BACK-UP BOOK FOR DCI CONGRESSIONAL BRIEFING SENATE ARMED SERVICES COMMITTEE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79R01099A002200010002-1
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 90
• Document Creation Date: December 22, 2016
• Document Release Date: June 8, 2009
• Sequence Number: 2
• Publication Date: January 22, 1974
• Content Type: REPORT

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22 January 1974
BACK-UP BOOK FOR
DCI CONGRESSIONAL BRIEFING
SENATE ARMED SERVICES COMMITTEE
C O N T E N T S
The Soviet Union
Nato-Warsaw Pack Balance
The Political Situation
Relations With Eastern Europe
Sino-Soviet Relations
Military Aid to the Third World
The Soviet Economy
China
The Chinese Economy
The Middle East
Egypt
The Fedayeen
Western Europe
Economic Problems with EC
European Defense Cooperation
The Far East
Thailand
The Philippines
Indonesia
Japan
Latin America
Argentina
Brazil
Chile
Cuba
Mexico
Peru
JCS review completed.
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21 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
NATO-WARSAW PACT BALANCE
I. Over the years the Warsaw Pact has had an image
of being an overwhelming land and air force held
at bay only by the threat of US tactical and stra-
tegic nuclear weapons.
A. We believe that this has not been the case
for a long time, and I think that the present
situation can be fairly described as a balance.
1. There are, nevertheless, many asymmetries
between NATO and the Pact, and it is these
asymmetries that have led to most of the
misconceptions regarding the force balance.
The asymmetries exist partly by design
and partly through historical evolution.
B. First, I would like to go over the current
strengths of NATO and Pact forces.
1. As you can see from the chart, the current
Pact force in the Central Region--that is,
East Germany, Poland, and Czechoslovakia--
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looks impressive, but this needs to be
examined in detail.
2. Take manpower, for example. There are
about 460,000 Soviet troops in the Cen-
tral Region. The rest--about 330,000 in
the East European field armies--are
serving in a structure that is designed
to be filled out in emergency by mobili-
zation.
3. By contrast, NATO has about 700,000 men
in units which are kept at or near com-
bat strength. Some 160,000 are the US
field army forces.
C. The figures on the number of divisions are
influenced by differences in mobilization
practices, as well as by differences in
structure.
1. While there are 58 Pact divisions in the
Central Region, five of them are at low
strength in peacetime and two are small
special purpose divisions. Moreover,
the Pact divisions are 6,000 to 7,000
men smaller than those of NATO.
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2. In addition, NATO has 14 independent
brigades, each of which is similar
in size to a Pact division.
D. Tanks continue to be the main element of
Pact strength. The Soviets have deliber-
ately built up their tank force in the be-
lief that tanks can continue to play the
role during conventional war they did in
the Nazi blitzkrieg, and that on the nuclear
battlefield, a tank has the best chance of
surviving.
1. The numbers of the chart show only tanks
assigned to units. They do not show the
some 3,000 additional ones held in re-
serve by NATO for airlifted US units and
for replacing battle losses. Nor do they
reflect the large numbers of antitank weapons
held by NATO. (The Pact makes its replacements
in combat by whole units, one of the reasons
for the disparity in the number of divisions
as well as tanks.)
E. You may recall that a simple count of the num-
ber of aircraft tends to obscure one of the
most important elements of NATO's strength.
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1. NATO has a significant qualitative edge
over the Pact. Its aircraft are generally
superior in range, payload, and armament,
and its pilots are better trained.
2. The Warsaw Pact.relies on medium bombers
based in the USSR for the bulk of its
conventional strike capability. These
aircraft are more vulnerable to air defenses
than are NATO fighter-bombers.
3. Much of NATO's tactical nuclear delivery
capability is in its dual-capable aircraft--
many of which could reach the USSR. This is
an area of major Soviet concern.
F. We estimate that if the current forces were
augmented by mobilization, the changes shown
in the chart would occur.
1. After 30 days, NATO would have significantly
more manpower in uniform in the Central
Region. The big strength of NATO would
come from the rapid West German mobiliza-
tion, which within a week or so would sig-
nificantly augment NATO forces in the
immediate tactical area.
2. Some 430,000 of the mobilized Pact force
would be Soviets from the western USSR.
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3. The NATO figures, of course, include
some 200,000 US men who would be air-
lifted across the Atlantic.
G. The figures for tanks and aircraft mobilized
after 30 days heighten the comparison of
relative strengths I made earlier.
1. The Pact has put its money on tanks, NATO
on aircraft.
2. Pact commanders must be concerned with
the prospect of the new "smart" muni-
tions which can be delivered by NATO air-
craft and which have shown what they can
do.
H. To summarize, I want to emphasize again the
difficulties in making comparisons between
NATO and the Pact, even when we are sure of
our numbers. The forces are very different,
supported by governments which have dif-
ferent sets of views.
1. As it stands, neither side can initiate
war against the other with the certainty
that the outcome would be in its favor.
That uncertainty is what provides the
balance and has kept the two very con-
siderable military machines at bay.
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14 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
SOVIET POLITICAL SITUATION
I. Brezhnev made considerable gains last year,
building on his foreign policy initiatives to
add to his personal authority at home and abroad.
A. All his politburo colleagues now acknowledge
his preeminent position, although not all
view his leadership or policies with enthusiasm.
B. Brezhnev, for his part, continues to show an
awareness of the danger of getting too far
out ahead of the collective and an ability
to trim when necessary.
II. Brezhnev made his biggest gains in the spring and
early summer with his trips to Bonn and the U.S.
A party plenum on the eve of the visits provided
him with a major victory.
A. The plenum removed from the politburo his two
most outspoken critics, Shelest (former Ukranian
party boss) and Voronov (former Premier of the
Russian Republic.)
SOV POL-1
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B. Defense Minister Grechko, Foreign Minister
Gromyko and Minister of State Security (KGB)
Andropov were elevated to full membership
on the politburo. All have demonstrated po-
litical support for Brezhnev and his foreign
policy.
1. Their inclusion on the top policy-making
body serves to ensure smoother coordina-
tion of foreign policy. It also guards
against their institutions becoming focal
points of opposition.
C. The Central Committee strongly endorsed Brezhnev's
detente policy and noted his "great personal con-
tribution." This, together with later official
statements highly praising Brezhnev's foreign
trips, firmly established him as the principal
architect of Soviet foreign policy and laid
the groundwork for a new surge in the Brezhnev
cult.
1. Acknowledgement of Brezhnev's personal con-
tribution became standard ingredient in So-
viet propaganda and in the speeches of other
officials.
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D. Some revealing differences have appeared,
however, in the way Brezhnev's politburo
colleagues have treated the "great personal
contribution" formulation.
1. His closest political allies, such as
Kirilenko, tend to embroider the formu-
lation to inflate Brezhnev's role.
2. Qthers, such as Shelepin and PZazurov,
have stuck to the precise wording.
3. Suslov, the veteran ideologist and
guardian of collectivity, provided his
own shading. Speaking in July, he mis-
quoted the plenum resolution so as to
inflate the role of the politburo and
downgrade that of Brezhnev.
III. In late summer and early fall, signs began ap-
pearing that some elements in the party and gov-
ernment bureaucracy were again beginning to doubt
whether the benefits of detente would outweigh
the dangers, This was particularly true of those
concerned with ideology and domestic discipline.
A. The first blush of excitement over detente
had begun to fade, and the leadership was
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getting down to the more sobering task of
detailed negotiation.
