NEAR EAST AND SOUTH ASIA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01184R000301430002-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 33
• Document Creation Date: December 22, 2016
• Document Release Date: January 3, 2011
• Sequence Number: 2
• Publication Date: April 26, 1985
• Content Type: REPORT

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Directorate of
Intelligence
Near East and
South Asia Review
26 April 1985
copy I
Seci -
NESA NESAR 85-010
26 April 1985
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Near East and
South Asia Review
Articles Syria-Iran-Iraq: Economic Reasons To Reappraise
the Relationship
The Syrian-Iranian relationship was forged on mutual hostility
toward Iraq and its President Saddam Husayn, but the economic
arguments for the relationship are losing validity. And, if it looks
like the Iran-Iraq war may end or Syrian-Iranian differences over
Lebanon grow rapidly, Syria may shift alliances and come out a
financial winner.
UAE-US: Evolving Military Cooperation
The United Arab Emirates' defense relations with the United States
have grown significantly over the last two years as military sales and
pre-positioning agreements have been concluded or are under
negotiation, but the UAE's increasing military ties with the United
States increase the risk of Iranian terrorist attacks within the
federation.
Algeria: Political Dynamics
President Bendjedid has brought about a gradual shift in the
direction of Algeria's domestic and foreign policies with the aim of
fulfilling contemporary Algerian expectations and solving Algeria's
immediate social and economic problems rather than trying to apply
socialist precepts that have been found wanting.
Pakistan faces pervasive and lasting dissaffection in Sind Province,
but, without outside aid, Sindhi social and political groups do not
have the resources to break away from Pakistan. The Zia
government's measured response has contained the worst of the
violence
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Pakistan: Army Equipment Needs
Pakistan's plans to aquire artillery, air defense, and armor items for
the Army rely on US willingness to provide technologically
sophisticated weaponry on acceptable financial terms. But even with
US assistance Pakistan will not be able to change its military
balance with India.
An Indian decision to embark on a nuclear weapons program to
counter development of a Pakistani nuclear weapons capability
would probably receive broad support in the Indian military,
although it is not actively lobbying for such a program.F-~
India's Position on Afghanistan: Prospects for Change
The Indian Government opposes the Soviet occupation of
Afghanistan, but Rajiv Gandhi will avoid confrontations on this
issue for the near term and will subsequently review his position only
after having strengthened his ties with the West and his domestic
political position and if Moscow shows signs of moving beyond
Afghanistan.
Sri Lanka's Tamil insurgency has had little overall impact on the
nation's economy, and, even if the insurgency drags on and the
cumulative effects of resource diversion and lost investment grow,
the government probably will be willing to bear the economic
burden in pursuit of its political goals.
Sri Lanka: Growing Narcotics Problems
The Sri Lankan Government, after years of indifference, is growing
concerned about domestic drug usage and the increasing
participation of Sri Lankans in the international drug trade. But,
despite a new draconian drug law, government efforts are hampered
by the Tamil insurgency in the north, the traditional narcotics
gateway
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Some articles are preliminary views of a subject or speculative, but the contents
normally will be coordinated as appropriate with other offices within CIA.
Occasionally an article will represent the views of a single analyst; these items
will be designated as noncoordinated views. Comments may be directed to the
authors
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Syria-Iran-Iraq:
Economic Reasons
To Reappraise the Relationship
The Syrian-Iranian relationship was forged on mutual
hostility toward Iraq and its President Saddam
Husayn-and, to a lesser extent, toward Israel. From
the Iranian perspective, Iran gained an Arab ally, a
source of arms, and an entry into Lebanon as well as
the closure of one of Iraq's major oil export outlets.
Syria gained political support, a substantial economic
reward, and, so long as the Iran-Iraq war lasts, some
relief from Iraqi attempts at subversion and from
military pressure along Syria's eastern border.
Some of these mutual interests may be declining,
however, and the economic arguments for the
relationship are losing validity. In addition, Syrian-
Iranian differences over Iranian and Hizballah
activity in Lebanon are likely to grow.
Politics and personal antagonism aside, if economic
rationalism guided Syrian President Assad's
decisions, he would seek an accommodation with Iraq
sometime in the next 18 months. The Syrian economy
continues to deteriorate, and the country's foreign
exchange shortage is worse than ever. The Iranian-
Syrian oil relationship is strained by Syria's inability
to pay its bills, even though a new one-year oil import
agreement is being hammered out. At the same time,
Assad has a window of economic opportunity in the
next six to 18 months that is likely to slam shut as
Iraq's alternative oil export routes are developed
through Saudi Arabia and Turkey.
The Shaky Oil Relationship
Syria has profited handsomely from the oil deals it
worked out with Iran following the closure of the
Iraq-Syria oil pipeline in April 1982. During 1982-83,
Iran provided Syria with over 7 million tons of oil-
1 million tons free, and most of the rest at discounted
prices. Syria failed to pay nearly $1 billion in oil debts
accumulated that year, but Iran ultimately forgave
the debt. Under the 1983-84 and 1984-85 contracts,
Iran provided annually 1 million tons of oil free and 5
million tons at a $2.50 per barrel discount. This direct
aid cost Tehran about $300 million per year. Syria
again failed to pay during the 1983-84 contract
period, and nearly $1 billion in Syrian oil debts were
converted into interest-free loans.
Syria is now behind on its oil payments for last year's
contract with no settlement in sight. During the last
two contract years, Iran was also expected to provide
small additional quantities of oil in exchange for
bartered Syrian goods, but this appears to have fallen
through because of a lack of Iranian interest in Syrian
exports.
During the last half of 1984, the oil relationship
appeared to be particularly troublesome. Iranian
authorities often delayed the loading of Syrian-
chartered tankers for long periods, and Syria was
forced to close its refineries several times because of
crude shortages and had to turn to the spot market to
make up shortfalls
Currently, the settlement of last year's debts hangs
over the relationship. In addition, Syria is to start
paying $20 million a month beginning in May for the
1983-84 oil debts converted into loans. It is highly
unlikely that Syria will come up with the cash for
these payments. The country continues to experience
balance-of-payments deficits, has a large defense bill,
and is not getting as much Arab aid as in the past.
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Syria's New Oil Supplies
The Syrian-Iranian economic relationship probably
will deteriorate as Syria develops its new oilfields near
Dayr az Zawr in the eastern part of the country.
if presently
anticipated-and optimistic-production levels are
attained, those fields may be producing enough light
crude in 1987 to displace most, if not all, oil imports
from Iran. Although not yet fully delineated, the
fields probably will have enough reserves for several
years of production. President Assad presumably will
be careful to confirm the full potential of these fields
before he makes his move. Their potential should be
evident within the next six to 12 months.
Iraq's Alternative Oil Routes
As Iraq's alternative oil export routes are developed,
the economic incentive to reach a new accord with
Syria on reopening the Iraq-Syria pipeline will fade.
The new Iraq-Saudi Arabia pipeline is scheduled to
be completed about the beginning of next year and
will provide roughly 500,000 barrels per day in export
capacity. An expansion of the export pipeline through
Turkey is planned to be completed by mid-1987.
There are also plans and discussions about an
additional expansion of the Iraq-Saudi Arabia line
and an Iraq-Aqaba pipeline.
As these alternative oil export routes are developed,
Assad will lose the economic advantage he derives
from having control over the Iraq-Syria pipeline. In
addition, Iran may become weary of Syria's lack of
payments for oil if the economic advantage of denying
Iraq oil exports through the Syrian pipeline
disappears.
Syria's Relationship With Its Donors
If President Assad seeks a rapprochement with Iraq
and times his move carefully, he could turn to Saudi
Arabia and the other Gulf Arab states, claiming that
he has done what they asked and should be rewarded
with additional financial aid. He probably would
argue that this aid should at least compensate Syria
for the financial loss it will suffer from its break with
Iran. In addition, if Iraq is not generous in offering
transit fees to reopen the Iraq-Syria line, Syria can
ask for compensation from its Arab donors on this
score.
