NATIONAL INTELLIGENCE DAILY

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 0005301307
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 29
• Document Creation Date: June 22, 2015
• Document Release Date: September 9, 2009
• Case Number: F-2007-00571
• Publication Date: July 25, 1990

APPROVED FOR
RELEASE DATE:
01 -Sep-2009
NATIONAL
INTELLIGENCE
DAILY
Wednesday, 25 July 1990
Tope
CPAS NID 40-1 72JX
(b)(1)
(b)(3)
 USSR: Problems Housing Returning Forces
USSR-Hungary: Soviets May Repudiate 1956 Invasion
Germany-USSR: Relations in the Postunification Era 14
 To-nsz~~
 Toa
Kuwait has reduced the alert level of its military forces, and
believes Iraq is only bluffing. The Kuwaitis
probably are mistaken; Iraqi propaganda is attacking the US for
exercises with the UAE while additional Iraqi troops, equipment, and
supplies continue to pour into the Al Basrah region.
Kuwait apparently is trying to reduce tension with Iraq by engaging
Egypt to mediate. The Kuwaiti strategy is to defuse the situation
through consultations and mediation until the OPEC meeting in
Geneva tomorrow,
The Kuwaiti press is
playing up Egyptian President Mubarak's visits to Baghdad, Kuwait,
and Saudi Arabia yesterday and stressing Kuwait's interest in easing
tension. The ruling family has avoided directly criticizing Iraqi press
attacks on Foreign Minister Sabah, one of its members.
In a memo to the Arab League yesterday, Iraqi Foreign Minister Aziz
repeated accusations that Kuwait took advantage of Iraq's distraction
during the war with Iran to encroach on Iraqi territory. Iraqi Deputy
Prime Minister Hammadi complained of Kuwaiti intransigence on
the longstanding border dispute, and the Iraqi press denounced the
UAE for conducting military exercises with the US.
Comment: Despite the massive Iraqi troop movements, Kuwait does
not appear to he making major preparations to stop an invasion.
Kuwait hopes restating its intention to abide by its quota at the
OPEC meeting will shore up support among moderate Arab states.
Kuwait's rulers probably would provide Iraq reconstruction aid in
 To~enet.
 a multilateral framework but will strongly resist giving Baghdad
unilateral aid in the near future. They have experienced isolated
military strikes against northern Kuwait in the past and probably
would not retaliate for one now, but their resolve not to bow to Iraqi
pressure probably would harden.
Iraq probably is not bluffing; to accept less than satisfaction of its
demands for reduced oil production and cash in the form of an Arab
reconstruction fund would be a humiliating retreat. The stridency of
Iraq's rhetoric and the cost of maintaining such a large military force
along the Kuwaiti border also suggest Saddam Husayn will not wait
long for a favorable response. Unless Kuwait moves to meet Iraq's
demands quickly, Saddam is likely to turn up the pressure.
These apparently opposite courses increase prospects for a military
clash. An initial Iraqi military move against Kuwait is likely to be a
limited operation to increase the pressure on Kuwait to accede to
Baghdad's demands. The force Iraq is building along the Kuwaiti
border, however, will be able to carry out any military operation
 Military Situation, Late July 1990
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USAID
Johnson and Taylor Forces Unlikely To Reconcile
There is little chance rebel leaders Taylor and Johnson will
cooperate to defeat President Doe, even though it would be
to their advantage. Their rivalry probably began last
December when Johnson led a group of rebels into Nimba
County, while Taylor stayed behind in Burkina. They had
a falling out soon after, and Johnson, with several hundred
fellow Gios, broke away from the main group. His group
subsequently worked its way toward the capital, battling
Taylor's troops in key towns. Although Taylor reportedly
has tried to reconcile with Johnson, the latter apparently
believes-probably unrealistically-he can defeat Doe and
then deal with Taylor's forces, which are larger and better
supplied.
one
 LIBERIA: Fighting Subsides Temporarily
The rebels withdrew from downtown Monrovia yesterday, probably to
regroup, as the government continued to fan anti-US sentiment.?