B. In a speech in late September, Brezhnev him-
self was noticeably defensive about the
achievements of detente, and backed off from
some of his earlier more optimistic statements.
IV. The October Arab-Israeli war vastly complicated
Brezhnev's position, by requiring choices between
pursuing detente and Soviet goals in the Middle
East.
A. In the event, he carefully involved other
top Soviet leaders in the management of the
crisis and was able to weather it.
V. Brezhnev's authority seems to have reached a new
peak in November at the anniversary celebration,
where he received unusual personal praise.
A. He was aided by an upsurge in the economy,
largely resulting from the record grain harvest.
B. Incidentially, the harvest probably also saved
the career of Agriculture Minister Polyansky,
who had been made the scape-goat for the previ-
ous year's disaster. But all the public credit
has gone to Brezhnev.
SOV POL-.4
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C. In recent weeks there has been a growing emphasis
on Brezhnev's role as innovative domestic
leader. A Pravda editorial summarized at
unusual length his previously unpublished
speech at a party plenum in December. The
speech is being held up as a guide for all
in working to fulfill the 1974 plan.
VI. There are many problems ahead, however.
A. Brezhnev and his colleagues are under pressure
to realize some fruits from detente.
B. The latest Solzhenitsyn bombshell revives the
leadership's dilemma of how to square the re-
quirement of domestic discipline with foreign
policy considerations.
C. Finally, there is uncertainty as to how long
some senior politburo members may remain ac-
tive. This is not a young leadership
and changes are inevitable.
SOV POL-5
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14 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
SOVIET RELATIONS WITH EASTERN EUROPE
I. Soviet efforts to retain control in Eastern
Europe are complicated by two broad develop-
ments: the pressures for internal change in
the East European countries and Moscow's own
push for detente in Europe.
II. The Eastern European countries want to generate
more economic growth, which would provide im-
proved living standards and win greater popular
support for the regimes. Some would like to
modify their political and economic institutions
toward this end.
A. The rioting in Poland in December 1970 was
indicative of the underlying discontent
throughout Eastern Europe.
B. Moscow has had to accept some experimenting
on the part of the Eastern Europeans, but
there are limits, and the case of Czechoslovakia
undoubtedly remains fresher in the minds of
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the Eastern Europeans than it does in the
minds of the West.
1. In Poland, Gierek has initiated some re-
forms that have won guarded approval from
Moscow.
2. In Hungary, Kadar is carrying out prq-
grams of limited economic and political
experimentation.
C. Moscow has kept close watch on cases such as
these to make sure that the reforms do not
weaken the position of the local Communist
Party; in all cases Moscow has urged a "go-
slow" policy.
III, At the same time, Moscow seeks to improve rela-
tions with the West without jeopardizing its po-
sition in Eastern Europe. CSCE and IBFR negotia-
tions make this problem more acute.
A. A key Soviet objective continues to be West-
ern acceptance of Moscow's hegemony in East-
ern Europe.
B. Moscow also wants to limit Western ideological
and economic penetration of the area, while
at the same time to derive benefits from
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Western technological and financial capa-
bilities.
C. The Soviets know that some Eastern Europeans
are anxious to turn Moscow's quest for better
relations with the West to their own advantage.
1. The Romanians and Yugoslavs, for example,
see in the CSCE a forum for advancing
their own interests. For one thing, they
hope to obtain assurances of national
sovereignty to offset the "Brezhnev Doc-
trine"--which provides the rationale for
Moscow's right to intervene in Eastern
Europe.
D. Moscow is also alert to any sign that improved
inter-German relations are having negative
internal effects in the GDR. At present they
probably believe that Honecker's regime is
able to cope with the consequences.
IV. Moscow continues to be sensitive to Chinese "med-
dling" in Eastern Europe, although the Chinese are
not as active there as they were several years ago.
A. Some Eastern Europeans, particularly the Ro-
manians, may have seen Peking as a tempting
counterweight to Moscow.
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1. The Soviets have made clear that those
who flirt with Peking do so at consid-
erable risk.
2. As a result, the Romanians have conducted
their relations with China more prudently
f late.
V. Nonetheless, Romania's efforts to set an independ-
ent course in foreign policy continue to trouble
Moscow.
A. Romania has renewed efforts to assert its in-
dependence at CSCE and MBFR and followed an
"even-handed" policy toward the Middle East.
1. Ceausescu remains adept at gauging the
limits of Soviet tolerance, however, and
Moscow is reluctant to see an open split
develop.
VI. Soviet-Yugoslav relations have improved noticeably,
.but mutual suspicions remain.
A. Brezhnev's trip to Yugoslavia in September
1971 and Tito's cordial visit to the Soviet
Union last November were signposts in this
direction.
1. Economic and cultural relations have also
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become closer, highlighted by a $540
million Soviet credit to Yugoslavia.
B. By and large, Moscow appears to be seeking
to build as favorable a position as it can
in preparation for the post-Tito era.
VII. As moves toward detente, particularly CSCE and
MBFR gain momentum, Moscow will be increasingly
compelled to stress "socialist cooperation."
A. Frequent Warsaw Pact and bilateral meetings
will emphasize the unity theme.
B. The Soviets will give more attention to CEMA,
trying to portray it as an equivalent to the
European Communities.
1. Moscow is increasingly trying to tie the
economies of its CEMA partners closer to
its own by means of long-range planning,
participation in joint enterprises and
formation of numerous standing and special
commissions.
2. We see indications that the Soviets will
use the energy shortage in Eastern Europe
to gain increased leverage over the econ-
omies of those countries.
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C. Efforts to increase ideological coordina-
tion are increasing, and will probably be-
come more noticeable as preparations for a
World Communist Conference move forward.
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21 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
SOVIET MILITARY AID TO THE THIRD WORLD
I. The Soviet Union continued to push its military
aid diplomacy in the Third World in 1973, with
the tempo of activity increasing during the last
quarter of the year.
II. New Soviet military aid commitments totaled
at least $1.2 billion, some $500 million above
1972's level. The increase can be attributed to
the Soviet arms resupply effort following the
outbreak of the Arab-Israeli war in October.
A. Egypt and Syria received over 75 percent
($950 million) of Moscow's new aid commitment.
1. The resupply effort concentrated on re-
equipping, with armor, antitank weapons,
and ammunition for those Arab units
hardest hit in the fighting. In
addition, Moscow provided enough surface-
to-air missiles and fighter aircraft to
maintain the air defense umbrella over
SOV MIL AID-1
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L V 1 U? ? V 1\l:/ 1
both the Egyptian and Syrian fronts.
B. Iraq received $140 million in new aid covering
Moscow's first sale of the TU-22 supersonic
bombers. (Iraq already had subsonic TU-16s.)
C. India received a minimum of $125 million in
new aid extensions, covering the introduction
of the SA-6 surface-to-air missile system and
additional tanks, artillery, radars, and
support equipment.
D. Lesser commitments were made to Morocco ($2
million), both Yemens--$8 million for Aden
and $1 million for Sana,.and Peru ($14 million).
1. The equipment to Peru was Moscow's first
arms agreement anywhere in Latin America
outside of Cuba.
III. The USSR delivered a record $1.8 billion of
military aid to the Third World in 1973,
substantially above the annual average of
$815 million delivered during 1970-72. About
80 percent (some $1.4 billion) of the deliveries
went to Arab countries.
A. Syria received an estimated $700 million,
including 250 jet fighters, 850 tanks, and
large quantities of surface-to-air and
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antitank missile equipment. About two-thirds
of the equipment arrived in the October resupply
effort.
