WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011300050001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 29
• Document Creation Date: December 21, 2016
• Document Release Date: March 20, 2008
• Sequence Number: 1
• Publication Date: January 30, 1976
• Content Type: SUMMARY

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Secret
25X1
Weekly Summary
Secret
No. 0005/76
January 30, 1976
ci WS 76-005
Copy N2 62
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The WEEKLY SUMMARY, issued ev yry f < ido y morning by the,
ice of Current Intelligence, reports -.end .z>sal;' s signifi=
t developments of the week through neon: on Thursday. It
re uently includes material coordinated %vsoh or prepared
by the Office of Economic Re --arch, th_.. 04lice of Strate9ac
Research, the Office of Geographic 011-? Ca rtograrphic
Research, and the Directorate of Science and Technology:
CONTENTS (January 30, 1976)
MIDDLE EAST
AFRICA
I Algeria-Morocco: Tensions Rising
2 Lebanon: Tenuous Truce; Soviet Reaction
3 Angola: Military;
Dos Santos Visit
7 Middle East: UN Debate Ends
8 Iran, Kuwait, and CEMA Countries
9 Indian Ocean: New Directions
11 Italy: Political Maneuvering;
Lira in Trouble
12 Spain: "...Without Haste or Pause"
14 Iceland-UK: Compromise Reached
16 Southern Socialists Meet in Paris
17 Greece-Turkey: Bleak Prospects
17 MBFR Talks Resume
18 CEMA: Summit Plans
18 Warsaw Ideological Conference
EAST ASIA
PACIFIC
19 Indonesia: Moving Ahead on Timor
20 Japan: Lubricating Mideast Links
21 Laos-Thailand: Warming Trend
WESTERN
HEMISPHERE
23 OPEC Production in 1975
24 IMF: Loans to Developing Countries
Comments and queries on the contents of this
publication are welcome. They may be
directed to the editor of the Weekly
Summary,
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ALGERIA-MOROCCO: TENSIONS RISING
Tensions between Morocco and Algeria
sharply increased this week as clashes occurred
well inside the Spanish Sahara between Moroccan
forces and Algerian military personnel supporting
guerrillas of the Polisario Front, a Saharan in-
dependence movement. Rabat and Algiers have
so far carefully measured their response to the
clashes, but both sides have expressed concern
that the situation could get out of control. Algeria
has contacted several Arab leaders for support,
and Egypt, Syria, and Iraq have begun efforts to
mediate the dispute.
The fighting began on January 27 when
Moroccan forces attacked Algerian army troops
some 25 miles south of Semara in Spanish Sahara.
According to press reports, fighting continued for
the next two days. Algiers claimed that its troops
were merely transporting food and medicine to
Saharans. This clash was the first confirmed en-
counter between troops of the two countries
since the trouble over Spanish Sahara started, and
the incident also brought the first open
acknowledgment by Algiers that its forces are in-
side the territory.
The Moroccans gave no indication of the size
of the forces involved or the extent of the
casualties. They did say that they captured 29
soldiers durin the fighting.
he fighting took place in an
area used by t e Algerians to train Polisario
guerrillas.
Later on January 27, Algerian President
Boumediene convened an emergency joint ses-
sion of the Revolutionary Council and the Coun-
cil of Ministers to discuss the incident. A com-
munique issued afterward charged that the
Moroccan attack was "extremely serious" and
warned that the situation could get out of hand if
such incidents continued. The communique said
that the government had decided to take
measures to deal with the situation. Algeria quick-
ly contacted other Arab states about the incident.
Egypt, Syria, and Iraq sent high-level envoys to
Rabat and Algiers to try to mediate the dispute.
Both Morocco and Algeria are trying to line
up international support for their respective
positions. The Moroccans summoned the am-
bassadors of the five permanent members of the
UN Security Council on January 28 to stress the
gravity of the situation. They were clearly laying
the groundwork for a possible call on the Council
to discuss the matter. Algeria, for its part, has
called on all nations to support self-determination
for Spanish Sahara. Algiers will use its consider-
able influence as self-proclaimed head of the non-
aligned states to whip up support for the Polisario
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LEBANON: TENUOUS TRUCE
The fighting in Lebanon came to an uneasy
halt late last week after leaders of the private
Christian militias, threatened by growing
numbers of regular Palestinian forces from Syria,
agreed to cooperate with Syrian mediators in
negotiating a political settlement. Leaders of the
various Lebanese political factions appeared near
agreement this week on a package of political
reforms, but continued to haggle over the details
of a settlement. The extended debate and persis-
tent cease-fire violations in the Beirut suburbs
and in eastern Lebanon have kept tensions high
and could still lead to a resumption of wider
fighting.
The Palestinian regular troops in Lebanon,
which number about 5,000, are theoretically un-
der the command of a joint Syrian-
Lebanese-Palestinian peace commission, but,
in fact, are being directed from Damascus.
With Lebanese leftist and Muslim militias, the
Palestinians have encircled the core Christian
areas of Lebanon and are, in effect, holding
Lebanese army units hostage outside the Christian
area. Although regular Syrian army troops have
not been used to separate the warring factions, 60
Syrian officers have arrived in Beirut to serve on
the joint commission.
Syrian Foreign Minister Khaddam, who was
instrumental in arranging the cease-fire, has given
repeated assurances that the Palestinian forces in
Lebanon will be withdrawn to Syria as soon as
order is restored and a settlement reached. Ac-
cording to press reports, Khaddam has said that
some Palestinian troops could be returned in as
little as ten days. Other sources tend to support
Khaddam's claim that Syria does not intend to use
the Palestinian troops as a permanent occupation
force or to prolong their stay in Lebanon.
Nevertheless, Damascus almost certainly sees this
truce as its last chance to solve the Lebanese crisis
without involving outside help and will probably
maintain close supervision of the cease-fire until
it is confident a durable settlement has been
achieved.
Christian leaders, even the most conser-
vative, now seem to realize that they have little
choice but to accept reforms that would give the
Muslims a greater voice in government. None of
the Christian leaders, however, has yet accepted
the detailed proposals suggested by Damascus.
They apparently are primarily concerned about
the reaction of their ultraconservative followers
and are seeking to demonstrate that they are driv-
ing a hard bargain while developing an accep-
table justification for making concessions. Interior
Minister Shamun, for example, has hinted public-
ly that he will not approve a settlement until Syria
shows its good faith by withdrawing Palestinian
troops.
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Prime Minister Karami has demonstrated
confidence in the negotiations by formally
withdrawing his resignation this week. He is again
talking about renewing efforts to form an expand-
ed cabinet that would include representatives of
all significant Christian, Muslim and leftist groups.
Announcement of an agreement is not ex-
pected until President Franjiyah meets with Presi-
dent Asad in Damascus. Their meeting has been
postponed several times already to allow resolu-
tion of last minute problems in the negotiations.
Both sides now appear to be negotiating more for
form than substance, but their commitment to the
projected settlement is so tenuous that any one of
several politicians could still raise objections
serious enough to derail it. Cease-fire violations
in Beirut and eastern Lebanon, although relatively
minor and involving undisciplined fringe groups,
could also delay final approval of an agreement.
_~J
Moscow has welcomed the latest cease-fire
in Lebanon and has expressed cautious optimism
that it will help pave the way to a permanent
resolution of the conflict. The Soviet media have
applauded the role played by Syria in negotiating
the military stand-down and in framing the broad
outlines of an eventual political settlement.
A resolution of the Lebanon crisis along the
lines worked out by Franjiyah and Asad would be
to Moscow's liking. The Soviets would approve of
the strengthening of the Lebanese left and the in-
creased prestige for the Palestinians and the
Syrians. They would applaud the fact that Egyptian
President Sadat had been largely excluded from
mediating a settlement. The Soviets might even
seek to take some credit if peace were achieved.