Sporadic shooting continued in Monrovia yesterday
but there were no reports of rebels in the downtown area or
changes in military positions. Bushrod Island was calm; the bridges
there leading downtown are under rebel control. Evidence is
mounting that rebel forces on the island are those of Prince Johnson,
1but there are no accurate estimates of his troo
Monrovians continued to leave town, to safety behind rebel lines, but
many still are seeking refuge within the city. The number of displaced
persons at the US-leased housing compound across from the Embassy
has risen to 5,000. Thirty to 40 others managed to enter the Embassy
grounds yesterday but were persuaded to leave
An official spokesman to d
reporters the US military may have shelled the Executive Mansion,
claiming shell fragments found on the grounds following an alleged
naval attack "looked" as if they came from a US submarine.
Comment: The attack Monday on downtown Monrovia may be a
continuation of rebel leader Charles Taylor's hit-and-run strategy:
Johnson's followers crossed over from Bushrod, battled army troops
If the rebels were from Johnson's relatively small faction-strength
estimates range from 200 to 700-they may lack the munitions and
men required to sustain an assault on the capital. Their success so far
probably stems from the fact that they attacked from the lightly
guarded northern approach to the city that Taylor's forces had
abandoned under international pressure to leave open the road to
Sierra Leone. Taylor's troops, by contrast, have been forced to try to
fight their way past heavily defended army posts, such as Camps
Schieffelin and Ramrod at the southern entrance to the capital
Monrovians are increasingly likely to seek safehavens in the city as
the fighting heats up, making it unsafe to try to leave. Large numbers
are likely to stream into diplomatic compounds, particularly those
that have been evacuated and probably only lightly guarded such as
the British and Japanese Embassies
Top
 p
OD
 called for a crash program to house Soviet personnel and .families
returning from Eastern Europe.
A delegation of Committee members recently toured Soviet facilities
in four East European countries as well as garrisons of returning
troops. The inspection reinforced the Committee's longstanding
concern that the housing problem is too large and complex for the
Ministry of Defense (MOD) to handle. The Committee has asked the
Council of Ministers to designate the housing program a national task
to be funded by a special appropriation.
The issue is attracting increasing attention in the Soviet press,
including coverage of speeches by military delegates and political
leaders at the recent CPSU and Russian Republic party congresses.
Defense Minister Yazov this month told a reporter that housing is the
number-one issue in the military districts where returnees are being
stationed; he said the MOD plans to build 77 apartment blocks, eight
barracks, and 156 prefabricated dormitories this year.
Comment: The MOD has struggled to fund the facilities, but resource
constraints, bureaucratic snafus, and lack of raw materials have left it
lagging far behind demand. Some 25,000 families will need housing
over the next year, and the numbers will grow as troops come home
from Germany and Poland.
The heightened attention politicians are giving this issue shows
it appeals to traditionalist supporters of the military and to reform-
minded politicians who hope to garner support among junior and
midlevel officers. The government probably is also concerned that the
housing shortage is contributing to declining military morale-
already evident on a range of issues.
 Torsrer-OL
7-orsr"4
 M
Imports and Exports
Billion US$
75
I I I I I I I I I I I
0 1980 81 82 83 84 85 86 87 88 89 90
' Projected.
Source: Official Customs statistics.
 7rorsmwoL
Rapid export growth and tough import controls gave China a record
$2.6 billion trade surplus for the first half of this year. Exports were
15 percent larger than in the first half of last year, even though the
value of textile sales, which account for more than a fourth of China's
exports, slumped. Imports dropped 18 percent, with sharp cuts in
purchases of grain, timber, pesticides, steel, and consumer goods.
Foreign exchange reserves reached $21.4 billion at the end of March,
nearly 60 percent above the level posted immediately after last year's
Comment: Beijing wanted a large foreign exchange cushion because it
was uncertain how Western sanctions would affect exports and access
devaluation, which is just beginning to be reflected in new export
China's export surge is
likely to continue, however, aided by the improved competitiveness
of its products resulting from last December's 21-percent currency
restraining inflation, which reached 4.5 percent last year.
financial institutions on the island and which reportedly have made
illegal stock market margin loans in .he past few years. The market
weakness is due in part to growing overseas investment by Taiwan
companies moving cash off the island to escape land, labor, and
environmental regulations, as well as to the Central Bank's policy of
A 60-percent plunge in the stock market since February has put about
a third of Taiwan's securities firms in the red and may force Taipei to
abandon tight money policies. Rumors of insolvency have led to runs
on credit cooperatives, which control almost one-.tenth of the assets of
of state-owned banks and industries by selling stock to the public.