1. During 1973, the Soviets introduced into
Syria the SA-6 surface-to-air missile system,
the SA-7 hand-held surface-to-air missile
system, the Frog-7 tactical surface-to-
surface missile system, the Vanya-class
minesweeper, the BMP infantry combat
vehicle, the 203-mm gun howitzer, and the
KA-25 Hormone helicopter.
B. Egypt received some $450 million of arms in
1973, of which about three-quarters resulted
from the October resupply effort.
1. These deliveries included Cairo's first
Scud surface-to-surface missile system
and BMP infantry combat vehicles.
2. Egypt also received large quantities of
ground forces equipment, including 600
tanks and 250 armored personnel carriers.
C. Moscow shipped an estimated $300 million of arms
to Iraq, including the TU-22s.
SOV MIL AID-3
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1. Deliveries to Iraq--ordered under a 1971
agreement--also included the introduction
of the SU-17 Fitter B fighter-bomber and
MI-6 helicopter, along with continued
supplies of ground forces equipment.
D. Among other significant deliveries were the
first Soviet arms to Bangladesh (18 jet fighters,
3 transports, and several helicopters), $100
million worth of ground forces equipment to
Iran, and $45 rhillion--primarily tanks--to
Afghanistan. India received an estimated $140
million of arms, including over 50 MIG-21s, a
Petya-class escort ship, and. ground forces
equipment.
IV. An estimated 5,600 Soviet military technicians
were employed in Third World countries during 1973,
about 40 percent fewer than in 1972. The decrease
is accounted for by a drop of over 5,000 technicians
in Egypt following Cairo's expulsion order of
July 1972.
A. The number of Soviets stationed in Afghanistan,
India, Iraq, Somalia, Syria, Aden and Sana
increased during 1973.
SOV MIL AID-4
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B. Some of these personnel served as technicians
to deliver, assemble, and service arms. Their
most important function, however, was the
training of local personnel in the operation,
maintenance, and tactical use of equipment.
SOV MIL. AID-5
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15 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
THE SOVIET ECONOMY
I. At first glance, the Soviet economy now appears
in better shape than in recent years.
A. Overall economic growth in 1973 posted a
strong recovery from the poor performance
in 19 72 .
B. An excellent harvest will alleviate for the
time being at least the worst strains on the
regime to improve the diet of the population.
C. A further boost in oil and gas output assured
continued self-sufficiency in energy.
II. The growth of GNP in 1973 came to nearly 7 percent,
compared to the exceptionally low rate of 2 percent
in 1972. An excellent harvest led the comeback.
A. A decline in farm output of 7 percent in the poor
weather year, 1972, was followed by an increase
of nearly 12 percent in 1973. Both above-
average weather and increased supplies of
fertilizer contributed to this surge.
SOV ECON-1
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B. Grain production achieved a record level, 20
million tons over the previous all-time high.
This result, coupled with two years of massive
grain imports from the West, help to fulfill
Brezhnev's promise to put more meat on the
nation's tables.
C. Industrial growth also recovered from the slump
experienced in 1972, aided by the large supplies
of raw materials from the farms.
1. Soviet industry was not affected by an
energy shortage, even though energy goals for
1973 were not achieved.
2. Nevertheless, the chronic industrial problems
of low labor productivity, slow assimilation
of new technology, and delayed completion of
new facilities, persisted.
D. The spurt in GNP still left the goal of over-
taking the US as distant as ever -- the dollar
gap between the national products of the two
countries again expanded, as it has in 8 of the
past 10 years.
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III. We believe that the long-run outlook for the Soviet
economy still has not improved fundamentally. Be-
cause much of the rebound in growth of GNP in
1973 was due to bumper farm output, a better
perspective of current growth potential of GNP
is given by taking the average rate of 4 1/2
percent for the three-year period 1971-73.
A. Soviet leaders have been unable to stimulate
the productivity growth that they desire.
The USSR produces only about half as much as
the US with a labor force 50 percent greater.
1. The reasons are mainly organizational and
political. Inefficient management practices
and a cumbersome planning system hinder
technological progress. Also, Moscow gives
an overriding priority to the quantity of
production, to the neglect of cost and quality.
B. The Soviet regime has shown an unwillingness to
take the distasteful medicine necessary to bring
about fundamental improvement in the operating
efficiency. Instead, recent speeches by the
leadership indicate further minor tinkering with
the system of economic management.
SOV ECON-3
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IV. Soviet foreign trade has continued to grow rapidly
up from $31.5 billion in 1972 to. $39 billion in 1973.
A. Roughly two-thirds of Soviet foreign trade is
with Communist countries.
1. Eastern Europe accounts for about 55 percent
of Soviet trade; the remaining 10 percent
is with Cuba, Yugoslavia, and the Far
Eastern countries.
2. Soviet trade with the Developed West accounts
for 21 percent of the total, and the Less
Developed countries account for the rest.
Trade with the Developed West has increased
rapidly, notably in imports of advanced
equipment and technology, as well as grain.
B. The massive imports of Western grain in 1972 and
1973 was nevertheless unique.
1. The Soviets will have imported about 37 million
tons of grain in U.S. Fiscal Years 1973 and
1974. Almost 25 million tons was purchased from
the U.S.
2. Last year's record harvest, together with
expected imports, should allow the Soviets to
rebuild stocks and export some grain to non-
SOV ECON-4
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Communist countries.
3. Although Soviet grain imports are likely to
drop sharply this year, in the longer run
large quantities of Western grain will still
be needed to support Brezhnev's livestock
program.
C. Soviet exports have lagged consistently behind
imports from the Developed West--which accounts
for most of its hard currency trade.
1. Largely because of grain, in 1972 the USSR
suffered a record hard currency deficit of
$1.4 billion and in 1973 it rose still higher.
2. To help finance these deficits, the USSR sold
about $300 million in gold in 1972 and
perhaps as much as $1 billion in 1973.
3. The USSR also has borrowed heavily to finance
imports; it has an outstanding debt of about
$3.5 billion. The USSR now spends roughly one-
fourth of its hard currency export earnings to
service this debt.
4. The Soviet hard currency deficit probably will
decline in 1974, partly because imports of
agricultural products will fall sharply and
prices for Soviet oil exports will rise.
SOV ECON-5
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15 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
THE CHINESE ECONOMY
I. Amid rumblings of high-level policy debates, China
turned in a good but not-spectacular economic per-
formance in 1973, the third year of the Fourth Five-
Year plan.
A. Agricultural production recovered from 1972 when
poor weather damaged grain and cotton crops.
1. Peking claimed grain production in 1973
surpassed the record 246 million tons
claimed for 1971.
2. In order to compensate for the poor 1972 crops,
the leadership felt constrained to import
8 million tons of grain, compared with the
normal 5 million tons.
3. Contracts already signed will raise grain
imports to 9 or 10 million tons in 1974.
4. The US share in China's grain imports will be
about 5 million tons in 1974, the same as in
1973.
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B. Industrial production rose by a moderate 8 percent in
1973, to judge from Peking's restrained year-.end
claims and apparent bottlenecks in coal, iron ore,
cement, and mining machinery.
1. Additional equipment--provided by foreign
suppliers and China's own domestic machinery
industry--is steadily raising industrial
capacity, output, and technology.
2. The petroleum industry, which already was on
a fast track, is being further speeded up in
order to take advantage of skyrocketing world
prices.
3. Exports of petroleum to Japan were one million
tons in 1973 and probably will expand to 3
to 5 million tons in 1974.
4. China has plenty of petroleum resources to meet
domestic requirements (at China's current
level of industrialization) and to expand
exports.
