NEAR EAST AND SOUTH ASIA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000100240001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 54
• Document Creation Date: December 27, 2016
• Document Release Date: July 27, 2011
• Sequence Number: 1
• Publication Date: October 25, 1985
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
ET1I
i=
Intelli ence ~~
g AA C. r ~,a 25X1 ~~ T
Near East and
South Asia Review
NESA NESAR 85-023
25 October 1985
co" 41 1
'
t
2.4
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Directorate of
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Near East and
South Asia Review
Israel's airstrike on PLO headquarters in Tunis was a signal to Arab
governments that they must crack down on PLO activities in their
countries, but such reprisals are not Israel's preferred policy because
of the potential repercussions on relations with the United States.
Arab leaders would uniformly condemn another Israeli strike but
would not retaliate.
The recent crises in Tunisia's relations with Libya and the United
States will leave a lasting imprint on the country's domestic and
foreign policies, and Tunis will probably look to Algeria and Egypt
to recoup what it views to be political and military losses with the
United States.
25X1
25X1
5 25X1
25X1
The year-old Moroccan-Libyan union is a product of pragmatic
considerations on the part of two Arab leaders who continue to have
divergent long-term interests in North Africa, and, with both
partners having achieved what they perceive as useful benefits from
the union, neither is likely to end it.
Morocco:
The Fundamentalist Challenge to Hassan
King Hassan and his advisers are increasingly concerned about the
potential growth of Islamic fundamentalism in Morocco, but police
intimidation of agitators, greater emphasis on Islam, and disunity
among Muslim radicals appear likely to prevent a serious
fundamentalist challenge to Hassan's position over the medium
term.
Secret
NESA NESAR 85-023
25 October 1985
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Recent clashes between rival political and ethnic groups in Sudan
and an abortive military coup last month have heightened President
Mubarak's concern for a stable Sudan, but Egypt is most likely to
look for opportunities to counter Libyan influence and wait for the
perceived natural affinity between Egypt and Sudan to reassert
itself.
15 25X1
25X1
The Druze Search for Security
The Druze have significantly expanded their territory since the
Israeli withdrawl from Lebanon, and, with increased Soviet aid,
Druze leader Walid Jumblatt is preparing to defend the emerging
Druze canton and exert military pressure on Lebanese President
Amine Gemayel as part of an effort to play a key, Possibly swing
role in Lebanese politics.
Countertrade-trade that links one transaction to a reciprocal
transaction-by Middle Eastern and South Asian countries has
grown from virtually nothing in 1983 to over 8 percent of all trade in
the region in 1984, but the cost associated with countertrade are
often considerably higher than those of cash sales, and profits are
reduced accordingly.
Increased foreign exchange bank deposits and the success of special
bond issues as well as an improved trade balance have bought
Islamabad some time, but the tenuous political situation will
probably limit any effort as substantial economic reform.
Since the legislative elections in February, the government's attitude
toward the press has gradually become less hostile, but, if the press
too blatantly serves the opposition or attacks President Zia or his
concept of an Islamic state, Zia would again resort to press controls.
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
25X1
25X1
At the first summit meeting of the South Asian Association for
Regional Cooperation (SAARC), scheduled for 7-8 December in
Dhaka, atmospherics will probably be more important than matters
of substance, and, if Indian support for SAARC remains steady,
South Asian leaders might be tempted to go beyond the
noncontroversial areas allotted to it. 25X1
Following in His Mother's Footsteps
Despite Rajiv Gandhi's announcement of a "good neighbor"
regional policy based on cooperation, the Indian approach toward
Nepal has not shifted far from the heavyhanded attitude
demonstrated under Indira Gandhi in the late 1970s and early
1980s, partly because Indian attitudes toward Nepal are driven by
the state of Indo-Chinese relations
The Himalayan Kingdom of Bhutan is gradually assuming a
modern political role in South Asia, but, despite Bhutan's growing
independence of Indian tutelage, good relations with India will
remain the focus of Bhutan's foreign policy.
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,
25X1
25X1
43 25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Prospects for and Consequences
of Further Israeli Retaliation
to PLO Terrorism
PLO Chairman Arafat will face increasing pressure
from within his Fatah organization to retaliate for the
Israeli raid on PLO headquarters in Tunis and the US
interception of the Achille Lauro hijackers. Fatah
hardliners, who have long advocated a more militant
posture, are likely to redouble pressure on Arafat to
step up operations. We judge that Arafat will yield to
this pressure-in the interest of preserving Fatah
unity-and that the PLO will engage in more
frequent and spectacular attacks on Israeli interests
worldwide over the next several months.
Israel's airstrike on PLO headquarters in Tunis was a
signal to Arab governments-particularly Jordan-
that they must crack down on PLO activities in their
countries to avoid similar Israeli action there. The
attack also was meant to deflect criticism from Likud
hardliners that the Labor Party leadership of the
national unity government is "soft" on terrorism. In
our judgment, Israel would take punitive action
against the PLO in Jordan if there were a large-scale
terrorist attack or smaller attacks over an extended
period that Tel Aviv believed were launched from
Jordan. A single raid or two would place the
government under considerable pressure from Likud
and the right to retaliate, but Prime Minister Peres
probably would resist a military response in the hope
of persuading Jordan to exercise greater control over
the PLO.
Reaction in Israel to the Tunis Raid
The attack on the PLO in Tunis is, in the Israelis'
view, a corollary to their "iron fist" policy in the
occupied territories and does not signal a major
change in their counterterrorism policies. Israel has
traditionally claimed the right to attack PLO facilities
wherever they are located, as it did in Lebanon before
the invasion of June 1982 and in Jordan from 1968 to
1970. Such attacks are intended to disrupt the PLO's
infrastructure and threaten the security of PLO
personnel in hopes of disrupting operations being
planned or already under way.
The Tunis attack has shored up public support for the
Labor leadership of the unity coalition and has
silenced Likud charges that Prime Minister Peres and
Defense Minister Rabin lack the stomach for the
tough measures needed to ensure public security in
the face of increasing terrorist attacks. Likud
hardliners, led by Industry and Commerce Minister
Sharon, had sought to exploit the recent wave of anti-
Israeli violence to press Peres and Rabin for a military
response to PLO-inspired terrorism. Sharon publicly
called for airstrikes against PLO facilities in Jordan,
and he and Minister Without Portfolio Arens pressed
Peres in meetings of the inner Cabinet to approve
such strikes. After the Tunis raid, the hardline Herut
party-the dominant component of the Likud Bloc-
publicly congratulated Peres and Rabin for the
military action "which demonstrated Israel's resolve
to hit terrorists wherever they may be."
Nonetheless, Sharon and other Likud hardliners will
resume their demands for airstrikes or other reprisals
against the PLO if attacks continue against Israelis.
Sharon and his colleagues are certain to press hard for
strikes against PLO bases in Jordan if future terrorist
attacks are linked to PLO planning in Amman. We
believe the overwhelmingly favorable Israeli public
reaction to the Tunis attack has dramatically
strengthened the leadership credibility of Peres and
Rabin. For the time being, we judge they will retain
the upper hand in Cabinet discussions of terrorist
issues and will forestall Likud pressure for retaliatory
attacks against PLO targets in Jordan. Since the
Tunis strike, Labor leaders have stressed that King
Hussein has not allowed cross-border attacks or
establishment of terrorist training camps.
Secret
NESA NESAR 85-023
25 October 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Israel's Options if Terrorism Continues
In our view, reprisals such as the Israeli raid on Tunis
are not Israel's preferred policy because of the
potential repercussions on relations with the United
States. We believe, however, that Israel would
consider launching similar attacks if terrorism
continues.
We believe Israel would first try to preempt further
terrorist attacks in Israel and the occupied territories
by improving its intelligence-gathering capabilities
and continuing its harsh security measures, including
stepped-up detentions, arrests, house demolitions,
curfews, and deportations of West Bank Palestinians.
Israel may also decide to close temporarily the Jordan
River bridges. They already have tightened
restrictions on West Bank residents wishing to cross
into Jordan.
Israel's choice of PLO facilities in Tunis as a target in
the recent attack instead of PLO sites in Jordan
suggests that future Israeli reprisals will be governed
by the following political and military criteria:
? If the action is to be in retaliation for recent or
continuing terrorist attacks, the target probably
would be selected on the basis of the Israeli
assessment of responsibility for the attacks.
According to a US Embassy source, Peres and
Rabin decided not to attack the PLO bases of
Syrian-supported Palestinian radicals in South
Yemen as proposed by some officials but chose to
hit Tunis because they had evidence that Fatah
Force 17 directed the murder of three Israelis in
Cyprus from its facilities in Tunis.0
? The decision to retaliate would be linked to the
Israeli assessment of the constraints imposed by host
Arab governments on PLO activities. Peres and
Rabin have stressed that the "extraterritoriality" of
PLO headquarters in Tunis was a major factor in
their decision, arguing that the Tunisian
Government-unlike Amman-allows the PLO to
operate freely and launch terrorist operations from
within its borders.
? Israel would try to minimize international criticism
and damage to relations with the United States, but,
in the event of a large-scale terrorist attack, security
considerations probably would outweigh such
factors. We believe Israel selected the PLO
headquarters near Tunis as a target in part to avoid
civilian casualties and to blunt the subsequent
international outcry. A source of the US Embassy
says Peres and Rabin were particularly concerned
about the impact of the Tunis raid on the peace
process and relations with Egypt, but they
concluded that neither would suffer irreversible
damage and that expected US criticism would be
manageable.
We believe the Labor-led unity coalition would prefer
to attack PLO facilities in Algeria or North or South
Yemen rather than risk harming relations with
Washington and incurring blame for undermining the
peace process by striking at PLO bases in Jordan. But
Peres and Rabin, in our judgment, would support
punitive action against the PLO in Jordan if there
were a large-scale terrorist attack or smaller attacks
over an extended period that reached what they saw
as an unacceptable level and that they believed were
launched from Jordan. In such circumstances, public
pressure for retaliation-fanned by Likud-would
leave Peres little flexibility on the choice of target. As
a warning to Amman, we would expect dramatically
increased public statements by Peres and Rabin
denouncing King Hussein's role in allowing
Palestinians to operate freely from Jordan and
claiming that an intolerable threat to Israel's security
exists.
Israelis continued.
If Israel decided to attack the PLO in Jordan, it
would be careful to select a target that would reduce
the danger to civilians. For these reasons, an Israeli
strike probably would be directed against the PLO
military base near Zarqa rather than the heavily
populated Jabal Hussein section of Amman, where
the PLO maintains most of its administrative offices.
Israel's aim would be to force King Hussein to expel
the PLO from Jordan. Further Israeli reprisals would
be possible if Hussein dithered or attacks against
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Arab Reaction to Another Strike and Implications
for the United States
Arab leaders would uniformly condemn another
Israeli strike, regardless of Israel's evidence that PLO
officials planned, trained, or launched terrorist
incidents from the host country. Most Arab states
would not retaliate against Israel because they lack
the capability and would not want to risk a broader
conflict. Radical rejectionist states, led by Libya,
might step up their support for terrorist operations
against Israel.
Arab leaders, particularly King Hussein, would
probably see no alternative to enforcing tougher
measures to restrict PLO activity in hopes of reducing
the threat of Israeli retaliation. We believe Arab
leaders would be reluctant to risk public Arab censure
by immediately expelling the PLO from their country;
they would take action if they believed that a
continued PLO presence was a threat to the stability
of their regime.
King Hussein faces a most difficult dilemma if Israel
strikes at PLO bases in Jordan. He risks political
censure by Arab governments on behalf of the PLO if
he tries to expel it. But he invites further Israeli
reprisals-including against PLO headquarters in
downtown Amman-if Israel believes he is not taking
appropriate action to prevent terrorist attacks from
being planned, directed, or launched from Jordanian
territory.
Arab leaders would view the strike as proof that Israel
has no interest in a diplomatic solution to the
Palestinian problem. Moderate Arab leaders, like
King Hussein and Egyptian President Mubarak,
would abandon their efforts to move toward peace
negotiations and cut off, at least temporarily, bilateral
contacts with the Israeli Government. Hussein, for
example, might refuse to proceed with the water-
sharing provisions of the recently negotiated Yarmuk
on the Taba dispute after the raid on Tunis.
US-Arab relations would suffer if another Israeli
strike were to occur. Arab leaders would find it
difficult to believe that Washington did not know
about plans to attack and would resent the absence of
a US warning. Arab leaders would monitor closely
US reaction to the raid. They would be particularly
angered if Washington were again to issue a
statement suggesting the raid was justified. Such a
statement could spark widespread anti-American
violence with US diplomatic personnel in Arab
countries the primary targets.
King Hussein and other Arab moderates who consider
the United States a close friend would be most
disillusioned if Washington failed to defend the Arab
position. They would lash out at the United States for
its uneven treatment of its Arab and Israeli allies. In
the end, however, we believe they would not break
relations with the United States for lack of an
alternative source of economic and security
assistance.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 - Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Tunisia:
The Issues of Adversity
Tunisia traditionally has been a spectator of major
developments in Middle Eastern politics, but a
succession of foreign policy crises has thrust the
country into the international spotlight. Libyan leader
Qadhafi's expulsion of more than 30,000 Tunisian
workers since August and the threat of war that
attended this move were followed on 1 October by the
surprise Israeli airstrike on PLO facilities near Tunis.
The near rupture of relations with the United States
shortly after a diplomatic break with Libya, the
country's principal enemy, has created havoc in
popular Tunisian attitudes toward the government's
foreign policy.
In our judgment, the crises with Tripoli and
Washington will leave a lasting imprint on the
country's domestic and foreign policies. Deep
concerns among Tunisian leaders and the public
about the nation's security in the face of the Libyan
threat and the Israeli airstrike have been compounded
by new doubts about the willingness of the Western
countries such as France and the United States to
protect Tunisia. The end result almost certainly will
be a reappraisal of the country's foreign policy,
particularly its strong orientation toward the United
States and the West.
with them and at least present a facade of nonpartisan
policy formulation. Libya's expulsion of Tunisian
workers had encouraged diverse opposition groups
such as the moderate Social Democratic Movement
and the Islamic Tendency Movement, the principal
secular and religious opponents of the regime, to rally
behind the government. Only the major Tunisian
trade confederation has been reluctant to give its full
backing, since it suspects that Mzali might use the
crisis and the prospect of new budget outlays for the
dispossessed workers as an excuse to reject union
demands for wage increases.
