WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011400030001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 21, 2016
• Document Release Date: January 31, 2008
• Sequence Number: 1
• Publication Date: July 9, 1976
• Content Type: SUMMARY

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Secret
Weekly Summary
State Dept. review completed
Secret
Cl WS 76-028
No. 0028/76
July 9, 1976
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CONTENTS
Directorate of Science and Technology.
1 Middle East - Africa
Lebanon; OAU Summit;
Israel-Uganda-Kenya;
Sudan; South Africa
4 Europe
Spain; West Germany; Italy;
Poland-Hungary
6 Soviet Union
Soviet Union - Norway;
6 Western Hemisphere
Jamaica; Peru
8 Asia
China; Vietnam
9 Argentina: Tasks for the Junta
11 Jamaica: Economic Difficulties
12 North Korea: A Period of Uncertainty
14 Cambodia: First Year Under Communism
15 Western Europe: Economic Impact of Drought
elopments of the week through noon on Thursday. it
SUMMARY, issued e'rery Fridray. morning by the
Trent Intelligence, reports and onoiy es signifi-
of Economic Research, the Office of Strateg'k
Office of Geographic and Cartographic
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LEBANON
After a two-week siege, most of Tall
Zatar Palestinian refugee camp in eastern
Beirut fell into Christian hands this week.
The Christians, in coordination with the
Syrians, also scored against the
Palestinians and Lebanese leftists in
heavy fighting in the north.
Only a small pocket of defenders is still
holding out in Tall Zatar. The Christians
have delayed announcing the fall of the
camp, partly for fear of provoking
Palestinian and leftist reprisals in other
parts of the country. Flushed with victory,
however, they are again insisting as a
precondition to a new cease-fire that the
fedayeen abide by their previous
agreements with the Lebanese govern-
ment, which place tight restrictions on
fedayeen movements.
On July 5, leftist and fedayeen forces,
trying to relieve the pressure on them in
Beirut and other areas, overran the town
of Chekka and several nearby Christian
villages in northern Lebanon. Chekka is
Chekka Tripoli
Zagharta
7. *Amyun
OTall Zatar e'k
LEBANON
~e
a
e
DAMASCUS
on one of the access routes to the Chris-
tian stronghold of Zagharta. By midweek
the Christians launched a counterattack,
retaking Chekka and moving southeast
beyond traditional Christian areas to
engage leftist forces at Amyun. Syrian
forces may have fought alongside the
Christians at Chekka; in any event, the
Syrians helped out in the north by shelling
Palestinian positions in Tripoli.
Syrian and Christian forces apparently
did link up last weekend just north of
Beirut, tightening Syrian control over
Foreign Minister Khaddam
C A 1 + A
access to the capital. Syrian forces also
resumed their shelling of the southern
port city of Sidon this week and continued
their blockade of several leftist and
Palestinian-held towns in the northern
Bekaa Valley.
The new upsurge in fighting has virtual-
ly frozen efforts by Libyan Prime
Minister Jallud and Arab League
mediators to arrange a cease-fire and get
talks going. Palestinian leader Yasir
Arafat, who returned to Lebanon after
several weeks' absence, did meet with
Syrian Foreign Minister Khaddam and
Christian representatives on July 4 under
Arab League auspices to try to work out a
new truce. Subsequent scheduled talks
were canceled, however, after the Palesti-
nian attack on Chekka. The Arab League
mediators later called for yet another
meeting of Arab foreign ministers in
Cairo on July 12.
Syrian Foreign Minister Khaddam
went to Moscow this week apparently to
try to explain Syrian policy in Lebanon to
Soviet leaders and to mute their criticism
of Syrian action against the Palestinians.
Palestinian leaders, in turn, have stepped
up their efforts to elicit support from the
Soviets. Moscow has invited Arafat to
visit soon, presumably to demonstrate
continued Soviet support for the
Palestinians and to counterbalance Khad-
dam's visit.
OAU SUMMIT
The annual summit of the Organization
of African Unity, which ended in
Mauritius July 6, adopted tough rhetoric
on South Africa and Rhodesia but largely
sidestepped major territorial disputes in-
volving member states.
Besides condemning South Africa for
its handling of recent student riots, the
OAU called for increased support to
Namibian insurgents, extension of the
guerrilla struggle to South Africa, and for
tighter economic sanctions. The summit
also urged nonrecognition of Transkei,
which is scheduled to become in October
the first of South Africa's tribal
homelands to gain legal independence by
agreement with Pretoria,
The summit made no headway in
reconciling Rhodesia's feuding
nationalists. The OAU leaders simply
reiterated their standing call that all aid
for the insurgents be channeled through
the OAU liberation committee based in
Tanzania.
Although the Israeli raid in Uganda
was strongly censured, with a call for UN
action, the conferees did not affirm OAU
support for last year's UN resolution on
Zionism or demand Israel's ouster from
the UN. The US was condemned for
vetoing Angola's admission to the UN.
The summit narrowly avoided a split
over the Western Sahara by agreeing that
the controversial issue, which pits Algeria
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against Morocco and Mauritania, should
be taken up by an extraordinary summit
later this year, providing one can be
arranged. The present OAU stand is that
recognition of the "republic" declared by
the Algerian-backed Polisario Front is a
matter for African states to decide in-
dividually; only nine OAU states now
recognize the provisional Polisario
government.
Further consideration of the divisive
issue of the French Territory of the Afars
and Issas-over which Ethiopia and
Somalia are at loggerheads-was post-
poned to a proposed round table con-
ference of the territory's factions and
liberation groups. Ghana has offered to
host the conference next month. The key
issue, of territorial guarantees for the new
state remains to be decided.
ISRAEL-UGANDA-KENYA
The successful rescue by Israeli com-
mandos of the hijacked Jewish airline
passengers in Uganda last weekend has
given Prime Minister Rabin's govern-
ment, at least temporarily, a much needed
psychological boost at home. As far as
Rabin personally is concerned, it will help
offset the widely held view that he is an in-
decisive leader.
The tour de force at Entebbe should
strengthen Rabin's hand in dealing with
his coalition partners in the cabinet, in-
cluding the conservative National
Religious Party. Rabin is unlikely,
however, to alter his cautious approach to
divisive problems, such as the controversy
over the unauthorized Jewish settlement
at Qaduma, or toward peace negotiations.
If anything, the hijacking episode will
make Tel Aviv more determined than ever
not to deal with the PLO.
The operation may help make up for
the frustrations the Israeli public has felt
over the past several months as a result of
the country's high inflation rate, Arab
rioting, and intra-government wrangling,
especially between Rabin and his chief
rival, Defense Minister Peres.
Kenyan Fears
Since the raid, the Kenyans have
become increasingly fearful that Uganda
may retaliate militarily against Kenya for
having allowed the Israelis to use Nairobi
airport in their o eration.
President Amin, humiliated by the raid,
may indeed believe that he must take
compensatory military action against
Kenya. He has long been at odds with the
Nairobi government; earlier this year he
claimed a large part of western Kenya.
