NEAR EAST AND SOUTH ASIA REVIEW SPECIAL ISSUE: SOUTH ASIA IN 1986

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00289R000100300001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 48
• Document Creation Date: December 22, 2016
• Document Release Date: July 8, 2011
• Sequence Number: 1
• Publication Date: December 20, 1985
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5 -
Directorate of
Intelligence
s3
y1 I;b l:?J
Y Se
MIP41STER ~n i F
Near East and
South Asia Review
Special Issue: South Asia in 1986
NESA NESAR 85-027
20 December 1985
440
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Near East and
South Asia Review
Special Issue: South Asia in 1986
Articles South Asia in Strategic Perspective
US interests in South Asia were enhanced by developments in
Afghanistan, Pakistan, and India in 1985, but longstanding regional
antagonisms and the potential for political instability will pose risks
for US policy in South Asia in the coming year.
25X1
25X1
The War in Afghanistan: Trends in 1985 and 5
Implications for 1986
During 1985 both the Soviets and the insurgents took a more
aggressive approach to the war in Afghanistan, and, although few
major changes in the overall military situation are expected in 1986,
there are no signs of war weariness among the resistance or any
lessening of Soviet determination.
Afghanistan: Progress Toward Peace?- 9
Gorbachev's attitudes toward Afghanistan at the November
meetings with President Reagan in Geneva, recent statements by
other Soviet officials suggesting a Soviet desire to leave
Afghanistan, and last month's changes in the Kabul regime provide
hints that Moscow is reassessing its approach to negotiations on
Afghanistan.
Pakistan at a Crossroads: Prospects for Civilian Rule
The new civilian government, with Zia as President, will survive its
first year as Zia is a wily politician, and the government will not
press for rapid liberalization. The new regime faces potential
economic and political pitfalls, and Pakistan's military leaders will
step in if they believe it is losing control or betraying military
concerns.
Secret
NESA NESAR 85-027
20 December 1985
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Pakistan: Looking to the United States for More Aid (c NF) 19
Disturbed by the wide gap between US and Pakistani proposals on
the next five-year aid package, Islamabad will push hard for
increased economic and military aid from Washington. If it fails in
its quest, it may drag its feet on matters of interest to the United
States in the region t)erhar)s even trimming its assistance to the
Afghan resistance
India's Rajiv Gandhi: Dealing With 23
Domestic Priorities and Politics
Rajiv Gandhi has finished his first year as Prime Minister, having
achieved movement on some of his country's most persistent
problems, but he faces some major political hurdles in 1986 as he
attempts to implement difficult decisions and confronts India's
entrenched bureaucracy.
Rajiv Gandhi has moved, through liberalization measures and
exhortations, to transform the Indian economy into a more dynamic
and competitive force, but over the next year he must watch for
signs that his program is adversely affecting India's foreign
payments and stimulating resentment that these measures do not
benefit the poor.
India: Rajiv's "Good Neighbor" Policy-
An Interim Report Card
Rajiv Gandhi's fresh foreign policy approach has improved the tone,
if not always the substance, of India's relations with several
neighboring countries, but the conciliatory line he has adopted
probably reflects less his innate good will than a desire to clear his
agenda of conflicts that compete with his domestic agenda.
Secret ii
27 9 X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Sri Lanka: Steps to Peace, Strides to War
After initial strides toward peace during the summer of 1985,
momentum toward a negotiated settlement between Sinhalese and
Tamils has slowed, and by year's end renewed military preparations
by both sides and continued outbreaks of fighting were threatening
to eclipse New Delhi's bid to broker a settlement.
Bangladesh: Ershad's Long, Hot Winter 39
President Ershad will probably be unsuccessful in gaining the
opposition's cooperation in his plan to lift martial law and hold
elections by April 1986. The Army, although increasingly
dissatisfied with his lackluster performance in office, prefers the
status quo to a government dominated by leftist parties.
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.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
South Asia in
Strategic Perspective
We believe that US interests in South Asia were
enhanced by regional developments in 1985. The
Afghan resistance to the Soviet invasion is stronger
than ever, and the Soviets have hinted at greater
interest in a negotiated settlement to the war in
Afghanistan. Pakistan is more confident in its foreign
policy and is moving toward better relations with
India. The Indian Government under Rajiv Gandhi
has adopted a more conciliatory approach in the
region, has placed high priority on procuring
advanced Western technology, and is willing to pursue
more balanced relations with the United States. F_
Nonetheless, longstanding regional antagonisms and
the potential for political instability will pose risks for
US policy in South Asia in 1986. US policy could be
severely challenged by new tensions between India
and Pakistan-especially over nuclear
developments-or by failed expectations of either
country in their relations with the United States.
Domestic or economic pressures could cause policy
changes in Islamabad that could set back US regional
interests. New departures in Soviet policy might
undermine Pakistan's strong support for the Afghan
resistance.
The War in Afghanistan
The fighting in Afghanistan last year was more
intense than in previous years and, in our judgment,
caused greater casualties and equipment losses both
for the resistance and for Soviet and Afghan regime
forces. The Soviets made greater use of their
overwhelming advantages in firepower-especially
artillery and airpower-and mobility in attacking
insurgent positions. They also significantly increased
pressure on insurgent supply lines, including frequent
Even though Soviet forces were more active and
aggressive than in the past, they did not make major
gains against the Afghan insurgents. In 1985
resistance forces-better armed and trained than
before-intensified pressure on the Soviets and the
Kabul regime in many areas of Afghanistan. We
believe the fighting in the last year has increased
popular perceptions in Afghanistan that the guerrillas
are becoming stronger and the regime weaker.
In our view, the war in Afghanistan will become still
more fierce in 1986. Insurgent capabilities are
improving throughout the country as better weapons
are making their way to more groups and to more
remote regions of Afghanistan. The insurgents also
are becoming more bold in attacking major Soviet and
Afghan military targets.
We believe that increasing insurgent capabilities have
caused the Soviets to limit their near-term aims in
Afghanistan. The Soviets almost certainly recognize
that in areas of significant resistance-including
several major cities and near vital supply lines-the
insurgents are well entrenched and have the
advantages of terrain and the support of the local
population. The Soviets undoubtedly realize that the
performance of the Afghan army and the credibility
of the Kabul regime are a liability and that Soviet
forces are far too few to consolidate control of the
country.
Thus, rather than expecting to make great strides
against the Afghan resistance in 1986, we believe the
Soviets will primarily be concerned with preventing
ambushes by elite Spetsnaz forces.
Secret
NESA NESAR 85-027
20 December 1985
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
further deterioration of the military situation. We
expect the Soviets to increase pressure in areas of
significant resistance and on the insurgents' supply
network.
Political Maneuvering on Afghanistan
Soviet hints about new flexibility in their position
regarding a political settlement may be disingenuous.
We do not expect the UN-sponsored talks on
Afghanistan to yield an agreement. The Soviets
maintain that a Soviet troop withdrawal can be
negotiated only between Moscow and Kabul and that
guarantees of nonintervention must precede the
withdrawal. Pakistan insists that troop withdrawals
must be part of the final agreement.
Still, the most significant developments in
Afghanistan may be political rather than military.
We cannot disregard the possibility that Moscow is
looking for a negotiated way out of an increasingly
costly war in Afghanistan. Recent high-level changes
in the Kabul regime and informal Soviet suggestions
of willingness to see a broader-based government in
Kabul probably are aimed partly at inducing Pakistan
into new talks that would sell out the Afghan
resistance. For its part, Moscow would not accept any
agreement that did not protect its interests and
political allies in Afghanistan.
Islamabad so far has stood firm in its support for the
Afghan resistance even though Soviet military
pressure along the border has increased.F
believe that coming to terms with the Soviet
presence in Afghanistan poses fewer long-term risks
than backing the insurgents. Islamabad is almost
certainly inclined to explore Soviet diplomatic
openings because of concerns about the economic
burden of the Afghan refugees and their impact on
political stability in the northwest. A major political
debate on Zia's Afghanistan policy within the civilian
government could cause Islamabad to make
The major Afghan exile groups in Pakistan that
united to form a new resistance alliance in 1985
probably will increase efforts to improve political
cooperation and establish their credibility in
representing the Afghan cause. Disunity within the
insurgent alliance is likely to be a continuing problem
and could undermine its efforts to gain broad
international backing.
Political Change in Pakistan
President Zia so far has skillfully managed the
transition from military to civilian rule in Pakistan.
Last February's legislative elections enhanced Zia's
political legitimacy, but he has had to concede more
power to the Prime Minister and make other
concessions to the National Assembly to gain the
political consensus he sought for lifting martial law.
Outmaneuvered by Zia's control and manipulation of
the political process, the old opposition alliance is
fragmented, lacks direction, and is left with declining
influence in Pakistan.
A more open political system will encourage greater
assertiveness by the National and provincial
assemblies and result in greater opposition to many of
Zia's policies in the year ahead. In our judgment,
Pakistan is unlikely to face a major political crisis in
the next year because most of the relevant political
actors-including the National Assembly and the
military-are concerned not to short-circuit the
development of civilian rule by adopting confrontation
tactics.
New Policies in New Delhi
New Delhi has pursued more conciliatory policies at
home since Rajiv Gandhi was overwhelmingly elected
Prime Minister following his mother Indira's
assassination in October 1984. Gandhi scored major
political successes by reversing his mother's hardline
policies toward communal tensions in Punjab and
Assam; he made political concessions that allowed
him to achieve accords that undercut extremist
agitation in both states. Important aspects of both
accords remain to be worked out. Gandhi also moved
quickly to crack down on patronage and corruption in
the ruling Congress Party and emphasized his plans to
reform the government bureaucracy and streamline
concessions to Moscow and Kabul.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
decisionmaking. We believe Gandhi hopes next to
focus on modernizing India's economy with imported
Western technology and private-sector investment.
We believe that regional stability has been enhanced
by Rajiv's less confrontational approach to Indian
relations with Pakistan and some of the smaller South
Asian countries. India has played a major role in
trying to resolve Sri Lanka's communal tensions and
has been more constructive in support of the newborn
South Asian Association for Regional Cooperation. In
our view, Gandhi's more moderate regional policies
are aimed at reducing tensions that encourage outside
intervention and at demonstrating India's intention to
be more respectful of its smaller neighbors.
Uncertain Prospects for Indo-Pakistani Relations
Both Zia and Gandhi seem committed to improving at
least the tone of their relations and to maintaining a
dialogue. The two leaders have met six times in the 14
months since Indira's death. Pakistan-which is more
assured in its relations than in the past-is
determined to achieve a reconciliation on the basis of
a mutually acceptable strategic balance. India-
although skeptical of Pakistan's intentions, especially
in the nuclear area-wants to defuse tensions so it can
focus on economic development and reach agreement
on preventing nuclear proliferation.
Gandhi and Zia made a major step in this direction in
December when they agreed not to attack each other's
nuclear installations. They also agreed to negotiate
accords that would normalize economic and cultural
ties, resume discussions on reconciling differences
between Islamabad's proposed nonaggression pact
and New Delhi's draft treaty of friendship, and begin
high-level discussions on reducing border clashes in
northern Kashmir. The pledge not to attack each
other's nuclear facilities is a significant confidence-
building measure between the two sides.
The halting progress in Indo-Pakistani relations could
stall over the nuclear weapons issue. Zia and Gandhi
emphasized in their December meeting that major
differences remain about their nuclear programs, and
discussions on a nuclear agreement have been
deferred. The Indians regard a nuclear Pakistan as a
threat to their national security as well as their
regional political interests, and they have warned that
a nuclear Pakistan would force them to reconsider
their policy of forsaking nuclear weapons. (Some
analysts believe New Delhi will launch a nuclear
weapon program anyway-if it has not already done
so-to gain greater strategic influence and as a hedge
against China.) The Pakistanis believe a nuclear
capability is essential both to their security and to
gain strategic parity with India.
India and Pakistan both clearly have begun thinking
about the military implications of nuclear weapons. It
is possible-although not likely as long as both sides
are suspicious of each other's motives and
intentions-that the implications of nuclear weapons
might cause New Delhi and Islamabad to agree on
ways to assure stability in a nuclear South Asia. India
and Pakistan have each made proposals to prevent
proliferation, but each so far has found the other's
ideas unacceptable.
Besides the nuclear issue, historical antagonisms and
dramatically different perceptions of their strategic
roles in South Asia are significant obstacles to a long-
term reconciliation between India and Pakistan.
