WEEKLY SUMMARY SPECIAL REPORT PERU: THE REVOLUTION MOVES ON

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A010900060001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 21, 2016
• Document Release Date: November 12, 2008
• Sequence Number: 1
• Publication Date: September 6, 1974
• Content Type: SUMMARY

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INOV 1%00
Secret
Weekly Summary
Special Report
Peru: The Revolution Moves On
State Dept. review
completed
Secret
N? 58
September 6, 1974
No. 0036/74A
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*awd JCI.rsi I
PERU
The
Revolution
Moves
On
"It is absolutely indispensable to re-orient and re-
build all of the state apparatus. A new socio-economic
order, a new system of ownership, in a word, a new
society, calls for a new type of government structure. The
revolution of the armed forces will carry out a process of
change in the economic, social, political, and cultural
structures in order to attain a new society in which the
Peruvian man and woman can live in freedom and justice.
The armed forces, as promoters and principal supporters
of the Peruvian revolution, will conduct the process of
change until it has become irreversible." (emphasis
added).
President Juan Velasco Alvarado, July 28,1974.
Special Report
September 3, 1974
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Summary
When the Peruvian armed forces, led by army General Velasco, took power
from the duly elected president, Fernando Belaunde Terry, on October 3, 1968,
most observers branded it simply another "palace coup" by pro-Western reaction-
aries. Within days, however, it became apparent that what was happening was more
than a traditional military golpe perpetrated by disgruntled, status quo - oriented
generals. Starting with the take-over of the large, US-owned International Petroleum
Company refineries on October 9, 1968, and continuing through a series of agrarian,
labor, and peasant reforms, the Velasco government has engaged in a wide-ranging
process designed to re-orient Peruvian society completely away from the oligarchs
and "foreign influences." Now, six years later, this process continues at an even
faster rate, despite the fact that the military is still viewed with suspicion-if not
hostility-by most Peruvians.
President Velasco has consistently and proudly maintained that the Peruvian
revolution is "neither capitalist nor communist." Clearly, however, the emphasis has
been on expanding state control of the economy and denying virtually any popular
participation in the decision-making process. The timetable for instituting reforms
remains purposely vague, but government leaders mince no words in telling the
country that the "participatory democracy" so loudly touted by Velasco is still far
from fruition.
The military-led revolution that began in
1968 strongly reflects President Velasco's views.
He has been the most dynamic force behind the
extensive program of domestic reform and foreign
policy independence. Even though Velasco may
be nearing the end of his tenure as chief execu-
tive, the revolution has been sufficiently insti-
tutionalized that the process will continue to
mirror his attitudes after he leaves office.
Velasco is fully aware of the key role he has
played in shaping the military-led revolution, but
he knows he must step down eventually. He sur-
vived a near-fatal ruptured abdominal aneurysm
in 1973 that cost him one of his legs. Although
Velasco is active and dynamic at present, con-
tinuing medical problems could lead to a worsen-
ing of his condition at any time.
It is a foregone conclusion that his successor
will be another army general-either a "radical"
(i.e., one favoring a strongly nationalistic foreign
policy and an accelerated program of domestic
radicalization) or a "moderate" (i.e., one more
amenable to compromising with the US in foreign
policy and favoring a slower and more deliberate
approach to domestic reforms). Whoever succeeds
Velasco, however, is not likely to alter the basic
thrust of Peru's nationalistic and socialistic
revolutionary experiment.
Although it will be the revolutionary junta-
consisting of the chiefs of the three services-and
not Velasco who will choose a new president,
Velasco's views will weigh heavily in any de-
liberations. His present inclination is to name
General Jose Graham Hurtado, who heads the
influential Presidential Advisory Committee.
Graham shares the President's radical views, but
Velasco may still harbor reservations about his
ability to carry out further revolutionary reforms.
This concern for deepening the revolution has in
turn prompted Velasco to name the army chief of
staff, Francisco Morales Bermudez Cerrutti, to
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become prime minister and minister of war next
January.
Morales Bermudez, who served as minister of
economy and finance from 1969 to 1973, is a
leading moderate and has received credit for
keeping Peru's economy afloat during these years.
By keeping Morales Bermudez in a high govern-
ment post, Velasco apparently hopes to take
advantage of his proven pragmatism and his
ability to get the job done, despite basic ideo-
logical differences between the two men. Al-
though the prime ministership would seem to be
the stepping stone to the presidency, Velasco now
appears less willing to allow a moderate to suc-
ceed him than previously.
The extent of General Graham's support
among key military leaders is not clear, but he is a
loyal velasquista and probably could count on the
support of most, if not all, of the army troop
commanders. Important troop commands are in
the hands of officers personally loyal to Velasco.
More moderate military leaders, including
Morales Bermudez and Interior Minister Pedro
Richter Prada, are in a weaker position now than
a year ago. Under present circumstances, the
moderates probably would be neither able nor
willing to risk a decisive confrontation with the
radicals to dispute the accession of Graham to the
presidency. The navy-traditionally the most con-
servative service-is inferior to the army in both
military and political power, and its current
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minister, Admiral Jose Arce Larco, has sold out
to Velasco in spite of traditionally strong
animosities between the two services. General
Rolando Gilardi Rodriguez, chief of the air force,
also is in general agreement with Velasco's
policies; he would probably support the Presi-
dent's choice of a successor unless it appeared
that this would severely damage armed forces
unity and effectiveness. One objection that might
be raised by Peruvian officers-who are great
respecters of seniority when it comes to filling
high government posts-is that Graham is junior
to Morales Bermudez. At this point, however,
Velasco appears intent on radicalizing the revolu-
tion and thus would rather support Graham than
Morales Bermudez. In the unlikely event that
Velasco were forced from office, the scenario
would become more complicated, with additional
generals probably contending for the presidency.
Lack of popular support, especially in the
past year, seems to have prompted Velasco to
become even more high-handed and to accelerate
the revolutionary process. This in turn has
brought increasingly authoritarian measures, such
as the forced resignation of a group of high-level
naval officers and the expropriation of the
country's major daily newspaper in July. These
recent authoritarian moves reflect the President's
personal sensitivity to criticism from any quarter;
there is also a sincere belief among top military
leaders that they as a group know what is best for
Peru and are uniquely qualified to carry out the
essential changes.
Both of these events have brought major
issues to the fore. The ousting of Vice Admiral
Vargas as navy minister last May made public the
most serious inter-service split since the military
took power. The press take-over sparked three
days of anti-government demonstrations, which
for the first time were led by middle-class activists
in Lima. As the middle class becomes more
actively involved in opposition activities, possibly
including terrorism, support for Velasco by
moderate military leaders could begin to erode.
By using such tactics, businessmen and civilian
political groups may try to convince military
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leaders that a continuation of Velasco's radical
policies would bring chaos to the country. If such
demonstrations recur, and if the opposition
becomes more violent, moderate military leaders
may come to believe the pace of socialization
must be slowed if any semblance of national
unity is to be maintained.
Although President Velasco frequently
asserts that his government is establishing a
"participatory democracy," he apparently does
not intend to allow the "people" to assist the
armed forces in setting national policies for the
foreseeable future. The government has made
some effort, however, to allow the working class
and peasantry to participate in implementing
these reforms through organizations such as social
property enterprises and the ubiquitous National
System of Support for Social Mobilization
(SINAMOS), an organization designed to create
popular support for the revolution. In addition,
the government maintains contact with the
Peruvian Communist Party.
The dialog between the military and the
Communist Party does not reflect any govern-
ment affinity with the party or its ideology,
although some government officials do sympa-
thize with its goals. Velasco and most of his
associates, however, view the party as a channel
of communication with the lower class and as a
consistent supporter of government programs.