Now that his term as chairman of
the OAU is over, he may feel less con-
strained about attacking his neighbor.
The Kenyans believe two additional
Ugandan battalions were moved to the
border this week to join units sent there
last month after Amin again began mak-
ing threats against Kenya. President
Kenyatta's government apparently views
the latest troop movements and the
repeated references this week over Ugan-
da Radio to "enemy aircraft" in Ugandan
airspace as a ploy by Amin to whip up war
hysteria among the Ugandans and under-
cut advisers who reportedly have counsel-
ed against a retaliatory attack.
Kenyan apprehension is sure to be rein-
forced by reports that 20 Libyan Mirage
jet fighters arrived in Uganda this week to
replace the Ugandan MIGs destroyed by
the Israelis during the raid. Such a con-
tingent could be intended merely as a
show of support for Amin. Should Amin
decide to make a military move, however,
any Mirage aircraft stationed in Uganda 25X1
would be capable of attacking Kenyan
territory. Nairobi has only a weak air
defense system.
Kenya has responded by placing its
army on alert and by delaying the ship-
ment to landlocked Uganda of military
equipment recently delivered to the
Kenyan port of Mombasa. The Kenyans
have also curtailed petroleum deliveries to
Uganda in an effort to limit Kampala's
military capabilities.
The Kenyans probably are hoping that
the UK-traditionally Kenya's major
source of arms-will come to their
assistance, if necessary. Nairobi has a
long-standing, if unwritten, agreement
with the UK that provides for British
assistance on request in the event of an ex-
ternal attack or major internal trouble.
London would be loath, however, to res-
pond to a request for troops. Ethiopia,
with which Kenya has a secret defense 25X1
agreement, is now in no position to help,
even if it were disposed to do so.
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SUDAN
ports rose rapidly and nongold exports
remained stagnant. The situation worsen-
ed in 1975, forcing Pretoria to devalue
twice.
In 1976, conditions further deteriorated
because of a drop in gold prices, weak de-
mand for exports, and a high level of
military purchases.
The government has borrowed heavily
and rolled over short-term loans obtained
in 1975 to increase capital inflows.
South Africa's options in dealing with
its payments problems have narrowed.
Shaky prospects for world gold prices rule
out any abrupt increase in sales of gold
from stocks. The international market
already is absorbing increased Soviet
sales, and periodic International
Monetary Fund auctions will add to inter-
national supplies. Industrial demand for
gold is running roughly 30 percent below
its 1971 peak level. Speculative demand,
which accounted for slightly more than
half of the demand last year, is down
sharply because of moderation in inflation
and an upturn in real interest rates.
With domestic inflation again edging
upward to more than 10 percent, the
government is unwilling to stimulate
prices further by another devaluation. It is
also reluctant to impose additional import
controls or to pile more restraints on a
sluggish economy. It already has stiffened
monetary and fiscal measures during the
past six months and has repeatedly
tightened foreign exchange rules to relieve
speculative pressures on its currency. It
does not want to cut foreign military
purchases.
Exports will probably not begin
accelerating appreciably until the fourth
quarter. By then, the Western economic
recovery may be making itself felt, and
major new coal and iron ore export pro-
jects will have started paying off. By con-
tinued scrimping and borrowing, the
government should be able to muddle
through unless gold prices sag badly.
Foreign borrowing will be more expen-
sive, however, because South Africa's
economic and political problems have
weakened its credit rating.
President Numayri, who came to power
in a 1969 coup, last week survived yet
another effort to topple him. The latest
attempt, which apparently had substantial
Libyan backing, was the most serious
challenge he has faced since 1971, when
Sudanese Communists almost succeeded
in ousting him. The coup group included a
substantial number of people, and there
President Nurnayri 0L
was extensive fighting in the capital area
on July 2-3; several hundred persons are
reported to have been killed.
The coup move, which was well
planned, was apparently carried out
largely by members of the ultraconserva-
tive Ansar religious sect and other
rightist groups; many of the participants
apparently were exiles who were infil-
trated back into Khartoum for the oper-
ation. The government, however, has
portrayed the disturbance as an "in-
vasion" by foreign mercenaries backed
by Libya. Ansar leaders have long been
at odds with Numayri, having tried
to overthrow him in 1970.
Some disaffected western Sudanese
tribesmen may also have participated in
the coup effort; the government claims it
was led by an ex-army officer, believed to
be a westerner, who had been implicated
in previous coup attempts and had ap-
parently been in Libya recently. There is
no evidence that any military units as such
were overtly disloyal to Numayri,
although some individual military men
may have sided with the rebels.
Libyan President Qadhafi almost cer-
tainly provided material support for the
attempt. The coup group used Soviet-
manufactured guns and munitions that
apparently had been shipped to Libya.
Tripoli may also have facilitated the
secret return to Sudan to help organize
the coup effort of Ansars exiled in Libya
and Ethiopia. Sudan's close identification
with President Sadat and Cairo's Middle
Eastern negotiating policy is probably at
the root of Libya's intrigues against
Sudan. Khartoum broke diplomatic
relations with Tripoli this week.
Numayri's hold on power will continue
to depend, as it always has, largely on his
ability to keep the loyalty of key military
e army-overwhelmingly manned by
western Sudanese tribesmen-has
smarted under allegations that many of its
members were involved in the abortive
coup attempt last September. If Numayri
moves harshly to censure the army, he
may end up causin his regime
more-
problems.
SOUTH AFRICA
v~
South Africa has been experiencing
foreign exchange difficulties that are like-
ly to persist for several more months.
The government has little choice but to
continue measures to discourage imports
and hope that gold prices do not sag
further. The economy, as a result, will
probably grow only about 2 percent this
year.
South Africa's payments position
began to deteriorate in late 1974 as im-
Pape 3 WFFKI v ci I A AADV 1-1 n -C
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SPAIN
King Juan Carlos' appointment this
week of Adolfo Suarez as prime minister
is intended to boost the government's
reform program. Suarez' choice of com-
mitted reformists to two key posts in the
Adolfo Suarez being sworn in as prime
minister as King Juan Carlos looks on
/VP
new cabinet supports his assurances that
he will press ahead with liberalization.
But progress may be slowed because of his
inability to persuade the leading refor-
mists in the outgoing cabinet to stay or to
induce any oppositionist leaders to join
the cabinet.
The new foreign minister, Marcelino
Oreja, shares his predecessor's commit-
ment to reform and support for Spain's
entry in the EC but does not have
Areilza's international stature. The new
interior minister, Rodolfo Martin Villa,
who laid plans for trade union reform
while in the Syndical Ministry, is also
regarded as a reformist.
Most of the 10 newcomers to the 20-
man cabinet are political moderates or
technocrats, and several have a strong
background in finance-reflecting
Suarez' immediate intention to grapple
with soaring inflation and other serious
economic problems. Their youth and in-
experience, however, will complicate their
task. Some observers believe the cabi-
net will last only until elections next year.