The Soviets could say that, unlike in 1958, the
shadow of their military power forced the US to
keep hands off Lebanon.
Moscow has already sought to link Lebanese
turmoil to a need for a Middle East settlement
through the Geneva conference. Pravda last week
went a step further when it implied that creation
of a Palestinian state would enable "hundreds of
thousands" of Palestinians to leave Lebanon.
Throughout the ten-month-old crisis,
Moscow has urged a negotiated end to the
fighting and has stressed the need for the
Lebanese themselves to agree on political and
economic reforms. Pravda has repeatedly called
for an end to the "fratricidal war" and reiterated
Soviet support for Lebanon's independence and
territorial integrity. The Communist Party daily
recently alluded to intrigues of "reactionary im-
perialist forces" against Lebanon and warned
against Israeli "plans" to intervene in Lebanon.
Despite such bluster, there have been no
solid indications, such as increased intelligence 25X1
collection, that Moscow is concerned about
foreign intervention
13 -2- _Y,
ANGOLA: MOVEMENT ON THE MOVE
The Popular Movement, reinforced by some
11,000 Cuban troops and a continuing flow of
Soviet military equipment, has gained a decisive
military edge in the Angolan civil war. During the
past week Popular Movement and Cuban forces
in central Angola clearly began to make signifi-
cant headway against the National Union as South
Africa pulled back most of its troops that had
been supporting Union units. It appears now only
a matter of time before the Movement occupies
most of the major urban centers in the central and
southern parts of the country as it already has in
the north. The Movement's sweeping success
leaves its adversaries, including Zairian President
Mobutu, with a choice between seeking an early
accommodation on whatever terms they can get
or pursuing the struggle on a guerrilla basis.
Military Situation
In the west central sector, forces of the Luan-
da-based Popular Movement regime of
Agostinho Neto are advancing, apparently from a
starting point in the Quibala area, toward Huam-
bo, Bie, and Lobito-three important towns in the
heartland of the National Union's tribal support.
The force moving toward Huambo, which
SECRET
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Held by PoP rMovement y _'Mess de
Novo Redondo
Lobit
Beagu b.
SOUTH-WEST AFRICA
{interrationai Territory)
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Popylar
ovNment 141C. Popular Moi
ai ets - L- elicopter a
Alto Hama
ement
rift
'! -*Bie
(Silva Porto
( ovHaa LisIoa)
MBIA
Parip d tA1rr-1,,
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reportedly was equipped with Soviet-made T-34
tanks, progressed along a main route this week at
least to Alto Hama. Another group of Cuban and
Popular Movement troops was airlifted by
helicopter to points along the road connecting
Mussende and Teixeira da Silva in the first such
use of helicopters since the conflict began last
year. The troops' primary mission may be to take
Bie. A third strike force, targeted against the im-
portant port and railhead city of Lobito, took
Novo Redondo last weekend.
With Neto's forces only some 50 miles from
Huambo, National Union leader Jonas Savimbi
this week moved his political headquarters from
there to Bie, where his group's major military base
is located. Huambo had also served as the seat of
the nominal joint government proclaimed last
November by the National Union and the
northern-based National Front, which collapsed
militarily earlier this month. Savimbi's withdrawal
from Huambo apparently provoked renewed
clashes between Union forces and troops loyal to
Daniel Chipenda, a maverick Popular Movement
military commander in southern Angola who
defected to the National Front a year ago follow-
ing a bitter leadership dispute with Neto.
In northern Angola, Popular Movement
forces spearheaded by Cuban troops have resum-
ed their advance against the National Front's few
remaining positions. Late last week, they pushed
the Front's troops out of Damba and occupied it.
European mercenaries working for the Front are
taking defensive measures aimed at checking an
expected move by the force that took Damba
toward Sao Salvador and Santo Antonio do Zaire,
the Front's last two strong points in the north.
Along the coast, Popular Movement units
from Ambrizete have apparently crossed the
M'Bridge River. Movement commanders in this
sector will presumably resume their northward
march as soon as they have put enough troops
across the river; the Front garrison at Tomboco
may be an early target.
The mercenary group is also reportedly trying
to organize Front troops at Santo Antonio do
Zaire into an effective strike force, but its chances
of success are not bright. The morale of the troops
has been shattered and they are having difficulty
obtaining supplies.
By midweek it appeared increasingly likely
that Neto's foes would probably not be able to
carry on a conventional military struggle much
longer, even with the help of the increased
numbers of foreign mercenaries-especially
Europeans-that both the National Front and
National Union are hurriedly recruiting. In the
absence of a political settlement, the two groups
seem to be preparing for an early switch to
guerrilla operations. On January 26, Savimbi was
quoted publicly as saying that if his defense line
collapsed, he would lead his men into the bush
and wage a guerrilla war using tactics learned in
years of fighting against the Portuguese.
Political Developments
Clearly, Savimbi would prefer to strike a deal
with Neto that would give the National Union
some role in an Angolan government. With the
Front now eliminated as a significant political fac-
tor, Savimbi has abandoned his previous in-
sistence that a settlement must include all three
groups and appears willing enough to conclude a
two-party arrangement with the Popular Move-
ment. Last week he asked the Kenyans to mediate
with the aim of establishing such a coalition;
Nairobi had played a role in bringing about the
late 1974 agreement among the three Angolan
factions that enabled them to negotiate an in-
dependence accord with Lisbon a year ago.
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low
With Neto's forces approaching Angola's
northern border with Zaire, from where they will
be in a position to menace Kinshasa's water
lifeline to the sea, Mobutu has apparently con-
cluded he must seek an accommodation with the
Popular Movement despite his continuing deep
distrust of Neto's group and its Soviet patron.
Popular Movement forces have for some time
been in control of a segment of the Benguela
Railway-Zaire's other major lifeline-at Teixeira
de Sousa in eastern Angola. Service on the line,
which had carried a major part of Zaire's vital
copper exports, has been interrupted for months
by the fighting.
Neto, for his part, has long rejected any
political solution to the Angolan conflict, and he
is hardly likely to be more amenable now that his
forces are scoring a decisive victory in the con-
ventional fighting. Even before they made major
gains this month, he was reported determined to
resist all pressures to accept a political com-
promise. He is especially adamant about the ex-
clusion of Savimbi and National Front leader
Roberto from any future political role; he is said
to have vowed to kill both if he gets the chance.
He will surely drive a hard bargain in any
negotiations with the vulnerable Mobutu.
African Support
Neto's principal African supporters, their
hand strengthened by the Movement's military
successes, are pressing more African states to for-
mally recognize the Luanda regime. This week
they won Sierre Leone to their side after
high-level delegations from Guinea, Nigeria, and
Tanzania had visited Freetown. Several other
countries among those that held out for a govern-
ment of national unity at the special African sum-
mit meeting early this month are apparently also
wavering.
Neto can now count on the backing of at
least a simple majority of the 46 members of the
Organization of African Unity. With more en-
dorsements sure to follow in the near future, his
regime seems certain to be seated as the only
legitimate government of Angola at the OAU
ministerial-level meeting scheduled for March, if
it is held.
Dos Santos Visits USSR 2 4 "2 2
The Popular Movement's "foreign minister,"
Jose Eduardo Dos Santos, expressed "profound
gratitude" for Moscow's "all-round and dis-
interested" support while on a brief visit to the
USSR last week. He predicted closer party and
government ties between the Luanda regime and
the Kremlin.
There were some unusual aspects to Dos San-
tos' visit. Soviet handling of the visit suggests that
Moscow viewed it as primarily a party-to-party
occasion, rather than a government affair. Dos
Santos met with Boris Ponomarev, a Politburo
candidate-member and the party secretary
responsible for relations with non-ruling com-
munist parties, and with a deputy director of the
Central Committee's international department.