5. Production of military hardware in both 1972
and 1973 fell roughly 20 percent below the
1970-71 peak.
a. The drop was concentrated largely in aircraft
production.
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b. The reason for the drop is unclear.
Perhaps it may be explained by a policy
decision to modernize the general industrial
base for the long haul and by a wish to
advance weapons technology before making
commitments to full-throttle production of
advanced weapons.
C. Foreign trade jumped to more than $8 billion in 1973
compared with just under $6 billion in 1972. A large
part of the increase resulted from worldwide infla-
tion and currency revaluations.
1. Japan was the leading trade partner, shipping
$1 billion worth of goods (steel products,
machinery, and fertilizer) to China and
receiving back $900 million worth (foodstuffs,
textiles, and oil).
2. China had its usual large earnings of hard
currency. from Hong Kong--$650 million from
provisioning Hong Kong, $250 million from goods
re-exported from Hong Kong, and $200 million
from overseas remittances and profits channeled
through Hong Kong.
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3. These earnings were more than offset by deficits
in trade with the US, Japan, and Western
Europe. Thus China experienced a $500 million
trade. deficit with hard currency countries,
compared with a slight surplus in 1972.
4. Trade with the U.S. expanded enormously to
$800 million as against $90 million in the
previous year.
a. The US shipped $600 million worth of wheat,
corn, cotton, and soybeans to China and
about $140 million worth of aircraft, metal
scrap, and other items.
b. In return the US bought $60 million worth
of Chinese silk, pig bristles, fireworks.,
cotton fabrics, carpets, tin, and antiques.
D. In 1973, China signed contracts with the West for
a record $1.2 billion worth of industrial plants
to be delivered over the next several years.
1. Most of these plants will produce chemical
fertilizers and artificial fibers.
2. In contrast to China's long-standing policy of
avoiding foreign debt (outside of the revolving
charge account for Western grain and fertilizer),
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two-thirds of the cost of these plants
involve deferred payments.
II. China was able to make these important economic
decisions (buying more grain, contracting for Western
industrial plants on a large-scale, and buying on credit)
in spite of unfilled top administrative posts and
intensified political wrangling.
A. The decisions are oriented toward support of the
agricultural sector of the economy and maintenance
of basic consumption standards.
B. Because the new chemical fertilizer and artificial
fiber plants will not come on stream for several
years, China will continue to depend on the out-
side world for sizable quantities of grain.
C. China's new policies are not inconsistent with
Peking's fundamental doctrine of self-sufficiency.
Short-run adjustments are being made in order to
hasten the modernization of the economy and to
insure long-term self-sufficiency.
D. Even though Peking's birth control program has
been pressed vigorously, it has not so far
appreciably affected demographic rates and will
not, for several years at least, affect China's
need for additional food.
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E. Prospects for the remaining two years of the
Fourth Five-Year Plan (1974 and 1975) depend
mainly on favorable weather for agriculture.
and the continuation of a moderate attitude
toward economic organization and incentives.
F. The signing of long-term contracts for wheat and
industrial plants appear to give a continuity
to the present middle-of-the-road policy.
G. Nonetheless, the history of political conflict
in China casts doubt on straight line forecasts
of economic policies based simply on calculations
of economic rationality.
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1 V L V i/ V i ~-~i
16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
EGYPT
I. President Sadat's decision to launch the war in
October has measurably improved his domestic image.
It undercut those who had criticized him for do-
ing nothing either to resolve the Arab-Israeli
situation or to ease economic ills at home.
A. The prospect of a protracted negotiating period,
however, could revive popular discontent over
the no war-no peace situation and over economic
problems.
B. Thus, while Sadat exerts pressures to ensure
that the Arab-Israeli. conflict does not again
stagnate into a new "status quo," he is moving
on the domestic front to head off popular dis-
satisfaction.
II. Sadat is currently reorganizing the cabinet so as
to relieve himself of prime ministerial duties.
A. He intends to turn the job over to Abd al-Aziz
Hijazi, a qualified economist and administrator
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who can prepare the government to deal with
reconstruction and development.
B. Hijazi, the present Economy Minister, was be-
hind last summer's revitalization of a lib-
eralized economic policy.
1. The policy had first been set forth after
Sadat took over the presidency. It is
designed to attract greater private foreign
investment and to ease Egypt away from so-
cialism.
C. Much of the renewed publicity over the pro-
gram, which was interrupted during the war,
is nothing more than rhetoric.
1. Years would be required to build up an
effective reconstruction and development
program in any case, and Cairo's penchant
for excessive red tape will always stand
in the way.
2. Attracting significant private foreign
investment, moreover, requires a relatively
stable military situation. Cairo, of
course, is not about to forswear the
military option in the absence of a final
settlement.
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D. Nonetheless, Sadat seems sincere in wanting
to move in this direction, and a disengage-
ment agreement would permit at least some
preliminary moves.
1. He can expect some public pressure. The
cease-fire could again bring to the sur-
face discontent with rising prices and a
shortage of consumer goods.
2. In addition, Sadat has for some time
felt a self-consciousness about Egypt's
military and technological inferiority
to Israel. Having restored a measure of
military honor, he probably feels that
Egypt should now show that it can achieve
a semblance of equality in other fields.
3. Finally, a disengagement agreement would
provide an opportunity to make a start
toward reopening the Suez Canal and re-
building the canal towns.
III. Although Sadat is in no real danger for domestic
opponents, his position is far from comfortable.
A. Until a final settlement is reached, he must
sustain the momentum of diplomatic progress
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in the negotiations and of economic develop-
ment at home, without foregoing the threat
of renewed war.
B. Simultaneous focusing on both defense and
development will result in many conflict-
ing interests.
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16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
THE FEDAYEEN
I. Fedayeen leaders--as always--are divided on how
to promote Palestinian interests during the
present round of negotiations.
A. Yasir Arafat, chairman of the catch-all Pal-
estine Liberation organization, wants his
organization to represent the Palestinians
at Geneva.
1. All Arab states except Jordan support
the PLO as representative of the Pal-
estinian people.
2. So far, of course, the Palestinians have
not been invited to attend.
3. In addition, Arafat has promised Syria's
President Asad that even if the Palestin-
ians are invited, they will stay away as
long as Syria refuses to participate.
4. Radical fedayeen leaders supported by
Libya and Iraq categorically oppose any
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negotiations with Israel. They are work-
ing to undermine support for Arafat's
more moderate position.
B. The PLO may soon take the less disputed step
of creating a Palestinian government-in-exile.
1. Egypt and Syria have recently urged such
a move, and the Soviets would welcome
it.
2. The establishment of a provisional gov-
ernment would dignify the PLO's claim to
speak for all Palestinians, but it would
not significantly reduce the tensions
among the many fedayeen groups.
3. Leaders of those groups will remain
divided, particularly on whether to an-
nounce a willingness to accept a Palestin-
ian state. Moderate Palestinian leaders
are increasingly inclined to accept a
limited Palestine that would consist of
the Israeli-occupied West Bank and Gaza,
and coexist with Israel.
II. Radical fedayeen elements are planning terrorist
operations to disrupt the Geneva conference, and
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in a few cases to strike directly at Secretary
Kissinger.
A. Leaders of the major fedayeen organizations
are trying to prevent such attacks, but can-
not effectively control dissident members or
terrorists who operate independently.
B. Libya and Iraq oppose the peace negotiations
and may be providing operational support for
these terrorists.
Last year, however, the Libyans
did give SA-7s to Black September in the
hope of avenging the downing by Israel of
a 'Libyan "airliner over 'Sinai.