In spite of strong rumors that Suarez
would appoint members of Opus Dei-the
secret lay Catholic society that dominated
economic planning in the late 1960s and
early 1970s-no publicly identified
members of that organization were ap-
pointed, although at least two of the
holdover ministers are reportedly linked
to that organization. Also absent are any
representatives of the far right.
Suarez' efforts to form a cabinet were
complicated by the manner of his appoint-
ment. The King apparently worked quiet-
ly behind the scenes to be sure he had suf-
ficient votes to get his candidate through
the rightist-dominated Council of the
Realm, which provides the King a slate of
three nominees from which to select a
prime minister. Foreign Minister Areilza
and Interior Minister Fraga, liberal
leaders in the old cabinet, were disap-
pointed they were not chosen, but even
more unhappy over not having been con-
sulted at all. As a result, they and several
other reform-minded ministers refused to
serve under Suarez. Suarez was also
hampered by his previous ties to the Fran-
co regime and by the rumors that he in-
tended to include members of Opus Dei in
his cabinet.
WEST GERMANY..
The West German government received
widespread public approval last week
following a major restatement of its
policy toward the Soviet Union and
Eastern Europe.
Bonn's declaration, a belated response
to the Soviet statement on East-West
relations that appeared in Pravda in late
May, begins by noting that the improve-
ment of West German - Soviet relations
since the late 1960s has been vital to the
relaxation of tensions in Europe. Bonn
asserts that it proceeds from the assump-
tion that both countries long ago decided
for peace, and the West Germans make
clear that they believe detente must con-
tinue and that they are willing to work
constructively with the Soviets.
At the same time, Bonn rejects im-
plications in the Soviet statement that the
Federal Republic endangers peace.
In response to specific Soviet
allegations, the West Germans assert
that:
? The Soviet declaration did not
contribute to peace when it attempted
to divide West German politicians into
good and bad groups.
? Peace is not served if national
borders are declared inviolable while
one side (the Soviets) continues to
claim the right to decide for itself
which regimes are "decadent."
? Those who claim or seek military
superiority undermine the balance of
power upon which peace in Europe
depends.
? Attempts to alter the balance of
power in other parts of the world (such
as in Angola) with the aim of extend-
ing one's sphere of influence only
damage the cause of international
peace.
These major reservations underscore
Bonn's skepticism about the durability of
the Soviet peace commitment. This issue
is particularly sensitive among West Ger-
man voters, who go to the polls this Oc-
tober.
The policy statement did not dwell on
Bonn's principal complaint that Moscow
continues to drag its feet on including
West Berlin in three bilateral
humanitarian accords. West German
diplomats have indicated, however, that
Bonn is considering launching a broad in-
itiative on this and other Berlin-related
matters after the national election.
One purpose of the declaration was to
counter criticism from conservative
circles that the Schmidt government is too
soft toward the Soviets. Judging from the
favorable press treatment and the op-
position's reaction, this objective appears
to have been accomplished.
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Pietro Ingrao taking his seat as president of the Chamber of Deputies
ITALY
/,-~
The compromise bast weekend among
Italy's major parties giving the Com-
munists the presidency of the Chamber of
Deputies could eventually lead to a
broader arrangement allowing the Com-
munists a consultative role in the govern-
ment while denying them formal cabinet
status.
At its opening session on July 5, parlia-
ment confirmed Pietro Ingrao, a Com-
munist Party leader, as chamber president
and former Christian Democratic prime
minister Amintore Fanfani as president of
the Senate. The Socialists, who finished
third in the June 20-21 balloting and
whose collaboration in the new govern-
ment is essential, reportedly will be
awarded the senior vice presidential
positions in both houses. The allocation of
parliamentary posts will be completed
when parliament reconvenes on July 9.
President Leone will soon begin con-
sultations on the selection of a new prime
minister. Interior Minister Cossiga, view-
ed earlier as a strong candidate for the
job, has said privately that he will defer to
Budget Minister Andreotti, the Christian
Democratic leader considered to have the
best chance to enlist the support of the
Socialists.
)PI
According to Cossiga, Andreotti has an
additional advantage-sufficient strength
within the party to move against the
"historic heads" who are opposed to
reform. Younger Christian Democratic
members of parliament reportedly are
becoming resentful that the old leadership
is failing both to carry out its promise of
renewal and to consult younger members
on key decisions.
Despite reported misgivings by Presi-
dent Leone that an inordinate delay in
forming a government could lead to
public impatience, party negotiations
probably will be protracted. There are
growing fears that the Socialists may be
too badly divided to negotiate seriously
toward a government solution.
F
POLAND-HUNGARY
The Polish leadership tried to retrieve
some of its lost political prestige last week
by restating its intention to raise food
prices in the future.
In his first domestic appearance since
the riots, party leader Gierek told a
nationwide television audience on July 2
that price increases are necessary for the
good of the Polish nation. He promised to
hold extensive public discussions,
however, before the hikes are made. The
revisions will probably not be announced
until this fall, when parliament
reconvenes.
Gierek played down the seriousness of
the disturbances in late June, suggesting
that arrests might be held to a minimum.
He made a strong pitch to Polish
patriotism, calling for a united Polish
community and the avoidance of actions
that would stain the good name of
Poland. Gierek expressed sorrow-"as a
Pole"-for the "deeply regrettable in-
cidents" that had occurred.
The Polish party leader also endorsed
Prime Minister Jaroszewicz's "fruitful"
leadership of the government, apparently
to quell any speculation that he might
soon be replaced. Jaroszewicz would
make a convenient scapegoat because he
is closely associated in the public mind
with the price hikes; but Gierek has
probably decided not to act precipitately.
Speaking to a group of agricultural
cooperative workers on July 5,
Jaroszewicz paid personal tribute to
Gierek and echoed his remarks that
Poland "cannot run away" from
problems. He, too, promised that the
government would consider popular views
before drafting new price proposals. He
gave a sampling of public recommen-
dations which suggested that the govern-
ment will increase prices gradually and
selectively.
The Polish unrest did not prevent
Hungary from going ahead on July 5 with
price increases on meat products that had
been announced last November. The in-
creases average about 30 percent- slight-
ly less than expected-and will be partial-
ly offset by a monthly income supplement
for most Hungarians that will buy less
than 1.5 kg. (3.30 lbs.) of pork. The
Hungarian population appears to have
taken the price hikes in stride.
Hungary, unlike Poland, has gradually
raised prices on a number of consumer
products without incident over the past
several years.
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200 Miles
-200 Kilometers
Murmansk
USSR
JAMAICA
3 ~3 L S -
The state of emergency imposed on
June 19 appears to be hastening the
process of political polarization in
Jamaica and solidifying Prime Minister
Manley's alliance with the radical wing of
his party.
On June 26, one week after the
emergency orders were decreed, Security
Minister Munn announced that 353 per-
sons had been arrested, including more
than 130 who have since been imprisoned.
A substantial number reportedly are
leaders and organizers of the opposition
Jamaica Labor Party, while only one of-
Novaya
Zemlya
, SOVIET UNION - NORWAY
The Soviets, within the space of five
days, fired three SS-7 ICBMs into an area
of the Barents Sea that is under negotia-
tion between Moscow and Oslo to deter-
mine an eventual demarcation line..