While regional politics and Assad's personal
antagonism for Saddam Husayn may predominate,
Syria once again has an opportunity to shift alliances,
repudiate debts, and come out a financial winner. If it
looks like the Iran-Iraq war may end or if Syrian-
Iranian differences over Lebanon grow rapidly, Assad
may well seize the economic advantage of these
circumstances.
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UAE-US:
Evolving Military Cooperation
The United Arab Emirates' defense relations with the
United States have grown significantly over the last
two years.
The implementation of these agreements will improve
the UAE's defensive military cavabilities as well as
he
UAL's increasing military ties with the-Un-ited-States,
however, heighten the risk that Iran will launch
terrorist attacks against US personnel or leased
build a common regional air defense system. The
medium-range are more capable than the 25X1
short-range Crotale and Rapier surface-to-air missile
systems currently in the emirate of Abu Dhabi and
will be compatible
The
acquisition of the E-2C will provide UAE air defenses
with increased radar coverage of the Gulf as well as
improved command and control information for the
Air Force's Mirage-III/5 fighter aircraft, which have
little capability to acquire targets on their own.F__1
facilities within the federation.
The UAE has expressed interest in other US
equipment, including F-16 and F-18 fighter aircraft,
E-2C Hawkeye early warning aircraft, Stinger
surface-to-air missiles, helicopters, and a wide range
of ground force equipment, according to Embassy
reporting. Of these, Washington has approved in
principle the sale of the E-2C, but further
negotiations are on hold pending a policy review of
US arms sales in the Middle East. The emirates of
Dubai and Sharjah-which maintain small
independent military forces-have also expressed
interest in purchasing US equipment, according to
Embassy reporting
In late 1983 the UAE and the
emirate of Dubai agreed to
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an occasional port 11C\14
visits, according to Embassy reporting. The number of 25X1
offshore refuelings off Dubai increased to an average
of two a month during 1984. Dubai later agreed to a
commercial arrangement for US warships to use its
drydock repair facilities, and the first US warships
utilized the drydock in March under tight local
security.
The United States also proposed a broader military
cooperation agreement with the UAE in early 1984 as
the Iran-Iraq war escalated. The proposal, which
sought access to UAE military facilities, was not
accepted, but it laid the groundwork for further talks,
according to Embassy reporting. In mid-1984 the
emirate of Ras al-Khaimah
(will
significantly improve its air e denses as well as further
the stated goal of the Gulf Cooperation Council to
and the pre-positioning of
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nonlethal military supplies. Following extensive
discussions among the United States, Ras al-
Khaimah, and the UAE federal government,
After the visit of CENTCOM Commander
General Kingston in March, Ras al-Khaimah also
agreed in principle to allow CENTCOM to lease
commercial storage facilities, according to Embassy
reporting.
Political Considerations
The UAE is interested in the deterrent value of
military cooperation with the United States, in our
view. A US defense connection, even without explicit
security guarantees, implies great power backing for
the federation. In addition, the smaller and poorer
emirates believe that substantial economic benefits
would flow from increased US military use of local
facilities. This would help reduce their dependence on
financial support from Abu Dhabi and Dubai,
according to Embassy reporting.
UAE leaders
also fear sharper domestic criticism of US policy
toward Lebanon and Israel. We believe, therefore,
that further increases in military cooperation with the
United States are unlikely, at least until local leaders
can judge Iranian and domestic reaction to the
agreement with Ras al-Khaimah.
US negotiations with the UAE also have been slowed
and complicated by the diffuse political structure of
the federation. Agreements with the United States
have to be negotiated not only with the UAE federal
government, but also with the individual emirates,
which retain considerable political independence.
Still, six of the seven emirates support Ras al-
Khaimah's movement toward the pre-positioning
agreement, with only Dubai objecting, according to
Embassy reporting. Dubai, which has substantial
commercial ties with Iran and a large Iranian
population, has been critical of UAE support for Iraq
and of formal military cooperation with the United
States, despite its commercial agreement to provide
logistic support to the US Navy.
Implications for the United States
The ability to refuel in UAE ports and to use the
drydock in Dubai for minor naval repairs facilitates
US naval operations in the Persian Gulf. US warships
can now remain on station longer in the southern Gulf
near the Strait of Hormuz.
The pre-positioning of CENTCOM supplies in the
UAE will enhance US capabilities to conduct military
operations in the Gulf during a crisis. The storage of
even nonlethal equipment-such as pipeline, water
drilling rigs, and tents-will help support a US
military presence and reduces the amount of material
that would have to be moved into the region in the
event of a crisis.
CENTCOM-leased facilities in the UAE, however,
would be a tempting target for an Iranian terrorist
attack. The UAE is Iran's largest trading partner in
the Gulf, and the Iranian business community
includes approximately 50,000 people. Iranian
diplomats or businessmen, especially in Dubai, could
be readily used to support a terrorist operation, in our
view. Moreover, internal security in the UAE is
hampered by a lack of effective cooperation between
the emirates. US facilities and personnel would be
more vulnerable to an Iranian attack than those in
Bahrain and Oman, which have more effective
internal security services, in our analysis. A successful
Iranian terrorist attack on US personnel or facilities
in the UAE could discourage other Gulf states from
increasing or initiating closer military cooperation
with the United States.
Tehran probably does not want to damage its good
commercial and diplomatic ties with the UAE, and
the signing of a pre-positioning agreement with the
United States is not likely to provoke an Iranian
terrorist attack, in our view. Other events, however,
such as US retaliation against Iran for terrorism
elsewhere, could lead Iran to mount an anti-US
operation within the UAE. Tehran probably would
calculate that a single attack on US personnel or
facilities in the UAE would not jeopardize its
relations with the federation, and we believe that the
UAE response to such an incident-especially if of
ambiguous origins-would be largely limited to
diplomatic protests and posturing.
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If Iran's position in the war deteriorates sharply,
Tehran eventually might decide to retaliate against
the Gulf states for their continued support of Iraq.
Although Iran would be more likely to strike first
against Kuwait or Bahrain, the UAE's expanding
cooperation with the United States increases the
chances that Tehran might launch a military or
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Algeria: Political Dynamics
President Bendjedid has brought about a gradual shift
in the direction of Algeria's domestic and foreign
policies that we believe will survive his passing from
the scene. The radical, pro-Soviet politicians and
ideologues who dominated Algerian politics during
the first 20 years of independence have been replaced
and their strident anti-US rhetoric and policies
modified in favor of a more genuine nonalignment.
Under Bendjedid's leadership, the country has moved
increasingly toward the West, principally to obtain
technology and arms, but also to redress the past tilt
toward the Soviet Union. Bendjedid has made clear in
his actions and public statements that his policies are
geared more toward fulfilling contemporary Algerian
expectations and solving Algeria's immediate
economic and social problems than trying to apply
socialist precepts that have been found wanting.
The Man at the Top
President Bendjedid publicly espouses an amorphous,
nondoctrinaire socialism; in his private life he is a
successful capitalist. His stated priority is to provide a
better material life for his countrymen. In foreign
policy he does not play the aggressive leadership role
that his predecessor did in Third World forums, and
he has often stated openly that Algeria does not
believe in exporting its revolution. As described by a
knowledgeable Algerian official, Bendjedid differs
from his predecessor in that he wants to be president
of Algeria, not president of Africa or the Third
World.
As he charts a new course for Algeria, Bendjedid is
aware that he is not entirely free to discard the radical
policies or rhetoric of the past. Algeria's eight-year
struggle against the French for independence (1954-
62) and its revolutionary ideology are still the basis of
his legitimacy. Although Bendjedid has reduced the
importance of Algeria's role as patron of liberation
movements, he allows revolutionary leaders-who
elicit little sympathy among Algerians-to pass
through Algiers. For reasons of principle, he still feels
obliged to give rhetorical and material support to the
Polisario Front and the PLO.
