Created: 12/5/1989

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Philippines: Situation Report

Easl Germany: Fresh Opposition Support for Reunification

: Struggle Over Press Freedom

SouthCirov.:nr Cambodia: Phnom Penh Gaining Stature Abroad

Presidential Election Campaign in Final Stage

Wsmsw Pact: Condemning Invasion of Czechoslovakia EC: Protectionist Auto Pressures Growing

Czechoslovak la: Opposition Likely To Prevail


In Brief


acing President Aquino

Europe: The Price of Reform


Sporadic heavy gunfire continues today in Manila's commercial district, where as manyebel troops are entrenched, most of

official community in adjacent residential areas has beensafety. Guests in rebel-held hotels generally can moveand thc government is attempting to evacuate abouta temporary

CCaSC fill

government assault on the rebels would probably be bloody and would put civilians, including US citizens and other foreigners, at risk. Most of the rebels have extensive combat experience fighting the Communist insurgents and are the cream of the Philippine military. For the most part, the loyaUst troops arrayed against them arepolicc units that have little experience and hardly any training.^

ebels in control of Mactan

Airbase near Cebu city in the southern Philippines have been given until midnight tonight local time to surrender. The rebel commander has warned he will destroy all aircraft on the base if the government troops try to attack. Moreourisisand hundreds of Filipinos have been evacuated fromf[

^ Loyalist troops have surrounded thc rebel position and probably are more willing to attack now that the civilian evacuation is complete. The rebel commander is keeping an eye on events in Manila and probablywill negotiate if the government's position there ^ > j


Motives Behind the Coup Attempt


[thc rebel leaders appear to belong to the Reform the Armed Forces Movement (RAM) and apparently have supporterivative organization, the Young Officers" Union.

| RAM officers believe that, because

their revolt against lormcr President Marcos6 broughtpower, they are justified in seizing power if. as theyhas failed tc lead

RAM hasembersell organized core offficers from the Philippine Military Academy classt has long claimed that corruption in the military and the civilian government is undermining the war against thc Communist Insurgents. The movement has attracted many sympathizers throughout the officer corps and enlisted ranks with its argument that favoritism in military promotions hurts tbc military's professionalism. Funding has come from RAM leaders' private funds and from ties to businessmen, including Aquino's cousin Eduardoarcos crony who from nilriaaaBaaaam|


EAST GERMANY: Fresh Opposition Support for Reunification

signs of support for reunification by some Eastmovements suggest that issue may become morefret elections3

Yesterday, for the first time, an opposition party was formed with the expressed goal ofa unified Germany. The Reunification Party made its debut at the usual weekly demonstration in Leipzig, where il led calls for reunificationrowd of'


The main opposition group. New Forum, has long opposed reunification but is showing signs of cracks on thisew Forum spokesman yesterday announced that reunification would not be pan of its platform despite calls from the movement's Berlin chapter for an early nalional referendum on the topic The Potsdam chapter also voiced support for Germany's eventual reunification and demilitarization. Another opposition group. Democratic Awakening, has endorsed West German Chancellor KohTslO^oint proposalramework fo: ending Germany's division ^ - 3

^Growing public supportnited Germanya major issue at the roundtable talks set to start Thursdayas in thc national election likely to be held next year. Theincreasingly divide the opposition, particularly New Forum,national leadership continues to support an independentSupport for closer intra-German ties is likely to grow amongnon-Communist parties. Two ofand Nationalused the idea ofato gain voters

East German leaders, including Premier Modrow. probablyto reject early reunification as neither feasible nortoward ai least confederation might snowball, however,disarray grows and the economic crisis getsrisis, closer cooperationroad front is likely asaid and investment pours in and Bonn's politicali on; mens ii rate i.


TopgutftTf )

5'Oeomber IM9


SOUTH KOREA: Pressure To Stimulate Economy Cro-ing

South Korea approaches tabcabinet-levct meetings with the US this week under intense domestic pressure to shoreagging economy by helping exporters. 4RMR0 (j

Influential South Korean businessmen are increasingly concerned about recent economic setbacks. The economy is experiencing its weakest growthn large pan because ofthe sharpest downturn in exports in at leastears. Export volume through October declinedercent since last year because ofthe cumulative effects of large wage increases andpercent real appreciation of ihc won over the past three years. ifJflMp

As businessmen pressajor stimulus package. Seoul has policy adjustments since mid-November, point reduction in interest rates and the creation5 billion

investment fund. In addition, the government hasabor-management committee to settle disputes amicabj^jn|pgjflr to prevent disruptions in production and exports VtjRaBsV

Business leaders are responding unenthusiastically, calling for even lower interest ratescrccnt currency depreciation.

Any new economic team is likely to favor continued economic liberalization. Seoul nonetheless probably will take further

steps in the weeks ahead to stimulate the economy given the

unlikelihoodcar-term_improvement in expon-led grovrthTsaBaP

Ithe government is increz resorting to police actiorijo break up strikes-P

Toon depreciation from creating newwith Washington, Seoul will probably tout progressthc bilateral trade surplus, which fell4 billion forJanuary to October. Thc Souin Koreans will also stressare committedurther opening of ifccirm<irkets toforeign


Phnom Penh dining Stature Abroad

As their concerns groweturn to power ofthe Khmer Rouge, lererat Western and ASEAN countries are shifting toward de fa recognition of, and outright support for, the Phnom Penh rrgimcl

lo recognize lhe Khmer Rou

c European Parliament is calling for theenh regime and assist it in isolating lhe 3

French Foreign

Ministry official recently went to Phnom Penh to prepare for the openinfuasi-governmental cultural center



