WEEKLY SUMMARY

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• Collection: General CIA Records
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• Release Decision: RIPPUB
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• Content Type: SUMMARY

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Secret
Weekly Summary
Secret
No. 0004/76
January 23, 1976
CI WS 76-004
Copy
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CONTENTS (January 23, 1976)
' pnaer-ts of the week through roon n ,irsdcry, it
includes material coordirated witt o- prepared MIDDLE EAST
Fice of Economic Research, the OW'e 01 Strategic AFRICA
the Office of Geogro sic and C:: ?ogrcagshic
:EKt.Y SUMMARY, issued ever;' Friday turn; ;g by the
of Current Intelligence, reports, and ooalyz *s signifi.
c:h, and the Directorate of Science and T?t;?hnology.
1 Lebanon: Worse Yet; Economy
3 Angola: Military; Political? Soviets
EAST ASIA
PACIFIC
WESTERN
HEMISPHERE
12 Portugal: Military-Party Talks
13 Turkey: Students Hurt Demirel
13 Balkan Cooperation: A Cautious Step
11 Spain: Unrest Controlled
15 USSR: Food Shortages
16 Australia: New Foreign Policy
17 China: The Economy in 1975
19 Malaysia: An Orderly Succession
20 North Korea: Debt Default
21 Brazil: Geisel Challenges the
Conservatives
21 Ecuador: The New Cabinet
22 Panama: Torrijos' Cuban venture
24 Peru: Economic Problems
Comments and queries on the contents of this
publication are welcome. They may be
directed to the editor eekly
Summary,
25X1
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A mixed force of Palestinians and Muslim leftists capture Lebanese army armoured car
LEBANON: WORSE YET
Fighting intensified ominously this week as
more mainline Palestinians entered the country in
support of the Muslims and leftists, and the
Lebanese armed forces became more heavily in-
volved on the side of the Christians. The
deterioration resulted in an immediate sizable
jump in the aggregate death toll since armed
clashes first broke out last spring, and prompted
an announcement by Prime Minister Karami that
he would resign. New hopes that the adversaries
might at last be ready to defuse the situation,
nourished initially by little more than the sheer
magnitude of the carnage, were encouraged by
President Franjiyah's public claim on January 22
that all parties had agreed on a new plan to
resolve the basic political issues underlying the
protracted crisis. In fact, such agreement is ap-
parently still being sought.
Warfare Spreads
For the first time since the conflict began last
April, the Lebanese air force, apparently on
orders from Christian Interior Minister Shamun,
made several strikes against Palestinian and
Muslim forces. The target groups had surrounded
a group of small Christian villages south of Beirut
early last week. The action was not cleared with
Karami, who also serves as defense minister, and
triggered his resignation statement. Lebanese
ground forces sided more openly with Christian
militiamen in the battle to fend off combined
Palestinian and Muslim advances on the Christian
city of Zagharta in the north and Zahlah, the ma-
jor Christian enclave in eastern Lebanon.
Meanwhile, the main Christian militias sup-
ported by some elements of the army concen-
trated on tightening their blockade, established
two weeks ago, of two large Palestinian refugee
camps in eastern Beirut. They also strove, with
some success, to consolidate their hold over the
northeastern portion of the capital on both sides
of the Beirut River. The Christians now have
access to a major supply route north of the city
and have established control over a large area
from the northeast sector of the capital that is
contiguous to the predominantly Christian Mt.
Lebanon area.
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These gains were offset, however, by heavy
Christian losses in northern and eastern Lebanon,
where approximately 3,000 troops of the Palestine
Liberation Army have crossed the border from
their bases in Syria. These troops have not yet
become significantly involved in clashes with
either the Lebanese army or the Christian militias.
They have provided important support, however,
to the fedayeen and Lebanese Muslims who are
tightening their hold on large areas of the north
and the east.
The battlelines that have developed over the
week have begun to create a de facto partition of
the country as Muslim and Christian enclaves
have fallen one after another. This emerging
geographic division and the heavy losses on both
sides have had a sobering effect on all parties to
the conflict that may help in further negotiations.
Political Developments
Syrian President Asad played a major role in
working out the "comprehensive political
settlement" announced by Franjiyah's office; it is
a revision of the five-point peace program
proposed by the Syrians last month and rejected
by the Christians. The new agreement calls for the
formation of a military committee composed of
Syrian, Lebanese, and Palestinian representatives
to fix a date for a cease-fire. The committee is
then to name a number of subcommittees to im-
plement the truce.
Few specifics have been announced,
suggesting that many details remain to be worked
out on the terms of a political settlement and
even on how a cease-fire is to be implemented.
The new plan reportedly retains Muslim demands
for equal representation in parliament and the
continued election of the prime minister by the
parliament. Unlike the-earlier proposal, however,
it would allow the Christians to keep their
predominant representation in top civil service
and army posts.
MEDITERRANEAN 1_~Tlipefi
Zagharte
1 Lebanon
RUT
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bra raaza tar Zahlah
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I _401 at-Basha17 00
0amdr ,
"Fatahland'Q
Karami's threat to resignon January 18 gave a
greater sense of urgency to political negotiations
Myatt
throughout the week, and probably shocked
Muslim and more pragmatic Christian leaders
into greater flexibility. Concern that remaining
government authority might collapse should
Karami decide to carry out his threat has probably
given added impetus to Syria's mediation effort.
By threatening to withdraw, Karami has also
strengthened his own hand, which has been a
force for reconciliation and compromise.
On the Christian side, Franjiyah and
Phalanges Party leader Jumayyil seem inclined to
accept the Syrian plan; Shamun, however,
appears to be resisting. Leftist spokesman
Jumblatt has not been heard from nor have other
representatives of the more radical leftist and
Muslim factions. Even if the top leadership of rival
groups can be brought in line, there is still a
serious question of whether undisciplined forces
on both sides would accept a truce.
Economy Near Standstill
Months of civil war in Lebanon have brought
the economy close to a standstill. Although many
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of the foreign firms that have left may eventually
come back, a return to prewar levels of economic
activity is unlikely for many years.
With few natural resources of its own,
Lebanon has relied on commerce and banking. Its
economic policies, together with a strong curren-
cy, have promoted large capital movements into
the country and rapid growth in earnings from
banking and commercial services. Beirut became
the key international commercial center in the
Middle East.
Lebanon's prosperity hit a peak in 1974.
Buoyed by Arab oil money, Lebanon achieved a
record balance-of-payments surplus and added
$650 million to its foreign exchange reserves. Net
capital movement into the country reached $875
million in 1974 compared with a previous high of
$280 million three years earlier. Tourism rebound-
ed sharply from 1973 when it was dampened by
the October war.
The fighting that began last April totally
reversed this picture of prosperity. The foreign
business community-the backbone of banking-
commercial activity that had been generating
some 70 percent of Lebanon's gross national
product-left and so did hundreds of thousands
of skilled foreign workers. Lebanese white collar
workers have also begun to leave.
The country has been split into isolated units,
production has all but stopped, unemployment is
high, and distribution problems are severe. There
are serious food shortages in sections of Beirut.