Also, the President has tried to use the party to
help suppress anti-government demonstrations,
with little success. The dialog is likely to con-
tinue.
Contacts between the military and the mass-
based opposition American Popular Revolution-
ary Alliance (APRA) wax and wane, and are
clouded by 40 years of animosity. Still, there are
those within the government who see in APRA,
with its tradition of advocating non-Marxist eco-
nomic reforms, a means of gaining more perma-
nent and widespread support for the govern-
ment's programs. Others, including Velasco,
remain deeply suspicious of any civilian political
organization and may lean toward eventually
forming a separate, government-controlled party.
There are a large number of civilian experts
serving in the military government, but only a
handful really participate in the high-level
decision-making process. This reflects the mili-
tary's disdain for civilians as well as the general
lack of rapport between these two groups. If, as is
likely, middle-class opposition to the government
increases, this group's access to top military
leaders will be even more restricted. Civilians of
more radical persuasions, on the other hand, may
gain entree to the government. Those few civilians
who have access to Velasco's inner circle have a
long association with the President personally,
and appear to share his views on domestic and
foreign policy. Personal ambition may play a
more important role than ideology in determining
what line these civilians are willing to support.
The military's low regard for civilian politi-
cians has been repeatedly demonstrated. In May,
the government outlawed the Popular Action
Party of former president Belaunde, and early in
August, following the anti-government disturb-
ances, arrested several of its officials.
The one party that the regime has not
moved against decisively, however, is APRA, led
by its still-popular 79-year-old founder, Victor
Raul Haya de la Torre. One explanation may be
Haya's continuing ability to draw large crowds
whenever he makes a public address. Also, APRA
has been able to attract the support of large
numbers of young people, a feat that has eluded
the military government.
The government would like to counter
APRA's still widespread popularity, but its efforts
thus far have been less than successful. The
regime has used its own labor organization and
SINAMOS to try to dilute APRA support among
the peasants and lower class city dwellers. At the
same time, lack of expertise and inter-service
rivalries have hampered any moves by the govern-
ment to establish its own political party. The
government has made repeated attempts to gain
the support of organized labor by offering
compromise wage settlements and by appealing to
workers' "revolutionary instincts." Nevertheless,
individual labor groups have often opposed the
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regime when it has failed to satisfy their bread-
and-butter demands.
The Regime's Programs
Probably the most important and far-reach-
ing plan of action yet instituted is the social
property program, begun last May after a year of
public scrutiny and criticism. Through a com-
plicated bureaucratic mechanism, the government
hopes eventually to transfer control of large
numbers of businesses to worker-dominated
groups. The "social property enterprises" thus
formed, at least initially with government seed
money, will in turn channel profits or "surpluses"
into a fund for other enterprises. According to
the decree law, every worker who participates in
any social property enterprise will be a part
owner of all others. At all times, however, it
appears that the government will maintain a
decisive-if camouflaged-voice in establishing,
running, and, if necessary, terminating each enter-
prise. At least some of the theory behind this
system derived from a study of the Yugoslav
cooperatives.
The government has also developed two
other mechanisms through which it intends to
shift most economic power away from the
oligarchs and private investors, and place it in the
hands of the workers and the state. These are
"industrial communities" and "basic industries."
The government has allowed private individuals to
maintain control of the smaller firms, at least for
the time being. Notwithstanding these restrictive
measures, some private businesses continue to
make substantial profits.
As outlined in the so-called Inca Plan made
public by President Velasco on July 28, the mili-
tary envisages additional restructuring of virtually
every phase of Peruvian life, including education,
transportation, housing, and the judicial system.
Although the plan-which Velasco claims was
formulated prior to the 1968 take-over-is notice-
ably vague, the regime already has nationalized
the important fishmeal and cement industries,
begun a wide-ranging program of agrarian reform,
and severely restricted or eradicated foreign in-
vestment in many areas heretofore heavily sup-
ported by outside capital. Indeed, the first major
Signing compensation agreement
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September 6, 1974
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Stt~Kt
step taken by the military government was the
expropriation of the US-owned International
Petroleum Company. And, on January 1, 1974,
the government nationalized the huge, US-owned
Cerro de Pasco mining complex.
This concern for "Peruvianizing" the
nation's economy, however, has been tempered
by the realization that Peru needs foreign loans
and investment. This is particularly so in the
exploitation of natural resources. Thus, foreign
private investment is welcomed in certain in-
stances, with restrictions that are somewhat more
stringent than those adopted by the Andean
Group. The government has just reached an agree-
ment with a number of foreign investors to ensure
the development of the large Cuajone copper
reserves in the south, and it has obtained a sub-
stantial Japanese loan to construct an oil pipeline
across the Andes.
It was this concern for continued investment
that prompted Peru's leaders to reach a com-
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promise with US negotiators last spring, whereby
Peru agreed to pay $150 million in compensation
for all US-owned businesses that had been nation-
alized since 1968. This removed the major irritant
in US-Peruvian relations and has made subsequent
talks on Eximbank loans and possible weapons
purchases more cordial. The prospect of further
nationalization of US-owned companies, such as
Marcona Mining, is slight at present, but the pos-
sibility remains. Lima at any time may decide
that the risks of another chill in relations with
Washington are worthwhile if the political gains
and the chances for other foreign investment out-
weigh any adverse economic effects.
Foreign Policy
The basic thrust of Peru's foreign policy
since 1968 has been and is likely to remain
strongly nationalistic and identified with the non-
aligned movement. The tenor of US-Peruvian
relations, however, would probably become more
strained if a radical such as General Graham were
to succeed Velasco. General Morales Bermudez,
on the other hand, could be expected to follow a
more friendly path in relations with Washington.
At the same time, if serious snags develop in
particular bilateral negotiations, such as arms sales
or restructuring the OAS, Lima would probably
not hesitate to risk yet another round of strained
relations to assert its independent foreign policy
stance.
Although Allende's ouster in Chile has made
the Peruvian government stand out as the most
radical in South America-causing some concern
in Lima-Peru's nonaligned rhetoric and espousal
of Third World unity has not wavered. Lima has
been in the forefront of those less-developed
countries advocating economic unity against the
super powers and has taken the lead in calling for
changes in the inter-American system to lessen US
influence and incorporate the concept of "eco-
nomic aggression" into the OAS charter. These
policies are sure to continue after Velasco's de-
parture, although the tone will vary depending on
who succeeds him.
Contacts with Cuba, which have developed
rapidly since diplomatic and trade relations were
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re-established in July 1972, can be expected to
become even more prominent if Graham becomes
president, but will remain an important element
of Lima's policies regardless of Velasco's suc-
cessor. Several top military leaders maintain close
ties with their Cuban counterparts and would like
to see these contacts expanded.
Relations with the Soviet Union, China, and
Eastern Europe have also moved forward under
Velasco's leadership, primarily as a means of
asserting Peru's independence. Along these same
lines, in international forums Peru has supported
representatives from "liberation" movements in
the less-developed countries of Asia and Africa.
Aside from political considerations, Peru has
derived some tangible economic benefits from its
association with the Communist countries-
credits, fisheries cooperation, and port construc-
tion. In the case of the Soviet Union, however,
Peruvian leaders resent what they view as foot-
dragging by Moscow in matters of economic
assistance. The best example concerns Soviet
assistance in developing the giant Olmos River
hydro-electric project. Several feasibility studies
have been completed in the last five years but
credits for construction have not been advanced.