Despite these gestures, Bendjedid is not a
revolutionary, nor does he cling to the past. Public
pronouncements reveal he is strongly committed to
preparing Algeria's postrevolutionary generation-
whose members are already in their early twenties-
for the responsibilities of governing and continued
development of the country
Several years ago,
Bendjedid announced that serving with him during
the revolution was not enough for a person to receive a
government or party position. Believing that Algeria's
success lies partly in the hands of the experts rather
than exclusively with the military, Bendjedid has
substantially increased the number of technocrats-
many of whom "missed" the revolution-in the
government.
The Leadership
The Algerian ruling elite is an interlocking network of
men with close personal ties and common values
derived from their revolutionary experience. The men
in the ruling elite are young, ranging in age from 40 to
62, and even the youngest experienced the revolution
as an adult. Bendjedid's key advisers-military
officers, some prominent figures from the past, and an
ascendant group of educated technocrats-are
staunch nationalists and often claim they are "Algeria
firsters." In contrast to the dogmatic, pro-Soviet cast
of previous regimes, the current leadership is
pragmatic, and most are Western in their outlook,
tastes, and style.
Institutionally, decisionmaking in Algeria is highly
centralized, but, in practice, Bendjedid seldom
exercises the full prerogatives of his office without
consultation. We believe he seeks first and foremost
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the approval of the military. Not only is the military
Bendjedid's principal power base, but it also is the
only source of power that could effectively challenge a
presidential initiative. Military officers hold eight of
the 30 Cabinet portfolios and 26 percent of the party's
membership. The views of the senior military officers
undoubtedly weigh heaviest on military, security, and
foreign policy questions. We believe that Bendjedid's
pragmatic philosophy reflects the attitude of the
dominant element in the military.
The role in decisionmaking of Algeria's sole political
party, the National Liberation Front (FLN), is more
ambiguous. The organs of the FLN-the Political
Bureau, the Central Committee, and the quinquennial
party congress-provide a semblance of "popular"
input into formulating government policy. Although
largely a rubberstamp body, the Political Bureau
under Bendjedid is a more dynamic participant in the
decisionmaking process. The 13-member group now
meets weekly, and its membership includes a broader
spectrum of interests in Algerian policy. The larger
bodies-the Central Committee and party congress-
give the regime some information on the attitudes and
concerns of the citizens outside the inner circle, but,
on important matters, the FLN remains an
instrument of the ruling elite's political will.
Bendjedid's ability to move Algeria along a more
moderate path should not obscure the fact that there
are influential leftist ideologues and political radicals
in the FLN and they remain a potential opposition.
Pro-Soviet sentiments almost certainly exist at the
lower levels of the FLN, the bureaucracy, and the
The Regime, the Public, and the Opposition
Most Algerians probably would give Bendjedid high
marks for his performance and his efforts to rebuild
national pride. Bendjedid's anticorruption
campaigns-also a means to eliminate his rivals-
have been well received by the public that all too often
views the regime's primary goal as self-
aggrandizement. Bendjedid's efforts to steer Algeria
back into the Arab mainstream have enhanced his
image at home as an Arab statesman. Similarly, there
has been widespread support for Algeria's improved
reputation resulting from Bendjedid's role in
negotiating the release of US hostages from Iran,
acceptance of Palestinians after the PLO exodus from
Beirut in 1982, and his efforts to mediate the Iran-
Iraq war
Despite Bendjedid's political strength, several issues
could crack the current government policy consensus
or increase popular criticism of the government. Of
particular concern is disaffection among students,
workers, and Islamic fundamentalists. So far, the
regime has had considerable success in controlling
dissent by a mixture of accommodation and
suppression and by placing a clear limit to
government tolerance of criticism. A loyal and
efficient security service monitors dissidents and does
not fail to resort to force in those instances when
militants threaten public order.
threat to the regime.
Fundamentalism. The spread of Islamic
fundamentalism in Algeria is being monitored very
closely by the government. The regime has not
forgotten a series of violent, fundamentalist-inspired
demonstrations in Algiers in 1982. Fundamentalist
appeal is focused on the urban working class,
students, and rural poor. The regime maintains tight
control over the national religious establishment to
minimize the chances that its Islamic credentials-a
cornerstone of its right to govern-are not seriously
challenged. Moreover, the government's crackdown
after the 1982 disturbances has kept the
fundamentalist groups in Algeria small, fluid, and
poorly organized, and they do not pose a significant
Economic Problems. Algeria faces social and
economic problems similar to those of most developing
Third World nations-rising unemployment, a
burgeoning population (50 percent are under 18), and
an inadequate supply of consumer goods. Strikes
among students and workers occur periodically, and
gangs of idle youth roam the streets of major cities,
increasing the possibility for unrest. Police and
security forces have responded quickly and effectively
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to disturbances. More troubling is the impact on
Algiers's ambitious investment program of dwindling
crude oil revenues and difficulty in marketing natural
gas resources-Algeria's primary source of foreign
exchange. The Bendjedid regime is in the early stages
of decentralizing the large bureaucracy and
expanding the private sector of the economy as well as
maintaining housing programs and other social
services. The government's performance in these areas
will probably determine popular attitudes toward
Bendjedid's economic management, and any serious
misstep is likely to revive the old arguments over
socialism
Ethnic and Regional Tensions. The Kabyle region in
the mountains northeast of Algiers is predominantly
Berber and has historically been a center for
opposition to the central government-coups against
the government were led from this region in 1962 and
1967. Occasional demonstrations among the Berbers
arise mostly out of what is perceived as the
government's neglect and second-class treatment and
not from desires for autonomy. Especially
controversial has been the government's Arabization
plan-the replacement of French with Arabic as the
national language-which the Berbers see as
undermining their culture and language. The regime
generally tolerates public criticism from the Berbers
and has accommodated some demands by increasing
the number of Berbers in the government and by
allowing Berber to be taught at the university. The
Berbers' desire, however, to get a bigger piece of the
Algerian pie will remain a flashpoint in Algerian
society for some time.
Western Sahara. Bendjedid's support for a
compromise solution to the Western Sahara dispute
could become a contentious issue among Algerian
decisionmakers. Although the Western Sahara issue
is not central for most Algerians, Bendjedid cannot
ignore those factions in Algerian political life that
advocate support for the Polisario. Certain groups in
the Algerian military and the more ideological wing
of the FLN would oppose any attempt by Bendjedid
to cut ties with the Polisario. To ensure consensus in
the government, Bendjedid realizes that any
negotiated settlement must contain at least the
appearance of protecting Saharan rights.
Outlook
Barring a serious policy failure-for example, an
economic crisis or serious Polisario defeat-we believe
Bendjedid and his programs will retain strong popular
support. Bendjedid's men are in key posts in the
government, the FLN, and the military. Although
some groups in Algerian society are disappointed that
neither the revolution nor Bendjedid's economic
policies have lived up to expectations, most believe
they can effect changes through the system.
Moreover, Bendjedid's sensitivity to military concerns
diminishes the possibility for serious friction between
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structure. Finally, lack of leadership, funds, and
manpower will limit the opposition's ability to pose a
serious challenge to Bendjedid. If Bendjedid died
suddenly, we believe that moderate military officers
would again probably cast the decisive vote in the
succession and select someone willing to support
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Pakistan: Regionalism in Sind '
Pakistan faces pervasive and lasting disaffection in
Sind Province. Unless there is outside intervention,
however, we do not believe Sindhi social and political
groups have the strength or resources to break away
from Pakistan. Low-level unrest, including sporadic
guerrilla-style attacks on police stations and
government officials, may well continue in Sind for
the foreseeable future. The Zia government's
measured response has contained the worst of the
violence, and his appointment of a Sindhi as Prime
Minister will have a calming effect, provided
Islamabad indicates its willingness to recognize
Sindhi political interests.