The first missile was launched on July
2, the others on July 6. There may be ad-
ditional firings; Moscow had previously
announced its intention to fire missiles
into this area between July I and August
10.
Moscow is in the process of dismantling
SS-7 launchers as part of the SALT
agreement, and the firings are an ex-
peditious means of emptying the silos.
There has been no progress in the
Soviet-Norwegian negotiations, and
Norwegian officials are interpreting the
missile firings as an attempt to intimidate
Norway before the next round of talks.
Oslo is expected to make a demarche
emphasizing the threat to shipping and
fishing interests posed by the firings.
The development of offshore oil leases
and the control of fish stocks through
ever-widening economic zones have in-
creased interest in the waters around
Scandinavia. The exploitation of these
resources in both the Baltic and Barents
seas could restrict to some degree the
Soviet navy's unimpeded access to the
Atlantic.
This clearly has concerned the Soviets,
and they may hope that some muscle flex-
ing will cause the Scandinavians to tailor
offshore development in a way that will
minimize its effect on Soviet naval ac-
tivities. At the same time, the Soviets also
realize that the political atmosphere in
Scandinavia is such that even limited
pressure will tend to undermine the kind
of political headway Moscow is attempt-
ing to make in this part of Europe.
Prime Minister Manley UP p I
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Peruvian anti-riot police move to disperse crowds protesting government austerity measures
ficial of Manley's People's National Party
is known to have been detained.
Labor Party leader Seaga has denounc-
ed the government's actions as a "political
witch hunt" aimed at assuring victory for
Manley and a majority of his party's can-
didates in the elections that must be held
by next spring. Pearnell Charles, a Labor
Party senator and its deputy leader, has
been arrested and indicted under the
emergency orders. Seaga claims, in addi-
tion, that three of his party's candidates
and many of their workers have been
arrested.
The blatantly partisan enforcement of
the state of emergency has caused public
opinion to turn against the government,
according to the US embassy in Kingston.
Manley's failure so far to establish a
tribunal to review the cases of persons
detained-as required by law-also has
undermined the government's credibility.
Seaga believes that a reaction favoring his
party has already set in. Manley took
the offensive against his critics on June 29
in a televised speech in parliament. He
claimed that the security forces have un-
covered evidence of subversion and
terrorism aimed at overthrowing his
government. He read from documents
that he claimed branded him and the
government as communist. A subsequent
government-sponsored propaganda cam-
paign has attempted to link the Labor
Party with "plots" against the govern-
ment. One of the major sources of the
charges against the opposition, however,
is so unreliable and his story conflicts so
flagrantly with allegations he has
previously made as to cast suspicion on
Manley's claims. (Jamaica's current
economic difficulties are discussed on
Page IL)
PERU
There have been no fresh outbreaks of
violence following the day of riots and
looting set off by the government's an-
nouncement on June 30 of drastic austeri-
ty measures that included price hikes, a
wage freeze, and new taxes. The govern-
ment insists that the situation is back to
normal, but this claim is belied by official
efforts to stop rumors, panic food buying,
and a heavy military presence in the
streets.
A debate is reportedly under way
among armed forces leaders over the
wisdom and efficacy of President Morales
Bermudez' policies. The austerity
measures were in large part dictated by
U A/
the international financial community as
a precondition for granting Peru an essen-
tial stopgap loan. The President is
vulnerable, nonetheless, to the criticism of
his supporters, who may charge that the
announcement of the measures was han-
dled poorly, as well as to charges from
his detractors that he is toadying to
"imperialist forces."
Morales Bermudez' power base is not
strong, and the current imbroglio could
lead to his
With regard to the economic measures
that led to his current difficulties, Morales
Bermudez may have to yield on some
points. Giving in to the demands of dis-
senters would weaken the President's
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position further and compound ac-
cusations from all sides that his ten-
month administration has failed to
provide decisive leadership.
The death July 6 of Chinese Polit-
buro member Chu Te has somewhat al-
tered the balance of power in the party
leadership. Chu was a highly respected
party elder, and his moderate views
probably played an important role in con-
taining the campaign against ousted vice
premier Teng Hsiao-ping.
Despite his 90 years, Chu reportedly
was outspoken in defense of Teng and
scornful of some of the party's younger,
more radical leaders. Two poems by Chu
published in March implicitly criticized
the disunity in the party created by the
campaign against Teng.
Chu's death reduces to five the
membership of the Politburo's elite
standing committee. Of these, only De-
fense Minister Yeh Chien-ying can
clearly be counted as a member of the
moderate camp.
Premier Hua Kuo-feng, also a stand-
ing committee member, has apparently
avoided firm factional alliances, although
his policy preferences appear to be gen-
erally moderate, and he has been at-
tacked by the left in the past.
With yet another vacancy at the highest
level of the party-four standing com-
mittee members have died in just over a
year-the jockeying for position in an-
ticipation of Chairman Mao's death is
likely to intensify further.
Chu's funeral should be the occasion
for the first major leadership turnout
since the funeral of Chou En-lai in
January. Several officials have not
appeared publicly since that time. The
turnout will be an indication of whether
any of Teng's second-echelon associates
have fallen victim to the campaign against
him.
VIETNAM
The announcement last week of formal
Vietnamese reunification was accom-
panied by further signs of overwhelming
northern political dominance. The new
National Assembly, which has just con-
cluded its first session in Hanoi, the new
capital, elected to the top government-
al positions three North Vietnamese who
held identical posts in the former Ha-
noi administration. They are Pham Van
Dong as Premier, Ton Due Thang as Pres-
ident of the new state, and Truong
Chinh as Chairman of the Standing Com-
mittee of the National Assembly.
Southerners appear to have been given
short shrift in the allocation of major
positions in the new government. Former
National Liberation Front President
Nguyen Huu Tho was given the largely
honorific post of vice president (one of
two), former Provisional Revolutionary
SECRET L
Government president Nguyen Tan Phat
joins the ranks of several vice premiers,
and former PRG foreign minister
Madame Nguyen Thi Binh, is the new25X1
Minister of Education.
Party First Secretary Le Duan de-
livered the keynote address to the new as-
sembly. It dealt mainly with the problems
of economic development and integration
of north and south. He put special empha-
sis on the need for large-scale indus-
trialization and the adoption of modern
technology. The problems of integrating
two substantially different economic
zones were acknowledged, but all
speakers indicated the government's
determination to convert the south
into a system compatible with the north.
A fairly brief treatment of foreign
policy combined revolutionary rhetoric
with expressions of willingness to live
peacefully with everyone. Hanoi's victory
was cited as advancing the cause of com-
munist revolution everywhere, but the
now common themes of cooperation with
fraternal socialist countries, special ties
with Laos and Cambodia, and a readines:25X1
to develop friendly relations with the
other nations of Southeast Asia were duly
reiterated.
