NATIONAL INTELLIGENCE BULLETIN

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T00975A030200010020-3
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 18
• Document Creation Date: December 16, 2016
• Document Release Date: June 16, 2005
• Sequence Number: 20
• Publication Date: June 11, 1977
• Content Type: REPORT

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REMARKS:
FROM:
NAME, ADDRESS, AND PHONE NO.
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(Security Classification)
CONTROL NO.
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Access to this document will be restricted to
those approved for the following specific activities:
Saturday June 11, 1977 CG NIDC '77-135C
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NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
Top Secret
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 25X1
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25X1 National Intelligence Daily Cable for Saturday, June 11, 1977.
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The NID Cable is for the purpose o intorming
senior o icials.
ITALY: Interparty Political Talks
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CANADA-JAPAN: Vancouver Meeting
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ITALY: Interparty Political Talks
Hard bargaining marked this week's bilateral talks
by Italy's ruling Christian Democrats with the Communists and
with the four other parties that abstain in parliament and
thereby keep the government of Prime Minister Andreotti in of-
fice. The talks, which are being held mainly in response to
Communist pressure for a more direct role in government policy-
making, were to have entered a final phase this week with a
series of roundtable conferences involving the six party lead-
ers. No dates have been set for these meetings, however, be-
cause of continuing interparty differences that came to light
in negotiations at the technical level late last week.
The Communists in particular are anxious to switch
to the roundtable format because it would graphically empha-
size the political significance of a program agreement in
which the party is formally included. The Communists, however,
now appear to be bargaining more aggressively, and new diffi-
culties have arisen, even in areas where the Communists and
Christian Democrats seemed close to agreement last week.
I IFor example, while the Communists remain favorably
disposed to the tougher law-and-order measures proposed by the
Christian Democrats, the two parties are having difficulty re-
solving differences on the most sensitive questions, such as
whether to grant police the power of preventive detention.
I I The negotiations are also complicated by the Social-
ists, tendency to take a more strident line than the Commu-
nists--a tactic that makes it more difficult for the Commu-
nists to compromise with the Christian Democrats. Both leftist
parties are putting renewed stress on the need for some polit:i-
cal."guarantee" that an agreed program would actually be im-
plemented, but the Socialists' demands go much further than
those of the Communists.
I IThe Communists would evidently be satisfied with a
relatively minor symbolic step and are again raising the pos-
sibility of including in the cabinet a few technocrats con-
sidered sympathetic to the left. But the Socialists are asking
for the formation of at new government, which--even if it did
not differ in composition from the present one--would formally
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include the Communists in its parliamentary majority. The
Christian Democrats have consistently refused to go that far,
and the Communists themselves appear to consider the proposal
unrealistic in present circumstances.
I I Complex motives are behind the Socialists' militant
posture, but in general it reflects the party's desire to pre-
vent the Communists from being the sole spokesmen for the left
in the negotiations with the Christian Democrats. The Social-
ists are seeking also to ensure that the Communists are unable
to avoid responsibility for government actions. Finally, the
Socialists hope to capitalize on the discontent of some Com-
munist supporters over the party's tendency to cooperate with
the government.
The Christian Democrats, meanwhile, seem increasingly
concerned with the problem of minimizing the political impli-
cations of a formal program agreement involving the Communists.
Throughout the talks, the Christian Democrats have sought to
keep the discussion of substantive issues separate from specu-
lation about future political formulas, but increasing pres-
sure from the left is making it difficult to maintain the dis-
tinction.
I IThe party, moreover, seems divided over how to re-
spond o the left's demands. Some Christian Democrats, such as
Andreotti, are open to the idea of a cabinet shuffle bringing
in more technocrats. Other leaders, such as party president
Moro, regard such a move as politically dangerous, because a
parliamentary confidence vote might be required if the changes
are extensive.
Thus, no clear end is in sight for the negotiations,
which have preoccupied Italian party leaders since late April.
Andreotti hopes that an agreement can be reached within the
next two to three weeks--enabling his government to survive at
least until the fall--but others in the party suggest that the
talks could drag on into July.