Fundamental differences lie behind India's refusal to
accept Pakistan as a strategic equal and Pakistan's
refusal to accept Indian dominance. Both sides
suspect the other is arming, training, and infiltrating
dissidents against their country. Although neither
country is prepared to go to war over Kashmir, neither
will abandon its territorial and political claims. An
escalation in clashes along the Kashmir cease-fire
line-such as in the Siachin Glacier area-could
provoke wider fighting in a period of mounting
tensions.
Outlook for US Policy Interests
New Delhi and Islamabad will each continue to look
with suspicion on the other's relations with the United
States. The Indians remain dubious about the
ultimate use of US arms supplied to Pakistan and
believe that the United States chooses not to press
Islamabad on its nuclear program because of
Pakistan's role as a strategic partner in opposing the
Soviets in Afghanistan. The Pakistanis fear that
closer US-Indian ties-especially the development of
I
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
a large Indian market for US trade and investment-
will be at Pakistan's expense, and that the United
States would not back Pakistan in a new crisis with
India.
Pakistani disappointment about the size of the next
US security assistance package-Islamabad hopes to
double the present $3.2 billion five-year program-or
irritation at increased US pressure on the nuclear
front would cause strains in US-Pakistani relations.
We believe most Pakistanis are suspicious of US
motives and do not share Zia's view of an enduring
US commitment to Pakistan. US inability to meet
Pakistan's aid expectations could even undermine the
foundation of Zia's personal commitment to
strengthening ties to the United States. In any case,
US policies are likely to become a greater target of
criticism in a civilian-ruled Pakistan.
The United States faces a major challenge in trying to
establish a new basis for relations with India-
including closer consultations and cooperation on
issues such as Afghanistan and the development of a
military relationship-while continuing extensive
security aid to Pakistan. New Delhi also rejects US
military interests in the Indian Ocean region and
would firmly oppose greater US-Pakistani military
cooperation-including US access to Pakistani bases
for regional military contingencies. Indian officials
are skeptical of US reliability, and major difficulties
over technology transfer or the development of a
military relationship could erode support for closer
relations with the United States.
Nonetheless, Gandhi's more moderate foreign policy
and interest in US technology provide a significant
opportunity for the United States to improve relations
with New Delhi. Although differences over Pakistan
probably limit the expansion of US-Indian relations,
we believe that Rajiv is willing to tolerate more policy
differences with the United States than was his
mother. We believe the prospects for improved US-
Indian relations would diminish markedly if Rajiv
Gandhi were no longer Prime Minister because no
other Indian leader would have the influence he has to
overcome widespread suspicion of the United States in
India.
Increased US aid and technology transfers will not
cause New Delhi to abandon or substantially reduce
its strategic ties to Moscow. Despite a policy of arms
diversification, India will remain dependent on Soviet
arms for at least the rest of the decade. At the same
time, we believe that Gandhi's interest in Western
technology and in pursuing a more balanced foreign
policy will cost Moscow influence in New Delhi. The
Soviets may also find Rajiv less willing than his
mother to support some Soviet policies, possibly
including Moscow's policy in Afghanistan.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
The War in Afghanistan:
Trends in 1985 and
Implications for 1986
During 1985 both the Soviets and the insurgents took
a more aggressive approach to the war in
Afghanistan. The Soviets improved their use of air
assets and put new emphasis on small combat
operations; they only slightly increased their troop
strength. We expect Moscow to continue to stress
operations by specialized troops, including night
operations, and the use of airpower in 1986. We do
not foresee a sizable increase in combat personnel,
barring major insurgent battle victories.
The insurgents extended their operations to new areas
of Afghanistan in 1985, began adapting to Soviet
mobile, small-unit operations, cooperated better on
tactical issues, and executed more complex operations
with greater firepower. They maintained their high
morale and the support of the population in
Afghanistan. In 1986 we expect to see a well-supplied,
aggressive, offensive-oriented insurgency with greater
capability to operate throughout Afghanistan. We
also expect the insurgents to position some
headquarters and training camps in Afghanistan,
form some large and conventionally organized groups,
develop more refined infiltration routes, and improve
Soviet Improvements in 1985
Soviet troop strength in Afghanistan increased by
approximately 4,000 during 1985. An additional
motorized rifle regiment was deployed to Herat in
western Afghanistan to improve security in the area.
Although multibattalion operations remain the
Soviets' principal method of engaging the insurgents,
the use of small and well-trained units increased
measurably in 1985. Night ambushes by groups of 20
to 30 Soviet soldiers-usually Spetsnaz-equipped
with antipersonnel mines and small arms are now
common.
In 1985 the Soviets significantly increased emphasis
on training troops specifically for Afghanistan to
overcome problems with inexperienced troops.
training.
The Afghan Armed Forces remain beset by severe
manpower problems, desertions, and factionalism
despite a concentrated Soviet effort to improve their
capabilities. The Armed Forces' continuing
difficulties are reflected in their poor performance
this year and make it unlikely that they will be able to
operate effectively against the insurgents in the near
term.
Barring an unlikely decision in Moscow to deescalate
the war in the interests of a political settlement, we
expect few major changes in the overall military
situation in 1986. Although we expect casualties on
both sides to increase, we see no signs of war
weariness among the resistance or any lessening of
To hold down their casualties, the Soviets made
greater use of their overwhelming advantages in
firepower-artillery, multiple rocket launchers, and
airpower-to support ground operations. Helicopters
played an increasingly important role, airlifting troops
into combat areas, providing close fire support,
escorting troop and supply columns, and transporting
critical supplies to remote areas.
Soviet determination.
The Soviets improved their airfields and added to
their petroleum facilities in Afghanistan during 1985.
A second runway was built at Termez airport in
northern Afghanistan, and an 800-meter runway
Secret
NESA NESAR 85-027
20 December 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
extension at Kabul airfield was completed in June.
The supply and storage of petroleum, oil, and
lubricants were enhanced in western Afghanistan by a
new pipeline from Towranghondi to Shindand and an
additional 900,000-liter fuel storage area at Herat.
Little Progress for Afghan Regime
The Afghan Armed Forces still cannot recruit and
retain enough reliable manpower to wage a
? Improved their logistics.
Peshawar, Pakistan, by truck
In
Me remote northern Balkh Province, insurgents
obtained weapons, munitions, and supplies from
? Improved their mine-laying techniques and
increased their mine-clearing capabilities,
25X1
25X1
25X1
25X1
')FY'I
`25X1
counterinsurgency effort.
Persistent factionalism and disloyalty in the
leadership prevent the building of a cohesive army.
Afghan troops for the most part are unwilling to fight
their fellow countrymen. Units in many parts of the
country avoid confrontations with insurgents and have
generally proved ineffective in unilateral operations.
Their poor performance will require the Soviets to
shoulder an even greater share of the fighting,
spreading their military resources-already
insufficient-even thinner.
Insurgent Capabilities Grow
During 1985 the insurgents began developing tactics
to counter Soviet small-unit ambushes, improved
cooperation among insurgent groups in the field-
particularly among Islamic fundamentalist groups
operating in northern Afghanistan-and executed
more sophisticated operations with greater firepower.
Some resistance forces were hurt, however, by
defections to the regime or the death of important
leaders.
The insurgents' capabilities improved because of the
increased weapons, training, and equipment they
received during the year. They have:
? Used air defense weapons more effectively. We
estimate that during 1985 the resistance destroyed
or severely damaged some 180 Soviet and Afghan
aircraft.
? Proved quicker to adapt to changes in Soviet tactics
than the Soviets have been to new insurgent tactics.
These improvements have enabled the resistance to
hold their own against Soviet and Afghan regime
forces and score occasional but significant
psychological and tactical victories.
Looking Ahead
Soviet Forces. We expect the Soviets to do many of
the same things they have been doing in Afghanistan
over the past six years. Some small increases in troop
strength are likely. More special-purpose forces
probably will be deployed in areas where insurgent
activity has increased-between Lashkar Gah in the
south and Shindand in the west, for example.
We believe the Soviets in the next year will continue
to emphasize attacks on guerrilla camps and supply
lines within Afghanistan. Mobile forces operating
independently in small units, including Spetsnaz
troops, are likely to carry out more reconnaissance
and ambush missions against insurgent caravans-
more frequently at night-to slow the insurgents'
arms flows from Pakistan.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
We speculate that Soviet large-scale offensives will
involve fewer troops than in the past to maintain
flexibility in responding to insurgent activity
elsewhere in Afghanistan and to reduce the warning
time for the insurgents. Greater reliance on heliborne
assaults with heavy air and artillery support in large
operations is likely.
Because of the unreliability of the Afghan army and
Air Force, Moscow may put more effort into
developing paramilitary and irregular units among
Afghan tribesmen to assist in blocking insurgent
infiltration. Several such units have been set up this
year, mostly along the Pakistan border.
We believe the Soviets will continue to face many of
the same problems that have plagued them
throughout their occupation of Afghanistan-poor
intelligence, too rigid command and control practices,
and too few troops
Soviet political pressure on Pakistan will probably
increase. This may increasingly include Soviet/
Afghan attempts to win over Pakistani border tribes.
The Insurgents. The insurgents will continue to try to
expand both their operations and their tactical
cooperation. They will probably continue to try to
extend the fighting into areas-such as Helmand
Province and the Hazarajat region-where fighting
has traditionally been limited. Insurgent cooperative
efforts against government forces will continue to
increase.
We expect that insurgent groups throughout
Afghanistan will be better armed in 1986, in part
because of improved infiltration and supply routes.
New arms will add to their capabilities against both
Soviet Ground and Air Forces.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Afghanistan: Progress
Toward Peace?-An
Alternative Analysis
This article explores recent developments that suggest
a different Soviet political approach to the war in
Afghanistan and poses a new negotiations scenario.
The authors assume that the Soviets are feeling the
cost of the war, that they are actively looking for a
face-saving way out, and that Gorbachev faces no
insurmountable internal obstacles to withdrawal-
assumptions that are not widely shared in the
Intelligence Community. Nonetheless, the authors
believe that there is enough recent evidence that
Moscow is considering an alternative negotiating
strategy to warrant discussion.
Soviet Communist Party General Secretary
Gorbachev's attitudes toward Afghanistan at the
November meetings with President Reagan in
Geneva, recent statements by other Soviet officials
suggesting a Soviet desire to leave Afghanistan, and
last month's changes in the Kabul regime provide
tenuous hints that Moscow is reassessing its approach
to negotiations on Afghanistan. Although there are
many reasons to be skeptical of the apparent Soviet
flexibility, we cannot rule out the possibility that
Moscow is serious about negotiating a face-saving
withdrawal.
If the Soviets are-or are becoming-serious, we
believe Moscow most likely would pursue informal,
secret talks with Pakistan. In our view, Pakistan
would be willing to participate in such negotiations.
The talks might begin with each side carrying out
confidence-building measures-such as a small Soviet
troop withdrawal and Pakistani agreement to engage
in direct talks with Kabul-to test each other's
sincerity. Even under these circumstances, a peace
agreement involving a firm timetable for Soviet
withdrawal and an end to Pakistani support for the
resistance would be a long-term prospect, given the
two sides' mutual distrust.
Moscow's Multitiered Strategy
In their efforts to obtain their primary security
objective in Afghanistan-the establishment of a
government in Kabul sympathetic to Soviet security
concerns-the Soviets are pursuing a variety of
tactics. Besides attempting, with minimal success, to
defeat insurgent forces on the battlefield, Moscow is
holding fast at the bargaining table in its refusal to
consider a timetable for Soviet troop withdrawals
until Pakistan agrees to direct talks with Kabul.
Moscow maintains that the present regime in Kabul is
legitimate, that the Soviets were invited into
Afghanistan to help the fledgling socialist state cope
with an insurrection, and that the real cause of the
war is foreign support-primarily Pakistani and
US-for the Afghan resistance.
At the same time, Moscow almost certainly is
disappointed in the Afghan Communists' failure to
win broad popular support and recognizes that its
commitment to defend Afghanistan could drag on for
years if the insurgents are not neutralized-either
militarily or diplomatically. Moscow's recent hints at
flexibility on Afghanistan may mean that it is seeking
a face-saving way out of the protracted, bloody
conflict without sacrificing its major security
objectives.
