WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011400150001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 21, 2016
• Document Release Date: January 31, 2008
• Sequence Number: 1
• Publication Date: October 1, 1976
• Content Type: SUMMARY

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Secret
Weekly Summary
Secret
CI WS 76-040
No. 0040/76
October 1, 1976
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The WEEKLY SUMMARY, issued every Friday morning by the
Office of Current intelligence, reports and analyzes signifi-
cant developments of the week through noon on Thursday. it
frequently includes material coordinated with or prepared
by the Office of Economic Research, the Office of Strategic
F esearch, the Office of Geographic and Cartographic
Research, and the Directorate of Science and Technology.
CONTENTS
1 Middle East - Africa
Lebanon; Rhodesia;
Angola-USSR; Ethiopia
Scandinavia;
Soviet
3 Europe
UK; France;
6 East Asia - Pacific
China; Thailand;
Japan-China-USSR
7 Western Hemisphere
Peru; Brazil
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14 Panama: Domestic Problems for Torrijos
Comments and queries on the contents of this
publication are welcome. They may be
directed to the editor of the Weekly
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LEBANON
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negotiator, although he has tried to
salvage some credibility, especially with
the leftists, by attempting to arrange a
cease-fire between the Syrians and
Palestinians. The Syrians, who backed
Sarkis for the presidency, apparently con-
cluded that his position and theirs would
be stronger in the long run if they succeed-
ed in forcing the PLO to accept their con-
ditions for a political accord.
Egypt's President Sadat has condemn-
ed the Syrian attack and called publicly
for Sarkis and Arafat to meet with the
leaders of Egypt, Syria, Saudi Arabia,
and Kuwait in a mini-summit to try to
resolve the Lebanese conflict. Syrian
President Asad is likely to resist pressures
on him to attend such a gathering, at least
until his forces have achieved their main
objectives on the ground,
Syrian forces in Lebanon and their
Christian allies this week initiated a new
military offensive aimed at dislodging the
Palestinians from the central mountains.
There are indications that Syria intends to
mount subsequent drives to capture the
port city of Tripoli and to cut off the flow
of arms and other supplies moving from
Sidon and Tyre to west Beirut-the main
bastion of the Palestinians and their
Lebanese allies-if the Palestine Libera-
tion Organization does not bow to Syrian
terms for a cease-fire.
Within 48 hours after the attack began
on September 28, Syrian forces were
clearly gaining the upper hand. Several
important Palestinian strongholds fell on
September 29, including the villages of
Aynturah and Tarshish, which control the
road linking the Christian "capital" at
Juniyah and the Syrian-occupied Bekaa
Valley. The Syrians may plan to push
west to occupy Alayh from where they
can put pressure on leftist leader Kamal
Jumblatt's Druze stronghold just a few
miles to the south.
PLO chairman Yasir Arafat sent
urgent appeals to Egyptian President
Sadat, Saudi King Khalid and other Arab
leaders asking them to intervene and put a
stop to the fighting.
Syrian and Christian insistence on an
unconditional Palestinian pullback from
the mountains was one of the principal
stumbling blocks in talks with Arafat just
before President Sarkis' inauguration last
week. Although the Syrians were con-
vinced then that Arafat was stalling, they
apparently had intended to give Sarkis
more time to seek a negotiated settlement.
A Palestinian commando attack on a
Damascus hotel last weekend, however,
gave them a pretext to resume the
fighting.
The Syrian offensive has damaged
Sarkis' standing as an independent
7Soviets Continue To Hold Back Criticism
The USSR continues to hold back
criticism of Syrian actions in Lebanon.
This week, it not only refrained from
openly criticizing the new Syrian offensive
in the Mount Lebanon area, but for the
first time made a gesture of support for
Syria's position.
On September 22, Pravda carried a
news report on President Asad's speech to
his troops near the Israeli border. It in-
cluded Asad's rationale for the presence
of Syrian troops in Lebanon as well as his
specific criticism of the role of the
Palestine Liberation Organization in
Lebanon.
Any sign of support for Asad is bound
to displease the PLO, which had already
voiced misgivings about an "Observer"
article in Pravda on September 8 up-
braiding "leftist elements" of the PLO
along with the Syrian government for fail-
ing to achieve a cease-fire.
The USSR seems to be facing the
realities of the Lebanese situation. Soviet
Foreign Minister Gromyko told the UN
General Assembly on September 28 that
the Lebanese crisis would have to be set-
tled by the Lebanese themselves without
outside interference. A Soviet official in
Cairo said last week, on the other hand,
that the Soviets believe it is necessary for
the Syrians to remain in Lebanon if a
settlement is to be achieved.
Soviet arms carriers continued to arrive
at Syrian ports during August and
LUNDOF
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Golanl:,;:
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RHODESIA 5- i1
The announcement on September 29
that the UK will convene a conference to
discuss formation of an interim govern-
ment for Rhodesia was doubtless welcom-
ed by the "front-line" African presidents.
They had been pressing for an early start
to the process of developing the in-
stitutions for majority rule in Rhodesia.
The "front-line" presidents recognize
that the continuing rivalry among Rhode-
sian black nationalist factions could now
become an especially unsettling factor as
the prospects increase for negotiations
toward majority rule.