Mzali's failure to enter into a dialogue with opposition
elements left the government in a poor position to deal
with the opposition when the Israeli raid occurred.
Even though the government reacted harshly to initial
US statements about the raid, opposition parties
quickly united to appeal to Bourguiba and Mzali to
take tougher action and break relations with
Washington. We believe that the government's threat
to take "dramatic" measures in the event of a US veto
of the Tunisian UN resolution condemning Israel
reflected intense domestic pressure, rather than a
sincere desire to take such a step. In retrospect, a US
veto probably would have placed the government in an
untenable position, and it might not have been able to
A Beleaguered Government
From a domestic standpoint, these developments pose
yet another challenge to President Bourguiba and the
political system he has created. They also have
required Tunisian policymakers to divert their
attention from maneuvering for Bourguiba's political
mantle.
In terms of public opinion, government leaders appear
to have missed an opportunity to neutralize the
opposition. According to the Embassy, Prime Minister
Mzali preferred to work exclusively through the
ruling Socialist Destourian Party (PSD) in mobilizing
public opinion behind the government's tough stand
toward Qadhafi. He did not attempt to use the crisis
to co-opt or disarm political opponents by consulting
prevent violence against US interests.
The two crises also raise fresh doubts at home about
the government's dependence on US military strength
to blunt regional adversaries. Before the raid, the
regime had been courting the United States and
Algeria as never before to secure much-needed
military assistance against the Libyan threat. The
Israeli raid, however, has undercut popular support
for close security ties to the United States. Embassy
reports indicate that Tunisian leaders have been
deeply embarrassed by the Israeli raid. Not only has
the raid exposed the country's vulnerability at a time
Secret
NESA NESAR 85-023
25 October 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
when the military is on heightened alert, but it has
also undercut the credibility of government assertions
that the United States will protect Tunisia in the
event of Libyan attack. President Bourguiba, who for
many years has risked censure from other Arab
leaders for his moderate stance on Middle East peace
issues, appears to have taken the US response to the
Israeli raid as a personal affront. Libyan leader
Qadhafi also has been quick to use the raid to justify
his vituperative remarks about the Bourguiba regime
and its dependence on US protection.
Angst in the Military
Although much of the general public has reacted
viscerally to the Israeli raid and blames the United
States, the response of the officer corps has been more
complex. Senior officers appear to have taken a more
sober-minded stance toward the Israeli raid and its
political consequences, at least in comparison to some
civilian officials. In comments to the
These
officers also appear more reluctant than civilian
leaders to criticize the United States for its inability
or unwillingness to stop the raid. This measured
response may stem from the fact that the military, in
comparison with other segments of Tunisian society,
would have the most to lose in the event of a rapid
deterioration in relations with Washington because of
their dependence on US security support.
Nevertheless, there is evidence that other segments of
the officer corps-probably in the middle and lower
ranks-are disillusioned with the United States.
many officers are
convinced the United States assisted Israel in the raid
and could have warned Tunis in advance of the
operation.
Even before the raid, military authorities had been
wrestling with the same issues of national security
policy that had seized the political leadership.
troops doubted the military's ability to meet a Libyan
attack and believed that the government was
needlessly irritating Qadhafi.
the crisis with Libya, instead of fostering morale,
had produced demoralization in the ranks. This
condition was aggravated by the failure of the Air
Force to intercept Libyan aircraft violating Tunisian
airspace early in the crisis.
some middle and
senior officers have serious differences over Algerian
military assistance.
these disagreements encouraged Army Chief of Staff
Baraket-an officer sympathetic to Algeria-to
demur on the Algerian offer to integrate Tunisian and
Algerian armed forces. Although Tunisian officers
almost certainly want to obtain Algerian military
hardware, many suspect that Algeria may exploit
Tunisia's weakness with regard to Libya to influence
Tunisian officers politically and possibly establish
espionage networks. These attitudes, shared by many
in the public, stem in part from what Tunisians view
as Algerian abuse of Tunisian hospitality during the
1950s, when Algerian guerrillas used Tunisian
territory as a sanctuary during their struggle for
independence from France.
Nervousness among military and civilian leaders also
may stem from a perception of the country's
vulnerability to foreign subversion. Press and
Embassy reports before the Tunisian-Libyan crisis
reported the arrest by Tunisian security of a Libyan
spy ring. In addition, police discovered a similar
network working to establish a Ba'thist movement on
behalf of Iraq, and individuals engaged in espionage
for Syria. None of these reports has been confirmed,
but, they suggest, according to the Embassy, that
Middle Eastern countries sense an end to the
Bourguiba era and an opportunity to expand their
influence during the anticipated uncertainty following
Bourguiba's death.
Silver Linings
If Tunisia has garnered anything beneficial from its
foreign policy predicaments, it has been the receipt of
military and diplomatic support. Tunisian
victimization by two "pariah" states in the Middle
East-Libya and Israel-has generated some much-
25X1
25X1
25X1
25X1
25X1
')FY'I
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
needed military assistance from moderate Arab and
Western sources. Tunisia has received from Algeria
what the[ estimates to be about 20
heavy ' ment trans orters-vehicles used to haul
tanks.
and
presumably the crews to man them. Both Algiers and
Mzali increasingly have publicized and emphasized
Algeria's intent to provide Tunisia full military
support in the event of a clash with Libya.
and has
promised to give Tunis funds to purchase about a half
dozen French helicopters. Baghdad also claims it will
employ some of the Tunisian workers expelled by
Libya. Diplomatic reports indicate that both Egypt
and France have provided-and may still be
providing-Tunisia with intelligence on Libyan
activities.
In addition, Prime Minister Mzali, who has had
difficulty consolidating his position during five years
in the premiership and has yet to gain widespread
respect, appears to have strengthened his position at
least among the political elite. We believe the
increased demands upon the government during the
recent crises and President Bourguiba's likely
inability to handle them for a sustained period have
given the Prime Minister an opening to exert more
authority.
A minor government shuffle in September provides a
case in point. The most notable shift was the
appointment by Bourguiba of Mansour Skhiri,
governor of Monastir, as a Minister and Director of
the President's Cabinet. US Embassy and
describes the new minister and all
but one of the of er Tunisians promoted to senior
positions as friends of Mzali. The Prime Minister also
has increased his visibility both at home and abroad
following the Libyan expulsion of Tunisian workers.
Implications: Closing Ranks With the Arabs,
But Not the French
Tunis probably will look first to regional neighbors,
other than Libya, to recoup what it views to be
political and military losses with the United States.
We anticipate an even closer relationship with Algeria
for security and intelligence support, despite Tunisian
misgivings, to further diversify the country's sources
of military aid. Algiers probably would be willing to
meet some of Tunisia's requests, since it views Libyan
machinations in the region as a serious threat to its
own interests. Tunisia, however, is unlikely to seek-
or Algeria provide-the sort of long-term economic
and military training and support programs
undertaken by the United States. Algiers lacks the
technical expertise to support an economic assistance
program. In addition, Algeria, with its arsenal of 25X1
Soviet weapons, could not supply the spare parts and
ammunition for the Western arms in Tunisia's 25X1
weapons inventory.
Tunisia may try to develop ties to Egypt-a country
kept at arm's length until recently. Although Tunis
has shared the generally aloof attitude of other Arab
League members toward Cairo, the Mzali
government appears to be groping for a modus vivendi
with the Mubarak regime to blunt the Libyan
threat-the same impulse behind the buddin
Algerian-Egyptian relationship
Cairo's displeasure over what it views as Tunisia's
complicity with the United States in the interception
of the Egyptian airliner carrying PLO hijackers
almost certainly will set back Tunisian-Egyptian ties.
Tunis, however, will try to ease Cairo's concerns to
continue the rapprochement.
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
France's strong statements in support of Tunisia after
the Israeli raid could provide the basis for closer
bilateral cooperation. Paris, however, has been
reluctant to side with Tunis in its crisis with Libya,
much to the displeasure of Tunisian leaders.
Tunisians are not likely to believe French assurances
so long as Paris adheres to its neutral stance in the
Libyan-Tunisian tussle. Only the provision of French
weapons such as tanks, aircraft, and other
sophisticated arms would assuage Tunisia at this
juncture. We doubt Paris will deliver sophisticated
weapons unless and until French leaders are
convinced Libya is about to attack Tunisia.
Falling Out With the United States
Tunis is not likely to want to continue the close
relationship with Washington that existed before the
Israeli raid. Even though Tunisian leaders were
relieved by Washington's abstention on the UN
resolution condemning the raid, Bourguiba and Mzali
will be obliged by internal political considerations to
seek a lower US profile in Tunis.
The principal limitations on Tunisia's willingness or
ability to drastically reduce relations with the United
States are Bourguiba's lingering fondness for the
United States and the country's dire need for US
military hardware. US security assistance is becoming
increasingly important in the country's efforts to
modernize its military forces, and it would be hard
pressed to find another politically compatible country
willing to fulfill its security needs. Even so, Tunis
could decide to reduce US aid programs, refuse port
calls by US naval vessels, and reduce political
contacts. Such a course might suit Mzali, since he
appears to be less sympathetic toward the United
States than Bourguiba and others in the government.
Only a Libyan attack on Tunisia would compel the
government to again embrace the United States.
These circumstances, however, would not re-create
the aura of cooperation that existed before.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Moroccan-Libyan Union:
Costs and Benefits
The year-old Moroccan-Libyan union is a product of
pragmatic considerations on the part of two Arab
leaders who continue to have divergent long-term
interests in North Africa. Both partners have
achieved what they perceive as useful benefits from
the union. King Hassan has received substantial
economic benefits, effectively offset growing Algerian
influence in the Maghreb, and curtailed Libyan
support for the Polisario. Colonel Qadhafi has used
the union to promote his plans for Arab unity and end
US and Algerian efforts to isolate him. We see
nothing to suggest that Hassan will bow to external
pressure to end the union.
Foreshadowing the Oujda Union
The rapprochement between Morocco and Libya
began in late June 1983 when, with Saudi
encouragement, King Hassan agreed to see Colonel
Qadhafi. Qadhafi, frustrated by the failure of his
efforts to obtain the chairmanship of the Organization
of African Unity and Libya's isolation in the Arab
world, had asked Riyadh to approach Hassan. During
the visit, Qadhafi promised to withdraw his military
support for the Polisario Front, and Hassan agreed in
turn to withdraw support for Libyan dissidents and
not to act against Libyan interests in Chad. Qadhafi
further sweetened relations with Hassan by bestowing
substantial economic favors on Morocco. During the
following year, Libya gave Morocco a $100 million
grant and $192 million in undefined credits, and it
accepted several thousand Moroccan workers.
strong Algerian response to the previous extension
were further compelling reasons
The timing of the accord suggests that the King also
viewed the union as a quick way to relieve growing
domestic pressure over Morocco's deteriorating
economic and social conditions. Widespread riots in
January 1984 brought home to Hassan the severity of
the domestic situation. He faced a potentially
disruptive parliamentary election in mid-September
1984, a shortfall in anticipated aid from Western
benefactors-especially the United States-and
considerable disgruntlement over planned cuts in
education subsidies. Hassan also was aware of Libyan
contacts with Moroccan opposition leaders and may
have believed that a closer relationship with Qadhafi
would persuade him to suspend such contacts, at least
for a while. The King almost certainly believed that
promises of additional Libyan economic aid and new
jobs would take some of the pressure off the domestic
front.
Hassan and Qadhafi signed the Arab-African
Federation, as the union is formally known, on
13 August 1984 at Oujda, Morocco.
Is the Glass Half Full or Half Empty?
At the outset, King Hassan encouraged the popular
belief that under the union Libya would provide about
$1 billion to Morocco. We believe this figure was put
forward by Hassan for domestic impact and greatly
exaggerates the level of support Qadhafi is willing to
supply. Nevertheless, the King probably hopes to
Hassan has publicly acknowledged that he began to
consider the idea of a union in mid-July 1984. Hassan
claims that the Western Sahara conflict was the
major factor in the decision. The King had
information that Qadhafi planned to renew, or
already had resumed, military aid to the Polisario,
and he undoubtedly hoped that entering the union
would keep Libya out of the Sahara question as well
as limit Algeria's military options by placing a
Moroccan ally on its eastern border. Morocco's plans
to extend its berm closer to the Algerian border and a
receive substantial assistance.
Since the union, Libyan financial assistance has
totaled about $150 million:
? As part of this assistance, Tripoli advanced $50
million to Rabat in September 1984 to finance some
of Morocco's international bank loans that had
come due and to pay for Hassan's daughter's
wedding.
Secret
NESA NESAR 85-023
25 October 1985
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
? Tripoli extended a $100 million concessional loan to
Rabat in May 1985 to support the purchase of
500,000 tons of Libyan crude oil-10 percent of
Morocco's annual needs.
In addition, Saudi Arabia is providing 2 million tons
of crude oil this year, which covers Morocco's oil
needs for six months and saves Rabat nearly $400
million in foreign exchange. The grant is nearly
double what the Saudis gave Hassan in 1984 and, in
our view, is a sign of Riyadh's approval of the
rapprochement.
Libya is providing a market for Morocco's
agricultural and manufactured exports at a time when
Rabat's traditional markets in Western Europe are
drying up-partly because of the entry of Spain and
Portugal into the European Community. Moroccan
exports to Libya totaled $34 million in 1984, equal to
Rabat's exports to the United States. Since the union
accord, bilateral trade is up 200 percent, but it
represents only 5 percent of Morocco's total trade.
Morocco hopes to raise annual exports to Libya to
$100 million by 1986, but this may be optimistic in
view of recent reports of Libya's failure to pay its
bills.
A particularly attractive part of the union agreement
for Hassan was Qadhafi's offer to permit a
substantially larger number of Moroccan workers in
Libya. Rabat has a severe unemployment problem-
30 percent of the urban labor force-and faces even
greater difficulties as Moroccan workers return home
because of declining job opportunities in Western
Europe. Worker remittances are Morocco's most
important single source of foreign exchange-$870
million in 1984.