In fact, most Peruvian leaders remain sus-
picious of Soviet motives and are reluctant to
allow more than a minimal number of advisers
and technicians into the country. For instance,
although Peru has accepted some 14 Soviet tank
instructors, it reportedly has balked at allowing
250 Soviet technicians to enter the country to
conduct yet another feasibility study of the
Olmos project.
The Velasco government has been willing to
accept Soviet offers whenever they appeared to
be the most-or only-viable economic alterna-
tive, as when Lima purchased an estimated 150 or
more T-55 medium tanks. The first tanks arrived
late last year, and as many as 120 may now be in
Peru. President Velasco decided to accept the
long-standing Soviet offer after extensive study
made it apparent that sufficient numbers of
comparable US or European tanks were not
available. While the Peruvians reportedly have
Special Report
experienced some problems in learning to operate
the tanks, they are considering other Soviet
offers, including patrol boats and surface-to-air
missiles.
Arms procurement has become an important
facet of Peru's foreign policy and is likely to
remain so. In addition to the Soviet tanks, Peru
has accepted delivery of 65 105-mm. towed
howitzers from Yugoslavia. Lima also is awaiting
delivery of additional Mirage jets from France and
assorted ground, air, and naval weapons from
other Western suppliers. The country's military
leaders feel a genuine need to modernize and
expand their forces as well as a desire to maintain
them as one of Latin America's best-equipped.
Also of considerable importance to Peru is the
possibility of a conflict with Chile.
Peruvian military doctrine traditionally has
called for a war with Chile to regain territories
lost in the War of the Pacific (1879-83). Revan-
chist sentiments have become more pronounced
since the military took power in Chile last
September. Some leaders in Lima apparently fear
that Chile under military rule will be able to
narrow the "arms gap," which now favors Peru,
long before 1979--the centenary of the war and
the date by which the Peruvian military believes
the "disgrace" of the last century must be
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corrected. Also, some top Peruvian officers re-
portedly fear that Chile may provoke a conflict
with Peru in order to relieve domestic pressures
being exerted on that regime.
Both Peru and Chile have noted publicly
that bilateral relations are "normal" and that any
talk of hostilities is unfounded. Despite such
maneuvering, and despite the fact that chances of
deliberate hostilities in the next year or two are
not great, Peru will press ahead with its arms pro-
curement program and plans to upgrade its mili-
tary posture. Already, a large number of the
army's T-55 tanks have been stationed near the
Chilean border.
Peru's sense of isolation as the area's most
radical government is also linked to concern over
alleged Brazilian plans to seek Pacific coast terri-
tory through Peru. These fears have prompted the
army to implement a long-term military expan-
sion program in the eastern jungle. The feeling of
isolation has been and will continue to be an im-
portant factor affecting the domestic policies of
the Velasco government.
Special Report - 8 -
September 6, 1974
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No. 0036/74
6 September 1974
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%W
CONTENTS (September 6, 1974)
EAST ASIA
PACIFIC
3 South Vietnam: Worries About the War
4 Cambodia: One Eye on the UN
5 Laos: In the Communist Outback
MIDDLE EAST
AFRICA
9 Israel: Rabin to Visit US
11 Guinea-Bissau: Formal Debut
12 India-Sikkim: Toward Merger
13 Fedayeen: Looking to the UN
WESTERN
HEMISPHERE
18 OAS: Facing the Cuban Question
19 Chile: Anniversary Approaches
SPECIAL
REPORT (Published separately)
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Iq
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'"W1 0r-UhL I __"001
CYPRUS
The talks between Greek Cyprio leader
Clerides and Turkish Cypriot leader Denktash
received a setback this week following the dis-
covery of a mass grave of Turkish Cypriot vil-
lagers. The apparent massacre could revive pres-
sures on Turkish leaders to "liberate" those
Turkish Cypriots still in the Greek Cypriot - con-
trolled sector of the island. The prospects for a
negotiated settlement could also be complicated
by disunity in the Greek Cypriot community as
well as in Athens and Ankara.
The second in a planned series of discussions
between Clerides and Denktash scheduled for
September 2 was postponed at Denktash's in-
sistence because of the discovery of the mass
grave near Famagusta. Turkish Cypriots also claim
that another such grave exists in a Greek-con-
trolled area near Limassol.
Speaking at a press conference on September
3, Turkish Prime Minister Ecevit warned that
Turkey "will be forced to take effective meas-
ures" if massacres or threats of massacres of
Turkish Cypriots in Greek-controlled areas con-
tinue, or if Turkish Cypriots living in those areas
are forced to live as prisoners.
The publicity given to the massacres came at
a time when Greek and Greek Cypriot leaders
appeared to show some flexibility in their require-
ments for the reopening of negotiations. Greek
Prime Minister Karamanlis seems to have dropped
his demand that Turkish troops on Cyprus with-
draw to positions held on August 9 prior to the
second round of fighting. Karamanlis and Clerides
also seem prepared to accept a federation of the
two Cypriot communities. They now seem to be
concentrating on the return of Greek Cypriot
refugees to their homes, especially in Famagusta,
and would probably settle for a less substantial or
even token pullback of Turkish forces.
Thus far, the Turks appear unwilling to
make any concessions in order to get negotiations
under way. They appear instead, to see the ques-
tion of refugees and military withdrawal as chips
to be played once talks resume. They are
unlikely, however, to make any major conces-
sions. A Turkish Cypriot leader told the US
ambassador in Nicosia this week that plans were
under way to declare an "autonomous Turkish
wing of a federative Cypriot state" within the
"next few days or weeks." He said Turkish
Cypriots would settle for 33 percent of the island.
On the Greek Cypriot side of the island, the
attempted assassination on August 30 of a leftist
maverick and Makarios confidant, Vassos
Lyssaridis, and the killing of his party's youth
group leader by suspected EOKA-B gunmen will
further complicate Clerides' efforts to build a
political base that could enable him to consent to
a political settlement. While Lyssaridis impor-
tuned his followers not to take reprisals, the
attempt on his life and the murder of the popular
youth group leader could spark further violence
among extremist groups within the Greek Cypriot
community.
Developments in Greece
In Greece, Prime Minister Karamanlis' politi-
cal honeymoon appears to have ended earlier this
week with the formation by Andreas Papandreou
of a new leftist party alternately referred to as the
Panhellenic Socialist Movement and the Progres-
sive Democratic Front. Papandreou is expected to
be the principal challenger to Karamanlis' posi-
tion. The leftist leader criticized the Karamanlis
government for moving too slowly against the
country's former military rulers and for failing to
purge their supporters from the government. He
said the principal aims of his party are the crea-
tion of a state free from foreign intervention and
control as well as the socialist transformation of
the country. He also called for Greece's complete
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break from NATO in favor of an "`fictive, indepen-
dent" foreign policy.
Earlier, Prime Minister Karamanlis, in a
wide-ranging speech before a huge welcoming
crowd in Thessaloniki, reaffirmed his decision to
withdraw militarily from NATO, but added that
Greece would not break its "political and spiritual
ivies to Europe." He also questioned the US role in
the events surrounding the Turkish invasion of
Cyprus, but placed primary responsibility on the
junta that preceded him. The prime minister
defended himself against "go slow" charges,
saying it was impossible "to undo within a month
what has been done within seven years of military
rule." Karamanlis called on the nation, especially
the press, to exhibit political maturity in this time
of national crisis. Karamanlis said he would be
able to announce a date for national elections in a
time "much shorter than expected."
In Ankara, there were signs of growing fric-
tion within the coalition government of Prime
Minister Ecevit. Ecevit held a press conference on
September 3 during which he seemed to concede
some difficulties with his right-wing minority
partner, but insisted that there was a unity of
views regarding Cyprus. Two days later, however,
deputy Minister Erbakan, who heads Ecevit's
junior coalition partner, accused Ecevit of making
statements that harmed Turkey at a time when
the Cyprus crisis made unity essential.
