WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011300060001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 25
• Document Creation Date: December 21, 2016
• Document Release Date: January 15, 2008
• Sequence Number: 1
• Publication Date: February 6, 1976
• Content Type: SUMMARY

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Secret
Weekly Summary
Secret
CI WS 76-006
No. 0006/76
February 6, 1976
copy N2 1408
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SUMMARY, issued ever," F66ay mornin
Current Intelll en e, repor s- a'd ano yzes
CONTENTS (February 6, 1976)
MIDDLE EAST
AFRICA
tar h, and the Directorate of Science and Technoloo
1
Morocco-Algeria: At Loggerheads;
Soviets
3
Lebanon: Marking Time
4
Angola: Only a Matter of Time
6
Angola-USSR: Brezhnev Endorsement
7
India: Another Step
8
Egypt-USSR: MIG-21 Problems
9
Italy: Stopgap in Sight
10
Iceland-UK: More Talks
WESTERN
HEMISPHERE
13
Canada: Energy Controversy
14
Ecuador: Trying to Liberalize
15
Cuba Levels Broadside at China
EAST ASIA
PACIFIC
16
Argentina: More Cabinet Changes
17
East Asian Economies Rebound
17
Japan: Southeast Asian Policy;
Energy
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61
MOROCCO-ALGERIA
Still at Loggerheads
Rabat and Algiers are exploring their
diplomatic options in the wake of clashes that oc-
curred last week in Spanish Sahara between
Moroccan forces and Polisario Front guerrillas
backed by Algerian military personnel. Arab
mediation efforts are continuing and UN
Secretary General Waldheim, pressed by Algiers,
has sent a personal envoy to the area. For the pre-
sent, however, neither country seems disposed to
make concessions in their dispute over the
territory.
On January 29, Moroccan forces occupied
the Amgala oasis south of the Saharan town of
Semara, where clashes occurred on the two
preceding days. Rabat claimed some 100 Algerian
soldiers and dozens of Polisario guerrillas were
captured, along with artillery and a large number
of ground-to-air missiles. Algiers admitted only
that its supply column had withdrawn after con-
fronting a much larger Moroccan force using air-
craft and heavy weapons.
Neither side seems willing to bend. The
Moroccans are insisting on recognition of their
sovereignty over the territory and withdrawal of
"Algerian forces"-probably meant to include
the Polisario guerrillas-from the Sahara -and
northern Mauritania before allowing anyone to
mediate. Algeria, which rejected the agreement
last November transferring administrative
authority from Madrid to Rabat and Nouakchott,
maintains that Morocco's presence in the Sahara
is illegitimate. Algiers might eventually agree to
pull back its own forces, but is not likely to effect
a Polisario withdrawal.
Seven Arab states, including Egypt, Syria, and
Iraq, have sent high-level envoys to try to resolve
the dispute. The most serious effort has been that
of Egyptian Vice President Mubarak, who spent
much of the week shuttling between Algiers and
Spanish
Sahara
i
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StL;Ht I RON%
Rabat. Press reports from Cairo indicate Egypt is
urging the two sides to agree to stop military
operations, to an early meeting of their foreign
ministers with Egypt's in Cairo, and to talks among
King Hassan and presidents Boumediene and
Sadat.
The Moroccans, while determined to stay in
the Sahara, have encouraged the Arab diplomatic
effort. The Algerians, who sought the Arab role,
are clearly no longer enthusiastic. The differing
attitudes stem from the fact that only two Arab
states-Libya and South Yemen-publicly back
Algiers. The others have either come out in sup-
port of Rabat or remained uncommitted.
Algeria, for its part, is trying to foster as much
UN involvement as possible because of earlier UN
resolutions calling for the application of the prin-
ciple of self-determination through a referen-
dum. Algiers quickly welcomed Waldheim's an-
nouncement that he was sending a represen-
tative. The envoy-Sweden's ambassador to the
UN-left for Madrid on February 4 and is to visit
the Saharan territory later this week. He is ex-
pected to limit his role to a fact-finding mission.
The Algerians will try to exploit the visit to
promote their case for a referendum. Last week
they called in representatives of the permanent
members of the UN Security Council in an ap-
parent attempt to lay the groundwork for a possi-
ble appeal to the council.
Soviets Tilt Toward Algeria
The Soviets are publicly tilting toward the
Algerian side in the dispute over Spanish Sahara,
but they have refrained from directly endorsing
the Algerian-backed Polisario Front in order to
avoid an open break with Morocco.
Soviet media comments on last week's
fighting between Algerian and Moroccan forces
have been slanted somewhat toward the Algerian
version. Moscow reiterated its support for
self-determination of the western Sahara and, for
the first time, took note of the Polisario guerrilla
movement.
The Soviets have nevertheless failed to bless
the Polisario as a "genuine" national liberation
movement, and they have not come out four-
square behind the Algerian position. Late last year,
the head of the Soviets' Afro-Asian Solidarity
Committee-the group that fronts for Moscow's
relations with insurgent groups-visited Algeria,
but he limited his public comments to support for
"
the
people" of the western Sahara j
Soviet officials probably think they can profit
from the increased tension between Rabat and
Algiers. Before the dispute, Soviet relations with
Algeria had been cool. The two were at odds over
Algeria's independent third-world policies, and
economic and military ties had become loosened.
The Soviets, however, quickly responded to
Algerian security concerns last fall by entering
into a major new arms a reement, by sending
some rm
J-XlIgOld may ave a ecte e oviet ecision to
assist Algeria. Moscow has used Algiers as a major
transit point for its airlift to Angola and may have
seen the military aid agreement as a quid pro quo
for the use of Algerian airfields.
In an effort to prevent a further deterioration
of relations with Morocco, Soviet diplomats in
Rabat have been stressing Moscow's neutrality in
the Sahara conflict. They have even said that
Morocco's take-over of Spanish Sahara is a fait ac-
compli that Algeria will have to accept.
Such comments, along with Moscow's
restrained reaction to Morocco's detention last
month of a Soviet fishing trawler suspected of
carrying arms to the Polisario, indicate that
Moscow wants to balance its relations with Rabat
and Algeria. The Soviets have apparently taken to
heart King Hassan's warnings of retaliation should
they directly support Algeria. Moscow has signifi-
cant commercial interests in Morocco and still
hopes to participate in the development of the
phosphate industry there.