As part of his campaign to sell the union, King
Hassan promoted the belief that Tripoli initially
would take up to 80,000 Moroccan workers. We
believe the increase to date has been about 8,000.
Moroccan officials state that an average of about
1,000 workers enter Libya each month, but Embassy
sources claim that the number actually finding
employment probably has averaged 500 per month.
Most of those who do find jobs are skilled or
professional workers rather than from Morocco's
large body of unskilled and unemployed laborers.
Morocco may benefit marginally from Libya's recent
expulsion of large numbers of workers from other
countries. Tripoli agreed to raise the number of
authorized Moroccan worker entries to 450 workers
per week beginning 1 September 1985 and to employ
1,000 Moroccan teachers. Even with these gestures,
however, Libya clearly has not become a significant
safety valve for Morocco's unemployed.
What Is in it for Qadhafi?
The union is an effort to fulfill some of Qadhafi's
goals. For example, Morocco is no longer being used
as a training ground for Libyan dissidents, and
Hassan personally decided to turn over some
dissidents to Qadhafi. Qadhafi also hopes the union
will be viewed in the region as an example of Libyan
cooperation with moderate Arabs and will preempt
US and Algerian efforts to isolate him in the Middle
East. For Qadhafi, the union symbolizes his
ideological commitment to Arab unity, and he holds it
out as an example of how Arab states with different
political systems work together. In addition, Qadhafi
has used his cut in support to the Polisario and the
economic benefits to Morocco as examples to
persuade other states facing Libyan-supported local
insurgencies and financial pressures-such as Sudan
and Somalia-to strike a deal with him. Such
exhortations are accompanied by frequent reminders
from Qadhafi of US unwillingness to back up its
verbal condemnation of the union with concrete
actions against Hassan.
Qadhafi has derived real political benefits from the
union. Hassan has remained quiet on Libya's
continued subversion in Sudan and has refused
requests from Chadian President Habre to provide
him with troops and other logistic support. Indeed,
Hassan is playing a key role in attempting to arrange
a meeting between Qadhafi and Habre. The King also
has taken a more restrained position on other Middle
Eastern issues, including a noticeable lack of support
for both the Jordanian-PLO peace initiative and
Jordan's resumption of diplomatic relations with
Egypt. Closer to home, Hassan's behavior during the
current tension between Libya and Tunisia is in
marked contrast to his response following a Libyan
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 -- Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
commando raid on Qafsa in 1980. At that time,
Hassan sent helicopters as a gesture of support for
Tunisia; during the present crisis, he has only sent two
envoys in a halfhearted mediation effort.
The union has also been advantageous for Qadhafi
domestically. Libyans burdened with austerity at
home can now travel to Morocco and purchase goods
in short supply or unavailable in Tripoli. Moreover,
Morocco's willingness to barter agricultural goods for
oil has helped Libya alleviate shortages of fruits and
vegetables. Finally, Moroccan technicians allegedly
have provided occasional, but much-needed,
maintenance on Qadhafi's US-manufactured civilian
The union also poses some domestic problems for
Hassan. In particular, it has resulted in a sizable
influx of Libyans, which increases the potential for
Qadhafi to make trouble for Hassan, especially if the
union fails. Moroccan security officials are concerned
about the problems in monitoring Libyan activities in
Casablanca and other urban centers. They are
particularly worried about the lack of immigration
controls over Libyans entering Morocco and about
Libyan real estate purchases, which could be used as
potential safehouses for agents.
aircraft.
The Costs of the Union
As with any marriage of convenience, Qadhafi and
Hassan have not hesitated to do things that irritate
the other partner. Tripoli's recent "strategic alliance"
with Tehran, for example, prompted a strong response
from King Hassan, who viewed that development as a
threat to his and other Arab monarchies. Moreover,
the early departure of the Libyan delegation from the
recent Arab League summit meeting held in
Morocco-as well as Tripoli's condemnation of the
Bright Star-85 military exercises involving the United
States, Morocco, and other moderate Arab states-
embarrassed the King and highlighted the gulf
between Hassan and Qadhafi on key security and
diplomatic issues in the Middle East.
Hassan also realizes that the union has damaged his
relationship with Washington and has jeopardized
acquisition of much-needed credits and weapons.
Moreover, Moroccan Government officials are
concerned that the union has accelerated the warming
of ties between Algeria and the United States. Rabat
probably believes that the Algerians will try to
persuade the United States to support its position on
the Western Sahara dispute and to press Hassan to
negotiate a settlement.
For Qadhafi, the costs of union have been minimal,
but he has his own frustrations with it. He is
particularly disappointed and angered that Hassan
has refused to come to Tripoli for a state visit. Libyan
officials also are frustrated by Morocco's reluctance
to cooperate on defense, as called for in the treaty,
and by its refusal so far to provide embargoed US
parts for Libya's inventory of US-manufactured
aircraft.
In the longer term, the implications of the Morrocan-
Libyan union may be ominous for Qadhafi. The union
has served to polarize North Africa and to move
Algeria toward a collision course with Qadhafi.
During the past year, Algeria and Egypt have
established a closer relationship, based mainly on
their opposition to Qadhafi. Tunisia, likewise, has
expanded its defense relationship with Algeria and
improved its ties to Egypt. Although this polarization
is not solely due to the Moroccan-Libyan union, we
regard the union as a catalyst for heightened regional
tension and more active efforts by Qadhafi's
neighbors to stymie him.
25X1
25X1
25X1
2bAl
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Morocco:
The Fundamentalist Challenge
to Hassan
King Hassan and his advisers are increasingly
concerned about the potential growth of Islamic
fundamentalism in Morocco. The active role played
by fundamentalist extremists in antiregime riots in
January 1984 shook them from their complacent
attitude that "it can't happen here." Hassan was
forced to recognize that he, like the Shah of Iran, was
vulnerable because of the inability of the country's
political, economic, and social system to satisfy the
high expectations of its burgeoning population. The
King has adopted a number of countermeasures such
as having his security services identify and intimidate
radical antagonists and placing greater emphasis on
Islam. Those steps, along with the disunity of the
Muslim radicals, appear likely to prevent a serious
fundamentalist challenge to Hassan's position over
the medium term. Over the longer term, the King will
need to undertake further economic and social
reforms to counter the fundamentalist challenge and
to bolster his regime.
The Fundamentalist Challenge
According to the US Embassy in Rabat, there are two
main groups attracted to fundamentalism. The first-
"fundamentalists of conviction"-is composed of
generally well-off intellectuals. They are genuinely
dissatisfied with what they see as social and economic
injustices, and they believe the ruling clique runs the
country on the basis of corruption and favoritism.
This group generally agrees that the path of reform
lies in strict adherence to the Koran, though some do
not share the widespread fundamentalist belief that
the West must be rejected because of its association
with Israel. The US Embassy estimates that several
thousand people may fall in this category.
there are probably tens of thousands who nonetheless
hope that fundamentalism will improve their bleak
prospects.
To date, class and education differences have kept the
two groups from uniting, and the intellectuals are
divided themselves about the desirability of forming a
unified organization. When Abdeslam Yassine-a
leading fundamentalist intellectual-called on the
King in 1984 to allow the formation of a
fundamentalist political party, his colleagues sharply
criticized him and argued that such a party would
divide and confuse the fundamentalist cause and raise
the question, "What is fundamentalism doing for the
country?"
Foreign Support
The government worries that fundamentalists in other
Islamic countries-particularly Iran-are recruiting
Moroccan workers in Western Europe as agents for
subverting Morocco. Palace officials complain of
inflammatory material-pamphlets, cassettes-
produced in Western Europe and smuggled into the
country. In support of this belief was the appearance
of pro-Khomeini graffiti during demonstrations
certainly are concerned-despite Qadhafi's private
reassurances since the formation of the Libyan-
Moroccan union-that Iran's growing political and
military relationship with Libya will result in joint
The second group-"fundamentalists from
frustration"-is made up of unemployed or
underemployed urban residents who believe they are
denied access to wealth or position in Moroccan
society. A group of Moroccan scholars has recently
argued that rapid population growth has aggravated
this problem. Frustrated individuals of this sort
frequently do not have an intellectual appreciation of
fundamentalism, but the US Embassy estimates that
efforts to cultivate Moroccan radicals.
outside agitators have only
limited contact with indigenous groups. The
widespread Moroccan suspicion of outsiders is likely
to continue to retard foreign efforts to use Islam to
destabilize Morocco.
Secret
NESA NESAR 85-023
25 October 1985
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Combating the Fundamentalists
The regime has a number of other defenses against
the spread of fundamentalism. One of the
government's principal assets is that Morocco already
is a society of believers. All Moroccans may not pray
five times a day, but observance of the sacred month
of Ramadan is almost universal. At the same time,
Moroccans, unlike the Iranians, are rarely fanatical
about their faith and do not provide a ready seedbed
for fundamentalist extremism. For example, the ease
with which the population welcomed Pope John Paul's
visit last August is evidence of a relaxed, tolerant
brand of Islam.
Morocco's complex, diffuse religious structure also
aids Hassan. Religious practice tends to be
decentralized, with thousands of local saints
(marabouts) providing variants to tenets stipulated in
the Koran. The King draws the line at outright
heresy, but his definition of what is tolerated is broad
and encompasses spiritualism and other religious
practices on the margin of Islamic orthodoxy.
Moreover, the only religious principle on which most
Moroccans agree is that King Hassan possesses
"baraka," an aura of holiness that is considered a
manifestation of divine grace transmitted through the
Prophet's descendants. Fundamentalists criticize the
manner in which the King rules, but only the most
extreme challenge his position as "Commander of the
Faithful." Indeed, fundamentalist sympathizers have
told the US Embassy that they would be satisfied if
the King would rule according to the strict teachings
of the Koran.
After fundamentalist participation in antiregime riots
in January 1984, Hassan adopted a two-pronged
approach in dealing with the religious opposition. He
ordered his security services to identify and intimidate
agitators and used the courts to crack down on
Muslim radicals. In the summer of 1984, 71
fundamentalists were tried and received light
sentences to avoid arousing sympathy for the cause.
The King has since decided that he needs to be
tougher. In a trial this past summer, all 26 defendants
were found guilty, and 14 were sentenced to death,
though none have been executed. Another trial of 39
fundamentalists is under way.
Hassan has also brought the Ministry of Islamic
Affairs increasingly into the Interior Ministry's orbit
over the past 18 months. In February 1984 the King
ordered the Interior Ministry to take over the
authorization of mosque construction and the
selection of prayer leaders. In April 1984 Hassan
announced that he was putting police in the mosques
to monitor what was said. The Interior Ministry has
also put some 60 religious scholars through staff
school in Kenitra and will soon send graduates-
trained in police techniques as well as religious
doctrines-to the provinces.
In addition, the King continues to try to minimize
Islamic dissatisfaction by tending to his own religious
credentials. He has tripled the budget for officially
sanctioned Islamic activity in recent years. The palace
continues to send representatives-generally members
of the royal family-to all major religious festivals.
Hassan also often infuses political events with
spiritual messages. On his trip to Western Sahara in
March 1985, for example, he stopped to pray at the
point he entered the territory. In his public statements
he has taken to saying that he is "but the servant of
God and his people called to do their will."
The lack of a unified political organization will
probably prevent fundamentalists from posing a
major challenge to the King over the medium term.
Nonetheless, opposition leaders will be able to use
fundamentalism to attract supporters unless the
economy unexpectedly rebounds and creates new
opportunities for the country's many frustrated job-
seekers
25X6
25X6
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Egypt's Options in Sudan
Recent clashes between rival political and ethnic
groups in Khartoum and an abortive military coup
last month have heightened President Mubarak's
concern for a stable Sudan. Egypt, however, is most
likely to look for opportunities to counter Libyan
influence and wait for the perceived natural affinity
between Egypt and Sudan to reassert itself. If a
hostile regime seizes control in Khartoum, Cairo
probably would apply political and economic leverage
to modify Sudanese behavior. Military action is
plausible-but not likely-unless intolerable
circumstances, such as a Libyan-backed coup or
invasion of Sudan, threaten access to Nile River
water.
Changing Relationship With Sudan
For years Egypt took its dominant influence in Sudan
for granted. Since the coup in April 1985 that ousted
Sudan's President Nimeiri, however, relations
between Cairo and Khartoum have been strained.
Egypt continues to provide asylum for former
President Nimeiri and has refused Sudanese requests
for his extradition. The extradition issue has caused
several anti-Egyptian demonstrations in Khartoum.
Cairo has been alarmed by increasing Sudanese
receptivity to overtures from Iran and Libya.
Egyptian concern rose considerably in July when the
Sudanese Defense Minister signed an agreement with
Libya for military assistance and cooperation.
Prospects for a return to the relationship Egypt
enjoyed with Nimeiri are dim:
? Because of its deteriorating internal security
situation and the southern insurgency, Khartoum
will continue to look for military aid from any
source, including the Soviet Union and Iran.
? Sudan's desperate economic condition also has
removed Khartoum's qualms about the sources of
badly needed nonmilitary assistance.
? Because of its own economic problems, Egypt is at a
disadvantage in competing with Libyan largess.
Egypt's Strategy
Egypt has pursued a policy of restraint toward Sudan,
scrupulously avoiding any appearance of meddling in
Sudan's internal affairs. Contacts between the two
countries, however, are being maintained. Early this
summer President Mubarak made a one-day trip to
Khartoum to meet the Transitional Military Council's
Chairman, Suwar El Dahab, as a gesture of support
and concern. Other Egyptian delegations,
representing labor, the press, and political parties,
have visited Sudan to initiate contacts with
increasingly powerful Sudanese civilian groups.
Cairo is beginning to grow uneasy about the wisdom
of its laissez-faire policy in Sudan. According to the
US Embassy, several senior Egyptian officials differ
strongly with President Mubarak's passive approach.
They advocate more aggressive competition with
Libya for influence among the Sudanese trade unions,
sympathetic political groups, and the military.
