NEAR EAST AND SOUTH ASIA REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP05S02029R000300980002-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 63
• Document Creation Date: December 22, 2016
• Document Release Date: July 10, 2012
• Sequence Number: 2
• Publication Date: November 6, 1987
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2012/10/03: CIA-RDP05502029R000300980002-5
Directorate of
Intelligence
A I
Near East and
South Asia Review
6 November 1987
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NESA NESAR 87-025
6 November 1987
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Near East and
South Asia Review
6 November 1987
Page
Israel: Shamir at Midterm
Likud leader Yitzhak Shamir has reached the midpoint of his term
as Prime Minister. In his first year he has achieved some notable
political successes, suffered few failures, and narrowed the gap
between Likud and the Labor Party in polls for next year's Knesset
election.
Israel?Western Europe: Foreign Relations Report Card
Strengthening ties to Western Europe is a crucial Israeli foreign
policy goal. Israeli political standing in Western Europe suffered in
the early 1980s because of the invasion of Lebanon, but it has
improved since the formation of the National Unity government in
1984.
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Jordan: Fundamentalist Groups and Strategies
Islamic fundamentalists are active and represented in all sectors of
Jordanian society, including universities, trade unions, and
professonal associations. They have been successful in parliamentary
elections and have penetrated some government ministries.
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Syria-USSR: Strategic Ties Overshadow
Economic Differences
The recent Soviet delivery of the advanced MIG-29 fighter aircraft
underscores Moscow's commitment to support its most important
ally in the Middle East. Delays in delivery and decreased shipments
of other arms into 1987 highlight problems in this relationship.
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Syria's Fledgling Submarine Force
Syria's three Romeo class diesel submarines provide Syria with new
capabilities in intelligence gathering, minelaying, commando
insertion, and over-the-horizon targeting. These advantages are
offset by the maintenance problems of older Soviet submarines.
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Soviet, Cuban, and East European Support to the 21
Sudanese People's Liberation Army
The Sudanese People's Liberation Army receives most of its foreign
assistance from Ethiopia, but this assistance is heavily dependent on
materiel supplied to Addis Ababa by the Soviet Union. It is
augmented by support from Cuba and some East European
countries.
Egypt: Courting Ethiopia?At Least for Now
Egyptian policymakers are increasing emphasis on improving
relations with Ethiopia. The Egyptians have engineered a series of
high-level contacts to improve the bilateral atmosphere and engage
Ethiopian leaders on issues of mutual concern.
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North Yemeni?Libyan Relations: A Tactical Rapprochement
The warming trend in North Yemeni?Libyan relations appears to be
based primarily on tactical considerations. From the perspective of
President Ali Abdallah Salih, Libyan military and economic
assistance has provided the beleaguered North Yemeni Government
a much needed shot in the arm.
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The Maghreb: Travels Through the Bled
The strongest impression of the Bled is the unfavorable contrast of
Algeria's agriculture with that of Morocco and Tunisia. Algeria's
problems in the rural sector stem from a lack of adequate economic
incentives and present a long-term threat to the country's stability.
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Iraq: Impressions of Al Basrah
Once larger than Baghdad and more cosmopolitan, Al Basrah had
been Iraq's window to the world. Now subject to Iranian shelling,
large areas of the city are deserted, although damage is not as
extensive as one would expect.
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Ash Shariqah: Iran's Trojan Horse in the 41
United Arab Emirates
Although many of the seven emirates in the United Arab Emirates
maintain relations with Iran, Ash Shariqah is most vulnerable to
Iranian pressure. The ruler's close personal ties to Tehran and
shared economic interests have created a special relationship with
Iran.
Middle East and South Asia: 45
An Overview of Tax Systems
Tax systems in Middle Eastern and South Asian countries are
primarily used to raise revenue for short-term budget expenditures.
They generally fail to contribute to long-term budget projects such
as industrial development, income redistribution, housing, and
education.
Indian-US High-Technology Cooperation
Indian Prime Minister Gandhi's visit to Washington in October
marked progress in Indo-US cooperation in several high-technology
fields. New Delhi purchased a US supercomputer before the visit
and has since signed a cooperation agreement on the Light Combat
Aircraft.
High-Technology Firms Prospering in South India
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Despite general industry fears of a drought-induced recession, South
India's high-technology industries are doing well and expect to
increase their manufacturing base and design capability. Several
computer-based industries have doubled their sales over the past
year.
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Afghanistan's Maoist Factions: Which Way to the Revolution?
Afghanistan's Maoist factions have been seriously weakened by
attacks from the Kabul regime and Islamic fundamentalist
resistance parties. The Maoists have lost most of the territory they
controlled at the beginning of the war and have fragmented into
splinter groups.
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Some articles in the Near East and South Asia Review are
preliminary views of a subject or speculative, but the contents
normally will be coordinated as appropriate with other offices
within CIA. Occasionally an article will represent the view of a
single analyst; an item like this will be designated as a
noncoordinated view.
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Near East and
South Asia Review
Articles
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Israel: Shamir at Midterm
In November 1987, Likud leader Yitzhak Shamir
reached the midpoint of his 25-month term as Prime
Minister. In his first year he has achieved some
notable personal political successes, suffered few
outright failures, and narrowed the gap between
Likud and the Labor Party in polls for next year's
Knesset election. Most important, he has consolidated
his position as Likud's leader and successfully blocked
proposals for an international conference on Arab-
Israeli peace. Shamir's single major defeat was the
cancellation in late August of the Lavi fighter plane
project, a program he had supported.
Master in His Own House
In 1987, Shamir took advantage of the power of the
incumbency and consolidated his position through
quiet but persistent maneuvering in Likud's ranks.
Viewed as a weak, transitional leader, Shamir has
long faced challenges from party rivals David Levi
and Ariel Sharon. Shamir was the victor at the 1987
convention of Herut?the predominant faction in
Likud?and for the first time established himself as
the undisputed party leader. If, as expected, he seeks
to lead Likud's list for the Knesset election in
November 1988, he is likely to win. The chances that
Levi or Sharon will mount a serious challenge against
him in 1988 have decreased in the past year.
Herut's convention in March 1987 was a major
victory for Shamir. He was selected by acclamation as
party chairman, a post that was vacant since Likud
founder Menachem Begin retired from active political
life in September 1983. The election of Shamir's
chosen successor, Moshe Arens, as head of Likud's
powerful secretariat was another victory for the Prime
Minister. Shamir's most persistent rival, Sephardi
populist David Levi, eked out a narrow victory in the
contest for deputy party chairman, but his small
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margin against a weak challenger was viewed widely
in the party as a major setback and a symbolic victory
for Shamir, according to US diplomats in Tel Aviv.
Since the convention, Levi has lowered his political
profile. According to US Embassy reporting, he
recognizes that his chances of taking on Shamir
successfully are poor.
Shamir's most important gain at the Herut conclave
was probably the convention's decision to declare all
its delegates as the new Herut Central Committee.
Convention results suggest that Shamir controlled the
largest single bloc of delegates. The new Central
Committee will decide the candidates and their
ranking for Herut's Knesset list next year.
Shamir has improved his standing in Herut by not
allowing his party rivals to outflank him on the major
issues dividing Labor and Likud. Shamir opposes an
international conference on Middle Eastern peace.
His firm stand against the proposal served to burnish
his credentials with Likud and its allies on the right.
Shamir succeeded in portraying himself as the
protector of "Judea, Samaria, and even Jerusalem,"
according to US diplomats in Tel Aviv. He also
presented Labor Party leader Peres's promotion of the
conference idea as a thinly veiled and opportunistic
attempt to break the National Unity government and
move to an early election.
Winning Through Obstruction
Shamir largely held his fire as then Prime Minister
Peres pressed for an international conference during
the first half of the National Unity government.
Shamir apparently did not want to risk splitting the
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government and losing his turn as prime minister by
fighting a proposal that had made little practical
progress. Soon after becoming Prime Minister,
Shamir began to take a more aggressive stance
against the conference proposal. When Peres finally
sought a showdown in Israel's 10-man "inner
cabinet," Shamir rallied sufficient support to force
Peres to shelve his plan to hold a vote on the issue.
Shamir has succeeded in turning the debate on the
peace process from the conference proposal to
alternative frameworks centered on direct Arab-
Israeli peace talks unencumbered by superpower
involvement and on functional autonomy rather than
territorial compromise.
Shamir is convinced that an international conference
would lead to unbearable pressure on Israel to make
major territorial concessions on the West Bank, Gaza
Strip, and Golan Heights. Peres declared in May
1987 that he would seek government approval for a
conference, believing that international sponsorship
was the only way Jordan's King Hussein could be
enticed into negotiations with Israel. Peres hoped to
win the support of at least one Likud member in the
inner cabinet, which is split evenly between the two
major parties. But Shamir intensified his rhetoric
against an international conference?making it an
idea that Likud members could support only at the
risk of political suicide. Peres, recognizing defeat,
backed down and did not even call for a formal vote in
the inner cabinet.
Peres compounded his error by openly seeking an
early election, stating that the National Unity
government should not continue if it was deadlocked
on so important an issue as the peace conference.
Once again Shamir outmaneuvered Peres, lining up
sufficient support in the Knesset to block Labor's
early election bid. Peres for the second time in a
month was forced to back down in defeat and
embarrassment on a major issue. Recognizing defeat,
he refrained from submitting an early election bill for
a formal Knesset vote.
According to US diplomats in Tel Aviv, Shamir has
benefited from the public's perception that the
economy has stabilized. Moderate inflation?which at
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15 to 20 percent for 1987 looks good compared with
the triple-digit inflation three years ago?works to the
political advantage of the incumbent. Shamir's gains
from economic stability will probably be marginal. He
is widely seen as disengaged from economic policy
making and unwilling to lobby for further economic
reforms, such as easing the burden of Israel's tax
system to place the economy on a long-term growth
track. Successive Likud Finance Ministers Modai and
Nissim, and Peres, who was a proponent of the July
1985 economic stabilization program, have garnered
most of the credit for Israel's economic turnaround.
Shamir runs a risk of being blamed for any economic
downturn during the remainder of his term.
Likud Loses Lavi
Until almost the end, the long Israeli debate over
whether to continue developing the Lavi fighter plane
was conducted on the basis of merit, not partisan
politics. The final Cabinet vote on Lavi split almost
entirely along party lines?Likud for, Labor against.
US Embassy reporting suggests that Shamir was not
committed to Lavi, realizing the economic,
diplomatic, and military risks inherent in its
continuation. Shamir remained undecided on the Lavi
until almost the final vote, and some Shamir aides
told US diplomats that he would vote for the program
only if he was confident that there were enough
opposition votes to kill it. Despite his doubts about the
Lavi, polls demonstrate that Israelis perceive the
plane's cancellation as a Likud?and hence Shamir?
defeat.
Lack of Leadership
Shamir's most persistent problem in his first year as
Prime Minister has been his normally low-key,
leadership. His agenda has been largely
negative and reactive?against an international
conference, against Lavi cancellation, and against an
early election. He has not proposed many new ideas,
sticking in the peace process debate to a watered-
down version of autonomy that was rejected several
years ago as a nonstarter and insisting on direct Arab-
Israeli peace talks without superpower interference.
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US diplomats in Tel Aviv believe that Shamir's style
is to avoid flashy and uncertain initiatives. In our
assessment, his main goal is to finish his term as
Prime Minister.
Walking a Thin Line
Since the beginning of the National Unity
government, Shamir has adhered faithfully to the
coalition agreement on settlements, which allowed for
only six new communities in the occupied territories.
Since becoming Prime Minister, Shamir has come
under increasing pressure from prosettlement activists
in Likud and other right wing parties to establish more
settlements. Shamir has resisted such pressure,
realizing that Labor would not tolerate the
establishment of more than the communities allowed
under the coalition agreement.
Prosettlement forces?especially the rightwing
Tehiya Party?are likely to increase their demands
for additional settlements in the West Bank and Gaza
Strip during the next year. Shamir is caught in a
dangerous crosscurrent. If he accedes to prosettlement
demands, he risks forcing Labor to end the National
Unity government, increasing the chances of an early
election, and curtailing his term as Prime Minister. If
he continues to resist new settlements, Shamir risks
pressing some Likud voters to move further to the
right into the ranks of Tehiya and Rabbi Meir
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Kahane's Kakh Party. Shamir is likely to hold the line
on new settlements, trying to convince activists that
limited funds make it more important to strengthen
existing settlements.
Outlook
Shamir can take encouragement from Likud's
improving status in public opinion polls in recent
months. After trailing Labor before the rotation in
October 1986 by as many as 10 seats, Likud recently
has narrowed the gap to just a few. Polls in June and
September 1987 showed that Likud, together with
Tehiya, would almost equal Labor and its allies if a
new election was held. Such an outcome could make
another National Unity government the most likely
result of next year's election. Israeli polls traditionally
have overestimated Labor support and undervalued
Likud's backing. Barring unforeseen developments or
a reemergence of Likud leadership squabbles, Shamir
will head into next year's election in better shape than
most observers anticipated when he became Prime
Minister.
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Israel?Western Europe:
Forei7 Relations Report
Card
Strengthening ties to Western Europe is a crucial
Israeli foreign policy goal. Israeli political standing in
Western Europe suffered markedly in the early 1980s
because of Israel's invasion of Lebanon. It has
improved since the formation of the National Unity
government in 1984. Although the Israeli leadership
does not perceive Western Europe as a primary
participant in Middle Eastern issues, Tel Aviv seeks
European political support for Israeli positions on
Middle Eastern peace.
Beyond political interests, Tel Aviv is pursuing
entrance to the European Economic Community and
maintains a wide range of military sales and service
contracts in Western Europe. Tel Aviv hopes to
expand military deals with NATO countries,
particularly after the cancellation of the Lavi fighter
aircraft project.
Impact of the National Unity Government
Before the formation of the National Unity
government in 1984, Israelis perceived relations with
Western Europe to be at a dangerously low level,
according to US Embassy reporting. The Israeli
invasion of Lebanon in 1982?which most European
states vociferously opposed?sharply increased
tensions between the Israeli forces and West
European troops serving in the UN Forces in
Lebanon. Rightwing Likud Prime Ministers
Menachem Begin (1977-83) and Yitzhak Shamir
(1983-84) further rankled West Europeans with their
staunch adherence to Likud's hardline platform on
Arab-Israeli issues, particularly the adamant refusal
to consider territorial compromise in the occupied
territories.