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LEBANON: MARKING TIME
Persistent differences among Lebanese Chris-
tian leaders prevented any significant progress in
negotiations toward a political settlement this
week, but continued heavy patrolling by Syrian-
backed Palestinian forces prevented a recurrence
of serious armed clashes. The independent
fedayeen groups, conservative Muslims, and
Lebanese Christians are all showing signs of ap-
prehension at Syria's close control of events in
Lebanon, but Damascus does not appear ready to
loosen its grip. The Israelis are watching the
Syrians carefully, but are still. inclined publicly to
minimize the potential threat to Israel's security.
The Lebanese Christians are divided on how
best to ensure Syrian and Palestinian respect for
the Christian prerogatives that will remain after a
political settlement is reached. Leaders of the
various factions have been holding a series of
meetings over the past week in an attempt to set-
tle their differences before President Franjiyah
goes to Damascus to negotiate a final accord with
Syrian President Asad, but they have made little
progress. They have tried to paper over their
differences by forming an umbrella right-wing
political group called the "Front for Freedom and
Man," but this group is not likely to assume any
political importance and probably will collapse
quickly.
Lebanese Muslim leaders, meanwhile, are
arguing among themselves about how to divide
the political spoils they expect to wrest soon from
the Christians. The Muslims' immediate problem
is how to apportion the handful of parliamentary
seats they will gain when a system of Christian and
Muslim equality in parliament replaces the ex-
isting six-to-five ratio favoring the Christians. The
Muslim contingent in parliament is made up of
several loosely organized blocs that are com-
peting for additional representation, and
politically powerful Sunni Muslim leaders are
reluctant to allow equal representation to the dis-
advantaged Shia Muslims.
Israeli officials are concerned about the ex-
panded Syrian role in Lebanon and about the
possibility that the current uneasy truce could
break down, but they continue to exercise
restraint in their public comments. Defense
Minister Peres noted in an interview this week
that the outcome of Syria's effort to persuade the
warring parties to accept its proposed political
settlement is still in doubt. Peres observed that all
sides to the dispute continue to train and build
their weapons stockpiles in preparation for
another possible round of fighting.
The Israeli press is reflecting widespread pop-
ular concern that the PLA will move into southern
Lebanon and stimulate, or at least permit, an in-
crease in the number of fedayeen raids into Israel.
Government officials publicly have sought to allay
such fears by stressing that there is no evidence of
PLA troop movements into southern Lebanon.
These officials have also pointed out that some
Lebanese troops-who in the past have helped
limit fedayeen cross-border operations-are
returning to their positions in southern Lebanon.
Israeli Defense Minister Peres pax-
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ANGOLA: ONLY A MATTER OF TIME
Popular Movement troops, reinforced by the
thousands of Cuban soldiers now in Angola,
retained the military initiative in the civil war dur-
ing the past week, although they scored no major
new gains. Their southward advance into the
tribal territory of the National Union, apparently
slowed by blown bridges and supply problems,
seemed likely to pick up again soon. In any event,
National Union leaders are clearly apprehensive
about what the future holds. The governments of
Zaire, Zambia, and South Africa, all of which have
given strong backing to the Popular Movement's
adversaries, are also showing concern over reper-
cussions-actual or anticipated-in their coun-
tries of the Movement's growing success.
Military Situation
At a press conference in Kinshasa on
February 3, National Union President Jonas
Savimbi acknowledged that the Popular Move-
ment was exerting "tremendous pressure toward
Huambo," the capital of his group's nominal joint
government with the northern-based National
Front. He emphasized the Movement's advantage
in weapons and the important role of the Cuban
"expeditionary force." Of his own men de-
fending Huambo, he said only that they
were "holding on fairly well."
The National Union's foreign minister, in a
conversation last weekend with a US embassy of-
ficer in London, conceded that his group's
military situation had become precarious.
Although he claimed that Union troops were still
holding firm in most places and that their morale
was high, he said they could not continue con-
ventional warfare against the Cubans indefinitely.
Echoing earlier public statements by Savimbi, the
minister insisted that his group would not give up,
but would take to the bush and carry on a
guerrilla struggle.
In northern Angola, the battered National
Front continued to hold its remaining major
strong points at Santo Antonio do Zaire, Sao
Salvador, and Tomboco. The Popular Movement
did not launch any significant attacks in the area
during the week, but may soon.
Regional Fallout
With developments in Angola running
strongly in favor of the Popular Movement,
Zairian President Mobutu, the African leader
most deeply involved in the struggle, is reacting
to what he sees as a growing threat to his position
at home. His concern began to rise sharply early
last month when Popular Movement - Cuban
forces based at Teixeira de Sousa in eastern
Angola clashed briefly with Zairian elements at
Dilolo on Zaire's side of the border. The
Movement's subsequent drive toward Angola's
northern border with Zaire heightened Mobutu's
anxiety as defeated Zairian and Front troops
crossing back into Zaire had an immediate dis-
turbing effect on public order in the area. Late
last month the Belgian consul general at Matadi
reported serious disturbances in that city, with
both Front and Zairian troops involved in looting.
Mobutu surely also believes-and may have
evidence-that the developments in Angola are
encouraging exiled Zairian dissidents who wish to
overthrow him, and he probably fears that these
dissidents will be supported by Agostinho Neto's
Popular Movement. The Zairian leader's concern
is focused particularly on the approximately 4,000
secessionist troops from his country's former
Katanga Province-now Shaba region-who fled
into Angola when Moise Tshombe's separatist
regime collapsed in 1963. The Katangan soldiers
have been fighting for the Popular Movement in
recent months in the belief, perhaps fostered by
Neto, that the Movement will support an effort to
gain their region's independence. Last month
there were reports that the Katangans' leaders
had been contacted by Antoine Gizenga, a long-
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time leftist rival of Mobutu who has been living in
Europe.