The events of late September-an attempted military
coup and a series of strikes and clashes stemming
from tensions over Sudan's southern insurgency and
widening political and ethnic rifts-may prompt
Mubarak to play a more active role. Cairo has already
taken some opportunities to act more assertively:
? Egypt announced plans to provide weapons for the
Sudanese armed forces on the occasion of Sudanese
Defense Minister Mohamed's visit to Cairo in early
October.
? Responding to Cairo's invitation, the Sudanese
Prime Minister visited Cairo a week later for
further discussions of military assistance and to
prepare for Transitional Military Council Chairman
Suwar El Dahab's trip to Cairo at the end of the
month.
Secret
NESA NESAR 85-023
25 October 1985
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
The Egyptians, nevertheless, have little confidence in
the current regime. Egypt fears Sudan's ruling
Council is too weak to deal with mounting civilian and
military discontent. They believe the turmoil in
Sudan's internal security services increases the
likelihood that Libya can penetrate the armed forces,
political parties, and unions.
According to the US Embassy, Egypt sees Sudan's
current military leaders as preferable to any likely
alternatives. Cairo probably hopes a pro-Egyptian
strongman-someone like Nimeiri-will eventually
emerge from the divided Sudanese leadership or
perhaps arise from the corps of middle-level military
officers. Egypt wants a strong personality at the helm
in Khartoum who will act effectively to check Libyan
influence. The sharp divisions growing among the
Sudanese, however, provide no guarantee that a pro-
Egyptian figure will emerge.
Cairo's Options
Egypt's policy options in Sudan are limited and
depend on events largely beyond Cairo's control.
There are at least three scenarios that will determine
Egypt's options:
? Sudan continues to muddle through.
? A pro-Libyan regime seizes power in Khartoum.
? Threats or provocations lead to a military response.
If Khartoum muddles through ... If the current
Sudanese regime remains in power and continues to
muddle through, the near-term options open to Egypt
are:
? Continue the passive "wait-and-see" policy.
? Aggressively seek opportunities to counter Libyan
influence.
? Look for a new Nimeiri.
These options are not mutually exclusive, and it is
most likely Cairo will pursue a policy that draws from
the full range of possibilities. Current policy reflects
both passive and active features, and Egypt already
may be working behind the scenes to identify,
cultivate, and support a promising candidate who
would lead Sudan back to its former close relationship
with Egypt.
If a pro-Libyan coup ... If the Sudanese regime is
ousted in a pro-Libyan coup, Egypt could develop
another range of options:
? Find a modus vivendi with the new leadership and
at the same time explore ways to moderate
Khartoum's behavior through the influence of pro-
Egyptian groups in Sudan.
? Attempt to apply economic leverage by threatening
expulsion of Sudanese workers and denial of
scholarships to Sudanese students.
? Terminate military cooperation, assistance, and
training provided by Egypt.
? Renounce mutual defense agreements.
Egypt would prefer to seek an accommodation even
with a potentially hostile regime. Threats to expel the
2 million Sudanese workers from Egypt would risk
strong disapproval from the Egyptian population,
many of whom are of Sudanese extraction, and would
draw comparisons with Qadhafi's censured behavior.
Even if Cairo ignored the opposition and implemented
an expulsion policy, the probable effect would be the
creation of deeper hostility inside Sudan and would
make future reconciliation more difficult.
Termination of the Egyptian-Sudanese military
relationship would create the opportunity for Libya to
strengthen its already growing military ties to Sudan.
If military action appears necessary ... Egypt would
be ill disposed to send its armed forces into a hostile
environment without extreme provocation. Military
intervention is plausible under three scenarios:
? Limited-objective raids to rescue hostages or
conduct disruptive actions.
? Military support for an insurgency against a pro-
Libyan regime.
? Larger scale action to answer a request for
assistance or to counter a Libyan-backed coup or
Provocations that might appropriately call for a
limited military reaction would be:
? Denial of protection for Egyptian personnel and
property from attack.
? Arrest or detainment of Egyptian diplomats.
25X1
2bAl
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
? Announcement of plans-with Libyan assistance-
to develop reservoirs and irrigation projects that
would curtail Egyptian use of Nile River water.
Egypt could use a small force to engage in disruptive
activities
against a hostile regime. For that type of mission,
Cairo would employ its 999th Special Operations
Unit, an elite 250-man force specially trained to
rescue Egyptian hostages or prisoners of war and to
carry out sabotage operations against foreign strategic
targets.
The 999th would be effective in conducting short,
violent hit-and-run raids. In more complex operations
requiring extensive and precise coordination and
sophisticated execution, their chances of success
would not be great.
If Libya deployed troops to Sudan at the invitation of
a new Sudanese regime, Egypt might consider
providing materiel assistance to antiregime dissidents
and encouraging an insurgency to keep Khartoum off
balance. Cairo could also assist by infiltrating
commando units to attack Libyan troops in Sudan.
Egypt could combine these operations with attacks on
northeastern Libya, with a view toward negotiating a
Libyan withdrawal from Sudan and a modification of
the Sudanese regime's behavior. Most civilians would
argue against involvement, especially if Khartoum did
not request Egyptian military assistance under their
mutual defense agreements.
Conditions could arise, however, that would force
Cairo to consider a larger scale military intervention:
? The ruling Council requests Egyptian military
support to help establish law and order.
? Sudanese authorities, fearing an imminent pro-
Libyan coup, call for help.
? Libya attempts to intervene militarily in Sudan.
Significant Egyptian military intervention in Sudan is
constrained by two related factors: Sudan's
undeveloped transportation system and the country's
large size. There are limited road and no direct rail
connections between Egypt and Sudan, and
marginally adequate road and rail links connect Port
Sudan to Khartoum. For rapid deployment, Cairo
would have to airlift its forces over long distances to
Sudan. Egypt's modest airlift capability and the
distances involved-Khartoum is nearly 1,600
kilometers from Cairo-significantly reduce the size
and capability of any intervention forces. Without
external assistance, such as US C-141 transports,
Egypt cannot project rapidly into Sudan the kinds of
forces (surface-to-air missiles, armor, or mechanized
infantry units) necessary to counter a major Libyan
intervention.
We believe Egypt's best option, if Libya invaded
Sudan, would be to attack Libya in the northeast.
Egypt has
contingency plans to counter Libyan provocations
with limited assaults against targets in eastern Libya.
If, as we expect, such an assault went in Egypt's favor,
Tripoli would be forced to redeploy most of its forces
in Chad and Sudan
For rapid deployment to Khartoum, Cairo would call
on elements of its special operations forces-some
20,000 airborne and commando troops. If called on to
help maintain public order, they probably would
perform relatively passive security functions or
provide backup assistance to local security forces. By
employing Egypt's available transport capacity-21
C-130 transports based at Cairo International and 9
DHC-5D transports based at Cairo Almaza-Egypt
could realistically expect to deploy within 24 hours at
least two battalions (700 to 1,000 men) of commandos
from Inchas or Aswan. Should reinforcement be
required, an entire commando group (2,000 men) or
several battalions from an airborne brigade could be
deployed within 48 to 72 hours. All of these units
possess limited firepower, principally small arms,
antitank guided missiles, SA-7s, medium
machineguns, and mortars.
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
To reinforce, Egypt could march the major
components of a mechanized infantry brigade
overland along the Red Sea coast to Port Sudan for
road and rail connections to Khartoum within two to
three weeks. Other overland routes through Wadi
Halfa and Atbra in Sudan could support movement of
light equipment to Khartoum. Within a month Egypt
could establish a sea-land link through Port Sudan to
deploy an additional mechanized infantry brigade.
Once an intervention force was in place, Egypt would
face significant support problems. The notoriously
high failure rate of Egyptian transport aircraft would
eventually begin to grow in direct proportion to usage.
Egypt, therefore, would try to limit the scope and
duration of a military action, gambling that a pro-
Egyptian regime could be installed before a
humiliating withdrawal of Egyptian forces became
necessary.
Outlook
Egypt's most optimistic expectations for Sudan in the
near term are that the Transitional Military Council
will retain control in Khartoum. Under current
conditions, Cairo considers elections in Sudan
inconceivable and expects the regime will fail to make
significant progress in subduing the southern
insurgency or in solving Sudan's growing political and
economic problems. In all likelihood Khartoum will
experience a succession of coups until a strongman
emerges to establish control.
The Egyptians will accept any regime in Khartoum
that is not actively hostile. They almost certainly are
resigned to efforts by the regime to put distance
between itself and many of ex-President Nimeiri's
pro-Egyptian policies.
In any event, Cairo is more likely to behave as a
spectator than as an actor. Egypt probably will
continue efforts to strengthen its influence and
promote the interests of pro-Egyptian groups in
Sudan. Cairo, however, does not appear to have
reconciled itself to the fact that for the near term
Sudan has no intention to resume its place in Egypt's
shadow. Egypt is assuming-with some
justification-that a longstanding natural affinity
eventually will reunite Egyptian and Sudanese
interests and that Libyan influence will dissipate.
Egypt's policy is based on the assumption that time is
on its side.
Egypt has little interest in a, military adventure in
Sudan. Military intervention, while possibly appealing
to a small number of generals, is the least practical
and most risky course of action. Egypt would stand to
lose more than it would gain.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Lebanon: The Druze Search for
Security
The Druze have significantly expanded their
territory-primarily at the Christians' expense-since
the second phase of the Israeli withdrawal from
Lebanon this spring. With increased aid from the
USSR, Druze leader Walid Jumblatt and his
Progressive Socialist Party (PSP) militia are preparing
to defend their emerging Druze canton and to exert
military pressure on Lebanese President Amine
Gemayel. Although nominally allied with Shia leader
Nabih Barri, Jumblatt is concerned about Shia
encroachment and the growing power of the Amal
militia, which Syria has recently begun to arm and
train.
Jumblatt publicly supports Syrian efforts to pacify
Lebanon and to reform its political system, but he is
determined to defend his recent gains. He probably
fears Syria would sacrifice Druze-controlled territory
to reach an accommodation with the larger Shia and
Christian confessional groups. For the foreseeable
future, Jumblatt probably will seek to husband Druze
power and continue to play a key, possibly swing role
in Lebanon
The Emerging Druze Canton
As Israeli troops withdrew last April, the PSP militia
moved swiftly to claim Jabal al-Baruk, which
dominates the Druze heartland in the Shuf
Mountains. At about the same time, the Lebanese
Forces militia abandoned its attempt to defend
Christian villages in the Iqlim al-Kharrub, which
historically had a mixed Christian and Druze
population. The PSP-aided by anti-Arafat
Palestinians-quickly moved to the coast. In an
interview with the US Ambassador to Lebanon,
Jumblatt claimed he wanted to forestall a move by
Shias in the Beirut suburbs to occupy the Kharrub
and invited displaced Christian villagers to return and
live in peace under his protection. Although there
probably is some truth to Jumblatt's explanation, the
move to the Kharrub makes a Druze canton more
autonomous by giving Jumblatt control of the Beirut-
Damascus highway and the port of Khaldah, which
ensures a line of supply free of Syrian control.
Jumblatt and the PSP have been working to establish
a Druze canton for some time. As Lebanon's Minister
of Public Works, Jumblatt has used his position to
develop the Shuf.
25X1
25X1
and other heavy equipment from the central
government to build over 100 kilometers of new roads
connecting villages in the Shuf. In July,
the PSP had established
well as the Shuf. In August,
Jumblatt planned to integrate the
Druze civil administration into the PSP structure-
enabling him to head a nominally secular canton
containing a large non-Druze population and to
deflect charges that he is merely a Druze warlord.
PSP efforts to establish a Druze canton are hampered
by financial problems, and its leaders are
unscrupulous in seeking sources of income-making
Khaldah all the more valuable. For example,
in
exchange for exorbitant payments, the PSP was
acting as a middleman for troops and military
equipment destined for pro-Arafat Palestinian groups.
The Soviet Connection
The PSP is allied with the small Lebanese Communist
Party and has long had good relations with the Soviet
Communist Party, F
Soviets to provide
sophisticated military equipment
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
agreed to provide such weapons and have begun to
train PSP militiamen to operate light aircraft, 25X1
helicopters, and patrol boats as well as continuing to
provide armor and infantry training
Secret
NESA NESAR 85-023
25 October 1985
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
BEIRUT
BEIRUT
INTERNATIONAL
AIRPORT
Khaldah 0
/
Sidon'
fJi
M ylsl i m - Patiest inian
J 4ontrolled
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
si
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
The types of weapons and training the Soviets are
providing indicate the PSP wants a capability to
conduct offensive operations. With fire support from
artillery batteries dug in on the Shuf, the Druze could
use tanks and armored personnel carriers to conduct
limited combined-arms operations along the coastal
plain from the southern suburbs of Beirut to Sidon.
Operating from the Israeli-built airstrip at Ad
Damur, the PSP militia could conduct
reconnaissance, coordinate artillery fire, and use
helicopters to conduct air assault operations. The
Druze believe Suq al-Gharb, which overlooks the
presidential palace, should be part of their canton
Relations With Amal
Although the PSP and the Shia Amal movement
oppose Amine Gemayel and continued Christian
dominance of Lebanon, tensions between the two have
been high since last spring and have resulted in
repeated clashes between elements of their respective
militias. The Druze are concerned about the growing
assertiveness of the Shias, who constitute about 40
percent of the Lebanese populace. During Amal's
attempt in May and June to take over the Palestinian
refugee camps outside Beirut, the Druze prevented
Amal reinforcements from moving north from Sidon
along the coastal highway and allowed Palestinian
artillery to operate from the Shuf.
Despite concern over Shia expansionism, Jumblatt
wants to avoid a major clash with Amal while working
with Barri to press Lebanon's Christians to make
concessions. Encouraged by Syrian prodding to
rekindle a political dialogue, Jumblatt and Barri were
instrumental in the formation in August of the
National Unity Front, which issued a lengthy
declaration calling for major political reforms-
including the "deconfessionalization" of Lebanon.
The Druze constitute only 7 percent and the
Christians about 25 percent of Lebanon's population,
but they are the only confessional groups concentrated
in well-defined geographic areas. Jumblatt probably is
counting on strenuous Christian opposition to prevent
Lebanon from being reorganized- into a single
electoral district in the event serious political
discussions ensue.