Robert Mugabe, who has emerged as
the chief spokesman for ZANU, met this
week in Lusaka with ZAPU represen-
tatives. ZAPU leader Joshua Nkomo,
who has been in Rhodesia conferring with
members of his faction, reportedly will
join in talks when they convene soon
Nkomo is more widely known ttiam
Mugabe, and Nkomo's ZAPU apparently
has a stronger political organization in-
side Rhodesia than does Mugabe's
ZANU. Most of the guerrilla forces are
loyal to ZANU, but the faction's
leadership is more fragmented.
Although the two factions are under
strong pressure from the presidents, their
talks could be difficult, and there is no
assurance that any alliance would last
long. ZAPU will seek to protect its
political position, while ZANU tries to
exploit its greater military strength. In
this vein, Mugabe told the press this week
that the settlement proposals are unaccep-
table unless the guerrilla forces take con-
trol from the present Rhodesian army un-
der an interim government.
The third major nationalist leader,
Bishop Abel Muzorewa, seems to have
been excluded from the presidents' unity
efforts. Muzorewa has virtually no
guerrilla forces of his own, but does have
some political standing inside Rhodesia
ANGOLA-USSR
Angolan President Neto will pay an of-
ficial visit to the USSR early this month,
according to an announcement from
Moscow. The visit will be in response to a
Soviet invitation issued last May, when
Angolan Prime Minister Nascimento was
in Moscow seeking additional Soviet
assistance. The USSR, along with Cuba,
remains Angola's principal source of aid.
Neto will use the visit to seek clarifica-
tion of the Soviet role in An ola's
development.
rom the oviet standpoint, Neto's
visit probably could not be better timed. It
presents Soviet leaders with an opportuni-
ty to press their attack against US and
British efforts toward a Rhodesian settle-
ment.
Neto will probably be cautious,
however, about associating himself with
any Soviet criticism that could put him
out of step with other front-line African
presidents because he values his newly
acquired status as a member of their
group.
The visit could be offset somewhat by
Angola's resumption of diplomatic ties
with Portugal, which is likely at about the
same time. The Angolan and Portuguese
foreign ministers were to meet in Cape
Verde on September 30 to work out final
arrangements. Neto is anxious to re-
sume the ties to balance his foreign
relations and broaden his sources of
assistance.
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ETHIOPIA 15-2
The assassination attempt on
September 23 against Major Mengistu
Hailemariam, the powerful first vice
chairman of the ruling military council,
may have resulted from the council's
crackdown on the extreme leftist Ethio-
pian People's Revolutionary Party. The
crackdown has been under way for several
weeks.
Mengistu was slightly wounded in the
attempt, which occurred when his car was
ambushed in Addis Ababa. The assailants
escaped, but the military council clearly
believes the Revolutionary Party was
behind it.
The party, an apparently well-organiz-
ed clandestine organization, with its
strength among trade unionists, teachers,
and students, demands an immediate
return to civilian rule. Its other goals
differ little from those of the leftist
military regime.
Despite continuing arrests of party
adherents and harsh attacks on the group
in the government-controlled media, there
were student demonstrations and
numerous brief work stoppages in Addis
Ababa last week. The council responded
by threatening to shoot strikers and by
bringing elite military units into the city
to handle any additional demonstrations.
The city has been quiet since late last
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week; the reopening of schools, which the
government feared would spark renewed
unrest, was postponed.
Some of the unrest in the capital last
week may have been due to popular dis-
satisfaction with the government's recent
monetary reform program, which requires
the exchange of old currency and imposes
service charges for the redemption of bills
of high denominations.
The council's tough stand against the
Revolutionary Party suggests that the
regime takes seriously reports that the
party has been gaining supporters-even
within the armed forces-and that it in-
tends to initiate a campaign of urban
Chancellor of the Exchequer Denis
Healey announced on September 29 that
Britain would apply to the International
Monetary Fund for $3.9 billion in ad-
ditional credit in an effort to reverse the
downward slide in sterling.
According to Healey, the maximum
amount Britain can still obtain under its
credit arrangements with the IMF is $3.9
billion. Last May, Britain borrowed $810
million against its total limit of $4.7
billion.
Conservative Party leaders are blaming
Labor for sterling's problems. Tory
proposals to save the pound include
massive public spending cuts and com-
pulsory wage controls. Callaghan and
Healey would prefer to avoid such a
course for fear of alienating key trade un-
ion allies whose support is instrumental in
keeping potentially rebellious left-wing
Laborites in line in Parliament.
The IMF will probably press for con-
tinued restraints on public spending and
growth in the money supply. It may de-
mand fiscal measures beyond those
already planned for the fiscal year begin-
ning next April. Stringent measures call-
ing for massive public spending cuts or tax
increases, however, seem out of the ques-
tion in the light of Britain's 30-year high
unemployment level.
While the IMF loan will allow the UK
to repay $1 billion expended under a $5.3
billion credit standby arranged by the
Bank of International Settlements and the
Group of Ten and once again intervene on
the foreign exchange market in support of
sterling, it will provide no long-lasting
relief. In the first eight months of the year
Britain spent over $5 billion in support of
the pound but failed to keep sterling from
dropping.
Unless some major structural changes
take place, there will continue to be a
general lack of confidence in Britain's
future, encouraging sterling holders to sell
the currency. r -3? Q
Labor Party Co erence
Economic issues,including the run on
sterling, were the focus of attention at the
annual Labor Party conference this week.
The debate, which was intense and often
critical of the Callaghan government,
reflected the clash between cherished
socialist principles and stringent govern-
ment economic policies designed to cope
with recession and inflation. Other impor-
tant conference topics were home rule for
terrorism.