In an effort to protect his domestic position,
Mobutu has launched a major propaganda cam-
paign with the avowed purpose of "sensitizing"
his countrymen about the Angolan problem and
explaining Zaire's interest in reaching "an urgent
and peaceful" solution. A basic theme of the cam-
paign is an appeal for "solidarity" and vigilance
with many references to a danger of subversion
by "Russo-Cuban forces" across the border. At
the same time, Mobutu is emphasizing that he
does not oppose any of the three Angolan
nationalist groups, suggesting he may be prepar-
ing his people for a possible accommodation with
Neto. His announcement on February 3 that
mercenaries engaged to fight for the Movement's
adversaries would be barred from transiting Zaire
points in the same direction. Mobutu may not in-
tend to enforce the ban.
In Zambia, too, the Angolan situation is ad-
ding to uneasiness in official circles. President
Kaunda is also under pressure because of serious
economic difficulties and the increasing
likelihood that his effort to promote a peaceful
settlement of the Rhodesian problem will end in
failure.
Late last month, Kaunda declared a full state
of emergency and suspended constitutional
guarantees. He cited deteriorating security on
Zambia's borders and alleged, with the Soviets
particularly in mind, that there was foreign in-
terference in his country's affairs. Kaunda was
reacting in part to recent incursions into western
Zambia by marauding elements involved in the
fighting in Angola.
The anti-communist South African govern-
ment sees the Angolan events as fresh evidence
that Moscow is bent on-and making progress
toward-a goal of world domination. Pretoria has
basically justified its own involvement on that
ground and also as necessary to protect the im-
portant Cunene hydroelectric project in southern
Angola, which had been developed in collabora-
tion with Portugal. More immediately, the South
Africans are concerned about the recent arrival
on their doorstep of large numbers of new
refugees from the fighting in Angola, bringing an
increasing threat to security in Namibia.
assurances that "terrorists" would not be allowed
to establish bases there from which to launch
Although Prime Minister Vorster's govern-
ment has withdrawn South African troops from
the fighting in Angola, it has openly proclaimed
its intention to keep several thousand in the
Angolan-Namibian border area. In a statement to
newsmen on February 4, Defense Minister Botha
confirmed that South African troops remained in
southern Angola, some of them at points up to 30
miles beyond the border. He said the troops
would be kept in the area until Pretoria receives
strikes into Namibia.
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ANGOLA-USSR: BREZHNEV ENDORSEMENT
This week, for the first time, General
Secretary Brezhnev explicitly associated his name
with Soviet support for the Neto regime as the
legitimate government of Angola. In a
message-published by Pravda and Tass-to an
Afro-Asian conference on Angola that convened
in Luanda on February 2, Brezhnev expressed firm
solidarity with the Popular Movement. He said
that Moscow's position conforms to "numerous"
UN and OAU decisions on decolonization and
the abolition of racism and apartheid.
In his message, Brezhnev referred to the
rallying of all "patriotic forces" in Angola, a for-
mulation that also appeared in an authoritative
"Observer" article in Izvestia on January 29 and in
several subsequent Pravda commentaries. The
Izvestia article, which seemed designed to per-
suade uncommitted African states to throw their
support behind the Popular Movement, claimed
that the Soviet Union "stands for peace" and has
never and does not now oppose the "quest for a
political settlement." The USSR welcomed the
original coalition agreement, "Observer" con-
tinued, and the responsibility for its collapse rests
completely with the National Front and National
Union "splitters"-who have committed an act of
"national treachery." "Observer" concluded that
Moscow now welcomes efforts that would
promote the consolidation of all "patriotic
forces" in Angola, a course of action it claims the
Popular Movement also favors.
What Moscow seems to be saying is that both
Neto and the USSR recognize the Popular Move-
ment will have difficulty extending its control
over all of Angola and may be willing to work with
those "patriotic forces" within the opposition
groups that accept the MPLA's authority. The
language is so vague that the possibility of a coali-
tion government is not excluded.
It seems unlikely, however, that the Soviets
would in fact agree to a coalition government
since both Brezhnev and "Observer" made a
point of emphasizing that the "People's Republic
of Angola" is the legitimate government. In a
hard-hitting editorial two days before the
"Observer" article appeared, Izvestia said the
idea of a coalition government is a ploy by the
defeated forces to achieve power "through the
back door." The leader of the Soviet delegation to
this week's solidarity conference in Luanda, while
dismissing the coalition formula out of hand, in-
dicated his belief that the rank and file of the
National Front and the National Union would
soon "join" the MPLA.
Meanwhile, the Soviet press is continuing to
launch strong attacks against US policy toward
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Angola. Izvestia's "Observer" accused
Washington of attempting to impose an
economic blockade against the Luanda regime
and rehashed familiar charges of US
"arm-twisting" at the recent OAU summit in Ad-
dis Ababa. Pravda-in several articles earlier this
week-took the unusual step of directly criticiz-
ing President Ford and Secretary Kissinger for
allegedly "distorting" the Soviet and Cuban roles
in Angola. Pravda was careful, however, to
separate these barbs from its positive comments
on the accomplishments of detente, clearly im-
plying to the Soviet reader that despite Western
assertions, detente and Angola have no connec-
tion.
V
INDIA: ANOTHER STEP
On January 31, Prime Minister Indira Gandhi
further tightened her authoritarian rule by dis-
missing the opposition-controlled state govern-
ment of Tamil Nadu in south India and imposing
president's rule-direct control from New
Delhi-for an indefinite period. Gujarat State in
the north is now the only one of India's 22 states
not governed by Gandhi's Congress Party or an
allied party, and the opposition coalition there
will probably not last much longer.
The central government has charged the
ousted state regime in Tamil Nadu with malad-
ministration, corruption, and disregard of instruc-
tions pertaining to the national state of emergen-
cy Gandhi proclaimed last June. Several thousand
members of the state's ruling party, the Dravidian
Progressive Federation, have been arrested,
although not the ex - chief minister and other
top-level party leaders. Demonstrations and
political meetings have been banned for two
weeks.
Tamil Nadu's leaders had openly criticized
the emergency and made little effort to enforce
the repressive measures that followed. Press cen-
sorship was light, and only a small number of dis-
senters were jailed. The failure to cooperate more
fully reflected in part the long-held, deep resent-
ment of the state's Tamil-speaking majority
toward the northern Hindi-speaking Indians who
dominate the central government of New Delhi.
The further concentration of power in Gandhi's
hands has most likely reinforced separatist sen-
timents in the south born of ethnic, cultural, and
linguistic differences.