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Argentina's military junta, three months after taking over,
has made some gains, especially in the economic area. But
President Videla must soon demonstrate further economic
progress as well as to make inroads against terrorism.
Argentina: Tasks for the Junta
Argentina's military junta has achieved
no dramatic breakthroughs on major
problems in the three months since it
seized power, but there have been en-
couraging signs, particularly on the
economic front. The next few months will
be decisive.
President Videla faces a formidable
public relations challenge, in addition to
the challenges posed by the economy and
continuing terrorist activity. He must, on
the one hand, deal quickly and firmly
enough with major problems to satisfy his
fellow officers. On the other hand, he
must avoid actions that will dissipate the
popular acceptance the junta has
painstakingly nurtured. For the moment,
the military as a whole seems disposed to
go along with Videla's low-key, gradualist
approach to governing. Some officers'
patience could be tried, however, if the
pace of progress does not quicken.
Popular resistance has not yet been a
factor, but political restrictions and
economic austerity measures could yet
lead to widespread public dissatisfaction.
President Videla is well suited for the
balancing act he must perform. He has
impeccable military credentials and the
respect of his fellow officers, even though
there has been some criticism of his style.
Civilians see him as a man with no thirst
for power and one who took the reins of
government reluctantly.
The President sets the tone of the
government; his appearance is austere and
he makes no promises, preferring to
repeat his call for hard work. Other of-
ficials display the same attitude. Economy
Minister Martinez de Hoz, charged with
overseeing a fundamental overhaul of the
nation's economy, describes his job in
matter-of-fact terms and avoids the temp-
tation to make promises.
The government is not so much modest
as practical. Videla and his colleagues ful-
ly realize the danger of setting unrealistic
goals that would risk widespread aliena-
tion if they are not achieved. The public
statements of junta spokesmen are a con-
trast to the extravagant behavior and
lavish promises of the ousted Peronists.
So far, the President and his advisers
mm.
seem to have succeeded in impressing
their countrymen with the need for per-
sonal sacrifice in the interest of restoring
economic health to the nation.
From the outset, Videla has walked a
fine line between authoritarianism and
respect for civilian institutions. Congress
is dissolved, all political activity is
banned, and the media are restricted. The
President has stopped short of cutting
civilians out of the governing process en-
tirely, however. A number of key advisers
are civilians, and the principal political
parties remain intact, as does the huge
Peronist labor confederation. Videla is
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not squeamish about using authority, but
he does see limits to the amount of power
he needs.
Restoring the Economy
Restoration of the shattered economy is
the most pressing challenge facing the jun-
ta. Martinez de Hoz has had some success
in reducing the worst inflation in Argen-
tina's history and attracting badly needed
financial support from abroad, but there
is a long way to go.
The economic team has a far-reaching
program that envisions revitalization of
private business and aims to reduce the
government's role in some economic ac-
tivities, such as energy production. The
foreign investment law has been rewritten
to remove most of the restrictions on
foreign capital and profit remittances.
Agriculture, long neglected, has received
a package of new incentives.
There has been no significant popu-
lar resistance to the economic program,
but the likelihood of continuing accep-
tance of austerity measures by a society
long accustomed to living well seems
small. Labor, in particular, has been
severely affected by the new economic
program. Deprived suddenly of its po-
litical and economic predominance, or-
ganized labor may be ripe for leftist
influence.
Although the military has put controls
on the labor movement, labor remains
potentially the most important source of
opposition to the government. There have
already been a few sporadic work stop-
pages and slowdowns in major industrial
plants. This alarms the junta, both
because it is a challenge to government
authority and because it threatens
economic productivity. Thus far, the
regime has overcome labor protests by
furloughing the ringleaders, but it has
made clear it is willing to use force if
necessary.
The Terrorist Problem
The problem of leftist terrorism has
plagued civilian and military govern-
ments alike since the late 1960s. The
guerrillas do not pose a direct threat to
government stability, but the military
is committed to rooting them out, and
Videla's handling of the situation is
one criterion on which he will be
judged, particularly by his fellow
officers.
The army appears to have made some
inroads against insurgents both in the
countryside and in the cities. In the
remote province of Tucuman, government
forces are reportedly killing and capturing
a growing number of members of the
People's Revolutionary Army and de-
stroying more and more safesites and
sources of supplies.
The urban terrorism carried out by the
Argentine troops on an operation
against insurgents in Tucuman Province
People's Army and by the Montoneros is
more difficult to handle. The insurgents'
hit-and-run tactics are effective in the
metropolitan sprawl of Buenos Aires, and
the appeal the terrorists have for youth-
ful Argentines-the main source of
recruits-continues despite increasing
reports of government anti-terrorist
successes.
It will be some time before the
military's aggressive campaign can be
judged a success; bombings and guerrilla
attacks on officials are continuing. During
the past two weeks, for example, terrorists
murdered several military officers, in-
cluding the second federal police chief in
two years.
Videla may ultimately face serious
trouble from critics in the military who
urge him to take a much tougher ap-
proach to the problem. The thrust of the
argument is that, in order to eradicate the
guerrillas who hide among and draw some
support from the populace, the govern-
ment must impose stronger controls on
the population as a whole.
The so-called "hard-line" officers also
want vengeance against the former
civilian leaders whose corruption and in-
competence, they argue, led Argentina to
near chaos. The advocates of repression
are, in short, pressing for almost un-
limited arrest powers, dissolution of all
political groupings, and the dismember-
ment of the entire labor movement.
The President, too, is committed to a
"fight to the finish" with terrorism, but he
believes the "hard-line" approach would
do more harm than good. Videla wants to
avoid the sort of international oppro-
brium that has been aimed at Chile be-
cause of human rights violations and
that has made it difficult for Chile to ob-
tain needed foreign financial aid. Argen-
tina is depending on further infusions of
foreign financial support.
Videla is also mindful of the significant
political divisions within his country,
which would amost certainly be inten-
sified by repressive government measures.
A Role for Civilians
Videla, unlike the "hard-liners," sees
some role for civilians in the government.
The President's public attitude toward
civilians is conciliatory, and his advisers
are engaged in a dialogue with certain
politicians and labor leaders. This ap-
proach has drawn the fire of the
President's critics.
Although Videla is not now in any
serious trouble, the appeal of the
"hard-line" may widen, especially if the
military judges that progress on ma-
jor national problems is too slow.
Recent abductions and murders of known
and suspected leftists by rightist vig-
ilantes, although not approved by the
regime, clearly have the sympathy of a
number of military officers, some in
key positions. The President's efforts
to end these abuses have had little if
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any success, and there are practical
limits to how far he can go.
Military rule has come to stay for the
foreseeable future; how repressive it be-
As national elections approach-they must be held by next
spring-Prime Minister Manley will be under growing pressure
to raise bauxite prices to help stem the serious decline in
Jamaica's economy.
Declines in Jamaica's bauxite out-
put, reduced tourist trade, lower sugar
prices, and a dearth of private investment
have resulted in serious foreign exchange
difficulties and a further reduction in
economic activity.