The upturn in relations began with the establishment
of Israel's National Unity government. When the
1984 national election failed to yield a clear victor,
the two major parties--Labor and Likud?were
forced to share political leadership. As Prime Minister
for the first half of the 50-month term, Labor leader
Peres improved the diplomatic climate with Western
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Europe through more flexible peace policies and
softer rhetoric. Peres tried to reinvigorate the stalled
Arab-Israeli peace process, holding highly publicized
meetings with Egyptian President Mubarak and
Moroccan King Hassan and underscoring his party's
endorsement of territorial compromise to resolve the
disposition of the West Bank and Gaza. In this
context, he proposed the concept of an international
Middle Eastern peace conference, which after opening
ceremonies would break down into autonomous Arab-
Israeli working groups for conducting direct
negotiations. Frequent visits to Western Europe to
garner support for his conference proposal enhanced
his reputation as a diplomat and statesman.
Tel Aviv points to a series of exchanges at senior
levels and several bilateral agreements as proof of the
improvement in Israeli?West European relations since
the establishment of the National Unity government.
According to US Embassy reporting, Tel Aviv
concedes that progress in relations with some West
European states is more modest than with others. In
addition to the warm receptions Peres received in
Western Europe, developments since 1984 that have
contributed to improved Israeli-West European
relations include:
? Israel's withdrawal from Lebanon in 1985.
? Establishment of official relations with Spain in
1986.
? Increased trade and tourism with Greece.
? The successful visits to Israel by Western European
leaders, such as West Germany's Chancellor Kohl
and Britain's Prime Minister Thatcher.
? The visit by the Finnish Foreign Minister in 1986
and new bilateral agreements intensifying cultural
exchanges and trade.
West European Role in Middle Eastern Peace
Although Peres sees Western Europe's role in the
Middle East as secondary to that of the United States,
he has proved more willing than Shamir to consider a
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supplementary role for Western Europe in regional
diplomacy. As Foreign Minister since he switched
jobs with Shamir in October 1986, Peres has actively
sought European support for his international
conference proposal. He has visited several West
European capitals?including London, Paris, and
Bonn?to meet with senior leaders and enlist their
backing to maximize the pressure on Shamir to accept
an international conclave.
Peres has been successful in winning European
support?particularly from Britain and West
Germany, which have pressed Shamir through
diplomatic channels and publicly announced support
for Peres's conference proposal. Shamir?backed by
hardliners in his party?adamantly and publicly
rejects Peres's idea. Shamir has long advocated direct
negotiations with Jordan and has stated repeatedly his
opposition to participation by the superpowers in a
Middle Eastern peace conference for fear that they
will force Israel to give up the West Bank
Military Sales and Service Contracts
Israel is interested in expanding its access to the
military sales and service market in NATO countries.
Israel has established a wide range of contacts in
Western Europe?including excellent bilateral
military relations with West Germany, Spain, and
Switzerland. Nevertheless, Israel cannot bid on many
projects because operational readiness concerns have
led to contract clauses limiting work on NATO
hardware to the Western European theater. The
Israelis have partly circumvented this restriction by
establishing subsidiaries of Israeli companies in
Western Europe, but the type of major contracts
Israel envisions?such as servicing US helicopters and
aircraft engines deployed in Western Europe?would
have to be done in Israel
The recent cancellation of Israel's Lavi fighter
aircraft program has intensified Tel Aviv's effort to
obtain service and sales contracts in Western Europe.
Defense Minister Rabin's economic adviser recently
told US Embassy officials that Israel Aircraft
Industries needed $240 million annually in new
business to replace work related to the Lavi, and that
Israel expected the United States to help it win new
contracts in Europe. Israel particularly wants US
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assistance in securing contracts to upgrade Turkey's
F-4 fighter aircraft fleet and in ensuring greater
Israeli participation in maintaining and coproducing
parts and ammunition for NATO aircraft
In addition to strict contract clauses limiting Israeli
access to European military contracts, Israeli firms
face an uphill battle competing with much larger and
better developed West European and US companies.
Tel Aviv has made important inroads in several
European states. Israel and West Germany are
cooperating closely in the development of armor-
piercing tank ammunition, and Israel currently sells
large amounts of 105mm ammunition to the West
Germans. The Swiss have examined Israeli
miniaturized remotely piloted vehicles and may
purchase some in the near future. The Israeli firm
Soltam recently began joint production of mortars
with Tampella in Finland to facilitate international
sales of this weapon
Challenge of the European Economic Community
Tel Aviv has devoted special attention to expanding
its export markets in the European Economic
Community, which collectively is Israel's most
important trading partner. Foreign Minister Peres has
expressed concern about Israel's chronic and growing
trade deficit with the Community. By July the
shortfall had jumped 45 percent over last year to $2
billion. To correct the imbalance, Peres has pressed
the Europeans for larger export quotas, increased
financial assistance, and expanded trade opportunities
in high-technology areas.
Israel is especially concerned about the adverse
impact that the Community's admission in 1986 of
Portugal and Spain?competitors in agricultural
products?will have on Israeli agricultural exports.
Although the Community has provided some
protection for Israeli citrus exports, Tel Aviv fears
intense competition from Spain will erode its market
share in Europe through the advantage of Community
price guarantees and other subsidies
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Israel's desire for improved access has been further
complicated by West European attempts to press Tel
Aviv to allow West Bank exporters to sell directly to
European markets. In discussions held in October
1987, the European Community commissioner made
clear to Shamir that Israeli refusal to permit direct
Palestinian sales in Western Europe would block
passage of a pending Israeli?European Community
trade protocol. On a positive note, the commissioner
assured the Israelis that Palestinian exports to
Western Europe would not count against their own
quotas. A follow-up European Community delegation
is scheduled to meet soon with Israeli and Palestinian
representatives in Tel Aviv.
Israeli expertise and experience in the high-
technology area is highly coveted by the Europeans.
The Community recently made $63 million available
for loans to small and medium-size Israeli industrial
firms to encourage high-technology exports, according
to press reports. Spain has signed a protocol with Tel
Aviv providing for cooperation in industrial
technology development
Outlook
Despite the improvement in relations with most
European states since the early 1980s, Israelis
acknowledge limits in this rapprochement with
Western Europe. West European views on the Arab-
Israeli conflict often hinder Israeli efforts to deepen
bilateral relations. Israelis believe the West European
states generally endorse pro-Arab positions on peace
issues?particularly major Israeli territorial
concessions on the West Bank and a central role for
the PLO
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Israel opposes continued European arms sales to Arab
states formally in a state of war with Israel. But Israel
has little leverage to pry West European countries?
such as Britain and France?from historical ties and
lucrative arms sales in the region. Although Israeli
lobbying against such sales has been restrained in
recent years, the prospect of increased sales to Jordan
and Saudi Arabia by West European countries will
probably become a more contentious issue in
Israeli?West European relations.
The stalemate between Peres and Shamir over an
international Middle Eastern peace conference
probably will cloud further major improvements in
relations with Western Europe. Should Labor win the
1988 national election with a sufficient plurality to
form a government, Peres as Prime Minister would be
unrestricted by coalition compromises, and relations
with Western Europe probably would improve. A
Likud victory, on the other hand, would produce a
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quickly strain relations with Western Euro e and
return them to the chilly days before 1984.
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Jordan: Fundamentalist Groups
and Strategies
although Islamic
fundamentalist groups do not threaten the monarchy,
previous estimates have significantly understated
their strength. Fundamentalists are active and
'represented in all sectors of Jordanian society,
including universities, trade unions, and professional
associations. They have been successful in
parliamentary elections and have a small but
prominent bloc of six delegates in that 60- member
body. The Muslim Brotherhood?the largest and only
legal fundamentalist organization in Jordan?has
made major strides in penetrating some government
ministries. It has established a small network of
schools, social service facilities, and youth programs
to aid its missionary work among the population.
younger Jordanians
and Palestinians may be turning to more radical
fundamentalist organizations?particularly the
Islamic Liberation Party, which has substantially
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Background
25X1 King Hussein has long recognized the threat to his
regime from Islamic activity and has tried to co-opt
traditional fundamentalist elements.
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Friday sermons by all Muslim preachers?
including those affiliated with the Muslim
Brotherhood?must be approved in advance by the
Ministry of Islamic Affairs, which also registers
religious figures. The government has been quick to
suppress Islamic groups that depart from
governmentally sanctioned Islam, particularly groups
with antimonarchical tendencies
The largest is the
Islamic Liberation Party, which espouses the violent
overthrow of the Hashemite monarchy.
this group is increasing its
membership because it offers a new channel of
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expression for young Jordanians and Palestinians
unsettled by the country's stagnating economy and
the poor job prospects. The US Embassy notes that
fundamentalists have been especially successful in the
poorer urban neighborhoods in Amman, the northern
city of Irbid, and other towns where there is a
significant gap between the rich and poor. The
Embassy also reports a discernible rise in Islamic
activity on campuses in recent years, noting that
fundamentalists are drawing support by exploiting
student grievances. Fundamentalists played an
important role in the Yarmuk University riots in
1986, in which three students were killed in
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King Hussein does not appear to consider the
fundamentalists a threat to the monarchy, although
he recently dampened their parliamentary prospects.
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According to the US Embassy, the Brotherhood has
worked effectively to increase its membership and to
penetrate government ministries, including the
Ministries of Education, Islamic Affairs, and Youth.
Programs and social services provided by these
ministries facilitate contacts between Brotherhood
supporters and the general public, which aid the
Brotherhood's recruitment efforts.
Consequently, the Brotherhood is becoming more
prominent. The Brotherhood is focusing its activities
on developing a system of schools, social service
facilities, and youth programs to bring people into
contact with the organization. The Embassy reports
that particular emphasis is being placed on programs
for youth, which combine sports with prayer and
religious instruction under the supervision of
Brotherhood members.
The Islamic Liberation Party
The Islamic Liberation Party is banned because it
advocates the violent overthrow of the Hashemite
monarchy.
If
discovered by Jordanian authorities, the US Embassy
reports that members are subject to rigorous
surveillance by the General Intelligence Directorate
and may be detained for questioning and imprisoned
for up to several years.
The party recently has become more active in
disseminating literature, although its capability in this
area is limited. During the Muslim feast of Id al-
Adha last August, the
party distributed leaflets critical of the Jordanian
regime. In addition, Jordanian police were recently
ordered to arrest several party members for
antiregime activities.
Outlook
We believe that fundamentalism in Jordan will
grow?particularly while Jordan's economy continues
to stagnate?but it will not be a near-term threat to
the King. Hussein's security services can contain the
activities of the clandestine groups, and we believe
they will continue to do so.
To monitor future candidates for parliament and
restrict fundamentalist participants, a new election
law requires potential candidates to submit their
names to the Ministr of Interior for a royal to run
for office,
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Syria-USSR: Strategic Ties
Overshadow Economic
Differences
The recent Soviet delivery to Syria of the advanced
MIG-29 fighter aircraft underscores Moscow's
commitment to support its most important ally in the
Middle East. But Moscow's delay in delivering the
aircraft and the steady decrease in other arms
shipments into 1987 highlight the problems that
trouble this relationship. Moscow is seeking Syrian
cooperation on regional political matters, moderation
of Syria's offensive military posture against Israel,
and improved Syrian arms accounting and financial
management. Moscow's tougher stance does not mean
weaker relations. The Soviets are committed to
maintaining and upgrading Syrian military
capabilities. Although Syria's payment record with
the Soviets probably will not improve in the future,
economic differences will remain secondary to both
countries' need for strategic cooperation
Massive Syrian Debt
The Syria-USSR arms relationship is the most
prominent aspect of their bilateral ties. Moscow has
delivered about $14.5 billion in military equipment
since 1980, and Soviet arms make up more than 90
percent of the Syrian order of battle. Syria's military
debt has ballooned, even though the Soviets probably
have delivered some arms free of charge or as a
partial grant in the 1980s.
Syria's military and
civilian debt to the USSR exceeds $10 billion. We
estimate the debt is about $13 billion.
The growth in Syrian debt to the USSR is paralleled
by a steady decline in Syria's foreign exchange
earnings. Export proceeds fell sharply last year with
the decline in oil prices, and expatriate remittances
have fallen almost 70 percent since 1981 to $183
million last year. Official transfers of hard currency,
almost all from Saudi Arabia, have dwindled 61
percent since 198I?to $669 million in 1986. We
estimate Syria's current account deficit exceeded
$550 million last year, with little prospect for a
turnaround.
11
Trends in Syrian-Soviet Military Trade
Syria has completed the enormous military buildup
initiated following its losses in Lebanon during 1982.
It is upgrading the quality of its equipment inventory
and needs a large amount of materiel to sustain its
forces. By early 1986 the flow of Soviet arms
shipments had slowed to a trickle as compared with
earlier years. Soviet military deliveries in 1986
totaled $624 million, with deliveries confined mostly
to spare parts and ammunition. We suspect that the
hiatus was due to the completion of certain contracts
and Damascus's inability to pay for and absorb new
weapons. Following successful financial talks during
Assad 's visit to Moscow in April 1987, we believe 25X1
that Syria and the USSR cleared the way or a
substantial increase in arms deliveries.
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Since the April visit, Soviet arms deliveries have
increased. Deliveries for 1987 total more than $1.2
billion, reflecting the shipment of 21 MIG-29 aircraft
since last July. Moscow recently delivered to Syria
20 SA-2 launchers, 38 self-propelled howitzers, and
multiple rocket launchers,
In addition to weapons purchases, the two countries
have extensive military trade involving aircraft
maintenance and repairs, technical assistance, and
training. These transactions are financed by letters of
credit payable in dollars. Many transactions involve
shipping equipment back to the USSR for overhaul.
Damascus must pay for these overhauls before
Moscow will return the equipment to Syria, and
Moscow often holds up delivery to force Syrian
payment. For example, upon completing an overhaul
on a military aircraft last winter, the Soviets refused
to release the plane until Damascus paid the
relatively small fee for the service.
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SOVIET ARMS DELIVERIES TO SYRIA, 1982-87
1982
1983
1984
Moscow recognizes that Syria's military debt to the
USSR outstrips Damascus's ability to pay. On the
basis of terms common in Soviet arms contracts, our
analysis indicates that Syrian obligations falling due
in 1987 would total more than $1.3 billion. We
suspect, however, that special payment agreements
negotiated over the past five years have reduced
current obligations by about half. Regardless of the
actual debt, we believe that Damascus has made only
token payments on arms deliveries since 1982,
confining payments primarily to downpayments,
service contracts, spare parts, and technical
assistance:
? Our analysis indicates that Syria's cash payments to
the USSR may have been less than $75 million
annually since 1982 and much lower since 1986.
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1985
1986
1987 1
1 Through Sept 1987
? To supplement the low payments, we believe that a
share of Syrian exports to the USSR?which total
$300 million per year?is credited against the
military debt.
Syria's weak economy has forced Moscow to
compromise with Syria over debt repayment.