Dealing With Damascus
In seeking to enhance the degree of PSP independence
from Damascus, Jumblatt has pushed the Syrians
about as far as they will go. In May, Damascus
warned Jumblatt to sever all ties to Israel and,
underscored
the warning by hanging several Syrian Druze who
The burgeoning Soviet-Druze relationship
buttress the Amal militia.
probably has contributed to Syria's decision to
Damascus plans to increase aid to
to foment trouble in Druze-controlled areas.
Amal and to use the Syrian Social Nationalist Party,
a small Lebanese party that favors union with Syria,
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Jumblatt probably will continue to kowtow to
Damascus-widely regarded as responsible for
assassinating his father, who opposed Syria's
intervention in Lebanon in 1976 and its political
reform program. He probably will not refrain,
however, from castigating Damascus for supporting
President Gemayel whom Jumblatt regards as weak
and unwilling to push any reforms that would reduce
Christian dominance of Lebanon's political and
economic structure. Jumblatt will not voluntarily
curtail his direct contacts with the USSR, nor will he
agree to relinquish his recent territorial gains.
Jumblatt probably views Syria's military support of
Amal and the meeting early last month in Damascus
with Lebanese Forces leader Elie Hubayqa as signs
Syria would sacrifice Druze interests to reach an
accommodation with the larger Shia and Christian
factions.
The Syrians,) )intend
to establish political control over Lebanon, but they
do not have a fixed plan for reforming its government.
the US Embassy in Beirut, Syria seems intent on
getting the factions to attend another national unity
conference similar to those held in Lausanne in 1983
and Geneva in 1984, but Damascus seems willing to
proceed more slowly and to become more directly
involved this time. Syrian special forces are
monitoring a cease-fire in Tripoli, where pro-Syrian
factions recently fought Iranian-backed Sunni
fundamentalists and pro-Arafat Palestinians.
Prospects
Jumblatt probably would be best served by a federal
government that assured PSP predominance in the
Shuf with free access to Beirut and Druze co-
religionists in the Lebanon-Syria-Israel border area.
The chances of a renewed Lebanese political dialogue
resulting in such a system, however, are slim.
Continued Syrian and Soviet aid probably will ensure
that, at a minimum, Jumblatt will be able to defend
the Druze heartland against the Christians and Amal.
At a maximum, Jumblatt's PSP militia might be able
to successfully defend the emerging Druze canton and
become a pivotal factor in the internal political
balance in Lebanon.
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 CIA-RDP87T00289R000100240001-2
Secret
Countertrade in the Middle East
and South Asia: A Growing
Countertrade-trade that links one transaction to a
reciprocal transaction-by Middle Eastern and South
Asian countries has grown from virtually nothing in
1983 to more than $32 billion in 1984, or over 8
percent of all trade in the region, and, we believe,
more than $24 billion so far in 1985. Every major
country in the region countertrades, whether to
discount prices, especially of oil; conserve hard
currency; enter new markets; maintain or increase
market shares; or gain access to new technology. The
costs associated with countertrade are often
considerably higher than those of cash sales, and
profits are reduced accordingly.
Case Studies
Iran. Iran may be the world's largest countertrader.
We have documented at least $13 billion of
countertrades since 1983 for a full array of civilian
and military goods. As accessible foreign exchange
assets dropped to $2.5 billion at the end of 1984 from
over $20 billion in 1979, Tehran turned increasingly
to countertrade. It sees countertrade as conforming to
Islamic principles stressing bilateral balance in
exchanges, and it even briefly attempted to import
only through countertrade. Today all nonessential
goods must be purchased via countertrade or on
delayed payment terms. Large trading houses are
often required to meet a $100 million minimum limit
that Tehran imposes on barters.
Tehran has had limited success using countertrade to
increase nonoil exports. Yugoslavia, for instance,
agreed in February 1985 to take nonoil goods worth
15 percent of Yugoslavia's exports to Iran.
Some Western firms receive commissions as high as
18 percent from Iran. Turkish traders, for instance,
add significant markups on goods that they have
imported to reexport to Iran under a $3 billion deal
between Ankara and Tehran. A few large Western
firms are probably incurring losses, but they continue
to countertrade to maintain positions in a potentially
lucrative market. Others that have found
Countertrade encompasses at least six different
forms of trade. In each, the flow of goods in one
direction is linked-or countered-to another flow of
goods, usually in the opposite direction:
? Barter is the direct exchange of goods for goods
without direct use of money.
? Counterpurchase involves otherwise separable, but
contractually linked sales. For example, India has
proposed to buy Iranian oil, but only after Iran
agrees to buy Indian goods.
? Buybacks require a company or government to
provide equipment or money for a project and to
take repayment in the product of the enterprise.
? Offsets are common in military and aerospace deals
and require a contractor to license to, coproduce
with, subcontract with, or directly invest in
domestic. firms.
? Clearing accounts specify that trade will occur for
an agreed period, at the end of which all
outstanding balances must be settled.
? Switch trading refers to the multinational form of
any or all of the above.
countertrade arrangements unacceptable have been
able to improve terms by appealing to and perhaps
paying off senior Iranian officials or by using their
market power.
Iraq. Facing serious problems meeting debt payments,
Iraq has tried to get creditors to accept oil instead of
cash. Some have been forced to take oil at official
OPEC prices rather than spot prices-in effect
accepting less than full payment. Others have refused
to take oil because of the uncertainties in the oil
market.
Secret
NESA NESAR 85-023
25 October 1985
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
FIGURE 't COUNTERTRADE BY MIDDLE EAST
AND SOUTH ASIAN COUNTRIES, 1985
Many large construction projects in Iraq are financed
by oil barter. French and Italian firms, for example,
agreed in August 1984 to take 1.2 million barrels of
Iraqi crude as a downpayment for constructing a lube
oil complex near Baghdad. Before a buyer could be
found, however, the price of the oil fell by slightly
more than $2 per barrel, producing losses of more
than $2.4 million on the downpayment. Baghdad has
the option of paying the $35 million balance in crude
oil, refined products, or cash.
Saudi Arabia. Riyadh has countertraded to obtain
civilian and military aircraft valued at about $6
billion. In 1984 the Saudis bartered as many as 50
million barrels of crude for 10 Boeing 747s, Rolls
Royce engines, and spare parts, all valued at $1.34
billion. They discounted the price of the oil by up to
$2 per barrel, according to the US Embassy in
Riyadh. An artificially high value was assigned to the
planes, and additional barrels of oil-nominally at
OPEC prices-were offered in payment.
Secret
FIGURE 2: PARTNERS OF MIDDLE EASTERN AND
SOUTH ASIAN NATIONS IN COUNTER'TRADE,1985
A $4-4.8 billion deal for 72 British Tornado fighters
and some 60 other military aircraft was approved in
principle in mid-September 1985, according to the
Western press. A large, but as yet unspecified, portion
of the payment will be in crude oil. The United
Kingdom will have explicit permission to resell the oil.
OPEC members usually try to prevent resales because
they occur in the spot market and weaken the cartel's
ability to control prices.
25X1
LOA I
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
The Saudis turned to offsets in March 1983 to acquire
technology, increase domestic employment, and
conserve foreign exchange. Despite rules requiring all
government contractors to subcontract at least 30
percent of the contract value to Saudi-owned firms,
offsets have not increased domestic content
significantly because of shortages of skilled Saudi
labor.
The Saudi air defense system, Project Peace Shield,
will entail offsets from US contractors of at least $1.2
billion. The entire amount must be spent on
nonpetroleum Saudi industries, many of them
involving high technology. For example, Saudia, the
government airline, is likely to participate in joint
ventures with General Electric to establish an aircraft
engine overhaul facility.
United Arab Emirates. The United Arab Emirates
also has used barter to cheat on OPEC prices and to
conserve declining foreign exchange. Abu Dhabi
discounted the price of its oil by 13 percent to make a
$778 million deal for 18 specially equipped French
Mirage 2000s in 1984.
Jordan. Amman countertrades to increase its share of
the world phosphate market, requiring some
contractors with the Jordanian Government to accept
between 35- and 50-percent payment in phosphate. A
US firm and the Jordanian Air Force concluded a
$115 million barter of phosphate for an automated
command and control communications system in
December 1984. The Air Force soon after proposed a
$200 million phosphate-for-helicopters barter with
another US firm, but the deal apparently fell through
because the company realized that it could not obtain
a desirable price for the commodity in a market
already flooded with phosphate.
Israel. More than $500 million of Israeli export sales
have been tied to offset agreements. Israeli law
requires an offset in any deal in which an Israeli
Government agency or state corporation imports
goods and services worth more than $500,000.
Offset programs with the United States currently in
effect are worth $200-245 million. These include:
? A 30-percent offset that allows Israelis to coproduce
a subsystem for the Lavi fighter aircraft.
? A 40-percent offset in the purchase of 12 military
helicopters (with an option on 28 more), with the
funds to be used to establish industries to produce
goods to be sold outside Israel.
Libya. Libya uses countertrade to cheat creditors,
paying them less in oil than their contracts called for
in cash. Turkish contractors, for instance, were told
that they could take oil as payment or nothing. The
Turks were sent about 19 million barrels of oil-at
OPEC prices-to settle the $700 million debt. The
implied price was about $7 per barrel above the then
current spot market price. Other creditors have
suffered similarly.
India. New Delhi formed a government committee in
1983 to increase Indian countertrade, especially
counterpurchase. The committee has encountered
jurisdictional disputes among agencies, with some
officials unwilling to accept a loss on one part of a
linked transaction in return for a greater profit for
another agency. India has been trying to negotiate a
counterpurchase agreement with Iran since early
1985. Only tea would be left off the list of goods
offered to Tehran since Iranians already willingly buy
New Delhi is also negotiating a buyback arrangement
with Saudi Arabia under which India would help
construct a fertilizer factory for the Saudis and take
payment in fertilizer.
Egypt. Offset agreements have helped Egypt win
Third World customers for its arms industry.
Moreover, according to reliable business press, Egypt
has gained so much French technology through offsets
that Cairo may soon emerge as a competitor of
France, especially in the market for low-technology
Pakistan. Declining worker remittances and serious
trade imbalances have drastically cut Pakistan's
foreign exchange reserves and caused Islamabad to
seek more countertrade. Pakistan recently signed a
$400 million counterpurchase deal with Iran; bilateral
trade had fallen to less than $100 million last year.
25X1
2OA-1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
secret
Other large deals are under consideration. Wheat
shortages have led Pakistan to engage in a series of
switch trades in which Sweden, Finland, Bulgaria,
and Czechoslovakia have obtained 200,000 MT of
Australian wheat and bartered it to Islamabad.
Countertrade With Communist Countries
Middle Eastern and South Asian countries have
countertraded with Communist countries for many
years-mainly through clearing accounts.
Countertrade with the Communist countries
amounted to at least $7 billion in 1984 and at least
$5.5 billion in the first eight months of 1985.
Countertrade with those countries has been increasing
for the same reasons that it has increased with the
West: hard currency shortages, demands for
reciprocity, and the soft oil market:
? India and the USSR, New Delhi's second-largest
trading partner, traded more than $3 billion
through a clearing account in 1984. India sent
agricultural goods and low-quality consumer goods
to the USSR for oil. In the future, New Delhi will
have to increase merchandise exports to Moscow to
balance payments for military purchases.
? Pakistan has increasingly countertraded with
Communist countries for wheat. Pakistan and
Bulgaria will barter $164 million of goods in FY
1985, a 100-percent increase over FY 1984. Other
East European countries are reported to be
reselling, at discounts, unwanted Pakistani goods
obtained in barter. Pakistan will import electrical
equipment and spare parts from the Soviets and will
export textiles, surgical instruments, and sporting
goods under a barter agreement signed in May
1985, according to the US Embassy in Islamabad.
? Libya barters oil to the USSR for arms. In addition,
during a visit to the USSR this fall, Qadhafi
secured Soviet agreement to accept oil in payment
for Libyan debt; Moscow had earlier insisted upon
payment in hard currency.
? Algeria has not been as successful as Libya in
persuading Moscow to accept goods in payment of
debt. Algeria's offer to settle its trade deficit with
Outlook
We believe countertrade by the Middle Eastern and
South Asian countries will continue to grow during
the rest of the decade. The oil market will remain soft;
OPEC members will still have an incentive to cheat
on each other to increase their market shares; debt
and liquidity problems will continue-making
cashless trade attractive; both combatants in the Iran-
Iraq war have long-term barter commitments; there
will be an increase in demand for offsets as other
countries observe the success of Israel and Saudi
Arabia and demand offsets of their own; there will be
more intraregional countertrade such as that between
Pakistan and Iran; countertrade with Communist
countries will continue to increase.
We do not agree with observers who view
countertrade as a response to recession in the West
and who, therefore, expect it to diminish with the
return of prosperity. We note that Middle Eastern
and South Asian countertrade has increased during
the recovery in the United States and as performance
in the industrial sectors of other Western nations-
those most likely to use the region's primary
products-has improved.
Implications for the United States
The greatest area of concern for the United States
over countertrade is in offset programs that require
technology transfer. Programs compelling US
producers to build and equip modern factories abroad,
train local personnel, and transfer technological
knowledge can only diminish-and in some cases
eliminate-the US comparative advantage that is the
economic basis of most of our trade with countries of
the region. There is also the danger that US
technology will be reexported to third countries.
Western firms will continue to countertrade despite
concern over technology transfer, economic
inefficiency, and the increased costs. These companies
sometimes make money on individual deals, and they
often view countertrade as a way to protect market
shares, especially in oil-producing countries that may
be lucrative markets in the long run.
the USSR by sending refined products was refused
in 1984, according to the US Embassy in Moscow.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Pakistan:
Back From the Brink?
Increased foreign exchange bank deposits and the
success of special bond issues have enabled Pakistan
to forgo an IMF standby loan this year. We judge
that the influx of funds and an improved trade
balance will buy Islamabad some time, but the
tenuous political situation will probably limit any
effort at substantial economic reform. Without such
reform we expect Pakistan's foreign payments
problems and budget deficit to deteriorate next year,
forcing Islambad to increase pressure for additional
US aid on softer terms.