Comment: Price-equity ratios are still above those of other stock
markets, and the market may drop further, increasing pressure on the
government to reverse tight credit policies, to bail out failed credit
cooperatives and securities firms, and to tighten regulation of the
market. The ruling party, already racked by political infighting, will
face increased criticism from the opposition; the average investor
reportedly has lost more than $12,000 in the slide. The authorities
want to promote investor confidence so as to facilitate privatization
 Y IR s 'tet
 25 July 1990
 The West Europeans are pushing ahead to provide economic
assistance to the USSR despite the decision at the Houston summit to
have the IMF lead a study of the Soviet economy. EC Commission
President Delors' visit to Moscow last week laid the groundwork for a
visit by an EC team of experts next month.
the head of the European Bank for Reconstruction and
Comment: Most EC governments probably hope to recapture the lead
on the Soviet aid issue by finishing the Community study by October,
two months before the summit-mandated study is due. Moreover,
the EC probably believes the Soviets would rather deal with the
Community than with the IMF;
Despite its eagerness to move forward, the Community
remains ar from identifying the best type of financial assistance; it is
considering food aid, export credit guarantees, and loans to develop
Soviet energy resources.
The USSR will soon reverse its stand on the invasion of Hungary in
1956, For months the
Hungarians have been encouraging the Soviets to reevaluate the
intervention. On Monday, the Hungarian legislature, calling the
invasion "an act of cruel violence" and "a serious crime," formally
appealed to the Soviet Government to admit that the invasion
was illegal and to condemn it. Yesterday Soviet Foreign Ministry
spokesman Gerasimov called the invasion "impermissible."
Comment: Moscow is trying to remove irritants in its relations with
the new governments in Eastern Europe and has already condemned
the invasion of Czechoslovakia in 1968 and acknowledged
responsibility for the massacre of Polish officers at Katyn in 1941. It
hopes a reassessment of 1956 will smooth relations with Budapest
that have been strained by Soviet oil cutbacks, revelations of
environmental damage from the Soviet military presence, and
disagreement over compensation for bases evacuated by Soviet
troops
 on-
- Arab media report Soviet Middle East envoy Tarasov's visit to
Egypt, Syria, Jordan imminent ... will brief on US-Soviet
consultations, probably push Soviet proposal for five-party Arab
talks on international peace conference.
efforts, attempting to assuage domestic criticism of continued
- USSR radio reporting Kabul ransoming Soviet POWs from
Afghan resistance this week ... Moscow almost certainly funding
--- Soviet press reports former KGB officer Kalugin being prosecuted
for revealing state secrets. . . likely to trigger more attacks on KGB
for continuing old ways, increase pressure for liticizi~
- Soviets legalizing private hard currency holdings next week.. .
for use in new hard currency stores or deposit in banks . . may
rechannel some hard currency to state coffers but will speed flig'.Lt
- Soviets Monday shut off water supply in Bryansk, southwest of
Moscow, rationed reserves for at least a week ... toxic chemicals
spilled into river ... will increase already substantial agitation for
 in all-German election ... majority intact but Social Democrats
potential rival, reinforces Rodriguez's democratic image,
widespread outrage ... eliminates ineffective administrator,
- Liberals yesterday withdrew from East German ruling coalition
over Prime Minister de Maiziere's resistance to 5-percent threshold
decide position tomorrow ... Bonn coalition not affected.
economic cooperation, Seoul wants diplomatic ties.
adviser visit USSR next month... Moscow mainly seeking
- Gorbachev wrote South Korea's Roh last week inviting
"economic" delegation ... top economic aide, national security
Americas - Paraguayan President Rodriguez has dismissed Foreign Minister
whose insistence on ruling-party preeminence at any cost incited
- Zimbabwe to lift 25-year-old state of emergency this week ... ends
sweeping extralegal security powers ... probably reacting to
similar South African action last month.