He delivered messages from Popular Movement
leader Agostinho Neto for General Secretary
Brezhnev and Premier Kosygin during meetings
with Deputy Premier Arkhipov and Deputy
Foreign Minister Ilichev.
Soviet Foreign Minister Gromyko failed to
meet with Dos Santos. This may have reflected
Soviet reluctance to accentuate government sup-
port for the Popular Movement during Secretary
Kissinger's presence in Moscow or simply
Gromyko's heavy schedule during the Secretary's
visit. Dos Santos cut short his Moscow stay by two
days. The reason given by his Soviet hosts was
flight-scheduling problems.
In the aftermath of his visit, there has been no
sign that Moscow has any intention of modifying
its Angolan policy. An Izvestia editorial this
week-the first authoritative commentary on
Angola since both the Kissinger and Dos Santos
visits-threw ice water on the coalition idea, con-
demned alleged strong-arm tactics by the West at
the OAU summit, and demanded the withdrawal
of "imperialist" and racist forces.
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MIDDLE EAST: UN DEBATE ENDS
Two weeks of debate on the Arab-Israeli con-
flict in the UN Security Council ended on January
26 with the US veto of the pro-Palestinian resolu-
tion. The Arabs, while hardly surprised, are ex-
pressing disappointment and denouncing the US.
The Israelis are satisfied for the moment but fear
they have not finally escaped pressure for
recognition of the Palestinians.
The resolution called for Israeli withdrawal
from all territory occupied in 1967 and urged
recognition of the Palestinians' "inalienable
national rights" to self-determination and an in-
dependent state in Palestine. The resolution ob-
tained only nine favorable votes; three members
formally abstained and two did not participate.
At the outset, the Arabs seemed seriously in-
terested in avoiding a US veto, but they apparent-
ly concluded quickly that they could not gain
acceptance for their minimum demands. The US
statement in November underscoring the impor-
tance of the Palestinian problem had encouraged
some Arabs to believe the US might be ready to
go beyond its position recognizing Palestinian
"interests." They may have felt initially that
Washington could accept a compromise formula-
tion that called for recognition of Palestinian
"rights" without further elaboration.
Although apparently surprised by the large
number of abstentions, the Arabs are nonetheless
hailing the vote as a moral victory. Syrian
newspapers trumpeted that it meant the "world"
recognized Palestinian national rights and backed
a total Israeli withdrawal from the occupied
territories. Damascus radio quoted a Palestine
Liberation Organization spokesman as saying that
the holding of the debate had succeeded at last in
raising the Palestinian issue to a political level in-
volving more than the question of refugees.
The Syrians, who promoted the debate, have
come down hard on the US. Deputy Foreign
Minister Rafai called in Ambassador Murphy on
January 28 to express Syria's "deep dissatisfac-
tion" at the US veto. He said the US had created
an impasse in the peace process and blocked the
way toward a durable peace.
An earlier public Syrian statement, echoed by
Syrian media commentators, charged that the US
is using "flimsy excuses" to cover up a maneuver
to gain time for the furtherance of Israel's objec-
tives. The statement asserted that the US "per-
sistently antagonizes" the Arab people and bears
a great responsibility for wasting an opportunity
to further peace. An authoritative Damascus
newspaper called on the Arabs to revise their at-
titudes toward the US.
Egypt, although long since resigned to a US
veto, was nonetheless discomfited by the out-
come because it provides the Sadat regime's foes
with a new opportunity to charge that his
friendship with the US has brought no benefit to
the Palestinians or the other Arabs. Cairo's
semi-official Al-Ahram, defensively taking a line
similar to Syria's, has charged that the US action
proves Washington is still uninterested in a "just"
peace. The paper said the veto contrasts with the
impression the US has been attempting to convey
for the past few years that it is seeking a satisfac-
tory settlement.
An Egyptian spokesman who refused to be
identified told the press, in one of Cairo's
toughest statements in some years, that the US
position is now "not only isolated but untenable."
He served up criticism of the Arabs in equal
measure, noting that they had attempted to put
"too much into one measure at the wrong time."
In fact, however, the Egyptians, anticipating Arab
charges of selling out to the US, made little effort
during the debate to press a more acceptable
draft on the other Arab delegations.
The Israelis, who boycotted the debate
because the PLO was allowed to participate, have
breathed an audible sigh of relief at the US veto.
An official communique, repeating a statement
by Foreign Minister Allon, praised the US stand
for frustrating a Syrian-PLO effort to bypass the
Geneva conference and to undermine UN
resolutions 242 and 338, which Israel accepts as
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the only basis for peace negotiations with the
Arabs. Israeli commentators have characterized
the defeated resolution as a Syrian-PLO "plot" to
disrupt the negotiating process and charged that
the debate underscored the Syrians' preference
for imposed resolutions in international forums
over serious negotiations.
The Israelis are nonetheless not confident
that the US will maintain its position on the
Palestinians. The leading newspaper Maariv com-
mented after the vote that the debate had in fact
put increased pressure on Israel by raising the
Arabs' hopes that they might do better at some
later stage "if and when the US position erodes."
In an effort to head off such an "erosion,"
Israeli officials are trying harder to cast their
negotiating policy in positive terms. Prime
Minister Rabin, for example, has repeatedly call-
ed for reconvening the Geneva con-
ference-limited to the original parties-during
his public statements in the US this week. In addi-
tion, the Israelis intend to emphasize a willingness
to make some territorial concessions to Syria in
return for a peace agreement. Moreover, instead
of reiterating their refusal to negotiate with the
PLO, they are stressing their readiness to treat the
Palestinian issue in the context of Jor-
danian-Israeli negotiations.
35-3 C~
IRAN, KUWAIT, AND CEMA COUNTRIES
The USSR and countries of Eastern Europe are
developing a new economic relationship with
Iran and Kuwait. The Communist countries are
trying to obtain long-term financing from these
OPEC states and to arrange favorable oil barter
deals. They have already succeeded in obtaining
$1 billion in credits. Iranian and Kuwaiti
negotiators are discussing several joint ventures
that would combine OPEC money with Com-
munist technology and skills.
Kuwait has bought $200 million in Hungarian
and Romanian 8-year bonds, carrying 9.5- to
10-percent interest rates. Poland and the USSR are
also reported to have obtained large credits, but
the amount and terms have not been revealed. In
November, Romania agreed to buy Kuwaiti oil
with hard currency at a rate of 20,000 barrels per
day over a three-year period-the first long-term
agreement by a Communist country to purchase
oil from Kuwait. Romania and Kuwait also signed
a 5-year general economic agreement in 1974 for
joint projects in the chemical, petroleum, and
construction industries.
In October, Poland agreed to assist in
developing the Kuwaiti petrochemical industry.
Poland also hopes to conclude a long-term agree-
ment for the purchase of oil. Although Moscow
has succeeded in expanding economic contacts
with Kuwait, Kuwait retains reservations about the
quality of Soviet technology and is wary of having
large numbers of Soviets working in the country.
Despite an accelerated sales campaign, the USSR
has not yet been awarded contracts on any
Kuwaiti development projects.
In 1975, Iran for the first time extended
economic aid to three East European nations and
agreed in principle to provide Moscow with
long-term credits. Tehran has loaned $780 million
to Romania, Poland, and Bulgaria to build food-
processing and light industrial plants whose out-
put will be exported to Iran in repayment. This is
nearly three times the amount the three Com-
munist countries had committed to Iran in past
years. The loans provided by the Communist
countries had concessional features, but the
Iranians are charging commercial interest rates.
An Iranian-Soviet agreement signed in 1975
greatly broadens the scope of their economic
relations. It envisions joint undertakings in both
countries that could eventually reach $3 billion.