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Syrian Trade With the USSR a
Million US $ Elements of Soviet-Syrian Economic Relations
Exports
Imports
1980
236.2
258.1
1981
349.6
387.5
1982
415.1
290.9
1983
404.9
276.8
1984
270.0
306.6
1985
230.9
385.9
1986
251.9
419.0
a Official Soviet statistics, including some military transactions.
Although
these measures will marginally relieve financial
pressures for Damascus, debt relief mainly represents
Moscow's recognition of Syria's virtual bankruptcy
and dim economic prospects.
Debt rescheduling does not eliminate near-term
financial pressures between the two countries, and
Damascus is finding even minor payments to the
Soviets onerous. Syria is required to pay
immediately?in dollars?for some military
equipment, and we believe that some debts arising
from Soviet economic assistance were excluded from
the rescheduling. Moscow is pressing Damascus to
make payments on nonrescheduled debts,
denominated primarily in rubles, totaling the
equivalent of more than $250 million
Moscow Emphasizing Efficiency
Syria's chronic financial problems have led to deeper
Soviet interest in Syria's military procurement and
financial management.
13
Syria has extensive economic relations with the
USSR. Moscow has concentrated economic
assistance on infrastructure projects and trade
credits, with over $1.1 billion extended since 1981.
Soviet assistance programs are facilitated by about
1,000 economic advisers and technicians.
Trade. 'Syrian civilian trade with the USSR is high,
over $600 million in trade turnover in 1986,
according to official Soviet statistics. Syria sells 45
percent of its exports to Communist countries, and
the USSR is the largest buyer of Syrian textiles, raw
cotton, and consumer goods. Syria's civilian imports
from the USSR?primarily machinery?make up
about 10 percent of total imports. Syria has
increasingly turned to Soviet and East European
suppliers as commercial relations with the West have
deteriorated.
Electricity. The USSR constructed the massive 800
MW Euphrates hydroelectric project in northern
Syria during the mid-1970s and is planning to build
another 64 MW hydroelectric plant downstream.
Power generation from the Euphrates has been
disappointing in recent years because of reduced
waterflow and chronic technical problems.
Hydroelectric production fell 31 percent between
1982 and 1985. Moscow will help build the 400 MW
Tishrin power station outside Damascus, although
construction has not begun
Industry. Soviet involvement in Syrian industry is
concentrated in the oil sector. The Soviets have
assisted the Syrian Petroleum Company in
developing and operating Syria's older northeastern
oilfields, which produce about 150,000 barrels per
day of heavy crude oil. The Soviets have also
brokered Syrian crude oil and product exports and
are involved in natural gas development in Syria. In
other sectors, the Soviets have promised to assist
Syria in phosphate refining, irrigation projects, and
food processing.
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SYRIA: MAJOR SOURCES OF FOREIGN EXCHANGE
1982
1983
1984
1985
Moscow is concentrating on upgrading Syrian
military efficiency and preparedness. The Soviets are
pressing Syria to emphasize the quality of training
over quantity of personnel and equipment. The Soviets
almost certainly encouraged measures taken earlier
this year to reorganize Syrian ground forces, a process
intended to boost force strength of active brigades and
19861
unit effectiveness.
1987 2
Legend
effielal transfers
lin labor rernittanees
111:11 ell and product experts
1 estimated
2 projected
Syria has inadequate financial resources to absorb
increased arms imports. Damascus traditionally
emphasizes mass acquisition of technology, which
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requires long-term follow-on support. Soviet contracts
for major weapons systems, however, usually include
funding for spare parts, maintenance, and training
only for a few years. We believe Moscow usually
requires payment for additional support for weapon
systems on commercial terms, at times in cash.
Although these follow-on purchases account for only a
small share of Syria's arms acquisitions, they are
difficult for Damascus to afford, and curtailment of
these imports threatens the armed forces' operational
readiness.
Outlook
Despite recent Soviet initiatives toward other states in
the region, Syria will remain Moscow's most
important ally in the Middle East and receive military
Reverse Blank 15
and economic aid commensurate with this status. In
our opinion, Moscow does not intend to support
Assad's offensive concept of strategic parity, but the
Soviets probably will help Syria keep rough
technological pace with Israel. Although Moscow is
troubled by Syrian difficulties in paying for military
imports, Damascus will make little effort to boost
payments to the Soviets. An increase in Syria's
foreign exchange earnings will probably be devoted to
importing essential items?such as wheat and flour?
and reducing arrearages to Western creditors.
Damascus will count on Moscow's strategic concerns
to override their differences and sustain the military
relationship.
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Syria's Fledgling Submarine
Force
Syria's three Romeo class diesel submarines?
although obsolete?provide Syria with new
capabilities. The intelligence gathering, minelaying,
commando insertion and over-the-horizon targeting?
capabilities are offset by the age of the submarines
and Syria's lack of experience in submarine warfare.
The Syrians have so far used the Romeos for crew
training?maneuvering drills and torpedo firing?and
as targets in antisubmarine warfare (ASW) exercises.
the Soviets delivered one Whiskey class
power barge in 1985. This auxiliary generator vessel
functions as a battery-charging station for submarines
and cannot traverse under its own power. The
submarines are based at Tartus, subordinate to the
56th Coastal Defense Brigade, which controls Syria's
southern coastal sector.
Training Accomplished
The Romeos have undergone three phases of
training?routine maneuvering drills, ASW training,
and torpedo firing?since their arrival. The
submarine training area is offshore from Tartus.
The Syrians began conducting routine maneuvering
drills with the Romeos in spring 1986.
17
Secret
Antisubmarine Warfare Capability
Syria's acquisition of the Romeo has reduced its
dependence on visiting Soviet submarines for use as
targets during ASW training.' Syria uses the Romeos
primarily as targets for their patrol boats and MI-14
(Haze) helicopters that participate in the exercises.
The exercises, while designed more to aid helicopter
and surface ship crews, give submarine crews a
chance to practice evasive tactics.
The Syrian Navy's increased emphasis on ASW
training?even during the fuel shortages caused by
the current economic crisis?and its lack of training
outside Syrian coastal waters, underscore the
country's growing concern with protecting its
coastline from the Israelis,
Threat to Israel
Syria's Romeo submarines pose only a marginal
threat to the Israelis. Any advantages?minelaying,
commando insertion, and over-the-horizon
targeting?that the Romeos provide the Syrian Navy
are more than offset by the maintenance problems
associated with older Soviet submarines, Syria's lack
of experience in submarine warfare, and inadequate
crew capabilities confronting the Syrian Navy.
Potential Advantages. The Romeos' current training
activities suggest that the Syrians hope to use the
submarines for intelligence collection off the Israeli
' Soviet Foxtrot or Tango class submarines regularly visit Tartus for
30-day port calls. These port calls are for submarine maintenance
as well as rest and relaxation for the crews. The Soviets maintain an
Amur class submarine tender at Tartus to provide maintenance for
the submarines.
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Romeo class submarine
coast, probably against the major 3ort and naval base
at Haifa. This would resemble Eg:ipt's use of at least
three of its submarines during the 1973 Arab-Israeli
war.
The Romeo's torpedo tubes providu the Syrians with a
minelaying capability minesweeping is a major
shortcoming of the Israeli navy. Tie Israelis in
September discovered several mincs, similar to those
being used in the Persian Gulf, off the southern coast
of Lebanon, reinforcing the threat that mines pose to
Israeli operations. The mines were probably laid by
the Iranian Revolutionary Guard contingent in
Lebanon. Syrian use of the subma -ines' minelaying
capability would pose a severe thrc at to Israeli ports.
Israel has no minesweepers, and submarines would be
a particularly effective way of plarting mines, given
the difficulty of detecting submarines in the
Mediterranean environment.'
The Romeos could be used in commando insertion
and especially in over-the-horizon argeting against
shipping, although no Syrian inten:ion to do so is
evident. The Romeos could carry commandos to any
part of the Israeli coast. The commandos would have
to disembark on the surface, howeN er, rendering them
vulnerable to Israel's strong coastal defense systems.
" The Mediterranean basin is a congested rr ilitary and commerical
environment in which it is difficult to distin:;uish among the
numerous rebounding sound waves. The det:ction of sound waves is
critical to effective antisubmarine warfare, ind a diesel-powered
submarine operating under battery power is exiremelv hard to track
in this environment
Secret
Problems. Insufficient maintenance, submarine
warfare experience, and crew capability make it
unlikely that the Syrian Navy could use its Romeos to
their full potential. Moreover, the Romeo is over 25
years old, and other nations--notably Algeria. Libya,
and India?have experienced severe problems with
old Soviet submarines. Such problems greatly reduce
the threat posed to the Israelis by the Syrian
submarines.
Historically, the Syrian Navy has been a neglected
part of Syria's military and only recently has received
greater attention because of increased emphasis on
coastal defense. We expect that Syrian progress in
overcoming past neglect and developing experienced
crews will be slow. The Syrians are far less
experienced in submarine warfare than the Israelis,
who have possessed their Gal class submarines for 15
years.
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Secret
Are They a Steppingstone?
We believe the acquisition of the Romeos, although a
boost to the Syrian Navy, represents only a transition
in the development of a submarine force.
The Foxtrot and Kilo classes?especially the Kilo?
are more modern and would increase the Syrian naval
threat to Israel. The Kilo is much quieter than the
Romeo and Foxtrot and is equipped with more
advanced weapon systems?such as wire-guided
torpedos and better sonar, capable of detecting
submarines over a longer distance and wider range of
frequencies.
We believe the Israeli navy could cope with any
Romeos or newer submarines that the Syrians might
acquire. Israel's planned acquisition of advanced
submarines and corvettes over the next decade will
make it even more difficult for Syria to catch up to
Israel's submarine warfare experience and skill.
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Sudanese People's Liberation Army Bases
CHAD
LIBYA
CENTRAL
AFRICAN
REPUBLIC
EGYPT/
SUDAN
_A:14
KHARTOUM
I
1?,41
co\
I
ZAW
? SPLA Base
SAUDI
ARABIA
Red
Sea
? Ganibela
? ? Bonga
Bill am
0 ADDIS ABABA
ETHIOPIA
tGANDA KENYA
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Soviet, Cuban, and East European
Support to the Sudanese People's
Liberation Army
The Sudanese People's Liberation Army (SPLA)
receives most of its foreign assistance from Ethiopia,
but the Ethiopian assistance, in our view, is heavily
dependent on materiel supplied to Addis Ababa by
the Soviet Union. It is augmented by support from
Cuba and some East European countries. The Soviets
provide arms and ammunition to the Ethiopians who
transfer the equipment to the insurgents. Soviet
advisers in the Gambela region of Ethiopia?the hub
of SPLA training and logistic activities?do not
supervise or support SPLA training directly, but
Cuban advisers in Gambela assist Ethiopian military
personnel in the training of SPLA troops. Havana also
provides SPLA cadres with military training in Cuba
and aids SPLA medical, communications, and
propaganda efforts. Some East European countries
provide arms, ammunition, and specialized training to
the SPLA
We believe the rebels
are responsible for training their forces inside Sudan.
Foreign military advisers probably avoid support to
the SPLA inside Sudan to reduce the possibility of
capture?either dead or alive?by government forces,
which would jeopardize plausible denial.
In our view, foreign military support contributes
significantly to the insurgents' military effectiveness.
In addition, Communist military training of SPLA
members probably increases the number of Marxists
within the movement. Training programs for SPLA
troops in Cuba and Eastern Europe probably include
intense political indoctrination, and some will return
home to indoctrinate other SPLA members.
Soviet Assistance
We believe the bulk of equipment given to the SPLA
comes from Soviet-stocked Ethiopian inventories.
The Soviet Union may use intermediaries to supply
weapons to the SPLA. In January 1987, the Soviets
paid India hard currency to supply and ship to
Ethiopia older surplus arms? including rifles, pistols,
handgrenades, mortars, artillery pieces, and
ammunition. The Ethiopeans then provided the
weapons to the SPLA
The Soviets probably maintain limited contacts with
SPLA officials in Addis Ababa.
Cuban Support
Ethiopia provides most of the military training given
to SPLA recruits in Ethiopia, but Cuba also provides
advisory assistance
21
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probably includes teaching guerrilla warfare
techniques and providing specialized instruction for
elite units.
Cuban military physicians work with SPLA medical
personnel in Addis Ababa and provide medical
supplies to the movement,
The military training received by SPLA members in
Cuba is probably advanced or specialized
Havana also provides military training to SPLA
troops in Cuba.
? Senior SPLA officers generally are selected for
training abroad,
? A high-level SPLA official said in August 1987 that
1,200 SPLA cadres have been trained or are being
trained by the Cubans, with a "second wave" of
cadres to be sent, according to the US Embassy in
Addis Ababa.
Cuba probably provides some materiel assistance to
the SPLA, but we believe that most of the arms and
ammunition given to the insurgents comes from
Ethiopian inventories.
Havana is also contributing to the SPLA's
propaganda effort.
East European Aid
East Germany probably gives the SPLA some arms,
ammunition, and advice
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Overseas Training for Sudanese Youth
In addition to providing military training to SPLA
troops, Cuba and East European countries are
involved in politically indoctrinating Sudanese youth
to develo the next eneration of SPLA cadres.
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23
Effects of Foreign Military Assistance
In our view, foreign military assistance has
significantly contributed to the SPLA's military
effectiveness. Although the insurgency probably
would continue without external support given
fundamental southern political grievances against the
government in Khartoum, we believe the conflict's
intensity would be appreciably lower
We continue to believe that the SPLA under Garang's
leadership has a loosely defined socialist political
agenda. Over the long term, however, continued
foreign training and political indoctrination of SPLA
cadres could nurture a Marxist bloc within the SPLA.
This group could effectively challenge Garang's
leadership or force him to adopt a more radical leftist
political agenda.
Ethiopia and the Soviet Union are concerned that
the SPLA might turn to the West if it became more
autonomous.
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Egypt: Courting Ethio la?
At Least for Now
Egyptian policymakers are increasing emphasis on
improving relations with Ethiopia. After decades of
acrimonious relations dating back to the days of Nasir
and Haile Selassie, the Egyptians recently have
engineered a series of high-level contacts to improve
the bilateral atmosphere and engage Ethiopian
leaders on issues of mutual concern. Substantive
achievements, however, have been minimal and are
likely to fall short of Cairo's expectations.
Ethiopian Foreign Minister Berhanu's official visit to
Cairo last January?the first by a policy-level
Ethiopian since the 1974 revolution?was viewed by
Egyptians as an important signal of Ethiopian
willingness to improve relations, despite the absence
of results. Since then, Ethiopian President Mengistu
has paid an official visit to Cairo (April 1987), and
Egyptian President Mubarak has journeyed twice to
Addis Ababa to meet with Mengistu during the
Organization of African Unity summit meeting (July)
and Ethiopia's Republic Day celebrations
(September).