We believe Moscow hopes that, with the lifting of
martial law in Pakistan next month, President Zia
will come under significant domestic pressure to
review his country's support for the Afghan
resistance. The Soviets have been encouraging the
Kabul regime's recent efforts to make Islamabad's
support for the resistance more costly-by, for
example, sowing discord among the border tribes and
sending saboteurs into Afghan refugee camps-while
at the same time seeking both privately and publicly
to convince Pakistan and the United States, among
others, of the seriousness of its desire for peace.
Movement in Kabul
As part of this effort, the Kabul regime is undergoing
a facelift. In a sharp break with past practice, it has
for much of the last year minimized its Marxist-
Leninist ambitions and instead stressed its adherence
Secret
NESA NESAR 85-027
20 December 1985
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
to traditional Afghan politics. Speeches by Babrak
and other key Afghan officials have sought to portray
the government as pluralistic and the party as only
one of a number of organizations that together govern
Afghanistan. Underscoring Kabul's purported
concern for traditional ethnic, regional, and tribal
interests, for example, the Afghan media portrayed
this summer's token local elections as proof that the
government is popularly based. To enhance the
"national democratic" flavor of this appeal, the
regime welcomed cooperation from all quarters,
including "private capital holders."
The rhetoric-which we believe is motivated in part
by the regime's desire to improve its international
image-may be aimed at convincing regime
opponents, including the resistance, that Babrak is
willing to discuss power-sharing arrangements,
including a coalition government. In Babrak's speech
on 9 November, he underlined the regime's
willingness to "widen the talks, contacts, and
understanding with those elements unconsciously
taking a hostile position against the revolution or
those repenting their counterrevolutionary deeds."
Is Moscow Serious?
We doubt that Babrak would have been willing to
take such an approach without Soviet approval.
According to the US Embassy in Kabul, Soviet
diplomats in Kabul appear to be pushing the idea that
some conciliatory gestures have already been made to
the resistance-including overtures to resistance
leader Ismail Khan-and have attributed the recent
elevation to the Politburo of Minister of Nationalities
and Tribal Affairs Solayman Laeq to his "good
connections" with the resistance.
Moreover, Moscow's efforts to portray the changes as
major moves toward a political settlement are, we
believe, also significant:
? According to the US Embassy in Moscow,
Gankovskiy subsequently told US officials that
Afghanistan is launching a major effort to achieve a
negotiated settlement.
? During the Geneva meetings between President
Reagan and Soviet Communist Party General
Secretary Gorbachev, Soviet officials talked
publicly about the high costs of the war and Soviet
willingness to depart. US officials were struck by
the fact that Gorbachev did not mention the need
for direct talks between Pakistan and Afghanistan
when he spoke about the need to support the UN
diplomatic process in Geneva.
Taken together, these events strongly suggest that the
leadership changes in Kabul are more than a
propaganda ploy and are primarily aimed at making
the Kabul regime more palatable to the Pakistanis.
How Might the Peace Process Work?
Recent Soviet and Indian contacts with Pakistan point
to a new Soviet interest in discussing Afghanistan
directly with Islamabad:
? Indian Foreign Secretary Bhandari told US officials
that he had discussed with the Pakistanis an
"informal process" designed to supplement the
Geneva talks. The Pakistanis were interested in the
idea.
? According to press accounts, Soviet Deputy Foreign
Minister Korniyenko told Pakistani Foreign
Minister Yaqub Khan that Moscow would consider
"in theory" a graduated troop withdrawal.
We believe Pakistan would be amenable to informal
talks with the Soviets because they hold the prospect
of reducing the Soviet presence in Afghanistan and
allowing nearly 3 million Afghan refugees to return
home. The two states would probably prefer to
conduct such negotiations in secret, perhaps at a
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Middle Eastern capital like Damascus, where
Moscow, Islamabad, and Kabul all have diplomatic
representation. Iran and China-both of which have
recently stepped up bilateral contacts on
Afghanistan-are also prospective intermediaries.
If the insurgents find out about the negotiations, at
least some of the groups would try to sabotage the
peace negotiations by stepping up activity against the
Soviets. The insurgents, moreover, have been storing
arms and ammunition in the event of a "sellout" by
Pakistan, and their independent military action in
Afghanistan could call into question Islamabad's
Such a process, in our view, would allow each side to
carry out confidence-building measures-token Soviet
troop withdrawals, for example, in return for
Pakistani willingness to meet directly but secretly
with Afghan officials-that could restore momentum
to the negotiations and allow the Soviets and
Pakistanis to test each other's intentions.
The process could be drawn out further once the
initial steps are taken to each side's satisfaction. The
Soviets could follow their token troop withdrawal with
moves to broaden the regime, bringing in to
nonsensitive posts some figures acceptable to the
resistance. In exchange, Islamabad might be willing
to offer a public statement on noninterference. The
Soviets probably would also expect the Pakistanis to
gradually shut down resistance facilities in Pakistan
and cut off the flow of men and supplies through
Pakistan. Over time, power-sharing arrangements
could be worked out for high-level government posts
in Kabul and in the Armed Forces, with, for example,
the Soviets naming the defense and foreign ministers
and army commanders, and the Pakistanis
nominating the interior and tribal affairs ministers
and the deputy army commanders.
Negotiations would be protracted, however, and the
process could be quickly reversed. Mutual distrust
would remain high.
What About the Resistance?
A major stumblingblock to successful informal talks
would be the Afghan resistance. Islamabad almost
certainly realizes that the resistance would object to
diplomatic probes of Moscow's position and would
oppose an agreement that conceded Moscow's
security interest in Afghanistan. The Pakistanis,
accordingly, would probably not consult closely with
resistance leaders.
sincerity, thus derailing the peace talks.
Moscow and Islamabad would probably bank on
resistance disunity to impede its effectiveness. By
offering resistance leaders Cabinet or high-level army
posts in a coalition government, Moscow and
Islamabad probably would try to split the resistance
along ethnic or religious lines and render its ability to
oppose the arrangements negligible. On balance, we
believe the Soviets and Pakistanis would judge that
the threat a fractured resistance would pose to a new,
more inclusive Kabul regime would rapidly
deteriorate without the use of Pakistan as a safehaven
and resupply point.
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Pakistan at a Crossroads:
Prospects for Civilian Rule
President Zia's lifting of martial law on 25
December-the birth date of Pakistan's founder-
will give the country its first civilian government in
more than eight years. We expect the new
government, with Zia as civilian president, will
survive its first year. Zia has shown himself a wily
politician-he has already outlasted all but one of his
predecessors-and we believe the civilian government
will not press for rapid liberalization. Even so, the
government faces potential economic and political
pitfalls. In our judgment, Pakistan's senior military
leaders will not hesitate to step in if they believe the
civilians are losing control or betraying military
concerns.
The New Political Arrangement
The political framework approved by the National
Assembly last November outlines a more balanced
sharing of power between the president and the prime
minister than Zia had envisioned. Zia preferred that
the president be the chief executive officer with the
prime minister reduced to a figurehead role-the
reverse of the situation during the previous Bhutto
regime. He also wanted this relationship paralleled at
the provincial level, with a strong governor and a
weak chief minister. Parliament would clearly have
been a junior partner. Although legislative and
judicial power would not have been directly
circumscribed, Zia's proposed amendment would have
removed any formal constraints on the presidency.
Zia accepted significant changes to his blueprint to
get the unanimous approval he believed was necessary
to legitimize his acts as military ruler as well as his
future role as civilian president. He jettisoned the
proposal to establish a National Security Council-
essentially a watchdog over Parliament-to gain
consensus. The emergence of an articulate opposition
in Parliament forced further concessions.
discretionary powers-including the right to select the
prime minister and provincial governors and to
dissolve the National Assembly whenever the
president believes an appeal to the electorate is
necessary. Zia, however, managed to retain the
provision granting him and other martial law officials
immunity from prosecution for their acts under
military rule.
Factors Influencing Stability
We believe the stability of the fledgling civilian
government could be affected by the handling of key
issues.
Zia's Vulnerabilities. We believe the success of the
new political system, at least early on, depends to a
large extent on Zia's continued rule. Zia, never
enthusiastically supported by his countrymen, owes
his longevity to a combination of circumstances-
principally a healthy economy and the existence of a
clear threat to Pakistan's national security. Zia may
come under stronger criticism in a freer environment,
however, and we believe he is vulnerable on several
scores:
? His promise to permit parliamentary examination of
ways to compensate the victims of martial law
excesses could lay his regime open to public
scrutiny, if not to judicial review. The impending
investigation of human rights in Pakistan by US and
international human rights groups could also prove
embarrassing or damaging to Zia's future as a
civilian leader.
? The December 1984 presidential referendum could
come to haunt Zia. We believe Zia is protected from
a legal challenge to the widely disputed results of
the poll, but, by linking his election to a five-year
presidential term to approval of his Islamization
program, Zia has exposed himself to charges of
exploiting Islam for political purposes.
The constitutional amendments finally approved still
sanction a strong executive office, but Zia
surrendered some of the presidency's more significant
Secret
NESA NESAR 85-027
20 December 1985
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Zia intends to
form a Policy Coordination Council, which would
include senior military commanders, in place of the
rejected National Security Council. Such a move
might accomplish his aim of satisfying the military
that it plays an adequate role in national security
decision making, but disclosure would arouse
criticism of both Zia and Parliament for having
permitted him to renege on his promise not to
establish a watchdog body.
Junejo's Performance. Zia, at least, has growing
doubts about Prime Minister Junejo's abilities.
was disappointed with Junejo's handling of the
constitutional amendments. Reporting from the US
Embassy suggests Zia believes Junejo's apparent
determination to form a government party based on
the Muslim League will alienate many progovernment
delegates. An aggressive parliament could find more
room to maneuver between the president and the
prime minister, testing the management skills of the
prime minister-and perhaps the patience of the
military.
The Economy. Temporary improvement in
government finances and the foreign payments
situation only masks longstanding structural problems
and the shrinking of overseas markets for Pakistani
workers. In our judgment, the government will
probably be able to delay hard decisions about
economic reform for the next year. A recent opinion
poll, however, indicates that most Pakistanis believe
the economy is the country's major problem and
suggests that Parliament will be under close watch, if
not criticism, for its handling of the economy.
US-Pakistani Strategic and Aid Relationship.
Islamabad could find it increasingly difficult to
justify close bilateral ties to a public that already
considers Washington an unreliable ally. Moreover,
the prospect of dividing a smaller aid pie probably
guarantees a "guns-or-butter" debate between the
government, which wants 60 percent of the package
earmarked for economic assistance, and the military,
which will be concerned that Pakistan's defense needs
will receive short shrift
Afghanistan. US Embassy reporting indicates that the
problem of the more than 3 million Afghan refugees
and, by extension, Pakistan's policy toward
Afghanistan will become a more contentious issue
over the next year. Complaints that refugees compete
for scarce jobs, land, and water may receive more
attention in the National Assembly and in the
assembly of the North-West Frontier Province, where
most of the refugees have settled. The government's
policy of supporting the insurgents and sheltering the
refugees almost certainly would become a more
serious liability in the event of an economic downturn,
a perceived deterioration in the US-Pakistani
relationship, or sharply increased Soviet military
pressure.
Provincial Pressures. Reporting from US Consulates
in Pakistan indicates the new provincial assemblies
have turned in lackluster performances so far, and
national issues related to the return to civilian rule
have preempted provincial concerns in the National
Assembly. We anticipate that regional grievances
may become more prominent under civilian rule,
particularly over resource allocations. Separatist
movements may also be revived-particularly if the
newly formed Sind-Baluch-Pushtun Front succeeds in
wooing support from traditional political parties-
which may in turn generate pressure in the National
and provincial assemblies for more regional
autonomy.
Islamization/Sectarian Tensions. Concern among
the Shia minority that imposition of Sunni
jurisprudence would reduce it to second-class status
has been a key factor in sporadic outbreaks of
sectarian violence. Parliamentary discussion of
religious legislation could set off another round. The
predominantly conservative National Assembly will
probably try to keep consideration of Islamic
initiatives to a minimum, but the more articulate
minority of Senate members with ties to leading
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Aspirations and grievances in Pakistan's provinces to ? Baluchistan. Tribes in Baluchistan, Pakistan's
monitor over the next year include: largest and least developed province, have long
? Sind. Sind Province is the home of the Bhutto
family, and the Pakistan People's Party (PPP) still
commands a large following there despite party
factionalism, according to US Embassy reporting.