Scotland, elections to the European
Parliament, defense spending, race
relations, nationalization, and education.
Prime Minister Callaghan adroitly used
preconference planning sessions to
minimize the leftist minority's opportuni-
ty to embarrass the government.
Callaghan will be able to live with most of
the conference's recommendations on
economic policy. The only real setback
was a resolution calling on the govern-
ment to reverse its plans to cut the
1977-1978 budget.
Conference decisions are not binding on
Labor administrations, and the
resolutions this week are not likely to
cause Callaghan to shift course. He may
make some minor adjustments, but the
government will continue to give priority
to fighting inflation.
The left wing demonstrated again its
ability to harass the government and its
allies in the Trades Union Congress, but
as long as key union leaders like Jack
Jones stick with Callaghan, he will be able
to rein in potentially rebellious left-wing
Laborites in Parliament.
Government-union tensions,
nevertheless, are developing over un-
employment and the hardships imposed
by two wage-restraint agreements. The
leftists sense the government's vulnerabili-
ty on unemployment and are directing a
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telling attack on Callaghan over the high
jobless rate that is still rising. If the
leading economic indicators do not soon
justify Callaghan's economic strategy, his
union support will begin to ebb and left-
wing influence will rise.
The delegates elected a new nations ex-
ecutive committee, shifting the center of
gravity further left by one seat. The im-
portant post of party treasurer, which
Callaghan vacated after a ten-year in-
cumbency, went to Norman Atkinson, a
member of the left wing in the party's
parliamentary delegation. Atkinson has
been an acerbic critic of the government's
economic strategy.
The conference voted to set up a work-
ing group to consider widening the elec-
torate involved in selecting a Labor Party
leader. The leader is now chosen by Labor
members of Parliament in a secret ballot.
Atkinson, who favors a more open
process involving party rank and file, will
use his new influence to advance this posi-
Prime Minister Raymond Barre an-
nounced September 22 his much heralded
economic program that is aimed mainly
at bringing the French inflation rate out
of the double-digit range.
The main features of the program are:
? A three-month freeze on most
prices.
v1'
? A package of fiscal measures that
amounts to a moderate tax increase
hitting higher income groups and
business.
? Imposition of an anti-inflation tax
on business.
? Slower monetary growth.
? Measures to increase investment
in plant and equipment.
? A $1.2-billion aid package for
drought-stricken farmers.
Notable for its absence was any men-
tion of controls on wages, which have
been rising recently at a 17-percent annual
rate. The government, however, will try to
set an example in its own wage
negotiations.
The price freeze should have a positive
short-term impact, holding consumer
price increases near zero during the last
quarter of the year. To slow retail price
increases after the freeze expires, the
value-added tax will be cut on a wide
range of products.
Neither of these temporary measures,
however, will directly affect the underly-
ing causes of inflation.
The real test of the program will come
next spring. Barre hopes that the pro-
jected sharp improvement this fall will
reduce expectations about future infla-
tion and thus induce both business and
labor to behave more moderately.
Tax increases-including a 4-percent
boost in the corporate rate, and a 4- to
8-percent increase for higher income in-
dividuals-will also help somewhat, but
are not sufficient in themselves to change
the basic inflation picture. At best they
may help bring the government budget
back into equilibrium in 1977, following a
moderate deficit this year.
Potentially more significant is the new
anti-inflation tax on business. A uniquely
French innovation, the tax is intended to
dissuade firms from raising prices and in-
directly to force them to take a firmer
stance in wage negotiations.
On balance, the French inflation rate
during 1977 should be lowered by the new
program. The rate will still be high,
however, possibly close to 10 percent.
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A f Supreme Soviet to Meet This Month
The USSR Supreme Soviet will meet in
Moscow on October 27, according to an
official announcement late last week. The
main item on the agenda will be final ap-
proval of the five-year plan (1976-1980),
which was presented in draft form to the
25th party congress last spring.
By protocol, Premier Kosygin should
address the meeting and present the plan.
The announcement of a date for the ses-
sion suggests that his doctors have deter-
mined that he will be well enough to par-
ticipate.
Kosygin has not appeared in public
since July 22
General
Secretary Brezhnev told former am-
bassador Averill Harriman last week that
Kosygin would be returning to work "in
several weeks."
The Supreme Soviet session will
probably be preceded by a meeting of the
party Central Committee to put the par-
ty's stamp of approval on the five-year
plan. A Central Committee plenum would
also provide an opportunity to make
changes in the top leadership.
One change may be the promotion of
Nikolay Tikhonov to Politburo mem-
bership. He was recently appointed a
first deputy premier, presumably to help
lighten the workload of the ailing
Kosygin. The appointment of Tikhonov
to Politburo status would put him on a
par with Kirill Mazurov, the other first
deputy premier.
We think Defense Minister Ustinov will
be formally dropped from the party
Secretariat. He has not been identified as
a member of the Secretariat since he
became defense minister last April
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SCANDINAVIA -I/- cif
Politicians were particularly busy dur-
ing the week in two of the Scandinavian
countries.
Minority Government in Finland
The three centrist parties of the old
five-party coalition agreed this week to
form a minority government with Martti
Miettunen resuming his role as prime
minister. The "new" coalition will have
only 58 seats in the 200-seat parliament.