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UN officer checking lines
Military Developments
planning to take Kokkina as well.
reported to have moved as far as Limnitis, and
UN observers believed that the Turks may be
tense. Over the past week, Turkish forces
continued to move slowly forward beyond the
cease-fire lines. Regular Turkish troops inched
south of the "green line" in Nicosia and near the
British base at Dhekelia on the southeast coast. In
addition, regular army forces and Turkish
Cypriots consolidated their position on the
northwest coast. By mid-week these forces were
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)c7 (Concern is growing in Saigon over its ability
to contain increased Communist attacks in the
face of reduced US aid. While some South Vietna-
mese commanders remain satisfied they can
handle the present step-up in fighting, they are
less sure about the longer term, especially if the
Communists launch an offensive sometime next
year(
0 [Fairly serious reductions already have been
ordered in aircraft and ammunition usage. Com-
bat sorties and reconnaissance missions have been
cut by approximately 50 percent, and more re-
ductions are planned.1(This has led several com-
manders to request approval to evacuate outposts
and forward positions that can only be supplied
by helicopter or air drop. The commander of the
region surrounding Saigon wants to take his
troops out of several such locations, including the
provincial capital of An Loc, which served as the
bulwark of government defense efforts during the
1972 offensive]
lWhile some field and regional commanders
single out the reductions as the main reason for
government problems on the battlefield, Saigon's
Joint General Staff believes that the cutbacks can
be handled without seriously jeopardizing the
Communists have pushed government units back
in the northern provinces and near Saigon. More-
over, the Communists have demonstrated that
they have ample military supplies to bring intense
pressure on specific: targets, and there are no signs
they plan to reduce the current combat level
anytime soon:
The Fighting Goes On
{Y ~4Ithough the fighting decreased slightly in
some sectors of the country this week, it is still
country's defenses. The General Staff appears to
have President Thieu's support.
I `A \Thieu is aware that his chances for getting
the $1 billion aid he wants from the US are slim,
although he apparently still holds out hope that
some of Congress' $300-million cutback can be
restored. By continuing to press for more re-
straint from his commanders, he is hoping to
force them to become accustomed to fighting
with only limited support from the US while at
the same time creating a favorable image in the
US by demonstrating he is making maximum use
of the aid being given him?
!fhieu cannot be getting much satisfaction
from field reports on the recent fighting. The
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heavy in the northern provinces. In Thua Thien
Province, North Vietnamese troops attacked
government positions west and south of Hue. A
Communist artillery unit recently moved into this
sector and is using 122-mm. guns to bombard
government positions. In Quang Nam, the Com-
munists are keeping the pressure on government
forces with frequent shellingsl
In Military Region 2, government command-
ers expect the Communists to resume the fighting
in Binh Dinh Province. Several enemy units have
shifted toward the coast near Bong Son, and
aerial observers have spotted Communist artillery
positions nearby. Saigon's forces have been
realigned to meet the threat in this areal
elsewhere in the country, combat has been
relatively light. In Military Region 3, government
troops are trying to push Communist units back
in order to stave off shelling attacks on the large
air base at Bien Hoa. The field commander, how-
ever, is not optimistic about his chances of re-
taking any territory.
CAMBODIA 25X1
One Eye on the UN
1 For the past few weeks, Cambodian govern-
ment officials and military leaders alike have been
focusing on the coming battle at the UN General
Assembly this fall. On the diplomatic circuit,
Prime Minister Long Boret at midweek engineered
a breakthrough in his efforts to win Arab support
by announcing the establishment of full diplo-
matic relations with Jordan] In deference to
,,Amman's sensitivities over Phnom Penh's ties
with Israel, Boret agreed to transfer the Cam-
bodian representative in Jerusalem to Tel Aviv.
The Saudi Arabians, whose recognition Boret has
also been seeking, have been pushing Phnom Penh
to sever relations with Israel, but may drop this
demand following Jordan's action.\
?Boret's Middle East travels have not gone
unnoticed by Prince Sihanouk's "government."
An Egyptian diplomat in Peking told a US official
last week that Sihanouk's supporters are worried
that Boret might succeed in eroding Arab support
at the UN, and that they have therefore sought
assurances of continued Egyptian backing.
S i h anou k's representatives abroad have been
concentrating on lobbying among African
nations, but they can be expected to shift their
attention to the Middle East soon, especially if
Boret gains Saudi recognition.'
The Military Scene
jCambodian army commanders have also
been trying to put their best foot forward on the
eve of the UN opening. In the Phnom Penh
region, elements of three army divisions have
launched a major operation into Communist-
controlled territory between the Mekong and
Bassac rivers southeast of the capital. Seasonal
flooding is hampering the operation but the push
has disrupted insurgent rocket-firing into Phnom
Penh. In the countryside, government forces have
launched successful forays near the provincial
capitals of Pursat, Siem Reap, and Kampot.
he insurgents are concentrating on wide-
spread attacks in rice-rich Battambang Province
and on increasing pressure against government
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LAOS: IN THE COMMUNIST OUTBACK
,~- D [Life in the "liberated zone" of Laos-the
Communist-held Sam Neua area in the remote
northeastern part of the country-is highly organ-
ized, tightly regimented, and dominated by a
pervasive party organization patterned after the
North Vietnamese model:(
p SSo says Canberra's Ambassador Borthwick,
who/ spent nearly a week earlier this summer
touring Sam Neua and the new Lao Communist
headquarters site at nearby Vieng Say. Although
his visit was tightly controlled, the ambassador
observed feverish reconstruction and road-build-
ing activity throughout both areas and was told
that reconstruction is the most urgent problem in
the "liberated zone." The Laotians claim to be
doing as much as possible by themselves, but
acknowledge that their manpower is limited and
that Hanoi has been asked to send some North
Vietnamese laborers to help out?
~-D fBorthwick's observations suggest a re-
laxation of the rigid war-time footing noted by
the British, French, and Soviet ambassadors
during their visits to the Sam Neua area early this
year. flndeed, Borthwick's Central Committee
1.~ host indicated that the party was encouraging the
population to come out of the caves and rebuild
the country
,yo `Like his diplomatic predecessors, Borthwick
found life in the Sam Neua area bleak and austere
by Vientiane standards. In spite of their Spartan
life, the people appeared adequately fed, clothed,
and housed, and there are no signs of resistance to
party direction]
,() No one has much money, but prices are
controlled by the party and are stable. Although
land is still privately held, there is only one outlet
for surplus production-the party-and it is un-
clear whether the party buys or requisitions. The
"liberated zone" earns little in exports, yet some
people were sporting imported watches and
transistor radios
,2,1 The ambassador's impressions of the primi-
tiveness of the economy were corroborated by
the coalition government's Pathet Lao deputy
finance minister during a recent conversation with
Come out of the caves
the USAID director in Vientiane. The Communist
minister indicated that the great differences in
business administration and taxation between the
Pathet Lao and the non-Communist zones pre-
cluded a combined national budget and an overall
economic plan for the whole of Laos for some
timel
(The only form of taxation in the Pathet Lao
zone', according to the minister, is a rice tax
imposed as a percentage of the farmers' harvest.
