NATIONAL INTELLIGENCE DAILY FOR 29 DECEMBER 1989

Created: 12/29/1989

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Punama: Situation Report

Romania: Nov Government Organizing

LSSK: Military Presses Gorbachev on Baltics

; Worried About Rising Foreign Debt

Regime Bows lo Dissident Pressure

Yugoslavia: Party Endorses End to Political Monopoly

: Vcl'tsin Running for Russian Republic Prcsidcno

Brazil: Financial Markets Kcmmc Slide

Lebanon: Fighting Between Rival Shia Miliiias Eases

Chile: Taking First Steps in Difficult Transition

In Brief

Analyses

The Big Push on Economic Refoim

Pcrcsiioyko'iRide in the Countryside

OQ*tS

Situation Hc-purl

Mill In Nunciature

former Defense Chief remains in ihc Papal Nunciature, and talks continue.

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Col. Amulfo Castrejon. former Navy Commander, and the PDF Chaplain were detained yesicrda> by US forceslhc> exited the residence. Former National Investigations Department chief Ll. Col. Nivaldo Madnnan and Noriega bod>guatd Captain Gaitan reportedly have requeued asslum in Spain, which has said it will take them if they are not undr,

Receives Unexpected Support

President Rodriguez and Labor Pany leader Sic'ro. Noriega'sesterday acknowledged Endarc's legitimacy. Press reports say pro-Noriega former presidential candidate Carlos Duque plans to pledge his supportdars

Duquc and Sieiro statements suggest ihcir parties, won several scats in the National Asserwblv in May. plan on participating in the postjjp.riega period: ihey may also hope to head of! jtrci: by US forces

Reopening fur Limited Service

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banking commission has announced that banks will operate for an additional six months under cash withdrawal restrictions imposed by the Noriega regime and that all postdated snlaryehccks issued b> the regime will be paid In cash.

lost of the funds expected to be released probably will be used to meet salaries and operating expenses, providing little liquidity to thc banking sector. Moreover, some insuiance companies' claims that they arc not obligated to pay for property damage caused by the intervention and looting will hurt rebuilding efforts.

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Publicelectrical institute is providing power to man*nd

servicesre functioning. Thc

international airport ma; reopen lor commercial serviceMunicipalities and public utilities are beginningdetect irregularities from previous years perhaps forSeveral businesses are asking cis ilians toand equipment taken during looting with noFood and medical goods jcportcdly are in short supplyareas. 3

International Scene Qu'et

Threats lo US Installations

ycitcrcU> becameh country to recognize theJapan said it will recognize the government as soon asgreater comrol of thc situation. Ecuador recalledfor consultations bui said hc will returnewUN General Assembly met yesterday to discuss adraft condemning the US intcrvemion. Ii wasfas-orompromisebe considereddeplores" ihe US action and demands Ihe withdrawaltroops, while recognizing the need to reestablish uemocraeyrespect for human lights and that is expected to receivesay

Peru's Tupac Amaru Rcvolutiona

*annWWJaV)M governments are likely to declare their suppon now that the Electoral Tribunal has validated ihc May election.

responsibility for lhe bombing on MondayS facility in rural Peru-

ajBBTaMaaBVBornbingiccurred against US targets in scseral Latin American countries, and tenons cf potential terrorist acts continue to surface!

Situation on Cround Incidences of sniping have diminished considerably.*forces estimateO pro-Noriega forces remain unaccounted

- for in areas around Panama City and Colon. I

An undetermined numberfcnse Forces andirregulars probably remain in the western provinces.plans had called for paramilitary types to formgroups, and isolated Incidents and.attacksto persist while they arc

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New Cotcrnmenl Organizing

leadership of Romania's National Saltation front ffS/Vl It settling in hut ii sendinBmixed tinnalt aboul in commitmentultiparty

-oflHlBm:

In ihc new government's first official press conferencepokesman said in priorities will be ending ihc violence, getting the stale apparatus functioning, reviving the economy, and organizing free dec lions. The FSN alto said ihat most officials who had served under Nieolac Ccauscscu will not lose ihcir jobs and that the death penalty will not apply to Securitaic rebels who surrendered bv yesterday afternoon's deadline. On Wednesday ihc government _publishcd an "ant iter rorisrdecrce giving nsclfarreii powers

the FSN's commitme*no democraoy4nd political pluralism, but hc stopped short ofultiparty system, liiescu also left in doubi whether thc FSN will suppon the promised April schedule for free elections and indicated thc draftingew constitution will follow the elections. He played down thc issue of sludent dissatisfaction with Communist domination of Ihe new government. The pressjias reponed no new demonstration since Tuesday.