The discharged leaders have advised the
public against violent reactions to the central
take-over, and no significant opposition has been
reported. New Delhi took the precaution of send-
ing additional security forces to Tamil Nadu this
week.
In Gujarat, the government may soon fall as a
result of serious disagreements within the fragile
opposition coalition that was formed last June
after a state election in which the Congress Party
lost control, Recent local elections have revealed
considerable public disenchantment with the
coalition in rural areas, although opposition to
the Congress Party continues in some of the
larger cities.
If the coalition does fall, the state governor
may ask the local Congress Party to try to form a
government with the help of independents and
opposition defectors. Alternatively, Gandhi may
impose president's rule, giving her party time to
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*p/C
EGYPT-USSR: MIG-21 PROBLEMS
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the Egyptians recently received a terse note from
Moscow indicating the Soviets would no longer
overhaul Egypt's MIG-21 engines. Moscow's deci-
sion will not ground Egypt's 14 MIG-21 squadrons
immediately, but will probably seriously erode
the combat capability of the air force within a
matter of months.
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The decision will spur Cairo to seek other
sources of spare parts and maintenance and to try
to speed u its conversion from Soviet to Western
arms.
Egypt-had ac-
cumuate a number ot spare MIG-21 engines,
but not enough to meet its requirements. Cairo
has plans to replace its MIG-21s with French
Mirage fighters, probably the Fl. This aircraft,
which is to be produced locally under license, will
probably not be available to Egypt until about
1980 at the earliest.
Egypt has embarked on a program to become
more self-sufficient in aircraft maintenance.P
t o gyptia-n have eve ope d a imite caps i i y
to manufacture some MIG-21 jet engine parts at
Helwan and do minor overhauls. Complete
engine overhauls and other complicated
maintenance tasks, however, are probably
beyond their immediate capabilities.
As part of this program, the Egyptians have
expressed an interest in obtaining the British Spey
engine for their MIG-21s. This is the same engine
that powers the UK's F-4 interceptors, and design
and feasibility studies are said to be already under
way at Rolls-Royce. If the Spey can be successfully
integrated with the MIG-21, it could give the MIG
improved performance and range, better fuel
consumption, and simpler maintenance than it
now has with Soviet-built engines.
Moscow's decision to quit overhauling the
MIG engines is part of a campaign of Soviet
harassment that has been under way for almost
two years. The Soviets have refused to replace
Egyptian losses in the October war and have cut
back the supply of spare parts for Soviet equip-
ment in the Egyptian inventory. The reduction in
the flow of spare parts has already impacted
heavily on Egypt's forces.
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ITALY: STOPGAP IN SIGHT
Prime Minister - designate Aldo Moro con-
tinued negotiations this week aimed at forming a
stopgap government composed entirely of Chris-
tian Democrats--the only remaining possibility
after his failure over the last month to secure
agreement on any coalition formula. He cleared a
major hurdle yesterday when the Socialists, who
hold a pivotal position among the center-left par-
ties, agreed to abstain in parliament on Moro's
proposed program of emergency economic
measures. The Social Democratic Party agreed
earlier this week to vote in favor of Moro's
program. Their support, coupled with Socialist
abstention, would permit the Christian
Democrats to muster a narrow parliamentary ma-
jority.
The austerity-minded Republican Par-
ty-whose dispute with the Socialists over
economic policy contributed to the latter's deci-
sion to topple the previous government a month
ago-has also agreed to abstain on Moro's
program. The votes of the Republicans are not
necessary for a majority. Nevertheless, their views
are important politically because they correspond
to the economic philosophy held by many Chris-
tian Democratic centrists and conservatives. A
decision by the Republicans to oppose Moro's
program would have led many Christian
Democrats to balk at the idea of forming a
cabinet.
Moro will now report to his Christian
Democrats on the results of the negotiations. The
odds favor a decision by the Christian Democrats
to follow through on their offer to form a cabinet.
Some Christian Democrats, however, may have
second thoughts. When the Christian Democrats
proposed such a solution two weeks ago, they did
so on the condition that the other three parties
agree to vote in favor of an emergency economic
package. The decision by the Socialists and
Republicans merely to abstain falls short of what
the Christian Democrats wanted, and they will
now have to weigh the risks of forming a govern-
ment that would hang by such a thin thread. An
administration dependent on Socialist abstention
would have a narrower parliamentary base than
any government formed in the last four years.
Meanwhile, Christian Democratic and
Socialist spokesmen are pointing to the need for
agreement in advance between their parties on
how to handle the explosive issue of legalized
abortion-one of the first tests a new government
will face in parliament. Differences on the issue
contributed to the fall of the previous govern-
ment, and a new administration could find itself
in trouble quickly if the dispute is not settled now.
The Socialists favor giving women freedom of
choice in the matter, but the Christian Democrats,
with discreet Communist support, have written a
bill that offers only limited liberalization of the
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anti-abortion statute. If the existing law is not
changed by parliament in a matter of weeks, the
country will face a nationwide referendum this
spring on whether to legalize abortion-a divisive
battle most parties hope to avoid.
Even if Moro unravels all of these problems,
his government will probably last only a few
months. A new government might facilitate Italy's
search for credits to support the weakened lira,
but the main purpose of such an administration
would be to permit the Christian Democrats and
Socialists to go ahead with scheduled party con-
gresses next month and to debate in a calmer at-
mosphere the pros and cons of early parliamen-
tary elections. Early elections would probably be
the result of failure-after the congresses-to put
together a coalition based on Christian
Democratic - Socialist collaboration.
The Communists are hoping that Moro
succeeds because their overriding objective has
been to avoid early elections. Formation of a
Christian Democratic caretaker government
would give the Communists more time to exploit
the local level electoral gains they scored last
summer. It would also enhance the Communists'
ability to work behind the scenes in parliament
for an eventual ranororhPment with the Christian
ICELAND-UK: MORE TALKS
The Icelandic cabinet on February 3 rejected
proposals to end the cod war that prime ministers
Hallgrimsson and Wilson worked out last week in
London, but offered instead to discuss a three-
month agreement. Britain has agreed to the new
talks.