A Legacy of Frustration
We believe the unrest in Sind results from the
recurring frustration of Sindhi political aspirations,
most recently after the fall of the Bhutto government
in 1977. Sindhis charge that, under the Zia regime,
Punjabis have become a pervasive social and economic
force in Sind, shouldering aside muhajirs
(postpartition refugees from India) and preempting
economic opportunities that should have gone to
Sindhis. Sindhi-
muhajir tensions have given way to Sindhi-Punjabi
tensions, with muhajirs adopting a more ambivalent
position. Some younger generation muhajirs
apparently sided with radical Sindhi groups during
the 1983 disturbances, but most muhajirs-the
majority community in Karachi-remain deeply
committed to a united Pakistan.
The Bhutto period (1971-77) was a golden age for
Sind. Prime Minister Zulfikar Ali Bhutto-himself a
Sindhi-reversed policies that had discriminated
against Sindhis. Under Bhutto a substantial land-
grant program created virtually a new class of Sindhi
peasant-owners on unallocated land in the irrigation
projects. Bhutto used civil service reform to open the
' This article is the introduction to a contract study that explores in
depth the political, social, and economic dynamics in Sind.
way for Sindhis at all levels of the bureaucracy, and
he supported quotas to ensure the admission of
Sindhis into universities and professional schools. He
used the nationalization of banks to channel
investment funds to interior Sind, distributed
government franchises and import permits to Sindhi
supporters, and ensured that state corporations
established plants in interior Sind cities. Bhutto's
policies substantially heightened expectations among
groups at all levels of Sindhi society.
the frustration of high economic and
social aspirations and the restoration of outside
political control, this time with a much stronger
Punjabi cast, produced the widespread violence in
Sind. Sindhis blamed a Punjabi general commanding
a Punjabi army and a Punjabi majority dominating
the Supreme Court for Bhutto's execution. From the
beginning, the disturbances took on a bitterly anti-
Punjab, anti-Islamabad tenor.
The major thrust of Sindhi grievances is that
outsiders are colonizing Sind. Under Zia, old patterns
of outsider privilege resumed in land and resource
distribution; a largely Punjabi provincial police often
enforced these patterns, according to knowledgeable
Pakistani and foreign experts. Punjabi firms
strengthened their grip on government contracting
and soon dominated private transportation-
passenger and freight-in the Sind interior, as one
expert traveling in interior Sind found in early 1982.
Punjabi managers of new state enterprises, such as
the giant steel mill on the outskirts of Karachi, prefer
to hire Punjabis.
The muhajir community as a whole was not
significantly involved in the disturbances despite
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The Components of Unrest
The disturbances that began in late August 1983 and
lasted eight weeks were the most violent social
eruptions in recent Sind history. Key social and
political elements in the disturbances were.
? The Sindhi middle class-students, intellectuals,
and professionals-increasingly disaffected and
convinced Sind's problems could not be solved
within the Pakistan framework, gave philosophical
and political direction to the movement.
? Lower level political organizers in the Sind Awami
Tehrik and Pakistan People's Party provided
organization that sustained the movement long
after the arrest of more prominent leaders.
? Sindhi small holders and rural tenants, long
frustrated by unkept promises of land and access to
water and other resources, spread the violence to
the countryside and along the main transportation
routes.
? Sindhi rural-to-town migrants, bitter at the loss of
customary cultivating rights to mechanization and
outsider owners and at the lack of jobs for Sindhis,
produced some of the most violent confrontations.
? The rural religious establishment of pirs and
makhdums, the spiritual leaders of the peasantry,
played key roles in leading and sanctioning the
movement.
? Low-level Sindhi government workers and
policemen failed to support government initiatives
and furnished movement leaders with intelligence.
? The Sindhi landlord class, the traditional political
leaders of Sind, were taken by surprise by the force
and depth of the movement, but they rallied to the
cause, largely to keep the movement from passing
entirely into the hands of more radical forces.
reported Sindhi demands that they take an anti-
Islamabad stand.
some muhajir youth, who were born in
Sind and have lived there all their lives, joined their
Sindhi compatriots against the government. Older
muhajirs retain a deep loyalty to a united Pakistan
and were extremely concerned about reports that
India was exploiting the unrest. Muhajir political
leaders were ambivalent, not openly supporting either
the government or the movement.
Current Political Alignments
We believe the disturbances and their aftermath have
produced a partial realignment of political forces in
Sind. All the political parties in Sind have undergone
change.
The Pakistan People's Party (PPP) remains the
sentimental favorite for most Sindhis. Bhutto's
daughter and political heir, Benazir Bhutto, has
enormous personal support among the Sindhi rank
and file of the party and among party workers,
and the party has
improved its local organization over the past five
years.
Still, the PPP faces severe problems. Its traditional
landlord leadership is caught between its dependence
on the bureaucracy and a skeptical party organization
that is more leftist and anti-Islamabad than it is pro-
Sindhi. According to interviews with Sindhi leaders,
the landlords of Sind deeply fear that the Sindhi
middle class will unite with leftist pro-Sind
nationalists to press for a reorganization of the
province's system of landownership. At least one
faction of PPP landlords (Mumtaz Bhutto and Hafeez
Pirzada) has adopted a Sindhi nationalist position,
thus widening old factional alignments in the party
leadership.
The Jiye Sind Movement (JSM) represents the Sindhi
middle and professional class and is the most
uncompromising Sindhi nationalist group, but it has
not strengthened its traditionally weak organization.
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The Jiye Sind Students' Front (JSSF) sustains much
of the movement's activist thrust. According to
interviews with Sindhi leaders, the JSSF is better
organized than its parent movement and has
considerable experience in confrontational student
politics the JSSF had an
armed underground wing that has on occasion clashed
with the police and the military in Sind and may have
the capacity to mount occasional attacks on
government personnel and installations.
The Sind disturbances clearly demonstrated a
significant degree of organizational development and
peasant support for the extremist SindAwami Tehrik
(SAT), but an ideological conflict threatens its unity
and effectiveness. The Marxist left in Pakistan has
never decided how to treat regional nationalism, and
SAT leaders have been concerned that a successful
Sind independence movement would bring landlord
and middle-class elements to power. Although
muhajir and Punjabi leftists have convinced them
that the Sind peasantry can achieve its goals only by
uniting with leftists throughout the country, the rank
and file of the SAT is more committed to a Sindhi
solution and probably would seek middle-class allies
against the landlords should a separate Sind emerge.
The main muhajir parties in Sind are in flux. The
Karachi wing of the Jama'at-i-Islami has always
been less enamored of the Zia regime than the more
powerful Punjabi wing. The party did not do well in
the elections last February, and the Karachi group
may come under increasing pressure to go its own
way. The Jama'at will remain suspicious of Sindhi
nationalist groups, although some Karachi muhajirs
may support greater provincial autonomy should
Punjabi domination become overbearing.
The Jamiat-ul-Ulema-i-Pakistan, which has
strength among muhajir communities in interior Sind
towns, stands to lose the most from any significant
pro-Sind shift in muhajir opinion.
muhajir youth who have joined groups like
the JSSF have come from Hyderabad, Khairpur, and
Sukkur. Unlike Karachi, where Urdu speakers
predominate, muhajirs in interior Sind have been
more exposed to the force of Sindhi opinion. Like the
Sindhis, their younger generation has found it
difficult to compete in education and the professions.
Like the Sindhis, they are more prone to resent
growing Punjabi influence. One area expert traveling
in Sind in 1983 found the muhajir sons of bazaar
merchants in Sukkur determined to identify
themselves as real Sindhis.
Balancing Factors
Based on interviews with political activists and area
specialists, we believe the 1983 disturbances spawned
a committed underground separatist movement in
Sind. Although we believe a majority of Sindhi
speakers probably sympathize with such an
underground, most powerful groups will use separatist
demands to enhance their leverage with Islamabad.