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1.7 January 1974
BACKUP FOR'DCI CONGRESSIONAL BRIEFING
ECONOMIC PROBLEMS IN THE EUROPEAN COMMUNITY
~. Following a year 9f rapid economic growth, the
European Community faces a sharp slowdown in 1974.
A. In one of the postwar period's strongest
consumer-led booms, output in the EC surged
by 6 percent in 1973.
B. In 1974, a long-expected slackening of economic
activity will be aggravated by a $33 billion
rise in oil import payments. Growth rates in
virtually all countries will plunge.
C. A slowing of growth became evident even in the
second half of 1973 as most EC governments
tightened economic policy to curtail inflation.
1. Spurred by sharp increases in world
commodity prices and by large wage boosts,
consumer prices in the EC soared 8 percent
last year.
2. Many EC countries tightened credit and some
implemented price or wage controls.'
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i. V1 VL/~I1 ~.L 1
D. Spiraling oil prices will result in a sharp
contraction in consumer demand unless offset by
expansionary fiscal policies, and these almost
certainly would aggravate already severe inflation.
II. Varying degrees of pessimism characterize the 1974
outlook in each major West European country.
A. The outlook is bleakest in the United Kingdom.
A coal shortage stemming from a union-government
deadlock over wage demands will result in no
growth at best.
B. West Germany, will show little, if any, growth.
The economy was already slowing down last fall.
1. The government has selectively eased fiscal
restraints to stimulate investment and home-
building, but is maintaining tight money to
combat inflation.
2. Anticipating a rise in unemployment, it has
banned the further entry of foreign laborers.
This ban will hurt countries--such as Turkey,
Yugoslavia, and Spain--that supply large
numbers of workers to Germany.
C. Higher oil costs. will tend to contract France's
economy less than those of the other major EC
countries. France enters the new year with low
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inventories and high levels of investment.
D. Italy, just recuperating from its longest and
most-severe postwar recession, will find its
recovery aborted and its trade deficit sharply
worsened.
III. Trade and balance-of-payments problems will continue
to plague many EC countries this year.
A. The increased price of oil will result in
sharp deterioration of the countries' current
accounts.
B. As the dollar strengthens, the foreign exchange
cost of oil to'the EC countries will rise still
more, because most oil contracts stipulate pay-
ment in dollars.
C. Serious balance-of-payments problems will encour-
age the UK, France, and Italy to pursue beggar-
thy-neighbor policies.
IV. Most EC governments thus are faced with problems that call
for conflicting policy moves.
A. They must seek to stimulate their economies to
counteract the decline in demand while trying to
offset the inflationary impact of soaring oil costs.
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B. Their reluctance to use expansionary fiscal and
monetary policies out of copcern for the inflationary
effects may encourage attempts to shift the
deflationary impact to other countries through
exchange rate changes.
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.L vi L)i JJ %.J t
16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
EUROPEAN DEFENSE COOPERATION
1. The issue of future European defense cooperation
has recently been the topic of much discussion
among the West Europeans.
A. The French--who have been reluctant to coop-
erate with their neighbors--have recently sug-
gested that increased cooperation should be
considered now.
1. Foreign Minister Jobert, for example,
says that the seven-nation Western Euro-
pean Union might serve as forum for dis-
cussion of European defense.
B. The advent of MBFR negotiations forced the
Europeans to consider whether an MBFR agree-
ment would reduce the chances for eventually
creating a common defense organization.
1. The Europeans wish to deny the Soviet
Union any influence in Western defense
efforts.
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1 vt vJ ,vim ? 1.
2. They have emphasized that any MBFR agree-
ments must not restrict their future de-
fense options.
II. None of the West European governments has a firm
blueprint for defense cooperation. They have
different perceptions of what a common organiza-
tion and a common policy should be.
A. The Europeans do, however, share some views.
1. They accept the need for closer coopera-
tion as a way of reducing their individual
defense expenditures.
2. They see are eventual defense organization
as a natural consequence of the move to-
ward a European political union.
3. They realize that Europe ultimately will
have to shoulder a larger share of the
Atlantic defense burden.
B, Differences arise on the link to NATO. Most
prefer that a future European defense organ-
ization be tied to NATO.
1. They believe their military security is
guaranteed only by the existence of the
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Atlantic Alliance and the U.S. nuclear
umbrella.
2. They prefer to use the "Eurogroup" caucus
within NATO as a starting point.
C. France has different views.
1. Paris is suspicious that the U.S. will
no longer put the interest of the Atlantic
Alliance ahead of Washington's bilateral
relations with Moscow.
2. Paris therefore desires that a European
defense organization be only loosely
linked with NATO, although it would con-
tinue to rely ultimately on the US deter-
rent. France's preference for the West-
ern European Union over the Eurogroup re-
flects that purpose.
III. Movement toward a European defense community will
not proceed past the talking stage for some time.
A. The French have not really sorted out all their
ideas.
B. British Prime Minister Heath recently stated
that a truly effective common defense organi-
zation cannot be created until there is a
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common European foreign policy.
1. This day is still well in the future,
for progress in that direction has
been slow.
C. Nuclear weapons also pose a problem. A com-
mon defense organization will be effective
only if the West Germans are given a voice
in deciding on their use.
1. There is still great reluctance on the
part of the British and French to give
Bonn that voice.
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16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
THAILAND
I. Prime Minister Sanya's new civilian government
has pursued a slow but steady course toward con-
stitutional government since the student uprising
ousted the Thanom-Praphat military regime last
October.
A. A constitutional drafting committee was quickly
formed, and the government apparently intends
to live up to promises of early promulgation.
B. The King's appointment last month of a broadly
based interim assembly promises to broaden
popular participation in the emerging civil-
ian political system.
II. The King's unprecedented emergence into the politi-
cal arena, is a salient feature of the new situation.
A. He has brought his immense prestige to bear
in guiding Thailand toward a more democratic
system of government.
B. The King's initiative gives needed backbone
THAI-1
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to the still somewhat timorous civilian ad-
ministration.
III. The military appears resigned to a diminished
role.
A. It has shown a willingness to give the new
government time to prove itself.
B. It showed forbearance during a period of
serious labor strife in November and December.
IV. Renewed student agitation could complicate progress
toward restoring constitutional government.
A. The CIA letter episode and the visit of Japanese
Prime Minister Tanaka prompted unruly demon-
strations.
B. Mindful of the students' role in bringing it
into office, the government has felt con-
strained to let them have their say. Prime
Minister Sanya has consented to hear demands
for an official protest to the US.
C. The government is trying to vent pressure on
the issue, however, by reminding the public
of the value of US assistance.
V. Preoccupied with domestic problems, Bangkok has
limited its foreign policy initiatives to the
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resumption of a dialogue with China.
A. The Thai deputy foreign minister visited Pe-
king in December, and secured agreement to
expand trade and cultural contacts.
B. Bangkok is heartened by a friendly Chinese
attitude, but still seems inclined to defer
diplomatic relations.
THAI-3
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16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
THE PHILIPPINES
I. President Marcos has faced no serious political
challenges during the first 15 months of martial
law. The lack of an established succession pro-
cedure could lead to political instability in
the future.
A. Traditional opposition groups---students, Com-
munists, party politicians--have been thrown
off balance and have been unable to organize
any significant action against Marcos.
II. Marcos' major preoccupations are economic.
A. Social discontent in urban areas is exacerbated
by inflation, food shortages and unemployment.