The only easy recourse for Prime
Minister Manley's government would be
to raise taxes on the aluminum com-
panies, which would have no choice but to
raise bauxite and alumina prices. Other
Caribbean bauxite producers as well as
Guinea would be likely to follow any price
increase by Jamaica. These producers ac-
count for about 75 percent of US bauxite
and alumina imports.
When the left-leaning Manley became
prime minister in 1972, the country had
excellent growth prospects, especially in
aluminum and tourism. At first the
economy did well under Manley, but in
the past 18 months it has deteriorated
rapidly:
? Government pressures against the
aluminum companies have caused a
sharp decline in bauxite and alumina
investment.
? Manley's socialist rhetoric and his
rapprochement with Cuba have scared
other foreign investors away and led to
large capital flight.
their way, civilians can look forward to at
least a limited role in government; if
Videla loses out, they will not have even
comes depends on Videla's ability to
deal with the problems that prompted
military intervention in the first place. If
the President and his supporters have
this.
Jamaica: Economic Difficulties
the bauxite strikes, bauxite and alumina
exports are likely to recover in the second
half of the year. Even though an explosion
on July 6 may force the closure of Alcoa's
Clarendon alumina plant-representing
15 percent of Jamaican capacity-for the
rest of the year, we expect bauxite and
alumina exports to increase by 35 percent
in the second half of this year. We expect
no improvement in earnings from sugar
and anticipate a drop in tourism receipts.
With continued import restrictions, the
current account deficit for the second half
of 1976 should fall by $80 million to just
over $100 million.
Jamaica could finance this deficit with
the recent $87 million loan from its Carib-
bean Common Market partners and ad-
ditional aid from the World Bank and
other official sources. This, however,
would largely exhaust Jamaica's borrow-
ing potential and would leave imports 15
percent below the 1975 level.
In order to increase imports from pre-
sent restricted levels, Jamaica will have no
choice but to raise bauxite taxes and
prices. An average price hike of 30 per-
cent for bauxite would be required to
allow imports to rise to the 1975 level. As
national elections-which must be held by
the spring of next year-approach, the
likelihood of a price increase will grow.
The aluminum companies will probably
not resist further tax increases, particular-
? Strikes have brought on a 30-per-
cent drop in bauxite and alumina out-
put in the first half of 1976.
? Violent crime, on the rise for
years, has recently taken an anti-
foreign turn, leading to a sharp drop in
tourism.
? In the first half of 1976, the price
of sugar, one of Jamaica's main ex-
ports, fell 50 percent.
The Jamaican economy slumped badly
in 1975 when real gross national product
dropped 2 percent, and the slump worsen-
ed this year. Despite the government-im-
posed import restrictions, Jamaica had a
record current account deficit of $192
million during the first six months of
1976.
Manley has increased public investment
spending in hopes of offsetting declines in
business output. To limit inflationary
pressures, he has raised income and
property taxes and has instituted stringent
controls on credits for private business.
These measures are intensifying the im-
pact of import restrictions on business
output and employment. The government
has prevented unemployment from in-
creasing beyond the 20- to 25-percent rate
prevailing since 1970 only through pad-
ding public employment rolls by 40 per-
cent.
With rising world demand for
aluminum and the successful settlement of
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ly in the face of rising demand. In the
short run, the companies cannot readily
shift sources of supply, since US alumina
refineries are built to process a particular
type of ore. A large share of company
alumina capacity is in the Caribbean-17
percent in Jamaica alone.
Company resistance would expose
almost a billion dollars in Caribbean alu-
minum investments to expropriation. In
any event, increased costs can be passed
on to consumers, particularly since
bauxite is only about 15 percent of the
total cost of aluminum metal. For exam-
ple, a 30 percent rise in bauxite prices
would increase aluminum prices by 5 per-
cent, or 2 cents a ound.
25X1
25X1
North Korea appears to be entering a prolonged period of
change and uncertainty. Its program of economic moderniza-
tion is faltering, and Kim II-song, now 64 and concerned about
the survival of his special brand of ideology, is embarked on a
controversial effort to groom his son as his successor.
North Korea: A Period of Uncertainty
North Korea appears to be entering a
prolonged period of change and uncer-
tainty. The program to promote rapid
economic growth through a quick infusion
of Western machinery and technology is
foundering on the shoals of bureaucratic
ineptitude and massive default on foreign
debt. Given the resilience of the North
Korean people, long inured to sacrifice
and deprivation, the regime will probably
muddle through its current economic dif-
ficulties.
President Kim II-song knows that his
party must prepare a new generation of
leaders, but he seems haunted by the
prospect that loyalty to his doctrine and
leadership will not long survive his depar-
ture. In an unprecedented move for a
nation that still regards itself as a mem-
ber of the socialist community, Kim is
grooming his own son as his successor.
Kim in Control
There has been no serious challenge to
Kim 11-song since the late 1950s when he
purged the last of his factional rivals from
the ruling Political Committee of the
Korean Workers' Communist Party. At
64, Kim is still a vigorous leader, although
heart disease and high blood pressure may
cause him major medical complications
within the next three years or so.
Throughout the spring of this year, he
entertained a steady stream of third-world
leaders seeking to garner support in the
nonaligned movement for this year's
diplomatic confrontation with South
Korea. He expects to attend personally
the nonaligned summit conference at
Colombo in August.
As part of the current six-year
economic plan (1971-76), Kim embarked
on an ambitious effort to seek improved
economic ties, capital equipment, and
technology from the industrialized West.
The acquisition of whole plants from
Western Europe and Japan through
medium-term credits was seen as a way to
achieve rapid modernization and enable
Pyongyang to compete with the
fast-growing economy of South Korea. At
the same time the program would help
reduce Pyongyang's economic
dependence on the USSR and China.
Pyongyang had intended to pay for the
imported machinery with increased ex-
ports to the West, but the world-wide
recession cut demand and prices for non-
ferrous metals, North Korea's major ex-
port. The North Koreans also had to im-
port large amounts of grain to make up
for a poor harvest in 1972-73. Although
circumstances beyond their control
caused some of their problems, North
Korean planners themselves were over-
ly optimistic. None of the Western-
supplied plants has yet started full pro-
duction; some of the large complexes
probably have started partial operations.
As the hard economic realities began to
make themselves felt, Pyongyang
attempted to renegotiate contracts and
credit arrangements and in some cases
was granted one-to-two-year extensions.
Debt rescheduling provides only a tem-
porary relief, however-the old debts are
still outstanding and the interest charges
are even higher. Pyongyang's total out-
standing debt to Western Europe and
Japan is roughly $1 billion.
The highly publicized debt problems
should not, of course, obscure the real
economic growth that North Korea has
experienced. It is estimated that industrial
output over the past few years has risen at
an annual rate of 10-12 percent. The
North Koreans have an active defense in-
dustry and produce a growing assortment
of ground force and naval equipment.
A Stoic Populace
One way the regime hopes to counter its
payments problem is by belt-tightening at
home. Kim I1-song reportedly has ordered
a complete suspension of food imports. If
there is any harvest failure in the near
term, the population will have to make do
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with less. There is not likely to be any
major manifestation of discontent. North
Korea may well be the most thoroughly
mobilized society in the communist camp.