Civil servants, who receive compensation in the
form of wages, rice, and other commodities, are
not taxed. Although there are no private in-
dustries or significant commercial establishments,
the minister acknowledged that there was some
private enterprise in the liberated zone. Such
entrepreneurs were "encouraged" by the party to
market their goods at prices "more or less"
comparable to those charged in. Pathet Lao
cooperative stores./
2d Ambassador Borthwick was struck by the
pp rent indifference to religion during his tour
of the liberated zone. On joining the coalition
government, the Pathet Lao had endorsed the
importance of religion in national life and a
Communist heads the coalition's Ministry of
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StLKt I
Religion. But in their own home territory, there
are no active temples or monks, and no serious
attempt is being made to restore damaged places
of worship]
Jul )Nherever the ambassador went, the cult of
Souphanouvong was present. His portrait was
prominently displayed in all official reception
areas, either by itself or in concert with other
legendary Communist heroes like Ho Chi Minh
and Lenin,
') . L,
, r lNeither of the two important Pathet Lao
leaders who remain in Sam Neua-Central Com-
rn ittee chairman Kaysone Phomvihan or his
deputy, Nouhak Phoumasavan-deigned to meet
with Ambassador Borthwick. He did confer at
length, however, with several lesser lights in-
cluding General Phoune Sipraseuth. Although the
conversations reflected the Central Committee's
satisfaction with the new coalition arrangement,
they also revealed the deep-seated distrust and
suspicion that senior Pathet Lao officials continue
to harbor towar the non-Communist side, the
Thai, and the USI
i' ~n the basis of these talks, and as the result
of personal observations, Borthwick concluded
that there will be no free movement between the
two zones of Laos, much less any formal integra-
tion, for some time. In the ambassador's view, the
administrative apparatus of the Lao Communists
is still too fragile to be exposed to the worldly
temptations of the "yet-to-be-liberated" zone.
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[The Armed Forces Coordinating Committee
continued this week to denigrate both Emperor
Haile Selassie and the monarchy as an institution.
Intensified public attacks on the Emperor in re-
cent days, which were probably approved by the
committee, suggest that the forces within the
committee advocating the Emperor's removal and
abolition of the monarchy-heretofore a radical
minority-are gaining strength.(
(The beleaguered, 82-year-old Emperor
probably has no delusions about his chances of
regaining his shattered authority or prestige, and
he apparently has done nothing to defend himself
against the wide-ranging charges being leveled
against him. Faced with r ountinq censure, he
could choose to abdicate.;ii~The US embassy in
London has been informed by a British official
that one of the Emperor's grandsons made an
approach this week through the British embassy
in Addis Ababa to sound out the possibility of
political asylum for Haile Selassie in the UK,
where he found refuge during the Italian occupa-
tion of Ethiopia.",
Last weekend, a well-organized group of
students and unemployed youths demonstrated in
front of the palace and elsewhere in the capital,
demanding that the Emperor step down. Pamph-
lets and posters depicting him as indifferent to
suffering drought victims also appeared in Addis
Ababa, and he was reportedly spat on and cursed
on his way to Sunday church services. The
Ethiopian radio and press have begun to accuse `I
him of salting away large sums of money in for-
eign banks. j
Following last weekend's trouble, the com-
mittee issued a statement forbidding such demon-
} strations without its consent and ordered out
armed police and military patrols. The committee
probably fears that further demonstrations could
quickly get out of hand or spark other incidents,
particularly in rural areas where the committee
suspects Haile Selassie may retain some support
despite the recent denigration campaign]
The committee also announced that college
and high school students should hold themselves
ready for development and drought-relief
The Emperor
projects. The committee is probably concerned
that the scheduled reopening of schools later this
month could provide the volatile students with a
greater opportunity to stir up trouble
(Although there is still some sentiment in the
bommittee and elsewhere in the military for re-
taining the monarchy under a new emperor, the 25X1
advocates of this course appear to be losin
_groundl
L- lin the event the committee decides to
lbolish the throne
it may first try to counter
,
remaining pro-monarchist sentiment with an in-
tensive media campaign depicting the military as
saviors of the country. Laudatory treatment of
the committee in the media has accelerated con-
siderably in recent days.
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1rr JCI..RC I %moi
fNext week, Pririm i/li ster F-ab~in will visit
the US for the first time since he assumed office
just over three months ago. Rabin's supporters
and opponents alike will closely scrutinize the
results for indications of the state of bilateral ties
and prospects for further negotiations with the
Arabs.
Many Israelis see the trip as an opportunity
for their new leader to establish a good personal
relationship with President Ford and to resent
Israel's case.
IThe Israeli press over the
past few weeks has frequently expressed suspicion
that the US is forcing the pace of the negotiations
at Israel's expense.
Rabin has stated on several occasions during
the past months that Israel has little choice but to
continue on the negotiation path if it wishes to
avoid a new war.
Rabin firmly believes, however, that only a
militarily strong Israel can afford to be flexible in
the negotiations. He can be expected to argue
forcefully for a large, long-term US commitment
to provide Israel with the necessary military and
economic aid, Tel Aviv's price for further negotia-
tions.
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SENEGAL
G WINEA
Conakry
SIERRA
LEONE
CAPE VERDE;
ISLANDS E
I :r AREA OF MAP
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v 5tUKI I ?
GUINEA-BISSAU: FORMAL DEBUT
C, 7 Portuguese Guinea, the oldest and poorest of
Portugal's African territories, will gain Lisbon's
official recognition as the independent Republic
of Guinea-Bissau on September 10. The formal
transfer of authority will end over 500 years of
Portuguese rule and more than a decade of armed
insurgency. The independent government will
face a formidable array of problems. Even with
massive assistance from Lisbon and other foreign
supporters, it faces an unsteady future.`
(,y [The exact form the new government will
take is not yet clear. The structure established by
4 the rebels a year ago when they unilaterally pro-
claimed the territory's independence consists of:
a 120-member National Popular Assembly, which
functions as a policy-making body;a 15-member
Council of State; and a cabinet of seven com-
missars and their deputies. The rebels' African
Party for the Independence of Portuguese Guinea
and Cape Verde is the only political organization
and is expected to dominate the government;
party secretary general Aristides Pereira will thus
be the country's top leader)
the republic's
official capital will be located at Madina do Boe,
J' the small southeastern town where the rebels
proclaimed their government. Such a designation
would presumably be for symbolic reasons only,
however, because Madina is too isolated. Bissau is
likely to continue as the administrative and eco-
nomic center
~On its admission to the UN, expected soon
after the General Assembly convenes on Sep-
tember 17, Guinea-Bissau will rank among the
world organization's poorest and least developed
members. Portugal expects to contribute heavily
to the country's development and probably will
leave behind large numbers of technicians, edu-
cators, and medical personnel. In fact, the re-
public's economy is likely to remain basically tied
to Lisbon for some time to come, although the
nationalist leadership will want to modify the
near monopoly long enjoyed by the Portugues.
(9 [The leaders of the new state could also be in
or some stormy political weather. The bulk of
the government's leadership is made up of mulat-
toes from the Cape Verde Islands, although the
vast majority in the fighting ranks of the vic-
torious rebel movement are blacks from Guinea-
Bissau. In the past, this distinction has caused
friction between the political and military wings
of the party, but the leaders so far have been able
to smooth this over. With independence, however,
black resentment of Cape Verdeans in positions
of leadership could become a major issue. Even
among non-insurgents, there is resentment against
Cape Verdeans, stemming from Portugal's reliance
on the islanders to help colonize and administer
Portuguese Guinea?
INDEPENDENCE ENDS 500 YEARS OF
PORTUGUESE RULE AND MORE THAN A
DECADE OF ARMED INSURGENCY.
[Officials of the new government have pub-
licly affirmed a nonaligned foreign policy.
Guinea-Bissau is likely to have close relations with
Senegal and Algeria, two countries that served as
intermediaries during negotiations with Lisbon.