We doubt they would actively support separatism
unless their demand for regional political power is
rejected. Once Sindhi leaders regain a measure of
local political control, we believe sentiment for an
independent Sind will decline.
Although anti-Pakistan sentiment remains high in
interior Sind, we believe the province's increasing
dependence on a growing national economy will keep
Sind a part of Pakistan. Interior Sind's agriculture-
the chief source of its wealth-is increasingly
dependent on national markets, on urban-based agro-
industries, and, most critically, on river water
managed by dams and barrages upstream in Punjab
and the North-West Frontier Province. Sindhi
speakers are on the verge of becoming a minority in
their own province, and we doubt that the most
committed regionalists-a weak Sind middle class
and a small independent peasant class-have the
resources to sustain a separatist struggle.
Outlook
The choice of Mohammad Khan Jenejo, a landlord
politician allied with the Pir of Pagaro, as Prime
Minister of Zia's new civilian government may be an
effort to reassure Sindhis and like-minded provincial
groups that their interests will be respected under the
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Nevertheless, an elected National Assembly in
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an outlet for Sindhi grievances and a chance for
patronage politics to channel land, water, capital, and
resources to Sindhi interests.
The real issues in Sind are basic: control of land and
water; access to education, capital, and economic
opportunities; and participation in government and
administration. Low-level unrest in Sind, with
occasional violent outbreaks, will continue as long as
Sindhis feel excluded from political and economic
opportunities in their province. For the immediate
future, much depends on the amount of power the
Army and President Zia devolve to the National and
provincial assemblies and how much direction the
bureaucracy can be made to take from the civilian
cabinets.
Although we doubt that Sindhi nationalist groups
have any prospect of gaining an independent Sind
short of massive external intervention, any political
arrangement that maintains Punjabi dominance in
Sind risks future disturbances and low-level guerrilla
warfare. Sindhi groups like the Sind People's Party,
Jiye Sind Movement, and Sind Awami Tehrik, along
with substantial muhajir elements, could put aside
their differences to unite against Punjabi control.
When the chips are down, we believe the national
government has the resources to maintain the unity of
Pakistan by force, but the cost to the country's
integrity, national security, and economy would be
massive.
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Pakistan:
Army Equipment Needs
Pakistan plans to emphasize meeting Army needs in
future defense procurement. Pakistan is particularly
interested in acquiring artillery, air defense, and
armor items.
The Army's Turn
Since it began a major US-backed military
modernization program in 1981, Pakistan has given
higher priority to its Air Force and Navy than to its
Army. Islamabad has spent about $1.1 billion on 40
F-16s
IIn contrast, Pakistan has
spent only about $400 million on new army equipment
since 1981, even though the Army is the largest of the
Pakistani officers told US officials last March that
most of their future military purchases will be for the
Army because they have met the most important
needs of the Air Force and Navy. The officers said
they need artillery, air defense weapons, armor,
attack helicopters, scout helicopters, armored
personnel carriers, and airborne surveillance systems.
The Importance of the United States
We believe Pakistan must rely primarily on the
United States for its army equipment needs. Other
potential sources-China, Western Europe, or
Pakistan's domestic industries-are either unwilling
or unable to provide sophisticated equipment at
Pakistan will probably buy 200 more
constraints, in our view.
The Type 59 is based on a 1950s Soviet model and
will have only a minor impact on the Indo-Pakistani
military balance. There is little likelihood of further
extensive purchases from China because of financial
Pakistan is also interested in purchasing several
expensive West European weapon systems, notably
the Swedish Bofors air defense missile. But exacting
credit terms make it unlikely that significant
purchases will be made in Europ
Pakistan cannot meet Army needs for advanced
equipment through domestic production. Islamabad
manufactures only the Chinese Type RPG-7 antitank
rocket, small arms, and ammunition,
The Army's Priorities
We believe the Army will give first priority to
improving its artillery. About 1,000 of its 1,200 major
artillery pieces consist of US equipment of World
War II or Korean War vintage or Chinese equipment
from the 1950s. These pieces have poor gun tubes and
lack modern counterbattery radar equipment and
advanced munitions,
Pakistan is particularly interested in the US
Copperhead artillery shell,
The Copperhead is an advanced but costly
new antitank system that has not yet been deployed
by US forces.
Pakistan is also interested in additional purchases of
pleased with their purchase of about 100 US self-
propelled M109A2 and MI 1OA2 howitzers-the most
rmy officials are
US self-propelled howitzers and radars,
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MI 10A2 self-propelled Jane's Armour and Artillery 1983-84
howitzer[~~
advanced in the world-and 25 advanced AN/TPQ-
36 and AN/TPQ-37 radars that enable artillery
batteries to track and locate weapons firing
simultaneously from different positions even before
their shells have landed.
The Army's second priority, in our view, is improved
air defense.
and about 50 obsolete
Chinese 57-mm radar-guided air defense guns based
on a 1950s Soviet system. Pakistan also has hundreds
of Chinese 37-mm air defense and heavy
machineguns that must be operated manually and are
even less effective.
Pakistan wants to buy the US Stinger Post, the man-
portable air defense missile, instead of the Stinger
basic, The
Stinger basic is more capable than the Redeye
because it has a greater range and is somewhat more
maneuverable, but the Stinger Post has an advanced
optical system that allows it to block out sunlight and
flares that degrade its performance.
We believe the Army's third priority is the
modernization of its aging tank force. Pakistan has
about 750 operational Chinese-built Type 59 tanks,
about 200 US-built M48A5 tanks, and about 150 US-
built M-47 tanks. Pakistan wants to buy more
M48A5 tanks and is interested in US assistance in
constructing a rebuilding facility for them
M48A5 tank Jane's Armour and Artillery 1983-84
Pakistan wants US or European firms to upgrade its
tanks. Most of Pakistan's US tanks have been
upgraded, but the guns of its Chinese tanks must be
converted from 100 mm to 105 mm to penetrate the
armor of the T-72, India's newest battle tank.
Pakistan also wants to add a computerized fire-
control system, laser rangefinders, gun stabilizers,
night vision devices, fire suppression equipment, and
improved reactive armor. It wants to convert gas
engines to diesel to keep pace with India's
Outlook
We believe the Indian Army will continue to increase
its advantage in arms and men even if the United
States assists the Pakistani Army to modernize its
forces. The Indian Army plans to create three to five
new Army divisions including a second mechanized
division during the next five years. The Indian Army
also plans to upgrade its 2,000 Vijayanta tanks and
will begin producing the T-72 in 1985.
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India: The Military and
Nuclear Weapons
An Indian decision to embark on a nuclear weapons
program to counter development of a Pakistani
nuclear weapons capability would probably receive
broad support in the Indian military. We do not
believe, however, that the military is actively lobbying
for a nuclear weapons program or is likely to do so in
the near future. The traditionally nonpolitical Indian
military leaders publicly argue that the decision to go
nuclear is a political one, but they undoubtedly
believe their advice or concurrence would be sought.
A decision to acquire nuclear
weapons would probably set in motion a program to
develop both tactical and strategic delivery systems.
that active Indian military officers are notably
reluctant to discuss nuclear matters. We believe that,
while it is the general practice in the Indian military
not to openly discuss views that could have political
repercussions, they talk about nuclear weapons and
warfare in private
officers support worldwide disarmament, but they also
believe that Pakistan is developing a nuclear weapon
and that India should, therefore, have a nuclear
deterrent. our best, albeit
dated, evidence on the views of senior Indian officers
on nuclear weapons comes from the published
proceedings of seminars on nuclear weapons
sponsored by two service-affiliated organizations in
1981.
These seminars were a highly unusual public response
to contemporary political events-renewal of US
arms aid to Pakistan and the controversy surrounding
the BBC television production of "The Islamic
Bomb," an expose of Pakistan's nuclear program. The
first seminar, according to Lt. Gen. K. Sundarji, the
coordinator of the College of Combat seminar, was
aimed at airing military views during the debate over
nuclear policy and national security issues. Sundarji
added that the publicity about Pakistan's nuclear
efforts gave added urgency to a military perspective.