The focus of attention in coming weeks
will be the municipal elections on October
17 and 18. The USSR will be watching
these contests for signs of a conservative
shift-similar to the one in Sweden
recently-that could affect its relationship
with the Finnish government. Polls this
summer indicated a decline in the leftist
parties' popularity and an increase in sup-
port for the bourgeois parties in Finland.
Negotiations in Sweden
Sweden's three bourgeois parties con-
tinued negotiations this week for a coali-
tion government, and the signs suggest
long-standing differences between the
Conservatives and the two centrist parties
have not been resolved.
Gosta Bohman, leader of the Conser-
vative Party, has been excluded from
some of the talks between the two centrist
leaders. Thorbjorn Falldin, leader of the
Center Party and likely new prime
minister, said that he and Liberal
Party chief Par Ahimark must first
agree on basic issues before holding
extensive talks with the Conservatives.
The Conservatives reportedly will not
hold out for major concessions that might
force the centrists to turn to an alliance
with the Social Democrats. The
negotiations may be difficult, but the
three parties still hope to agree on a for-
mal coalition before October 4, the
deadline for announcing a government to
the new parliament.
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CHINA ~-5 _ r
The Chinese leadership seems to be
having difficulty resolving immediate
issues less important than the succession.
The mourning period for Mao Tse-tung
has been extended-unofficially at
least-until October 9, and this may give
the leadership extra time to decide on the
disposition of Mao's body. There are
rumors within China that the remains will
be placed on view in a mausoleum. The
absence of an announcement to this effect
may indicate some disagreement over the
location-and perhaps over whether to
preserve the body at all.
The extended mourning period has also
given the Chinese an official excuse to
cancel the National Day celebrations of
October 1. There may well be political
motivations behind this decision. The last
time these festivities were canceled was in
1971, after the "coup" attempt by Lin
Piao; the official explanation at that time
was that the Chinese were trying to con-
serve money.
There has been some pulling and
hauling-which began before Mao's
death-over naming Politburo member
Wu Te to the post of chairman of the
National People's Congress, the defacto
head of state. Although some foreign em-
bassies in Peking have been advised that
Wu is acting as chairman, he has only oc-
casionally performed the duties of that of-
fice.
The party's left wing may be trying to
block his promotion, which could entitle
him to a place on the Politburo's elite
Standing Committee. The Standing Com-
mittee, which seems to be ruling China
collectively, has only one rightist among
its four members and two leftists.
Some leftists have adopted a higher
profile since Mao's funeral. Standing
Committee member Chang Chun-chiao,
the leader of the party's left wing, has
been the most visible of Chinese leaders
since the funeral and seems to be taking a
more active role in foreign affairs. Mao's
widow, Chiang Ching, received unusual
media attention when People's Daily on
September 25 carried numerous con-
dolence messages addressed soley to her
from foreign heads of state and their
wives.
~. ` ( ~ Thailand: Seni Pramot Reappointed
The reappointment of Seni Pramot as The basic problems of Seni's
Prime Minister two days after his abrupt government-a weak prime minister,
resignation foreshadows the continuation attempts by rival political leaders to
of vacillating and unstable government. manipulate him, and the factional
Seni is attempting to form a new cabinet struggles within the Prime Minister's own
from the same four parties that comprised party-are clearly unresolved. The return
the old coalition. of former prime minister Thanom il-
These parties have agreed to join the lustrates the difficulty of Seni's posi-
government, but Seni's position is com- tion.
plicated by threats from the leftist (and He is caught between the conserva-
strongest) faction in his own Democrat tives who sympathize with Thanom and
Party to defect if the old coalition is liberals who demand his expulsion. The
reconstructed. Seni's initial attempt to absence of serious unrest thus far has per-
join forces with his brother Khukrit's mitted Seni to waffle-a tack he usually
Social Action Party fell afoul of the in- follows until a problem reaches crisis
tense opposition of the rightist faction in proportions and generates a consensus for
the Democrat Party. action.
The nearly two-week delay in
publishing the messages suggests there
may have been some sensitivity about giv-
ing such prominence to t e ~mpopular
Chiang Ching.
Soviet Tone Conciliatory
Soviet propaganda on China continues
in the conciliatory vein adopted since the
death of Mao Tse-tung.
The marked shift probably is intended
to encourage any of Mao's successors who
may be inclined toward less hostile
relations with the USSR, or failing that,
at least to build a public case that the
USSR has done everything possible to
improve relations with China.
Because it has no real idea where in
China's bureaucracy the less anti-Soviet
individuals are located, Moscow is trying
to appeal to all Chinese who might figure
in the succession struggle.
To attract Chinese party members, the
Soviets are praising the accomplishments
of the Eighth Chinese Party Congress in
1956. Government bureaucrats probably
are the intended audience for Soviet
propaganda highlighting past
Soviet-Chinese cultural and scientific
cooperation and Moscow's role in the
development of various sectors of China's
industry.
The Soviets have not neglected China's
military, which they have long imaintained
will probably be decisive in determining
the outcome of the succession struggle.
The USSR has also broadcast items in-
tended to encourage the Chinese to
reassess the Soviet-Chinese-US
relationship and to exploit or create
Chinese frustration with lack of move-
ment in Sino-US relations.
On September 16, for example, a
broadcast to China gave details of an
alleged recent increase in US military aid
to the government on Taiwan and remind-
ed the Chinese that the USSR had always
supported China's "just demand" for the
return of Taiwan.