The latest Lebanese estimate of the economic
cost of the war, made in October, put physical
damage and commercial losses at nearly $3.5
billion-equivalent to the country's gross national
product in 1974. Heavy fighting since then has
added to the toll. The gross national product in
1975 could be down as much as 20 percent, and
Lebanon may have run up its first balance-of-
payments deficit since 1967. Beirut will have to dig
into its $1.7 billion in foreign exchange reserves to
cover the large balance-of-payments deficit likely
this year.
Even if the fighting were to end soon and
some sort of political stability were restored, the
country would still be left facing a long recovery
period and a need for substantial foreign
assistance. Foreign businesses have set up
elsewhere and will not return quickly. Many
foreign workers who have fled the country have
found niches in Amman, Kuwait, and other Arab
cities and are not likely to rush back to Beirut.
Lebanon will also be saddled with economic
problems that are unrelated to the fighting. An
agreement with Iraq, which provided half of
Lebanon's petroleum consumption, expired in
December. The contracted price was $3.05 per
barrel, and a new contract will probably be at
world market prices, thus adding $175 million to 25X1
Lebanon's import bill. Lebanon owes the Saudi
pipeline carrier $100 million in back payments.
ANGOLA: / 3, /5/ /111-'
The Popular Movement for the Liberation of
Angola moved quickly to expand military
operations on its southern front following the
collapse in the north of the National Front for the
Liberation of Angola. In heavy fighting in several
areas of central Angola during the past week, the
Popular Movement met stiff resistance from units
of the National Union for the Total Independence
of Angola that South Africans have been aiding.
The National Union's position may soon
deteriorate rapidly, however, as a result of the
reported decision by Pretoria to withdraw its
forces from the Angolan conflict. The number of
Cuban troops in Angola spearheading the
Popular Movement's drives now probably ex-
ceeds 10,000 men.
South Africans Leaving
Prime Minister Vorster's government ap-
parently reached its decision some -days ago.
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no ZOtlP~~ ~S,o Solvadef\
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559I5a 1-76 CIA
South African troops that have been operating in
the eastern and western sectors of central Angola
reportedly have already begun a pullback to
Namibia. Some South African forces will almost
certainly remain on the Angolan side of the
border to protect the important Cunene
hydroelectric project.
The loss of the South African troops is a major
blow to the National Union, which was counting
heavily on them to help it cope with expected
new drives by the Popular Movement and its
Cuban legions. National Union officials apparent-
ly had expected Pretoria to step up its assistance
in view of the failure of the Organization of
African Unity to condemn South Africa's involve-
ment in Angola at the recent OAU emergency
summit meeting. The National Union itself has
neither the technical know-how nor the equip-
ment to compete with the Cuban-backed and
Soviet-equipped Popular Movement forces. Its
only chance for survival may be to revert to
guerrilla tactics.
Military Situation
In northern Angola this week, the Popular
Movement concentrated on consolidating its
position at Ambrizete. It has not attempted to
push farther north toward the Zairian border,
suggesting that some forces from this sector have
already been shifted to operations in the south
against the National Union.
Reports from central Angola are fragmentary
and contradictory, but it is clear that fighting
between the National Union and the Popular
Movement has intensified. One of the most
heavily contested positions was Cela.
In the east, the National Union appears to be
maintaining pressure on Popular Movement
forces ensconced in the important railway town
of Teixeira de Sousa, close to the Zairian border.
Last weekend, Popular Movement troops in this
battle area were hit from another direction when
Zairian jet fighters strafed the Soviet-backed
group's positions at two locations. The strikes ap-
parently were in retaliation for the Popular
Movement's earlier destruction of a bridge link-
ing Teixeira de Sousa with Dililo on the Zairian
side of the Cassai River; at least one of the strikes
may have been coordinated with a ground move
by National Union troops.
Political Developments
The military collapse of the National
Front-historically the Popular Movement's most
bitter adversary-is stimulating new talk of a
possible political settlement between the other
two groups. Reports indicating that such a deal
was under active consideration have circulated
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for months; it would probably be favored by most
of the 22 African countries that refused to accept
Agostinho Neto's Popular Movement regime as
Angola's legitimate government at the OAU sum-
mit and by at least some of those who supported
the Popular Movementt. Since that meeting, an
Egyptian official told the US embassy in Cairo that
a new effort is under way to bring about "unity"
between the Popular Movement and the National
Union. He professed not to know whether the ef-
fort was meeting with any success.
The National Union's Savimbi has consistent-
ly favored a compromise arrangement that would
enable all three Angolan groups to be included in
a national unity government as envisaged in the
independence agreement they concluded with
Portugal a year ago. The National Union formally
reiterated this position-rejected by the National
Front since last summer-at its annual conference
late last month. This week, Savimbi, in Kinshasa
for a strategy meeting with President Mobutu,
publicly denied current press reports of secret
contacts between his group and the Popular
Movement looking toward formation of a two-
party coalition. Nevertheless, in view of recent
military developments, Savimbi might now be
willing to conclude such an arrangement.
The real problem, of course, is gaining the
agreement of the Popular Movement, which for
months has also rejected the unity solution. At
present, Neto's regime is publicly proclaiming
that the defeat of the Front changes nothing and
that no coalition is possible with any of the
"lackeys of imperialism." In the past, some of-
ficials of Neto's group have stated privately that a
coalition might be concluded with the National
Union provided the South Africans leave and
Savimbi steps down. The first condition now is ap-
parently being satisfied; the second might be
negotiable.
If key African supporters of the Popular
Movement were to press for an accommodation
with the Union, political leaders of the Movement
might still be amenable. But at this stage the
chances that Neto's military hardliners, who are
surely anticipating additional major victories for
their forces, could be brought into line any time
soon seem dim indeed.
2-:4 2 /1 7
Soviets Maintain Uncompromising Line
Moscow is continuing its tough, uncom-
promising public line on Angola in the wake of
the OAU summit.
Pravda, in its weekly roundup of international
affairs, poured cold water on the notion of a
coalition government as a solution to the Angolan
conflict. There is no "realistic" basis for a govern-
ment of national unity in Angola, Pravda said, ad-
ding that such an idea is obviously the product of
"pressure from Western imperialist circles." In an
effort to put the best possible face on Soviet dis-
appointment over the OAU's failure to recognize
the Popular Movement as Angola's legitimate
government, Pravda claimed that the deadlock at
Addis Ababa was really a defeat for the
"imperialists," who were unable to "dictate" the
course of events in Angola.
In addition to reaffirming strong Soviet and
Cuban support for the Popular Movement, Prav-
da and all other components of the USSR's media
have been giving heavy play to the military
collapse of National Front forces in northern
Angola. The commentaries stress the opportunity
this presents for major Popular Movement gains
against National Union forces on the eastern and
southern fronts.
Despite the Kremlin's hard public line, hints
that the USSR's position on Angola may not be
entirely inflexible are continuing to come from
Soviet officials in Moscow and abroad. There is
some talk of a coalition government that is clearly
dominated by the Popular Movement.