The second conference, sponsored by the United
Services Institute of India, was undertaken with
particular reference to the possibility of Pakistani
development of a nuclear weapons capability. Active
and retired military personnel and civilian defense
strategists participated in the seminars. Only selected
papers were published, and the notes of the open
debate were never made public.
The sense of both seminars was that, if Pakistan
acquired a minimum nuclear weapons capability,
India would have no choice but to follow suit. Seminar
participants also suggested that a credible weapons
program should match China's second-strike
capability before the end of the decade. China, as the
major Asian power, the victor in the 1962 Indo-
Chinese war, and an ally of Pakistan, was-and is-
seen to be the primary threat to India's regional
dominance. True to the nonpolitical tradition of the
Indian military, the participants took pains to
emphasize that launching a nuclear weapons program
was a political decision to be made by civilian leaders.
Reservations
Military reservations about adopting nuclear arms
seem to revolve around the difficulties involved in
making major changes in current tactical and
strategic plans,
Aside from the
general horror of the effects of nuclear warfare, the
use of nuclear weapons is a novel concept to Indian
military officers that apparently makes them uneasy
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doctrine.
The impact on conventional forces and weapons is a
basic concern of military officers,
The officers fear that the budget for
conventional weapons would be cut to pay for nuclear
weapons and new delivery systems. Operating in a
nuclear theater would demand greater mobility and
specialized protective gear, leading to expensive
mechanization and probably an overall reduction in
forces. The individual services are worried about
which service would assume control of the weapons.
The high level of interservice coordination and
cooperation that would be necessary is also seen as a
potential problem
Preparedness
Despite the acceptance by most Indian military
officers of the need to acquire a nuclear deterrent,
Indian Army officers are acquainted with the
technical terminology of nuclear warfare, but they
have received only limited instruction-viewing 1950s
training movies and reading outdated British
manuals
Military Role in Decisionmaking
Any decision to embark on a nuclear weapons
program will have to involve top military officers.
Although the military did not participate in the
Given changes in the past few years among India's
most senior military officers, we cannot rule out the
possibility that the Chiefs of Staff may have greater
impact on nuclear policy than in the past. For
instance, Lt. Gen. K. Sundarji was appointed Vice
Chief of Army Staff in March 1985 and is the senior
contender for the position of Army Chief of Staff in
January 1986.
We believe that military protestations about the
political nature of the decision are simply public
manifestations of the apolitical tradition the military
tries to maintain. In any event, some observers of the
Indian military fear that the apolitical tradition is
fading. According to the Indian press, appointments
over the last few years appear to have been motivated
by nonmilitary considerations as ranking officers were
passed over in favor of more politically acceptable
appointees.
Outlook
In our judgment, if India decides to acquire nuclear
weapons, it will embark on a full-fledged program to
develop both tactical and strategic delivery systems
with a view toward the potential threats from both
Pakistan and China. In the wake of such a decision,
we would expect:
? Active lobbying by the services for nuclear weapons
tailored to particular service needs.
? Development of new command and control systems.
? Increases in and reallocation of the military budget.
We would also expect to see for the first time direct
military involvement in the nuclear program. Closer
relations would be needed between the Scientific
Adviser and Secretary for Defense Research and
Development in the Ministry of Defense (both posts
currently held by V. S. Arunachalam) and the nuclear
research and development program centered at the
Bhabha Atomic Research Center in Bombay. Some
integration of military engineers and scientists with
civilian researchers could also be expected
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India's Position on Af, hanistan:
Prospects for Change
The Indian Government opposes the Soviet
occupation of Afghanistan, but its private efforts to
influence the USSR's decisions have been
unsuccessful and have irritated Moscow. Given this
experience and India's continuing reliance on Soviet
arms supplies, Rajiv Gandhi probably will avoid
public confrontations on this issue in the near term.
With strengthened ties with the West, a strong
political position at home, or signs that Moscow has
ambitions beyond Afghanistan, Rajiv could review his
position.
Dealing With Moscow
New Delhi's public stance on Afghanistan conceals
considerable frustration over the Soviet intervention.
The Indians resented Moscow's failure in 1979 to
advise them of the impending invasion. Beginning in
1981, Indira Gandhi expressed with increasing
openness her unhappiness over the Soviet occupation.
She publicly voiced some of her concerns while in
Moscow in 1982, to the consternation of her hosts.
Indian Foreign Secretary Bhandari's recent
comments to US Under Secretary of State Schneider
in New Delhi reiterated the basic Indian view.
Bhandari said:
? The Soviet military presence in Afghanistan is
likely to become permanent unless a diplomatic
solution is found soon.
? India, however, would not get into "the game of
mediation." New Delhi has indicated on other
occasions that it might be willing to play "a more
active role" if the Soviets did not object.
Other Factors
India's position on Afghanistan reflects an effort to
bolster its nonaligned credentials by steering a course
between Moscow and its opponents. The Indians view
their abstention on the annual UN resolution on the
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probably hope that supporting the nonaligned
consensus-which condemns the occupation of
Afghanistan by unnamed foreign troops-will deflect
criticism of nonaligned moderates for failing to
condemn the Soviet occupation outright. Rajiv
Gandhi has echoed his mother's wish for an end to
both the Soviet military presence in Afghanistan and
US aid to the Afghan resistance.
The Indians argue that their recognition of the
Babrak Karmal regime in Afghanistan does not
confer legitimacy on Babrak's Soviet backers and
even claim that recognition will ensure the country's
independence and nonalignment if Soviet troops pull
out. They believe a prolonged occupation will
"Sovietize" Afghanistan and dim prospects for its
eventual return to independence. Foreign aid for
Afghan insurgents, in New Delhi's view, makes Soviet
troop withdrawal less likel .
Some Indian officials privately acknowledge
embarrassment over New Delhi's policy on
Afghanistan. US diplomats in New Delhi reported
that the abashed official who was charged with
explaining his government's vote in the United
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Nations to block a human rights investigation backed
by the United States admitted that Soviet pressure
has played a part in India's stance for the past two
years. When asked why India sided with Libya, Syria,
and Mozambique, he countered that from time to
time US positions on human rights also reflected
conflicting political interests
Regional Repercussions
New Delhi believes the regional repercussions of the
Soviet invasion pose a more direct threat to India than
the invasion itself. In the Indian view, the invasion
has:
? Increased superpower competition in a region where
New Delhi aspires to unchallenged military and
political dominance.
? Sparked the renewal and growth of US-Pakistani
military ties that are not only strengthening
Pakistani military capabilities but also, in the
Indian view, seem likely to provide the United
States with basing rights in Pakistan.
? Allowed the security relationship between
Washington and Islamabad to acquire a dynamic of
its own apart from the common cause in
Afghanistan, with the United States willing to
tolerate Pakistani progress toward a nuclear
weapons capability in return for a foothold in the
region
Outlook
We believe Rajiv's recent statement to Parliament
that he will maintain the time-tested foreign policy he
inherited suggests he will continue in the near term to
avoid positions likely to antagonize Moscow. His
adherence to the foreign policy status quo could
reflect a desire to focus his efforts on putting his
domestic house in order, or it could imply that he has
not yet formulated his position on such key issues as
Afghanistan. Indian officials, however, expect that
Rajiv will be more forthright in asking for a
withdrawal of Soviet forces and encouraging the
United Nations to seek a political solution,
In our view, New Delhi probably believes that a
significantly changed Indian stance on Afghanistan
would yield no more tangible concessions from
Washington on US policy in the region than it would
from Moscow. The Indians doubt that the United
States intends to modify its security relationship with
Pakistan, which New Delhi believes implicitly
challenges India's regional hegemony. Earlier this
month, Rajiv publicly cited the flow of US weapons
both to Islamabad and to the Afghan insurgents as an
obstacle to closer Indo-US ties, and Indian planners
calculate that increased US aid to the insurgents will
result in a deeper US commitment to Pakistan's
defense. Some Indians believe that Washington
disregards the danger that an unconditional Soviet
withdrawal could open the way for a fundamentalist
Islamic regime in Afghanistan.