Exchange Drain
Until recently, Pakistan teetered on the brink of
financial crisis, precipitated by disastrous cotton and
foodgrain crops and a 15-percent drop in worker
remittances since FY 1983 (July/June). Rather than
curb rapid economic growth or resort to unpopular
austerity measures, the Zia regime financed imports
by drawing down reserves. As a result, liquid foreign
exchange reserves fell from a record $2 billion at the
end of 1983 to about $325 million in mid-August-
equivalent to less than three weeks' imports-
according to official data and US Embassy reporting.
Pakistan's high tax rates, lax enforcement, and
excessive regulation have spawned a sizable "black
economy. " There is no precise estimate of the extent
of the parallel economy, but studies claim it accounts
for anywhere from 20 to 50 percent of GDP. Most of
Pakistan's black money is derived from bribes,
narcotics trafficking, tax evasion, and illicit foreign
currency or unofficial "Hundi " (moneychanger)
transactions. Black incomes are usually invested in
fixed assets such as land, houses, or valuables. With
tax revenues stagnant at about 14 percent of GDP
since FY 1981, Pakistan's large black economy
provides a considerable source of untapped funds for
the government.
government has floated two new financial
instruments: the Special National Fund Bonds
(SNFBs) to tap resources in Pakistan's large "black
economy" and Foreign Exchange Bearer Certificates
(FEBCs) to lure expatriate foreign currency deposits.
Pakistan's precarious financial position has also been
strained by a rising debt service burden. Debt
payments-estimated at about $1.2 billion in FY
1985-have increased 50 percent since FY 1981.
Nearly $200 million in US FMS payments due this
fiscal year will add to the burden. We estimate that at
least 25 percent of the earnings from exports this
fiscal year will service debt payments.
Creative Financing
New financial instruments, commercial loans, and
deposits in foreign banks have temporarily bolstered
reserves and enabled Pakistan to forgo an IMF
standby loan for the time being. Over the past month,
Pakistan's foreign exchange reserves have nearly
doubled with an infusion of more than $400 million,
according to the US Embassy. In addition to bank
deposits-possibly including transfers of Saudi
funds-and a $150 million commercial loan, the
According to US Embassy and press reports, the
domestic SNFBs were originally designed to net
about $200 million, but sales are estimated to have
reached nearly $1 billion. Sales picked up when the
government decided to provide liberal credit, make
the bonds exempt from income tax, and grant
immunity to purchasers from future tax evasion
investigations. Because most of the country's black
money is held in fixed assets, the government allowed
purchasers to use these as collateral to purchase the
bonds. As a result, the press reports that about 20
percent of the value of the bonds issued was paid in
cash. Nevertheless, the US Embassy reports that the
infusion of funds covered the projected FY 1986
budget deficit and increased the tax base because
undisclosed assets have now been declared.
Secret
NESA NESAR 85-023
25 October 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
The FEBCs have helped bolster Pakistan's sagging
foreign exchange reserves. The press reports that the
high-interest bonds-14.5-percent annual interest
payable in a foreign currency-have garnered an
estimated $38 million since the beginning of August.
High yields as well as simplified banking procedures
are likely to increase foreign exchange deposits and
reduce reliance on the black market and "Hundi"
transactions-where at least 10 percent of worker
remittances were funneled.
Pakistan's financial position has also benefited from
temporarily increased exports, lower imports, and
higher worker remittances. The US Embassy reports
export earnings are up 14 percent (July/August) over
the same period last year, with the largest gains in
raw cotton and yarn. During the same period import
expenditures registered a more than 10-percent
decline. A recent decline in the value of the dollar
relative to the Pakistani rupee has required overseas
workers to increase remittances slightly compared to
the same period last year.
Temporary Fix
Pakistan's clever efforts to mobilize financial
resources are likely to provide only temporary relief
from its chronic foreign payments and budget deficit
problems. In our view, the domestic "black money"
SNFBs were mainly a circuitous means for Islamabad
to borrow from the banking system to eliminate the
budget deficit without raising politically sensitive
taxes. The FEBCs are also a gamble, since they risk
raising Pakistan's debt service burden and provide a
means of capital flight should the economy falter.
Moreover, foreign exchange bank deposits can easily
be withdrawn, thereby undermining the country's
precarious foreign exchange reserve position.
The influx of capital has bought needed time, but we
judge the Zia regime is unwilling to tackle
longstanding economic problems. Since FY 1981 the
current account deficit has increased 61 percent and
reserves have fallen 48 percent. The government has
also been reluctant to reduce costly subsidies-
equivalent to two-thirds of the FY 1985 budget
deficit. Even with growing financial and fiscal
problems, Islamabad-citing political constraints-
has rejected US and multilateral lending institution
recommendations for economic reform.
Outlook
We judge that the success of the new financial
instruments, higher exports, and increased
remittances will temporarily strengthen Pakistan's
foreign exchange position, increase its tax base, and
eliminate this year's budget deficit. These
improvements will probably be sufficient to keep
Pakistan's liquid reserves equivalent to about two
months of imports and alleviate the need to seek an
IMF loan this year. Stiff international competition,
low commodity prices, and quota barriers, however,
are likely to limit export earnings to levels recorded in
the early 1980s.
We expect Islamabad to undertake only limited
reforms-most notably a reduction in some
cumbersome regulations. We judge that political
considerations are likely to provide Islamabad an
excuse to defer needed fundamental economic policy
changes, such as a currency devaluation, tax reform,
or spending cuts. Although the government has
promised to keep a tight rein on the money supply, we
believe that the massive borrowing to finance the
domestic bond schemes may well ignite inflationary
pressures and squeeze credit to industry and
agriculture. Unless Islamabad undertakes long-term
economic reforms and further reduces imports, we
expect little improvement in Pakistan's precarious
foreign payments position next year. In our judgment,
the country's tenuous financial condition will force it
to increase pressure on the United States for more
highly concessional economic and military aid in the
aid package currently under discussion.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
The Press in Pakistan
Since the legislative elections in February, the
government's attitude toward the press has gradually
become less hostile. President Zia probably feels more
politically secure and thus finds less need to restrict
the press. We believe, if the press too blatantly serves
the opposition or attacks President Zia or his concept
of an Islamic state, Zia would again resort to press
Press Content
Pakistani newspapers seem drab and uninteresting by
Western standards. Pakistani papers run frequent
stories on loyalty to Islam and on Muhammad Ali
Jinnah, the founder of Pakistan, and they display a
consistent anti-Indian bias. These topics are strongly
voiced in both the Urdu- and English-language press
on a daily basis. Another topic that has recently
become a prominent subject in the newspapers is the
narcotics issue because of the increased drug abuse in
Pakistan. This now appears almost daily in the papers.
Newspapers usually reflect the government's
emphasis on Islam. They display their religious
orientation by printing quotations from the Koran on
the editorial pages. Religion and religious symbolism
are used in the press to promote different viewpoints,
both to commend and condemn government policies.
Although the press attacks corruption in the
bureaucracy and highlights national and local social
and economic problems, it does not attack President
Zia personally or his concept of Pakistan as an
Islamic state.
The English-language newspapers expound "liberal"
ideas, such as women's liberation and modernization,
to appeal to the elite. In these newspapers, economic
news predominates, followed by political and cultural
news; sports are relegated to the back pages as in most
Western papers. Frequent use of syndicated material
from international news agencies provides readers
with good coverage of foreign developments.
The Urdu newspapers concentrate on local and
regional news, with very little attention to foreign
affairs, economics, and sports. Urdu papers also tend
to have a more marked religious content. In our
opinion, the Urdu press better reflects the present
state of Pakistani society and public criticism of the
government for the deterioration in social and
political conditions. The Urdu press also clearly
reflects a distrust of the United States.
Advertising accounts for up to half of the content of
the major newspapers. As in India, the government is
the largest single advertiser, at times accounting for
half of all advertising. The content is usually sober
and not an effective means for retail advertising.
Prices and sale items are not listed, and the ads are of
little benefit to the consumed
25X1
25X1
Government Leverage Over the Press
The constitution of Pakistan guarantees freedom of
the press but allows much leeway for government 25X1
control. It allows restrictions in the interest of Islam;
the integrity, security, or defense of Pakistan; friendly
relations with foreign states; public order, decency, or
morality; or in relation with contempt of court,
defamation, or incitement to an offense. The
government uses various measures to control the
press:
? The Press and Publications Ordinance of 1963
empowers the Interior Ministry to take action
against newspaper publishers for printing any
statements or pictures that the government 25X1
determines are not complimentary. In many cases
the publisher is required to post a very heavy bond
that may be forfeited if he is found to have violated
the law.
Secret
NESA NESAR 85-023
25 October 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Newspapers and Periodicals in Pakistan
The Pakistani press has undergone considerable
change since independence and is more vibrant today
than in the past. In recent years the government has
made an extensive effort to develop a more
the
number of English-language newspapers has since
decreased, although the number of Urdu- language
papers has increased. We believe this is attributable
to the acceptance of Urdu-now taught in all the
sophisticated press.
Before independence, most established papers in what
is now Pakistan were controlled by Hindus and
Sikhs. The Muslim press was small and suffered
from inadequate capital and low circulation, and its
advertising was almost nonexistent. Still it was vocal
and exerted influence because it was a crusader for
independence.
The number of dailies increased substantially from
1953 to 1980, according to the Ministry of
Information. The growth in publications was
probably due to economic growth and an increase in
literacy. In 1980 Pakistan had approximately 114
daily newspapers and 355 other publications that
appeared weekly or on some other regular schedule,
according to the Information Ministry. There were an
additional 827 publications, but these appeared
schools-as the national language.
The Pakistani press prints newspapers in five
different languages-English, Urdu, Sindhi, Pushto,
and Gujarati. About 90 daily newspapers are in
Urdu, and 31 are in English. Of the nine leading
dailies, four are in English, four in Urdu, and one in
both languages.
Published circulation figures do not correspond to
actual readership. As in other Third World countries,
many readers cannot afford to buy a newspaper and
will go to public places to read the dailies or borrow
them. In the rural areas three or four or more persons
may share one newspaper.
irregularly.
? The government controls small newspapers because
it controls newsprint. The major newspapers are less
susceptible to government manipulation because
they are financially more stable and are allowed to
import newsprint without import duties.
Although the government-owned National Press
Trust prevents its newspapers from reporting critically
on the government, there have been incidents when a
feisty editor stepped outside the Trust's restrictions
boundaries by criticizing government policies.
Mullahs also try to exercise censorship over Shia- and
Sunni-oriented publications when a controversy arises
? The placement of government advertising also
serves to influence the print media. The government
can financially cripple a publication by withholding
advertising and even put it out of business.
? The government makes sure newspapers use the
Press Information Department's press releases on
sensitive domestic issues such as student riots or
sectarian disturbances.
over a paper's interpretation of Islam.
President Zia removed the requirement for
newspapers to submit articles for prepublication
review in 1982. In Sind Province, however, he
reimposed prepublication review by a government
editor following the sectarian clashes in Karachi in
1983.
9 X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2 -
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Major Newspapers and Periodicals
Karachi, Quetta, Rawal- 250,000 Independent, conservative, pro-Arab, no
pindi, and Lahore political affiliation
Nawa-i-Waqt English, Urdu Lahore, Karachi, Ra-
walpindi, Multan
200,000 Independent, democratic with Islamic ori-
entation, anti-Communist
Lahore, Karachi, Pesha- 160,000 Owned by government-controlled Nation-
war, and Quetta al Press Trust
90,000 Owned by government-controlled Nation-
al Press Trust
70,000 Independent, liberal, no political
affiliation
65,000 Owned by government-controlled Nation-
al Press Trust
50,000 Owned by government-controlled Nation-
al Press Trust
50,000 Independent, liberal, influenced by the
Jamaat-i-Islami, Sunni fundamentalist
Islamabad, Rawalpindi 30,000 Independent, pro-Iranian, skeptical of US
and Zia's Afghan policy
Pakistan and Gulf English Karachi
Economist
20,000 Conservative, business/economic, supports
business interests
25,000 Leftist, political/literary, may receive
some Soviet funding, generally hostile to
United States
Although prepublication review was not imposed
before the legislative elections last February, the
government outlawed publication of statements by
opposition spokesmen against the December
referendum on Zia's policy of Islamization or in favor
of the election boycott instigated by the opposition
Movement for the Restoration of Democracy.
Government control was also extended to foreign
correspondents at this time. Some US and British
journalists were expelled because of negative
reporting of Zia's proposed political framework.=
The government has since relaxed its leverage over
the press. The new Minister of Information, Hamid
Nasr Chatta, has been portrayed in the press as a
liberal because he favors removing the allocation of
advertising and newsprint as a weapon for controlling
the press. He agrees, however, with President Zia that
the Press and Publications Ordinance should remain
intact, according to Pakistani press reports.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Pakistan Times
Overseas Weekly
Hamid Nasr Chatta,
Minister of Information
and Broadcasting
Soviet and Iranian Influence
Soviet influence on the press declined in Karachi
when the Pakistani Government closed down the
Soviet Information Department in 1980. Soviet press
placements dropped sharply, and the Soviets used
more indirect means to get their views across,
Nonetheless, the Soviets still have a sizable covert
propaganda effort under way in Pakistan and provide
clandestine monetary support to specific Pakistani
journalists, according to US Embassy reporting.
Periodically, stories appear in the press that portray
the USSR and its allies as the natural ally of the
Third World.
The Soviets have few outlets in Pakistan for their own
publications. In Lahore the People's Publishing House
published and distributed Soviet literature until
September 1984 when the regime arrested its
publisher, Abdul Rauf Malik, for distributing banned
literature. The government has continued to permit
the distribution of some Soviet literature, such as a
Soviet children's magazine and the Soviet equivalent
of Readers' Digest.
The Soviets cultivate contacts with the Pakistani
press. Soviet Embassy officers routinely visit the
offices of Pakistani newspapers and journals. The
Soviet Press Information Department has written
many letters to the editor supporting Soviet policy.