The idea of a coalition government un-
doubtedly reflects one strain of Soviet thinking on
the Angolan problem, but it is not likely to be in
ascendance so long as the Popular Movement and
the Cubans appear to have an opportunity to
crush their rivals on the ground in Angola. If the
National Union collapses as a fighting force and
the South Africans pull out, however, it is possible
the Soviets will urge Neto to make some gesture
of reconciliation to the Savimbi remnants in the
interest of gaining stronger control over the
Angolan countryside and its divided, tribal pop-
Paae R WEEKLY SUMMARY i,., ' -7 iZ
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INDIA: DEPENDING ON FOREIGN OIL
India's oil production of 150,000 barrels per
day covers only about 30 percent of domestic re-
quirements of about 520,000 barrels per day. Since
1965 the use of oil has grown 8 percent annually,
and oil imports have risen 7 percent annually. In-
dia now ranks second in oil imports among
developing countries. Brazil imports the most.
Since 1965, total commercial energy con-
sumption has grown at the relatively low rate of 5
percent per year. Coal is the most important com-
mercial energy source, providing about 60 per-
cent of commercial consumption. Coal reserves
are extensive, exceeding 100 billion tons, 1,300
times current annual production. Petroleum
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provides about 30 percent of commercial energy
consumption.
The financial strain resulting from the
quadrupling of world petroleum prices in 1973-74
prompted New Delhi to impose a ceiling on im-
ports and to hold down domestic consumption.
These efforts were successful largely because of
the industrial slump under way since 1973. In 1974
the volume of oil imports was held at the 1973
level, but the cost doubled, reaching $1.5 billion.
To offset the higher outlays for petroleum, as well
as for fertilizer and food imports, imports of
capital equipment and spare parts were severely
restricted, reinforcing the industrial slump.
Economic recovery in 1975 caused oil imports to
increase 7 percent, to 300,000 barrels per day of
crude and 65,000 barrels per day of products.
INDIA: Commercial Energy
Consumption
2,587
Thousand b/d of
oil equivalent
To ease the financial burden, New Delhi has
increased direct government purchases of oil and
has negotiated concessional financing with
several OPEC suppliers. During the past two years,
an estimated $500 million in payments for imports
was deferred under agreements with Iran, Iraq,
and Abu Dhabi.
Turbulence in international oil prices and
marketing arrangements has accelerated New
Delhi's long-planned take-over of the oil in-
dustry. In 1974 the government bought 74 percent
of Exxon's marketing and refining operations; the
remainder will be acquired in 1981. Burmah
Shell's assests were purchased in December, and
negotiations for take-over have started with
Caltex, the last foreign oil company in India.
Over the long run, New Delhi hopes to ease
the oil burden by stepping up domestic energy
production and by converting from oil to coal. In-
dia has considerable energy resources, but, in the
past, exploitation has lagged because of the curbs
Oil on foreign investment and the inertia of the
government bureaucracy.
While onshore efforts have been disappoint-
ing, offshore exploration shows considerable
promise. Our current evaluation of the Bombay
High offshore field indicates that the deposits may
Nuclear come on stream much sooner than expected.
1,343 Natural gasThrough accelerated development of the es-
timated one billion barrels of recoverable
reserves in this field, New Delhi hopes to achieve
crude oil production rates of 200,000 barrels per
day in this offshore area by 1980.
India faces a formidable challenge in
forestalling an increase in oil imports. Five years
from now, oil consumption is likely to be on the
order of 760,000 barrels per day. India will
probably maintain or improve the current ratio of
domestic production to oil consumed, which will
require additional production on the order of 85,-
000 barrels per day. New Delhi, however, is un-
T`- EM MM likely to develop sufficient productive capacity in
1965 1970 1975 1980* this period to forestall an increase in the volume
'Estimate 568374 1.76 of petroleum imports.
fl.,-., \A/CCI/I V CI IA AAA A r]\/ I.,., 70 7C
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ICELAND: BACK FROM THE BRINK
The British decision on January 19 to
withdraw its frigates and reconnaissance aircraft
from Iceland's unilaterally declared 200-mile
fishing zone came just hours after Reykjavik had
decided to break diplomatic relations with Lon-
don.
The Icelandic cabinet held two emergency
sessions on January 19. The first meeting ended
with a decision to break relations next week un-
less Britain withdrew its frigates from Iceland's
disputed waters. A ramming incident at sea,
however, sent the cabinet back into session, with
the result that the deadline for breaking relations
was moved up to January 24.
British press reports indicated that an Icelan-
dic patrol boat rammed a British fishing vessel
after failing to cut the British trawler's lines.
Iceland blamed the UK, labeling the incident a
"deliberate ramming" by the British trawler.
The Icelandic ultimatum came while NATO
Secretary General Luns was meeting with British
Foreign Secretary Callaghan in Brussels to try to
work out a solution to the dispute. Both Luns and
Callaghan were angered by the timing of the
Icelandic announcement, especially since
Callaghan had already agreed last week to
withdraw Britain's frigates and fishing vessels from
Icelandic waters in return for an Icelandic com-
promise on the size of the British annual catch.
After Luns failed to get Iceland to retract its
ultimatum, Callaghan agreed to proceed with the
withdrawal. Callaghan warned, however, that the
warships would return if Icelandic patrol boats
continued to harass British trawlers. Callaghan
also invited Icelandic Prime Minister Hallgrimsson
to London for talks with British Prime Minister
Wilson. Hallgrimsson and Wilson will presumably
try to formalize a "cease-fire" and work out a date
for the resumption of negotiations.
Luns was apparently able to convince
Callaghan that the Icelandic government was in
no mood to compromise. Luns came away from a
meeting last week with government leaders in
Reykjavik "appalled" by Icelandic intransigence.
Emotions have run higher during the current dis-
pute than during previous periods of tension
generated by the fisheries dispute, and public
opinion on the left and right clamored for a tough
Icelandic stance. Reykjavik's decision to issue its
ultimatum, even though Britain had already
Icelandic patrol boat cutting the lines of a British trawler
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agreed to withdraw from Icelandic waters, was
probably meant to appease such demands.
By giving in to Reykjavik's demands, London
probably hopes to avoid involving NATO in the
dispute. Iceland had vowed earlier to withdraw its
NATO delegation if the break in relations with
London did not result in any progress. In addition,
the majority of participants in a North Atlantic
Council meeting in Brussels on January 19 called
on Britain to withdraw its frigates as a first step
toward resuming negotiations.
London's immediate concern now is that with
the frigates gone, British trawlers may again be
subject to Icelandic harassment. The UK has
decided, therefore, to keep its unarmed protec-
tion vessels on station. Reykjavik has so far refus-
ed to give London any assurance that the harass-
ment of British trawlers will cease.
Iceland will drive a hard bargain on a new
fishing agreement if Hallgrimsson and Wilson
decide to resume negotiations. When talks broke
off last November, Reykjavik was insisting that
Britain limit its annual catch to 65,000 tons. Lon-
don was pressing for 110,000 tons but later in-
dicated a willingness to compromise.
Hallgrimsson, already in political trouble for the
"restraint" he has shown on the fishing issue,
knows that many Icelanders feel the government
has made too many substantive concessions
already.