Although the atmosphere has been generally positive,
President Mubarak appears to be seeking more than
his Ethiopian counterpart is willing to deliver. A few
minor trade and technical agreements have been
signed, but several had been on the books?and
ignored?for years. Despite Egypt's eagerness for
better ties, President Mengistu appears intent on
extracting substantive offers from Mubarak without
offering anything in return. In particular Ethiopia
seems determined to drag its feet on the issues of
greatest Egyptian concern?the Nile and Sudan.
Egyptian Interests
Recent Egyptian overtures toward Ethiopia reflect
growing frustration in Cairo with the political turmoil
and vacillating leadership in Sudan and an awareness
that Addis Ababa holds the key to progress on Egypt's
two most pressing regional concerns.
25
The Nile. Egyptian officials believe Ethiopia's use of
water from the Nile?Egypt's lifeline?will be a key
issue for the next two decades
Ethiopia controls the headwaters of
the Blue Nile, which supplies over 80 percent of
Egypt's water, and Cairo feels profoundly threatened
by occasional reports that Addis Ababa is planning
upstream dam projects.
Sudan. Cairo is concerned with stability in war-torn
Sudan and seeks Ethiopian help in arranging a
rapprochement between the Sudanese Government
and Ethiopian-backed rebel forces led by Col. John
Garang, A peaceful
resolution to differences between Ethiopia and Sudan
could eliminate external support for the insurgency
and enable Egypt's southern neighbor to focus on
pressing internal political and economic problems. For
Egypt, an end to the insurgency would permit
construction to resume on the 425-kilometer Jonglei
canal in southern Sudan, which is designed to increase
waterflow in the White Nile.
Egypt seeks to wean Mengistu from his Soviet patrons
and prod him toward a more independent foreign
policy.
Cairo is using its overtures to Addis Ababa?a Soviet
ally?as evidence to counter Soviet complaints that
Egypt is interested only in supporting US positions on
international issues,
The Sudan Factor
Mubarak's most immediate purpose in mending
fences with Mengistu is to put pressure on Sudanese
Prime Minister Sadiq al Mahdi to begin dealing
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constructively with Sudan's problems. Mubarak's
courtship of Ethiopia has intensified as his distrust of
Sadiq has deepened over the past few months.
Mubarak as Peacemaker?
To help restore Egyptian influence in Khartoum and
bring Sudanese policy into line with Egyptian
objectives, Mubarak is attempting to play the role of
regional peacemaker by getting himself invited to
mediate between Addis Ababa and Khartoum,
Relations between Ethiopia and Sudan remain
strained. Addis Ababa is the main benefactor of
Col. John Garang's Sudanese People's Liberation
Army in its insurgency against the Khartoum
government, and it is fueling the war by giving the
rebels access to bases, financial aid, logistic support,
training, and materiel,
The Ethiopians have no incentive
to stop backing the Sudanese insurgents as long as
Khartoum supports Ethiopian dissident groups from
Eritrea and provides safehaven to their leaders.
A peacemaking role would help Egypt project its
influence in Sub-Saharan Africa?a key foreign
policy objective for the past several years since Egypt
was formally ostracized from the Arab world after
signing the Camp David accord. Reporting from the
US Embassy in Cairo suggests, however, that
Mubarak's aims in this instance are modest. Egypt
wants to get the talks started but apparently has not
devised a subsequent strategy.
Mubarak has virtually no leverage over either Sudan
or Ethiopia, and we believe the distrust between all
Secret
three parties is certain to doom his efforts, at least in
the near term:
? Neither Mengistu nor Sadiq wants Mubarak to
mediate,
Mengistu fears such involvement would increase
Egyptian influence in Sudan.
? In our view, neither Sadiq nor Mengistu believes a
bilateral meeting between them would settle
Ethiopian-Sudanese differences.
? Both Mubarak and Mengistu appear to be joining
against Sadiq to insist that he make the first moves
toward peace,
This collaboration is certain to discourage
initiatives from Khartoum.
Outlook: Too Many Obstacles to Progress
Prospects for improvement in Egyptian-Ethiopian ties
appear to be as limited as Mengistu's goals for the
relationship. The long legacy of coolness will be
difficult to overcome. By responding to Egypt's
courtship, Mengistu may have realized his most
immediate aim?a partial reversal of Addis Ababa's
increasing isolation in the region?
Despite the improved atmosphere,
little of substance has come out of bilateral contacts
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beyond minor trade and technical agreements, which
appear unlikely to be fulfilled.
More important, Mengistu seems unwilling to offer
anything beyond vague promises on the Nile and
Sudan. Addis Ababa will brush aside Egyptian
invitations to join the multilateral Undugu group of
Nile Basin countries, viewing it as a veiled front for
Egyptian and Zairian political aspirations and of no
benefit to Ethiopia.' Because Ethiopia is the most
important upstream Nile state, Addis Ababa believes
it would be in a weak negotiating position on major
water issues at Undugu meetings and would bear the
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downstream
Egypt, for its part, appears unwilling to change
dramatically its policy of support for Eritrean
insurgents?a longstanding Ethiopian demand. The
' Undugu (Swahili for brotherhood) is a loose grouping of Nile
Valley countries and others that benefit indirectly from the river,
including Egypt, Sudan, Uganda, Zaire, Rwanda, Kenya,
Tanzania, Burundi, and the Central African Republic. Established
at Egypt's instigation to encourage cooperation among users of Nile
water, Undugu held its first meeting in Khartoum in November
1983.
Reverse Blank 27
Ethiopians pressed Cairo to close local offices of
Eritrean liberation groups last January, and Egypt
complied?at least temporarily. Nonetheless,
Egypt will maintain its special
relationship with the Eritreans by providing moral
and psychological support because Cairo views this
support as a humanitarian gesture
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North Yemeni-Libyan
Relations: A Tactical
Rapprochement
The warming trend in North Yemeni-Libyan
relations appears to be based primarily on tactical
considerations. From the perspective of North
Yemeni President Ali Abdallah Salih, Libyan
military and economic assistance has provided the
beleaguered North Yemeni Government a much
needed shot in the arm. Libyan leader Qadhafi's
interest in the relationship is to reduce his isolation,
gain support for Libya's war with Chad, and
undermine US influence in the region. Salih is
concerned about US and Western reactions to his
flirtation with Tripoli, but he apparently has decided
that the tangible benefits of closer ties outweigh the
political costs. In our judgment, relations will improve
in the near term, but the longer term outlook will be
troubled by recurring political differences and the
volatility of Qadhafi's foreign policy.
North Yemen is caught between the conflicting
interests of the United States?on which it relies to
balance Soviet and Saudi influence in North
Yemen?and Libya, from which it receives needed
economic assistance and military cooperation. Salih
does not want to offend the United States and
generally tries to minimize his relationship with
Qahdafi. But Salih is obligated to Qadhafi for his
assistance and will respond to Libyan requests,
sometimes at the expense of US interests.
The value President Salih places on his relationship
with Libya was demonstrated by his emphasis on
Libyan matters in September, during talks with the
US delegation to North Yemen's National Day
celebrations, which were partly financed by Libya.
Over the past year Tripoli's assistance has been one of
the few bright spots for Salih's regime:
? Unable to secure Saudi backing for his policy
toward Aden, Salih accepted a Libyan offer to
provide economic and military support for the more
than 30,000 exiles who fled to North Yemen with
deposed South Yemeni President Ali Nasir after the
coup in Aden in January 1986.
29
A Case Study in North Yemeni-Libyan Relations
North Yemen's handling of the Libyan-sponsored
assassination attempt against an American employee
of the US Embassy in Sanaa in April 1986
exemplifies how Sanaa manages its relations with
Tripoli. Less than a week after the US air raid on
Tripoli, the US Embassy in Sanaa reported that
unknown assailants opened fire on a US diplomatic
vehicle driven by a US Embassy communicator. The
communicator sustained three bullet wounds in the
head and shoulder.
According to the Embassy, the North Yemenis
suspected Libyan complicity in the attack.
within a week, North
Yemeni security arrested a Lebanese Shia whom they
suspected of organizing the attack.
Members of the Popular Front
for the Liberation of Palestine were also detained
under suspicion of carrying out the attack. Despite
repeated attempts by the US Embassy to obtain the
facts of the case, the North Yemenis refused to
confirm Libyan involvement and tried to place the
blame for the attack on agents of the South Yemeni
Government. North Yemeni officials promised the US
Ambassador to increase security for all US officials
and their dependents.
Meanwhile, Salih dispatched his Foreign Minister to
Tripoli to confront the Libyans.
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a Libyan offer of oil assistance and additional
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perpetrators of the
attack probably were dealt with harshly.
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? Tripoli helped to fill the gap when Riyadh failed to
deliver promised economic assistance and cut oil
shipments to force Salih to negotiate contentious
border issues. Libya is providing North Yemen with
at least 15,000 barrels of oil per day?
approximately half its domestic requirement?
with Scud tactical
missiles and SA-6 surface-to-air missiles after the
Soviets rebuffed Sanaa's request for advanced
weapon systems late last year. At least 200 North
Yemeni troops are in Libya receiving training on
these systems, which Sanaa expects to receive
within six months
North Yemeni Motivations: A Quick Fix
In our judgment, Salih believes that Libyan economic
and military aid?in the absence of Saudi economic
assistance and declining US aid?has played a pivotal
role in shoring up the troubled Sanaa government.
Salih's inability to satisfy popular expectations raised
by the prospects of oil revenues or to resolve North
Yemen's troubled relations with its neighbors and the
USSR has begun to alienate key constituencies, such
as the military and the tribes. Libyan military
assistance has helped to satisfy Salih's critics within
the defense establishment
Salih's relations with Libya have helped to further his
limited arms diversification program designed to
reduce North Yemen's dependence on direct Soviet
military assistance and advisers. Libya has been
Salih's only significant source of arms outside the
Soviet Union since the civil war in South Yemen in
January 1986.
From North Yemen's perspective, Salih's
reciprocation for Libyan aid has been relatively
modest. Salih has:
? Provided limited military and diplomatic support to
Libya's campaign in Chad.
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Apparently at
Qadhafi's request, Salih has raised with US and
French officials the issue of their countries' support
for Chad, urging them to rein in President Habre.
? Approached the United States and Iraq on Tripoli's
behalf with offers to mediate their differences with
Libya.
? Apparently agreed to act as middleman for Libyan
arms purchases.
? Allowed the Libyans to meet with representatives of
African dissident groups on North Yemeni soil.
? Mediated between Libya and Egypt over the return
of a Libyan C-130 transport aircraft and its crew
after the pilot and copilot defected in early 1987.
Libyan Motivations: Increased Influence
Libyan leader Qadhafi's interest in North Yemen
dovetails with broader policy objectives in the Arab
world. Qadhafi's repeated attempts since June 1986 to
mediate the repatriation of the South Yemeni exiles
in North Yemen reflect his desire to reduce his
isolation and gain a leadership role in the Arab world.
His provision of arms to the exiles and economic and
military assistance to North Yemen is part of an
effort to gain leverage with both parties. Qadhafi
almost certainly hopes to use this leverage to draw
North Yemen away from the United States. He
probably is attracted by North Yemen's proximity to
Saudi Arabia, Djibouti, and Somalia, periodic targets
of Libyan subversion.
The North Yemeni?Libya relationship has provided
important opportunities for Qadhafi:
? Salih's visit to Libya in the summer of 1986, the
first by a head of state following the US airstrike in
April, helped ease Qadhafi's concern about
international isolation.
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Economic and Military Aid
to North Yemen
1986-1987
(Millions of US Dollars)
1986
$481
Soviet
411111114
/1k
Saudi
36%
US
9%
Libya
Uae 8%
3%
Soviet
76%
1987
$660
)?
6%
1111ii.1 Ass.
Libya
US
11%
Uae
)(Saudi 6%
* Less than 1% of total aid for 1987
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? North Yemeni support for his war with Chad will
ease the combat burden on Libyan forces and
possibly reduce domestic political pressures.
? Visits to North Yemen by low-level Libyan officials
and representatives of the revolutionary
committees?one of Qadhafi's key domestic support
groups?provide a safety valve against domestic
discontent by giving the Libyan Government the
appearance of acceptance in the Arab world.
? Yemeni intercession with Baghdad probably was a
factor in the restoration of Libyan-Iraqi relations
last month
In Qadhafi's view, the military and economic aid
provided to Sanaa is a low-cost way of obtaining
Yemeni support. The tanks and other military
equipment given by Tripoli constitute only a small
fraction of Libya's inventory. Even the provision of a
limited number of Scud surface-to-surface missiles
will not diminish Libyan military capabilities. Libyan
economic and technical aid, particularly oil, is
affordable?the Libyan oil industry is operating at
less than full capacity.
Prospects for the Relationship
The short-term prospects for the relationship between
North Yemen and Libya appear to be good. Inside
North Yemen the impetus for pursuing the
relationship comes from Salih, and there is no
evidence of leadership discord on this issue.
The outlook for the long-term relationship is less
positive. North Yemeni-Libyan relations traditionally
have been characterized by deep mistrust, and,
despite the upswing in bilateral activity, considerable
mutual suspicion is evident. Salih suspects that
Qadhafi will back North Yemeni dissidents,
particularly the Nasirist-oriented 13 June movement
to which Qadhafi has close ties. Moreover, Qadhafi
may worry that North Yemen will use Tripoli to get
assistance but will suspend political support for
Tripoli's foreign policy
Secret
We believe that Salih is aware of the risks he faces in
dealing with Qadhafi. Tripoli has a history of
meddling in North Yemen's internal affairs, including
support for coup attempts in 1978 and 1982 and
substantial backing for the South Yemeni?sponsored
National Democratic Front insurgency from 1979 to
1982.
In our judgment, Salih cannot satisfy the mercurial
Libyan leader indefinitely. Salih's efforts to placate
Qadhafi last month by sending several hundred South
Yemeni military exiles to Tripoli appear to have been
inadequate.
In addition, Salih's relationship with Libya
undoubtedly will cause him further problems with
Saudi Arabia. According to the US Embassy in
Riyadh, the Saudis have expressed displeasure over
the improvement in North Yemeni?Libyan ties, citing
it as a factor in their growing irritation with Salih.
In response to these and other concerns, Salih has
tried to limit the Libyan role in his country. Salih has
refused Libyan offers to deploy a training brigade to
North Yemen.
Implications for the United States
Salih will seek to assure Washington that his
relationship with Libya will not harm US interests.
Nonetheless, Salih is likely to weigh US aid and
support against that from Libya and conclude that the
Libyan connection offers more tangible benefits. To
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Threat to US Security
Threats to US security are unlikely to increase
dramatically because of closer ties between Libya
and North Yemen. Despite the Libyan-sponsored
shooting of a US Embassy employee in Sanaa in the
immediate aftermath of the US airstrike in April
1986, Libya is unlikely to use North Yemen as a
venue for attacks on US personnel and facilities.