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CANADA-JAPAN: Vancouver Meeting
//Canadian Foreign Minister Jamieson and Japanese
Foreign Minister Hatoyama will discuss a wide range of economic
and political issues during their talks on Monday and Tuesday in
Vancouver, British Columbia. This will be the first meeting of
the Canada-Japan Joint Economic Committee established last Oc-
tober. Although the conference ostensibly will focus on eco-
nomic matters, the major issue is certain to be Canada's in-
sistence that Japan accept tough nuclear safeguards in return
for a resumption of uranium shipments.//
I //The "Framework for Economic Cooperation" signed
last year in Tokyo by Prime Minister Trudeau reflects Trudeau's
effort to foster economic and political ties with nations other
than the US--the so-called "third option."//
//The accord is similar to the "contractual link"
Canada signed earlier last year with the EC, and has as its
goal expanding the $4 billion worth of annual trade between the
two countries by increasing exports of Canadian-manufactured
goods. Neither agreement, however, has provided the boost in
economic relations sought by Ottawa, largely because Japan and
the EC are more interested in Canadian raw materials than in-
dustrial products.//
//At Vancouver, the Canadians will be pressing for
increased Japanese investment in energy-related fields, such as
the development of coal deposits in British Columbia and oil ex-
traction technology for the tar sands in Alberta.//
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//The Japanese can be expected to seek assurances
o continued access to raw material supplies, particularly min-
erals, and to lobby for less restrictive government controls
over foreign investment. Japanese businessmen have long argued
that Canadian limitations on foreign ownership strongly dis-
courage investment from abroad.//
I //The hard bargaining, however, is certain to be
over nuc ear safeguards and uranium shipments. The Canadians
suspended uranium shipments to Japan in January because of
Tokyo's refusal to go along with Ottawa's insistence on main-
taining control over the transfer of nuclear materials and sub-
sequently developed nuclear-related technology to third coun-
tries. The two countries apparently were near agreement when
the Canadians added the caveat that their safeguards would ap-
ply even to Canadian uranium sold to Japan and undergoing en-
richment in the US.//
//Foreign Minister Jamieson has implied that Ottawa
may be prepared to back off somewhat from the latter condition.
He indicated on Thursday that Canada and Japan should be able
to work out their differences at the talks next week. The Japa-
nese apparently had earlier hinted that Hatoyama might not at-
tend the Vancouver talks in light of the breakdown of the nu-
clear negotiations unless the Canadians were willing to give
ground.//
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give greater consideration to economic and energy factors in
shaping nuclear export policies.
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I The USSR is planning an overall cut in trade with
the West this year and next because of a severe trade deficit
with the US and other countries. US officials learned of the
plan at a meeting of the joint US-USSR Commercial Commission,
which ended yesterday in Washington. Soviet officials said
the cuts would affect both agricultural and non-agricuZturaZ
products and indicated that they would apply to all Western
trading partners. The Soviets gave no indication that it was
in any way directed against the US.
Last year, Moscow's hard-currency trade deficit with
Western countries was $4.9 billion; trade with the US accounted
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for nearly half of the deficit, according to Soviet statistics.
Grain imports valued at an estimated $3 billion--half from the
US--were a leading factor in the deficit. The grain imports
were necessary because of the poor Soviet harvest in 1975.
Last year's record harvest allows Moscow to reduce
the cos of its grain imports this year by an estimated $2 bil-
lion; early indications for another good harvest this year sug-
gest that Moscow may be able to keep its grain imports at mini-
mum levels next year as well. These imports will largely reflect
the USSR's commitment to purchase 6 million tons of grain from
the US, worth roughly $700 million, per year through 1980. A
Soviet grain delegation in Washington last month would only say
that Moscow would meet the minimum requirement in purchasing
grain from the US this year.
So far, there is no sign that a trade cutback has be-
gun. Soviet statistics for the first quarter of this year show
a 5.4-percent increase in total trade with hard-currency Western
countries. Soviet orders for Western plant and equipment, more-
over, remain strong.
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//A banking crisis in the United Arab Emirates
has led the government to close two banks and impose controls
on credit expansion. To avoid recurring crises, the individual
emirates will have to cede enough power to the federal govern-
ment to give it effective control over the banking sector.//
//The UAE has tried in the past two years to
establish itself as a financial center. To encourage local
banking operations, the government has avoided tight controls
on the banks. The UAE's Currency Board oversees banking ac-
tivities.//
//The number of banks in the UAE has risen
sharply because of the loose controls and high-yielding credit
opportunities afforded by the area's booming economy. Many
banks are undercapitalized and have become involved in specula-
tive ventures; interbank lending has often been used to create
needed reserves.//
The government has become increasingly alarmed at
such unsound banking practices; in late May it forced two banks
that had severely overcommitted their resources to close by can-
celing their clearing privileges.