China's continuation of its anti-Soviet
propaganda has apparently had little
effect thus far on Soviet propaganda,
probably because Moscow believes
China's new leaders have not yet had time
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to sort themselves out. If the Chinese con-
tinue to go out of their way to express
their antipathy toward the USSR,
however, the new Soviet line might
change.
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JAPAN-CHINA-USSR
Foreign Minister Kosaka is sounding
out China on the possibility of a com-
promise on the anti-hegemony
clause-the implicitly anti-Soviet for-
mulation that is the only remaining
obstacle to a Sino-Japanese peace and
friendship treaty. Kosaka plans to discuss
the topic with Chinese Foreign Minister
Chiao Kuan-hua at the UN this weekend.
Kosaka, long a supporter of com-
promise on the hegemony issue, is highly
regarded in Peking, and he apparently in-
tends to inject some forward movement in
relations with China. He reportedly won
Prime Minister Miki's agreement to a
free hand on China policy before accep-
ting the post in Miki's cabinet three weeks
ago.
Miki himself said on September 27 that
he sees no "fundamental difficulty" in in-
cluding an anti-hegemony clause in the
treaty, and he may hope that Kosaka's
reputation combined with Chairman
Mao's death and the new strains in
Japan's relations with the USSR, will
prompt some conciliatory response from
Peking. We see no signs, however, that
the Chinese intend to modify their in-
sistence on unqualified Japanese accep-
tance of the clause.
Resistance from opponents of com-
promise with China-and from Miki's
own rivals within the Liberal Democratic
Party-have stalled negotiations on the
treaty for almost two years. Miki may
now believe he can overcome the
resistance and at the same time strengthen
his own political position by successfully
concluding the negotiations with China.
Miki and Kosaka have also moved to
be more accommodating to the USSR
over the MIG-25 incident. In a meeting
with Foreign Minister Gromyko at the
UN on September 28, Kosaka confirmed
Japan's intention to return the aircraft
and reportedly reached agreement to
begin negotiations in Tokyo over the
details of the transfer.
Japan has in general been tough in
rebuffing Soviet pressure regarding the
MIG-25. Miki's decision to be more ac-
commodating may reflect his concern
over Japanese press criticism that the
government is being too harsh toward the
USSR. The Prime Minister has main-
tained all along that the incident should be
settled without damaging bilateral
The settlement on September 22 of the
year-old dispute over the nationalization
of the US-owned Marcona iron-ore facili-
ty buys some time for Peru to resolve its
shaky financial situation.
The settlement will spur an early agree-
ment on the $350-million loan package
that Peru has been negotiating for the past
six months with private banks in Canada,
Western Europe, Japan, and the US. The
bankers had insisted on a resolution of the
Marcona dispute before they would final-
ly approve the loan. We now expect the
loan agreement to be signed by mid-Oc-
tober.
The loan, which will be used in part to
pay the settlement cost of $37 million for
the Marcona properties, will obviate the
need to reschedule debt service payments
this year and will enable Peru to limit
scheduled import cuts.
The settlement will allow Peru to
restore the Marcona facility to full 25X1
production within two months, after
which iron ore shipments should yield
about $120 million annually in export ear-
nings.
With the benefits of rising exports of
iron ore and copper as well as expected
self-sufficiency in petroleum, Peru's
current-account deficit is likely to drop 50
percent in 1977 from $1 billion this year.
Peru's petroleum import bill will be
reduced from $200 million this year to $20
million in 1977 as Amazon Valley oil
projects and the Trans-Andean pipeline
are completed.
Next year, we expect Peru's gross
national product to increase slightly, and
rising supplies of imported and domestic
goods should cause inflation to fall.
Brazil: Tighter Control Over Economic Planning
President Geisel, concerned with the
rapidly mounting national debt and atten-
tive to recent press disclosures of official
corruption, appears to be tightening his
control over economic planning.
Geisel has decided on the following
steps:
? Cabinet ministers are not to seek
foreign funds without prior con-
sultations with Geisel's planning
secretariat and the central bank.
? Any expansion of project costs,
beyond limits approved by Geisel,
must be reapproved by him.
? Projects that require foreign
financing must stay within the limits
already set for imports.
Brazil's current-account deficit has
grown from about $1.5 billion in the early
1970s to $6.8 billion in 1975 and will
probably be around $5.8 billion this year.
Financing these deficits drove the
national debt from $10.2 billion in 1972 to
$24 billion in 1975, and it is expected to
reach $27 billion by the end of 1976. Ser- 25X1
vicing its current debt obligation absorbs
40 to 45 percent of Brazil's foreign ex-
change reserves.
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Party chief Gierek and his colleagues are facing their most
critical test. If they cannot bring about a demonstrable im-
provement in the economy they will be unable to regain public
confidence. They know another round of rioting like June's
would almost surely end their tenure.
X4.23
The success of the Polish peop a in for-
cing the regime to reverse its decision in
June to raise food prices continues to be
reflected in the tense political atmosphere
in Warsaw.
Party and government leaders are post-
poning decisions on critical economic
problems. At the same time, they are un-
able to hide the fact that the decisions,
when they do come, will confirm the
public's worst fears. In increasingly frank
terms, they are warning that a long period
of belt-tightening is ahead. Tensions will
remain high as the sullen and distrustful
Poles watch the leadership struggle with a
welter of problems of its own making.
The badly shaken regime must
somehow:
? Regain public confidence.
? Manage the politically explosive
and economically urgent problem of
raising prices.
? Overcome shortages of consumer
goods, especially meat.