Over 25 percent of adults, for example,
are members of the party, and all youths
must join party-sponsored mass
organizations at an early age.
Son and Heir
Like most aging despots, Kim II-song is
beginning to exhibit growing concern over
the survival of his special brand of
ideology and his own place in Korean
history. Mindful of Stalin's fate and the
turmoil of China's Cultural Revolution,
Kim is taking steps to groom his elder
son, Kim Chong-il, as his successor.
Inside Korean Communist Party
circles, the 36-year-old Kim Chong-il is
already being accorded authority and
prestige second only to the elder Kim. In-
formation from secret party documents
confirms that Kim Chong-il has been
organizing party functions and issuing im-
portant guidelines since early 1974.
There have been no references to the
son in the national press or radio, either as
successor or in any other capacity.
Instead, the North Korean media are us-
ing a special term-the "party
center"-to connote the activities of the
younger Kim. This term may well
describe some sort of group within
the party hierarchy that includes Kim
Kim Chong-il
O-.
Chong-il and possibly a few close asso-
ciates.
President Kim may have tactical con-
siderations in mind in avoiding public
designation of his son as his successor. He
may want the son to prove himself in a
key but unpublicized role. The elder Kim
may also want to avoid relegating himself
prematurely to a lame-duck status and to
deflect any charges of nepotism.
Kim 11-song probably anticipates that
the move will be unpopular with other
senior cadre. He certainly has the power
to declare his son successor at any time,
but he may reason that such an abrupt
step might only drive disgruntled elements
within the party under cover. Moving in a
more deliberate fashion provides a greater
opportunity for the elder Kim to gauge Kim II-song
the reaction within influential party
circles.
pone the sixth congress of the party from
Kim's caution may not be misplaced. its scheduled meeting this year until 1977.
There are signs that Kim Chong-il's can- Party congresses are usually an occasion
didacy is coming up against at least for self-congratulation, for defining new
passive resistance. For example, some of directions, and confirming changes in
the political movements initiated by Kim leadership responsibilities. Kim apparent-
Chong-il have elicited less than a positive ly wanted more time to rethink economic
response from high-ranking party leaders development plans and to deal with the
and the national media. Although the
succession question.
youth newspaper in rec
t
en
months has
waxed effusive over the exploits of the
"party center," the party and government
dailies have virtually ignored these ac-
tivities.
Generational Change
The Kim Chong-it issue is but one
aspect of the larger question of a replace-
As yet, the North Korean media have
provided no evidence that Pyongyang is
giving serious thought to the adoption of
more realistic economic goals. The regime
continues to assert that new large in-
dustrial plants are being commissioned,
that the national budget is running a
record
l
surp
us, and that new production
ment generation of leaders. The present
leadership has ruled North Korea since peaks are being scaled. Sooner or later,
1945, and the domestic media constantl however, the regime will have to come to
y terms with the harsh consequences of its
hammer away at the need to revitalize the large-scale debt default.
bureaucracy and to do away with conser- On the succession question, Kim 11-
vatism and outmoded work habits. song seems determined to pave the way
This spring the regime was presented for an eventual transfer of power to his
with an opportunity to bring new faces son. If important party officials are op-
into the leadership. The premier and posed to the candidacy of Kim
defense minister stepped down because of Chong-il-as some of the evidence
failing health. In both cases, however, the suggests-President Kim probably will
men brought in to replace them were seek gradually to remove them from
nearly as old as their predecessors. For positions of authority. Given the high
the time being, Kim is replacing old stakes involved, the behind-the-scenes
guards with old
u
r
a
d
g ^
s, maneuvering could
grow intense in the
~
i
I
t fall
-
-
K
m
as
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The Khmer Communists appear to believe that the old
Cambodia must be thoroughly eradicated before a new, spartan
society can be established.
Cambodia: First Year Under Communism
The year of communist control in Cam-
bodia has demonstrated the fanatical
determination of Cambodian leaders to
recast Khmer society in a spartan, rural
mold.
Refugee reports and the observations of
diplomats who visited Cambodia last
spring describe a regime that has used
extremely harsh methods to ensure a
docile and compliant population. None
of the evidence available contradicts
a cumulative picture of total regimenta-
tion brutally enforced.
The Khmer communists appear to
believe that the old Cambodia must be
thoroughly eradicated before a new order
can be established. The blend of ideologi-
cal fanaticism and the exigencies of popu-
lation control reflect a deep-seated prej-
udice against the sophisticated ways of
Cambodia's former urban dwellers, many
of whom were Chinese or Vietnamese.
The Foreign Community
Cambodia's new leaders are deter-
mined to protect their country's in-
dependence from possible foreign en-
croachments, particularly by Vietnam or
any country which dealt with the previous
regime. They consistently betray extreme
insecurity toward the outside world,
which is reflected in their stringent
efforts to isolate the population from
outside influences.
The few diplomatic missions allowed in
Phnom Penh are under virtual house
arrest, confined to their compounds, with
meals delivered daily by soldiers who
speak only Khmer. Diplomats are unable
to move about the city except by
prearranged government car. There is no
diplomatic social life.
Messages are communicated to the
Ministry of Foreign Affairs by a single
functionary who visits the missions daily.
The flight from Phnom Penh to Peking
every two weeks is the main link be-
tween the foreign representatives and
their capitals.
The communists have taken a similarly
uncompromising approach to the large
foreign community living in Cambodia at
the time of the take-over.
All of the several hundred thousand
Vietnamese who had been making their
livelihoods in Cambodia's cities and
rural areas have been expelled. The
tens of thousands of ethnic Chinese,
mostly city and town dwellers, have
been forced into the countryside
with the Cambodians to work in the
rice fields.
The only foreigners in significant
numbers tolerated by the communists are
the thousand-odd advisers from China who
are helping to keep a few factories func-
tioning and providing other forms of
technical advice. These advisers reported-
ly keep a very low profile, as do the few
North Koreans who are also present.
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The Peasant Culture
The commitment to the so-called
peasant culture is total. Phnom Penh
and other cities are empty except
for settlements of workers next to the few
factories the communists feel must keep
producing cement, textiles, and other
basic materials. Returned diplomats are
put to work in the fields to learn to grow
rice and acquaint themselves with the new
way of life prescribed for the whole coun-
try by the regime.
The government is betting heavily that
a substantial rice surplus will put the
economy on a sound footing and make the
country independent of foreign help.
Miles of irrigation canals have been dug,
new lands opened to cultivation, and
millions forced to work from dawn to
dusk in the fields. The government may
well achieve its objective of an export sur-
plus, with which it expects to pay for
Cambodia's other needs.
The traditional family unit is one victim
of the massive reordering of Cambodian
society. While a certain amount of separa-
tion was an unavoidable consequence of
the enormous population relocation that
followed the communist victory, the new
regime apparently has deliberately tried
to expunge family loyalties in order to
substitute forcibly new loyalty patterns-
to the commune and to the state.