I Prodcrnocraey groups apparently are concerned that raaav top military, security, and political leadersh Ceausescu ai one time or another are now calling the shots for the FSN. They probably will need time to organize themselves, and they may be willing to give thereathing period to restore order. Rut lhe issue of broader participation in Ihe government is not likely to goif.lliejoj-betlns to drag his feet on scheduling the

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Mill tar; Presses Gorbachev on Baltics

Soviet military offUeri are increasingly critical about developments In tbe independent-minded Baltic republics, inc. the creation of an independent Lithuanian Communist Party*

cccni Red Star article, thc Baltic Militaryhief political officer described how Soviet miliiary personnel and their families have been subjected to an escalating series of indignities, including the denial of housing and ration cards as well as antimiliiarism and anti-Russian hatred. Hc and other senior military officers serving in the Balticstheir -alarm" al the iwo Central Committer.jptc riarymcciings this montf

>rbachev said he was under increasing pressureake action fromrmlitaryGeneral Staff Chief Moiscyev.

_ iThe military' apparently is getting bolder in taking its case to the top levels of Ihc pany hierarchy. It is already worried about the implications for Soviet interests or thc breakdown of Communist rule in Eastern Europe and may be concerned that thc Lithuanian panvj declaration of independence from the CPSUirst step toward secession not only of Lithuania, but probably the rest of the Baltic states ancTperhaps other non-Russian republics, such as Moldavia or Georgia. The high command may feel ihat Moscow must hold the lineithuania or face the unpalatable alternative of using the army to suppress rebellion in several republics in the future tjm%tW'

Gorbachev undoubtedly is feeling the sting of military pressure, but he may also regard thc airing of Ihe military's discontent at this lime as bolstering his leverage on the Balls, especially the Lithuanian Communists, whomjichopesto persuade to reconsider their break with ihCiCPSl "

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Worried About Rising Foreign Debt

SR^a,dabout

*o. let credirworihrness are making Moscow more cautious about using loans to finance Imports for Its sagging

Concern Ihai lop Soviet leaders have expressed rcccntl; about tlie debt was echoed by the Congress ofeputies last week when delegates adopted language calling for the Igjl-Si economic plan io define measures to reduceafjj|

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oscow has accelerated borrowingelp finance inc leased enrrchasci of light industrial equipment agricultural products, and manufactured consumer goods.-tja^assV*1

Some Western lenders are increasingly concerned aboul the USSR's crcditsvorthinesi despite us assets ofejasasmaaaa^amtsgg^

Wai mm .banks and So> id gold reserves vaiued ai SISare tightcning

cicdn to" the USSR because of the slow pace of domestic reforms, growing unrest in the republics, and thc tack of financial information on new borrowers who are now allowed to seek loansesult of decentralization but *vho have no credit record. An oversupply of Sovlci commercial paper to finance imports over the pasi year has also boosted lhe Interest rales Western banks are charging.

r resolution of the Congress nil: strengthen thc band of lhe leadership as it tries to fcrd off calls by some economists to borrow more to finance much higher import levels. Soviet officials have assiduously guarded the USSR's credit standing and would like to maintain it in the event ihai unexpected problems suchoorharp downturn in oil production, or serious consumer unresieed io borrow-taffV

Moseosv is having no problem in servicing itsde-bi service ratio ist would hase to draw down reserves to meet paymentsncounter an unexpected earnings short tall. The Soviets probably will carry throughlanned moderate increase in impcns of consumer goods next year bui will attempt lo hold down borrowing by cutting some imports for the industrial sector and by increasing soft curie"cy_tra.Or_wiih countries such as China and'