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 Spanish police pursue demonstrators along Madrid's main street
SPAIN: UNREST CONTROLLED ' -
The government's policy of using enough
force to prevent political demonstrations and
strikes from getting out of hand-but stopping
short of the extreme measures of the Franco
era-appears to have controlled the current wave
of protests in Madrid.
The success of the police in preventing the
large-scale leftist demonstration this week has set
back leftist efforts to politicize current labor un-
rest. The rally was called by the two major leftist
opposition coalitions, the Communist-dominated
Democratic Junta and the Socialist-led Platform of
Democratic Convergence. The two groups plan-
ned to march on the prime minister's office to
press demands for political reforms, higher
wages, and amnesty for political prisoners. Some
leftists reportedly hoped to provoke strong
government countermeasures, including
bloodshed, in order to discredit the new govern-
ment and its proclaimed tolerance of orderly dis-
sent.
The government banned the demonstration
as disruptive to public order and announced the
police would take whatever measures necessary
to prevent it. Reportedly this caused some impor-
tant members of the coalitions to decide not to
participate. A heavy concentration of police
prevented groups from congregating, and while
some tear gas and clubs were used in crowd con-
trol, police action was generally restrained. Only
seven persons were detained.
The two coalitions may now find it difficult to
carry out other large-scale joint actions since it is
now clear they would provoke another massive
police turnout. Earlier, the Communist Party and
several illegal labor organizations were calling for
a general strike this month.
The government has also been successful
with its decision to draft workers to keep essential
services going. Rail and postal services returned
quickly to normal this week after government-
issued edicts drafting postal workers and railway
personnel made them liable to military discipline
if they refused to return to work. Subway workers
will also be drafted if they follow through on
threats to strike again. The government has said it
will negotiate with public utilities workers, but
will not tolerate disruption of services.
Senior military and civilian officials have told
US officials they are confident that this first
serious challenge to the government will start to
ease soon, as some of the remaining large strikes
are settled.
There are some indications that labor unrest
may already have passed its peak. Striking con-
struction and port workers have begun to return
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to work after winning pay raises that may be close
to 20 percent-3 or 4 percent higher than the
current wage ceiling allows.
Madrid's industrial area, however, remains
the focal point of unrest with about 15 large fac-
tories still closed, an estimated 40,000 metal and
auto workers idle, and another 6,000 bank
employees staging intermittent stoppages to sup-
port demands for higher pay. About 125,000
workers are still idle across the country, but
almost double that number have returned to
work. The fact that the government permitted its
wage ceiling to be broken in the port and con-
struction industry settlements has led to specula-
PORTUGAL: MILITARY-PARTY TALKS
The Portuguese military is now engaged in
consultations with the political parties this week
to determine the future shape of the government.
Although some politically minded officers are
reportedly trying to retain a dominant role for the
military, the parties will make a determined effort
to curb its power and to start the country toward a
democratic parliamentary system.
The talks will center on an exchange of
proposals for revising the pact guaranteeing
military supremacy in the government, which was
imposed upon the parties last spring by the
pro-Communist Goncalves regime. Although
both sides want to reach agreement soon in order
to pave the way for national elections by April 25,
fundamental differences could cause the talks to
drag out.
A draft agreement given to the parties last
week by the Revolutionary Council will form the
basis for discussions. The draft appears to be the
work of a group of officers led by Foreign
Minister Melo Antunes which seeks to continue
the military's leading role for a period of several
years in the belief that inter-party squabbling
makes military oversight necessary if there is to be
effective government. The military's proposals
would give the Revolutionary Council veto power
over nominations for prime minister and over
legislation dealing with foreign affairs, national
defense, freedom of association, elections, and
division of property among the private, state, and
collective sectors.
While the armed forces' proposal would give
the president-who although directly elected
would almost certainly be a military man-the
power to dissolve the popularly elected legislative
assembly, it also allows for the Revolutionary
Council to request such action. The president
would also be empowered to dismiss the prime
minister after consultation with military leaders,
the parties, and the cabinet.
The military's draft, which in effect makes the
president, the legislative assembly, and the
cabinet subordinate to the all-military
Revolutionary Council, has drawn sharp criticism
from the democratic parties. Only the Com-
munists and the fellow-traveling Portuguese
Democratic Movement are expected to endorse
the plan without substantial revisions.
Although the lines appear tightly drawn,
there is probably some posturing on both sides.
Revolutionary Council insider Vasco Lourenco
admitted last week that the council knows its
proposals will be altered and that they represent
only "a valid starting point." The parties also
appear to be overstating their case in the hope of
gaining further concessions from the military in
the bargaining process.
In the end, the talks should result in some
moderating of the military's current position. Of-
ficers of the so-called "operational" group within
the Revolutionary Council, who share many of
the democratic parties' views, claim they were not
consulted on the council's proposals. During the
talks, this group may be able to lend some sup-
port to party efforts to move Portugal further
along the road to representative government.
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TURKEY: STUDENTS HURT DEMIREL
Student disorders in Turkey continue to
aggravate political tensions and have given op-
position leader Ecevit additional ammunition in
his campaign to undermine Prime Minister
Demirel's shaky coalition government.
Violent campus clashes between extreme
left- and right-wing student groups have assumed
nationwide proportions in recent weeks, virtually
paralyzing much of the system of higher educa-
tion. Incidents resulting in serious injury have
become commonplace, and more than 10 youths
have been killed since the violence began last fall.
University authorities have admitted their inabili-
ty to cope with the problem, shifting the burden
to the government.
Demirel has hinted at the possibility of
declaring martial law to combat the problem, but
military leaders fear that such a move might only
further polarize Turkish youth. In the likely event
that the violence continues at its present levels,
the government will probably rely on methods
short of martial law. If the situation worsens,
however, martial law may prove unavoidable.
In recent days Ecevit and Demirel have ex-
changed harsh accusations regarding responsibili-
ty for the student problem. Ecevit has called
several times for an end to Demirel's faction-
ridden government, charging that Demirel is
planning to use martial law both to counter the
current problem and to intimidate his political
opponents. Demirel has responded by accusing
Ecevit and his Republican People's Party of en-
couraging the campus violence as a means of
destroying not only the government but also the
political system.
Ecevit has also been working against Demirel
behind the scenes. Ecevit appears to be courting
independent deputies as well as supporters of the
government in hopes of unseating Demirel when
the government's budget bill comes to a vote
later this month or next.
BALKAN COOPERATION: A CAUTIOUS STEP
Middle-level officials from all Balkan coun-
tries except Albania will meet in Athens Monday
for initial talks on expanded regional cooperation
in non-political fields.
The proceedings will be marked by caution
on all sides. Greece and Turkey, although
members of NATO, have serious bilateral
problems. Yugoslavia and Romania, the two
would-be neutrals, have differing views on
regional cooperation, and Bulgaria will be viewed
by all others as Moscow's surrogate. The dis-
cussions will be strictly limited to cooperation in
such non-controversial areas as trade, com-
munication, culture, sports, and energy.