The
difficult operating environment and minimal anti-US
sentiment prevent Libya from implementing its
preferred course of action?exploiting domestic
radicals to promote attacks on US interests.
Furthermore, North Yemen will carefully monitor its
relations with Libya to ensure that Tripoli?
emboldened by its closer relationship with Sanaa?
will not be tempted to resume meddling in domestic
Yemeni affairs or to conduct operations against its
enemies on North Yemeni soil.
demonstrate his evenhandedness, Salih can be
expected to offer to mediate between Washington and
Tripoli.
Over the longer term, US?North Yemeni ties will not
suffer serious dislocation, if only because Salih
recognizes the value of US economic and oil
development aid and limited military assistance. His
relationship with the United States will seem even
more valuable as his association with Qadhafi loses its
luster. Salih will appreciate the role the United States
plays as a counterweight to the Soviet presence in
North Yemen and as a sympathetic voice in dealings
with the Saudis.
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The Maghreb: Travels Through
the Bled 1
The strongest impression of the Bled is the
unfavorable contrast of Algeria's agriculture with
that of Morocco and Tunisia.' In our view, the
problems result mainly from a lack of adequate
economic incentives for individuals to produce
efficiently. We believe Algeria's problems in the rural
sector present a long-term threat to the country's
stability.
At First Glance
The agricultural regions of the three countries have
similar geography and environment. The most fertile
regions are a mix of rolling hills and alluvial plains
near the coasts.
through irrigation-
the region. Soil quality
water?frequently
adequate throughout
fairly uniform.
Farmers in each country cultivate crops of wheat,
hay, olives, vegetables, and grapes. Tractors and other
agricultural machinery are used on larger farms in all
countries, but they are not abundant. Mules are used
on the smaller farms. There are ample roads to move
produce, but road quality varies widely. Traffic?even
on the main highways of each country?is congested
with farm vehicles and livestock.
A Closer Look
The similarities fade at the level of rural activity.
There was much less productive activity in Algeria
than in Tunisia or Morocco. Even during work hours,
village cafes in Algeria F?Crowded with men
drinking coffee or sitting idly. This contrasted with
Tunisia and Morocco, where cafes, although not
empty, much less crowded during the day. We
believe that, with agriculture in Algeria
predominantly socialized, farmers do not have a
' Bled is the Maghrebian Arab term for countryside and connotes
rural areas that are not subject to firm government control.
35
Secret
Only in Algeria Do the Fish Die of Old Age
The official exchange rate?about 5 dinars to the
dollar?is artificially high and leads to many efforts
to obtain hard currency. For example, Algerian
fishermen often officially report small catches of fish
despite the abundance of fish in Algerian waters.
far more fish are caught than are
reported, but the fishermen sell them at sea to
Europeans for hard currency. Algerians note with
tongue in cheek that, since the fish are not caught,
many must die of old age. They add that neighboring
countries that have fewer trade restrictions do not
have such long-lived fish. Further, hotels in Algiers
that are frequented by foreigners often will not accept
payment in Algerian money?hard currency must be
used. The Soviet Embassy and Consulate are
required to pay their telephone bills in dollars
because rubles are not considered hard currency.
Taxi drivers and hotel bellhops who know little
English know the phrase "Change money?"
he only people in Algeria that
deal at the official exchange rate are US and UK
diplomats.
strong economic incentive to work hard. In contrast,
agriculture in Tunisia and Morocco is mainly in
private hands, and owners have much more incentive.
Lack of incentive appears to have caused Algerian
farmers not to use productive techniques that are
common in Tunisia and Morocco. For example,
although
Morocco burnin
winter wheat,
farmers in Tunisia and
their fields to enrich the soil for
not done in Algeria. In
addition, grape vines are not as likely to be staked and
weeded in Algeria as they are in the other countries.
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Aspects of Agriculture in the Bled
Open irrigation ditches are used throughout the
Bled to move water. Much scarce water is lost
through evaporation.
Olive trees are common throughout the region.
There are more olive trees than people iv.
Tunisia.
Farmers throughout the region stack halts of hay
in piles the size and shape of houses. In .'unisia
and Morocco they arc often coated with mud that
hardens and keeps the hay moist
Plastic covers will be put over the frames in the
background to create temporary .greenhouses is inter crops.
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The Broader Ramifications
Socialized agriculture has converted Algeria from a
net food exporter at independence to a country that
imports about 60 percent of its food. Domestically
produced food is high priced?
watermelons cost more than twice the US price, and
meat cost about $22 a kilogram. Flowers and luxur
food items not available in Algeria but
frequently in Tunisia and Morocco. Although
no starvation or severe malnutrition, the high cost of
living and shortages almost certainly contribute to a
budding security problem in the Algerian countryside.
For example
dozens of people occupying moderate-size apartments,
and garbage-strewn streets.
the high frequency of robbery on the
trains. US diplomats in Oran report a growing danger
of highway robbery on the heights above Oran and
Mers el Kebir. Gangs of youths have been known to
steal everything from motorists, including the clothes
they were wearing.
Declining standards of living in rural areas have
contributed to a flow of people into the cities. About
60 percent of Algeria's population live in cities, and
the rate of urbanization is above 5 percent per year?
both the highest figures in the Maghreb. Conditions
in the cities are deteriorating as a result of high rural-
to-urban migration. Oran, the second largest city and
once the most European, is a case in point. After
independence, the government greatly reduced rent in
buildings that had been owned by Europeans and
placed almost no restrictions on the number of people
that could move in. Nearly three decades of rent
control have resulted in the "ruralization" of the city,
including a noticeable deterioration of buildings,
37
former peasants in an apartment building
kept roosters and chickens in their apartments for
food.
The Slow Pace of Reform
Algerian President Bendjedid appears determined to
correct rural economic problems by breaking up state
farms and promoting private farming. In our view,
when private farms are established and allowed to
compete freely, productivity will increase. Progress
will be slow because Bendjedid is meeting serious
resistance in the ruling party and the bureaucracy.
We believe the slow pace and incomplete nature of the
reforms will contribute to the failure of many of the
first private farms. For example, one family of
entrepreneurs is eager to launch a
poultry farm. Although the ownership will be private,
the farm cannot compete effectively with state
enterprises. All equipment and supplies must be
bought from state monopolies and all products sold at
prices set by the state.
For the short term, most Algerians are likely to view
the state as a source of economic frustration.
Algerians with money to spend often find nothing
suitable to buy in Algeria and prefer to shop in
Tunisia or Morocco. On their way home they are
frequently stopped at roadblocks where the police
perform customs duties.
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litary Deployment Around Al Barah, 30 October 1987
Secret
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Iraq: Impressions of
Al Basrah
The Decline of a Great City
Our guide, a native of Al Basrah, regaled us with
stories of his home city's past glories. He claimed that
Al Basrah had been Iraq's most important city in
recent times, larger than Baghdad and more
cosmopolitan. Baghdad had always been isolated from
foreign influences, while Al Basrah had been Iraq's
window to the world. He pointed out one massive new
industrial installation after another, all built before
the war and intended to give the Al Basrah region a
great industrial future. None were in use.
We entered the city at a portentous moment. On 29
August, the Iraqis resumed their airstrikes against
targets in the Persian Gulf for the first time since the
middle of July. There had been much speculation over
the Iranian response to this resumed campaign?in
particular whether the Iranians would launch missile
attacks against Baghdad. Instead, the Iranians
responded with heavy shelling of Al Basrah and its
environs.
We found ourselves caught in the middle of this
barrage. We were told that on the previous two days
1,356 shells had hit the city-39 people had died and
200 were injured on 2 September. The reason for the
high number of casualties, we were informed, was
targeting of the city's new residential areas. For the
first time, Iranian shells had fallen much further to
the west, especially northwest of Al Basrah. Although
the central city had been almost abandoned earlier in
the year, most resisdents of the sprawling
northwestern suburbs had remained, hoping that they
were beyond range. Beginning on 1 September, their
hopes proved to be wrong.
' This article is based on a dispatch from the US Embassy in
Baghdad describing a visit to Al Basrah in early September by two
US Government officials and their assessment of the effects of the
Iran-Iraq war on Iraq's once leading port and second largest city,
with a population of about 450,000.
39
The Hospital: Impassive Faces and Death
The bloody impact of the previous two days' shelling
was evident in our first stop, Al Basrah's Republican
Hospital. As we entered the sprawling, dilapidated
hospital compound, a corpse was casually being
wheeled out into the hot sun by an impassive young
woman. We were escorted into two of the hospital's
main wards. One was for women and children, and
one was for men. Each had about 35 beds with victims
from the previous two days. There was an element of
theater in our visit, as we were closely pursued by a
television cameraman. The wounds, however, were
real, and the accompanying doctors insisted on
showing us every detail. Most of the patients had
shrapnel wounds in their legs or arms, broken bones,
or abdominal injuries caused by shrapnel and
concussion. There was little anger or emotion in their
faces. Most patients seemed passive and fatalistic.
Some spoke matter-of-factly about the simultaneous
death of a wife, child, or grandparent, as if it were a
daily and expected occurrence.
The medical care was adequate under the
circumstances. The doctors were articulate and
seemed competent. The sheets, however, were dirty
and sometimes bloody. Cats wandered around, and
the wards were full of flies. There was an obvious lack
of staff, and the doctors explained that most of the so-
called nurses were local female volunteers. One young
doctor claimed he and his family had been assigned to
this hospital at the beginning of the war, although he
and his faimily reside in Baghdad. He had been
unable to obtain reassignment. There was a lack of
privacy for the patients, who obviously could not
prevent our intrusion. They were under instructions to
respond to our questions, and their responses had
much the same ring. When the bombs fell, they had
been minding their business, sitting in their houses, or
walking to their cars.
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As we left the hospital, a car careened up with its
windows blown out. A woman in black painfully
emerged from the passenger side, evidently injured.
We learned that injured persons typically have to find
their way to the hospitals, either driving themselves or
relying on their neighbors for transportation. Many
people have to wait hours before getting to the
hospital. There is no system to check for injured
people after shells fall. (Looting has been heavy in Al
Basrah, some of it by soldiers. Civil defense units have
become leery of searching bombed areas for fear of
being accused of looting.)
A Deserted City
After leaving the hospital, we drove straight across
town to the Shatt al Arab near the Sheraton Hotel.
This distance of about 3 kilometers was almost
deserted. It is obvious that Al Basra has become a
ghost town, especially the section near the Corniche.
There was no traffic on the streets, except a few
scurrying military vehicles. There was none of the
usual evidence of human habitation, such as children
playing in the streets, clothes hanging out to dry,
merchants in small shops, women huddled with
women, or men chatting.
There was some destruction in the central city but not
as much as one would expect. We passed a large
mosque and a church, both of which had been shelled
the previous day, but this was not obvious until it had
been pointed out. The Sheraton, on the Corniche, was
also a surprise. The hotel had a fair number of holes
in it, but there was no major destruction evident.
Much of the destruction did not result from the war?
as is typical of Iraqi cities. The authorities have
intentionally destroyed many of the city's mud and
lattice-work houses to rebuild them in modern
cement. The destruction, which has been carried
much further in other Iraqi cities, has been frozen in
Al Basrah. Most of the new cement structures have
yet to be constructed. On the other hand, we noticed
numerous holes and pitting, the obvious result of
shelling.
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When we stopped at the Corniche, there was a lull in
the shelling. Soldiers behind sandbags along the
Corniche had been lying down in the heat of the day
and roused themselves from their torpor. The
Corniche was lined with date palms. Across the Shatt
the palm groves showed few signs of destruction?
although we knew that the eastern part of the city
must be in worse shape than the western part. Except
for the quiet and the fact that some of the ships in the
Shatt were upturned and sunken, Al Basrah still had
the appearance of a great port. There are large
numbers of oceangoing vessels trapped at the quays
that have been there throughout the war.
The Shelling Gets Too Near
We sped from the Corniche northwest through the
deserted city. Distant shelling could be heard,
mounting in frequency. We passed ship after ship
moored along the old quays. We stopped at the only
functioning hotel, the Shatt at Arab Hotel, which also
serves as the airline terminal for the Al Basrah
airport. We toured the hotel, where we had
reservations for the night, and observed a board
displaying the photographs of dead soldiers who had
served in the airport unit.
We lunched at the Navy Club, a modern building
extending over the Shatt with an impressive view of
the ships trapped in port. The club had taken no direct
hits, but two military vehicles in the parking lot had
been hit on the previous day, we were told. The
shelling became increasingly frequent at two- to five-
minute intervals and came closer to our location.
Midway through the lunch a couple of shells landed
near enough to rattle the windows of the club and
nearly lifted us out of our seats. We made clear that
we had no desire to leave directly for Baghdad, but
our entreaties to return to the center of the city fell on
deaf ears. We spent the night at the home of our guide
about 25 kilometers west of Al Basrah.
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Ash Shariqah: Iran's Trojan Horse
in the United Arab Emirates
Although many of the seven emirates in the United
Arab Emirates maintain relations with Iran, Ash
Shariqah?the third largest emirate?is most
vulnerable to Iranian pressure and sabotage. The
ruler's close personal ties to Tehran, Ash Shariqah's
accessible Shia community, and its shared economic
interests have created a special relationship with Iran.
Moreover, there are 3,000 to 4,000 Iranian Shias
resident in the Emirate. Tehran has tried to exploit
this relationship over the years to increase its foothold
in the Persian Gulf. Concern among UAE leaders
over close ties between Ash Shariqah and Iran was an
underlying factor in the attempted coup last June.
Security Threat
Iran is Ash Shariqah's principal security threat.
Natives of the Emirate have always been wary of
Iranian intentions, and the Iranian occupation of Abu
Musa Island in 1971?an island claimed by both?
typified, in Ash Shariqah's view, Tehran's aggressive
policy toward the emirate. Since then, Iran has
demonstrated little willingness to respect the emirate's
sovereignty. Most recently, Iran disregarded its
promise not to use Abu Musa for military purposes,
launching helicopters and small boat attacks from
there on shipping in the southern Gulf. According to
the US Embassy, in mid-October Iran delivered
additional military equipment to Abu Musa,
including tanks and possibly artillery.
Although Ash Shariqah's resident Iranian population
does not constitute a direct threat, it provides
substantial cover for Iranian-sponsored activities.
41
pro-
Iranian sentiment appears to be increasing in Ash
Shariqah's eight Shia husayniyyas?gathering places
for informal religious discussions. Several
husayniyyas are highly politicized, and virtually every
sermon is supportive of Iran.
local security services were especially concerned that
Iranian activists at the husayniyyas would incite
demonstrations during the celebrations of Muharram
last September. The US Embassy reports that,
although Ash Shariqah's policy has been to avoid
promoting husayniyyas, the government has tolerated
their presence as a way to channel the activities of the
Shia religious community.