The PPP organized the four-month anti-Zia
campaign in 1983 that soon turned into a movement
for Sindhi separatism. Although the Sindhi
separatist movement has been suppressed by the
Zia regime, provincial grievances have not
disappeared. Many Sindhis charge that irrigation
canals in Punjab-Pakistan's agricultural center-
divert scarce Indus River water away from the and
Sind. They also claim that they are
underrepresented in the civilian and military
bureaucracies. US Embassy reporting indicates
that government grants of Sindhi land to retired
military officers, most of whom are Punjabi, are
likely to become a more important source of Sindhi
resentment.
? North-West Frontier Province (NWFP). The
predominant Pushtun tribes of the NWFP also
resent what they consider to be Punjabi domination
of their affairs. US diplomatic reporting indicates
that NWFP civilian officials have protested to
Islamabad about the proposed construction of the
Kalabagh Dam, which, they say, will force some
150,000 residents to relocate and destroy 24,000
hectares of arable land. Many farmers and
tribesmen also resent the federal government's
efforts to curb illegal poppy production in the
province, and local officials are often reluctant to
enforce the poppy ban,
inally, and perhaps most
important, 2.5 million Afghan refugees have settled
in the NWFP, and longtime residents complain
about having to compete with the Afghans for
scarce jobs, land, and water.
resented what they consider to be the Punjabis'
efforts to encroach on their tribal areas and to
exploit the province's natural resources. Reporting
from the US Consulate in Karachi indicates they
also resent the influx of Punjabis and Afghan
refugees into the province, claiming that the
Punjabis buy up the land and accusing the Afghans
of banditry and kidnapings. Unemployment among
young Baluchs is also a problem-especially since
job opportunities in the Arab Gulf states are
diminishing and Baluchistan's undeveloped
economy provides little employment potential.
Finally, Baluch separatist sentiment, while
subdued, may rise again if, as in 1973-77,
Islamabad tries to impose policies that local tribal
authorities believe threaten their authority and
traditions.
? Punjab. Punjabis-including Zia-have
traditionally dominated Pakistani politics and have
sought to preserve Punjab's status as the
wealthiest, most populous, and most developed
province. Reporting from the US Consulate in
Lahore, for example, reports that the new
provincial assembly amended a law so that the
federal government is now required to pay full
market price for Punjabi land it acquires by right of
eminent domain. The Consulate also reports that
the assembly is planning new provincial
development projects, including roads, irrigation,
and schools. Punjabis will probably fight efforts by
the other provinces to obtain some of the large
federal funds that traditionally go to Punjab.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
religious parties probably will push such legislation.
The government has already acceded to demands that
it present by April a bill forcing all laws to conform to
Islamic principles.
Nuclear Tensions With India. In our judgment, the
risk of a confrontation with India has declined in large
measure because of Rajiv Gandhi's apparent
determination to pursue peaceful resolution of
outstanding differences. A resumption of tension,
however, is a constant possibility, especially over the
Pakistani nuclear program and Pakistan's alleged
support for Sikh extremists. The military will pay
close attention to the civilian government's approach
to New Delhi.
Political Parties: The Wild Card
Zia has kept the parties in the political wilderness,
and he has told Western journalists he would prefer
the parties stay there until the 1990 elections. In our
judgment, Zia wants to better gauge the political
pressures that have built up during his military
regime before widening political participation. As part
of the deal for the passage of the constitutional
amendments, however, he promised an early debate of
a parties law. The bill submitted to Parliament
apparently would disqualify parties that were not
registered before the second set of elections aborted
by Zia in 1979, a provision that would exclude such
major parties as the Pakistan People's Party (PPP),
two major regional secular parties, and a faction of
the religious Jamiat-ul-Ulema-i-Islam. It also called
for the disqualification of any member of the National
or provincial assemblies who changed party affiliation
during his term of office.
In our view, the government considers the parties
more manageable when they are in the open and may
consider changes in registration requirements.
Reporting from the US Embassy in Islamabad
indicates the prohibition on floor crossing could be
weakened to satisfy concerns of progovernment
delegates who would be reluctant to be permanently
tied to a government party formed around a revived
Muslim League.
A recent poll by Gallup Pakistan, which is affiliated
with the US Gallup group, indicates widespread
popular support for Zia and the government's
handling offoreign and domestic issues. The poll was
conducted in October among 1,700 Pakistani
households in 100 representative villages and 75
urban centers throughout the country, using a
methodology that the US Embassy in Islamabad
believes is sound. The following isues were raised.
? Talks with Kabul regime. Sixty-six percent support
Islamabad's opposition to direct talks; 78 percent
oppose recognizing the Karmal regime ...
opposition to direct talks strong even among
supporters of political parties that advocate such a
step.
? Afghan refugees. Support for presence of the
refugees fairly strong on a national level (46 percent
approve, 20 percent oppose, 34 percent no
opinion) ... among respondents in rural NWFP,
where most of refugees live, 48 percent approve and
32 percent oppose ... widespread apathy about
refugee issue in politically alienated Sind Province.
? Parliamentary performance. Thirty-seven percent
say performance of National Assembly is good;
another 33 percent call performance modest or
reasonable.
? President Zia versus Prime Minister Junejo.
Junejo's approval rating has risen to 47 percent,
compared with 29 percent last May ... 55 percent
say prime-ministership should be most powerful
office, while 25 percent favor a dominant
presidency ... even so, respondents preferred Zia to
Junejo 4 to 1.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
The political parties-in disarray and fragmented-
are having a difficult time mounting a credible
opposition to Zia, particularly because the public
generally supports Islamabad's policies. The
opposition coalition Movement for the Restoration of
Democracy (MRD) has atrophied, and the
government has prevented its leaders from meeting to
map out a post-martial law strategy. The PPP, the
dominant member of the MRD, is also weak.
Differences between exiled leftist leader Benazir
Bhutto and the more moderate Sind Province party
president, Ghulam Mustafa Jatoi, have not been
reconciled. The detention last summer of Benazir, and
her subsequent exile, apparently did not rally public
opinion to the PPP.
The Military: Watching and Waiting
The senior leadership of the Pakistani military
appears to have pressed for the turnover of the
government to civilians because,
the military leadership believed that
martial law has outlived its usefulness and its
retention would serve only to besmirch the military's
honor. In our judgment, however, the current military
leadership holds the traditional view that intervention
in Pakistan's domestic affairs by the armed forces is a
legitimate exercise of the military's responsibilities.
The military will remain on the sidelines as long as
the police and paramilitary forces can contain
political unrest and its perceived economic and
defense needs are satisfied.
When he resigned from the military, Zia left behind a
coterie of senior officers who owe their positions to
him personally and from whom he will continue to
seek advice about major policy initiatives. If the
domestic situation deteriorated to the point that
military intervention appeared imminent, we believe
Zia might preempt such a move by requesting the
military to return and reimpose martial law. In such
an event, Zia probably would expect his connections
with the senior commanders to ensure his continuance
in power.
We believe the principal candidates to
assume control would be the Army Chief of Staff-
the position formerly held by Zia-or the corps
commander of the Rawalpindi area (currently Zaid
Ali Akbar).
Outlook for Stability
We believe the political opposition will need at least
six months to organize itself and will not engage in
premature and irresponsible activity that might
provoke a speedy reimposition of martial law. We
believe the PPP may soon be further weakened by a
split between party mainliners and Sindhi nationalists
who may increasingly turn toward separatist groups,
especially the Sind-Baluch-Pushtun Front.
The National Assembly will almost certainly try to
follow its own agenda-which may include staking
out a role in foreign policy making-its recent success
in forcing compromise and concessions almost
certainly having fed its ambitions. In particular, we
believe tension between the military and National
Assembly over the distribution of resources-
particularly in the negotiation of the post-1987 aid
package-is inevitable in the next year.
The military will, in our judgment, continue to act as
the strong silent partner exercising broad control over
major foreign policy and defense issues. In our view,
the military will monitor closely Zia's national
experiment with democracy, particularly during the
early months, and would abort the experiment only in
a crisis such as hostilities with India or the Soviet
Union. A widespread breakdown in law and order
caused by sectarian, tribal, or labor unrest could
prompt another military takeover, but the military
could well decide to step in only to restore calm.
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Pakistan: Looking to the
United States for More Aid
Disturbed by the wide gap between US and Pakistani
proposals put forward during talks last November on
the next five-year aid package, Islamabad will push
hard for increased economic and military aid from
Washington. A much lower aid package than
Pakistan seeks would provide ammunition to those
who oppose close ties to Washington and might
prompt Islamabad to drag its feet on matters of
interest to the United States in the region, perhaps
even trimming its assistance to the Afghan resistance.
We judge that Pakistan's balance-of-payments and
financial position will probably improve next year.
This and a largely conservative National Assembly
will enable Islamabad to postpone politically sensitive
economic reforms recommended by the United States
and multilateral lenders. Structural problems, such as
neglected energy and irrigation facilities, are likely to
hamper economic performance during the period of
the next aid package
High Hopes for US Aid
During the consultative group meetings in Islamabad
in late November, Pakistan asked for more than twice
the current $3.2 billion aid package to bolster its
defenses and strengthen its economy. Pakistan
requested $6.5 billion-60 percent economic aid and
40 percent military assistance-over five years (FY
1988-92).' Finance Minister Mahbubul Haq told US
officials that the request was based on the assumption
that $4.5 billion would be required merely to match
the current package, accounting for inflation, and the
remaining $2 billion was needed for debt servicing
and to show "growth." Even though the Pakistani
request implies that $2.6 billion would be allocated to
defense, military officials said that their minimum
requirement was $3.5 billion directed toward
acquisition of air defense systems, armor, naval
surveillance, and defense industry support, according
to US Embassy reports. The economic assistance is to
be divided between fast-disbursing commodity aid
and project assistance in energy, agriculture, and
irrigation
Pakistani officials were disappointed with the
preliminary US aid proposals-$3.2 billion under
current terms or less money but greater
concessionality-according to US Embassy reporting.
Although it is possible that Pakistani displeasure with
the US proposals was a ploy for more aid, some in the
Pakistani military viewed them as a "betrayal." 25X1
Pakistani officials-particularly military officers-
were unmoved by explanations of US domestic budget
constraints and stood by their $6.5 billion demand,
claiming it represented a "reasonable" extension of
the current $3.2 billion program
The Pakistani performance at the consultative group
meetings suggests that the government is divided on
the amount, mix, and terms of its aid request. We
judge that the US proposals may well ignite an 25X1
internal struggle between Pakistani economic and
military officials for a larger share of a smaller-than-
expected aid package. The Finance Minister told US
officials that Zia supports a proportionately larger
share of economic aid in the new package but that this
request was "very unpopular" with the military~25X1
Back From the Brink
Pakistan faced a serious foreign exchange crisis last
summer brought on by a disastrous cotton crop two
years ago, a steady decline in worker remittances, and
a reluctance to institute politically unpopular import
and spending cuts. From a high of $2 billion in
December 1983, liquid reserves plummeted to roughly
$325 million in mid-August-equivalent to about
three weeks' imports
Over the last four months, fortuitous economic
circumstances and creative financial maneuvering
Secret
NESA NESAR 85-027
20 December 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
have enabled Pakistan to finance the public deficit
and more than double foreign exchange reserves:
? Export earnings-primarily raw cotton and cotton-
based manufactures-increased more than 28
percent, while imports dropped about 6 percent in
value compared to the first quarter of FY 1985,
according to US Embassy reporting.
? Over the same period, a lower US dollar and
improved banking procedures have stimulated a
nearly 10-percent rise in remittance earnings.
? Sales of Special National Fund bonds (SNFBs)
designed to tap the nation's large reserves of
"black" money-estimated to be 20 to 50 percent of
GDP-have netted over $1 billion, more than five
times the expected amount.
? Since August, the success of the new high-interest
foreign exchange bearer certificates (FEBCs) has
added more than $100 million to Pakistan's
reserves.
We believe that the country's foreign exchange
reserves are now sufficient to cover about two months
of imports, increasing the probability that Pakistan
will not need an IMF loan next year
Islamabad-citing political difficulties-is reluctant
to institute economic reforms recommended by the
United States and multilateral lenders. Since 1981,
Islamabad has been unwilling to slash spending,
reduce subsidies, or raise taxes to control the deficit.
IMF recommendations to narrow the trade deficit by
currency devaluation have also been strongly resisted.
In our view, the recent improvement in Pakistan's
financial position and the dominance of conservative
landlords and businessmen in the new National
Assembly-they account for nearly 70 percent of the
membership-do not augur well for reform.