Tehran already has agreed in principle to provide
credits to build a paper com lex in the USSR; to
be repaid in paper products.
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01
INDIAN OCEAN: NEW DIRECTIONS
Significant political developments occurred
this month in three island countries in the
western Indian Ocean. In the Malagasy Republic,
Didier Ratsiraka, the leftist who emerged on top
last summer after months of jockeying in the
military, formed a new government charged with
implementing his plan for a centralized, socialist
state. The Seychelles Islands, a British dependen-
cy, was promised independence next June. The
Comoro republic was finally formally recognized
by Paris despite a lack of agreement on the new
state's territorial extent; the former French colony
had unilaterally declared independence last July
and was admitted to the UN in November.
Malagasy Republic
The 39-year-old Ratsiraka, a naval officer and
architect of the radical nonaligned foreign policy
Tananarive adopted in 1972, was inaugurated
president on January 4 after consolidating his
position in a referendum in late December. With
moderate and conservative political forces in dis-
array following years of restrictions on their ac-
tivities, Ratsiraka received a 95-percent "yes" vote
on a measure making him president, adopting his
constitution for the second Malagasy Republic,
and approving his blueprint for a sweeping
socialist revolution. Nine days after his inaugura-
tion, Ratsiraka named a new ministerial team that
will clearly be expected to do his bidding.
Despite what appears to be a ringing en-
dorsement of his radical program, the new Presi-
dent may have difficulty in getting cooperation
from the passive and conservative peasantry of
Madagascar. Rather than aggressively pursuing
nationalization and other planned measures, Rat-
siraka may well decide to emphasize political
organization and indoctrination for the next few
months. He will probably move quickly to es-
tablish the single political party called for in the
constitution, organize the "popular army" of
young Malagasy that he proposes to send to the
countryside to spread his gospel among the
peasants, and put his imprint on the media and on
the educational system.
In foreign affairs, Ratsiraka can be expected
to continue a policy that emphasizes close
cooperation with communist and radical
third-world countries. He has developed par-
ticularly close ties with Peking. An economic and
technical cooperation agreement signed last July
provided Tananarive with by far the largest loan it
has received from any single source in recent
years. An aid agreement was concluded with the
Soviet Union in October, but Moscow was much
less generous with its largesse than the Chinese.
In his inaugural address, Ratsiraka reiterated
Tananarive's support for revolutionary causes
everywhere. He called for the dismantlement of
all foreign bases in the Indian Ocean, particularly
the US facility on Diego Garcia.
Ratsiraka has shown no willingness to resolve
the stalemate with Washington over the NASA
tracking station he ordered closed last summer
until the US pays rent he claims it owes. Malagasy
security forces sealed off the station, and the
US-which has accepted the closing as final-has
been unable to recover its equipment.
Seychelles Islands
London announced last week that it will grant
independence to the Seychelles on June 28. The
announcement followed four days of talks
between British officials and leaders of the
self-governing colony, which has a population of
approximately 60,000. The agreement makes
provision in principle for continuation of the US
satellite tracking station on the island of Mahe, for
regular use by US and UK military aircraft of the
civilian airfield on that island, and for denying use
of the archipelago to hostile powers.
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SECRET
The UK also agreed in principle to transfer
back to the Seychelles sovereignty over three
small islands detached in 1965 to become part of
the far-flung British Indian Ocean Territory. The
territory was created to provide sites for UK and
US military facilities, but no installations have
been established on the three former Seychelles
islands. The territory includes the Chagos
Archipelago-where Diego Garcia is located.
Relations between France and the Comoran
government have been strained since the
Comoros' independence declaration because of a
dispute over the breakaway island of Mayotte.
Mayotte culture is heavily French and Christian,
and its inhabitants want to remain under French
rule. Muslim culture predominates on the other
islands, and Arabs dominate the central Comoran
government.
In formally recognizing the Comoros as a
sovereign state, the French did not concede the
inclusion of Mayotte as demanded by the govern-
ment in Moroni. Instead, Paris announced that a
referendum will be held within two months in
Mayotte to determine whether it will stay French
or join the other three islands in the independent
state. The residents are almost certain to vote to
remain with France. A second referendum will
then be held to determine the form of Mayotte's
future association with Paris.
The Comoran government is sure to be in-
censed by such developments. It can be expected
to continue to challenge France's right to keep
Mayotte and may well raise the issue in the UN
f SEYCHELLES)
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MAU
PaaP 10 WEEKLY SUMMARY Jan 30. 76
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1%00 SECRET "_
ITALY
Early parliamentary elections are a stronger
possibility now than at any time since Aldo Moro
began his search for a new government three
weeks ago. Moro is having considerable trouble
in his effort to form a caretaker government com-
posed solely of Christian Democrats. Negotiations
for such a stopgap solution began early this week
after previous bargaining had failed to produce
agreement on any formula for a coalition with
two or more of Italy's four center-left parties.
Moro initially aimed for a revival of the
center-left coalition of Christian Democrats,
Socialists, Social Democrats, and Republicans that
has governed Italy for most of the last 15 years.
The Socialists, who brought down Moro's
previous government on January 7, ruled that out
immediately. A key tenet of current Socialist
policy is that the traditional center-left is
"dead"-discredited with the voters. Moreover, it
failed to recognize the pivotal role of the
Socialists in assuring the Christian Democrats a
non-Communist majority in parliament.
The Socialist counterproposal was for a coali-
tion between themselves and the Christian
Democrats only. Most Christian Democrats,
however, are unwilling to split the cabinet port-
folios evenly with the Socialists and fear that an
alliance with the Socialists alone would enhance
the Communists' ability to influence the govern-
ment indirectly.
The Socialists next ruled out a Christian
Democratic offer of a coalition with themselves
and the Republican Party. The latter, in turn,
could not be persuaded to form a coalition with
the Christian Democrats and Social Democrats
that would depend on Socialist parliamentary
support. The failure of these alternatives reflects
the long-standing economic policy dispute
between the Socialists and the austerity-minded
Republicans. Among the center-left parties, the
Republicans have registered the strongest objec-
tions to the demands of the Socialists that their
economic program be substituted for the one un-
veiled by the previous government late last year.
In addition to economic policy differences,
Moro's negotiations have foundered on con-
tinued Socialist insistence that the Communists be
consulted more openly by any new
government-a condition the Christian
Democrats are unable to accept. Moro's latest
problem, however, came late last week when his
Christian Democrats said they were unwilling to
form a caretaker cabinet unless Moro could first
persuade the other three parties to pledge
parliamentary support for a package of emergen-
cy economic measures. Moro's task would have
been easier if his party had told him merely to get
enough support for a majority. In that case, an
agreement with the Socialists, though difficult to
get, would have been sufficient.
Now, however, Moro must resume the dif-
ficult search for a compromise on economic
policy between the Socialists and Republicans.
Neither party seems in the mood for compromise,
and both are saying they will not decide whether
to support a Christian Democratic cabinet until
Moro presents an economic program.
The obstacle course set up for Moro b~ the
Christian Democrats suggests that they now see
more advantages than disadvantages in early
parliamentary elections, particularly if the alter-
native is a one-party cabinet that would leave the
Christian Democrats open to attack from all sides.
The Christian Democrats are striving, however, to
create the impression that they are exhausting all
alternatives in order to be able to blame the other
parties if early elections become inevitable.
Few Christian Democrats can match Moro's
negotiating skill, and he may yet produce an
agreement. If he cannot find a compromise-one
well-placed Christian Democrat has already
predicted failure-his party will have to decide
between asking another Christian Democrat to try
to form a government or sending Moro's outgo-
ing coalition to parliament for a confidence vote.
Barring a last minute retreat by the Socialists in
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such a vote, Moro would lose-a development
that would likely set the stage for early elections.