Greek Prime Minister Caramanlis claims that
he is sponsoring the conference because he wants
inter-Balkan relations to reflect the spirit of
Helsinki, and his Foreign Ministry has taken pains
to stress that the initiative does not portend a shift
in Greece's traditional pro-Western orientation.
Caramanlis' prime motive, however, may be to
secure the support, or at least neutrality, of his
Communist neighbors in case Greek-Turkish
relations further deteriorate. He may also have
sought to pre-empt any similar initiative by the
Turks.
Caramanlis broached the idea of the con-
ference during his visits to Yugoslavia, Bulgaria,
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and Romania last year, and sent formal invitations
to all the Balkan states immediately after the
Helsinki summit. Ankara, however, delayed its
acceptance until late last month. The Turks had
earlier suspected Greek motives and feared
repercussions at home.
The Albanians predictably refused to attend
because of their deep suspicions of any regional
schemes that include Warsaw Pact countries, par-
ticularly Bulgaria.
By contrast, Romania, which is constantly
searching for ways to loosen Moscow's grip on
the Balkan members of the Warsaw Pact, is
enthusiastic about the meeting. President
Ceausescu would like to create an institutional
framework within which the Balkan states could
USSR-CHINA: SOVIETS SKEPTICAL
Moscow's skepticism of China's motives in
releasing the Soviet helicopter crew became
more apparent on January 16 when Pravda
carried an article under the authoritative
pseudonym I. Alexandrov. The article did not
mention the release; instead, it focused on an
anti-Soviet campaign in the Chinese press over
the past two weeks and berated Mao and his
"minions" for launching it. The article omitted
even the most perfunctory reference to
Moscow's desire for normal relations and
suggested that the Soviets are prepared to wait
until "true" Chinese patriots succeed in over-
coming the "Maoist renegades who have
usurped power" in China.
The article seemed intended to tell the
Soviet people not to jump to any conclusions
regarding a change in Chinese policy toward
the USSR as a result of Prime Minister Chou
En-tai's death and the release of the helicopter
crew. itmay also have been published to put
the Chinese on notice that they will have to
tone down their propaganda before they can
expect a meaningful response from the Soviets.
react jointly to any Soviet venture in the region. In
a rare show of discord in Yugoslav-Romanian
relations, President Tito derailed a similar
Ceausescu initiative in the summer of 1973. The
Yugoslav leader believes that going that far would
only give the great powers an additional incentive
for intervention in regional affairs.
Belgrade is of two minds about the meeting.
While the Yugoslavs welcome the experiment as a
means of promoting detente and of eroding
Europe's opposing military alliance systems, they
strongly suspect that the Bulgarians will promote
Soviet interests in the area. Yugoslavia will
therefore seek to highlight Sofia's subservience to
the Kremlin at every opportunity.
There is also a suggestion in the Alexan-
drov article that the Soviets are trying to dabble
in Chinese politics. The article refers, without
elaboration, to Chinese "patriots" who want to
bring China back into the socialist community
and who are of concern to Mao and his
cohorts. The article also takes an unusual swipe
at the leftist Politburo member Yao Wen-yuan,
the only Chinese leader, aside from Mao,
specifically mentioned.
It may be that the Soviets are trying to tell
their Chinese audience, with more specificity
than before, exactly whom in addition to Mao
they find objectionable. On the same day the
Alexandrov article appeared, the Foreign
Ministry's leading China expert, Mikhail Kapit-
sa, derided yet another left-wing Politburo
member, Wang Hung-wen, in an unusual inter-
view with an Italian weekly magazine. The
primary audience in this case was European,
not Chinese, but Kapitsa's remarks served the
purpose of getting on the public record
Moscow's negative attitude toward another
possible successor to the present Chinese
leadership.
25X1
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USSR: FOOD SHORTAGES
The first reports of local bread shortages have
appeared in the Soviet press. The Ministry of
Agriculture's newspaper, Rural Life, acknowledg-
ed receiving complaints of shortages from a
number of widespread rural areas, one in the
Ukraine and five in the Russian Republic. The arti-
cle made no mention of last year's harvest failure,
blaming instead the mismanagement of local
supply organizations.
Although local shortages of various foods are
endemic, the regularity of bread supply has been
affected by the 1975 grain shortfall. We expect the
overall bread supply will be adequate, but spot
shortages will continue. The average quality of
bread, however, is already declining as flour mills
extract more flour from each bushel of wheat. In
Moscow, white bread is available, but the
appearance of loaves is deteriorating; apparently
bakeries have not yet adjusted to using coarser
flour. In Riga and Tallinn,. US embassy officers
could find only tan and dark breads for sale on re-
cent visits, indicating that bakery supplies of
highest quality white flour in those areas have
been drastically reduced.
Conditions vary from city to city, however.
Embassy officers found adequate supplies of
white and dark bread in Odessa but little or no
beef, mutton, or eggs. In Khabarovsk, on the
other hand, good quality beef was available as
well as plenty of bread, but no mutton, pork,
eggs, or butter were seen. These shortages com-
bined with an expected decline in availability of
other food items make the outlook for the con-
sumer bleak, at least for the next few months.
The appearance of the Rural Life article
suggests growing concern that the deteriorating
food situation will affect morale. It was clearly in-
tended to reassure consumers. The article
emphasized the disciplinary measures meted out
to the local officials held responsible for the shor-
tages. Local supply organizations are thus put on
notice that they must work hard to ease distribu-
tion problems.
Industry is also expected to help ease shor-
tages. Bakeries have been instructed to reduce
waste by producing smaller rolls, a measure
suggested but not implemented after the poor
1972 harvest. The rolls are primarily for factory
and school cafeterias where waste is high. In addi-
tion consumers are again being reminded that
"bread is our greatest treasure and we must
respect it."
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'Ptrt,kry pgrAD?
AUSTRALIA: NEW FOREIGN POLICY
Since coming into office six weeks ago, the
Fraser government has underscored the impor-
tance to Australia of ties with traditional allies,
correcting what it saw as the tendency of the
Labor government to ignore such ties in the pur-
suit of Australian nationalism. The Liberal-Coun-
try government will not return to the
patron-client relationship with the US of earlier
Liberal-Country administrations. The more in-
dependent stance adopted by the Whitlam
government is popular in Australia, and the Fraser
government will maintain much of it. Fraser has
plainly stated, however, that there will be renew-
ed emphasis on ties with the US and that there is
no need to feel defensive about this.
Fraser's first move to strengthen the US con-
nection was to back the US-UK naval base on
Diego Garcia Island in the Indian Ocean. The
Whitlam government had been outspoken in op-
position to the project and had supported an In-
dian Ocean "zone of peace," appealing to world
navies to stay out of the area. Fraser belittled the
Whitlam proposal for ignoring the reality of the
new Soviet naval buildup there.
Canberra will also push ahead with the con-
struction of a new naval base on the Indian Ocean
coast of western Australia. Fraser's defense
minister has announced that Australia's allies will
be given access to this facility. Fraser is also rever-
sing the Whitlam government's refusal to permit
port calls by US nuclear-powered warships.
Canberra intends to lift the ban as soon as en-
vironmental safeguards are improved.