The letters are signed with Pakistani names and
mailed to various Urdu- and English-language
newspapers. The Muslim frequently prints Soviet
viewpoints, although this reflects more the paper's
pro-Iranian, anti-American stance than an alignment
with the Soviet Union. The Morning News in
Karachi, the Khyber Mail in Peshawar, and the
weekly Viewpoint in Lahore also print articles
sympathetic to the Soviets, according to US Embassy
reports.
he Iranians provide
some financial support to the Pakistani press,
particularly to the owner and publisher of The
Muslim. In our judgment, Haidar, a new pro-Iranian
publication, also receives funding from these sources.
Local Shia organizations supported by Iran give
Pakistani journalists articles for publication in both
the English-language press and the Urdu press.
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
South Asia: Improved Prospects
for Regional Cooperation
The first South Asian Association for Regional
Cooperation (SAARC) summit meeting is scheduled
for 7-8 December in Dhaka.' A draft charter calling
for further institutionalization of the organization will
be the first item on the summit agenda, but
atmospherics will probably be more important than
matters of substance. SAARC protects its fragile
existence by confining its activities to
noncontroversial areas such as telecommunications,
agricultural research, and health programs. New
efforts in narcotics control and regional
environmental programs appear promising, although
both political sensitivities and scarce resources will
limit expansion. Efforts to develop a regional
approach to terrorism will be seriously complicated by
mutual suspicions rooted in years of rivalry and
conflicting interests.
The postsummit period, during which SAARC will
move from planning to implementation, could see
underlying regional conflicts rise to the surface,
especially if the organization attempts to expand its
activities too rapidly into controversial areas where
the groundwork for cooperation has not been laid.
Background
SAARC represents an effort by the South Asian
countries to overcome the pattern of conflict that has
marked their relations for many years and to build a
regional organization that will provide economic and
developmental-and ultimately security-benefits.
The fledgling organization has also developed into a
useful forum for informal bilateral discussion of more
controversial issues. In addition, UN representatives
from the South Asian countries meet regularly in
New York to coordinate their positions.
SAARC technical committees have developed
programs for cooperation on postal services, weather
research, agriculture, rural development, population
and health planning, telecommunications, transport,
and sports, arts, and culture. At the regional foreign
ministers' meeting in the Maldives in 1984,
telecommunications and transport linkages-
especially between capitals-were singled out as areas
of special importance, as were agricultural projects.
Health programs have been stressed at subsequent
sessions.
agricultural research are in the planning stage.
Each of SAARC's technical committees is chaired by
a country with a strong interest in that area. India
chairs the meteorology, and sports, arts, and culture
committees; Pakistan, the committees on science and
technology, and telecommunications; the Maldives
chairs the transportation committee; Bangladesh
handles the committee on agriculture; and Nepal
heads the health and population committee. So far,
the committees have set up seminars for training and
information on subjects of common interest such as
biogas processing and improving transit across state
boundaries. Regional centers for health, weather, and
One of the key motivations for most South Asian
states to support SAARC is to improve prospects for
external assistance, especially from multilateral
organizations. Financial support for SAARC projects
has already been offered by the Food and Agriculture
Organization, the International Telecommunication
Union, and the European Communities. SAARC
members at first feared offers of outside assistance
would cut into existing bilateral aid programs but
later decided to proceed if donors would pledge not to
cut other aid.
'Originally called South Asian Regional Cooperation group
(SARC). India, Pakistan, Bangladesh, Nepal, Sri Lanka, the
Maldives, and Bhutan are members. Two important rules govern its
operation-unanimity in decisionmaking and avoidance of sensitive
Secret
NESA NESAR 85-023
25 October 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Political Motivations
In addition to hopes for economic and developmental
benefits from SAARC, important political realities
motivate member countries to cooperate:
? India wants to ensure that the smaller states do not
coalesce in opposition to its major interests,
especially in conjunction with Pakistan. India also
hopes to limit the smaller South Asian countries'
links with states outside the region. Originally loath
to join, New Delhi suspected that a SAARC
without Indian membership might become a US
tool to divide India from the smaller South Asian
countries and to wean India away from the USSR.
But India's leaders realized they could accomplish
more inside the organization than outside. Rajiv
Gandhi probably finds SAARC a useful instrument
for furthering his "good neighbor" policy.
? Pakistan, also originally unenthusiastic about
SAARC because it feared Indian domination, sees
SAARC as a means to dilute Indian influence and
to strengthen the independence and integrity of the
smaller South Asian states. The Pakistanis hope
that SAARC membership will strengthen India's
bonds with countries more closely aligned with the
non-Communist world and eventually weaken
Indian ties to the Soviet Union.
? SAARC is the linchpin of Bangladesh regional
strategy, both as a hedge against possible Indian
hegemony and against economic disaster.
Bangladesh has several continuing disputes with its
larger neighbor-for example, over sharing water
resources.
? The smaller states-Sri Lanka, Nepal, Bhutan, and
the Maldives-support SAARC most
enthusiastically. They hope to find strength in
numbers and gain international recognition and
economic assistance as a bloc representing one-fifth
of the world's population. All have disputes with
India and expect to gain some maneuvering room by
institutionalizing regional cooperation. The leaders
of the smaller states also hope to strengthen their
regimes domestically.
SAARC: No ASEAN
The Association of Southeast Asian Nations
(ASEAN) was an inspiration for SAARC. The
differences between the two, however, are significant:
? ASEAN united against a common enemy-an
expansionist Communist Vietnam. SAARC
perceives no common enemy.
? ASEAN countries were on a capitalist economic
road, with well-developed ties to the United States
and the West. SAARC countries have mixed
economic systems and follow differing foreign
alignments.
? ASEAN economic growth rates are much higher
than those of the SAARC countries.
? ASEAN is a relatively balanced grouping, while
India's size and influence dominate SAARC.
Possibilities for Expanding Cooperation
Prospects for intensifying cooperation or moving into
new areas are mixed. In addition to their
determination to avoid controversy, SAARC
members are concerned about stretching limited
resources too thin.2
? Narcotics. Nearly all the major SAARC countries
have expressed interest in improving cooperation to
control the considerable flow of narcotics within the
region. Some have serious drug problems with their
own youth, others face severe criminal challenges
from drug traffickers. Prospects are good for
' Regional conflicts and rivalries hamper SAARC's cooperative
goals. Although India and Sri Lanka are discussing their problems
directly, Colombo until recently believed that India was supporting
Tamil separatists. This issue nearly caused Colombo to boycott the
SAARC meeting in May 1985 in Bhutan. Pakistan suspects India
is helping Bhuttoist oppositionists. India believes that Pakistan is
assisting rebellious Sikhs. Pakistan also worries about India's
nuclear capabilities and its relationship with the Soviet Union.
India suspects Pakistan's nuclear aspirations and distrusts the
Pakistanis' close ties to the United States. Nepal suspects India of
supporting antimonarchist forces, and Nepal and Bhutan both have
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
establishing a regional drug enforcement policy so
long as no one country attempts to dominate the
effort. Police and customs training in narcotics
enforcement might be possible action areas.
? Terrorism. India and Pakistan are exploring the
possibility of using SAARC to develop a regional
approach to combating terrorism in spite of deep
mutual suspicions on this issue. SAARC members
sharply disagree over the difference between
"legitimate" struggles for self-determination and
unacceptable terrorist acts. Even if these differences
were eliminated, porous common borders and an
abundance of dissident groups would hamper
cooperation. Thus, only minimal regional steps
against terrorism are likely to be taken in the
foreseeable future, perhaps in less sensitive areas
such as airplane hijacking.
? Reducing nuclear tensions. Although Rajiv Gandhi
has publically supported longer term regional efforts
to control nuclear tensions, India prefers bilateral
discussions with Pakistan rather than any
multilateral forum. New Delhi probably would turn
to SAARC only after reaching an understanding
with Pakistan. The Indians strongly reiterated this
policy in discussions with high-ranking US officials
in September.
? Environmental problems. Since many
environmental issues cut across borders, they lend
themselves readily to a regional approach. SAARC
has already organized a workshop on environmental
problems. The thin support given by SAARC
countries to the existing South Asia Cooperative
Environment Program, however, suggests that
progress will be modest because of mutual distrust
and the lack of political payoffs for member
regimes.
Next Steps
The primary decision facing SAARC is whether to go
ahead with institutionalization. The Dhaka summit
will consider the location of a permanent
headquarters (Bangladesh and Nepal have been
mentioned as possibilities) and the creation of a
permanent staff. As proposed, each country would
contribute a small number of personnel, leaving
annual program budgets as the only common cost.
Some sources indicate that the final decisions on these
issues might not be taken until after the summit.
Because the smaller countries hope to keep authority
decentralized and maintain influence over issues of
special interest, they-Sri Lanka in particular-tend
to view institutionalization with some reservations. A
formal secretariat would enable outside assistance to
be channeled more effectively, but it would also offer
more opportunities for Indian domination.
Summit Outlook
At the December summit meeting, atmospherics will
probably be more important than matters of
substance. By their attendance, regional heads of
state will indicate their personal commitment to the
organization, and reinforce its importance on the
international stage. The South Asian countries are
proud of the progress they have made to date and note
that ASEAN existed for nine years before it held a
summit. All the same, SAARC remains a paper
organization, with well-developed plans but limited
resources. India's change in attitude has been the key
to recent advances. A shift in Indian policy away from
support for SAARC could severely hamper SAARC
efforts to progress beyond the relatively modest sphere
in which it operates today.
If Indian support remains steady, the summit meeting
could mark a watershed in the organization's
development. With the added international attention
and the possibility that new economic resources might
become available, South Asian leaders might be
tempted to go beyond the carefully prepared areas
embodied in the committees. We believe SAARC will
remain a cohesive organization for the foreseeable
future only as long as it confines its activities to
noncontroversial developmental programs and
concentrates on building the informal links between
leaders necessary for more meaningful cooperation in
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
1980-82
January 1983
March
Chronology of SAARC Development
General Zia-ur-Rahman, President of Bangladesh (1975-80), proposes a regional
organization for South Asian countries in response to the Soviet invasion of
Afghanistan.
Foreign secretaries from South Asian countries discuss ways and means of
implementing the notion, develop noncontroversial issues for working groups.
Committee of the Whole meets in Colombo to develop program of action
incorporating guidelines for structure and financing of new organization.
South Asian foreign secretaries meet in Dhaka. Endorse program of action
developed at Colombo meeting, technical committees in agriculture, rural
development, health and population, meteorology, telecommunications,
transportation, postal services, and science and technology. Committees will be
staffed by countries holding the chair; chairmen urged to begin programs where
financial resources available. Offer of financial assistance from European
Communities and International Telecommunication Union accepted in principle so
long as outside aid does not detract from bilateral aid to the individual countries.
New Delhi Declaration inaugurates South Asian Regional Cooperation
organization (SARC). Signed by South Asian foreign ministers, declaration
combines pursuit of common goals with mutual respect for national sovereignty.
SARC officially inaugurated with an "Action Program." Standing committee of
foreign secretaries designated to coordinate and monitor efforts, authorize
projects, determine financial procedures, and mobilize regional resources and
resources outside the region; to meet at least once a year. Technical action
committees established in specific areas. Each country to pay for own personnel.
February 1984 Regional foreign secretaries meet in New Delhi. Little accomplished besides
discussion of global economic situation, north-south dialogue, need for
concessional financing from donor countries. Reports of technical committees
reviewed.
Regional foreign ministers meet in the Maldives (followed closely by India-
Pakistan bilaterals). Ministers recommend convening of a summit meeting by end
of 1985. Stress urgency of improving telecommunications and air links between
capitals. To consider proposal to establish institute of air transport, technology,
and training; take steps toward establishing regional meteorological center,
convene South Asian games in late 1984, hold an archeological congress in India
in 1985, set up a regional agriculture information center, establish a regional
center for research in the field of tuberculosis, hold a regional history conference,
and arrange a cultural festival. More discussion of ITU and EC offer of aid in
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
transport, science and technology, and telecommunications. Concern expressed
over economic plight of developing countries, world economic situation, north-
south dialogue. Some member states to significantly increase their financial
contributions.
February 1985 Foreign secretaries meet in the Maldives. Preliminary work done on declaration
for summit. Envision two major councils, one for foreign secretaries and one for
ministers. Postpone discussion of institutionalization.
Foreign ministers meet in Bhutan. Change name to South Asian Association for
Regional Cooperation (SAARC). Prepare way for the Dhaka summit in
December: draw up proposal for charter. Discuss further organizational steps-
secretariat, permanent headquarters. Draft political declaration reaffirming
adherence to principles of UN Charter and the Nonaligned Movement.
December SAARC summit to be held in Dhaka, Bangladesh, preceded by meetings of
foreign secretaries and foreign ministers.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Rajiv Gandhi and Nepal:
Following in His Mother's
Footsteps
Despite Rajiv Gandhi's announcement of a "good
neighbor" regional policy based on cooperation, the
Indian approach toward Nepal has not shifted far
from the heavyhanded attitude demonstrated under
Indira Gandhi in the late 1970s and early 1980s. In
our view, this is partly because Indian attitudes
toward Nepal are driven by the state of Indo-Chinese
relations, an issue that has not yet received much of
Rajiv's attention and in which there has been little
movement.
The absence of change can probably also be explained
by the likelihood that, until Nepalese King Birendra's
recent state visit to New Delhi, Gandhi had not paid
much personal attention to Nepal, leaving relations
with Nepal to the Foreign Ministry. As a result,
Kathmandu, which initially welcomed Rajiv's
succession, appears disheartened by New Delhi's
failure to demonstrate flexibility in bilateral affairs. A
shift is not likely in the near term. New Delhi would
most likely be moved to review its policy if the
Nepalese Government were to change suddenly or if
new dynamics developed in relations with Beijing.
judgment, reflects India's effort both to support
Kathmandu's sovereignty and shape Nepal's foreign
policy on key bilateral issues.
Indian policymakers have a well-documented record
of exerting influence on Kathmandu's handling of its
domestic and foreign affairs. India continually presses
Nepal to conform to a restrictive interpretation of an
outdated 1950 Friendship Treaty and the secret
letters of intent that accompanied that agreement.
According to this understanding, New Delhi and
Kathmandu "will consult each other" on foreign
policy decisions of mutual interest. All Indian prime
ministers have interpreted this to mean that India has
the right to broker all Nepalese foreign affairs that
might affect New Delhi's concerns in the region.