? Proceed with economic develop-
ment at a time when the burden of
hard-currency debt looms ever larger.
In Eastern Europe, shortages of food
and consumer goods and the problem of
keeping prices at subsidized levels are not
confined to Poland. It is in Poland that
these problems have the greatest potential
for creating severe political instability.
A Long History
The Poles have a history of conten-
tiousness. During the 19th century, when
the country was occupied by foreigners,
Poland: Troubles Ahead
Poles came to regard civil disobedience as
a patriotic virtue essential to the
re-emergence of the Polish state. The
period between the world wars was too
brief and chaotic to alter these beliefs, and
opposition to authority again became
standard after the Communists took
power.
Although Communist rule is accepted
as a fact of life, the party has never been
fully accepted. Many, if not most, Poles
believe the party rules Poland only
because the Soviet Union is its neighbor.
Under these circumstances, perhaps the
only way the party can achieve legitimacy
in the eyes of the public is to provide a
continuously improving level of living.
When Edward Gierek became party
chief in December 1970, he launched a
program to attain rapid economic growth
that required massive imports of Western
capital goods. Investment boomed and
Poland achieved an annual economic
growth rate of 7 percent. Frequent wage
increases and controlled prices enabled
the real personal income of the average
Pole to grow by 9 percent a year.
Consumption increased sharply, but
because the regime was unable to provide
enough attractive consumer durables, a
large share of the growth in consumption
went into food. Consumption of meat,
supported by the growth of the domestic
fodder base, increased about 32 percent
between 1970 and 1975.
The population has become ac-
customed to rates of increase in food con-
sumption that are no longer sustainable.
Compounding the problem since 1974 has
been bad weather, which resulted in a
decline in grain and fodder output needed
to support meat production.
The Polish leadership, with the events
of 1970 very much in mind, was unwilling
to take the plunge and raise food prices
until June of this year. Former party
leader Gomulka fell because he raised
prices in 1970. Gierek, on coming to
power following widespread and bloody
rioting, restored the old prices. They have
not risen since, despite burgeoning food
subsidies that rose from less than 6 per-
cent to 14 percent of budget outlays
between 1970 and 1975.
The Poles would probably have
accepted small price rises over the past
few years with only a moderate amount of
grumbling, but party leaders waited until
June. Then they compounded their earlier
mistake by announcing very high in-
creases.
Their decision clearly caught the public
off guard and was almost certainly taken
without close soundings of either the party
rank and file or the public at large. The
ensuing riots forced withdrawal of the
proposals one day after they were an-
nounced.
Tensions have remained high. The
Polish people, anticipating price hikes,
have been hoarding many consumer
items, thus creating additional shortages.
One official recently said that a "wartime
mentality" had taken over. The regime
has been forced to introduce sugar ration-
ing.
In an effort to cool the popular temper,
the regime has decided to delay price in-
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creases on food for at least a year, and
possibly until mid-1978, and has promised
to "consult" extensively with workers
before any changes are made.
Problems in the Party
Party leader Gierek's status within the
leadership is clearly weaker than it was
before June, and a certain amount of
jockeying for position is under way. Some
efforts to find a scapegoat are reportedly
being made in the Politburo, and there are
divergent opinions on how best to proceed
on the sensitive economic problems.
The relationship between Gierek and
Prime Minister Jaroszewicz appears to be
strained. Gierek
approved the June price package only
after constant pressure from the govern-
ment side, especially from Jaroszewicz.
The subsequent riots reportedly triggered
a "profound psychological trauma" in
Gierek, and he probably blames the
government for bad advice. Since June, he
and Jaroszewicz have not appeared
together as frequently as in the past.
Since the rioting, party politicians have
reportedly decided they must reassert
their supremacy over the economic ex-
perts in the government. In an unusual
move, Gierek recently attended a session
of the Council of Ministers. The party
created five special party-government
teams to tackle the most sensitive
economic problems. These will apparently
bypass, to some extent, existing govern-
ment bureaucracies.
Party leaders will try above all to
preserve the semblance of unity; in mak-
ing policy, they will move cautiously. The
recent discussions on agriculture by a
Central Committee plenum and by the
Parliament produced no new ideas on how
to solve problems in this key area,
The Church
For most of their history, Poles have
equated being Catholic with being Polish,
and Gierek must take great pains to main-
tain good relations with the powerful
Catholic Church. Throughout his tenure,
a delicate truce has existed between
church and state. The regime has not
given up its opposition to the church; it
hopes by concentrating popular attention
on economic development to win in a
long-term battle of attrition. Stefan Car-
dinal Wyszynski has not challenged the
regime during difficult economic times,
but over the last several weeks has become
noticeably more aggressive in asserting
the church's rights.
Edward Gierek A?
Gierek's current weakness was ap-
parent in his call last month for
church-state cooperation. The episcopate
in return asked the faithful for an all-out
effort to solve economic problems, but at
the same time tested the regime's attitude
by calling for greater church access to the
media. The party is not likely to make this
concession.
Economic Prospects
The need for corrective measures comes
at a time when Poland's options are
limited. Because of its severe problems
with hard-currency balance of payments,
Poland has little flexibility in foreign
trade and the Soviets are not likely to
provide any significant assistance.
Warsaw's decision to freeze food prices
for at least another year will only
aggravate the supply problem. Wages
cannot be frozen without generating
adverse worker reaction. Nor can the
regime force the farmer to increase
agricultural deliveries without irritating
yet another segment of the population.