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:issident FWlWW

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dissident* and Ihc more radical reformer* in lhc Communist Puny, partly spurred by the upheaval in Romania, hove increased pressure on tlic government to move faster on political reform. The parts leadership agreed to begin roundtable talks with thc opposition after striking workers at somenterprises this week demanded lhc resignation of pany leaders. Thc Central Committee is meeting in emergency session today to move up the next party congress and reassess the assimilation!at policy toward lhc country's Turkish minority. The hardline Minister of Interior was replaced by Deputy Minister of Defense Semcrdihicv. I

government, and thai failure might provoke renewed protests. Mladcnov probably chose an Army general to lead Interior in the hope ofonfrontationilitary and security forces like that in Romania.'

YUGOSLAVIA: Party Endures End to Political Monopoly

Central Con

non. ot ntivocsimga multiparty system, prooaoiy ition from the Army and strongman Milosevic In thcr republics has'Ccalled for multiparty elections, nia and Croatia aroplanning free* elections in the

'The pariy's draft positionsompromise. Pany leader* probably fearore explicit stand on thc multiparty system would encourage new conflict by Serbia against Slovenia and Croatia and possiblyreakup ofthc national pany. The congress probably will adopt the compromiae. opening the door for freeost of Yugoslavia by the endilosevic's refusal io keep pace with growing reform *cntimeni may further isolate him in lhc federation and erode his power base in Serbia. ilosevic probably would, an.wer any challenge to his authority with purge*rackdc

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USSR; Yeltsin Running for Russian Republic Presidency

maverick Dons Yel'isin has been nominated by voters innear Moscow for ihe presidency of the Russianis ihc pnlj prominent eandidaic

Tor Ihe posi so fat lhc incumbent. Potiiburo member Vorotnikov, has noi yet announced whciher he will run. The president will be chosen by ihe republic-legislature ihai will be clccied by the population in March pM|

-Yel'isin probably views capturing lhe Russianritical sicpolitical comeback that has been mined by recent scandals. His populist and am "establishment stance is likely to continue to appeal lo resiive Russian workets andjiationalists, allhough it is uncertain how he will fare among delegateshc legislature Thc presidency of thc Russian Republic ts likely, tn the course of polilical reform, to become an influential position, and. us president. Yel'isin. who has.flcs to the radical Interregionalhe legislature, mighterious challenge to ihc pany in the %icpubl>c. Mikhail.Gorbachev, however, heads the recentlyuss'jii Republic pany bureau and isositioned to jetounterweigh!el'isin presidency.

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nanchil Markets Kcsuntc Mldc

Tlic victory of centrist I'res idem elect Collorhu Marxist opponent briefly calmed Braail't financial markets, but predictions of spualmg inflation have caused Uic currency to resume its sharp decline. Thc cnaudo last week droppedercent against the dollar following official projections that consumer prices will rise by as muchercent this month. This week, rumorspcrccnt inflation for next monihimilar decline. Brasilia has denied It will freeze prices and instead continues to raise inlcrest rates on its bonds, most recently toercent per month. Collor has yet io name his cabinet, which the markets arc interpretingeliberate go-slow approachl

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LEBANON: Fighting Between l'l.al Shin Militias Eases

Mediation by Irun nnd Syria appearsave temporarily calmed figluing between Lebanon's Amal and Hizballah miliiias. Thc clashes began in midmonth in the Bckaa Valley and spread to southern Lebanon, where they intensified last week: Syrian troops in_ have prevented fiphtiiiR ther

'he latest round of fighting is the most serious since Iran -and Syriaeace agreement last January- Hizballah leaders have grown-impatient with Amai's refusal to implement provisions of the agreement allowing Hizballah to increase its presence in thc south, which Ainal leaders fear would provoke Israeli retaliation against Amal villages. Amal is not likely to abideease-fire that leaves Hizballah forces, in place.*"

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CHILE:IrM Step* in Difficult Transition

Pinochet has made several moves tomooth transition when he relinquishes power onarch, but hecormnucs tc try to limit ;hc next government's room (cr

-inochct and President-elect Aylwin held cordial talks last week and established mini sis rial-level workji groups.