Iceland has shown little negotiating flexibility
since the fishing agreement with the UK expired
last November. The previous agreement gave
British trawlers the right to take 130,000 tons of
fish annually from within Iceland's unilaterally
declared 50-mile limit. When Reykjavik extended
its fishing zone to 200 miles, Britain wanted the
old arrangement renewed for 10 years, although
they were prepared to reduce their annual catch
to 110,000 tons. During talks last week in London,
Wilson reportedly agreed to reduce the figure
further to 85,000 tons.
Reykjavik may be hoping that the UN Law of
the Sea Conference, which will conclude its next
session in early May, will approve a 200-mile
economic zone, in which coastal states would
have the right to regulate fishing. Broad inter-
national support for these concepts already exists,
but the British contend that Iceland's unilateral
extensions are illegal because they have not been
recognized by treaty.
The fragile relationship between Iceland's
governing Independence and Progressive parties
is being strained by disagreement over how to
handle the fishing dispute. Hallgrimsson, who is
inclined to compromise with the British, is in
political trouble within his own Independence
Party over his handling of the cod war. Olafur
Johannesson, the current justice minister and
leader of the Progressive Party, has led the hard
liners who oppose concessions to the British.
Johannesson has already hinted that any further
concessions to the British might lead to the
collapse of the coalition.
Reykjavik has not said whether it intends to
continue harassing British trawlers during the
renewed talks, but the odds are in favor of it. Dur-
ing the last round of negotiations, Iceland con-
tinued to enforce its fishing ban, and British
fishermen hauled in their nets rather than risk in-
cidents with Icelandic patrol boats.
British Foreign Minister Callaghan has said
that he expects British trawlers, which returned to
the fishing grounds on February 4, to be able to
fish unmolested. British trawlers will exercise
voluntary restraint, but Callaghan warned that any
further harassment by Icelandic patrol boats
would trigger the "automatic return" of British
frigates to the fishing grounds. The return of the
frigates would scuttle any chances for a fishing
agreement and perhaps bring about the fall of the
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EC-GREECE: A QUALIFIED "YES"
In delivering its opinion to the EC Council on
the question of Greek accession, last week, the EC
Commission reaffirmed Greece's right to
membership, but stressed the problems that this
would pose for Greece and, even more, for the
EC. The opinion will present the Council, which
will discuss Greece on February 9-10, with the dif-
ficult task of reconciling the same opposing
points of view that led to the Commission's
qualified position.
The community's dilemma over admitting
Greece goes to the heart of the growing con-
troversy over how further EC enlargement-
Spain, Turkey, and Portugal are also potential
members-will affect the very nature of the com-
munity. A divided Commission ultimately en-
dorsed a "waiting period" for Greece in order to
diminish the danger that a very poor Greece
within the EC would bolster arguments in favor of
a "two-tier" community. The advocates of early
full membership, by contrast, believe that the
special arrangements proposed for helping
Greece during a waiting period would themselves
lead to a hard core of stronger members within a
more loosely organized community.
The Commission in essence proposed a
three-stage accession: a period during which the
EC would do everything possible to aid Greece in
catching up with the community, a transitional
period of membership during which Athens
would gradually assume all community
obligations, and finally full membership. The
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Commission wants the Council to determine in
advance the length of each preliminary phase, but
officials have pointed out that full membership
would take four or five years even if negotiations
began immediately.
By concentrating on the problems attendant
on Greek membership, the Commission has
seemed to some observers to slight the political
obligation of the Nine to welcome a democratic
Greece into "Europe." A public statement this
week by the Dutch and German foreign ministers
supporting Athens' desire for full membership
was an attempt to correct the balance and has set
the stage for a Council decision that will, at a
minimum, seek to remove the ambiguity of the
Commission's opinion. The Council will
nevertheless hardly now be able to ignore the
economic and institutional difficulties which the.
Commission tried to lay out.
The Greeks reacted to the Commission's
qualified endorsement with shock and dismay.
Prime Minister Caramanlis summoned the EC am-
bassadors to complain that parts of the report
were politically and morally unacceptable. He
noted, in particular, the recommendation for
delay in Greece's accession and the suggestion
that progress in settling Greek-Turkish
differences would smooth Greece's entry. The
latter has been widely, but incorrectly, inter-
preted in Greece as a form of blackmail designed
to force the Greeks to accept the demands of the
Turks on the Aegean and Cyprus controversies.
Caramanlis reminded the ambassadors that
the EC governments had encouraged the Greek
request and expressed confidence that the Com-
mission's "mistake" would be rectified by the
Council. In an effort to exert pressure on the
latter, he warned that a rebuff would be exploited
by the left and might even force his government
to re-examine its foreign policy orientation.
"Joining Europe" has been a key feature of
Caramanlis' foreign policy since his return to
power in 1974, and he has staked much of his
political prestige on it. EC membership is seen by
Caramanlis as a means of safeguarding Greece's
fragile democracy and offsetting, to some extent,
the weakening of ties with the US and NATO
forced on him by public reaction to the Turkish
invasion of Cyrpus. He doubtless also believes,
as do most Greeks, that EC membership will in the
long run help the Greek case in its disputes
with Turkey.
Caramanlis could suffer considerable
political damage if the Council does not substan-
tially alter the Commission's reservations, since
much of his present popularity stems from the
view of most Greeks that only he has sufficient in-
ternational prestige to deal effectively with
Greece's foreign policy problems. His most
vociferous opponents, such as Andreas Papan-
dreou and the Moscow-backed communist party,
have already begun to exploit the EC recommen-
dation, charging that it clearly reveals the
bankruptcy ramanlis' foreign policy.
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CANADA: ENERGY CONTROVERSY
The two-year-old dispute between Ottawa
and the provinces over control of energy
resources is continuing. The producing provinces
resent tough federal government tax measures
and seek a freer hand in setting domestic and ex-
port prices. The consuming provinces resent Ot-
tawa's recent decision to permit a gradual rise in
domestic energy prices.
Some compromise has been reached
between Ottawa and the producing provinces on
domestic oil and gas prices. Under arrangements
concluded in mid-1975, the domestic price of
crude was raised by $1.50 a barrel to $8.00, and
another increase to perhaps $9.00 is likely this
year. Natural gas prices were raised to 72 cents per
thousand cubic feet, roughly double the 1974
average. The increases still leave domestic oil and
gas prices well below the export price. Ottawa
claims it will gradually raise domestic oil prices to
international levels.