The lira declined 6.4 percent between
January 21, when Italian monetary authorities
suspended official foreign exchange operations
following Socialist withdrawal from the coalition
government, and Wednesday, January 28. Rome
threw in the towel after spending nearly $1 billion
during the preceding seven weeks to support the
lira. The caretaker government is trying to line up
credits to replenish foreign reserves, now at a
dangerously low $600 to $700 million, exclusive of
gold.
Capital flight is at the root of the lira's
problems. A retreat from the more conservative
policies that have brought Italy back from the
brink of international bankruptcy and the threat
of formal Communist involvement in government
have resulted in a movement of capital out of the
country. The January 14 disclosure of a report by
the US Comptroller of the Currency that US com-
mercial bank loans to Italy are classified as a poor
risk added fuel to the fire.
-53
Ironically, Rome's currency problems come
on the heels of a dramatic recovery in the Italian
current accounts position. The 1975 current ac-
count was in the red by less than $200 million,
compared with a $7.8-billion deficit in 1974. The
turnabout reflects a $7-billion improvement in
non-oil transactions that was achieved by raising
exports while a severe economic contraction was
cutting imports. With only a weak economic
recovery in prospect and barring drastic policy
changes, Italy should be able to maintain a close
current accounts balance at least through the first
half of 1976.
Preferring not to touch its gold, Rome is
attempting to augment its meager foreign ex-
change reserves by obtaining credits from a varie-
ty of sources:
? Rome will probably request ad-
ditional funds against its existing $3 billion
line of credit with the US Federal Reserve.
? Under recent changes in Inter-
national Monetary Fund rules, Italy qualifies
for a maximum $530 million in additional
drawings.
? The West Germans have offered to
negotiate relending $500 million Rome
repaid under a $2 billion gold-backed loan.
? Italy may also seek credits from the
EC common borrowing facility.
The lira is unlikely to stabilize until either the
political crisis is resolved or the central bank
resumes intervention. If a new government can
be formed without increased Communist in-
fluence, movement of capital into Italy would
probably buoy the lira. The central bank will
probably not step in until reserves are replenish-
ed through borrowing. West Germany and other
EC members may tie credit access to limitations
on Communist participation in the new govern-
SPAIN: "...WITHOUT HASTE OR PAUSE"
Prime Minister Arias' policy speech to the
Spanish parliament on January 18 was more a
declaration of intentions than the concrete
program for change many Spaniards had hoped
for. The general nature of his speech and the
omission of several important reforms have disap-
pointed both the leftist opposition which
demands fundamental changes and the members
of the establishment who favor opening up the
regime. If the government continues along the
path it has marked, it will encounter strong
pressure from the left to increase the pace of
liberalization and to broaden the extent of the
reforms.
More significant, perhaps, will be the opposi-
tion from the entrenched far right which con-
tinues to dominate the Franco institutions. Some
of the measures contemplated by the govern-
ment, cautious though they are, will in effect ask
Panes 12 WFFKI Y SI IAAAAAPY .In ~n 7F
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additional time to implement reforms that would
make the new parliament more representative.
The council reversed its vote three days later, but
the far right had served notice that reforms will
not go by unopposed.
The constitution is sufficiently vague as to
leave unclear whether the two rightist
strongholds-parliament and the Council of the
Realm-can prevent the King and cabinet from
redistributing power. The cabinet would prefer to
have cooperation from the right, however, and
will strive for a compromise solution. Arias may
have struck such a compromise with the council
last weekend by promising to modify the pace of
reform in return for a retraction of the council's
veto on the election postponement.
Arias' effort to conciliate the right was ap-
parent in the glowing praise he accorded Franco
and his legacy. He stressed gradual change
"without haste and without pause" and carefully
balanced his vague and restricted proposals for
reform with heavy emphasis on law and order.
Notably absent from the prime minister's
proposals was any direct mention of a con-
stitutional referendum-which would be
necessary for any meaningful reshaping of the
Franco institutions-or of labor reforms. Apart
from inflation, unemployment, and the wage ceil-
ing, the major cause of labor trouble in Spain to-
day is the anachronistic corporate labor structure.
The government has spoken vaguely of im-
provements, but the recent wave of strikes may
have set back planned reforms.
ultrarightists to approve changes that will unseat
them from positions of privilege and influence.
Sooner or later-later, judging by the guarded
tone of Arias' speech-there may be a head-on
confrontation between the reform-minded
government and Francoists who oppose all
change.
The first skirmish came on January 23 when
the Council of the Realm-a senior advisory body
that forms part of the checks-and-balances system
limiting the power of King Juan Carlos and his
government-apparently vetoed the
government's decree postponing parliamentary
elections for one year. The government wanted
In spite of its shortcomings, however, Arias'
speech did outline a cautious program of
liberalization. He promised the government
would set up a bicameral legislature, draft a new
election law, and give political parties-except
Communists and extremists-a chance to par-
ticipate in the political system. Arias also propos-
ed to relax restrictions on freedom of assembly
and demonstration and spoke freely of es-
tablishing a "Spanish-style" democracy-a word
Juan Carlos had hesitated to use when he ad-
dressed parliament at his installation three
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 Prime Minister Wilson greets Icelandic Prime Mister Hallgrimsson during recent talks
ICELAND-UK: COMPROMISE REACHED
Icelandic Prime Minister Hallgrimsson and
British Prime Minister Wilson agreed ad referen-
dum on a series of compromises to end the
protracted fishing dispute between the two coun-
tries. The details of the agreement are being
withheld pending approval by both governments,
but Britain appears to have capitulated to most,
but not all, Icelandic positions.
Since Hallgrimsson has been under heavy
political pressure at home not to make any con-
cessions, he intends to present the agreement to
parliament for approval. The government's junior
coalition party, in particular, has demanded that
Iceland drive a hard bargain and could cause
political trouble for Hallgrimsson if it appears that
he has not held the line.
The key issue in the talks was conservation of
cod stocks, traditionally the bulk of the British
catch in Icelandic waters. Any new agreement will
have to provide for a reduction of cod in the
British annual catch. Reykjavik maintains that un-
less annual catches of cod are drastically reduced,
supplies will be exhausted within the next four or
five years. If the proportion of cod in the annual
catch is cut back, the Icelanders may be more
willing to settle for a higher catch limit. The British
press, however, recently claimed that Iceland is
now seeking to limit British fishermen to an an-
nual catch of 45,000 tons. Meanwhile, the British
Trawler Association continues to argue that any
agreement below 80,000 tons would severely
harm the British fishing industry. In addition, Bri-
tain argues that 10,000 fishing-related jobs are in
jeopardy at a time of soaring unemployment in
the UK. The talks broke off last November after
Iceland refused to budge beyond 65,000 tons and
London insisted on 110,000 tons.
An eleventh hour challenge by Iceland
almost scuttled the talks. Just hours before
Hallgrimsson was scheduled to leave for London,
the government's coalition partner forced
Hallgrimsson to demand that London remove its
trawlers from the disputed waters before talks
could begin. The UK agreed to reduce the
number of trawlers within the disputed zone and
urged its fishing fleet to stay within a restricted
area while the talks were in progress.
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SECRET
SOUTHERN SOCIALISTS MEET IN PARIS
Representatives of a number of Socialist par-
ties, predominantly from Mediterranean coun-
tries, discussed the role played by Communist
parties in their respective countries at a meeting
in Paris last weekend. Each stressed the uni-
queness of his national situation.
French Socialist leader Mitterrand pointed to
the French Communist Party's movement away
from orthodoxy and said this had been fostered
by the Socialist-Communist political alliance and
common program. In sharp contrast, the Por-
tuguese representatives described the Portuguese
Communist Party as following a Stalinist model
and said Portugal has chosen socialism, "which
guarantees democracy," over the extremes of left
and right.