Icanwhilc. the Pinochet regime named

conservative loyalisw-flS the nine appointed seats in Ihc Senate; denying Aylwjn'tajority in the upper house.

lack of agreement on substantive issues, the meeting set the stage for further negotiations ancLhelpcd calm fears lhat Pinochet wilLiry io disrupt the transition.

UN: Security Council Membership Rotation Next Week

Cuba will chair the Security Council in February, not Januarys

_ indicated in the Daily onecember. Ivory Coast chairs3

Council next month.

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In Brief

Nicaragua on Wednesday pui miliiary on higliest-Icsel alert.

warning ofpowiblc USeservists, militia, and demobilized veterans calledrobably latest plgy to fuel popular resentment against pro-US oppovition.flMaPW

Lithuanian radio said yesterday Soviet party Central Committee

delegation wilt visit on Tucsdav. President Gorbachevrying to persuade republic pany leaders io

Asia

Fast A

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Four legislators in India's Andhraeekend, Sikh legislator from Punjab vanish government's recent capitulation to Muslim kidnapped minister's daughter encouraging r

Nepal's Foreign Minister visiting New Delhimonih dispute over expired trade, trai Indian Government pledging to improveathmandu calling talks exploratory

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Polish EconomicOutline

The reform package It assuming greater urgency because the economy continues to decline:

Industrial performance has dropped steadily since April, monthly output nowercent below that ofa >ear ago.

Inflation, now runningercent per month, willercent

Declining coal production has cut export earnings and may further crimp industrialSoviets have reduced oil and gas deliveries, forcing Poland to arrange hard currency imports.

A hard currency trade deficit of atillion is expected this year, following three years of SI billion annual surpluses.

has ceased all commercial and official debt payments. The proposals before the legislature are intended:

To transform financial management of stale enterprises by forcing them to operaterofit-and-loss basis.

To further encourage private enterprise and foreign investment.

To eliminate tax loopholes favoring heavy Industry.

To make the National Bank of Polandentral reserve bank.

To remove currency and foreign trade restrictions.

To provide for layoff's and firings and unemploymeMcomocnsatfOn.

To discourage excessive wage hikes through tax penalties.

Reforms will also affect routine economic legislation due before the SejirTIJower house) as soon as this week, including the budget law; the annual credit plan; and cultural, trainibg. and science and technology funding

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Special Analysis

Die Push on Economic Reform

debate in Poland's legislature oier landmark economic reforms will sorely strain the Solidarity-led government coalition, and ihr reforms probably will cause initial economic disruptions greater than the government anticipates, risking widespread labor unrest. Slowing the pace af reform, howeter, might jeopardize the Western aid and iniestment that Poland needs to rebuild its economy. Palish officials will press for more Western help by arguingailure in Poland nould ^ead^^ur East European regimes to scale back their reform efforts.

All ihc coalition panics have criticizcc" some aspect of the pt^ram -and will push their own agendas. Many deputies question whether the government can provide for laid-off workers, and Ruralwhich earlier this monthore confrontationalseeking farm subsidies ind price guarantee* The Communists are focusing on opposing privatization.

All the panics nonetheless realize thc need for fundamental economic reform and probably will keep ihe coalition together at least long enough to launch the program. Opposition to the specifics of reform has producedolid voting bloc nor credible alternatives, and using spaeial committee sessions rather than plenary debate should speed thc legislative process ant* keep concessionsinimum. Although Finance Minisic Balcerowicz may accept some watering duwn of his initiatives, Lech Walesa's claim this month that Poland's critical situation warrants government rcson to emergency powers also appears to have discouraged deputies from breaking ranks.

orker Tolerance

rediction that the reformsctccnt unemployment rate0percent drop in income appears optimistic. Most government and enterprise officials are inexperienced with market mechanisms: removing price controls probably will increase inflation more than production in (he shon run. Output will be lower and unemployment higher than Warsaw expects, and the unemployment 'compensation system being des-eloped could collapse under the su