These price hikes came as a result of heavy
pressure from Alberta and British Columbia, the
major producers of oil and gas. Last summer
Alberta won a court case that in effect forced Ot-
tawa to accept higher domestic gas prices.
Pressures for another price hike are likely to
mount in the spring, when federal and provincial
energy ministers have their annual meeting. The
producing provinces will insist on still higher
domestic prices for oil as their price for going
along with Ottawa's phasing out of oil exports.
The question of gas supplies and cutbacks in gas
exports will probably also be discussed at the
meeting.
Ottawa is holding firm on the matter of
federal taxing power over the oil industry. The
Trudeau government, supported by the populous
energy-consuming provinces in eastern Canada,
argues that revenues from higher oil and gas
prices should be shared nationally. The western
provinces want to use the tax revenues to help
diversify their economies. Alberta wants to es-
tablish an industrial base with an eye toward
becoming a financial and economic
counterweight to eastern Canada. Although Ot-
Alberta drilling operation
& /4 W E E 4(
tawa has made some small tax concessions, it has
kept the key federal tax change introduced in
1974-elimination of provincial royalties as a
federal income tax deduction.
Ottawa's tough stand has forced the
provinces to make some adjustment in their tax
policies. To avoid crippling the oil industry
altogether, Alberta has slightly reduced the oil
royalty rate and British Columbia followed suit.
Price and tax adjustments made so far have given
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some impetus to exploration activity in western
Canada.
The eastern provinces, whose prime concern
is that higher domestic energy prices will erode
their international competitive position by com-
pounding an already serious inflation rate, have
strongly criticized the decision to increase
domestic energy prices. Several provinces have
been able to undercut Ottawa's authority by
freezing refined product prices within their
boundaries for a three- to four-month period.
Ontario, the largest consuming province, has
emerged as spokesman for the eastern con-
sumers. It has already put Ottawa on notice that it
will oppose any further rise in energy prices, but
the Trudeau government will be reluctant to
renege on commitments made to the producing
provinces. Moreover, Ottawa is eager to reduce
the high cost of the oil import subsidy used to
keep down domestic prices. Ottawa is currently
being forced to di into general revenues to
finance the subsidy.
ECUADOR: TRYING TO LIBERALIZE
The new supreme council of government is
trying to soften its tough military image and show
progress in its plans to return the country to
democratic rule. In doing so, however, it has
opened the way to a number of potential
problems that do not augur well for its longevity,
at least as it is presently constituted.
In one of its initial moves, the government
decreed amnesty for civilian politicians and
military officers who have, at one time or another,
been accused of plotting against the regime.
Among the civilian beneficiaries are former presi-
dent Carlos Julio Arosemena and Conservative
Party leader Julio Ceasar Trujillo. The military of-
ficers included in the decree are the leaders of
the coup attempt last September.
Another move calculated to create a
favorable image of the regime was the recent
naming of a civilian as governor of Guayas
Province-economically the most important in
the country. The governorship of this province is
traditionally regarded as a powerful position,
although the new governor, the first civilian so
appointed since the government took power four
years ago, will not enjoy the same powers as did
his military predecessor. According to a govern-
ment spokesman, military governors will gradual-
ly be replaced by civilians. The government also
stated that it will call for municipal elections in the
not too distant future.
Other important events include the an-
nouncement in late January by the economics
minister that he would begin a dialogue with the
business community to keep a closer watch on
urgent problems. Economic pressure brought on
by bad petroleum management probably was the
most important single factor that undermined the
Rodriguez Lara government. The regime's current
efforts to do better with the business community
could help improve the present poor climate in
this sector.
The return of exiled politicians, normally a
unifying factor, will probably lead to increasing
criticism for the regime. As it becomes evident
that the government has no magic formula for
rapidly improving the economy and overcoming
some of the other problems that plagued
Rodriguez Lara, another cycle of rising popular
discontent and ressure to counteract it are likely
to ensue.
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C,'4/
CUBA LEVELS BROADSIDE AT CHINA
A series of anti-Chinese editorials in Granma,
the Cuban party daily, indicate that Havana is
determined to play a more aggressive role,
parallel with Moscow, in trying to undermine
Chinese influence in Communist countries and
the Third World.
On January 27, the Castro government said
that "the Angolan trenches define the real
ideological and political positions" of nations and
denounced China for allying with the "US im-
perialists and the South African racists." Chinese
policies elsewhere, particularly with respect to
Chile, also were attacked. Granma followed up
with fierce anti-Chinese diatribes on January 30
and February 3.
Although the attacks are in line with recent
Soviet propaganda, they are the most strident an-
ti-Chinese messages to emanate from Havana in a
decade. Following Fidel Castro's denunciation of
Peking at the Tri-Continental Conference in
January 1966, Cuban-Chinese relations remained
cool, although the polemics and overt hostility
that have characterized Sino-Soviet relations were
largely absent. The intensity and scope of the
current Cuban campaign indicate, however, that
Castro now intends to play a major and con-
tinuing role in support of Soviet efforts against
China.
The timing of the Cuban editorials, in fact,
strongly suggests that Castro's desire to accom-
modate the Soviets was a major factor in the
switch in Cuba's public position. Castro is ex-
pected to attend the Soviet party congress later
this month to play a prominent role in endorsing
Soviet policies and in denouncing the Chinese. If
so, he will, for the first time, place the full weight
of his personal prestige on Moscow's side of the
Sino-Soviet rivalry.
Havana's attack on China is also intended to
gain support for Cuban objectives, especially in
the Third World. The recent editorials, devoted in
large part to justifying Cuban intervention in
Angola, are part of an elaborate media and
diplomatic effort to keep Angola from damaging
Cuba's relations with Latin American and other
governments critical of Cuban adventurism.
Cuba probably can now be expected to com-
pete more openly and actively with Peking for in-
fluence with third-world governments and
revolutionary groups. It has been pursuing this
course-albeit less aggressively-during the last
few years with considerable success. We estimate
that as many as 2,500 Cuban civilian and military
advisers are in a number of countries in the Carib-
bean, the Middle East, Southeast Asia, and Africa,
in addition to the large contingent in Angola. In
some of these countries, Cuba-acting in part as
Moscow's surrogate-has gained influence at the
expense of China.