Temporary Relief
The improvement in Pakistan's domestic finances and
foreign payments position is likely to provide
Islamabad only temporary relief from longstanding
economic problems. Increased export earnings were
largely in highly competitive areas-such as textiles
and cotton-which depend on import quotas and
declining world commodity prices. The new bond
schemes will provide only short-term help, and past
heavy borrowing from the domestic banking system to
finance chronic budget deficits is likely to add to
inflationary pressures. The high-interest FEBCs may
well raise the country's debt service burden and
increase the opportunity for capital flight if
purchasers decide to claim their interest or cash in
their certificates during periods of economic or
political instability. In addition, with nearly $200
million in US foreign military sales payments due this
fiscal year, we estimate that at least 25 percent of
earnings from exports of goods and services will be
reauired to meet growing debt service payments.
Pakistan has also neglected its infrastructure-
irrigation works, roads, and energy facilities-to
"buy" economic stability and modernize the military.
Spending on development as a share of GDP has
dropped from 36 percent in FY 1978 to about 25
percent in FY 1984, while gross domestic investment
has stagnated, according to official statistics. Over the
same period, energy demand has outstripped supply,
hobbling Pakistan's industrial production and leading
to a threefold rise in energy imports-to more than
$1.5 billion in FY 1984, according to the World Bank.
The extensive irrigation system that supports
Pakistan's key export crops-rice and cotton-is so
leaky that the World Bank estimates that only half of
the potential irrigation water actually reaches the
fiel
Outlook
The new financial instruments, higher exports, and
remittances will continue to temporarily strengthen
Pakistan's foreign exchange position, increase its tax
base, and help eliminate this year's budget deficit. In
our view, political considerations and an improving
economy are likely to provide Islamabad an excuse to
defer recommended economic policy changes, such as
currency devaluation, tax reform, or spending cuts.
Over the longer term, Pakistan's economic growth is
likely to suffer and its external payments position
worsen unless structural reforms are undertaken.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Because Islamabad has neglected its vital economic
infrastructure-energy and irrigation facilities-we
judge agricultural and industrial production is likely
to be hobbled. Moreover, if Islamabad remains
unwilling to devalue its currency, depressed
international commodity prices and stiff competition
will probably limit Pakistan's export growth and
strain its fragile balance-of-payments position
We believe Islamabad took into account its perception
of Pakistan's strategic importance to Washington and
its calculations of the severity of financial problems
down the road when it proposed the $6.5 billion
assistance figure. In our view, Pakistan will push hard
for a level closer to its $6.5 billion request and aim for
a compromise aid package somewhere between $4-5
billion. Although we expect Islamabad would
reluctantly accept a package close to the current $3.2
billion with a greater emphasis on concessional
military aid, there is a possibility that Pakistan could
reject the US offer-either to gain domestic political
support or as a negotiating tactic.F_~
An aid package similar to the current one would
provide ammunition to those who are wary of
Pakistan's close ties to the United States. Critics will
charge that the United States is holding back aid to
Pakistan in an effort to woo India. We view
Islamabad's disclosure of its $6.5 billion request as an
effort to lay the blame on Washington if lower
assistance leads to unpopular austerity measures.
The Zia regime may choose to show its displeasure
with Washington over a less-than-desired aid package
by:
? Putting distance between itself and the United
States.
? Reducing Pakistani assistance to the Afghan
resistance.
? Refusing to allow US naval reconnaissance flights
to land in Karachi and denying pre-positioning
facilities for US forces.
25X1
25X1
i
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
India's Rajiv Gandhi:
Dealing With Domestic
Priorities and Politics
Rajiv Gandhi has finished his first year as Prime
Minister having achieved movement on some of his
country's most persistent problems-forging accords
to resolve civil strife in Punjab and Assam, setting in
motion several economic reforms, and inaugurating a
clean government campaign. Even critics admit he
has injected a new style into Indian politics. Gandhi
faces some major political hurdles in 1986, however,
as he attempts to implement difficult decisions called
for by the political accords and as he confronts India's
entrenched bureaucracy.
Reaction From the Public and the Press
Indian pundits analyzing Gandhi's political decision
making during his first year have looked for evidence
of an emerging leadership style as well as for signs of
a consistent approach to problem solving. Yearend
reviews by supporters and critics alike favorably
compare Rajiv's open, conciliatory approach with his
mother's autocratic style. Most concur that Gandhi
has brought a new optimism and vitality to Indian
political life. A prominent journalist, commenting on
the widespread euphoria over what has become known
as the "Gandhi phenomenon," said, "There is a kind
of relief that [Indira's] style of politics is no more." A
respected Western commentator summarized
Gandhi's first year by saying, "[He] has put such a
strong personal stamp on the government that the
memory of Mrs. Gandhi has receded."
situation in time because he does not understand the
role traditional ties-such as caste and community-
play in Indian society.
25X1
Nonetheless, the opposition has had difficulty finding
ground on which to attack Gandhi. According to
Embassy reporting, opposition parties throughout the
country have been weakened by Rajiv's popularity in
his first year. A diplomatic observer described them
as "awestruck bystanders." They have been put off
balance by the widespread popularity of his response 25X1
to the problems in Punjab and Assam. Furthermore,
Gandhi has talked past the opposition to the public,
which has generally responded well. An Indian
journalist, countering the suggestion that Rajiv lacked
his mother's world view, grudgingly confessed that,
"The things that need to be done in India are
obvious-they don't require a world view"-a
comment that illustrates the popular acceptance of
many of Gandhi's initiatives and helps explain the
opposition's frustrations.
Responding to Communal Challenges
Gandhi's handling of Punjab and Assam earned him
high ratings in India for crisis management. Many
Indian observers linked his successes in Assam and
Punjab to a "transformation in the national mood."
We believe, however, that, despite the euphoria
25X1
generated by the accords, implementing them will 25X1
bring many underlying political and economic
Both critics and supporters, however, have had
difficulty in identifying a consistent policy line
underlying the shift in style. Some editorials in the
Indian press portray Gandhi as a "tinkerer," a
political novice who is attempting to apply simplistic
solutions to the complex human problems that retard
India's modernization efforts. These critics point to
the crisis last spring in Gujarat between upper- and
lower-caste Hindus-in which the state's Muslim
minority also became involved-over education and
labor rights that resulted in months of civil disruption.
They claim that Gandhi failed to respond to the
problems to the fore again.
The most troublesome issues-water sharing,
contested state boundaries, movement of illegal
immigrants, relations with the central government,
and validation of electoral rolls-were referred to
committees of inquiry. As these committees deliver
their recommendations-most of which are scheduled
for early 1986-Gandhi may find that local officials
Secret
NESA NESAR 85-027
20 December 1985
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
"When you talk to him,
you get the impression
that he wants change, and
this gives hope for the
future."
I.E. .ADVANI
RIPgeneral secretary
"He had a very high sense
of discipline which he
seems to be retaining."
K.C. SINHA
retired vigilance oJJicer,IA
"He has given the call for
us to wake up, but we
have yet to see concrete
steps taken to usher us
into the 21st century."
S. SRIVATIIS
sales executive
"Rajiv is on the same
wavelength as the
younger generation, but
he must do spmething
tangible about
unemployment."
GORINDRAO TALWAIXAR
editor, Maharashtra Times
"Rajiv Gandhi does not
stand for the poor, but at
least he does not pretend."
AMIT SANVAL
student
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
may not be strong enough politically to enforce them.
There is a danger that failure to implement these
recommendations could undermine the accords. This
in turn could prompt a backlash against Gandhi in
Punjab and Assam for promising but failing to
deliver
Tackling the Economy
In identifying his priorities for his first year, Gandhi
emphasized that the immediate problems of civil
order in Punjab and Assam were short-term issues he
hoped to resolve quickly in order to attack his primary
goals-modernizing the economy and reforming the
bureaucracy. Asked recently to list the successes of
his first year in office, Gandhi told a foreign journalist
that he took the most pride in his moves against the
underground economy and for reforming the
collection of taxes.
Although Indian businessmen have welcomed the
liberalization measures that Gandhi has introduced,
many Indian commentators have had difficulty
identifying a clear direction in Gandhi's economic
policy. A journalist noted in a review of the economic
community's response to Gandhi's first year in power
that, although they believe that a break with the
economic past is possible, "this belief stems as much
from what Gandhi expects as from the recent rapid
progress."
In 1986 Gandhi may well face the first serious
criticisms of his economic initiatives. For example, if
India's balance-of-payments situation continues to
deteriorate, as we expect, Gandhi's perceived
preference for expensive, imported high-technology
items may draw increased criticism, both from the
opposition and from within his own party. If his
economic programs continue to be perceived as
favoring the upper and middle classes at the expense
of the poor, Gandhi may face increasingly strident
charges that his government has turned its back on
the social welfare programs of his mother.
Seeking "Government That Works-Faster"
Early in his tenure, Gandhi announced that reducing
corruption throughout the government, increasing
accountability in the federal bureaucracy, and
streamlining government decision making were
among his highest priorities. He has made several
well-publicized efforts to increase accountability and
reduce corruption in his first year. He set up
permanent committees to identify corrupt practices in
each government department in September, and a
national ombudsman was created in August to
investigate charges of government corruption reported
by citizens. Gandhi also ordered cuts of 5 to 7 percent
in central administration personnel during the coming
year. He twice reorganized his Cabinet, placing close
associates in key positions, presumably to short-circuit
cumbersome lines of authority. Each of these
measures has been extensively covered in the national
press, and Rajiv has used them in interviews with
foreign journalists to illustrate his administration's
motto, "Government that works-faster." Rajiv
25X1
appears to be under no illusions about how difficult it 25X1
will be to bring corruption and inefficiency under
control, much less eradicate them.
Given the Congress Party's dependence upon
kickbacks, too much attention to government
corruption could embarrass party officials close to
Gandhi. The Congress Party receives between 20 and
25 percent of its working funds from rupee trade
kickbacks-including an estimated 20 percent from
Communist countries that wish to extend their trade
in India
25X1
25X1
25X1
Experimenting With the Congress Party
We believe Gandhi will try to tinker with the
Congress Party in the coming years to open up
opportunities for younger talent, diversify regional
representation, and perhaps demonstrate his
commitment to clean government by eliminating
notoriously corrupt local party figures. When election
rosters were announced in several key Indian states
last February, for example, nearly a third of the
places were given to first-time candidates in response
to Gandhi's orders to identify younger, "cleaner"
candidates. On the other hand, the recent reshuffle of
state chief ministers and several state party 25X1
committees seemed almost to have been made at
random. All things considered, the party changes
Gandhi made during 1985 showed no particular
direction.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Gandhi plans a countrywide Congress Party election
in early 1986. If it takes place, the move could set in
motion some important, long-term changes, one of
which could be a shift of some political power from
New Delhi to local party leaders. Indira Gandhi had
announced similar elections several times but
repeatedly found reasons to call them off at the last
minute, using her power as chairman of the party to
appoint new officials instead. Rajiv could back off as
well, but failure to hold the election will leave him
open to charges that he is continuing his mother's
autocratic style of party management.
Prognosis for 1986
We expect Rajiv to find 1986 a more difficult year on
the domestic front than 1985. With many of the
domestic political fixes Gandhi made in 1985
dependent for implementation on local governments,
state Congress Party structures, or the findings of
autonomous commissions, Gandhi is likely to find
progress slow and halting. Some of the officials
responsible for carrying out programs identified with
Gandhi in the popular mind will lack the capabilities
or the will to do so. In the case of opposition leaders,
Rajiv will probably find many reluctant to cooperate
and add to his luster. We believe most opposition
leaders will spend much of the coming year rebuilding
grassroots organizations severely damaged by
Gandhi's overwhelming popularity.
Gandhi will be faced with increasing criticism in the
Indian press and from the political opposition if his
promised programs falter. Despite the potential
pitfalls, Gandhi remains firmly in control of his
agenda and has a large reservoir of good will to draw
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
India: Gandhi's
Economic Reforms
In the year since Indira Gandhi was assassinated,
Rajiv Gandhi has moved, through liberalization
measures and exhortations, to transform the Indian
economy into a more dynamic and competitive force.
Gandhi still acknowledges the need for the
government to retain overall control of the economy,
but he believes that less bureaucratic meddling and
more competition in the private sector will spur
modernization, limit corruption, and ease strains on
the government budget. Over the next year, Gandhi
must watch carefully for signs that his program is
adversely affecting India's foreign payments. He will
also have to watch for a popular backlash against
measures already viewed by opposition figures as well
as some members of the Congress Party as weighted
toward the upper and middle classes at the expense of
the poor.