The pressure on meat supplies is not
likely to ease soon. Livestock inventories
are down because farmers-faced with
fodder shortages for several
months-could not maintain them and
resorted to some distress slaughtering.
Herds cannot be rebuilt quickly. It will be
impossible-at current prices-to satisfy
the demand for meat and meat products
for at least a year.
This situation will be aggravated by the
regime's recent decision to put a lid on
free market prices for meat and produce.
While a short-run sop to urban workers,
the ceiling will intensify food shortages
because urban demand for quality foods
will increase and the farmer will make
fewer products available.
Warsaw may ration meat as a
short-term measure to achieve equitable
distribution and reduce queues. Ration-
ing, however, would not increase available
supplies and a recent press article suggests
the government may have decided against
this course for now.
Poland's only viable option is to in-
crease supply by importing extraordinary
amounts of grain and fodder. Imports are
projected at 7-million tons-about the
same as last year-in the marketing year
ending June 30, 1977. Most will come
from the West, requiring over $1 billion in
hard-currency expenditures. The Poles
hope to obtain some 4-million tons from
the US alone. Warsaw is also increasing
meat imports-mostly from the
West-and making further cuts in meat
exports, an important source of hard
currency.
Poland's heavy burden of hard-curren-
cy debt will force the regime to cut back
on imports of industrial materials in order
to import large quantities of grain and
fodder for at least another year. Another
large deficit-on the order of the $3
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SECRET
billion incurred last year-is likely in
1976, and the debt will probably rise to
$10 billion, up from $6.9 billion at the end
of 1975.
Because of probable difficulties in ob-
taining the financing needed to cover con-
tinued large deficits and to meet debt
obligations, Poland may be forced to
allow little if any growth in total hard-
currency imports over the next few years.
Without a vast improvement in
agricultural production, the Poles will
have to continue to hold down imports of
industrial materials. Thus, the regime
may well have to accept a reduction in its
economic growth plans. Before doing so,
however, it is likely to seek help from the
West in refinancing or rescheduling part
of the debt.
Grappling with these thorny and
frustrating problems and with the
aftereffects of the June riots have put the
leadership to its most severe test since the
ouster of Gomulka.
Gierek and his colleagues know
that without demonstrable improve-
ment in the economy, they cannot
regain the confidence of a public
increasingly conscious of its own
power and that one more upheaval
would almost certainly mean the end
of their tenure.
25X1
25X1
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An increase in Soviet crop production this year has been
offset by declines in the output of livestock products.
Total agricultural output in the USSR
this year will be about the same as in the
poor year of 1975. A large increase in
crop output will be offset by a sharp
decline in livestock production.
We estimate Soviet grain production
this year will be 200 million metric tons or
more. Although grain is the USSR's
single most important crop, other crops as
a group rival grain in their impact on
agricultural production and on the coun-
try's net import position.
Potatoes-an important food and feed
crop-are a partial substitute for grain
and can either make up part of a grain
shortfall when plentiful or substantially
swell Soviet requirements for feed grain
after a poor crop. Sunflower seeds supply
three quarters of the vegetable oil, and
sugar beets provide four fifths of the sugar
consumed yearly in the USSR. Cotton ex-
ports earn sizable amounts of hard
currency.
Our preliminary estimates indicate that
the Soviets will harvest about 90 to 95-
million tons of potatoes, close to their
average production for the past five years,
and about 85-million tons of sugar beets,
5,
USSR: Agriculture Forecast
slaughtering in 1963.
The number of cattle, which has
changed little throughout the period,
will be about 2 percent above January 1,
1975, levels. The average slaughter weight
of cattle, however, will still be down sub-
stantially.
The improved crop prospects for the
year reduce the need for imports of agri-
cultural commodities_ notably grain-
and release for export greater quan-
tities of cotton, sugar, and vegetable
oil. Last year's poor harvest disrupted
the USSR's traditional agricultural trade
patterns as imports of farm commodities
mushroomed while exports fell substan-
tially.
Unless there are quality problems with
this year's crop, we expect the Soviets to
hold grain purchases to about 14-million
tons. At current prices, purchases of this
size would cost roughly $2 to $2.5 billion.
Last year's purchases of 27-million tons
cost almost $4.5 billion.
With a good sugar beet crop, the USSR
may increase sugar exports. Exports of
28 percent more than in 1975. Cotton and
vegetable crops will approach all-time
highs, and the sunflower seed crop will be
only 10 percent below the 1973 record
level.
The 19-percent jump in crop production
will be offset by an estimated 13-percent
drop in output of livestock products-the
result of earlier distress slaughtering.
Meat production probably will be about
12.5-million tons, off 17 percent from
1975. Milk production will be roughly 85-
million tons, a drop of 6-million tons from
last year, and egg output could be off as
much as 17 percent.
The expected increase in the availabil-
ity of feed offers hope to consumers for
some relief from shortages of livestock
products. September should see a mod-
erate increase in meat production from
the severely depressed July level, but
shortages will persist through the year.
The current expansion in herd inven-
tories reflects good pasture and forage
crops during the summer and the larger
grain harvest. By January 1, hogs will
reach an estimated 90 percent of the
January 1, 1975, level, and poultry, 95
percent; these are more rapid recoveries
than occurred following the distress
vegetable oil will be expanded, cotton will
again be available for sale, and meat
purchases will drop to more normal levels.