The new government is already working on
ways to improve Australia's ties in the Far East. It is
supporting the members of the Association of
Southeast Asian Nations (ASEAN) in their efforts
to build up that organization, but is trying to do so
in ways that will not be interpreted as intruding
into ASEAN affairs-a criticism frequently leveled
at the Whitlam government.
The government endorses Labor's opening of
relations with Peking, and Fraser plans to visit
Prime Minister Fraser
Peking and Tokyo this spring, before coming to
Washington. The government hopes to repair the
damage to relations with Japan caused by the
restrictive investment and trade policies of the
Whitlam government. To this end, Deputy Prime
Minister Anthony will visit Japan next month.
Although the Japanese may discern a more
hospitable investment climate, Canberra is reluc-
tant to relax its protective tariffs, believing that
Australian industry still requires such protection.
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Maintaining congenial relations with
Australia's closet Far Eastern neighbor, In-
donesia, is proving to be the Fraser ad-
ministration's first difficult foreign policy
problem. Australian governments consistently
place considerable importance on friendly ties
with their populous northern neighbor, but In-
donesia's military intervention in East Timor has
injected a major complication. Although both
Whitlam and Fraser had clearly signaled their ap-
proval of a quick Indonesian take-over, the
take-over has not been quick, and both the Labor
and the Liberal-Country governments have felt
compelled to cater to the Australian public's sym-
pathy for the leftist Fretilin forces' fight for in-
dependence.
The Fraser government is particularly em-
barrassed by a leak to the press of a confidential
recommendation from the Australian ambassador
in Jakarta that Canberra accept Timor's integra-
tion into Indonesia-a recommendation that has
now been publicly rejected by Fraser. Foreign
Minister Peacock tried to minimize the problem
this week following a brief visit to Jakarta, but
Australian sympathy for Fretilin has significantly
complicated Canberra's dialogue with Jakarta.
The Fraser government is backtracking on
other Whitlam innovations. In addition to public-
ly supporting Chinese criticism of Soviet naval ac-
tivities in the Indian Ocean, the Prime Minister
has disavowed Labor's recognition of Soviet
claims to the three Baltic states, a gesture for
domestic political gain that must strike Moscow as
a peculiarly gratuitous slap. Moscow in fact has
accused Fraser of resurrecting cold war rhetoric.
The new government is apparently also
departing from Labor's ambivalent Middle East
policy. Whitlam had supported Israel's right to
UN membership, but then met with a PLO
representative invited to Australia by Labor lef-
tists, antagonizing both Arabs and Israelis. Fraser
publicly promises to support Israel.
On the economic front, the new administra-
tion will provide a somewhat more favorable in-
vestment climate and greater incentives for
development of the country's energy resources.
Although the Liberal-Country government's
foreign investment objective is the same as
Labor's-50 percent Australian equity in new
development projects-the new government is
likely to be more flexible in applying existing
guidelines.
Direct government involvement in the
mineral and energy field will be greatly reduced
by the Fraser government, a development which
will tend to reassure potential foreign investors.
Canberra has already announced plans to divest
itself of investments acquired by the Whitlam
government through the now defunct Petroleum
and Minerals Authority, including coal, copper,
and natural gas projects.
Development of Australia's massive uranium
deposits will be encouraged by the Fraser govern-
ment. The new administration has said it will per-
mit exports of uranium oxide, but will watch
carefully to ensure that domestic needs are met
and a reasonable return is obtained. The Labor
government had banned uranium exports,
awaiting higher prices.
Development of Australia's other energy
resources should also get a boost from the new
government. The Fraser government has promis-
ed incentives for oil exploration and production
including a full write-off of exploration costs
against current income, and a special investment
allowance for development costs. The Whitlam
government's energy policies had caused oil ex-
ploration to come to a virtual standstill-only 14
oil wells were drilled during the first nine months
of 1975, compared to 135 in 1972.
/- S- 3
CHINA: THE ECONOMY IN 1975
While operating more smoothly in 1975 than
in 1974, the Chinese economy did not produce
the banner year with which Peking had hoped to
end the fourth five-year plan.
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The Chinese press has reported only sparsely
on economic performance in 1975 and on the
outcome of the five-year plan. For example, the
New Year's day editorial in People's Daily- nor-
mally the vehicle for an economic
stocktaking-claimed only that industry and
agriculture had fulfilled the five-year plan goals;
Peking has never made these goals public. Based
on sketchy information, our preliminary estimates
for 1975 are that:
? industrial production rose by about 10
percent, compared with only 5 percent in 1974;
? grain output was roughly the same as
the record 255 to 260 million tons harvested
the previous year;
? imports remained at the 1974 level of
$7.5 billion; exports rose from $6.5 billion to
$7 billion.
The strong industrial advance was largely at-
tributable to the easing of factional wrangling and
labor unrest that had disrupted factories and
mines in 1974. The fastest growth continued to be
in the petroleum sector, with output of crude oil
rising to 1.6 million barrels per day-a jump of
more than 20 percent. Industrial performance was
again marred, however, by persisting bottlenecks
in the key steel and coal industries. The People's
Republic continued to add industrial capacity by
commissioning major new plants of both foreign
and domestic origin.
The performance of agriculture was generally
disappointing. Only soybeans and such secondary
crops as oilseeds, sugar, and tobacco showed
gains. Grain production was about the same as
1974 while cotton output was lower. The record
harvest of 1974 permitted Peking to cut grain im-
ports to less than 4 million tons last year, down
from 7 million tons in 1974.
.us;wA&4 Nis Abe. cy
A curb on imports reduced China's un-
precedented $1-billion trade deficit in 1974 to
about $500 million last year. Japan remained the
top trading partner. Chinese imports from the !US
plummeted from $949 million in 1974 to $320
million in 1975, the result of reduced Chinese
purchases of US agricultural products. Chinese
exports to the US moved up to $155 million, com-
pared with $115 million in 1974.
At the meeting of the National People's
Congress a year ago, Premier Chou En-lai laid out
a long-range economic program concentrating
resources on agricultural development. His
successor, Teng Hsiao-ping, is a tough and ex-
perienced administrator and is likely to continue
programs formulated by Chou. For the short run
at least, we do not expect any radical revisions in
economic plans or policies.
1965 1970
1974
1975*
Grain
210 240
255-260
255-260
(million tons)
Cotton
(million tons)
1.9
2.0
2.5
2.2
Crude steel
(million tons)
(million tons)
12.5
17.8
23.8
24.0
Crude oil
(million bid)
0.2
0.6
1.3
Electric power
(billion KWI!)
42 72 108 121
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MALAYSIA: AN ORDERLY SUCCESSION
Newly installed Prime Minister Hussein Onn
has stressed that he will continue the moderate
racial policies of the late Prime Minister Razak in
an attempt to keep the lid on the ever-present
racial tensions in Malaysia. Razak's sudden death
last week had immediately brought into question
the durability of his communal policies, which
had kept racial animosities in check. Although
committed to giving the Malays a greater share in
the Chinese-dominated economy, Razak had
pursued this goal with a sufficiently measured
pace to avoid alienating the Chinese. Most
Malaysians accept Hussein as a moderate on race,
in the mold of Razak.