Ash Shariqah, with its permeable borders and
inadequate security forces, is ill equipped to cope with
the Iranian threat. Although the emirate maintains a
1,600-man military force, it depends heavily on the
Abu Dhabi- controlled federal security apparatus for
protection against external aggression and subversion.
According to the US Embassy, senior emirate
officials assert that Abu Dhabi does not provide Ash
Shariqah with adequate resources to deal with threats
to its security. For example, it had to rely on Dubayy's
police force to identify and surveil Iranians suspected
of subversive activities in 1985. But Dubayy's force at
times is overburdened with its own concerns and is not
a reliable source of protection for Ash Shariqah.
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Economic Ties
Since 1974 Ash Shariqah and Iran have shared the
revenues from the Mubarak oilfield adjacent to Abu
Musa Island. Ash Shariqah has retained
responsibility for operating the field and for all
decisionmaking. The US Embassy reports that the
emirate coordinates major decisions with a group of
Iranian technical experts and probably defers to
Iranian views on production policy. Mubarak
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production peaked about 10 years ago at 65,000
barrels per day. Current output is about 5,000 barrels
per day.
Over the past year Iran has taken steps to regularize
its contacts with Ash Shariqah over the Mubarak
oilfield. According to the US Embassy, Tehran
maintained a permanent group of technical experts
who dealt routinely with Ash Shariqah before the
Irani-an revolution. Last March, Ash Shariqah and
Iran agreed to establish a permanent committee to
collaborate on technical and policy matters affecting
oil and gas production in the fields near Abu Musa
Island.
Iran's renewed interest may be partly related to the
discovery of a large gas condensate reservoir beneath
the Mubarak oilfield early this year, according to the
US Embassy. The Iranians have not been pleased
with Ash Shariqah's tendency to pump oil too fast?
depleting reservoir pressure?or to overproduce the
field. Moreover, the Iranians believe that Ash
Shariqah's development of this new discovery is
cutting into their profits. By setting up a permanent
committee, Tehran probably hopes to get greater
control over the new discovery before Ash Shariqah
squanders its wealth.
Ash Shariqah and Iran have additional economic ties
apart from the shared Mubarak oilfield. The
emirate's primary export market is jran, with exports
totaling at least $50 million in 1986;Trade is handled
almost exclusively by dhows that sail between Ash
Shariqah and Bandar-e Abbas. The emirate places
virtually no restrictions on nonmilitary goods to Iran,
These dhows carry
mainly foodstuffs and consumer goods?items that
command high prices in Iran because they are in short
supply. Occasionally cars or light trucks have been
seen on the docks, according to the US Embassy. Ash
Shariqah also serves as an important airlink to Iran,
particularly in cargo service, with two passenger and
four cargo flights weekly.
In addition, Iran maintains several business
establishments that facilitate Tehran's overseas
activities and its acquisition of much needed technical
equipment and foreign currency, according to US
Secret
Embassy reporting. Iran's national oil company
maintains a small equipment purchasing office in Ash
Shariqah that is staffed by Iranian Government
officials. Two of Iran's larger commercial banks,
Bank Melli and Bank Saderat Iran, have offices in
Ash Shariqah.
Palace Connections
Shaykh Sultan bin Muhammad al-Qasimi, ruler of
Ash Shariqah, has carried his emirate's close
relationship with Iran beyond what mere pragmatism
requires, according to the US Embassy. Known as the
maverick among UAE leaders, Sultan has fancied
himself a close friend of Iran and even tried to
represent himself as one who could negotiate with
Iran to help end the Iran-Iraq war. He planned a trip
to Iran in 1986 for that purpose, which for an
unknown reason never took place. UAE watchers
suspect that Federation President Zayid strongly
reminded Sultan that such efforts should come from
the President's office only.
Sultan's ties to Iran have created concern among the
UAE leadership and probably were an important
factor behind the attempted coup in June. The US
Embassy reports that Abd al Aziz al-Qasimi?
Sultan's older brother who attempted the coup on 17
June?believes Iran's long-term policy has been to
penetrate the UAE through Ash Shariqah, and
Tehran has chosen his brother Sultan as their
surrogate. Rumors have circulated in the UAE that
Sultan had developed direct links to senior Iranian
officials without federal approval and that Zayid
strongly disapproved such contacts. Abd al Aziz also
alleged to US Embassy officials that indications of
Sultan's favor for the Iranians included:
? Sultan tried to ignore and then hide the arms cache
and terrorist cells that were discovered in Ash
Shariqah in 1985.
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? Sultan has not insisted that Iran abide by its
promise not to use Abu Musa Island, allowing Iran
unbridled access to the island.
? Two Iranian banks suddenly and inexplicably
waived at least $17 million of a $50 million loan
made to the emirate government this year.
? Sultan secretly gave $600,000 to support a local
Shia husayniyya and may have tacitly approved the
visit of a mullah from Tehran to preside over
religious ceremonies during Muharram without
formally being invited by the Shia community or
cleared by the emirate's security authorities.
Iran tried to manipulate the attempted coup to
preserve Sultan's position,
Tehran reacted
quickly when Abd al Aziz attempted to oust Sultan by
issuing an official statement backing Sultan. The US
Embassy reports that Iranian officials worked behind
the scenes to bolster Sultan during his temporary exile
in Dubayy and offered to mobilize its forces on Abu
Musa in support of Sultan. We believe Iran saw in
Abd al Aziz a decidedly less friendly figure and
believed that as ruler he would deal more firmly with
Iran and Ash Shariqah's security weaknesses. Tehran
probably calculated that the replacement of Sultan,
who has frosty relations with Zayid, would undermine
it's strategy of playing Ash Shariqah and Dubayy
against Abu Dhabi and the other emirates, hindering
UAE solidarity toward Iran.
The power-sharing arrangements that have been
worked out between the brothers as a result of the
coup attempt are partly intended to check Iranian
efforts to court Ash Shariqah and in particular
Sultan. Abd al Aziz has been appointed Crown Prince
and deputy to his brother as well as deputy chairman
of a newly formed executive council to govern the
emirate.
Zayid, who allegedly backed Abd al Aziz in his coup
attempt, was instrumental in setting up the power-
sharing arrangements designed to enlarge Abd al
Aziz's role in policymaking. Zayid probably hoped
43
that Abd al Aziz's anti-Iranian sentiments would
serve as a check on Sultan's friendship with Iran.
Implications
Iran's use of Abu Musa Island for military purposes
will continue to be a major source of friction between
Iran and Ash Shariqah, but this is unlikely to disrupt
relations. The US Embassy reports that, although
Ash Shariqah has never agreed to Iran's military use
of the island, emirate officials believe they are
powerless to challenge Iran's presence there.
Nonetheless, according to the US Embassy, after the
Iranian military buildup in October, the Amiri Guard
commander warned Iranian diplomatic officials to
refrain from meddling in the emirate's affairs on the
island and threatened to close Iranian establishments
in Ash Shariqah and call in US forces to oust the
Iranians from Abu Musa. Despite these warnings,
Ash Shariqah would prefer to ignore Iranian activities
on the island, especially if Iran refrains from attacks
along the coast.
Ash Shariqah's inability to control Iranian activities
on Abu Musa will increase interemirate tensions that
are running high over how to deal with Iranian
aggression in the region. Faced with an increasingly
hostile Iran, UAE leaders, particularly those in Abu
Dhabi, are likely to press Ash Shariqah to take a
tougher position with the Iranians. Emirate leaders,
however, will be eager to maintain their lucrative ties
to Iran and will advocate accommodationist policies.
Ash Shariqah's meager military and security
capabilities as well as its sizable native Shia and
Iranian population will prevent emirate leaders from
taking actions that might provoke the Iranians. Iran
probably has sufficient access to Ash Shariqah's Shia
community to carry out subversive activity at
Tehran's discretion.
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Despite Ash Shariqah's shared interests with Iran, the
emirate is unlikely to change its pro-Iraqi stance in
the war or its support for the federation. Emirate
leaders, including Sultan, are not naive about Iranian
motives in the region and are aware that shared
economic interests do not offer much protection
against Iranian aggression. Moreover, the political,
security, and economic benefits of the federation are
far too important for Ash Shariqah to jeopardize by
straying too far from the federation's policy toward
Iran.
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Middle East and South Asia:
An Overview of Tax Systems
Tax systems in Middle Eastern and South Asian
countries are primarily used to raise revenue for
short-term budget expenditures.' They generally fail
to contribute to implementation of long-term policies
in such areas as industrial development, income
redistribution, housing, and education. Taxes are
rarely used as a fiscal policy tool, as in Western
countries, to influence the growth of the economy.
Governments in the region often implement tax
policies that are publicly acceptable but do not make
economic sense. Moreover, tax evasion is rampant,
and enforcement of tax laws is lax. We believe efforts
to reform tax systems--as in Israel, Egypt, and
Pakistan?will remain politically sensitive and hinder
the raising of revenue.
Most governments in the region use a mixture of
direct and indirect taxes to raise revenue. They rely
primarily on indirect taxes which constitute over 60
percent of tax revenue in most countries.
Governments throughout the region generally impose
direct taxes that are progressive?taxing those with
the ability to pay. Direct and indirect taxes typically
raise less than half the total domestic revenue?
particularly in the Persian Gulf states. The difference
is made up primarily by investment income, royalties,
and profits from state-owned industries.
Regional Differences
The states of North Africa and the eastern
Mediterranean levy a wide variety of direct and
indirect taxes.' Customs duties, excise taxes, and
licenses and fees provide the bulk of domestic tax
revenues?almost 50 percent in Jordan, for example.
Other indirect taxes used by these states include
value-added taxes, turnover taxes, user fees,
production and consumption taxes, and taxes on travel
'Information on tax rates, tax revenue, and government budgeting
mechanisms are for many countries poor. In addition, it is difficult
to track government expenditures and the effects the expenditures
have on capital formation, development, and modernization.
These states include Morocco, Algeria, Tunisia Libya, Egypt,
Sudan, Jordan, Syria, Lebanon, and Israel.
45
Secret
and luxury items. Direct taxes in these states typically
do not raise much revenue, largely because of evasion
and difficulty of administration. In Egypt and Jordan,
for example, personal and corporate income taxes
contribute less than 15 percent of tax revenue and do
little to improve social services or redistribute income,
according to diplomatic reporting.
Some countries impose taxes on an ad hoc basis to
meet revenue shortfalls. Libya, for example, has
imposed a "jihad tax"-3 percent of each person's
salary is deducted for the Islamic Call Society's
"Jihad Fund"-
In addition, the Libyan Government has imposed new
taxes to finance its Great Manmade River Project.
We believe that these measures will become
permanent fixtures of the tax system.
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In the Arab Peninsula and Persian Gulf states, which
collect most of their revenue from oil production and
royalties from government-owned enterprises, direct
taxes?such as taxes on property or wealth, corporate
income or profit, and inheritance?raise only minimal
revenue.' The main indirect taxes used by these states
are customs duties, excise taxes, and licenses and fees.
Like direct taxes, they generally do not raise
substantial revenue and do little to affect economic 25X1
growth. Customs duties and excise taxes are used to
protect newly established domestic industries. The
Gulf Cooperation Council recommends three tariff
levels, but each country is free to decide its tariff rate.
In Saudi Arabia, for instance, the general tariff was
increased in 1985 to 7 percent, but several items enter
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In the Persian Gulf, reduced oil revenues in recent
years have caused some governments to try to improve
budget revenue and minimize the effects of the
'These states include Saudi Arabia, Bahrain, Kuwait, Oman
Qatar, UAE, Iraq, Iran, North Yemen, and South Yemen.
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Taxes Used in the Middle East and South Asia
Direct taxes. The main direct taxes are the personal
income tax, corporate income tax property or wealth
tax, and oil taxes and royalties. Other direct taxes,
less frequently implemented, are zakat?a general
Islamic wealth tax to be used for the poor and
needy?and taxes on inheritance, capital gains, and
land revenue.
Advantages: Rates generally are progressive, taxing
those with the ability to pay.
Disadvantages: Cuts back savings, real investment,
and development. Politically difficult to increase
because of political strength of the rich. Easy to
evade. Numerous loopholes and exemptions often
limit effectiveness. Raises little revenue because of
the limited incomes of the poor. Difficult to
implement because of high illiteracy rates and
administrative difficulties in taxing large numbers of
people.
Indirect taxes. The main indirect taxes are customs
duties, excise taxes, value added taxes, licenses and
fees, and taxes on consumption, sales, travel, and
luxury items.
Advantages: Easier to administer and enforce
because of fewer complicated tax forms and the
smaller number of taxpayers (producers, wholesalers,
and retailers). Often raise more revenue than direct
taxes because the activity being taxed is more
accessible?receipts from imports, exports, sales, and
fees versus individual and corporate incomes, which
probably are more easily concealed. May be used
under the infant industry argument?new domestic
industries need protection from established foreign
competitors. Consumption or sales taxes?collected
by retailers and then given to the government?allow
the government to reach the typically large,
subsistence population. May have a lower political
cost because the distribution of the tax burden is
unclear. Indirect taxes may conserve foreign
exchange by restricting imports of luxury goods?
taxing those with the ability to pay.
Disadvantages: Inability to reach high concentrations
of income and wealth as effectively as direct taxes.
Customs duties may become protectionist and distort
domestic production by sustaining inefficient
industries or fostering black-market activities. Some
indirect taxes?customs duties and excise and sales
taxes?are regressive and hurt the poorer segments of
society.
recession on domestic businesses. For example,
Bahrain has raised fees for business licenses and other
government services, and Oman has raised user fees
for government services. Financially troubled firms in
Saudi Arabia may be exempted from paying zakat,
equal to 20 percent of their profits, if they can provide
proof of their difficulties, according to the US
Embassy in Riyadh.
Direct taxes in South Asian countries provide
relatively little revenue.' Pakistan and India, with
? South Asian countries include Afghanistan, Pakistan, India,
Nepal, Bangladesh, and Sri Lanka
Secret
relatively sophisticated tax structures, obtain less than
20 percent of tax revenue through direct taxation,
according to diplomatic reporting. Several countries
do not tax agricultural income, primarily because of
the political clout of large landowners, leaving a large
potential source of revenue untapped.
