the further damage such continued
unilateral defiance of OAS resolutions would
inflict on the regional organization, Facio prefers
to open the way to full political and economic
ties by having the OAS formally abrogate the
sanctions. Each country would then be free to
decide for itself, without international legal
encumbrances, the suitability of relations with
Havana. A statement by Castro
abjuring "export of the revolu-
tion," or even hinting at that pos-
sibility, would smooth the way
considerably for Facio in con-
vincing other Latin Americans of
the Castro regime's good inten-
tions.
The probability of Castro's
publicly doing a complete about-
face on violent revolution is slight,
particularly in light of his attitude
towed Chile. To do so would alien-
ate some of his allies who already
question his subservience to the So-
viet Union and would destroy his
credibility among Third World rev-
olutionarics whose favor he wants
to cultivate. He would not be
averse, however, to making a gen-
eral statement that describes the
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Latin American regional scene as one in which
differing political systems can interact without
conflict and where differing ideologies can co-
exist.
Such a statement might be enough to satisfy
those leaders who, despite being favorably in-
clined toward Cuba's reintegration, are wedded to
a policy of hostility in the absence of a pledge
from Havana to forgo interference in other coun-
tries' internal affairs. In contrast to Castro's past
exhortations to initiate armed struggle, this con-
cession would be powerful evidence in Cuba's
favor in OAS deliberations. Once a majority of
members indicated an inclination to remove the
sanctions, a stampede io climb on the bandwagon
could well ensue,
As if to underline its reasonable 3ttitude,
Havana signed an anti-hijacking agreement with
Colombia on July 22, removing an important
impediment to better relations prior to the in-
auguration of President Lopez Michelsen on Au-
gust 7. The last air piracy incident involving the
two countries occurred last January when a Co-
lombian airliner on a domestic flight was diverted
to Havana by a lone gunman. The agreement,
which covers "air and maritime piracy and similar
crimes," is patterned on those already signed by
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PANAMA: STILL GOING STRONG
The Fdnamanian economy is buoyant
despite a soaring import bill. Gross domestic
product rose 6.5 percent in 1973, and a good gain
is likely this year. Government revenues are up,
public investment is booming, and private capital
outlays seem strong.
The energy crisis is hurting Panama less than
most other developing countries that import oil.
Part of The estimated $100-million rise this year
in crude oil import costs?equal to about 10 per-
cent of GDP?apparently is being offset by higher
prices charged for the petroleum products that
Panama exports or sells as bunker fuels. Govern-
ment borrowing abroad and large private capital
inflows?especially into the banking system?are
averting balance-of-payments strains despite the
large increase in the chronic trade deficit.
Higher import prices and the growing money
supply, however, are contributing to domestic
inflation. Retail prices were rising at a 15-percent
annual rate as of April, and the inflationary spiral
has been intensified by a 10- to 20-percent gen-
eral wage increase effective in May and June.
Rapid economic growth is boosting govern-
ment revenues, and long-term commercial loans
obtained last year have all but eliminated the
short-term government debt that had caused ear-
lier financial problems. Debt service has been cut
from 30 percent of the budget in 1973 to 20
percent this year. Although the government is
increasing public investment outlays about 40
percent, the deficit probably will not greatly ex-
ceed last year's, which was the smallest in nearly a
decade.
Business circles apparently are optimistic.
Private investment seemed likely to decline last
fall when businessmen, displeased with the gov-
ernment's handling of new housing legislation,
threatened an economic slowdown, but Torrijos
evidently has appeased the business community.
The pace-setting construction industry seems to
have regained momentum.
Because of the general economic buoyancy,
Torrijos can afford to be patient in negotiating
with the US on the amount of direct annual
payments by the Panama Canal Company. A high
payment would be a welc?me addition to govern-
ment revenues, however, permitting the govern-
ment to increase spending by the amount of the
payment without any tax increase. A sum of
$100 million annually?the largest amount thus
far mentioned by Panamanian sources?would in-
crease government revenues by about 40 percent,
for exam sle. The
million.
* ?I .
?? ?
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