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Recent student protest demonstrations highlight General
Torrijos' declining popularity. The decline has been brought on
in part by the General's inability to deal effectively with grow-
ing economic difficulties.
Panama: Domestic Problems for Torrijos
Panamanian strongman Omar Torri-
jos is facing his most serious domestic
problems since he consolidated his hold
on power in 1969. His recent perfor-
mance, particularly his failure to deal
effectively with the demonstrations in the
past two weeks, has probably reduced his
popularity to an all-time low and opened
him to some criticism from other officers
in the country's only military force, the
National Guard.
The student-incited protests have
highlighted both the government's
economic difficulties and Torrijos' declin-
ing popularity. Although the government
finally quelled the disorders with a strong
show of force, preventive arrests, and the
temporary closing of schools, it has not
begun to deal with its many problems.
For the first time, there is disgruntle-
ment in the National Guard-the only
force capable of removing Torrijos from
office. In previous crises, the Guard has
lined up behind him.
The Guard expects further student
demonstrations, and there is considerable
sentiment among middle- and high-rank-
ing officers for a hard line.
There does not appear to be any immi-
nent threat to Torrijos. The top officers
do not appear as yet to have seriously con-
sidered alternatives to him. These leaders
are men who threw in their lot with the
general at the time of an abortive coup
attempt in 1969 and hold their positions
because of their loyalty to him. After
nearly eight years, they feel identified with
the programs and goals of the govern-
ment.
Rival factions in the Guard have tended
to compete with one another rather than
to challenge Torrijos. At present, military
leaders are probably still confident that
they can ride out difficulties over the next
several months with Torrijos at the helm.
The top military men are ambitious,
however, and could be ruthless. This is es-
pecially true of, Lieutenant Colonel
Noriega. He, Colonel Garcia, and fellow
general-staff member and Minister of
Agriculture Lieutenant Colonel Paredes,
are the most powerful officers after
Torrijos. In the event of sustained dis-
orders, especially if Torrijos is again view-
ed as failing to exercise strong authority,
they might attempt to remove him.
The military, having been in power
since 1968, would not return to the
sidelines. Colonel Garcia, next in line in
the military hierarchy, would probably
take over the National Guard at least in-
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"destabilization" efforts had little impact.
The refusal of students and the general
public to be diverted is one measure of
their concern with the country's economic
problems.
These problems are such that there is
no short-term solution in sight. The finan-
cial squeeze is likely to get worse in the
months ahead. Torrijos' advisers are con-
sidering at least two remedial
moves-raising taxes and easing the
burdens on business of the 1972 labor
code. Both could be politically explosive.
The labor code in particular was one of
the symbols of the "revolution." It
significantly increased worker benefits
and was the most popular move any
Panamanian government had taken on
behalf of labor. The worsening economic
situation and continual complaints from
businessmen led the government to in-
form union leaders on September 10 that
University of Panama students flee tear gas thrown by National Guard troops pchanges were in the offing.
~" Students will be more likely to
Economic Pinch
The prospect is that deteriorating
economic conditions will result in further
disorders in the months ahead. The
government could be on the verge of a
major fiscal crisis. Almost all economic
indicators plummeted again in the second
quarter of this year, and unemployment
has nearly doubled in twelve months.
With the poor feeling most of the pinch
of higher prices and unemployment, the
administration is being charged with
favoring the upper classes. This undercuts
one of the government's basic
claims-that it, unlike its predecessors,
represents the aspirations of middle- and
lower-income groups.
Declining Popular Support
Of almost equal significance is the
growing belief-particularly among
students and the poor-that Torrijos has
betrayed the "revolution." Top military
officers are now seen as little different
from venal government officials of the
past. It is becoming common knowledge
that Torrijos enriches himself in private
business deals and that his subordinates
follow suit.
The government's well-known
manipulation of the media, its disregard
of constitutional rights, and Torrijos'
seeming abandonment of his original role
of populist reformer in favor of aspiring
to become a third world leader contribute
to further domestic dissatisfaction.
One presumed strength of the
regime-Torrijos' ability to negotiate a
new canal treaty with the US-may also
be starting to work against it. For nearly
eight years, the general has promised that
"next year" a pact will be signed.
Radicals argue that Torrijos would have
to sell out Panama's interests to secure an
accord.
Students and Labor
The recent protests forced Torrijos to
act against students-whom he has sin-
gled out as one of the principal partners
in his "revolution." During the height of
the disturbances there were rumors that
Torrijos was losing control. Although
they appear to have been groundless, their
wide circulation is indicative of the un-
settled public mood.
The government's effort to throw up a
smoke screen with charges that the
demonstrations resulted from US
demonstrate against unpopular govern-
ment policies in the future. Even the large
government-manipulated student federa-
tion supported the initial call for price
rollbacks. Pro-government student
leaders are concerned about losing control
of the student movement because ul-
tra-left groups, which have already been
recording gains, are further boosted
by the National Guard's actions
against previously uninvolved students.
A measure of the continued student an-
tagonism toward the government was the
low turnout-about half government ex-
pectations-for the dialogue between stu-
dent leaders and Vice President Gonzalez
following the first week of disorders.
Torrijos has believed that a new canal
treaty with the US would ensure his
political future. It is becoming increasing-
ly apparent, however, that-in the
absence of success on the canal issue-his
management of the economy and the
general domestic situation could be
critical. For the most part, his home
audience appears no longer willing to be
distracted by his unproductive
national performances.
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