The course of relations with neighboring Guinea,
which was the rebel movement's staunchest
African backer over the years, is less predictable.
Relations have been somewhat strained in recent
months, largely because Guinean President Sekou
Toure did not approve the rebels' decision to
negotiate with Lisbon after the April coup. The
USSR and Cuba will enjoy some degree of special
favor because of their extensive military assist-
ance, but rebel leaders have insisted that they
intend to remain free of Communist influence.
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INDIA-SIKKIM: TOWARD MERGER
7t= India amended its constitution this week to
give its strategically located protectorate of
Sikkim representation in parliament as an as-
sociate state of the Indian Union. New Delhi's
action was the latest in a series of steps it has
taken to tighten control over Sikkim after
political unrest erupted there last year. The end
result seems likely to be the complete absorption
of the protectorate:
(India fears that prolonged instability in any
of the three Himalayan buffer states (Sikkim,
Nepal, Bhutan) would create a vulnerability that
China might exploit. Such a situation seemed to
be shaping up in Sikkim last year when leaders of
the ethnic Nepalese majority of the population
sought to eliminate economic and political prac-
tices that favored the ethnic minority, repre-
sented by the hereditary ruler, the Chogyal, and
to strengthen ties with India. The Chogyal re-
luctantly agreed to accept a political compromise
arranged by New Delhi after he had to ask for
Indian troops to bring anti-royalist demonstra-
tions under controls
?? 1 ~ new constitution, drafted by India, went
into effect in Sikkim last July. It reduces the
Chogyal to a figurehead, provides for a legislative
body elected on a one-man, one-vote basis, and
establishes India's direct control over internal
matters. New Delhi has also agreed to strengthen
economic ties and to provide Sikkimese with
educational and employment opportunities in
The Chogyal
India. New Delhi retains exclusive responsibility
for Sikkim's defense, communications, and
foreign affairs, which was established under the
1950 Indo-Sikkim treaty
^~la India's latest move has been denounced by
the 51-year-old Chogyal in a desperate bid for
international support. In the past, he has threat-
ened to abdicate in the face of Indian pressure,
but New Delhi probably will continue to en-
courage him to remain as titular head in hopes of
muting foreign criticism of its "take-over.''
Ti) [Although New Delhi probably anticipated
som Chinese criticism of its action, the comment
in People's Daily this week was Peking's strongest
attack on India in some time. The commentary
not only includes a direct attack on Prime
Minister Gandhi, but it makes clear that Peking
does not plan an early rapprochement with India:
?6 rOfficials in Nepal, who are customarily
J reluctant to comment on Indian moves in Sikkim,
were also sharply critical of New Delhi this week.
Anti-India student demonstrations in Kathmandu
appeared to have government approval, suggesting
that the "rape of Sikkim" may become a con-
tentious issue between India and Nepal.
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FEDAYEEN: LOOKING TO THE UN
- The Palestine Liberation Organization has
apparently decided to try to raise the Palestinian
issue at the UN General Assembly session that
begins later this month. At the same time, the
fedayeen grouping is opposing Egyptian calls for a
compromise of the Jordan-PLO dispute in order
to achieve a common Arab policy on the Middle
East peace negotiations.
(k,'3 \Early this week, the Arab League's foreign
LO
ministers council approved a request by P
chairman Yasir Arafat to place the Palestinian
question on the agenda of the General Assembly.
[According to the US embassy in Beirut, the PLO
has apparently set its sights on gaining full ob-
server status at the UN. It may also seek General
Assembly support for a resolution that would
recognize the PLO as the "sole" representative of
all Palestinians, although this controversial issue
was apparently not raised at the Arab League
meeting. The Palestinians are referred to only as
reful es in Security Council Resolution 242 of
1967
(;, During his visit to Moscow last month,
Arafat may have been encouraged to press the
Palestinian case at the UN. The Soviets reportedly
indicated that they would be disposed to support
such a move. In any case, Arafat's initiative is in
line with his wide-ranging efforts to seek maxi-
mum international support for the Palestinian
cause in order to buttress the PLO's claim to a
seat at the Geneva peace conference. Official
recognition of the PLO within the UN would also
help Arafat resist pressure from fedayeen radicals
who oppose Palestinian participation in the peace
negotiations.']
'Although the other Arabs are supporting the
r>Yi`ove to give the PLO observer status at the UN,
any move by the PLO to press for international
recognition as the Palestinians' "sole" representa-
tive could force the Jordanians out of the Geneva
peace talks. That would undermine Egypt's
efforts to achieve a compromise allowing both the
Jordanians and the Palestinians to negotiate there-1
CL- JLast week, the PLO executive committee
reportedly voted to reject, at least for the time
being, an Egyptian invitation to attend a tripartite
Egyptian-Syrian-Palestinian conference that was
to focus on reconciling PLO and Jordanian posi-
tions prior to the next phase of the peace talks.
PLO representatives reportedly told the Egyptians
that their decision was final unless President
Sadat retracted his support of King Husayn's right
to speak for the Palestinians living in Jordan and
promised full support for the inscription of the
Palestinian issue on the General Assembly agenda)
THE PLO OPPOSES COMPROMISE WITH
JORDAN AND SEEKS UN RECOGNITION AS
SOLE SPOKESMAN OF PALESTINIANS.
(.I fhe PLO's move may be an attempt to force
Sadat to restore complete support for the organ-
ization, a ploy that seems unlikely to succeed.
Although Sadat has agreed to back the Pales-
tinians' case at the UN, he has also reiterated his
view that the PLO is not the sole representative of
the Palestinians. Indeed, the Egyptian President
appears to be on the verge of telling the PLO, on
a take it or leave it basis, that the organization
must allow Jordan to take the lead in negotiating
the return of the West Bank"
6S if Sadat does not waver, the PLO might
revere its position. Early this week, Foreign
Minister Fahmi remained optimistic that the
tripartite meeting would take place, although he
acknowledged that the PLO was still being dif-
ficult. If the PLO remains firm, Sadat's next move
might be to try to convene a conference of Egypt,
Syria, and Jordan aimed at working out a nego-
tiating position that could then be presented to
the PLO. Syria, however, would find it difficult
to go along if the_, Palestinians remain adamant.
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USSR-US: TRADE DEFICIT REDUCED
3
IlUS statistics for the fist
half of this year
indicate that Moscow's trade deficit with the US
in 1974 will be less than half of the record $1
billion set last year. Soviet imports from the US
in the first six months totaled $316 million, down
by 55 percent compared with the same period in
1973. Exports to the US climbed to $188 million,
more than double the amount last year.
A $400-million decline in purchases of US
agricultural products was responsible for the fall
in imports; purchases of machinery and equip-
ment showed no change from the 1973 rate. The
increase in sales to the US, compared with the
first half of :1973, was led by oil and oil products
and platinum group metals. The greater value of
petroleum sales was largely a result of higher
prices.
The data for the first six months suggest that
imports from the US for the year will fall short of
the billion dollar mark, perhaps totaling $800
million. With less than $100 million in grain to be
imported in the last half of 1974, Moscow's total
SOVIET-US TRADE-"J
(Million US $)
Year
First Half
First Half
1973
1973
1974
USSR Imports
1,187
694
316
Grain
837
511
168
Soybeans
67
67
Machinery and
equipment
204
74
102
Chemicals
17
9
11
Iron and Steel
14
5
6
Other
48
28
29
Oil and Oil
products
Platinum and platinum
group metals
Diamonds and other
precious stones
17
7
6
Chrome ore
6
2
3
Nonferrous base
metals
18
6
12
Other
22
11
17
imports of agricultural products from the US
probably will fall short of $300 million. Imports
of machinery and equipment are likely to be
substantially higher in the second half of 1974
and may reach $300-$400 million for the year.