Like the Arab states, South Asian countries rely
heavily on indirect taxation?especially customs
duties, excise taxes, licenses and fees, and sales and
luxury taxes?to raise revenue. India and Pakistan
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PROPORTIONS OF DIRECT 8c INDIRECT TAX REVENUE
1987*
ercent
52
83
82
64
85
97
SYRIA PAKISTAN INDIA EGYPT JORDAN SAUDI ARABIA
III Direct
Indirect
PROPORTIONS OF TAX 8c NON?TAX DOMESTIC REVENUE
Percent 1987*
SYRIA PAKISTAN INDIA EGYPT JORDAN SAUDI ARABIA
Estimate
III Tax
[Z Non-tax
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have value-added taxes on certain commodities.
India's modified value-added tax scheme?introduced
in 1986?covers almost the entire industrial sector
with the exception of textiles, tobacco, and petroleum,
according to the US Embassy in New Delhi.
South Asian governments have used a variety of tax
measures to help make up for budget shortfalls or to
pay for unexpected expenses:
? India imposed a 5-percent surcharge on taxable
income and corporate profits above $3,845 for fiscal
year 1988/89 to raise $420 million for damages
from this summer's drought, according to the local
press. In addition, temporary surcharges were
placed on customs duties and domestic air and rail
fares.
? Bangladesh, to raise money to import food and to
repair and rehabilitate areas damaged by the recent
flood, imposed a 6-percent income tax surcharge
and 5-percent excise duty on cinemas, hotels,
restaurants, and soft drinks.
? Nepal began advance collections of 1987-88
business taxes to meet 1986-87 budget demands,
Tax Avoidance and Evasion
Tax avoidance and evasion, while difficult to quantify,
are widespread in the Middle East and South Asia. A
shortage of trained personnel, such as accountants
and customs officials, and the inability of
governments to register taxpayers?local vendors as
well as the general population?are contributing
factors. In addition, individuals and businesses often
are not attuned to paying taxes or the need to do so. In
some countries this attitude is a reaction to the
countries' colonial history. Taxes were regarded as an
instrument of colonial power and, therefore, a
legitimate object of evasion.
Tax policies in the region?as in most developed and
developing countries?often contain loopholes, and
potential revenue slips through the cracks. For
example, although Morocco's tax system snares most
salaried employees and foreign companies, local
businesses have developed tax avoidance to a fine art,
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according to the US Embassy in Rabat. The local
businessmen invest heavily in the agricultural sector
because of tax exemptions on agricultural income
until the year 2000.
Prospects for Reform
Tax increases and reforms are politically sensitive in
the Middle East and South Asia, just like in many
other regions. Proposed tax increases in Pakistan, for
example, touched off rioting in Punjab Province in
June 1987. Most government leaders in the region
have tried to increase tax collection by removing tax
and tariff exemptions. Such moves are frequently
resisted by businesses?which would lose the financial
benefit of the exemptions on imported capital goods,
tax exemptions on profits, and/or rebates on interest
rates?and corrupt bureaucrats who would lose
opportunities for personal enrichment
The countries of the Middle East and South Asia tend
to alter tax rates rather than enforce the tax laws
already in place or simplify administrative processes.
Several countries are taking steps to revise their tax
systems:
? Tunisia's reform measures call for a single,
comprehensive income tax to replace separate tax
regimes for salaried employees, self-employed
persons, and semiskilled industrial workers. In
addition, the government is reducing tariffs and
liberalizing import measures and exchange rates to
make the industrial sector more competitive,
according to diplomatic reporting.
? Israel's committee on tax reform is seeking to
improve the tax return filing system. Only 350,000
workers?out of 1.6 million?file tax returns,
according to the US Embassy in Tel Aviv.
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Indian-US High-Technology
Cooperation
Indian Prime Minister Gandhi's visit to Washington
in October marked progress in Indo-US cooperation
in several high-technology fields. New Delhi decided
to purchase a US supercomputer and arranged a US
launch of its fourth communications satellite just
before the visit and signed a cooperation agreement on
the Light Combat Aircraft after the visit. Gandhi has
won support for his efforts to improve bilateral
relations from India's business and scientific elites
and many of the urban middle class who share his
enthusiasm for more advanced technology. Gandhi
has lowered his public profile on the acquisition of
advanced technology, however, as his political
opponents increasingly challenge his efforts. They
claim he is pursuing this interest at the expense of
Indians who are suffering in the drought and living in
rural poverty.
Differences over the emphasis given to transferring
versus protecting US technology will disturb efforts to
cooperate. New Delhi views Washington's stringent
interpretation of the Memorandum of Understanding
on technology transfer as frustrating India's national
ambitions. US concerns about the potential dual use
and diversion of sophisticated technology may
constrict the flow of US technology and prompt New
Delhi to turn to alternative suppliers of technology,
New Delhi has not been
enthusiastic about Moscow's proffers favors in the
high-technology area.
Technology Diversion
Gandhi believes that the Memorandum of
Understanding is a key element in New Delhi's plans
for technological progress and economic development
over the next decade,
He has said repeatedly that rapid
improvement in productivity requires imported
technology. Some of his advisers believe the
memorandum will help New Delhi modernize the
military by expanding access to US technology.
Others caution that the memorandum might place the
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United States in a position to dictate the scope and
pace of Indian technological progress and economic
development. These officials complain about US
controls and are inclined to recommend purchases of
comparable non-US equipment from other developed
countries to avoid what they see as unjustified
restrictions and ingrained US suspicions about Indian
trustworthiness.
Both the Indian Government and private industry are
concerned about protecting Western technology and
equipment to retain access to future developments.
During 1987, New Delhi has warned US officials not
to sell to certain firms it suspects of working for the
Soviets. The Indians, even with the best of intentions,
cannot foreclose Soviet collection efforts or prevent
diversion. We can confirm transfers of controlled US
dual-use technology?mainly computer-related
items?by Indian firms and individuals over a period
of 10 years. Non-Indian firms,
have used Indian businesses as a conduit for
transferring technology and equipment goods and
software to the USSR and Eastern Europe.
49
Light Combat Aircraft
Gandhi has lowered the political barrier to defense
cooperation with the United States with his signing of
the agreement on the light combat aircraft and the
statement in the joint communique at the end of his
visit welcoming further cooperation. He is confronting
the leftist political opposition within his
administration that questions the reliability of the
United States as a supplier and US intentions to use
high technology to control New Delhi. Nonetheless,
Indian officials in the defense establishment who
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111111101
,rtist's impression oil C\ tS inti-
tunnel models: state of the art
Artists impression of LCA wind-tunnel models:
state of the art.
India Today C
support Gandhi's decision fear that Washington's
reluctance to release technology will prevent New
Delhi from working with the US firms offering
hardware and other technological support.
New Delhi is making headway toward producing the
light combat aircraft which is intended to modernize
India's aircraft industry, provide its Air Force with a
near state-of-the-art fighter, and reduce dependence
on Soviet combat aircraft. New Delhi has purchased
11 General Electric F404J engines for use in the
construction and testing of the prototype aircraft and
has a long shopping list of US subsystems. The US
Embassy reports General Electric believes it can
interest the Indians in its radar.
We expect Gandhi will shop around for military
technology and equipment for the light combat
aircraft. New Delhi has awarded the design contract
this year to Dassault of France and is shopping in
Western Europe for advanced technology. New Delhi
has not sought assistance from the Soviets for the
program. Moscow has offered 50 additional MIG-29s
as an alternative to the aircraft. New Delhi agreed
this year to buy the MIGs but has not slowed work on
the light combat aircraft project.
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Gandhi will attempt to balance India's ambitions to
become self-sufficient militarily with its need to keep
ahead of China and Pakistan. In the case of the light
combat aircraft, Gandhi knows he is undertaking a
difficult task. There is a possibility New Delhi will
decide to shelve the program in the early 1990s
because of increasing costs and time delays. It has the
option to coproduce the MIG-29 or the Mirage 2000
as an alternative.
Computers
Gandhi's decision to buy the US supercomputer
probably gives US firms an additional edge in the
Indian computer market. New Delhi expects that
imports of US computers will stimulate domestic
industrial development and improve its ability to
compete in international markets. Immediately after
the signing of the Memorandum of Understanding
there was a flurry of activity between New Delhi and
several US companies for coproduction agreements.
Negotiations on several deals have been hamstrung by
Indian bureaucratic foot-dragging and US licensing
requirements.
India is interested in acquiring US
superminicomputers?such as Digital Equipment
Corporation's VAX?to upgrade its computer-aided
design and manufacturing capabilities and US
supercomputers?from Cray?to satisfy their high-
speed computing needs. Control Data Corporation
negotiated a $500 million deal for production of their
medium-size mainframe computers in India. Digital
Equipment Corporation is discussing a deal for Indian
production of their MicroVAX II.
Despite the optimism over prospects for future
negotiations, New Delhi recognizes that its access to
US computer technology will be limited by US
licensing requirements. The Indians, therefore, are
talking with Japanese and West European firms
about everything from supercomputers to personal
computers as an alternative to dealing with the
United States.
Bilateral Space Cooperation
Indians
prefer US technology for their space program, but
New Delhi's emphasis on self-reliance, the shuttle
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The CRAY" X-MP/1 computei.s
launch failure, and the 1JS Missile Technology
Control Regime (MTCF,) probably will limit Indo-US
space cooperation over the next several years. New
Delhi's immediate program goals include a second
launch of its augmented space launch vehicle, the
orbiting of the remaining two Insat-I communications
satellites and the remote sensing satellite, and the
development of the Insa II communications satellites
and polar and geostatior ary launch vehicles. New
Delhi has reservations for a US Delta launch vehicle
to place their Insat I-D communications satellite in
orbit in March 1989. India has asked for US
technology, including cr:iogenic engine research and
development, liquid proreliant tanks for satellites,
supersonic wind tunnels, telemetry equipment, and
wheel bogies for the motile service tower for the polar
space launch vehicle. New Delhi hs also approached
France, West Germany, Canada, and Japan to meet
its near-term goals.
India's space program probably will be delayed by the
MTCR but should achieve its goal of self-reliance in
space applications by the end of the century. New
Delhi anticipates that ce-tamn spinoffs from the space
program ?such as expanded communications
capability will contribute to economic growth and to
an improved quality of lire.
51
An artist s impression of INSAT-1
The USSR and India signed several science and
technology cooperation agreements this year that will
aid India's space program. In early 1988, the Soviets
will launch India's remote sensing satellite (IRS-1),
helping New Delhi pass another milestone in its
ambitious program. Moscow has offered to provide
significant amounts of advanced equipment to India.
India, in our judgment, can produce many of the
technologies needed for ballistic missile development,
but it needs assistance with advanced guidance
systems, thrust vector controls, and heat shield-
reentry vehicle technology. New Delhi is shopping for
technology, probably intended for its ballistic missile
program, from France, West Germany, and Japan--
testing the MTCR in the process.
We have no direct evidence that India is receiving
Soviet assistance for its missile development program.
The Soviets have expressed a guarded interest in
joining the MTCR. Indian scientists associated with
the missile programs and their Soviet counterparts
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LENGTH (M)
INDiA'S SATELLITE LAUNCH VEHICLES
44
40
36
32
28
24
20
16
12
8 III
III
Fill ?
NAME
SLV - 3
ASLV PSLV
WEIGHT (KG)
16,700 KG
STAGE
4
PAYLOAD (KG)
40 KG
LENGTH
22.7 M
India's satellite launch vehicles
39,000 KG
276,000 KG
4
4
150 KG
1,000 KG
23.6 M
44.111 M
have exchanged visits. Moscow and New Delhi have a
well-established defense procurement relationship
that has included coastal missile defense systems.
Looking to US-Trained Indians
Gandhi is trying, with some success, to involve
expatriate Indians living in the United States in
lending their skills and capital to India's
modernization drive. Gandhi recently named Sam
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Petroda?an Indian-born, US-trained scientist?as
adviser on technology missions. Petroda, who will
serve as a member of the Cabinet, has extensive
business holdings in the Chicago area. Diplomatic
reporting indicates US-based, nonresident Indians are
trying to enter the personal computer business in
India with mixed results. They are optimistic about
the long-term payoffs but find that patience and
persistence are required to launch a new venture in
India, especially in areas outside Bombay and New
Delhi. They face bureaucratic delays, red tape, and
outright opposition from state and national officials.
Outlook
New Delhi and Washington will differ over the issues
of access to and diversion of advanced US military,
computer, and space technology?with Gandhi
pressing for wider access, prompt clearances, and
favorable financial terms. New Delhi will look to US
firms for advanced avionics technology for India's
light combat aircraft program and is likely to
continue negotiations for the purchase of at least two
additional supercomputers. The Indians almost
certainly will ask that discussions to purchase
advanced dual processor supercomputers, presently
denied under the US-Japanese agreement, begin
during 1988. We expect the Indians will shop in the
United States for the specialty items they need for
their space program?despite the obstacles posed for
New Delhi by the MTCR?because US firms can
compete on price with Japan and Western Europe.
We believe New Delhi will turn to Japan and Western
Europe rather than the USSR for the advanced
technology denied by the United States. Gandhi will
continue discussions with Moscow on a series of high-
technology deals to placate leftist domestic political
interests. He, however, will move cautiously to avoid
alienating other constituents with technical training
or business interests favoring Western rather than
Soviet technology. Despite India's efforts to curtail
diversion of Western technology, we believe India's
capacity to track foreign and domestic diverters will
lag behind the ingenuity of the individuals or private
firms operating in India.
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Gandhi probably will be looking for an indication that
Washington is as enthusiastic as it was in 1985 about
the future of Indo-US cooperation in advanced
technology. He is aware of the disagreements in
Washington over India's intentions and ability to
protect sensitive technology. New Delhi will continue
to press the United States for prompt release and
favorable financial terms for advanced avionics
technology for its light combat aircraft program.
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High-Technology Firms
Prospering in South India
Despite general industry fears of a drought-induced
recession, South India's high-technology industries
are doing well and expect to increase their
manufacturing base and design capability. Several
computer-based industries have doubled their sales
over the past year and expect similar growth this year.
The availability of skilled engineers, scientists, and
technicians makes southern India a prime location for
additional growth of high-technology industries.
Companies in southern India produce software
cheaply, which could help them gain a niche in the
world market, but they need to overcome several
problems associated with software design and
marketing. One of their greatest weaknesses is their
small-scale production, which makes it difficult for
them to compete internationally.
Domestic Market Versus Exports
Computer manufacturers and other high-technology
firms, like most Indian industries, look to the large
domestic market for the bulk of their sales. The
primary market is the government?state and central
banks and ministries?and public-sector firms, such
as transportation. Some producers have made
lucrative sales to India's space program and defense
industries, but they have had less success with
educational institutions and private-sector firms.
Most computer hardware manufacturers see only
limited export opportunities. High customs duties and
transport costs of imported parts frequently price
Indian products out of the international market.
Indian
manufacturers indicated they are under pressure to
look to other markets where they can earn hard
currency to maintain essential components and
technology.