Kathmandu, according to Embassy reporting, has
argued unsuccessfully that Indian foreign policy
initiatives within the region-the Indo-Pakistani
wars, the Sino-Indian conflict, India's invasion of East
Pakistan-contravened the bilateral nature of this
understanding and therefore its binding power on
Nepal.
An Unequal Equation
India's view of China as its long-term threat colors its
relations with Nepal and, we believe, will continue to
act as a counterweight to Kathmandu's efforts to
achieve greater independence from Indian influence.
All Indian prime ministers since the Sino-Indian war
in 1962 have emphasized that India's legitimate
security concerns begin in Nepal's Himalayas.
Nepal's strategic location between India and China-
the Nepalese refer to their country as "the root
between two stones"-gives a unique flavor to Indo-
Nepalese relations. We believe India values the role
Nepal plays as a buffer, allowing New Delhi to avoid
direct confrontation with Beijing along much of its
northern border. Nepal's international standing, its
relatively strong sense of nationalism, and its avowed
commitment to neutrality and nonalignment increase
its value to India as a cushion against the Chinese.
New Delhi's influence in Kathmandu's affairs, in our
India also attempts to keep Nepal relatively isolated
in world forums and from seeking more substantial
bilateral relations with powerful foreign powers. New
Delhi lets Kathmandu know the Indian stand on
international issues through both diplomatic and
informal channels and exerts none-too-subtle pressure
on Nepal to conform. King Birendra attempts to
deflect some of this influence by:
? Welcoming state visits by foreign dignitaries.
? Offering Kathmandu as a site for foreign
conferences, meetings, and symposiums.
? Seeking to involve Nepalese representatives in as
many cooperative international ventures as possible.
As an example of Kathmandu's effort to play a
broader role, Embassy reports describe how highly the
Nepalese value the role of Nepal's Gurkhas in UN
peacekeeping ventures and the esteem in which the
Gurkhas are held by the British military.
Secret
NESA NESAR 85-023
25 October 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
China
NEW DELHI,
.Kanpur
India
Nepal
ALAtAS
Farakka
Farakka Berreg
*THIMPHU
Bhutan
Bangladesh
Durgapur
Drainage basin
Canal
4 apo
Kilometers
Boundary representation Is
not ..Cassar.ly eutnoritattn,.
Rajiv: Not a New Broom
Despite Rajiv's efforts to lower tensions with India's
neighbors, his administration's record toward Nepal
shows little change from New Delhi's traditional
heavyhanded approach. In our view, this reflects
Nepal's standing below Sri Lanka, Pakistan, and
Bangladesh on his priority list, as well as his need to
focus immediate attention on more pressing domestic
issues, such as Punjab.
Although there is no clear indication that Rajiv has
had the time or inclination to focus on Kathmandu,
several developments in Nepal last summer have
required New Delhi's attention. In June, New Delhi
learned of Nepal's decision to accept a Chinese bid to
complete the western section of Nepal's only east-west
through road. Although India's original offer had
been nearly 15 percent higher, New Delhi pressed the
Nepalese to cancel the Chinese offer and accept the
Indian bid, sweetening the deal by offering to finance
the entire project through an aid grant. Rajiv
Gandhi's personal emissary visited Kathmandu to
underscore New Delhi's sensitivity to the possibility of
'cauhati
India
Calcutta' ( Chittagong
large numbers of Chinese workers near India's border
with Nepal. New Delhi's handling of the issue
suggests that it was left largely to those in the Foreign
Ministry who have long overseen relations with
Nepal.
A second major issue between India and Nepal arose
in late June when a round of bombings occurred in
Nepal allegedly carried out by insurgents opposed to
the monarchy. The incidents gave new impetus to
fears in Kathmandu that New Delhi-in reaction to
the road imbroglio-was actively supporting an
attempt to destabilize the regime. Nepalese allusions
to Indian connivance in the affair-voiced loudly by
high-ranking members of Parliament-were
supported by allegations in the Indian press by
insurgent leaders. We believe the King squelched the
findings of his own investigation rather than risk
upsetting relations with New Delhi by publicizing
conclusions that implicated Indian officials.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Other issues that suggest Nepal has not received a
fresh perspective in New Delhi include continued
Indian pressure on Nepal to maintain trade and
migration policies that many Nepalese officials view
as harmful. The Nepalese press has carried articles by
Nepal's Foreign Minister Subba over the last few
months criticizing India for strangling Nepal's foreign
trade through its control of border traffic. Subba
reiterated the longstanding Nepalese contention that
the porous border allows Indian immigration into the
sparsely settled Terai region of south Nepal and that
Indian border officials encourage Indian exports to
Nepal while restricting Nepalese exports to India.
There are few signs that suggest Rajiv focused on
Indo-Nepalese relations before King Birendra's visit
in September. Even then, there were no indications of
Rajiv's personal imprint on New Delhi's relations
with Nepal. Rajiv and Birendra met privately for
more than two hours, but they apparently did not
address tough bilateral problems. The King sought to
establish a number of joint commissions to deal with
implementation of future transportation development
projects, cross-border terrorism, and bilateral trade
relations, apparently hoping to demonstrate Nepal's
flexibility. Both leaders publicly identified control of
terrorism and antigovernment elements as an area of
immediate mutual concern; a joint antiterrorism
program is likely to be announced soon.
Outlook
The evolution of Rajiv's policy toward Nepal will
depend in part on developments in New Delhi's
relations with Beijing. Improvement in relations with
China, we believe, would free New Delhi to be more
receptive to Kathmandu's push for greater equality in
the relationship. A downturn relations with Beijing,
however, would probably lead India to push to
increase its influence in Nepalese affairs. Kathmandu
would have difficulty resisting.
Developments in Nepalese domestic politics also could
cause a change in India's attitude. We believe a
strong movement toward democratic political reforms
in Nepal would draw India's attention and encourage
greater Indian meddling in Nepalese domestic affairs.
A working democratic apparatus based on competing
political parties could jeopardize New Delhi's
influence by subjecting the Indo-Nepalese
relationship to open political debate. The development
of an insurgency in Nepal threatening the monarchy
could encourage the King to seek Western military
aid, a move India would oppose.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Bhutan: Forging New Ties
in April.
The Himalayan Kingdom of Bhutan is gradually
assuming a modern political role in South Asia. After
two decades of near total economic dependence on
India, Bhutan has increased borrowing from
multilateral aid institutions, established new trade
relations in South Asia, Europe, and the Pacific,
streamlined its budget and internal administration,
and begun to assert increasingly independent foreign
policy positions on a range of regional and global
issues. Indian Prime Minister Gandhi's personal
friendship with King Jigme Wangchuck and New
Delhi's choice of Bhutan as a venue for this summer's
Sri Lanka peace talks have reaffirmed India's
excellent relations with Bhutan and highlighted
Bhutan's emerging role in South Asian affairs.
Although still reluctant to establish diplomatic
relations with its other giant neighbor, China, Bhutan
completed a second round of border talks with Beijing
political and cultural independence.
Managing Ties to India
India is the major focus of Bhutan's foreign relations.
Unlike its Himalayan neighbor, Sikkim, Bhutan has
never faced a direct Indian threat to its sovereignty
and has prospered as an independent monarchy since
1907 in relative isolation from New Delhi. In 1949,
India and Bhutan agreed by treaty to continue the
British policy of New Delhi "guiding" Bhutan's
foreign relations. Despite massive infusions of
development assistance-including the construction
of a road between New Delhi and Thimphu-India
has avoided using its economic leverage to influence
Bhutan's internal affairs, which remain politically,
ethnically, and culturally distinct from India. King
Wangchuck has placed high priority on maintaining
excellent relations with New Delhi-a necessity for
economic development-and on preserving Bhutanese
According to press reports, Gandhi's three-day visit to
Bhutan last month underscored strong bilateral ties
and paved the way for Bhutan's establishment of
diplomatic ties to Switzerland, Sweden, Denmark,
and the European Community. For Gandhi, the visit
renewed regional attention to India's "good neighbor"
policy, provided a welcome contrast to New Delhi's
recent strong-arm tactics in Nepal, and strengthened
his longstanding friendship with the 29-year-old King.
Since assuming the throne in 1974, Wangchuck has
usually met with Indian officials in New Delhi.
Gandhi's journey to Bhutan is only the third visit by
an Indian Prime Minister and the first since 1972.
The visit also allowed the King an opportunity to
reaffirm Bhutan's principal foreign policy objective of
maintaining excellent ties to India, its most important
trading partner and aid donor. Bhutan also acts as
host to nearly 10,000 Indian Army troops who are
frequently rotated to maximize Indian troop
familiarization with the region. Wangchuck and
Bhutan's National Assembly are careful not to
criticize India's economic clout, military presence,
and the self-serving nature of Indian development
assistance. Despite the King's determination to
preserve Bhutan's cultural identity, he appears
equally committed to gradual economic development.
Although Bhutan has been able to develop alternative
aid sources, India's grip on Bhutan's fledgling
economy is unchallenged. New Delhi has contributed
$204 million toward Bhutan's fifth economic plan
(1981-86)-more than half of the plan's total outlay.
It has also financed 60 percent of an ambitious 336-
megawatt hydroelectric project designed to make
Bhutan an energy exporter to India. Bhutan's
emerging export industries of timber, minerals,
canned fruits and cement represent only 5 percent of
the country's $300 million GDP and are located
principally in the south, closest to Indian markets and
technical assistance. Embassy reports indicate that
Wangchuck is eager for continued Indian aid and has
successfully courted both Rajiv Gandhi and Indian
public opinion.
Secret
NESA NESAR 85-023
25 October 1985
- Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Landlocked Bhutan, about 47,000 square kilometers
in area, is nearly the size of Vermont and New
Hampshire combined. Much of the population lives in
remote valleys that are just beginning to be touched
by modern development and the laws and activities of
the central government.
The majority of Bhutan's population of 1.4 million
are Bhotias-Buddhists of Tibetan descent-who
dominate the government and the clergy. People of
Nepalese origin and a number of small tribal groups
account for much of the rest of the population. Most
of the Nepalese were brought in as laborers, and we
believe they plan to return to Nepal.
Because of difficult communications and
transportation, most Bhutanese communities have
traditionally been self-sufficient, meeting basic needs
through farming, raising livestock, cottage industries,
and trade. Compared to much of South Asia, living
standards are relatively good.
Bhutan's official language, Dzongkha, is similar to
Tibetan. A number of dialects are spoken in highland
villages, and Nepali is widely spoken in the south.
The medium of instruction in the country's secular
schools is English.
A few hundred students attend secondary and higher
schools in India, but an increasing number are being
sent to Europe and the United States under UN
auspices. It is estimated that approximately 10
percent of the adult population is literate.
Bhutan has been a monarchy since 1907. King Jigme
Singye Wangchuck was crowned in 1974 at the age of
18. All political power is vested in the monarch, but
increasingly he has delegated authority to the
Council of Ministers, which was established in 1968.
Bhutan has no political parties. The National
Assembly (Tshogdu) of 152 members is empowered to
enact legislation and to approve or reject senior
appointments.
Signs of Independence
Press reports indicate that Bhutan is eager to end its
long period of isolation and is seeking ways to expand
its ties to the outside world. Although the King claims
to have no intention of making Bhutan's capital,
Thimphu, a "South Asian Geneva," his success as
host to two rounds of Sri Lanka peace talks suggests
Thimphu could become a more regular site for
regional negotiations. Moreover, the kingdom's active
participation in the South Asian Association for
Regional Cooperation will inevitably accelerate
Bhutan's political and economic integration into the
region, spurring greater independence from New
Delhi.
Cordial relations with Bangladesh are also helping
Bhutan emerge from India's shadow. Building on a
1980 trade agreement, Bhutan and Bangladesh
agreed formally in January to expand trade and
economic relations. In exchange for the full range of
Bhutan's exports, Bangladesh will provide
pharmaceuticals, textiles and tobacco. In addition,
both countries issued a joint communique in April
1983 that called for "immediate and unconditional
withdrawal of foreign troops from Afghanistan and
Kampuchea"-positions that diverge from New
Delhi. So far New Delhi has not officially objected to
the growing ties between Thimphu and Dhaka, but
Embassy and press reports suggest that India is
unlikely to permit Bangladesh too much influence in
Bhutan's Indian-oriented foreign policy.
Bhutan has also shown a willingness to break with
New Delhi on its own. Recently, Bhutan acceded to
the Nuclear Non-Proliferation Treaty, which New
Delhi opposes. Bhutan's first independent steps in
foreign policy complement its drive to diversify from
predominantly Indian sources for development
assistance. Faced with major budgetary constraints at
home, New Delhi appears content to allow Bhutan
independent membership in a range of multilateral
institutions including the Asian Development Bank,
the World Bank and the International Monetary
Fund. Although New Delhi encourages greater
economic independence for Bhutan, it will almost
certainly prevent Thimphu from asserting any regular
opposition to Indian strategic interests.
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
A Cautious Approach to China
Bhutan's relations with China are based primarily on
negotiating an undemarcated 500-kilometer border in
the Himalayas. Although New Delhi is wary of
Beijing's push for better ties to Bhutan, it permitted
Bhutan to undertake direct talks with China in 1984.
So far, two rounds of talks have produced little
progress. Bhutan has reiterated its opposition to an
official reopening of economic relations with Tibetan
traders. After reluctantly harboring a troublesome
Tibetan refugee community during the 1960s and
1970s, the King is eager to keep Tibetan and Chinese
influence out of Bhutan.
Outlook
With the qualified support of Rajiv Gandhi, King
Wangchuck is likely to continue an expansion of
Bhutanese economic and political relations.
Hydroelectric power, tourism, and increasingly better
trained and effective administrators are likely to
enhance Bhutan's internal revenue and reduce
Thimphu's heavy economic dependence on India.
Bhutan's recently announced decision to establish
diplomatic relations with a number of European
countries will also help develop new export markets
and improve prospects for increased development
assistance. Despite Bhutan's growing independence,
good relations with India will remain the focus of
Bhutan's foreign policy.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2 -
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Iq
Next 1 Page(s) In Document Denied
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/03/02 : CIA-RDP87T00289R000100240001-2