Rajiv, in our view, would resent any US attempt to
alter India's foreign policy as the price for technology
transfer or concessional aid. New Delhi is proud of
what it sees as its independent and pragmatic pursuit
of its national interests and, overall, sees its carefully
calibrated policy on Afghanistan as serving these
interests. Any appearance of yielding to US pressures
would damage Rajiv's credibility at home and
probably in the Nonaligned Movement.
Several developments, in our view, could prompt New
Delhi to reevaluate its policy on Afghanistan.
Growing prosperity at home and a waning of Sikh
troublemaking would allow Rajiv to focus on foreign
policy issues and consider major policy shifts.
A slowdown in Pakistan's military acquisitions,
warmer ties with the West-including increasing
flows of high technology from the United States and
Europe-and progress toward arms diversification
also would allow, even encourage, New Delhi to
reappraise the costs and benefits of its reliance on
Moscow. New Delhi, for example, might publicly
condemn the Soviet invasion without simultaneously
criticizing foreign aid to the insurgents. This would be
a significant shift from its current stance. The Indians
also could change their vote in the United Nations-a
clear signal that New Delhi has reordered its foreign
policy priorities.
The Indians would still have to weigh the potential
cost of changing their policy on Afghanistan-
disruption of Soviet arms supplies that they consider
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essential to counter Pakistan's military might. New
Delhi knows that, for the rest of the decade, its
reliance on Moscow for spare parts-and for
sophisticated arms offered on uniquely concessional
terms-could enable the Soviets to raise the penalty
for diverging from Moscow's preferences on a range
of issues.
assessment of the threat posed by Afghanistan to
Indian interests-and its stand on the issue-would
change rapidly if the Soviets:
? Appeared ready to expand their presence beyond
Afghanistan, reducing Pakistan's viability as a
buffer between India and Soviet-occupied
Afghanistan.
? Stepped up pressure on India to grant military
facilities or other concessions that would
compromise India's independence.
? Acquired such facilities in a neighboring country.
? Markedly improved relations with China,
reducing-in India's estimate-the value Moscow
places on New Delhi's friendship
Could India Move Closer to Moscow?
India's commitment to nonalignment, its sensitivity
about being perceived as a tacit Soviet ally, and its
reservations about long-term Soviet intentions in the
region all will continue to make New Delhi reluctant
to consider closer regional cooperation with Moscow.
Still, there are several US moves that could cause the
Indian Government to consider more cooperation with
the Soviets if it:
? Believed that Pakistan developed a nuclear weapon
with the tacit consent of Washington.
? Had firm evidence that the United States acquired
the use of military facilities in Pakistan or another
neighboring state.
? Saw major transfers of advanced US arms to China.
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Sri Lanka: The Insurgency
and the Economy
We judge that Sri Lanka's Tamil insurgency has had
little overall impact on the nation's economy. The
insurgency has been largely confined to the Tamil-
dominated north and east, and national economic
growth, buttressed by high tea export earnings, has
remained strong. Clearly, the economic costs have
been insufficient to deter Colombo from its goal of
trying to impose a military solution on the Tamils.
Even if the insurgency drags on and the cumulative
effects of resource diversion and lost investment grow,
the government will probably be willing to bear the
economic burden. Although the Tamil community has
been harder hit than the Sinhalese, it, too, seems
willing to accept increasing economic costs in pursuit
of its political goals.
Economy Remains Buoyant
Since 1977, when the Jayewardene administration
ushered in an era of economic liberalization, the Sri
Lankan economy has performed well. The new
government policies and liberal foreign aid helped Sri
Lanka double the 3-percent average annual GDP
growth rate attained under the previous socialist-
oriented Bandaranaike government.
The country's foreign payments position, which
deteriorated under the Jayewardene administration
because of increased imports, is also improving.
Higher export earnings and a decline in imports
reduced Colombo's merchandise trade deficit in 1984
to nearly half that of 1983. This has led to a near 40-
percent rise in gross foreign financial reserves,
equivalent to about five months' imports. Increased
foreign earnings have, at least temporarily, lowered
the debt service burden from 21 percent of exports of
goods and services in 1983 to an estimated 17 percent
in 1984.
The two major contributors to Sri Lanka's improved
economic position have been tea and textile exports.
Over the past two years, abnormally high world prices
have enabled Sri Lanka to more than double foreign
sales of tea, its primary export. Textiles, which
contributed only 7 percent of export earnings in 1979,
had by 1984 nearly tripled their share to an estimated
20 percent-largely because of exports to the United
States. We expect tea earnings to drop this year
because of lower prices, but higher textile exports and
reduced imports should moderate any rapid rise in the
1985 trade deficit.
Insurgency's Overall Economic Impact Limited
The insurgency's limited impact on the economy is
reflected in key domestic indicators. The major
plantation export crops-tea and rubber-registered
production increases in 1984 of 18 and 7 percent,
respectively. Even output in the inefficient public
sector grew last year. Prices are expected to rise more
slowly this year than last because of tightened credit
controls and the reliance on less inflationary nonbank
borrowing to finance the public deficit.
Although defense spending is expected to rise nearly
50 percent this year over 1984 levels, it will still
account for no more than about 6 percent of
government expenditures and only 2 percent of GDP.
Development expenditures are likely to be maintained
except for the violence-ridden north; a 15-percent real
increase in capital and maintenance spending is
scheduled for 1985. The budget deficit is expected to
increase in 1985, but as a percent of GDP it remains
lower than the average of the past five years.
Sri Lanka depends on foreign aid-mainly from the
United States, Western countries, and multilateral
development banks-to underwrite its ambitious
development programs. With such assistance expected
to fall over the next few years because of declining
project spending and donor budget constraints, we
believe Colombo will have to cut either development
outlays or defense spending.
Secret
NESA NESAR 85-010
26 April 1985
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Tourism and Foreign Investment Suffer
The insurgency has taken its toll on Sri Lanka's once
booming tourist industry. Since 1982, when tourist
earnings peaked at nearly $132 million, arrivals have
dropped 22 percent and revenues, 24 percent. The
largest one-year decline occurred in 1983. Last year
overall earnings fell again, but arrivals from the
lucrative West European market increased. The US
Embassy projects earnings this year will return to
1983 levels.
Over the past two years, the insurgency has
contributed to declines in foreign investment and
joint-venture approvals of 25 and 45 percent,
respectively.
foreign and domestic businessmen are reluctant to
launch new ventures because of a concern for political
stability and a lack of government assurances of
protection. Foreign and domestic investment in Sri
Lanka had already been declining before the
insurgency, however, largely because of fewer
lucrative investment opportunities, an overvalued
exchange rate, poor communications facilities, and
perceived government backsliding on liberalization.
Mixed Impact on Tamils
Most of the economic disruption has occurred in Sri
Lanka's Tamil-dominated northern and eastern
provinces, where the insurgency is most active. Press
and Embassy reports note that increased naval
surveillance, Army attacks on fishing villages, and the
refugee exodus to India-mostly of Tamil
fishermen-reduced Sri Lanka's fish catch by one-
third last year. This year, crop production and
marketing in the north and east have also been
disrupted, a factor that contributed to Colombo's
decision to import 150,000 metric tons of rice to
bolster national stocks.
US Embassy sources suggest that Jaffna district-
where about 42 percent of Sri Lanka's Tamil
population reside-is the most seriously affected area.
the insurgency has led to
a near collapse of the civil administration and the
disruption of banking, transportation, and
manufacturing in the district.