PHIL-1
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B. The Philippines need increased foreign in-
vestment for development. Investors are
attracted by the greater stability under
martial law, but international economic
conditions may preclude major new commit-
ments for some time.
C. Marcos has redistributed some land, but has
not yet assured that the new landowners have
ready access to the credit, irrigation and
marketing facilities.
D. Rising world prices for Philippines agricul-
tural exports have boosted foreign exchange
reserves, but skyrocketing costs for oil
imports could soon change this.
III. One of Marcos' greatest domestic problems has been
coping with the Muslim rebellion in the southern
Philippines that broke out after martial law was
declared.
A. Government efforts at compromise have helped
damp it down, but his programs have done lit-
tle to alleviate the basic economic and social
tensions that underlie the dissidence. Fight-
ing could erupt again at any time.
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B. The small Maoist-oriented Communist insur-
gency in Luzon has been generally inactive.
Leaders are concentrating on organization
and cadre building.
IV. In foreign policy, problems with Philippine Mus-
lims and the oil crisis caused Marcos to court
closer relations with Arab states and to aban-
don Manila's formerly neutral stance on the
Middle East.
A. Desire for new markets and sources of tech-
nical assistance resulted in expanded con-
tacts with Communist states. Marcos is still
reluctant to establish formal diplomatic ties
with Moscow or Peking.
PHIL-3
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16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
INDONESIA
I. For the past six years, the Suharto regime has
provided a new measure of political stability
and has opened the way for economic development.
President Suharto remains in firm control.
A. Recent signs suggest there is trouble brew-
ing beneath the surface, however. Suharto
is now facing new challenges from student
activists.
1. The students are acting as self-appointed
spokesmen for emerging public discontent
over economic inequities and foreign eco-
nomic influence--particularly that of
Japanese businessmen, as shown in last
week's riots during Tanaka's visit.
B. Jakarta's first Five Year Development Plan,
which ends in April, has brought marked im-
provements in exports and foreign exchange,
but has had less impact on the quality of
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life of the average Indonesian.
1. Rice shortages continue, despite long-
standing programs to achieve self-suf-
ficiency.
2. Suharto has announced that the Second
Five Year Development Plan will pay
greater heed to the economic and so-
cial requirements of the Indonesia peo-
ple and also that it will depend less
on foreign capital.
III. Indonesia seeks a greater leadership role among
Third World countries, particularly those of Asia.
A. Jakarta is providing troops for the ICCS in
Vietnam and the UN peacekeeping force in the
Middle East.
B. Indonesian officials have taken the lead in
urging greater regional cooperation and prob-
lem-solving among Southeast Asian states and
have tried to mediate disputes between rival
neighbors.
C. Indonesia is wary of the extension of Chinese
influence into Southeast Asia. Indonesia lead-
ers have consistently pressed neighboring states
INDO-2
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to go slow in establishing formal relations
with Peking.
D. Jakarta wants to establish itself as the
focal point for regional security. It has
concluded bilateral agreements with Australia,
among others, for intelligence exchange and
joint military training. It looks to Aus-
tralia and New Zealand for military and eco-
nomic assistance.
INDO-3
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16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
JAPAN
I. In recent months, the problems associated with
oil supply and prices have dominated Tokyo's
approach to foreign affairs.
A. Most strikingly, Japan has come out in
support of the Arab diplomatic position.
1. The subsequent Arab designation of
Japan as a "friendly" country has eased
pressures for additional political or
economic moves against Israel.
2. Tokyo is stepping up its economic involve-
ment in the Middle East, offering increased
aid, technical assistance, and investment.
B. The deterioration of Japan's foreign reserve
position is spurring a rethinking of foreign
economic relations generally.
1. Foreign aid will probably be reduced in
1974. Nations unable to supply critical
raw materials to Japan will suffer the
most.
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Ii. Strains of the past few months have made Japanese
opinion more critical of the US.
A. Japan views the initial Arab cutbacks in its
oil supplies as a price paid for its close
identification with US foreign policies.
1. Some Japanese consider Washington un-
sympathetic to their country's present
economic difficulties.
2. They also resent past US pressures for
trade liberalization that, in hindsight,
may have proven harmful to Tokyo's interests.
:B. Japan, nonetheless, still views the US as a
highly desirable ally.
1. The Mutual Security Treaty remains a key
element of Tokyo's foreign policy and
defense planning.
III. Tokyo has had mixed success in improving ties
with its two major Communist neighbors.
A. Prime Minister Tanaka's summit meeting with
Brezhnev last October resolved none of the
outstanding Soviet-Japanese problems.
1. Signing of a peace treaty is blocked by
Soviet refusal to return several small
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northern islands claimed by Japan.
2. Soviet failure to provide adequate infor-
mation and guarantees has hampered progress
toward Japanese participation in developing
Siberian oil and natural gas resources.
B. The tone of Sino-Japanese relations is more
positive, despite Tokyo's unwillingness to
jeopardize its economic and political links
to Taiwan.
1. Negotiations on various Sino-Japanese
commercial agreements seem to have moved
off dead-center, and trade has doubled
since normalization of relations in late
1972.
IV. Inflation, by far the outstanding problem in
Japanese domestic politics, is causing growing
public dissatisfaction with the Tanaka Cabinet.
A. As a result, the ruling Liberal Democratic
Party could lose some critical seats in the
Diet this summer. It will not, however, lose
control of the government.
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P. The need to control inflation is forcing
shifts in domestic priorities.
1. Public works projects will be cut back,
slowing the campaign to clean up the
environment.
2. Foreign military procurement and domestic
weapons production programs for the
Japanese forces will also be cut back.
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16 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
KOREA
1. Growing demand for basic political reform has
prompted President Pak Chong-hui to set aside
efforts to mollify his critics and instead to
adopt harsh measures. 'A serious political
confrontation could result.
A. On January 8 Pak issued decrees making further
criticism of his regime punishable by court-
martial and imprisonment. He used the same
sort of controls to repress opposition in
1971 and 1972.
1. Pak wants to shatter the protest movement
before universities reopen for the spring
semester and provide a volatile mass base
for the opposition.
2. He clearly intends to follow through with
his threats, but he is not insensitive to
the need for some restraint.
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B. Opposition groups are worried, but seem
determined to continue pressing for political
liberalization.
1. Outspoken politicians are so far seeking
legal means to challenge Pak.
2. Militant Christians, students and intellec-
tuals seem ready to resume their campaign.
Ii. Pak claims that tight control and stability at
home are essential for progress in riegotiatioris with
the North Korean regime.
A. He plans to propose a non-aggression pact
with the North this month to convince the
domestic audience that North-South talks are
moving forward.
B. Pyongyang will not regard Pak's proposal as
a significant modification of Seoul's earlier
positions. It has no desire to provide a
breakthrough in the dialogue that would ease
his domestic position.
1. The North may nevertheless see the offer,
as a way to open discussion of issues it
has sought--such as a Korean peace treaty,
withdrawal of US forces from the South,
termination of the UN Command, and mutual
force reductions.
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III. A complicated territorial dispute has meanwhile
developed off the west coast not far from Inchon.
A. Since late October, North Korean vessels have
established a patrol pattern south of the so-
called Northern Limit Line in the Yellow Sea.
1. This line was established unilaterally by
the UN Command in the early 1960s to
restrain South Korean fishing boats from
Northern waters. Until October, North
Korea had generally refrained from sending
naval units south of the line.
2. Several times in recent months, North
Korean vessels have penetrated within
the three-mile-limit of some of the five
South Korean island groups lying just south
of the line.
B. North Korea set forth its position at the
Armistice Committee meeting at Panmunjom on
December 1.