The Chinese have long regarded the Cubans
as Moscow's proxies abroad, and the diatribes
from Havana will only strengthen this view. At
midweek, in fact, an editorial in the authoritative
People's Daily claimed that the Soviets had
"instigated the Cubans to send over 10,000
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troops" to Angola. This was the first Chinese
response to Havana's attack. At the very least,
Peking can be expected to continue to include
Cuba more directly in its anti-Soviet commentary
on Angola. The Chinese have traditionally
attempted to prevent their competition with the
Soviets from spilling over into other state-to-state
relations, but official dealings with Havana will
undoubtedly become more tense.
ARGENTINA: MORE CABINET CHANGES
President Peron on Tuesday replaced
Economy Minister Cafiero-probably the most
able and most widely respected man still in the
cabinet-and Labor Minister Ruckauf. The depar-
ture of both had been rumored since last mprtt 's
4! Af el
shake-up, in which four members of the eight-
man cabinet were replaced. The appointment of
Cafiero last summer had been seen at the time as
strengthening the administration. A trained
economist who had important labor backing, he
was viewed as one of the very few who might be
able to administer the economy without
alienating organized labor.
In recent months, however, it had become
clear that Cafiero could not be tolerated, evident-
ly because he had come to favor the President's
departure, either by extended leave or by
resignation. He probably was spared in last
month's shake-up only because of his importance
and because the administration feared the con-
sequences of a wholesale cabinet revamping.
Cafiero's recent disagreement over wage policy
with one of Peron's closest aides was the last
straw.
Peron at least partly offset the effect of
Cafiero's departure by replacing him with an ac-
complished professional, Central Bank chief
Emilio Mondelli. Her choice of a Buenos Aires un-
ionist to take the top labor post was less
noteworthy.
Mondelli takes over direction of the
economy at a time of increasing restiveness on
the part of businessmen. Dismayed over the
chaotic economic situation, they have formed a
new organization designed to press for more
orderly policy making. Among the problems
worrying the businessmen are:
? Inflation, which last year totalled 335
percent, now at an annual rate of over 300
percent.
? Continuing wage increases, which
squeeze profits.
? Sporadic strikes by workers, causing
production to dwindle.
A long-established businessmen's group has
called on its members to close their shops later
this sening conditions.
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EAST ASIAN ECONOMIES REBOUND
The economies of Taiwan, Hong Kong, and
South Korea have rebounded strongly in recent
months and, barring a significant slowdown of
recovery in Japan and the US, seem likely to
register sizable gains this year.
By sacrificing growth for economic stability,
Taiwan and Hong Kong have substantially reduc-
ed their trade and payments deficits. Relying
mainly on market forces to dampen domestic de-
mand, both governments effectively trimmed im-
ports in the face of sagging demand for their ex-
ports. In Taiwan, controls on imports from Japan
also played a key role. The value of imports fell in
both countries, while brisk year-end sales held
exports close to 1974 levels. As a result, Taiwan's
current account deficit narrowed from $1.1 billion
in 1974 to only $400 million last year; Hong Kong's
fell by about half to $200 million.
The two governments also slowed inflation.
Consumer prices in Taiwan increased only 5 per-
cent last year, compared to 48 percent in 1974. In
Hong Kong, prices rose only 2 percent, down
from 14 percent in 1974. The cost of continuing
inflation and payments deficits was high. Real
gross national product rose less than 3 percent in
Taiwan, and Hong Kong registered zero growth.
The two had annual real growth rates of about 10
percent and 8 percent respectively during the
previous 10 years.
South Korea adopted a different strategy for
dealing with the effects of the world recession.
Gambling that the slump in exports would be
short-lived, Seoul until mid-1975 followed a
reflationary course designed to prop up output
and employment and keep its ambitious develop-
ment program on track. With exports dropping
sharply and imports climbing to record highs,
Seoul was jolted with a first-half current account
deficit of $1.7 billion, nearly double that of the
first half of 1974. Urban unemployment remained
high, and inflation ran at better than a 30-percent
annual rate.
Shifting gears, Seoul tightened up on imports
and intensified its drive to increase overseas sales.
Trade turned around in the second half of 1975,
and the payments deficit narrowed to only $300
million. Sales to the US and Japan surged. Tight
credit restrictions and tax increases helped slow
price increases to a 25-percent annual rate by the
end of the year. Aided by a record grain harvest
and a construction boom, total real output for the
year grew 7.4 percent, down only slightly from
1974.
The three economies appear to have
weathered the worst of the recession, although
South Korea still faces a large payments gap. Con-
tinued momentum this year depends largely on
steady economic recovery in Japan and the US,
which take the bulk of East Asian exports. In order
to avoid rekindling inflation and causing terms of
trade to deteriorate, the three governments have
said they will be satisfied with slower economic
growth than that achieved during the 1960s.
JAPAN
Policy in Southeast Asia
Prime Minister Miki continues to press for a
larger Japanese role in Southeast Asia. Long an
advocate of a more generous attitude toward
regional aid and trade, Miki wants to put his own
stamp on Tokyo's Southeast Asian policy. The
Prime Minister highlighted his role as "Asia's
representative" at the Rambouillet economic
summit last fall and hopes to sponsor an Asian
economic summit sometime this year.
Miki plans to tour the region sometime in
1976. He is currently angling for an invitation to
meet with the leaders of the Association of
Southeast Asian Nations following an ASEAN
summit meeting in Indonesia later this month, but
Malaysia, for one, may oppose an invitation, be-
ing reluctant to compromise the association's im-
age as a regional organization not aligned with
any outside power.
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Southeast Asia's economic problems,
however, may well give Miki's efforts a boost;
over the past year or so Japanese investment in
Southeast Asia has fallen sharply, and Tokyo's
regional trading partners--now apparently in-
terested in re-stimulating the financial
flow-could presumably see some advantages in
encouraging Miki. The foreign ministers of the
ASEAN states-at a preparatory meeting on
February 11-will discuss the possibility of exten-
ding an invitation not only to Miki, but also to
Australian Prime Minister Fraser.
Since the fall of Indochina last year, Miki has
attempted to fashion an official consensus in favor
of raising Japan's political profile in Southeast
Asia. Last fall, before he went to the Rambouillet
conference, Miki tried to put together a program
for stabilizing Southeast Asian export earnings.