Domestic Economic Measures
Gandhi's strong interest in upgrading technology and
productivity has prompted him to accelerate
liberalization moves begun several years ago under his
mother. Manufacturers in several industries may now
set up new operations or expand capacity and vary
their product mix without seeking government
permission. He has also relaxed antimonopoly
legislation and lowered corporate and personal tax
rates.
Businessmen are awaiting the announcement of a
long-term fiscal policy in 1986 that they hope will
contain additional tax reforms. Finance Minister
V. P. Singh has already conveyed to the business
community his interest in a tax structure that will
encourage long-term investments. A technical study
recently submitted to the Finance Ministry
recommends reforms in excise taxes, which account
for about 70 percent of government revenues. If the
major recommendations of the report are
implemented, the excise tax structure will be simpler,
without the multitude of rates and complicated
The new development plan calls for the private sector
to assume 52 percent of total investment, compared to
47 percent under the previous plan. More major
projects are likely to be funded as joint ventures and
in areas long barred to private-sector participation.
Private companies, for example, are being invited to
invest in telecommunications equipment-ending the
monopoly of the public sector. Power generation
projects, six proposed gas-based fertilizer plants, and
road construction projects are also being opened to
private enterprise.
Gandhi, however, clearly intends that the government
retain control of the direction of the economy.
Although easing regulations, he has retained the basic
structure of industrial licensing, preferences for small
producers, and close supervision of large corporate
groups. Gandhi apparently has no plans to rely on
market forces to allocate basic consumer goods and
will continue the public distribution system that
supplies grain to urban consumers and supports prices
farmers receive for major crops, such as wheat and
rice.
Attacks on the Bureaucracy and Corruption
Gandhi hopes his efforts to make the Indian
bureaucracy more efficient will have a bracing effect
on the economy. He has repeatedly emphasized
decentralization of decisionmaking so that public-
sector corporations can make business decisions
without interference from government ministries. The
government department that supervises private
corporations has been shifted to a ministry that favors
production rather than restraint.
Gandhi's concern for bureaucratic efficiency and
government revenues has prompted an anticorruption
drive, a crackdown on tax evasion, and new efforts to
tap the underground economy. Several studies
exemptions that make the system inefficient.
Secret
NESA NESAR 85-027
20 December 1985
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
indicate that "black" money accounts for 20 to 40
percent of GDP. Gandhi hopes to encourage increased
reporting of taxable income by lowering tax rates and
relaxing some of the controls that have led
businessmen to conceal part of their production.
Rewards for information about smuggling have been
increased, and corporate contributions to political
parties-long a source of corruption and shady
dealings-are once again legal
Looking Outside for Help
Import policy changes have been relatively cautious,
combining safeguards for domestic manufacturers
with efforts to promote modernization and exports.
Import licensing regulations have been eased to
remove restrictions on some industrial machinery and
offer a new duty-free import scheme for exporters.
New Delhi has promised easy access to imported
technology, especially for electronics and export
industries, and procedures for employing foreign
technicians have been simplified. The government has
even emphasized that foreign equity investment-
previously tolerated but not encouraged-will be
welcomed in electronics and oil exploration.
Overall, Gandhi's economic policy still stresses self-
reliance. Government approval is necessary before an
Indian firm may purchase or lease foreign technology,
even in industries recently exempted from industrial
licensing restrictions. Domestic manufacturers are
still required to reduce gradually their use of imported
parts and are expected to develop their own skills.
New Delhi remains reluctant to open the Indian
market to foreign investors who cannot contribute
technology or promote Indian exports. Gandhi has
also warned that he will take action against those
industrialists who fail to use imported technology
within a reasonable timed
Positive Signs
Rajiv's efforts are already showing some signs of
success. Private businessmen have moved to increase
investment in response to the administration's
decision to ease licensing requirements in several
industries. Indian industrialists report that approvals
for private projects can be obtained more quickly than
in the past. Investor confidence is high, as
demonstrated by the high turnover on the security
exchanges and the oversubscriptions of new stock
The incentive programs and a crackdown on tax
evasion apparently have struck a responsive note with
the middle class and business leaders. Government
officials estimate that more than $4 billion in taxable
income will surface from the underground economy
this year. Indian monetary officials believe revenue
from taxes will be 20 percent higher this year.
Looming Domestic and Foreign Constraints
Gandhi's approach to India's economic challenge is
not without limitations. Rajiv is probably very much
aware that government revenue shortages-a major
factor in his push to free the private sector-will limit
additional tax concessions. Revenue shortages in 1986
will place the government in competition with the
private sector for funds, raise the debt service burden,
and add to inflationary pressures. Additional tax
concessions or a miscalculation in the direction of new
fiscal policies could worsen government revenue
shortages.
Moreover, increasing foreign payments strains could
jeopardize India's ability to become more productive
and efficient. Foreign trade statistics for the first
quarter of the fiscal year beginning in April showed
that exports were stagnant and imports increased by
25 percent compared with the first quarter of the
previous year. Although international financial
reserves are adequate-about $6 billion, equivalent to
four to five months' imports-continuing expansion of
the domestic economy will require faster growth in
the volume of imported petroleum and capital goods
in the next few years. Meanwhile, scheduled
payments to the IMF and to military suppliers,
particularly the USSR, will mount sharply within the
next two years, and we see no good chance for
discovery of additional petroleum deposits, rapid
export growth, or increased foreign aid.
Rather than risk a serious balance-of-payments
problem, New Delhi probably would sacrifice some
import liberalization measures. We speculate that
Gandhi would postpone plans to spur domestic
efficiency through increased import competition and
might close off recently introduced opportunities for
import-intensive production of vehicles and consumer
durables. We believe the government would initially
issues.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
try to meet the demand for imported petroleum,
fertilizer, and grain and preserve access to foreign
technology
Gandhi's support for simplifying bureaucratic
procedures suggests that he would emphasize tariffs
to slow import growth. The administrative structure
for tighter licensing controls remains in place,
however, and New Delhi probably would take some
step in this direction. Policy-induced cutbacks in the
volume of imported capital goods and industrial
inputs would lower India's potential overall growth,
but not necessarily below the average annual rate of
3.8 percent maintained since the mid-1960s.
Potential Political Pitfalls
Gandhi must be prepared to contend with the
likelihood of increased opposition to his economic
measures, particularly because there already is
criticism that he is slighting the poor in favor of
India's small upper and middle classes and its private
corporate sector. Less than 3 percent of the population
stands to gain directly from Rajiv's large tax cuts on
personal income, wealth, and inheritances. Some
Indians, including members of his own party,
probably fear that Rajiv, in his enthusiasm for
"middle class" issues, may allow welfare and rural
programs to stagnate and, in his quest for efficiency,
cut jobs in India's state-owned industries. Moreover,
some long-established industrialists probably would
welcome a reprieve from the loss of protection and
heightened foreign competition implied by Rajiv's
The US Angle
Gandhi's economic approach has accelerated interest
in India in business ties to the United States. During
the first six months of 1985, 92 new financial and
technical joint ventures between US and Indian
businessmen were approved. If the trend continues,
1985 will have been a record year. Since June,
Washington has approved export licenses for over 60
advanced high-technology systems. During the last
five years, Indian-US trade has increased nearly 50
percent and will grow again in 1985, despite the
strong dollar.
Opportunities for US suppliers could be curtailed in
1986 if balance-of-payments strains limit India's
ability to modernize. Indian Government purchasing
agencies would probably give greater weight to price
and financial terms and favor countries with fewer
export controls, which might provide an advantage for
Japanese or European suppliers. Indian officials
might blame slower economic growth and a need for
import restrictions on the United States for limiting
Indian borrowing from multilateral lending
25X1
25X1
reforms.
A slowdown in the pace or scope of liberalization
would entail no fundamental redirection of the
economy and might even bring him modest political
gains with few costs. The liberalization program,
although notable in the Indian context, has been
cautious. On the other hand, Rajiv would face
widespread popular dissatisfaction in the event that
his economic policies lead to a balance-of-payments
crisis, galloping inflation, or a sharp decline in
growth.
institutions.
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
India: Rajiv's
"Good Neighbor" Policy-
An Interim Report Card
In the year since he succeeded his mother, Rajiv
Gandhi's fresh foreign policy approach has improved
the tone, if not always the substance, of India's
relations with several neighboring countries. Rajiv's
emphasis in foreign-as in domestic-policy on
reducing differences rather than winning
confrontations has led some Indian and Western
commentators to characterize his regional stance-
perhaps prematurely-as a "good neighbor" policy.
Gandhi has adopted a more conciliatory approach to
Pakistan but shares many longtime Indian suspicions
of Pakistan's intentions-particularly in regard to the
Pakistani nuclear program-and appears to believe
that the burden of breaking new ground in their
relations rests as much with Islamabad as with New
Delhi. He has also improved relations with Sri Lanka
by reversing his mother's policy of aiding the Tamil
insurgents and by establishing regular contact with
Sri Lankan President Jayewardene and his Cabinet.
Gandhi's persistent efforts to promote a negotiated
settlement of the communal conflict in Sri Lanka
reduced the level of violence on the island during
1985. The Sinhalese government and the Tamils
remain some distance apart on the terms of Tamil
autonomy, however, and both are threatening to break
off talks and renew military operations. Progress on
water sharing has sufficed to advance Indo-
Bangladesh ties, but relations with Nepal remain
captive to bureaucratic habit and India's longstanding
differences with China.
So far, Rajiv has sought to establish his credentials as
a statesman more by his conduct of regional affairs
than by taking a lead on Third World issues in the
Nonaligned Movement or the United Nations. In our
view, the conciliatory line he has adopted toward his
neighbors probably reflects less his innate good will
toward other South Asian states than a desire to clear
his agenda of conflicts that compete with his primary
objectives-modernizing India's economy and
reforming its bureaucracy. Moreover, his "good
neighbor" policy is premised no less than the so-called
Indira Doctrine ascribed to his mother on India's
continued military and economic dominance of the
region. Rajiv has not been averse to reminding India's
neighbors occasionally of India's ability to work its
will.
25X1
25X1
Moving Cautiously With Pakistan
Relations between India and Pakistan have been more
cordial under Rajiv than under his mother. Gandhi
and Pakistani President Zia met several times in 25X1
1985, and their discussions, described by both sides as
cordial, have spurred efforts by each to ease tensions.
Zia's decision in early 1985 to bring to trial the Sikh
hijackers of two Indian airliners was welcomed by
Rajiv as a first step toward reducing strains. New
Delhi, in return, agreed to resume the bilateral talks
that Indira broke off in mid-1984.
Still, Rajiv apparently shares longstanding Indian
doubts about the sincerity of Pakistani professions of
good will, and Indian officials have continued to
remind Washington that New Delhi views Zia's
regime and Pakistani regional policies-including its
security relationships with the United States and
China and its stance on Afghanistan-as a threat to
Indian interests. Last May, Foreign Secretary
Bhandari told a high-ranking US official that India
was proceeding "step by step, very cautiously" to
"cool down the atmosphere" with Pakistan because
Islamabad in the past has not shown a sustained
commitment to improving relations.
For Gandhi, suspicion of Pakistani involvement with
Sikh extremists in Punjab remains an impediment to
improved relations. Despite Zia's denials, Gandhi has
continued to charge that Islamabad has
systematically trained and armed Sikh dissidents in
Pakistan, although he has produced no evidence other
than Indian police interrogation reports to support his
Secret
NESA NESAR 85-027
20 December 1985
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Rajiv is as worried about the Pakistani nuclear
program and US arms aid to Pakistan as his mother
was. As part of his public campaign against the
Pakistani program, he has indicated that he is
reviewing India's nuclear options. Rajiv undoubtedly
hopes to increase US Congressional pressure on Zia to
eschew weapon-related activities in his nuclear
program. Rajiv probably also hopes to persuade Zia to
enter into serious talks with India on nuclear weapons.
There are indications that Gandhi is willing to explore
new options to narrow Indo-Pakistani differences on
nuclear issues. In early November he took an
innovative step by inviting Munir Khan, the chairman
of Pakistan's Atomic Energy Commission, to visit one
of India's nuclear facilities-which he accepted.