Sales to the US for the whole of 1974 will
depend heavily on the volume and price of
imports of oil and platinum group metals. A
doubling of total exports to the US over the 1973
level seems likely-to roughly $400 million. F
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DENMARK: GOVERNMENT TROUBLES
1 7r Denmark's minority government narrowly
averted collapse last week for the third time this
year. At issue was the crucial third and final stage
of Prime Minister Hartling's proposed economic
reform program designed to deal with Denmark's
persistent problems of inflation, budgetary
deficits, and balance-of-payments problems.
Hartling can rely on the support of only his
Moderate Liberal Party, which controls 22 of
parliament's 179 seats. The new legislation is due
in parliament on September 127
I. ( (Hartling consulted leaders of all parties last
weekend after his talks with the key opposition
group, the powerful Social Democrats, broke
down. The Social Democrats apparently balked at
Hartling's intention to pare government spending
by about $800 million, mostly in social and
educational areas:I
\The Social Democrats regard cuts of this
magnitude as unwise, especially during the cur-
rent economic slowdown, and they want to
reduce the cuts by half. The Social Democrats
also favor cuts in government spending on defense
and agriculture, but Hartling is reluctant to take
this step. The Prime Minister rebuffed a Social
Democratic proposal last week to cut defense
spending by about five percent. The proposed
reduction would have affected Denmark's NATO
commitments, in addition to breaching a four-
party agreement reached in 1973 to maintain
defense spending at current levels through 19771
In his war of nerves with the opposition,
Hartling has not hesitated to use the threat of
resignation to exploit the general reluctance of all
leaders to hold early elections. At the same time,
he has indicated that he does not relish the pros-
pect of calling new elections and is prepared to
compromise with the non-socialist opposition.
/This would entail giving up a key tax reform,
however, and risking a tough round of wage nego-
tiations with labor this fall. Another option
would be to bring the Social Democrats into a
center-left coalition, but this would diminish the
Moderate Liberal role and shift the direction of
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I() `Removal of the OAS sanctions against Cuba
within the next month or two is accepted as a
foregone conclusion by Latin American govern-
ments on both sides of the issue. Only the precise
timing and manner remain in doubt. This week or
next, Costa Rica, Venezuela, and Colombia will
submit a proposal to the OAS on how to proceed.
Most likely, an OAS forum will first take formal
cognizance of a "changed situation" with respect
to Cuba and then set a date for the OAS foreign
ministers, in their capacity as the executive body
of the Rio Treaty, to vote on terminating the
ten-year-old sanctions
'-J;1-[How the resolution of the Cuba question
plays itself out will have varying effects on the
new dialogue between the US and the Latin
Americans-an exchange very much in the testing
stage. Those governments advocating a new
attitude toward Cuba would be gratified to see the
US bend to their pressure; if the US maintains
unyielding support of the sanctions, they would
gravely doubt its flexibility on other issues. The
countries that have supported the sanctions along
with the US, on the other hand, are more anxious
to test US willingness to consult and wo ld be
slow to forgive a surprise US change of heart)
Panama's recent defection from the ranks of
members still observing the sanctions has increased
the sense of urgency to restore the integrity of the
Rio Treaty and the OAS. Seven of the 23 members
now have diplomatic links with Cuba, and a strong
majority clearly wants to establish them. Given
these political realities, even the members still
hostile to the Castro regime see little value in
holding to the crumbled sanctions policy. Govern-
mental changes in Washington, moreover, have
heightened concern that the US will alter its
Cuban policy and leave the few dedicated anti-
Castro governments diplomatically isolated
P_- r 5 for Cuba, Havana has a legalistic percep-
tion of the current sanctions dilemma and would
view a termination of the sanctions as an un-
justifiable confirmation of their original legality.
For this reason, some OAS members-possibly at
Cuba's urging--have cautioned against the creation
of a committee to determine whether Havana is
continuing to "export revolution"; these countries
would prefer to avoid holding Cuba up to
judgment and would rather base the elimination of
the sanctions on changed world conditions. For
their part, the Cubans, despite Fidel Castro's
stated interest: in a reconciliation with the US,
want no part of the OAS. They reject it as a tool
of the US for :suppressing Latin America, and they
will continue to work toward its destruction?
(,f )_-/ Nevertheless, all the governments would be
pleasbd to have the OAS rid of the contentious
sanctions problem so that other pending questions
could be grappled with. Many practical matters of
common concern, most of them broad economic
issues, are under study by inter-American
committees. A number of large political questions
also remain unanswered: Is the OAS-particularly
an OAS without Cuba-a useful instrument for
inter-American cooperation? Is the informal device
of meetings of foreign ministers a more serviceable
vehicle for the dialogue? Do the Latin Americans
need or want a separate council excluding the US?7
REMOVAL OF THE SANCTIONS IS NOW A
MA TTER OF TIMING AND METHOD.
t/9-, fAll these and other questions are in debate
and under examination, with at least some chance
that movement toward solving them will occur
next year. Various reports and recommendations
are scheduled for the ministers' meeting now set
for March 1975, to be followed by the OAS
General Assembly. Next spring, too, a new secre-
tary general of the OAS must be elected, a task
that will help to define what kind of future the
Latin Americans see for the inter-American
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CHILE: ANNIVERSARY APPROACHES
13 [Concern that leftists may try to use violence
to mark the first anniversary of President
`}'~ Allende's overthrow on September 11 has caused
the government to tighten security.,
fSecurity forces are especially concerned
0about the safety of government leaders during the
anniversary and the subsequent national holiday
on September 18-19.
con erence is w g
the government was on the verge of deciding what
to do with the Allende cabinet officers and leftist
party leaders it has held since the coupl
0
rIn previous statements, Pinochet has ruled
out any general amnesty but has disclosed that
the government is studying the "commutation or
25X1 c 7 (Mass arrests of "criminal elements"- reduction of sentences" of persons already tried
unddubtedly aimed in part at ferreting out left- and convicted of "lesser crimes." His conciliatory
ists-began in mid-July and appear to be intensify reply to a recent human rights appeal from
ing as the anniversary approaches. Moreover, 1 religious leaders is another indication that some
there apparently have been some recent incidents government move is in the works. The announce-
of local violations of the government's official ment might be included in Pinochet's speech on
policy against summary executions of prisoners ?September 11, but it could be delayed until the
here has been considerable speculation
Ilou government plans to use the occasion to
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announce modification of the year-old states of
war and siege, as well as to make a major gesture
in the area of human rights. Pinochet announced
?,-no specific initiatives during a two-hour press
f th' eek althou h he did note that
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Japan, the UK, and Italy have been st uggling
to meet oil import bills that will total nearly $35
billion this year. The UK and Italy have arranged
adequate financing for 1974, but will face increas-
ing difficulties next year. Japan is reducing its
current account deficit and should have little
difficulty financing the remainder.
Japan so far has coped with the $14-billion
increase in its annual oil costs without massive public
borrowing abroad. In response to the problem,
Tokyo has:
? tightened the monetary and fiscal policy
another notch to hold down import demand
and free more goods for export;
? put direct limits on business investment;
? restricted energy consumption in in-
dustry;
? discouraged investment abroad except in
projects needed to assure supplies of raw
materials, particularly fuel.
As a result of these measures and the impact
of the higher oil bill itself, gross national product
and the volume of imports have fallen while
exports have continued to increase sharply.