An Embassy source familiar with the region notes,
however, that the insurgency has caused only periodic
shortages of food and fuel. For the most part, the
Army has been able to keep road and rail lines open to
facilitate the movement of essential commodities.
Insurgent activity has made transport more costly and
risky and has forced farmers to dump their supplies in
local markets at depressed prices.
Sri Lanka's Tamil professionals and businessmen,
who once played a major role in the nation's economy,
now face severely limited opportunities. We believe
that some wealthy Tamils have liquidated their assets
and left for safehavens in India, Malaysia, or the
West.
renewed assurances of full citizenship
By comparison, Indian Tamil tea estate workers in the
central highlands have prospered, largely because
they have eschewed the insurgency. Under the shrewd
leadership of S. Thondaman, the head of the Ceylon
Workers Congress and a Cabinet minister, the tea
workers have been able to use their important
economic position and their willingness to remain
neutral to gain higher wages, a suspension of the
government's plan to repatriate them to India, and
Outlook
If, as we expect, the insurgency remains confined to
the Tamil-dominated north and east, the economic
costs of the conflict are likely to grow only slowly.
Colombo will probably further increase military
spending this year, but this will still account for only a
small proportion of government spending. Foreign
investment and tourism are likely to remain depressed
as long as the insurgency continues.
If the insurgency spreads to the Sinhalese south or
among the tea estate workers in the central highlands,
its economic impact will increase significantly. Most
of Sri Lanka's manufacturing and tourist industry is
located in the south, and sabotage of foreign-owned
businesses or attacks on hotels could erode Sinhalese
confidence in the regime and jeopardize the country's
efforts to continue economic liberalization and
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diversification. Tea accounts for up to 40 percent of
export earnings, and, if Tamil estate workers decide to
strike in support of separatist demands, Colombo
would find it difficult to stall political negotiations
We expect, however, that the Tamil community and
the government will be more responsive to political
rather than to economic pressures. Although the
Tamils have been hit hardest by the economic impact
of the insurgency, they appear prepared to sustain
hardship rather than give up their political goals.
Similarly, popular support for the counterinsurgency
among the Sinhalese suggests that increased economic
costs alone will not cause a shift in Colombo's
strategy.
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Sri Lanka
~rw~r Province boundary
(non-administrative)
?-- -??-? District boundary
National capital
0 District capital
Railroad
Road
District names are the
same as their capitals
0
-r=
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U
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Sri Lanka:
Growing Narcotics Problems
The Sri Lankan Government, after years of
indifference, is growing concerned about domestic
drug usage and the increasing participation of Sri
Lankans in the international drug trade. The major
reasons for this new sense of alarm are:
? Sri Lanka has developed a new international image
as a transit point for drug trafficking.
? Large numbers of Sri Lankans are being
apprehended abroad as drug couriers.
? Domestic drug abuse is escalating rapidly.
? The government suspects Tamil insurgents of using
the drug trade to finance their struggle.
Although Colombo enacted a draconian drug law in
1984 to curb the flow of narcotics to and from Sri
Lanka, it is hampered by inadequate numbers and
quality of narcotics law enforcement personnel,
unreliable intelligence data, and nonexistent
enforcement activity in the north, where Tamil
insurgents control the countryside.
Background
Opium has been coming to Sri Lanka from India since
the 17th century, almost entirely along a trade route
that terminates in the Jaffna peninsula, where
smugglers traditionally operated freely. In the 1970s,
Sri Lanka was used occasionally as a transit point for
opium and heroin shipments from the Golden
Triangle (Burma, Thailand, and Laos). Occasionally,
authorities seized heroin from Singapore-registered
vessels coming into Colombo, as well as drugs from
raids on private yachts calling at Galle and
Trincomalee. Trafficking was not a major problem,
however, and police enforcement was rare.
By the 1980s when the international narcotics trade
had shifted its focus from the Golden Triangle to the
Golden Crescent of Pakistan, Afghanistan, and Iran,
Colombo was gradually becoming a favored stopover
for narcotics smugglers. Sri Lanka had become a
regular link in the region's drug distribution chain
from both the Golden Triangle and the Golden
Crescent by 1983.
The volume of opium imported illegally from India
was estimated by Sri Lankan authorities to be 6 to 7
tons in 1984, Some
opium goes for legally prescribed folk medicine, more 25X1
goes to the aging local addict population, but there is
no reliable estimate on the amount of opium that is
transshipped. Only one opium-to-heroin conversion
laboratory has been found in Sri Lanka (in 1981), but
narcotics authorities suspect other laboratories are
located in the north.
Drug addiction received a boost in the 1970s as
Western tourists attracted by the easy availability of
cannabis, hashish, opium, and heroin traveled to Sri
Lanka. Drug usage spread from the tourists to the
hosts, and there are an estimated 2,000 heroin addicts
and at least 100,000 cannabis users now in Sri Lanka.
The narcotics trade continues to escalate, and heroin
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increased from 300 grams in 1981 to 100 kilograms in
the first half of 1984.
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trafficking networks have been set up by Sri Lankans.
Although they have not yet found firm evidence that
the rings originate in Sri Lanka, authorities are
alarmed at the rising number of Sri Lankan citizens
being arrested throughout Western Europe and in
several Communist countries. The chief of the French
Narcotics Police told a high-ranking US State
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the traffickers and the Tamil liberation movement,
but he did not provide any details to support his claim.
Secret
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Italian authorities filed charges in March against 94
Sri Lankan Tamils suspected of setting up a drug-
smuggling ring in Rome. Most were unemployed, and
several had had their tongues cut out before their
arrest. Arrests were also reported in Naples,
Syracuse, Milan, and Catania. The Naples group,
most of them gardeners and hotel workers, were
reported by the press to be linked with local organized
crime figures.
Reporting in late 1984 from the US Embassy in
Colombo indicates that Europe, rather than the
United States, is the final destination
The Insurgent Connection
The Sri Lankan Government increasingly believes
that heroin smuggling is used to finance the Tamil
insurgency. Most Sri Lankan drug traffickers appear
Government Responses
In 1983 the Sri Lankan Government began to take a
harder look at the narcotics problem after years of
rhetoric and lax enforcement of antiquated drug laws.
President Jayewardene pushed through a stiff new
antinarcotics law. The law, which was passed by
Parliament in March 1984, has several important
provisions:
? Death or life imprisonment for trafficking or
possession of more than 2 grams of heroin or
cocaine.
lack of manpower, training, and equipment.
? Creation of a National Dangerous Drugs Control
Board with wide powers to formulate and review
national policy on drugs. The Board is designed to
give Cabinet-level attention to the activities of the
existing National Narcotics Bureau, a police
organization that has been severely hampered by
The government's concern over possible links between
drug traffickers and the Tamil insurgents was
reflected in a recent move establishing direct radio
communications with Interpol. The Interpol
connection will give Sri Lankan police access to
information on criminal cases in 100 member
countries, and this suggests authorities are seeking
more substantial evidence that Tamil separatists are
financing their terrorist activities through the
international narcotics network.
A Worsening Outlook
Prospects for a drop in drug usage and trafficking in
the near term are not bright:
? A year after its passage, no major cases have been
tried under the narcotics law, which has been hailed
by the government as "the toughest in the world."
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? Opium traffic continues unabated, since the
majority of opium imports come through the
northern peninsula, where the Army and police are
hard pressed by insurgents and have little time or
resources to combat the drug trade.
? Crop eradication of the only known locally produced
drug, cannabis, is insignificant, and there are no
government crop substitution plans for this
profitable product
The increasing military pressures that President
Jayewardene is bringing against the Tamil insurgents
in the north and east combined with the pressure
these groups are beginning to feel from New Delhi to
restrict their activities in south India will add to the
attraction of drug trafficking as a source of support
for the Tamils. Moreover, the continuing communal
conflict in Sri Lanka is adding to the number of young
Tamils who flee the country and join the growing pool
of unattached expatriates from which international
drug rings recruit couriers.
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