Hussein has a history of heart trouble,
however, prompting doubts about how long he
can remain in office. The announcement by
Hussein's physician that the new Prime Minister
has made a good recovery and is fit will be regard-
ed with skepticism by politicians and by a public
C~,- "? - k 7
that was kept in the dark about his predecessor's
illness.
Doubts about Hussein's health will probably
increase the maneuvering among contenders for
eventual leadership. Although many Malay
politicians generally accept the national necessity
of avoiding communal strife, some, in their quest
for support, will be tempted to appeal to Malay
racism. The large Malaysian Chinese community
will have doubts, moreover, whether any of the
potential successors to Hussein possess the
political adroitness and strength to keep Malay
pressures against the Chinese within bounds.
The immediate political question requiring a
decision is the selection of a new deputy prime
minister to replace Hussein. Underscoring the
orderliness of the succession, Hussein says he is in
no hurry to appoint his deputy; he probably has
not yet made a choice between the two top con-
tenders, Agriculture Minister Ghafar Baba and
AP
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Education Minister Mahathir. Hussein could also
reach deeper into the party hierarchy to find a
more acceptable candidate.
Hussein has a reputation for quiet com-
petence and, if his health holds up, could provide
a period of-good management that would redress
some of the slackness and drift that marked the
final two years of the Razak administration. The
new Prime Minister is more pro-Western than his
predecessor and will be less inclined to pursue
nonalignment as the centerpiece of Malaysian
foreign policy. His focus will be in working with
Malaysia's neighbors in making the Association of
Southeast Asian Nations a significant re ion
organization.
NORTH KOREA: DEBT DEFAULT
North Korea's large-scale default on its debts
to Japan and the West-the first by a Communist
country-has derailed Pyongyang's moderniza-
tion plans based on the acquisition of advanced
Western equipment.
In the early 1970s Pyongyang decided to
reduce its economic dependence on the Com-
munist countries as part of a broader reorienta-
tion of its foreign policy. Since then, North Korea
has purchased $600 million worth of industrial
plants and related equipment from Japan and
Western Europe. Imports from the West jumped
sharply in 1973-74 because of expanded plant
deliveries and unexpected large grain re-
quirements following poor harvests. Plant imports
were financed by medium-term credits and grain
imports by short-term credits.
Repayments on these debts were already tax-
ing Pyongyang's ability to earn foreign exchange
when the recession in the West cut demand and
prices for nonferrous metals, North Korea's major
exports. The result was an unmanageable $500--
million hard currency trade deficit in 1974. In late
1974 North Korea began to default on its
payments. By early 1975 the total amount of the
debts in arrears to Japan and Western Europe
reached $200-$300 million. Rescheduling of some
debts and offsetting new defaults have kept total
arrears at roughly this level.
Japan and a number of West European coun-
tries have suspended further credit guarantees for
North Korea. Some suppliers have halted equip-
ment deliveries until back payments are made,
while others are demanding substantial down
payments for new purchases. Efforts to resolve the
payments crisis have had meager results.
? About $150-$200 million in debts has
been rescheduled by West European banks
for one to two years.
? Pyongyang has been attempting to
pay its debts to Japan before they fall more
than six months in arrears, to forestall a
cutoff of exports by Tokyo.
? A September 1975 meeting of
Western creditors failed to agree on mul-
tilateral rescheduling of North Korea's $800
million in officially backed debts.
? No hard currency relief hasbeen ob-
tained from the Communist countries, and
negotiations for a $200-million loan from
Iran remain stalled.
? Imports fell sharply in 1975 and the
trade deficit was cut, but only to about $300
million, as contractual deliveries of
machinery and equipment on credit con-
tinued.
Delays in construction at several plants are
hampering Pyongyang's industrial development
and-because some products from these plants
are planned for sale abroad-will retard export
growth. No new plant contracts have been signed
since mid-1974, and two plants already under
contract have been scuttled. Unless North Korea
finds some unexpected source of sizable hard
currency credits, the debt service burden will
mean further curtailment of imports from the
West and further cutbacks in its ambitious plans
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BRAZIL: GEISEL ACTS
President Geisel this week directly challeng-
ed military conservatives by firing one of their
leading figures, Second Army commander
General D'Avila Mello, army chief in the Sao
Paulo area.
D'Avila Mello was relieved shortly after the
death of a civilian prisoner in a Second Army jail.
Geisel quickly named a close associate, General
Dilermando Gomes Monteiro, to assume the im-
portant Sao Paulo command.
The President probably removed D'Avila
Mello to drive home to the conservatives that
there are limits to their influence and to give sub-
stance to his promise- last fall not to tolerate
further incidents like the death in October of a
Brazilian newsman. His death occurred also in a
Second Army jail cell, an alleged suicide. Civilians
and military officers alike have been edgy since
that incident, which received international atten-
tion.
Since gaining the presidency nearly two years
ago, Geisel has been trying to curb the power of
conservative military and security officials at the
local level. Many of them operate almost in-
dependently of Brasilia. The President has had
only limited success, and the effort has brought
him into conflict with influential officers who
think harsh measures are still needed.
Only two weeks ago Geisel acceded to con-
servative pressure, removing from office two op-
position legislators who had lashed out against
the military. The lawmakers were among three
who had been accused by security officials of be-
ing "Communist subversives." All three protested
their innocence in public, but two went on to
charge that investigators had obtained evidence
only through torture of prisoners. Conservative
military officers generally view criticism directed
at them as a threat to national security and are es-
pecially sensitive to charges of torture. There is lit-
tle question they pressed Geisel to respond.
The two, a state deputy and a federal con-
gressman, were promptly removed by Geisel,
who used a broad, all-purpose decree power to
suspend their political rights for 10 years. The
President did not move against the third, most
likely because he did not raise the torture issue.
Moreover, another congressman, who recently
denounced the military, avoided punishment by
issuing a retraction.
Brazilian politicians, looking forward to
municipal elections scheduled for later in the
year, have mixed feelings about Geisel's struggle
with the conservatives. They are cheered by his
refusal to cave in, as evidenced by his strong
move against the Second Army commander. They
are fearful, however, that the conservatives, who
wield important, if indeterminate influence,
could redouble their efforts to undermine the
President's position and perhaps cancel or rig the
e-M.3- S S
ECUADOR: THE NEW CABINET
The new cabinet appointed last week by the
three-man junta reflects a variety of political and
economic philosophies and perpetuates the
divisions over policy that contributed to the
demise of the Rodriguez Lara government early
this month.
Of the ministry-level members of the cabinet,
eight are military officers; three are civilians. This
is an increase of one civilian since the last major
cabinet change that followed the abortive
September 1, 1975 coup attempt.
The appointment of Colonel Rene Vargas to
the critical position of minister of natural
resources is likely to be the most controversial. A
former director of CEPE, the state-owned
petroleum corporation, Vargas has been a consis-
tent critic of US petroleum companies operating
in Ecuador. During his tenure as CEPE chief, he
formulated policies that did much to drive away
new foreign investment.