Foreign
Ministry officials from the two sides briefly discussed
late last summer a no-first-use nuclear weapon pact
that had been unofficially floated in the Indian press
at Gandhi's suggestion. Although neither side has
endorsed such a pact, Gandhi's apparent willingness
to consider an arms control rather than just a
nonproliferation approach suggests that he hopes for a
breakthrough on the nuclear issue.
Seizing the Initiative in Sri Lanka
Largely through Gandhi's personal initiative,
Indo-Sri Lankan relations improved significantly in
1985. In sharp contrast to his mother's irritation with
Sri Lankan President Jayewardene's independent
voice in the Nonaligned Movement and perceived ties
to the West, Gandhi has avoided criticism of Colombo
and even invited Jayewardene to accompany him on a
highly publicized tour of flood-ravaged Bangladesh in
June. Gandhi's evenhanded mediation effort in Sri
Lanka has reversed his mother's policy of support for
the militants, led to a close Cabinet-level working
relationship between Colombo and New Delhi, and
has muted popular anti-Indian Sinhalese rhetoric. In
our view, Gandhi's pragmatic, conciliatory approach
toward Sri Lanka helped pave the way for
Jayewardene's unprecedented acquiescence to Indian
mediation
As he said he would, Gandhi moved first to try to help
resolve Sri Lanka's two-year-old communal conflict.
Strong Indian diplomatic pressure and direct personal
intervention by Gandhi lowered the level of violence
during much of 1985, brought Tamils and Sinhalese
together for direct talks, and extracted new autonomy
concessions for the Tamils from the government.
Although the two sides remain some distance from
each other over the details of a settlement, Gandhi's
persistent public and private diplomacy, in our view,
has narrowed the gap. He and other senior Indian
policymakers have made clear to the Sri Lankan
Government that they hold it responsible for
maintaining an atmosphere conducive to negotiations
and for making important concessions on autonomy.
New Delhi has also told the militants that those who
do not agree to the best terms India can get will be
left behind, with the implicit threat that India would
help Colombo enforce a fair accord. For Gandhi, a
successful settlement will have to provide increased
Tamil autonomy, be enforceable in the field, and
guarantee greater discipline by the Sri Lankan
military and full acceptance of the agreement by the
Sinhalese opposition.
Gandhi's policy toward Sri Lanka underscores his
political pragmatism. His decision to broker
negotiations meant engaging fully in a political
relationship with Sri Lankan President Jayewardene's
United National Party (UNP), despite years of anti-
Indian rhetoric from UNP hardliners and India's
traditionally close ties to the opposition Sri Lanka
Freedom Party. Similarly, his willingness to include
the proscribed Tamil United Liberation Front, a
moderate group that had nearly been eclipsed by the
militants, has strengthened its standing among Tamils
and prepared the way for its reentry into Sri Lankan
political life.
A Good Start With Bangladesh
Rajiv's surprise trip, with Jayewardene in tow, to
inspect tidal wave damage in Bangladesh in June with
Bangladesh President Ershad was, in our view, a
highly successful exercise in media diplomacy-for
which he earned respect in India and gratitude in
Bangladesh. The meeting, quickly dubbed "the
barefoot summit," set a tone in both countries for a
new, more cooperative relationship
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Gandhi and Ershad have settled two of four key
bilateral issues:
expand trade and economic relations, and before King
Wangchuck's agreement in May to abide by the Non-
Proliferation Treaty.
25X1
? At the recent Commonwealth summit in Nassau,
the two leaders agreed to extend the 1982 Ganges
Water Sharing Agreement for three more years and
to study ways to augment the flow of rivers entering
Bangladesh from India.
? Gandhi also agreed, in principle, to guarantee
access to several Bangladesh enclaves inside the
Indian state of West Bengal
There has been little movement, however, on two
other issues-New Delhi's construction of a border
fence to help control immigration from Bangladesh
and the repatriation of illegal Bangladesh immigrants
from the neighboring Indian state of Assam.
Little Change Toward Nepal or Bhutan
The Gandhi administration's relations with Nepal
show little change from New Delhi's traditionally
heavyhanded approach. In our view, this reflects both
New Delhi's assessment that Nepal is, for all practical
purposes, a territorial extension of India as well as
wider Indian strategic considerations vis-a-vis China.
The Gandhi government's direct interference last
summer in overturning a Chinese bid to build a road
in southern Nepal underscores India's concern about
Chinese influence.
Nepal had initially welcomed Rajiv's succession and
appears disheartened by New Delhi's failure to seek a
more equitable balance in bilateral affairs. New
Delhi's interference in the Chinese roadbuilding
contract bid reinforced the views of many Nepalese
that India believes it must dominate bilateral
relations.
Bhutan, the smallest of India's neighbors, has long
accepted India's dominant role in its foreign policy,
and Rajiv has helped to maintain strong ties. He
chose Bhutan's capital, Thimphu, as the site of the Sri
Lankan peace negotiations last summer and paid the
Bhutanese a three-day visit in October. Maintaining
such cordial relations has helped Bhutan emerge
somewhat from India's regional shadow, but India
almost certainly was consulted before Bhutan signed a
formal agreement with Bangladesh in January to
The China Factor
Like India's South Asian neighbors, the Chinese have
sensed an opening to improved relations with New
Delhi under Rajiv's stewardship. Public Chinese
statements about Premier Zhao's meeting with
Gandhi at the United Nations last fall and about the
sixth round of border talks concluded in November, as
well as about such Indian regional efforts as the Sri
Lankan negotiations, have been largely positive.
25X1
25X1
For New Delhi, China figures prominently as a 25X1
potential meddler in and rival for influence with
neighboring South Asian states. With the exception of
Bhutan, India's neighbors look to China for both
diplomatic and material support. Beijing's close
relations with Islamabad, which date from the 1962
Sino-Indian war, have fueled intermittent fears in
New Delhi of a Pakistani-Chinese-US alignment
against Indian interests. Still, broader foreign policy
considerations have prompted the Indians since 1979
to cultivate cordial relations with China and to
continue talks on the border dispute that comprises
the primary bilateral issue.
Prospects
Gandhi may calculate over the next few months that
his "good neighbor" policy has had sufficient success
to allow him to devote more time to his domestic
priorities. He can already claim credit at home for
making an effort to solve the communal conflict in Sri
Lanka, reopening a dialogue with Pakistan, and
easing strains with Bangladesh, while retaining a
valued relationship with the Soviet Union and
invigorating India's ties to the West through personal
diplomacy.
If, however, India's regional policy is subsequently left
to professional bureaucrats, with Rajiv showing an
attitude of "benign neglect," we would expect little
progress. We do not believe the Ministry of External
Affairs would continue Rajiv's conciliatory initiatives,
particularly toward Pakistan.
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Sri Lanka: Steps to
Peace, Strides to War
After initial strides toward peace during the summer
of 1985, momentum toward a negotiated settlement
between Sinhalese and Tamils has slowed. By year's
end, renewed military preparations by both sides and
continued outbreaks of fighting were threatening to
eclipse New Delhi's bid to broker a settlement that
would give limited autonomy to the Tamils within the
confines of a federal system. Frustrated by Colombo's
backsliding on earlier concessions and the Tamil
militants' inability to formulate a negotiating position,
Indian Prime Minister Gandhi may soon play a less
prominent role as mediator. We see two likely
scenarios for Sri Lanka in 1986-an untidy
settlement to which only some Tamil groups are party
and which would require substantial Indian
followthrough with both militant Tamils and
Colombo to foster and enforce; or a collapse of the
current negotiations and a return to major fighting
that could eventually lead to new talks but could also
compel New Delhi to intervene militarily to stop the
bloodshed and hold down repercussions in India.
1985 in Review
The year 1985 was a watershed in Sri Lanka in many
ways. After the collapse of government-Tamil
negotiations in December 1984, the government and
Tamil militants engaged in the most intense fighting
of the seven-year conflict. Increasingly effective
insurgent attacks on Army and police posts in the
north, and a more sophisticated use of ambush
techniques, virtually isolated government forces in
their protected camps, and by June they had left the
guerrillas in de facto control of the Tamil-dominated
Northern Province and contesting government control
in the Eastern Province.
At the same time, Sri Lanka's undisciplined security
forces-seeking to carry out President Jayewardene's
public promise in the wake of the failed talks to crush
the insurgents-perpetrated increasingly irresponsible
reprisals against Tamil civilians. Acknowledging that
they had no cohesive military strategy and that the
security forces were out of control, senior Sri Lankan
officials stepped up their search for counterinsurgency
help-both in arms and advice-from the United
States, United Kingdom, China, Israel, and Pakistan.
The search has led to a substantial increase in weapon
stockpiles but little improvement in the training of
government troops.
By spring, Tamil militants had joined in a rickety but
effective military alliance and began launching
attacks in the predominantly Sinhalese North-Central
Province. In May they carried out their boldest
initiative to date, infiltrating the sacred Sinhalese city
of Anuradhapura and killing more than 78 Sinhalese
civilians, allegedly in response to an Army massacre.
The attack in Anuradhapura brought the conflict
home to many Sinhalese and underscored the
government's failure to contain the insurgency. It
provoked, for the first time, denunciations of
Jayewardene's policies by the Sinhalese public and
from hardliners such as the Buddhist clergy and the
main opposition party. In our view, the insurgent
attack at Anuradhapura caused the government to
lose confidence in itself and demonstrated for the first
time Tamil willingness and ability to target Sinhalese
civilian areas.
Anuradhapura also rang alarm bells in New Delhi,
where an increasingly anxious Indian Government
was closely watching the deteriorating security
situation in Sri Lanka. Worried over a renewed Sri
Lankan Tamil refugee exodus to India's Tamil-
dominated south, and fearing that a collapse in civil
order could invite US or Western intervention in
support of Colombo or open the way for involvement
by the Soviet Union, the PLO, or Libya with the
militants, Prime Minister Gandhi decided by early
June to offer India's good offices to facilitate a cease-
fire and new negotiations.
Secret
NESA NESAR 85-027
20 December 1985
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
The Importance of Jayewardene and Gandhi
autonomy-largely made up of earlier government
offers, but also including new concessions on security
At 79, President Jayewardene is still in good health.
Nonetheless, he has four years left in his presidential
term and was the target of at least one assassination
attempt in 1985. If he died in office, Prime Minister
Premadasa, the most likely successor, would be even
less likely to reach a political solution with the
Tamils and would probably prefer a military solution
to the insurgency. In any case, Premadasa does not
have Jayewardene's strong political base within the
ruling United National Party and would be less able
to make significant concessions to the Tamils.
If Gandhi died suddenly-for example at the hands
of a Sikh assassin-we believe India's need to focus
exclusively on domestic stability and promoting an
orderly succession would, in effect, require it to set
aside a leading role in Sri Lanka, at least for the
short term.
The Negotiations
Gandhi launched India's mediation role with a well-.
publicized early June summit in New Delhi with
Jayewardene and ordered Foreign Secretary Bhandari
to arrange face-to-face talks between the Sri Lankan
Government and Tamil leaders. Hoping to keep risks
to Indian diplomacy at a minimum, New Delhi
initially stayed in the background. Bhandari quickly
found that mutual distrust, even hatred, between
government negotiators and militant leaders would
lead to a collapse without constant Indian pressure
and cajoling, and both he and Gandhi were soon
drawn into prominent personal diplomatic roles.
Even with such high-level. Indian aid, the direct talks
broke down in August over the government's
opposition to Tamil demands for combining the
Northern and Eastern Provinces into a Tamil-
dominated entity and the inability of Tamil militant
leaders to agree on a negotiating position short of an
independent state-which New Delhi also opposed.
Despite repeated violations of the cease-fire, Bhandari
succeeded in September in persuading Colombo to
initial a draft agreement offering some measures of
and land settlement.
New Delhi subsequently began putting intense
pressure on Tamil militants-who depend on Indian
political and refugee support as well as on Indian
military aid-to develop a realistic negotiating
position based on limited autonomy. Although the
militants remain largely unable and unwilling to
respond, the more moderate Tamil groups,
particularly the Tamil United Liberation Front, had
by year's end provided a detailed counterproposal.
The Situation at Year's End
Colombo's concessions on autonomy fall far short of
Tamil demands. Diplomatic reporting indicates the
main sticking point is the Tamil proposal for a merger
of the Northern and Eastern Provinces into an
autonomous unit. Colombo considers the proposal a
stalking horse for eventual secession and will only
consider autonomy for separate provinces. Even on
the less thorny issues of the legal status of the Tamil
language and Tamil access to government education
and employment, Jayewardene knows he must show
Sinhalese hardliners that he is bargaining from a
position of strength.