Warsaw is taking every opportunity to bolster public tolerance for reforms. Prime Minister Mazowieckt. Walesa, and Solidaritv legislative leader Geremekoint press conference on

Con tint

Polish.Legislative Process

The government's goal of legislative appiovalanuary '* difficulti impossible lo meet. The bills arepecial committee of the Seim. Thccommutre is chainedolidarity economist, and Solidarity and thc junior members ofndf the committee'seats

Solidarity and its newfound allies alsofejm scats and so could in theory pass the economic legislation in the face of solid opposition from the Communists In practice, voting on previous government initiatives has not been on strict partynd thc government may lose some coalition votes. Bul it may also pick up support from reformist Communists, five of whom recently qui: the pany and now sit as generally progovenimcnt independents. Other Communists may abstain to avoid being labeledwhile positioning themselves to counterattack if the economy fails to respond to the reforms.

Once appioved by the Sejm, thc bills go to the Senate, where Solidanty controlscats. The Sejm can override any Senate amendmentwo-thirds vote of members present. The Anal step is endotsemeni by President Jaruaelski. who has repeatedly endorsed economic reforms and is not likely to stand inresidential veto could be overriddenwo-thirds vote of the SejiTif

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ecember io stress their agreement on thc package, cautioning thc public that Ihc road ahead will be difficult. Thev also announced local elections will be held by next summer, providing an opporiuniiv to remove Communist local officials. Thc election pledge is intended to reassure people that reforms will have an eflect at thc local level and to provide an outlet for anti-Communist sentimenp

Mazowiccki will get an indication of thc public's willingness to go along with reforms when Warsaw raises coal and other energy prices as muchercent on Monday. Allhough an immediate round of massive protests appears unlikely, workers will press factory managers to raise wages, and resistance to such demands might lead eventuallyurge in

Depending on the West

Polish officials probably willeepening economic crisis by summer when unemployment and industrial decline threaten to undermine reform efforts. The/ can be expected to seek more Western aid. probably claiming that the rapid pace of reform encouraged by the West helped create thc problem. They also could persuasively argue lhat the failure of Warsaw's program would reduce the impetus for reform throughout Eastern Europe. Thc Poles ma> comment hat the West must help underwrite unemployment compensation and stand teady to supplement the aloty stabilization fund, if they are not io fall back on subsidies and guaranteed unemploymeni to avoid widespread labor unrest.

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Analysis

Bumpy Ride in (hc Counirjslde

President Gorbachev has had mixed retain from moves lo Implement hit policies at the local level such as appointing reformer, ro regional party pout, stimulating grassroots involvement In decisionmaking, relax.ng party control over the economy, and granting local state Institutions more independence. Some progress ha, occurred where local leader, have mobilized popular pressure, but resistance from middle;ltvel officials remains widespread, and the absence af explicit guidelines on implementation has left many local party bosses confused and powerless to manage she restructuring process. Gorbachevo glee lofal party officials clearer direction^even at the risk of backtracking an key aspects of [

Gorbachev's strategy has succeededandful of regions in ihe Russian Republic. He has singled oui Orel and Lipcitk. ihc home bases of iwo newly appointed Central Committee secretaries, as models for .he firm local pany stand on perestroyka and grassroots activism he is tryingosier. Hc has praised party officials trt those areas for innovative nictfiods that have improved agricultural production. Even in areas where bureauciatic resistance remains high and grassroots pressure is weak, tentative steps are being taken to open ihc political process and democratize ihe pany. In the past two months^threc regional part) committees havcused mulli candidate elections to sclcci fitst secretaries

- Despite Progress, Resistance Sllll Strong

Mans pany leaders remain unwilling or unable to Implement Gorbachev's policies. An anitlc in-the leading party journal Koiii'itititist recently assened that conditions arc not ycl ripe for rapid democratization and that forces opposing reform are as strong as those promoting it. Gorbachev toldlasl month that onlyf theontons in the Russian Republic aredevelopin satisfaction!

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