Japan's surplus in non-oil trade soared to $6.3
billion in the first six months of 1974, holding
the current account deficit to $5.7 billion. Long-
term capital movements abroad were reduced to
$2.6 billion from $5.5 billion in the last half of
1973. Short-term commercial bank borrowing not
only financed the resulting $8.3 billion deficit in
the overall balance but also brought a $1.2 billion
increase in Japan's official reserves.
Japanese banks are finding it increasingly
difficult to borrow short-term funds to cover
longer term financing needs. Tokyo accordingly is
now seeking medium-term loans in international
capital markets and from OPEC countries. Japan
has recently arranged a $1 billion, four-year loan
from Saudi Arabia. Tokyo will probably seek
further medium-term aid this year to avoid any
substantial use of its reserves or an increase in its
short-term debt.
The UK, unlike Japan, had a deficit in non-
oil trade of $2.4 billion in the first half of 1974,
in addition to its oil bill of nearly $4 billion.
Britain's traditional surplus in service transactions
limited the current account deficit to $4.8
billion--$1 billion less than Japan's.
To meet the deficit expected for 1974,
public authorities and private firms arranged
about $4.7 billion in Eurodollar credits. Only$1.7
billion had to be used in the first half. The
remainder of the deficit was financed through
other capital transfers from abroad, including
sterling deposits by some oil producers and in-
creases in sterling working balances of inter-
national oil companies.
Capital transfers from abroad, including
those from loans already arranged, will provide
Britain with ample financing for the rest of 1974.
The UK, however, appears to be receiving a
smaller share of oil-related capital flows now than
earlier this year. If this situation continues,
London will have to find alternative sources of
funds, which could be difficult.
Italy has the most formidable payments
problem of any major country. Its $3.5 billion
cost of oil in the first half of 1974 came on top of
a deficit for non-oil trade and a substantial out-
flow of long-term capital, raising financing needs
to $6.3 billion.
To make the necessary payments in the first
half, Italy borrowed about $2.3 billion in the
Eurodollar market, obtained $1.9 billion in
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short-term credits from its EC partners, and drew
down official reserves by $1.1 billion. By the end
of June, foreign exchange reserves had dwindled
to just over $1 billion.
Rome's medium-term credit arrangements
will carry it through the rest of the year if the EC,
as expected, grants a three-month extension on
the $1.9 billion short-term credit. A $2 billion
loan from West Germany, arranged last week, and
Italy's credit position in the International Mone-
tary Fund give Rome about $3.5 billion in
medium-term resources.
Italy must now look for funds to meet the
expected needs of next year. Rome is nearing its
limit for private credit. The use of gold as col-
lateral in the West German loan has further pre-
judiced Italy's private credit position, since
lenders would probably want a similar provision
in any new private loan. The most likely source of
new medium-term credit is through an EC-backed
arrangement which Bonn will probably support.
Now that West Germany has given direct help to
Italy, Bonn is in a strong position to push for
community acceptance of EC-wide action.
PROBLEMS AHEAD FORRr LARGE TANKERS
The most striking deJel1opm1nt in maritime
peJoleum transportation over the past five years
has been the tremendous growth in the construc-
tion of very large crude carriers-tankers of
175,000 deadweight tons and up. First intro-
duced in the latter half of the 1960s, these
tankers now account for almost half of the
world's total tanker tonnage, and will probably
form about two thirds of the fleet by the late
1970s.
Tremendous economies are realizable in the
construction of very large crude carriers, and a
number of countries are preparing to build even
larger tankers than the existing 500,000-ton ships.
French yards are already building tankers in
excess of 500,000 tons; tankers up to 700,000
tons are on order. Spain is investing $310 million
in a new drydock at Cadiz capable of building
1-million-ton tankers. Japan has set up a joint
government-business committee to study the con-
struction, financial, and operational problems
connected with these ships.
The explosive growth of very large crude
carriers was encouraged by the closing of the Suez
Canal in 1967 as well as the booming demand for
Persian Gulf oil. The cost advantages of using
larger ships have long been recognized. For
example, as the size of a tanker increases from
50,000 tons to 250,000 tons, the cost of hauling
a barrel of oil around Africa from the Persian
Gulf to the US east coast falls by more than 50
percent.
Despite the large tankers' growing popular-
ity, several trends are developing that cloud
future prospects. The worldwide economic slow-
down and high oil prices have slowed the growth
of oil consumption at a time when new tanker
capacity is entering service in record amounts. As
a result, spot tanker rates have dropped to a
fourth of their level just before the Arab-Israeli
war in October 1973.
Some industry estimates indicate that there
may be as much as 100 million tons of excess
capacity by the late 1970s, putting added down-
ward pressure both on rates and on new orders
for large tankers. The oversupply problem will be
aggravated by the reopening of the Suez Canal-
expected in about a year-which could reduce
tanker demand by about 10 percent. Arab pro-
duction cutbacks will result in additional excess
tanker capacity.
Other operational problems are inhibiting
the growth of tanker size. Tankers of almost
500,000 tons, chartered out to haul Persian Gulf
oil to Japan, cannot pass through the Strait of
Malacca when fully loaded, and must detour
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1,200 miles via the Lombok Stra!dPo'rt limita-
tions also are a problem. Harbors in the US can
only handle tankers of about 100,000 tons;
Western Europe's are limited to about 250,000
tons. Only Japan is able to handle the real
behemoths. In addition, fear of oil pollution or
other catastrophies has encouraged opposition to
port expansion and passage rights by some coun-
tries.
The planned build-up of refining capacity in
the Middle East in the next ten years will also
affect tanker demand. Smaller specialized vessels,
Conference delegates
rather than very large crude carriers, will be re-
quired to haul products to the consuming nations.
Uncertainty in the world petroleum market and
forecasts of huge tanker surpluses through the
end of the 1970s are likely to cause a substantial
shift toward smaller, more versatile tankers.
WORLD POPULATION CONFERENCE
03 frhe UN sponsored World Population Con-
ference in Bucharest wound up its work last week
by adopting a plan of action that calls for:
? Reduction of birth rates in developing
countries by 1985.
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_r.o~ JCuRC I Nmor'
? Greater dissemination of family planning
advice and services.
? More assistance from developed to the
less-developed nations.
? Improvement in the status of women.
The Romanians won adoption of a sweeping
resolution entitled "For a More Just World" that
in effect expands on their pet ideas for the
conduct of interstate relations..(
1d2- fBucharest was instrumental in avoiding a
floor fight over the potentially disruptive issue of
seating representatives of the South Vietnamese
Provisional Revolutionary Government. The
Romanians had worked diligently before the con-
ference to have the South Vietnamese Com-
munists seated. Once their efforts failed, Be c c-
rest apparently lobbied hard in support
position that the South Vietnamese Communists
should not be presenq
c ._ f Although the Romanians proved to be good
host , they could not avoid the temptation to
needle the Soviets. They distributed brochures to
the conference participants that contained
uncomplimentary references to the transfer of
Bessarabia and Northern Bukovina to the USSR
in 1940, and further rankled their Soviet com-
rades by charging them full hotel prices instead of
j O?CFamily planning and improved status of
women were the two dominant themes of the
conference. The US delegation succeeded in
intro- ducing into the plan strong references to women's
rights to equal participation in educational, social,
economic, cultural, and political life. Delegations
from the Third World-particularly Latin America
and Africa-came close to sidetracking the confer-
ence in its opening days, arguing that it is futile to
reduce population growth until there is a funda-
mental restructuring of society
rs he conference was punctuated by,sharp
exch nges on some political issues. The Chinese
jJ attacked both the US and the USSR, but they
made special mention of "social imperialism" and
"that super power which labels itself socialist."
cut-rate "fraternal prices."
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Secret
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