In recent weeks, Jayewardene and other senior
officials have reverted to an increasingly
uncompromising position, saying they have offered all
they can. They are threatening to renew military
operations soon if New Delhi does not persuade the
Tamils to accept Colombo's offer. Some of the more
hardline Tamil leaders are also taking an increasingly
tough stance toward the negotiations and are planning
to resume insurgent operations soon.
Faced with increasing violations of the nominal cease-
fire and a deadlock in negotiations, Gandhi appears to
be reconsidering India's role as mediator. His recent
cautious public statements on peace prospects in Sri
Lanka and his less frequent contacts with both the
militants and the government suggest he has come to
believe a negotiated settlement will be more difficult
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
than he had earlier anticipated. His actions also
suggest he is seeking to play a less conspicuous role as
mediator and lower the risk to Indian diplomatic
prestige amid warning signs of a new round of full-
scale fighting.
Possible Scenarios
Although Jayewardene has increasingly signaled his
readiness to try to defeat the insurgents in the field
and has aggressively pursued a military buildup, he is
unlikely to abandon peace talks. His tougher line in
recent weeks reflects in part his perception that
sentiment in his Sinhalese constituency and among
members of the opposition is hardening against
further concessions. Jayewardene may also calculate
that his military threats will gain him leverage with
both the militants and New Delhi at a time when
Colombo senses growing frustration in India over
Tamil intransigence.
Having rearmed and consolidated their forces in Sri
Lanka over the last six months and made some
inroads into the Eastern Province, many of the
militants see further talks as slowing their momentum
and giving Colombo more time to buttress its
counterinsurgency capability. Even if New Delhi
succeeds in bringing militant leaders back to
negotiations, pressures to continue fighting from the
rank and file would keep the leadership from making
major concessions. Moreover, rivalry among the
militant groups over strategies toward the
negotiations has weakened their already fragile
political alliance and made reaching a consensus on
Tamil objectives even more difficult.
In our view, 1986 holds two likely paths for Sri
Lanka. One leads to a partial settlement that would
be based largely on Colombo's current offer, but with
further compromises on the status of the Northern
and Eastern Provinces. This agreement would
probably include only some Tamil groups and would
require a great deal of Indian arm twisting. The other
path leads to a collapse in talks and a resumption of
full-scale fighting that might eventually induce both
sides to resume negotiations but could also force New
Delhi into direct military intervention in Sri Lanka to
restore order.
A partial settlement would reflect New Delhi's
calculation that it could not, without perhaps allowing
a new round of fighting that might radically alter
conditions, persuade either side to give substantial
additional ground. Such a settlement would give New
Delhi a much desired diplomatic return for its efforts
and would, in India's view, help isolate those militant
groups who refused to agree, eventually forcing them
to acquiesce. It could also enable the moderate TULF
to recapture Tamil political leadership from the
militants. Without having capitulated to the militants'
demands, Colombo would gain a partial accord that
could reassure worried foreign investors and aid
donors.
A partial settlement, however, would pose serious
problems for both Colombo and New Delhi. As
mediator, New Delhi would have to accept
responsibility for monitoring compliance either by
establishing a limited military presence in Sri Lanka
or by authorizing a third party or parties, such as the
Nepalese or a South Asian regional contingent, to
take on the task. In the first case, India would risk
accusations of strong-arm tactics in the region and
could face a costly, long-term presence in Sri Lanka.
In the second, New Delhi would have to come to grips
with its long-term concern toward Sri Lanka-
keeping third parties out. 0
For Colombo, a settlement requiring foreign monitors
could provoke a backlash among the Sinhalese
electorate, fueling accusations by the opposition of a
sellout of Sri Lankan sovereignty and prompting new
demands for general elections. Moreover, there would
remain the threat of attacks by hardline insurgent
groups-determined to extract concessions of full
autonomy from Colombo-on critical economic
targets in the Sinhalese south. If the insurgents
penetrate deep into Sinhalese territory to strike either
at civilians or economic targets, a Sinhalese public
backlash would prevent Jayewardene from reaching
even a partial accord with Tamils. Neither side
appears capable of gaining a decisive edge in the
fighting over the short term.
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5 T
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
A new round of heavy fighting would also spur more
government defense spending, increasing Colombo's
budget deficits and forcing further diversion of
development funds. The widely held belief among
Tamil hardliners that the United States provides
military support to Colombo could put US citizens at
particularly high risk if fighting resumed.
Faced with a renewal of full-scale fighting, New
Delhi would have at least two alternatives. If the
fighting did not pose a serious threat to the stability of
the Colombo government and did not provoke violence
in south India, New Delhi would not intervene, at
least in the short term. We speculate that New Delhi
would count on new fighting, resulting in an eventual
stalemate to encourage both sides to resume
negotiations under more sober conditions. In such a
case, New Delhi would be gambling that outside
intervention would not occur.
If, however, the violence toppled the Colombo
government or provoked widespread unrest in south
India, Gandhi could be forced into direct military
intervention at considerable cost to Indian regional
diplomacy. Indian intervention would not only
underscore New Delhi's diplomatic failure in Sri
Lanka but also would vindicate regional suspicions of
traditional Indian pretensions to regional hegemony.
From the start of his six-month-old mediation effort
in Sri Lanka, Gandhi has sought to establish an
Indian regional policy of conciliation. In our view,
New Delhi's relations throughout the region-
particularly with Nepal and Bangladesh-would
suffer.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Bangladesh: Ershad's
Long, Hot Winter
President Ershad will probably be unsuccessful in
gaining the opposition's cooperation in his plan to lift
martial law and hold elections by April 1986. To date,
the two major opposition parties have refused to
participate in any elections. Meanwhile, militant
labor unions are violating martial law and exploiting
Bangladesh's economic problems by planning national
strikes that would further disrupt Ershad's political
plans. The Army is increasingly dissatisfied with
Ershad's lackluster performance in office, but it
prefers the status quo to a government dominated by
leftist parties.
Ershad's Uncertain Strategy
Ershad's goal is to hold elections with opposition
participation by 1986 that would result in his election
as president and give him a majority in Parliament.
He, however, has yet to develop a coherent strategy to
achieve these goals. He has not announced a specific
date for elections, nor has he said whether presidential
and parliamentary elections will be held concurrently
or consecutively-a key issue with the military.
Ershad might consider
holding nonparty elections if the opposition refuses to
participate. US Embassy sources, however, say that
he is prepared to delay elections to gain the
acquiescence of the opposition parties.
In anticipation of planned elections, Ershad relaxed
martial law on 1 October by allowing indoor political
meetings; on 15 December he announced that he
would allow open politics to resume on 1 January
1986. Moreover, in an apparent peace offering to the
opposition, Ershad has announced that he will restore
certain provisions of the suspended 1972 Constitution
before elections are held.
Ershad created a new political coalition-Jatiya-
comprised of his own party, Janadal, and several
smaller parties in the hope of building a larger
political vehicle for his ambitions. Politicians
belonging to these parties have been appointed to
Cabinet posts and other government positions. The
US Embassy reports that Ershad eventually wants to
organize Jatiya into a single party. Embassy sources
indicate, however, that the coalition is divided by
political and personal conflicts and hurt by low
The Opposition's Intransigence
The two major opposition parties have persistently
rejected Ershad's election proposals, forcing the
cancellation of national elections three times in the
past two years. Both the leftist, pro-Indian Awami
League and the centrist Bangladesh Nationalist Party
(BNP) have rejected participating in national elections
unless Ershad agrees to their preconditions,
Ershad has consistently
rejected their demands, although he has conducted
indirect negotiations with the Awami League on the
election issue, according to the US Embassy.
The preconditions of the Awami League and the BNP
include:
? The immediate lifting of martial law.
? Unrestricted political activity.
? Parliamentary elections held before presidential
polls.
? The replacement of Ershad and his regime with a
"neutral" caretaker government.
Ershad's Problems With The Army
Relations between Ershad and his fellow Army
generals have become strained in recent months, in
our view. some senior
generals are dissatisfied with Ershad's reputed
corruption, dealings with opposition politicians, and
general lack of leadership.
Secret
NESA NESAR 85-027
20 December 1985
25X1
25X1
2.5X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
The generals' most immediate concern is their
suspicion that Ershad may offer too much-such as
agreeing to hold parliamentary elections first-to the
opposition parties, particularly the Awami League, in
return for their participation in national elections.
several senior
generals fear that the Jatiya Front is too disorganized
to win parliamentary elections and would win fewer
votes than the Awami League. The Army's
conservative senior leadership fears that the League,
if it gained power, would pursue policies-such as
drawing closer to India and purging the military-
that are contrary to Bangladesh's interests and a
threat to the Army's position.
Increasing Labor Militancy
Labor unions, in conjunction with the Awami League
and other leftist parties, are increasing their agitation
against the regime by organizing "hartals"-national
strikes. Workers at Bangladesh's largest jute mill
went on strike in early November in a wage dispute.
Jute is Bangladesh's major export, but decreased
world demand and a bumper crop have depressed
prices for jute farmers. The opposition is agitating for
higher government prices for jute, according to the
US Embassy. The striking workers clashed with
police, resulting in one worker killed and about 50
workers and police injured, according to US Embassy
reports.
Bangladesh's largest trade federation, the Sramik
Karmachari Oikya Parishad (SKOP), along with the
Awami League and the BNP, conducted a six-hour
hartal on 11 November to protest the police actions.
The hartal succeeded in shutting down business in
most areas of the country, according to US Embassy
reporting. US Embassy accounts indicate that the
regime, caught off guard by the extent of the hartal,
did not try to halt it.
The Ershad government's passive response to the 11
November hartal has probably encouraged more labor
and opposition activity. Another hartal was held on 2
December by SKOP. US Embassy reporting indicates
and several other large cities.
Awami Leaque and the BNP held illegal outdoor
demonstrations on 16 December with little
government response, according to press reports.
Prospects for 1986
We believe elections will probably be postponed next
year in Bangladesh as Ershad and the opposition
probably will be unable to reach an accommodation.
Ershad would remain as President and Chief Martial
Law Administrator.
Another postponement of national elections would
probably be accompanied by the reimposition of full
martial law, including a ban on political activity.
Although the Awami League and the BNP might
continue antiregime demonstrations and hartals, they
would be unlikely to threaten Ershad's regime. Senior
generals would probably agree to a continuation of the
status quo, preferring stalemate to the risk of an
Awami League victory at the polls.
Ershad, however, may decide that postponing
elections would be an embarrassing demonstration of
political weakness and could follow Pakistan's
example by holding nonparty elections. The Army
would probably approve of nonparty elections, and we
believe enough politicians would be lured away from
the opposition parties to make the vote credible.
Progovernment candidates, helped by regime
financing and probable vote rigging, would probably
win a majority in the Parliament, and Ershad, with
his control of the media and access to government
funds, would easily be elected president. This,
however, would require him to ban, at least
temporarily, all political parties, including his own-
an undercutting of his politcal supporters that he
might consider too risky. He would also be concerned
that such a ban would diminish the legitimacy of the
elections in the eyes of the international community.
25X1
25X1
25X1
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
If Ershad worked out a deal, or appeared to be on the
verge of one, with the Awami League that would
allow parliamentary elections to be held first-an
unlikely development, in our view-the Army would
probably attempt to overthrow him. Many generals
believe that only the military can bring stability to
Bangladesh, and
some of these generals scorn civilian politicians and
resent Ershad's efforts to build political parties.
In the unlikely event that elections brought the
Awami League to power, we believe that the Army
would almost certainly intervene before the League
took office. Most Army officers fear that an Awami-
dominated Parliament would be a threat to the
military's interests, in our view. We believe that
Ershad does not command wide respect in the Army
and that few officers would be willing to defend him
in the event of a coup attempt.
Looking to Washington
No matter what regime is in power in Dhaka, it will
remain dependent on the United States for economic
aid that is crucial to the country's poorly developed
economy. US assistance for FY 1986 will amount to
$167 million, accounting for roughly 12 percent of
government revenues, and there are no alternative
suppliers of aid willing to match it.
Any Bangladesh government is likely to press for
increased levels of US funding, citing the country's
endemic poverty. It also probably would continue
petitioning the United States for increased access to
the US market for Bangladesh textiles. A more
generous military relationship with Washington,
including funds for weapons and other equipment, is
also going to be on the agenda, whether a military or
conservative civilian government sits in Dhaka.
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP87T00289R000100300001-5