1. Pyongyang claimed that the seas surrounding
these islands as were within the 12-mile
limit of its territorial waters.
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2. It accused the South Korean navy of
persistently penetrating these waters,
and demanded that Seoul obtain Northern
approval even to send civilian resupply
ships to the islands.
C. Despite its challenge, Pyongyang apparently
does not wish to risk a serious military
incident at this time.
1. It has continued to permit South Korean
vessels to transit the waters to the
island without interference.
2. In recent weeks, it has nevertheless
moved two of its OSA-class Guided
Missile patrol boats and several
additional torpedo boats to the vicinity
of the islands.
D. Northern objectives appear more political than
military.
1. The 1953 Armistice placed themselves under
control of the UN Command. By claiming the
surrounding seas, Pyongyang may be laying
the groundwork for raising the ownership
status of these islands, if the UN Command
should be phased out..
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2. The North may also hope to reopen the
broader question of the future of the
Command--a discussion deferred by mutual
agreement at the UN General Assembly
meeting last fall.
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15 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
ARGENTINA
I. President Juan Peron's government is preoccupied
with the upsurge of terrorism, particularly the
kidnaping of foreign businessmen.
A. Peron and his advisers are increasingly
alarmed over the impact of terrorism on e
forts to revive Argentina's long-stagnant
economy. The image of instability
have discouraged
potential investors and prompted some com-
panies to move their executives out of the
country.
B. To combat terrorism, Peron is pressing for
legislation that would augment police powers
and stiffen penalties for criminal actions.
Peron also reportedly favors using extra-
legal force against extremists.
C. The wave of abductions have been largely the
work of the Marxist group called the People's
Revolutionary Army. It has been emboldened
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by success and shows no inclination to slacken
its drive to undermine the "bourgeois" Peron
government.
II. At the same time, deep rifts in Peron's own dis-
parate movement show no signs of healing.
A. Peron's crackdown on leftists and his shift
to the right have intensified the level of
struggle between old guard labor leaders and
the movement's radical youth and labor wings.
B. The focal point has shifted to the major in-
terior city of Cordoba, where labor dissension
threatens a showdown.
1. Grave disorders in Cordoba would challenge
his ability to maintain at least a semblance
of unity in his movement.
we think it likely that
his wife, who is vice president, would suc-
ceed him, at least for a while.
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21 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
BRAZIL
I. President Medici's military-based regime seeks
primarily to maintain rapid economic develop-
ment and to protect national security. On March
15 Medici will be succeeded by Ernesto Geisel, a
retired four star army general.
A. An aggressive security campaign has severely
hit the urban terrorists that were active in
the late 1960s. Today, Terrorist groups are
badly disorganized.
B. Other opposition elements, including sectors
of urban labor, students, and church liberals,
as well as the token opposition political
party, generally doubt they can significantly
affect government policy and usually are
apathetic.
C. While Geisel is not likely to follow drasti-
cally different policies, he may stress economic
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nationalism somewhat more than Medici has
done.
II. The administration's stress on economic develop-
ment has brought notable results.
A. In each of the last four years, the economy
has grown by 8 to 11 percent, and inflation
has been cut to about 15 percent.
1. However, the Medici administration failed
to reduce the cost of living increase in
1973 to its stated goal of 12 percent,
and inflation, especially in the price
of staple foods, is causing renewed concern.
B. Brazil's concern about instability in Argen-
tina has led to an extensive campaign to
strengthen ties with Chile, Uruguay, and sev-
eral other Latin American nations. It is
also promoting links with others in the de-
veloping world, especially in the Middle East
and Africa.
1. Brazilian leaders see their country as
a potential spokesman for the developing
nations which might deal with the indus-
tralized world as a near equal.
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15 January 1974
I. Opponents of the junta recently have carried out
several acts of sabotage. They have been less
successful in attacks on government installations
and security forces, however.
A. The left is not yet ready to launch a con-
certed guerrilla/terrorist campaign. Even the
most violence-prone groups are moving cautiously.
1. Carlos Altamirano, Socialist Party leader
and number one on the junta's "most wanted"
list, recently surfaced in Havana. He
said that for now "adventurous terrorist
operations" would be counterproductive.
2. Opposition leaders do not have effective
control over all leftist hotheads, however,
and sporadic attacks are likely to continue.
3. It is impossible to tell what percentage of
illegal arms introduced during the Allende
government has been seized by security
forces. We believe that much weaponry
remains outstanding.
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II. The armed forces continue to exercise stringent
security precautions.
A. These include curfews, raids in search of
weapons caches and fugitives, arrests,
vehicle checkpoints, and sea and air patrols.
III. Disagreements:over policy matters and personal
rivalries have sparked some controversy within
the regime.
A. Some officers reportedly suspect that aspects
of the economic recovery program are geared
to benefit the personal interests of the
regime's civilian advisers.
B. There is also a minority feeling that more of
an effort should be made to win over supporters
of the defunct Allende government.
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C. There has apparently been some disagreement
over rotation of the presidency among the
junta members. Recent remarks by Army Commander
Pinochet indicate that he does not now contemplate
rotation of the presidency, which he holds.
D. There is a trend toward filling sub-cabinet
positions with military officers, often
members of the same service as the head of
the ministry. The emergence of ministries
dominated by individual armed services will
tend to increase inter-service rivalries and
could impede efficiency. The continuing
militarization of the bureaucracy will also
strain the armed forces' manpower resources.
IV. The junta has a number of economic achievements
to its credit.
A. Copper production and exports have been increased
to pre-Allende levels and, with the help of high
world copper prices, Chile's trade deficit was
cut by about 40 percent during 1973. Copper
production and exports should reach record high
levels this year.
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B. Foreign credits have been obtained to pay for
food that must be imported until domestic
agricultural production revives. Agricultural
production should increase appreciably in the
1974-75 crop year.
C. A debt refinancing agreement has been reached
with the US, and the groundwork has been laid
for direct talks between Chile and U.S. copper
companies nationalized under Allende.
D. Chile now has an economic recovery plan that
should help insure the success of an upcoming
round of talks with the "Paris Club" of its
creditors.
E. The abandonment of strict price controls has
meant staggering price increases, however, and
wage and salary earners are being severely
squeezed.
1. Food prices have risen 200 to 400 percent
since the coup. Some individual items
have gone even higher.
2. Unemployment has increased substantially
with the removal of the underemployed and
politically suspect from the public payroll.
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3. The government plans to try to hold the
cost of living increase to 100 percent this
year. An additional wage increase probably
will be forthcoming at midyear and an
unemployment compensation program has been
announced.
V. The centenary in 1979 of the War of the Pacific, in
which Chile defeated Peru, already is heightening
Chilean apprehension that Peru may seek revenge.
A. Chileans are well aware that Peruvian military
doctrine calls for national honor to be redeemed
before the passing of a century by recovering
the lost southern provinces.
B. Chilean military men, who view the ouster of
Allende as ending a period of national decline,
fear that Peru could decide to strike a long-
planned blow before Chile can recover and
rearm. They also see Peru as the potential
center of Moscow- and Havana-inspired subversion
against their stridently anti-Communist regime.
1. We see no evidence now that Peru in fact is
preparing to attack Chile, but in the
atmosphere of mutual suspicion that tradi-
tionally has marred relations among Peru,
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Ecuador, and Chile, shooting incidents
could occur and tensions could grow
rapidly.
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15 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
CUBA
I. The Castro government is beginning its 16th year
in power in the midst of a major restructuring
of its party and government bureaucracies. This
process was begun in 1970 at least partly as a
result of Soviet pressure.