TO-Tseer4L
 Kuwait Draws Envy and Extortion
Kuwait's investment policy has made it the wealthiest government in the region and the envy
of its less successful neighbors. Conservative estimates put Kuwaiti Government investments
at $70 billion and earnings at $10.2 billion annually, more than oil revenues last year. The
financial resources of autonomous government agencies and private citizens may exceed
those of the government. Kuwait's overseas investments span the globe and include:
- More than 6,000 retail petroleum outlets in Western Europe.
- Two refineries, in Denmark and the Netherlands.
- A fleet of 20 tankers.
Extensive real estate and financial holdings in the US, Western Europe, and Japan.
Kuwait sits atop the world's third-largest oil reserves and is home to only 570,000 Kuwaitis.
 Top
Special Analysis
IRAQ-KUWAIT: Baghdad's Motivations and Intentions
President Saddam Husayn wants his current bullying to yield lasting
political hegemony over Kuwait and a major voice in OPEC. Baghdad is
pressing hard specifically for an end to OPEC overproduction and for
massive Arab underwriting of its postwar economic recovery. The limited
outcryfrom the Arab world and elsewhere over his tactics will encourage
him to maintain a tough political and military stance well beyond this
week's OPEC meeting.
Iraq has a long history of trying to extort cash and political
concessions from Kuwait. On several occasions, notably in 1961 and
in 1973, it threatened force only to be rebuffed by concerted
international and Arab pressure
The decline in oil prices between January and June cost Iraq more
than $1 billion in oil revenues. Foreign exchange receipts for the
year probably will fall several billion dollars short of Baghdad's
expectation. It has been forced to reduce spending and further
squeeze discontented consumers. Iraq's foreign exchange reserves are
enough to cover only about three months worth of civilian imports.
Reconstruction and development projects have been delayed,
including many in the oil sector. Growth in nonoil sectors also
Serious financial problems have prevented improvement in living
standards depressed since early in the Iran-Iraq war. Attempts since
the August 1988 cease-fire to improve supplies of consumer goods
and reduce the 40-percent annual inflation rate have been largely
ineffective. Saddam's continued spending on what many Iraqis view
as frivolous items, such as the costly ceremonies to celebrate the
reconstruction of Al Faw, probably has contributed to popular
out that he must change his guns-and-butter policy,
He probably is unwilling to reduce the several
 M
develop Iraq's military industries. He also is reluctant to cut spending
on the oil sector or on industrial projects that promise jobs for
demobilized soldiers and more exports and that support military
industrialization. Baghdad cannot increase oil exports; it is producing
per day.
Unwilling to trim spending and unable to expand oil production,
Saddam is trying to raise oil prices by exploiting widespread
sentiment in OPEC to rein in overproducers. Iraq has demanded that
Kuwait and the UAE stop producing above their OPEC quotas.
Baghdad has also demanded compensation for losses incurred
because of Kuwait's perceived economic "aggression" against Iraq.
Such compensation would include the establishment of an Arab
reconstruction fund for Iraq.
The generally mild Arab and international reactions to Saddam's
saber rattling along the border probably have encouraged him to
increase pressure on Kuwait. The Gulf Cooperation Council-of
which Kuwait and the UAE are members-thus far has refrained
from actively supporting either country. Iran supports Iraq's effort to
curb OPEC overproduction, according to press reports.
Saddam is likely to continue pressing his demands for high oil prices
and substantial financial assistance. To do less now would be a
humiliating retreat. Even if the Arabs offer concessions, Baghdad is
likely to keep troops along the border to ensure Kuwait keeps its end
of the bargain.
Baghdad probably believes its aggressive propaganda, which has
included personal attacks on Kuwaiti officials and members of the
royal family, will provide it a pretext for some form of military
action. Iraq almost certainly would use any seized territory to force
Kuwaiti compliance with production ceilings, extort financial
assistance, and press for a settlement of the border dispute. Iraq has
long demanded control of Bubiyan and Warbah Islands to enhance its
access to the sea. Saddam probably believes he has little to lose from a
limited incursion, but he almost certainly fears that broader military
action would bring the US into the fray and undermine his regional
leadership aspirations. His long-term goal is to achieve political and
Saudi Arabia as the key player.
 op
Moscow's Expectations
The Soviets hope their accommodation on Germany will pay off in a special relationship
with Bonn based on the planned bilateral treaty. They are banking on this tie to help retain
the USSR's key role in the region and give it greater influence in new institutions under
CSCE even after the USSR completes its military withdrawal from Eastern Europe in 1994.