55
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US Embassy officials say New Delhi hopes that
computer software will be the new export growth
area,
confident. The head of software exports for one
company told a US Embassy official that the industry
would be lucky to reach half of the $2 billion in
software exports projected by the government for
1990. India can produce software cheaply, but most
firms lack design capabilities, market knowledge, or
financing to get into the international arena. Others
complain that they spend most of their time meeting
the needs of domestic clients or are too small to invest
the sums necessary to market internationally.
Nevertheless India
may eventually succeed internationally because
Indian software writers are the world's most
productive and least expensive.
Growing Technical Capability
Unlike many segments of Indian industry, the high-
technology firms in the south are well informed of the
latest developments in their field. The more
established firms have small but sophisticated
research and development units. One company, for
example, designed and manufactured a minicomputer
with a state-of-the-art microprocessor only six months
after the microprocessor was released for commercial
use by the Western company that developed it.
Another firm is working on the development of
circuits that would reduce computer size and increase
data-processing efficiency.
The head of Keonics, the Karnataka State Electronic
Development Corporation, told a US Embassy officer
that Indian firms can produce about 60 to 70 percent
of India's personal computer and minicomputer
component needs. Throughout southern India there
are a large number of small-scale firms (Keonics
estimates 500 to 1,000 in Bangalore alone) that make
a wide range of computer components and electronic
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subassemblies. Domestic supplies of electronic
components and computer peripherals are likely to
increase when new industries around Bangalore,
supported by Indian private sector investment and
foreign collaborators, go into full-scale production
over the next few years.
Computer firms in Madras and Bangalore are
interested in ventures with foreign companies because
this allows them to add to their technical capabilities.
Software and computer manufacturers view joint
ventures as a way of stimulating state-of-the-art
circuit design and computer software production in
the region. One company's representatives told a US
Embassy officer that their firm plans to buy time on a
foreign company's satellite communications system to
sell software in the United States.
India's Silicon Valley
A strong base of skilled engineers, scientists, and
technicians makes southern India ideal for the
development of high-technology industries. The
Indian Institute of Technology in Madras provides
first-class undergraduate education and is conducting
pioneering research in frontier areas such as
superconducters. The Indian Institute of Science in
Bangalore is India's leading graduate institution for
scientific research and education. According to one
computer manufacturer, there are a large number of
local private and state-supported engineering schools
producin skilled graduates.
the state of Kartiataka alone produces
over one-third of the nation's engineering graduates,
many of whom specialize in the electrical and
computer sciences.
US Embassy officials say many computer and
computer software firms attempt to emulate a Silicon
Valley culture. They note that the offices bustle with
activity, and there is a shirt-sleeved informality. Most
managers are young, have modest-size cubicles rather
than "power" offices, go by first names, and are easily
accessible to their colleagues. This is in sharp contrast
to the usually rigid hierarchies and command-oriented
bureaucratic structures prevalent in other Indian
private and public-sector firms.
this environment increases
creativity and job satisfaction.
Secret
High-Technology Development and Manufacturing
Organizations in South India
Software Research and
Development Organizations
ISRO Satellite Centre Bangalore
Indian Institute of Science Bangalore
Indian Institute of Technology Madras
Data Software Research Madras
Manufacturing Firms
Electronic Corporation of Tamil Nadu Madras
OEN Micro System, Ltd. Cochin
Kerala State Electronic Development Trivandrum
Corporation
Electronics Research Pvt., Ltd.
Bangalore
Sharad Kuman
Bangalore
Aurelec
Madras
Wipro
Bombay
Some industry leaders worry that India's sizable
trained manpower pool will merely provide service for
multinational firms and will not be involved in the
innovative aspects of projects. Scientists at the Indian
Institute of Sciences in Bangalore are concerned that
some joint ventures are only a means of using cheap
Indian brainpower to satisfy the needs of Western
markets. They believe that, in some cases, there is
little of technological value done in India because
most of the designs come from the United States,
leaving the tedious detail work to Indian
programmers.
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Other observers criticize Indian electronics policy,
which encourages kit imports.
local manufacturers who took
the more expensive route of fostering research and
development and manufacturing capabilities are
losing profits to companies that are importing only the
components for assembly. Most firms particularly
resent the sales leader "Shiva" computers, which
produces low-cost, kit-built personal computers.
The Down Side
One of the major weaknesses of Indian computer
firms is their small-scale production. A leading
company produces only 3,000 personal computer units
a year (Apple produces over 250,000 units) and only a
handful of minicomputers. A US Embassy officer was
told that computers were "handmade" at most
establishments, with operations resembling a cottage
industry. The quality of the products varies widely,
leading to maintenance and service problems.
Small-scale production has made it difficult for
Indian computer firms to compete internationally.
Stiff competition and low volumes have shaved profit
margins, seriously eroding research and development
budgets. Computer manufacturers in Madras and
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Bangalore expressed concern to a US Embassy
official that they will fall further behind international
standards if they cannot fund future product
development and improvement.
Outlook
Despite some shortcomings, economic prospects for
high-technology industries in southern India are
promising. The large domestic market?particularly
government agencies and defense-related industries?
is largply untapped. If software design and marketing
problems can be solved, India could gain a niche in
the international market because of its low-cost
production.
India will have to resist the temptation to produce all
of its computers and related components. New Delhi
probably will reduce computer kit imports as domestic
component producers come on line, which will
strengthen the competitive position of those firms with
their own research and development capabilities. It
will have to maintain a steady inflow of technology
and components to keep pace with fast-moving
developments in the computer field. Otherwise,
India's high-technology field will suffer from
technological obsolescence and high-cost production,
the bane of other Indian industries.
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Afghanistan's Maoist Factions:
Which Way to the Revolution?
Afghanistan's Maoist factions have been seriously
weakened by attacks from the Kabul regime and
Islamic fundamentalist resistance parties. We believe
the Maoists have lost most of the territory they
controlled at the beginning of the war and have
fragmented into splinter groups.
Maoists make up a large
percentage of the "nonparty" supporters of the Kabul
regime and the Afghan employees of
nongovernmental aid organizations in Peshawar and
Quetta, Pakistan. We believe many Maoists have
joined the traditionalist resistance factions. In our
view, the Maoists?organized, experienced, educated,
and more disciplined than most resistance
organizations?can form a small, urban underground
and carry out such critical clandestine activities as
intelligence, propaganda, and sabotage. Such
operations would depend on the Maoists' unlikely
ability to surmount internal schisms and coordinate
operations with the main resistance groups
The Birth of a Movement
the Afghan Maoist
factions grew out of the same Kabul student
movements that, during the 1960s, produced the
People's Democratic Party of Afghanistan (PDPA)?
the current ruling party?and the precursors of
today's fundamentalist resistance groups. These
student movements fell into three general categories,
The first, a group led
by Islamic theologists?and current resistance
leaders?Gulbuddin Hekmatyar and Burnahuddin
Rabbani, favored a renewed emphasis on Islam within
the Afghan Government and society. The other
movements?nationalist and Marxist?both split
internally along ethnic lines. Nationalist Hazaras and
Tajiks opposed the domination of the Afghan
Government by the Pashtun tribes. Pashtun
nationalists sought to carve their own country?
"Pashtunistan"?out of tribal areas on both sides of
the Afghan-Pakistani border. Similarly,
leftist Pashtuns joined the PDPA,
and students from minority groups formed the
Organization of Progressive Youth.
59
Although we believe the Organization of Progressive
Youth grew out of two small factions?the Mahmudi
and Yari cells?initially influenced by the same
Soviet and Tudeh (Iranian Communist) writings as
the PDPA, it soon rejected the Soviet model in favor
of Maoist doctrine.
the group began publishing a biweekly paper, Shula-i-
Jawed (Eternal Flame), in 1967 that became
extremely popular. Shula 's
readership included several military officers and
public officials, few of whom knew that the
Organization of Progressive Youth?soon renamed
Shula after its newspaper?was behind the
publication. The newspaper was banned by the
government and the group's leaders arrested in
November 1967 after it had incited several strikes and
demonstrations,
Growth and Fission: The 1970s
During the 1970s, the surviving Shula members broke
up into several factions as a result of personal and
ideological disputes,
the major
faction?the Revolutionary Group of the People of
Afghanistan?asked its members to go into the
countryside and work with the farmers. Their goal
was to found a pro-Chinese Afghan Communist
Party. We believe the group's efforts?along with
their pragmatic blend of Maoist rhetoric and a variety
of regional and ethnic causes?explain the
concentration of Maoists during the 1970s in
relatively remote areas of Badakhshan, Nimruz, and
Helmand Provinces. In our view, the group's successes
were partly due to the tribal rank of its members,
many of whom were chiefs' sons sent to Kabul for
their education.
Several smaller factions such as SAMA (Sazman-i-
Azadibakhsh Milli Afghanistan), SURKHA
(Liberation Organization of the People of
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Afghanistan), and a pro-Albanian group called
Akhgar (Burning Ember) split from Shula and the
Revolutionary Group after the PDPA coup in April
1978,
the new Afghan
Communist regime moved quickly against competing
ideologies and purged the government and academic
community of known Maoists.
SAMA, has been led
from Europe by Abdul Qaum Rahbar since 1980,
when his brother Aboul Majid Kalakami?the
group's founder?was killed by agents of the Kabul
regime,
describe the group as being pro-
Albanian.
Several Maoist groups are successful urban
guerrillas?in part because of their experience in
working within a cell structure.
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Maoist insurgents in Kabul
assassinated the vice director of KHAD, the Afghan
secret service, in 1980 in retaliation for the arrest and
murder of SAMA's founder, Abdul Majid Kalakami.
such urban groups generally
make up for their small numbers with careful
organization and target selection. We believe that
most urban Maoist cells concentrate on intelligence
collection and circulating shabnama (night letters)
encouraging greater resistance to the regime or airing
ideological disputes.
Maoists in the Regime
Although Afghan
regime members singled out Maoists in their early
purges, we believe many Maoists are now either
members or supporters of the government. According
to the US Embassy in Kabul, Najibullah announced
the PDPA's intention to absorb smaller political and
labor groups at the 19th PDPA meeting in September
1986. We believe most such groups are Maoist
factions that have decided they would gain more by
working with the regime, but who seek at least
nominal independence from PDPA direction.
One group absorbed by the PDPA in the early years
of the Afghan regime was Setam-i-Melli (Oppressed
Nation). This anti-Pashtun group?most active
among the ethnic minorities of the north?was
founded in the late 1960s by Mohammad Ta her
Badakhshi. Badakhshi, a Shia Tajik, had been a
founding member of the PDPA in 1965. He left the
party after a dispute with Nur Mohammad Taraki.
He dropped from sight after the 1978 coup?arrested
and executed on the orders of Hafizullah Amin,
according to a press report.
many Setam members now follow
Prime Minister Soltan Ali Keshtmand, the brother of
Badakhshi's widow.
According to the US Embassy in Kabul, the
Revolutionary Organization of the Working People of
Afghanistan (ROWPA)?led by former Setam
member Mohammad Bashir Baghlani and, we
believe, built on Setam's original constituency?is the
Secret
only proregime Maoist group to retain at least
nominal independence from the PDPA. According to
the Embassy report, the 5,000-member organization
consists mostly of Turkmens, Tajiks, and Uzbeks. It is
primarily concerned with protecting the interests of
minorities against the Pashtuns who dominate the
Afghan regime. Kabul press reports in late October
1987 indicate that the PDPA is wooing ROWPA with
promises of greater power and regime positions in
return for closer support for the government. In our
view, the regime's success with such tactics will be
limited by ROWPA's size and anti-Pashtun
orientation.
Two earlier Maoist holdouts, the Vanguard
Organization of Young Workers of Afghanistan and
the Revolutionary Association of Afghan Working
People, merged with the PDPA in late September
1986, according to the US Embassy in Kabul. The
leader of the Revolutionary Association of Afghan
Working People, Mohammad Zahir Ofuq, is a
member of the PDPA Central Committee. We know
little about these two factions but believe them to be
offshoots of Setam-i-Melli.
Relations With the Resistance
many Maoist
groups are trying to avoid the PDPA mistake of
appearing to be subservient to a foreign, anti-Islamic
ideology. Maoist factions
have reorganized and adopted such names as the
Freedom Fighters' Front to seem more a part of the
resistance movement.
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In 1980,
six of the seven Peshawar-based resistance
parties demanded that the UN High Commission for
Refugees stop funding the Afghan Doctors'
Association, which they claimed was using its
humanitarian programs to conceal its Maoist
orientation, a doctor with the
association was kidnapped and killed becuase of his
Maoist views, almost certainly by fundamentalist
resistance fighters.
some Maoists have
been welcomed within the traditionalist resistance
parties. Asif Kawari, chairman of the cultural affairs
department of Mojadedi's Jabha-i-Najat-i-Milli
Afghanistan; Dr. Haider, Mojadedi's political adviser;
and Azizullah Ludin, Harakat-i-Inqilab-i-Islami
leader Nabi's political adviser were given their
positions despite their known Maoist connections,
many other Maoists are employed
by nongovernmental humanitarian organizations.
the Maoists have been
valuable to these agencies because they are generally
better educated and have a more modern outlook than
most Afghan refugees.
Contacts Abroad
We believe the Afghan Maoists receive little or no
significant aid from China.
the Chinese decided in the early 1970s that
the Afghan Maoist groups were hopelessly fractured
and ineffective and that Afghan conditions were
unlikely to support a Maoist revolution. In our view,
the fact that several factions openly oppose Deng
Xiaoping's reforms also limits Chinese willingness to
offer support. We believe China may have
coordinated with the Maoist Freedom Fighters' Front
on the group's attempt in 1983 to block the seating of
the official Afghan delegation at the Nonaligned
Movement's meeting in New Delhi.
The Maoist groups have far more extensive ties to
leftist student groups in Western Europe,
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Facing a Dead End
In our judgment, Maoist influence will continue to
decline. Afghan resistance suspicion of non-Islamic
ideologies and many Maoists' disillusionment with
Communism will, in our view, limit Maoist influence
in the resistance movement. Similarly, the Maoists
within the Kabul regime are handicapped by their
minority ethnic status and lingering PDPA suspicion.
We believe the Maoist groups?particularly the
remaining SAMA cells in Kabul and other cities?
could contribute greatly to the Afghan insurgent war
effort. The resistance has been hampered in the cities
by its lack of experience in clandestine operations and
aversion to rigid discipline. We believe the urban-
based Maoist factions have used their experience to 25X1
create a network of cells penetrating government
circles and carrying out sabotage and propaganda
operations. In our view, an increase in such
operations?whether unilaterally or in cooperation
with the main Afghan resistance parties?could affect
the progress of the war far more than the Maoists'
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would require the Maoists to put aside internal
ideological quarrels and accept the risks involved in
heightened operations. Such a change would be
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