He wanted to present this plan as a Japanese
regional initiative at the summit, but bureaucratic
objections to expanding aid commitments in a
recession year combined with the opposition of
Miki's Conservative Party rivals sidetracked the
initiative.
Japanese finance and foreign ministry of-
ficials are especially wary of moves which would
identify Tokyo too closely with Southeast Asian
regional interests. They argue that Tokyo's finan-
cial burden would be increased unnecessarily,
and some believe that adopting a regional ap-
proach would conflict with Tokyo's policy of sup-
porting global solutions to the North-South
problem. Miki's Conservative Party opponents
have more personal reasons for their opposition.
Last fall, they were interested in limiting the Prime
Minister's ability to capitalize on his place in the
international limelight at Rambouillet. With
national elections due this year, they will con-
tinue to try to circumscribe his activities.
Nevertheless, Miki's pressure has helped to
stimulate a wide-ranging official review of
Tokyo's regional role. The Foreign Ministry and
the Ministry of International Trade and Industry
jointly sponsored an investment survey mission
that recently toured Southeast Asia, and the
Finance Ministry has organized a similar mission
to review economic and financial cooperation
with the region. Still, a government consensus will
probably take some time to develop and will cer-
tainly not match Miki's expectations. The Prime
Minister, meanwhile, will do what he can to con-
vey the impression of movement in Japanese
policy.
Energy Projects Overseas
Since the late 1950s, the Japanese have spent
approximately $4 billion trying to find and
develop energy supplies overseas. Most of the
funds have gone into oil and natural gas explora-
tion and development, but the Japanese have also
invested heavily in a producing oil concession.
The search for uranium and steam coal resources
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1400,
has been on a much smaller scale. Latecomers in
the competition for energy resources, the
Japanese are finding that their investment is
yielding only limited results.
While development of energy resources has
been carried out by the private sector, Tokyo has
lent a coordinating and financial hand. It is most
directly involved in oil exploration through the
Japan Petroleum Development Corporation,
which was organized in 1967 primarily as a len-
ding institution. The corporation offers loans and
loan guarantees to oil exploration companies and,
in some cases, purchases stock. Since its founding,
it has supplied funds totaling nearly $900 million.
Other government agencies are providing loans
for uranium prospecting and, in the case of coal,
conducting surveys to locate sites for private
Japanese investment. Tokyo's role in overseas li-
quefied natural gas projects has been confined
almost entirely to supplying Japanese Export-Im-
port Bank loans.
Tokyo has accepted the fact that Japanese
companies cannot replace the major oil com-
panies in supplying the Japanese market and is
concentrating on getting the most out of its ex-
ploration dollars. It has been pushing for a more
centralized, less wasteful approach to overseas
energy resource exploration, particularly oil. Just
last year, the Petroleum Development Corpora-
tion was given authority to participate directly in
oil exploration projects. In its first venture, it is
heading a Japanese consortium trying to exploit
Canadian tar sands. Many officials are advocating
that the corporation undertake all future explora-
tion projects and possibly take over existing ones.
Over the past 10 years, nearly 60 Japanese
companies have been involved in the search for
oil in more than 20 countries, at an estimated cost
of $2 billion. To date, only five firms have found
oil deposits of commercial size; in 1974, they
shipped 324,000 barrels per day to Japan, or 7 per-
cent of total crude oil imports. A sixth began ship-
ping about 30,000 barrels per day to Japan last
December. All the companies are located in
OPEC countries-the most successful being the
Arabian Oil Company, which was organized in
1958 in the Saudi-Kuwaiti Neutral Zone.
Distribution of Japanese
Oil Exploration Expenditures
Middle East
74.6
Far East and Oceania
17.1
Africa
5.7
North America
1.6
Central and South America
1.0
A surge in overseas activity occurred in 1973
and 1974, when 19 new oil exploration companies
were formed. Because the most promising con-
cessions already had been taken, the Japanese
were forced to go far afield to such places as
Bangladesh and Honduras, where chances for
success are slim and costs are high. In 1975, 11
Japanese firms have given up exploration rights,
and more are likely to follow because of a lack of
funds and growing nationalism.
Closer to home, the Japanese and Soviets are
planning to explore for oil off Sakhalin Island
where weather and tidal problems are severe. In
order to conclude the deal, the Japanese loaned
the USSR $100 million, which will be repaid only if
oil is found.
Japan's largest single outlay for an overseas
oil venture went to purchase part of a concession
that is already producing. Faced with the meager
results from its exploration companies, Japan in-
vested $780 million in 1973 for a 45-percent share
of a British concession in Abu Dhabi. This project
now provides about one third of the crude oil
produced by Japanese companies abroad.
Efforts to line up imports of liquefied natural
gas have been in low gear for the past two years.
No new project agreements have been signed
since late 1973, and negotiations for Japanese par-
ticipation in the large Soviet Yakutsk project re-
main stalled over the issue of US participation.
Japan could cover as much as 60 percent of its
projected 1985 liquefied natural gas needs from
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APEhk SECRET
five of the six projects already under way or being
negotiated. The sixth, the Yakutsk project, which
by itself could provide about 20 percent of re-
quirements, is a long shot.
To fuel its nuclear power plants, Japan has
thus far relied on overseas purchase contracts for
uranium. While existing contracts should satisfy
needs through 1985, Tokyo eventually wants to
procure one third of its uranium requirements
from Japanese-developed sources. Six uranium
development companies have been organized,
and numerous other companies-primarily
trading firms-have banded together to in-
vestigate possibilities. The government assists
developers by loaning them 50 to 70 percent of
prospecting costs; repayment comes only after
successful development of discoveries.
The Japanese are just beginning to seek
steam coal resources. Until the 1973 oil embargo
rekindled interest in steam coal as a fuel, the
Japanese had no reason to seek sources of supply
overseas. In fact, imports had been banned for
more than a decade to protect the domestic coal
industry. With imports expected to leap from the
400,000 tons allowed in 1974 to 15 million tons in
1985, the leach for viable steam coal projects has
become a major element of the long-term policy
for coal. Japanese-developed projects already
provide 25 percent of the country's imports of
coking coal, used primarily for steelmaking.
Paae gn WEEKLY SUMMARY Feb 6, 76
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Secret
Secret
Approved For Release 2008/01/15: CIA-RDP79-00927A011300060001-2