Moscow expects Germany to promote further changes in NATO and new security
relations in Europe through CSCE. Gorbachev and Shevardnadze last week called
for early moves on a joint declaration by NATO and the Warsaw Pact and the
establishment of a center for monitoring and resolving conflicts.
- The Soviets may hope that the security provisions of the treaty-such as the
nonaggression pact-will press NATO and its member countries to follow suit.
Moscow apparently expects further negotiations or unilateral German actions to improve on
the terms Gorbachev accepted.
- Although Kohl's commitment to limit German national forces probably will have
been recognized in CFE beforehand, Moscow will press Bonn on other European
arms control issues, such as reductions in other foreign forces as the Soviets withdraw
and extending the ban on nuclear weapons to western Germany.
Kohl apparently did not offer new economic assistance, but Moscow is counting on strong
economic ties and has emphasized to its domestic audience that economic benefits are
expected. The Soviets probably recognize, however, that there are limits to the subsidized
credits Bonn can offer and that cooperation will mainly take other forms.
- Moscow undoubtedly will welcome German technical advice and participation in
resource development and other projects to earn hard currency, proposals German
officials are advocating.
- In multilateral organizations, Soviet officials expect Bonn to continue pushing for
increased aid to Moscow and to support Soviet bids for membership.
Ton
 Special Analysis
The treaty on bilateral relations that the Soviets and Germans are to
negotiate will establish Germany's expanded influence in Europe. For
Chancellor Kohl, the treaty will formalize Moscow's acceptance of
Germany as its most important European interlocutor. Foreign Minister
Genscher will try to make the pact a keystone in a new European "peace
order" that still includes the US and the USSR but in significantly
negotiations will begin soon and that Soviet officials want to
complete the draft as soon as possible next year, probably for
signature during a Gorbachev visit. The precise terms probably will
be less important than the German approach to the new relationship
and the way Germany uses the treaty to shape its Western policies.
Shaping the New Europe
On the economic front the treaty will specify areas for cooperation,
including credits for sales of German capital goods, German technical
advice, expanded trade, and exploitation of Soviet natural resources.
Postunification euphoria is likely to feed the longstanding
convictions of many Germans that they can best teach the Soviets
how to run their economy. The Germans are also likely to see the
economic provisions of the treaty as a mandate to push Group of
Seven and EC partners to increase aid to "help" peresiroyka.
Genscher may envisage the treaty, coupled with the treaty-based
relationship between the US and EC he has called for, as key to
integrating Moscow and Washington into a new European peace
order that guides Germany while letting the Germans lead. By the
To
 mid-1990s a successor government to Kohl's could cite the German-
Soviet treaty's call for disarmament as justification for rejecting
NATO nuclear modernization initiatives and for pressing France and
In the 1990-94 period, the Germans' interests will be dominated by
preventing any delay in Soviet troop withdrawals from former East
German territory and elsewhere in Eastern Europe, but later they may
see less reason to take account of Soviet concerns. The relationship
could even take a turn for the worse if instability develops in Eastern
Europe or in the USSR:
If, for example, perestroyka continues to falter, the Germans
might raise Soviet ire by trying to dictate reform, or
alternatively might lose interest in leading efforts to prop up
the Soviet economy.
- If Soviet domestic troubles appear to preclude Moscow from
playing a role in day-to-day European affairs, the Germans
may increase their already growing economic and political
presence in Eastern Europe regardless of Moscow's concerns.
Much press commentary now centers on the danger of a "new
Rapallo," but economic ties and growing institutional links to West
European partners are powerful constraints to any German-Soviet
condominium. The economic weakness and potential political
instability on Germany's eastern borders, in contrast, provide few
constraints on German activism in the region, a prospect that could
worry East Europeans and the Soviets.