Refugees report that unsupervised com-
munist squads are assigned to each
village, and although conditions vary,
people are typically grouped in tens, with
one supervisor and three cells of three per-
sons. Each member of a cell is responsible
for the behavior of the other two. People
who make too many "mistakes" are led
away and never seen again.
The refugees say there are no "people's
courts," and the local communist squads
decide who lives or dies. In some areas, all
former civil servants have allegedly been
executed along with their families.
Former officers and noncommissioned
officers have been killed, and in many
areas even privates of the defeated army
are being sought out and killed.
Apparently, members of the former
middle class, including teachers, students,
technicians, and businessmen, are suspect.
Doctors reportedly have either been killed
or sent to the rice paddies and have been
replaced by youths who are given three
months' training.
Even the bonzes have not es-
caped. Buddhism has been rejected as
offering nothing of value, and all the
temples have been closed. Those monks
not killed suffer severe persecution.
There is no way even for the com-
munists to estimate seriously the number
of deaths, but the diplomats guess that the
population may be down by 15 to 20 per-
cent.
Most of the information on condi-
tions in the countryside comes from
refugees, and there is no way to verify
these accounts or the universality of the
conditions described. Nevertheless, there
is little doubt that executions have de- 25X1
prived Cambodia of irreplaceable special
skills, inevitably making the regime more
dependent on Chinese advisers.
The drought has already caused substantial crop losses and
made for worsening trade balances this year. It will add to in-
flationary pressure and will put the EC's Common Agricultural
Policy under greater budgetary strain.
l
Western Europe: Economic Impact of Drought
The drought in Western Europe has
already caused substantial crop losses and
made for worsening trade balances this
year. It will cause some stimulation to in-
flation and will put the EC's common
agricultural policy under greater
budgetary strain.
Rainfall has been inadequate in much
of Western Europe since late last year; in
southern England and central Spain dry
conditions have prevailed since last
summer. The drought in the UK and
France-primarily in the
northwest-may be the worst dry spell in
the past 200 years. French meteorologists
predict the dry weather will continue into
September. The Low Countries, West
Germany, and Italy to date have been less
seriously affected.
The most immediate and severe impact
of the drought is on crop prospects, es-
pecially in France and Spain. The greatest
losses are forecast for coarse grains, par-
ticularly barley and corn. Wheat produc-
tion is still expected to rise slightly.
We now estimate that grain production
for the 1976-1977 marketing year in
Western Europe as a whole will be 129
million tons, down 2 percent from last
year's low level and almost 10 percent
below earlier estimates. Without rain in
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coming weeks, further losses of 3 to 4
million tons could occur. The EC's
agriculture commissioner said last week
that EC grain production in this
marketing year will approximate last
year's 98 million tons-about 10 percent
lower than an estimate in early May.
Grain Exports
Production losses will mean lower ex-
port availabilities and increased import
demand-thus worsening trade balances
in Western Europe. Most countries will
turn to the US for a major portion of their
increased grain imports.
The EC Commission has lowered its es-
timate of total wheat exports this year and
next from 8 or 9 million tons to 4 or 5
million tons. We had earlier estimated
that EC corn imports from third countries
would drop about 1 million tons, but we
now expect an increase of 500,000 tons.
Imports of other feed grains may also in-
crease-the EC now expects to be a net
importer of barley rather than a net ex-
porter as it earlier predicted.
Spain, nearly self-sufficient in wheat in
recent years, will have to increase im-
ports. Spanish imports of corn during the
coming year are now forecast at about 3.9
million tons, 300,000 tons more than in
1975-1976.
Sugar beets and other crops also have
been hit by drought, particularly in
France and the UK. The EC estimates
that 100,000 to 150,000 hectares (250,000
to 370,000 acres) of sugar beets-about 6
percent of the total-have been lost. So
far, world sugar prices have only been
slightly affected, but poor yield tests in
August would push prices up. We believe
regional losses in fruit and vegetable crops
are also substantial.
Livestock
Reduced fodder supplies are forcing
many beef producers to market their cat-
tle early, adding to existing EC surpluses.
The EC indicates that cattle slaughtering
is running 45 percent above last year's
level in certain drought-affected areas. In
France, with 30 percent of the EC dairy
herd, farmers are slaughtering cows in in-
creasing numbers, putting more
downward pressure on beef prices. Many
British cattlemen are attempting to send
their herds north to greener pastures in
Scotland. Because of increased
marketings this summer, supplies may be
tighter next year.
The cow slaughterings, primarily in
France, will reduce-but not
eliminate-surplus EC dairy production.
Although milk production in the most
severely affected area of France has
dropped 20 percent, EC dairy production
for the first half of 1976 was 6 to 7 percent
above the same period a year ago. The EC
Commission estimates that even if the
drought continues, total Community
dairy production will rise 3 percent over
last year.
Dry conditions in EC countries almost
certainly will add to budgetary strains on
the Common Agricultural Policy. With
the increased slaughtering of beef and
dairy cattle, the minimum price program
will lead to expanded purchases of beef by
the Community. Intervention agency
stocks already amount to 310,000 tons of
beef and will grow.
Dairy cattle are not normally part of
the EC beef price support system, but the
EC agricultural ministers agreed in late
June to a French request to include cer-
tain categories of dairy beef through July
31. The situation will be reviewed at the
next EC Council meeting.
The drought will cause a drop in farm
incomes this year, primarily in France,
the UK, and Spain. The Common
Agricultural Policy does not provide
direct income subsidies to farmers, and
remedial actions will be left to national
governments. France, for example, has
promised to maintain farm income in
1976 and initially set aside $210 million
for this purpose. In September, when the
extent of crop losses becomes clearer, sub-
stantially more aid is likely. Facing a
serious Socialist-Communist challenge in
the 1978 legislative election, the govern-
ment cannot afford to alienate some of its
staunchest supporters.
As the drought continues, its in-
flationary impact will grow. Consumers
will be partly insulated by EC price
regulations on grain and sugar, but the
rise in prices for fruits and vegetables,
which are not tightly controlled, will be
considerably greater.
Impact on Industry
France and Spain will have to increase
oil imports because of reduced hydroelec-
tric power. In France, where hydroelectric
plants provide one third of the electricity
generated, production is running 30 per-
cent below the levels of a year ago; in
Spain hydropower output (normally 13
percent of total) is down about 20 percent.
We estimate that making up this deficit
by increasing thermal power production
will boost French oil consumption this
year by about 60,000 barrels per day, ad-
ding close to $300 million to the oil im-
port bill.
Thus far the effect of the drought on in-
dustrial activity has been limited to some
specialty steel producers in France. Cuts
in electricity supplies have forced a few
firms to curtail operation of their electric
arc furnaces. The hardest hit steelworks is
a plant in Le Creusot, where 300 workers
have been laid off following a 62-percent
drop in the firm's supply of electricity.
Some other industrial consumers have
had their supplies reduced, and
households and other users of low-voltage
electricity have had their voltage cut 5
percent. 25X1
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