A. The Cuban Communist Party has been undergoing
a reorganization to increase, its influence
in the formulation and execution of the
regime's policies.
B. The sweeping reorganization of the upper
levels of government in November 1972
freed the top leaders from active involve-
ment in routine matters, and enabled them
to concentrate on long-range policy for-
mulation.
C. These changes are primarily designed to
reduce the economic stagnation and admin-
istrative chaos caused by the Castro regime's
spontaneous style of decision-making.
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II. Cuba is expanding its ties with other Latin
American governments. At the same time, Cuban
involvement in subversive activities is at an
all-time low.
A. Cuba now has diplomatic relations with
Argentina, Mexico, Peru, Guyana, Jamaica,
Barbados, and Trinidad.
B. Venezuela, Honduras, and Panama are trading
with Cuba but formal relations do not appear
imminent.
C. Last fall Cuba's national airline inaugurated
a new air route linking Havana to Barbados,
Trinidad, and Guyana.
III. Relations with the USSR reflect Cuba's almost
complete dependence on Soviet military and
economic support.
A. There are some signs that Castro is not
entirely happy with the situation, but he
knows his options are limited.
B. His primary concern is that the Soviet
policy of detente may lead to a compromise
of Cuba's own interests.
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15 January 1974
BACKUP FOR DCI CONGRESSIONAL BRIEFING
MEXICO
I. Conservative criticism of the government for not
stemming guerrilla violence was the first seri-
ous public attack on Echeverria's rule.
A. It was triggered by the murder last fall of
a Monterrey millionaire in a kidnap attempt
that was thwarted.
1. Other incidents of extreme leftist and
Communist violence had already outraged
a broad segment of the conservative es-
tablishment.
2. The critics blamed the government because
of its alleged hostility toward business
and leniency toward foreign and domestic
extremists.
3. The administration's impassioned response
to Allende's downfall in Chile at the
time of the Monterrey murder, following
its previous support for the Allende gov-
ernment, also came under fire.
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B. The wave of criticism apparently was a key
factor in forcing Echeverria to modify his
policy of meeting all the demands of ter-
rorist kidnapers.
1. Since then, the government also has moved
against politically inspired crime by ar-
resting several guerrilla leaders.
C. To subdue the criticism from the businessmen,
the government has courted them with rhetoric,
but has taken few concrete steps to appease
them. Another terrorist incident directed at
them could revive the vitriol.
II. Mexico's biggest long-term problems are economic:
the great inequities in the distribution of wealth,
rural underdevelopment, high unemployment, and a
dangerously high rate of population growth.
A. In addressing these problems, Echeverria has
established a climate of vigorous, activist
leadership.
1. In some cases where the goals are clear-
cut and the resources and incentives avail-
able, he has made some promising beginnings.
B. Most serious is Mexico's rapid population
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growth--a 3.5 percent annual increase in re-
cent years.
1. Thus the absolute numbers in many under-
privileged categories have increased,
despite the country's overall welfare
and prosperity gains.
2. There are more landless peasants, more
illiterates, and probably more unemployed
now than ten years ago.
3. The government has been recently moving--
but cautiously--to promote family planning.
C. Closely related is the maldistribution of in-
come and underdevelopment of impoverished rural
areas.
1. Over half of Mexico's 52 million people
are locked into poverty.
2. The emphasis of government policy has been
on modernization and rapid industrial de-
velopment, rather than on social welfare.
3. The poor are still quiescent, but Echever-
ria fears that in time the sheer magnitude
of the problem will create an avalanche of
pressure against constituted authority.
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III. Relations with the United States.
A. The foreign investment laws provide for closer
scrutiny of new investment proposals, majority
Mexican control over new enterprises, and gov-
ernment review of contracts involving the im-
port of technology.
B. The settlement of the salinity issue last year
provided major benefits to Mexico and substan-
tial financial concessions on our part.
1. The settlement calls for the construction
of a large water desalting plant, the lining
with concrete of a canal on the U.S. side
of the border, and the building and lining
of another canal in Mexico to carry salt-
laden drainage to the Gulf of California.
C. The Mexican government now regards the problem
of illegal Mexican immigration into the U.S. as
its most pressing bilateral issue with us, even
though Echeverria realizes that the only long-
term correction is bringing Mexico's standard
of living closer to that in the U.S.
1. His foreign minister is pressing for a
quicker solution of this emotional problem.
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He is urging another "bracero" program
to allow migrants to cross the border
legally for seasonal work.
D. The Echeverria government has agreed to co-
operate fully with the U.S. effort against
the drug traffic.
1. It has committed considerable resources
to support the commitment.
2. Pervasive corruption and venality in Mexico
inhibit the campaign, however. The poten-
tial profits to traffickers remain enticing.
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17 January 1974
BACK-UP FOR DCI CONGRESSIONAL BRIEFING
PERU
I. President Velasco's five-year--old military government
retains its leftist-nationalistic character--and with
Allende gone, is the most radical regime in Latin
America. Coming policy decisions and personnel changes
will complicate attempts to tread a path that is
"neither capitalist nor communist."
A. Contention could arise over the succession to
Velasco.
2. Prime Minister Mercado retires at,the end of
this year. To succeed him, Velasco has tabbed
General Morales-Bermudez, a respected economist
and a moderate.
3. The more radical officers do not welcome the
possibility that Morales might later move up
to the presidency.
B. Labor problems and inflation are likely to prove
troublesome.
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1. Radical, anti-government leftists still control
the mining and teachers' unions and costly
strikes this year are a distinct possibility.
2. Any popular support arising out of the takeover
of the US-owned Cerro de Pasco Corporation on
January 1 may dissipate.
C. The pro-Soviet Communist Party continues to support
the regime, but might well resist a possible govern-
ment move to form a single political party--incor-
porating the communists.
II. Peruvian leaders feel surrounded by unsympathetic regimes.
A. Velasco probably shares with many other Peruvian
officers a distrust of the Chilean junta.
1. Animosity between Chile and Peru dates back at
least to 1879, however, when Chile took over a
small area of southern Peru. Military education
in Peru hammers away at the necessity to "redeem"
the country's lost honor.
2. Peru has always feared a preemptive strike by a
stronger Chile; Lima's current arms procurement
drive can be traced partially to this fear.
feel that Chile 25X1
might consider moving against Peru to detract
from that country's pressing economic problems.
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B. Peruvian strategic plans also contemplate possible
hostile actions by Ecuador or Brazil.
1. Peruvian leaders fear that their neighbors have
designs on mineral deposits--primarily oil--
in the Amazon basin in the remote northeast.
C. Velasco's proposal that Peru and its neighbors
engage in arms limitation talks probably was a
hollow gesture to appear as a peacemaker after
accepting delivery in November of a shipment of
Soviet medium tanks.
III. Peru's military leaders in fact seem determined to expand
and modernize the armed forces.
A. The Soviet Union is likely to remain a competitive
supplier. Moscow reportedly has offered Peru
further equipment.
1. The Peruvians have shown interest, in obtaining
130-mm artillery pieces and MIG 21s and the
Embassy in Lima believes they may also seek
SAM-7 missiles.
B. Logistical and supply problems, as well as lingering
distrust of Soviet technicians, however, probably
will inhibit a rapid increase in purchases from
Moscow.
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C. Despite the desire of some leaders to turn increasingly
to the Communist countries for support, others seek
a further reconciliation with Washington.
1. As in the past, Velasco probably will continue
to pursue a combination of these two options.
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