The Spanish made clear that common
programs and alliances on Mitterrand's model are
not in the cards for them, at least for some time.
Spanish Socialist leader Gonzalez advocates
legalization of Spain's Communist Party to pre-
vent its profiting from a martyr role and to dis-
courage Communist infiltration of Socialist
groups. He did suggest, however, that his party
would consider joining a broad coalition of all
left-of-center opposition forces.
Italian Socialists, with an eye to negotiations
then under way for a new government in Rome,
made only noncommittal statements.
The most emotional exchanges of the con-
ference came over an effort to condemn CIA
along with such traditional targets as imperialism
and colonialism. The final resolution-the result
of compromise language suggested by
Mitterrand-condemned "interference by in-
telligence services, actions such as have been un-
derscored by the recent investigations in the
Mitterand (1) confers with Italian representative Mario Zagari(r)
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NOW SECRET
6 3 - (!:~ ~,
GREECE-TURKEY: BLEAK PROSPECTS
Greece and Turkey have made little progress
in off-and-on talks to resolve their disputes over
the Aegean and Cyprus, despite the hopes raised
late last year by a productive meeting between
the Greek and Turkish foreign ministers in
Brussels.
Talks on airspace rights over the Aegean were
resumed in Athens on January 13 afte.- being
stalemated for several months. They broke up on
January 24, however, without making any
progress on the question of advance notification
for military flights which has been the major
stumbling block all along. Ankara insists on a
"security zone" extending several miles out from
its Aegean coast. It would require the Greeks to
provide advance notification for military flights
entering or originating in the zone. Athens sees
this as an infringement of its sovereignty over the
Greek islands off the Turkish coast and has refus-
ed to consider it unless the Turks are willing to
give similar notification for their military flights
within a zone extending an equal number of
miles inland from the Turkish coast. Ankara ap-
parently again refused to consider full reciprocity
at the latest round of talks.
The foreign ministers' agreement to begin
meaningful negotiations on the Cyprus con-
troversy is also not faring well. A new round of in-
tercommunal talks is tentatively set to begin in
Vienna on February 17. It is becoming increasing-
ly unlikely, however, that the negotiators will
come to grips with substantive issues. The two
sides threaten to become bogged down in a
wrangle over procedural questions, largely
because the weak coalition government in
Ankara seems unwilling to make the politically
risky decisions necessary for serious talks and to
prod the Turkish Cypriots to follow suit.
The breakup of the talks on airspace rights
and the continued stalemate on the Cyprus
problem will probably adversely affect the two
countries' talks on the important continental shelf
issue. These will commence in Berne on January
31 after several months of haggling over an agen-
da. The Greeks had insisted that the meetings deal
solely with formulating the terms of reference for
submission of the issue to the International Court
of justice, while the Turks want the issue to be
settled in bilateral talks. Agreement to hold the
talks was finally reached when the Greeks offered
to consider any proposals submitted by the Turks
that might narrow the differences between them
before they considered terms of reference for the
Court.
MBF trTALKS RESUME
The eg it 6 J- round of It force reduction talk
k etween members of NI TO and the Warsaw
'previous
fact began in Vienna `fftis week- T
rounds had produced little tangible progress,
but toward .the end of the last session, NATO
tried to give the talks new impetus by -11 offering
to reduce some- of its nuclear forces in Central
Europe in return for the w thdrawal of a Soviet
tank army.
Thy Warsaw Pact, which had expected the'
proposal for same tune, promised :to give an of-
facial, response this round t recent detailed
Izvestia said that
corrrmeritary =that appeared -Jr
the offer was marl a contin uation of NATO's:
efforts to obtain a unilateral advantage, ins
dicating that he proposal will be unacceptable
in the form presented.
"fihe Soviets, however, mightt like to re
An one ?LL in redient of the NATO
Fir acCnowledgeinent_- that nuclear
forces should be reduced So {fir the; Soviets,
have liven no hint as to how they will try.to ex
ttrct`he desirable elements of=the proposal
from the remainder It is?possible they wili not
give a formal reply or ma e a counterproposal
until after their party congress which opens
late next month`
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SECRET
CEMA: SUMMIT PLANS
A leading Soviet economist says that the
CEMA summit will definitely take place "this
summer." The summit would differ from the an-
nual CEMA meetings in that the countries would
be represented by party, as well as government
leaders.
The meeting, which was originally planned
for last November in Moscow, has run into a
series of snags. The parties had a problem work-
ing out the details of plan coordination and trade
for the 1976-80 period, which had to precede a
meeting of the top leaders. There was also dis-
agreement between Romania and the USSR about
the direction of CEMA in several key areas.
The Soviets say that the summit will discuss
further CEMA integration, especially in the
agricultural and machine building sectors of the
economy. They argue that coordination and
specialization of production promotes greater ef-
ficiency and guarantees the East Europeans a
market in the USSR for products often not wanted
by the West.
The Soviets claim that Romania often
WARSAW IDEOLOGICAL CONFERENCE
Party secretaries from.the. Warsaw Pact
countries, Cuba, ,and Mongolia met in Warsaw
Monday to discuss the Helsinki accords and in-
tensi,fied efforts to counter the corrosive effects
of detente on Communist discipline. They may
also have discussed coordination of foreign
policy and propaganda.
the participants, led by Soviet Politburo
candid! te-member ;?.Boris Ponomarev, are
gyres ; j 3i le for interparty relations and
pr ip~ag nda. Their ideological duties and the
treatment of .theirt .lks in Communist media
u gst~that the meeting was similar to those
___Jp Moscow in 141P 1.973 and early 1974 and
n Pr ue last March, This time, as on those oc-
ca ions the participants called for increased of
orts`fo it back at alleged Western attempts to
declines to participate in coordination projects at
the outset, but usually joins in when it sees the
practical advantages. Even so, Romania and
presumably other CEMA member states are reluc-
tant to give up control over the economic
decisions that integration would entail.
Another sharply debated subject has been
the proper relationship between the CEMA coun-
tries and the EC. The Romanians want as much
flexibility as possible in dealing with the EC direct-
ly without going through the CEMA structure.
The Soviets want to maximize CEMA's role.
The Romanians have agreed to a recent
CEMA decision to negotiate a framework agree-
ment with the EC, which would be signed by both
organizations and their individual member states.
Bucharest believes that such an agreement will
open the way for concluding separate agreements
between the EC and the East European states. The
Soviets, on the other hand, believe that the
framework agreement will establish the principle
that CEMA has an important le to lay in
relations with the EC
Y,) 5 - 1 ~
"distort the policies of the socialist countries."
They also reaffirmed their determination to
tout the "true achievements of socialism" to all
the world.
The meeting followed a crescendo of
Soviet press articles citing the threat of
"ideological penetration" and calling for in-
creased unity and solidarity throughout the
Soviet orbit. Moreover, simmering differences
had appeared in East Berlin at this month's
preparatory session for the European con-
ference of Communist parties. Given Moscow's
continuing difficulties in obtaining agreement
at the East Berlin meetings, the Kremlin
probably wanted to pursue its quest for greater
unity in a more riendly forum.
SECRET
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INDONESIA: MOVING AHEAD ON TIMOR
A Stage-Managed Visit
Secretary General Waldheim's special
representative left Timor on January 22 after a
three-day fact-finding mission. The Indonesians
made meticulous preparations for this trip, clear-
ing up war damage and concealing the presence
of heavy military equipment and Indonesian
regulars. The carefully coached leaders of the
pro-Indonesian regime in Dili assured the UN
representative that they are in control and that
they did not want any referendum on the
territory's future because they had already decid-
ed to integrate with Indonesia.
The Indonesian-controlled Timorese leaders
used poor weather and lack of adequate landing
fields to frustrate the fact-finder's plans to visit
areas not yet under full Indonesian control. The
UN representative on his return to Jakarta said
that he was fully aware he was on a conducted
tour, but admitted that he was impressed with the
competence of the Timorese leaders he had met.