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I //UAE President Zayid has reacted to the banking
problems by implementing some long-awaited policy measures to
slow credit expansion and to force banks to operate on a sound
basis. The government has banned the establishment of any new
financial institutions, raised the reserve requirement from 5
percent to 7.5 percent, required a ratio of no less than 1 to
15 of a bank's capital. and reserves to total liabilities,. and
brought all financial institutions under the control of the
Currency Board.//
//These regulations will help solve the im-
mediate banking crisis and will hamper some of the free--wheel-
ing tactics of the local banks. The controls on credit expan-
sion, however, have already caused a down turn in the local
building industry and could adversely affect other sectors of
the economy as well.//
//The new banking regulations still leave most
oca ants wi a competitive edge over branches of foreign-
based financial institutions. Many of the local banks, however,
may have to merge to achieve a larger capital base.//
Gradually recovering world copper prices and rising
noncopper exports should permit Chile some relief from the
harsh fiscal and monetary measures of recent years. The ruling
military junta plans a 24-percent increase in imports this year.
The gain will spur a recovery in real gross national product
from the severely depressed 1975-76 ZeveZs and should further
aid in reducing Chile''s triple-digit inflation.
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Unlike most countries of comparable development and
sophistication, Chile had to slash imports--and thus domestic
income and employment--to cope with the payments problems stem-
ming from rising oil prices and world recession. Until recently,
its extremely weak international credit rating practically ruled
out access to commercial funds. World criticism of Chilean hu-
man rights practices severely limited new official economic as-
sistance and made foreign debt renegotiation difficult at best.
The Chilean populace has complained little about the
austerity because of the threat of government repression and,
more importantly, because many citizens--if not most--still
feel they are better off than under the Allende regime.
The balance of payments had improved considerably by
mid-1976 because of rising earnings from noncopper exports,
booming copper production, moderate recovery in world copper
prices, and short-term capital inflows attracted by soaring in-
terest rates. The junta took advantage of the improvement to
terminate its foreign debt renegotiation efforts and to rebuild
foreign reserves. Although peso devaluation was slowed and tar-
iffs were further cut, other fiscal and monetary measures
caused imports for the year as a whole to drop an additional
8 percent.
I This year the military government intends to use its
improve oreign reserve position and the small additional gain
expected in export earnings to permit an increase in imports
sufficient to restore real gross national product to the 1974
level. Although this will require some easing of austerity, the
government hopes that increased supply will permit continued
progress against inflation. It also intends to avoid debt re-
negotiations and to assert its independence of the US and other
critics of its human rights practices by sharply reducing bor-
rowing from governments and international agencies.
Exports are likely to rise about 7 percent in 1977,
to $2.1 billion. Copper shipments will remain roughly at last
year's level of 980,000 tons, but an expected rise in average
copper prices will boost earnings moderately. Stronger demand
for noncopper exports in markets developed since 1973 should
allow sales of such goods to rise to $820 million, despite an
expected weakening in Chile's competitive position because of
slower peso devaluation.
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I IThe government's reduction of US and International
monetary and aid this year will lead to a cut in official
capital inflows to around $180 million, compared with $460 mil-
lion in 1976. Chilean missions to the US and Western Europe
are seeking commercial bank loans to help fill the gap.
I IDirect investment will remain low, mainly because
of past bureaucratic delays in approving new projects. Full
debt amortization payments for 1977 will require $555 million,
slightly more than in 1976. Total net capital inflows will
consequently shrink to about $170 million, compared with $680
million in 1976.
I IChile is expected to increase imports to about $2
billion. Higher domestic wheat yields and low wheat import
prices will permit a reduction in spending for food imports.
Most of the increase in imports will come in fuels, raw mate-
rials, and goods for industry. Bringing total imports to the
target level will require about $175 million more than Chile
now expects to receive from trade and capital flows. Given
the recent improvement in the Chilean credit rating, we be-
lieve that Chile can raise this additional amount from pri-
vate sources.
Although the junta is still pursuing a strong
anti-inflation policy, it intends to ease austerity. Real
wages are to be increased about 5 percent. The junta began
a slight relaxation of its restrictive monetary policy in
the first quarter. It announced a moderate program of tax
reductions, increased social spending, and wage increases
for government workers on May 1. These steps are expected
to result in a government deficit of around 12 percent of
expenditures this year--well below the 17-percent deficit
of 1976.
Growth in the money supply is expected to decline
from last year. The attack on inflation was also aided by
a two-month voluntary price freeze by private industry that
ended in May. On balance, we estimate that inflation will
decline in 1977.
I
With somewhat stronger demand, real gross domestic
product should grow 6.5 to 7 percent this year. Finished
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goods inventories in some industries are likely to hold in-
dustrial growth to 10 percent, compared with 12.2 percent
last year. Good weather should permit agricultural produc-
tion to rise as much as 7 percent above last year. Construc-
tion activity, which began picking up late last year, should
grow this year for the first time since 1974. Employment
will rise some 4.5 percent this year. The unemployment rate
will decline only slightly, to 12.2 percent.
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Top Secret
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