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The junta's principal spokesman, Admiral
Alfredo Poveda, has attempted to reassure the
foreign oil companies that the junta would keep
Vargas on a tight rein and that his appointment
does not presage a radical shift from the more
moderate oil policies adopted last week. Despite
this reassurance, the appointment is ill-timed and
will undoubtedly affect current relations between
the ministry and Texaco-Gulf Company and dis-
courage new exploration and exploitation of
petroleum resources in the country.
The appointment of conservative
businessman Cesar Robalino Gonzaga as finance
minister does not augur well for a consistent
government economic policy. Robalino clashed
strongly with Vargas over oil policy when Vargas
was head of CEPE and Robalino was subsecretary
in the natural resources ministry. Subsequently,
Vargas was instrumental in blocking Robalino's
appointment to a cabinet position last August,
and the two men are known to despise each
other. Since the two ministers have major roles in
formulating the government's oil-based
economic policies, there is unlikely to be much
innovative action as long as both men are in the
cabinet.
,,f2 6 - / ~) 61
PANAMA: TORRIJOS' CUBAN VENTURE
The first face-to-face meeting between
Panamanian leader General Torrijos and Cuban
Prime Minister Fidel Castro was a polished
political show by both men. Torrijos ac-
complished his primary objectives-to publicize
his battle for sovereignty over the canal, focus
attention on Castro's strong support of that cause,
and boost his own revolutionary credentials. With
Castro's considerable help, he was able to do this
without giving significant new ammunition to
critics of a new canal treaty.
Throughout the January 10-15 visit, Torrijos'
performance reflected concern for LIS sen-
sitivities. He avoided railing at the US. Onlly when
pressed at a news conference did he repeat his
familiar stand that if peaceful routes to a new trea-
ty were closed and he had to choose "between
leading or crushing the people," he would lead
them.
In their speeches, both leaders stressed the
need for Panama to continue to negotiate calmly
and noted the differences between the Panama-
nian and Cuban experiences. The controlled
Panamanian press in many instances highlighted
these differences.
The final communique mirrored the publicly
restrained approach and skirted all delicate
topics. General statements supported self-?deter-
mination, territorial integrity, and anti-
colonialism, but no specific mentionwas made of
such favorite Cuban causes as Puerto Rico or
Angola.
Only one point in the communique could
cause concern among Torrijos' critics. The state-
ment says the two countries will consider signing
economic-technical, cultural, and educational
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Castro talks to Torrijos during the Panamanian leader's five-day visit
cooperation agreements. No details were an- Given its apparent success, it can only spur
nounced; the two sides agreed only to establish a Panama's effort to seek pledges of support at
mixed commission to meet in April to spell out every opportunity on the international scene.
the forms of cooperation. If the governments
eventually exchange delegations, Panamanian prudent statesman may
conservatives would probably be quick to level Torrijos' image as a p
however, by a own in the
charges of expanded Cuban influence. They have have been seriously damaged,
the been especially sensitive to educational institutions January 20, rthe government a rest d and exiled at
munist influence in the edu a least ten prominent individuals from both the left overn Castro's public performance must have Using Guantanamo naval base right afte charging them with
as 140 arre is"may have
ly pleased d Torrijos. U Uss g
as an example, Castro pointed out that although followed the initial expulsions.
the Panamanian people are courageous, Torrijos e
overn has wisely avoided hand provocative policies could
not reThe severit adily explai afble. They cou d have stemmed
play into o the e hand of Panama's of Torrijos-
jos has frequently used this line to rein in Panama- from recent public criticism cism i ol meeting of
nian leftists, and Castro's pronouncements should unusual in Panama-at a provinc
return-
ease his a de with radicals wo believe he line. Further hefectng the agriculturalists.
from the successtul Cuban trip,suchs
should criticism
shouldd take ke a a
harder
considerable effort to avoid controversy, Castro would have been especially stinging.
held his news conference-during which Angola Allegations of serious plotting appear un-
had relations were raised-only after Torrijos founded; Torrijos is firmly backed by the national
haad departed. guard, and opposition to him has for the most m
t Castro's treatment of the canal
e. pdelb esnAlthough bus nesosmenshave fromlled foha
Ame~can caum
ly allies him with a popular Latin
In advocating a statesmanlike approach and a national strike to protest the arrests, it is doubtful
Panamanian solution to the problem, Castro that they will be able to put effective pressure on
probably had his eyes on a wider audience in Torrijos.
Latin America, where concern about Cuban in-
tentions Torri os calculates that his left flank
has increased since Cuban troops were 1 probably n
Cast
on--
ro's outcome dispatched to Angola. In a dTorr nostrin e Castro s iment of h slpolices. Seovlerral moves to mollify orse
outcome the trip places 1 and debtbt, , one that Havana undoubtedly will seek to further eindmidat on mmay onths-keep omehofatthe
cash in on in the future, possibly at the UN.
business community in check. Thus, if Torrijos'
The trip was part of Torrijos' expanding, aim is to rid himself of domestic political harass-
aggressive effort to seek international support. ment so that he can negotiate a new canal treaty
SECRET
9'I WEEKLY SUMMARY Jan 23, 76
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free from criticism, he may have decided this was
a good time to move.
The domestic repression will, however, fuel
partisan allegations that Torrijos is an irresponsi-
ble dictator not to be entrusted with a Iarger role
in running the canal.
/'L)2 fad
PERU: ECONOMIC PROBLEMS .
Economic problems, compounded by
reported disagreements within the government
over the future of revolutionary programs, are
likely to cause political difficulties for President
Morales Bermudez during the next few months.
During a major speech on the state of the
economy last week, Economy Minister Luis Barua
painted a somber picture of the impact of the re-
quired adjustments to serious balance-of-
payments problems. Import restrictions and
burgeoning government expenditures have
fueled domestic inflation, while agrarian re-
form policies have resulted in food shortages.
At the same time, Barua announced a
number of programs aimed at stabilizing the
country's financial situation and at easing foreign
payments difficulties. These measures include in-
creased taxes, wage guidelines, reduced govern-
ment subsidies on a number of basic consumer
goods, temporary rent controls, and additional
controls on imports.
Efforts to increase exports will be severely
hindered, however, by the slow revival of the
world market expected this year. Balance-of-
payments problems consequently will persist and
thus narrow the government's ability to improve
the economic situation. Since foreign reserves
were largely depleted in 1975 to finance the
record $1.6-billion current account deficit, Peru is
depending on large increases in long- and
short-term capital borrowing to cover this year's
projected deficits. The new austerity measures in-
troduced by Barua are intended to encourage the
international financial community to be
forthcoming with financing.
The degree of success enjoyed by the
government in coping with the impact of world
recession will also depend in part on the response
by labor to the wage guidelines and increased
prices resulting from the lowered subsidies. Labor
strikes in the second half of 1975 further reduced
exports, and the present calm in labor-govern-
ment relations is likely to prevail only until the last
official wage increase is eaten up by inflation. The
Communist-directed General Confederation of
Peruvian Workers, which has supported the
political goals of the military regime, instituted its
first general strike in December and will probably
be even less prone to accommodation in light of
last week's austerity measures.
Page 24 WEEKLY SUMMARY Jan 23, 76
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Secret
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