He said he had detected no sign of Indonesian
military forces.
Jakarta may yet encounter some problems
with the UN visit. Lisbon Radio on January 28 an-
nounced that Portugal was willing to use a Por-
tuguese frigate that has been operating in the
Timor area for some time to carry the fact-finder
PORTUGUESE TIMOR
Viqueque't
INDONESIAN
TIMOR
Indonesian-held areas
0 MILES 50
to the southern coast to contact Fretilin leaders.
Even if the UN mission were to make a report
critical of Indonesia, however, there would be lit-
tle sentiment at the UN to renew debate on the
Timor issue.
Military Campaign Advances
Indonesian forces are continuing gradually to
reduce areas controlled by Fretilin in East Timor.
Army and marine units on January 27 landed on
the south coast and quickly captured the town of
Betano. Another force from the north moved into
Viqueque, a district capital and Fretilin
stronghold. The Indonesian forces intend to
move on to capture the few remaining towns in
this area, close resupply and escape routes, and
force the dissidents back into more sparsely pop-
ulated areas.
Most significant towns were captured shortly
after the Indonesian landing on the north coast in
early December. Heavy monsoon rains and rugg-
ed terrain plus lackluster leadership and poor
troop performance have slowed operations. The
Indonesians have also suffered unexpectedly high
casualties with some units reporting losses as high
as 10 percent. Nevertheless, Jakarta's forces
should secure the few remaining towns by the
end of February.
Faced with declining morale and overwhelm-
ing Indonesian strength, Fretilin leaders are usin
tinue for some time, however, forcing Jakarta to
hit-and-run tactics.
Suc activity, however, is not apt to
pose a serious threat to Jakarta's control. Fretilin
will have great difficulty securing outside
assistance. The insurgents lack any secure sanc-
tuary, and the island is far from possible sources
of supply A hard core of resistance could con-
maintain substantial forces in East Timor.
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Komoto
JAPAN: LUBRICATING MIDEAST LINKS
Trade and Industry Minister Komoto's visit to
the Middle East earlier this month-the first by a
Japanese minister in two years-was a notable
step in Japan's efforts to strengthen its ties with
Iran and the Arab world. Tokyo initially
overreacted to the oil embargo in 1973 by making
massive commitments of aid and investment to
the key Middle Eastern nations. It then dragged its
feet after oil supplies became more plentiful.
Tokyo has been unsuccessful in appreciably
reducing its dependence on Middle Eastern oil,
however, and is again seeking a more substantial
involvement in the Middle East.
Already, overall annual trade has expanded
to some $16 billion a year, and Japan's share of the
Middle Eastern market is growing faster than most
other developed countries. The Japanese are run-
ning a substantial deficit in their trade balance
with the Middle East-about $9 billion in 1975.
Japanese investment in the Middle East totals
about $1.5 billion, placing Japan fourth behind
the US, the UK, and the Netherlands. The
Japanese now supply 17 percent of all technology
imported by the Middle Eastern countries, and
Arab leaders have been very laudatory of
Japanese technical know-how.
Komoto visisted Iran, Iraq, Egypt, and Saudi
Arabia. In Iran, he reached a compromise on a
long deadlock over financing of a huge
petrochemical complex and discussed the con-
struction of an export oil refinery. Under instruc-
tions to avoid new aid commitments where possi-
ble, Komoto avoided outstretched palms in Iraq.
In Cairo, the trade minister offered the Egyptians
an additional $100-million Exlm Bank line of
credit over the next three years for the purchase
of Japanese goods, but because Egypt has little to
offer Japan economically, future aid is not likely
to be overly generous. In Saudi Arabia, agree-
ment was reached on establishing a joint com-
mittee to deal with industrial and technical
cooperation, and various joint venture proposals
were also discussed.
Basically, Tokyo continues to pursue the
three occasionally incompatible objectives of
satisfying Japan's resource and commercial needs,
keeping in step with US diplomatic efforts, and
making at least a partial effort to support Arab
political and diplomatic positions.
The Arabs, for their part, continue to press
for more Japanese political support, particularly
in the UN. In response, the Japanese have taken a
number of steps recently to appear more
forthright. This week, they supported the UN
Security Council resolution calling for an in-
dependent Palestinian state and Israeli withdrawal
from all Arab territories occupied in the 1967 war.
Japan has also agreed to a PLO information
office in Tokyo, but without diplomatic status. In
general, the Japanese government believes that
respect for Palestinian rights to self-determination
is indispensable to a Middle East settlement and
that Israel must withdraw to the boundaries ex-
isting prior to the 1967 war. However, Japanese
officials are clearly reluctant to state this too
openly lest Japan harm US diplomatic efforts.
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Tokyo also fears that if international pressure on
Israel becomes too great, the Arabs will be en-
couraged to make unrealistic demands and Israel,
feeling more isolated, will only adopt a harder
line. Furthermore, Japanese officials realize that
the Arabs consider Japan the "weakest link in the
Western chain," leading them to exert special
pressures on Tokyo. Prime Minister Miki would
like to visit the region at some point and has in-
vited several leaders to visit Japan later this year,
including Jordan's King Husayn, Moroccan
Premier Osman, and Egyptian President Sadat.
Tokyo, wherever possible, will continue to
seek cooperation and coordination with the US in
dealing with the Arabs, not only diplomatically
but commercially. In the economic field, the
Japanese want to avoid excessive competition
with the US, which would strengthen the bargain-
ing position of Middle Eastern countries.
LAOS-THAILAND: WARMING TREND
The Lao communists have apparently agreed
to hold talks on border issues with the Thai
government. Thai Prime Minister Khukrit an-
nounced the forthcoming talks last week follow-
ing a meeting with a Lao official visiting Bangkok.
A Thai Foreign Ministry spokesman has said that
Foreign Minister Chatchai is "free" to visit Vien-
tiane early next month, and Chatchai claims the
Lao have agreed to reconvene the existing border
committee, which last met in January 1975.
The Thai may be premature in announcing
new talks. The Lao have not yet made an official
announcement of any impending visit by
Chatchai; they have hinted, moreover, that they
may insist on some prior concessions as evidence
of Thai goodwill before talks are held.
The main objective of the Lao is apparently to
persuade Bangkok to relax its restrictions on
Thai-Lao trade. The Thai closed the border in
mid-November following a serious clash along
the Mekong, imposing an economic blockade
that was only partially lifted in early January. The
severe economic dislocations that Vientiane ex-
perienced during the blockade may have con-
vinced the Lao that they must continue to depend
on Thai transit routes and sources of supply to ob-
tain needed goods and basic commodities.
The Thai will be reluctant to abandon this
chief point of leverage with the Lao before ob-
taining some agreement on other issues, in-
cluding arms smuggling into Thailand and the
continuing small influx of Lao refugees. The
Khukrit government is anxious to show that its
policy of accommodation with neighboring com-
munists is succeeding, but, if Chatchai does go to
Vientiane, he is not apt to make any major or un-
ilateral concessions to the Lao that would invite
more criticism from right-wing elements in the
Thai military
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PERU: PROMOTION PROBLEMS
The military government's efforts to cope
with the country's grave economic problems have
been complicated by maneuvering for the annual
round of military promotions and reassignments
scheduled for next week. The most troublesome
personnel problem for President Morales Ber-
mudez is whether to promote Army Chief of Staff
Fernandez Maldonado to prime minister and
minister of war. A number of officers in all three
services reportedly believe that Fernandez
Maldonado's leftist views would be particularly
disruptive in the present economic cir-
cumstances.
As army chief of staff, Fernandez Maldonado
is next in line for the prime minister post, but the
issue presents Morales Bermudez with a difficult
decision. On the one hand, the President does
not share Fernandez Maldonado's radical
ideology and would prefer having as prime
minister an officer more inclined to support the
economic austerity measures now backed by the
civilian economy minister. Also, the President
would like to avoid possible criticism from more
moderate members of the military who may
believe he is unwilling to move decisively against
leftist-leaning officers closely associated with
former president Velasco.
At the same time, if Morales Bermudez forces
Fernandez Maldonado into retirement for
political reasons, he leaves himself open to
charges that, like Velasco, he is circumventing es-
tablished lines of military advancement. The
President also has to worry about opposition to
Fernandez Maldonado's ouster from leftist
civilian groups. Leftist representatives of the un-
ions and the news media, with which Fernandez
Maldonado maintains ties, were sharply critical of
the administration last fall after Morales Ber-
mudez ousted two other radical generals.
As things now stand, it appears likely that Fer-
nandez Maldonado will assume the post of prime
minister on February 1, but the President will
keep close tabs on his activities so he cannot use
his new position to obstruct socioeconomic
policies favored by the President. Thus, Fer-
nandez Maldonado's prospects for retaining the
prime, ministership for an extended period are
not bright and are likely to depend in part on the
administration's success in solving economic
problems.
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Z/J
OPEC PRODUCTION IN 1975
For OPEC as a whole, 1975 was a year of wide
fluctuations in production caused by price
changes and inventory adjustments. Crude oil
production averaged 27.2 million barrels per day,
the lowest level in three years. Sharp swings in
output caused considerable concern to the
oil-exporting states, yet the cartel remained
stable.
market position. Venezuelan oil sales declined,
largely because of government conservation
measures, while its market share remained stable.
Saudi Arabia, in the role of swing producer best
able to sustain sizable production cuts, absorbed
the largest portion, easing the pressure on other
cartel members.
The market shares of most OPEC states show
little change when production for the whole of
1975 is compared with annual output of previous
years. During the year, however, there were ex-
tremely wide, almost traumatic, shifts among in-
dividual OPEC members. Even those managing to
keep their share of overall oil sales relatively
stable found their revenue positions weakened by
the contracted market.
As OPEC production was declining from
January to April, countries exporting high-quality
(low-sulfur, high-gravity) crudes were bearing a
disproportionate burden of cuts. The companies
deemed this crude overpriced in view of the sell-
ing price for its derived products. The pricing
problem was compounded by depressed tanker
rates, which led to overpricing in exporting states
closer to the market. Coincidentally, several
producers of high-quality crude retained the
transportation premiums. Drawdowns of ex-
cessively high crude inventories by major com-
panies reduced the need for oil from OPEC states,
further exacerbating the situation.
Particularly hard hit were Libya and Abu
Dhabi. Libyan production fell to less than one
million barrels per day in the first quarter of 1975,
a level insufficient to cover foreign payments re-
quirements, and Tripoli was forced to cut prices.
Abu Dhabi's output was cut to 750,000 barrels per
day, a 40-percent drop, in a price dispute with the
foreign operators.
The cartel members accepted a certain
degree of price shaving to try to keep sales from
declining. Iraq had already been taking advantage
of price cutting, apparently well beyond OPEC-
sanctioned levels, to boost sales to record levels.
Baghdad registered the largest gain in OPEC
market shares in early 1975. Iran also improved its
New demand patterns and changing refinery
profits from using various types of crude radically
altered the pattern of OPEC oil exports set in early
1975. By late spring, OPEC production was on the
upswing, with producers of light crude garnering
most of the additional sales. Record sales of gas-
oline were achieved in the summer, a season that
generally favors relatively higher demand for light
products and thus light crudes. Output in Libya
and Abu Dhabi rebounded. Both countries im-
posed production ceilings to prevent the com-
panies from taking excessive volumes of their
crude in lieu of crude from other OPEC states.
In the fall, demand for heavy products was
still lagging while heavy fuel oil inventories-built
up as a major byproduct in the manufacture of
gasoline-flooded the market. Extreme pressure
was placed on OPEC countries with large volumes
of heavy crude-Iran, Kuwait, and Venezuela-to
shave prices. The latter two countries were in the
midst of negotiations to fully nationalize their oil
industries, a factor also contributing to uncomfor-
tably low production levels. Other cartel
members being increasingly squeezed by reduc-
ed oil exports began to attack Iraq's pricing policy
late in the year.
OPEC output started a gradual recovery dur-
ing the last two months of 1975, with the trend
likely to continue this year. December production
was almost 400,000 barrels per day greater than
last January, and the normal seasonal upswing in
demand should boost output further during the
next month or two. With economic recovery un-
der way in the US and Japan and with upturns ex-
pected in several major West European countries
this spring, second quarter consumption should
run ahead of last year. Almost all of the growth in
oil supplies will come from OPEC states.
The immediate outlook for producers of
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heavy oil, however, is not good. Economic
recovery is not likely to be fast enough to soak up
the current oversupply of heavy oil. Some
markets for heavy fuels have been lost indefinitely
to natural gas and coal. OPEC states that were
relatively unscathed in the early months of 1975
will be forced to press for a realignment of OPEC
differentials. This could benefit the light crude
producers, several of which have already raised
prices in the absence of sufficient price cutting by
IMF: LOANS FOR DEVELOPING COUNTRIES / Z) C~r - /4
The access of developing countries to
International Monetary Fund resources will in-
crease by up to $4.5 billion as a result of
decisions made at the IMF meeting in Jamaica
earlier this month. The developing countries
will further benefit from the sale of part of the
fund's gold holdings, which could add another
$2 billion to available funding over a period of
years. The increase in fund credit lines to
developing countries, at least in the short term,
will more than offset the loss of credit available
from the fund's Oil Facility, which is being
phased out. In 1975 developing countries drew
roughly $1.7 billion from the fund, mainly from
the Oil Facility, to help cover their $39-billion
current account deficit.
Of the $4.5-billion total new access, $3.5
billion comes from a temporary 45-percent in-
crease in developing countries' drawing rights
against their fund quotas. Most developing
nations will not fully utilize the higher quota
rights. Some do not need fund credit, and
others prefer to use alternative sources of
credit with fewer strings attached or more
favorable interest rates. We estimate ultimate
developing-country drawings against the new
quota lines at about $1.5 billion. Once the
revised IMF articles are ratified, perhaps 18
months from now, the temporary 45-percent
increase in access will be replaced by a perma-
nent 31-percent increase; this will trim the
$3.5-billion increase in available funds to $2.4
billion.
The remainder of the $4.5 billion comes
from a $1-billion increase in developing coun-
tries' access to the fund's compensatory finan-
cing facility. The aim of this facility, which has
been in operation for 12 years, is to extend
balance-of-payments support to exporters of
primary products when their earnings dip
because of periodic price declines.
A trust fund established with the profits
from the sale of roughly 18 million ounces of
fund gold will provide highly concessionary
long-term assistance to poorer `developing;
nations. The amount realized will depend on
the market price of gold. if central banks step
in and purchase gold to prevent the fund sales
from driving down market prices, the gold sale
could produce more than $2 billion. Fund auc-
tions without substantial central bank
purchases would likely drive prices down,
reducing the amount the developing countries
will receive.
In 1975, fund lending covered ap-
proximately 4 percent of the combined $39-
billion current account deficit of developing
countries, and it should cover a similar propor-
tion of the somewhat smaller 1976 deficit. Once
the trust fund established from the gold sale
starts operating, it could prove the most impor-
tant source of financing for the developing
nations. The timing and nature of these
operations have yet to be decided. Nearly 95
percent of the 1975 fund lending was done via
the Oil Facility with few conditions attached.
The shift to other types of fund credit this year
means more of the lending will carry stricter
economic policy conditions
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