ASEAN is divided on the Cambodia question, but most of its members are considering closer lies to Phnom Penh. Thailand, once Phnomarshest critic, now advocates increased trade and investment in Cambodia. Moreover. Thai Prime Minister Chaicbai opposes as unrealistic Prince Sihanouks callomprehensive settlemenl to the Cambodia problem. Malaysia also is rccxamini imbodia polr


jingapore continues toocal hard line againsi the Phnom Penh regime, calling for its dismantlement, Khmer Rouge panicipationin any future government, and stronger suppon for the resistance. J

shift toward Phnom Penh is not likely to slow no

matter what resistance forces accomplish on lhe battlefield. The non-Communisl resistance plans to renew its offensive nexl week, but any gains probably would be seen by the West as weakening regime forces and Ihus working to the advantage ofthe Khmer Rouge.ailure by the resistance lo expand captured territory, which now amounts toquare kilometers in northwestern Cambodia, probably would reinforce the perception abroad that Phnom 1'enh can stand on_hs_own and merits more international



Presidential Eleclion Campaign in Final Stage



Patricio Aylwin, candidateparly opposition coalition,consolidated his lead over his iho rightist rivals beforeonecember to return Chile to civilianj

After recoveringlip in thc polls to belowercent in mid-October. Aylwin is now favored byercent of thc

emphasize his ability to steer Chile back to democracy and to reconcile all political groups while also laying the groundworkew government. Aylwin is also discreetly reaching out to the main rightist party, recognizing that his coalition would probably need its support in the new Congress to obtain the two-thirds majority equired to reform President Pinochet's constitution. 1lHflH oi

Former Finance Minister Heman Buchi, who is languishing at underercent in most polls, is running hardromise to expand social services while maintaining the free market policies he initiated.

continues to allege that Aylwinecret pact with the Communist Party and, in recent weeks, has charged that the increase in terrorist incidents,lackout of Santiago on Pinochet's birthday, portends more far-left violence if Aylwin is elected. Rightist populist candidate Francisco Errazuriz is struggling to stay atercent in the polls, but

mall chance he could gain enough, votes a;xpense tounoff election early next year.Jj 3

inochet recently

surprised most observers by agreeing to meet with thc winner after the eleclion to ease the transition. The government continues, however, to enact legislation to limit the next president's authority and proteetPinochet's autonomy as Army

polls may overstate Aylwin's lead, but he probably canirst-round election. Hc is drawing record crowds at campaign rallies and has effectively rebutted Bucht's chargesact with the Communists. Moreover, Buchi'sand Errazuriz's impressive television spots are not likely to sway enough voters tounoff, and neither candidate^slUtcly to withdraw toonservative

victory over Aylu:n^ ^

Pinochet seems reconciled to civilian rule, but there is anhe may seek to derail the election, as he tried to do inlast year. Nevertheless, there almost cenainjyjsjjttlg__forove in thc military0 J


WARSAW PACT: Condemning Invasion of Czechoslovakia

In his report yesterday on the Malta dialogue. President Gorbachev noted he had taken his positions based on written consultations with the USSR's Warsaw Pact allies. He singled out arms cuts, respect for state borders, and the maintenance of existing alliances as key factors in preserving European stability. In their individual comments. Pact representatives confirmed their support for East Germany's efforts to "normalize relations" with West Germany without violating "recognized legalhe joint statement issued denounced the invasion of Czechoslovakia in8iolation of its sovereignty, TASS noted Gorbachev had told Prague's leaders that Moscow is prepared to discussJjdUterally the future status of Soviet forces in Czechoslovak iaJH |

[The stress on prior consultations with Pact allies reflects

Moscow's efforts to manage the Pact by consensus in order to reinforce ils viability despite the emergence of multiparty coalitions in Eastern Europe. Thc language of thc joint statement and of the bilateral statementstrong Soviet effort to secure Pact unanimity on key security issues, particularly opposition to near-term movement on German reunification. Gorbachev probably also used private meetings with Czechoslovak and East German officials to obtain more information on their fluid political situations. In addition, hefrank exchange of opinions" with the Pact's remainingPresident:harest to undertake neededi3


EC:uto Pressure*

The West European auto industry is intensifying its lobbying for protectionist measures as the EC Commission prepares to meet next week on auto trade policy. The Commission must design EC-wide measures to replace national import quotas on Japanese cars.

auto manufacturers want to maintain the new

juotas until Tokyo accepts increased imports ofautos from the EC.


Increased investment in Western Europe by Japanese auto firms andEC producers' worries about future overcapacity have increased protectionist pressures. Allhough thc Commission may comply, its free trade members probably will insist thc quota be high enough to accommodate current Japanese exports and output from European plants. The Commission also wants toow vrith the US on this issue and has indicated lhat Japanese cars produced in the US will not be affected. Wcsl European subsidiaries of US auto companies* would be among the likely beneficiaries of any effective European protection against Japan.

CZECHOSLOVAKIA: Opposition likely To Prevail

rallies in Czechoslovakia underscore the continuing popular support for the Civic Forum's demands for additional government concessions. Moreeople in Prague and0 in Bratislava demonstrated yesterday to demand the resignation of the government announced on Sunday. The Civic Forum has rejected Premier Adsmec's Communist-dominated team as an stlempt by the regime lo retain power. The opposition has calledeneral strike next Monday if more ministerial-level changes arc not made; many industrial strike committees have already expressed their readiness to participate. The Czech republic-hasstponed ihc announcement ofils new government

_ A government crisis is certain if Adamec does not make more Cabinet changes by Sunday; lhe Czech republic has probably delayed its changes in response io the pressure. The Civic Forum's call for snoiher general strike appears to have broad support; the work stoppages next Monday almost certainly will be as widespread as those staged last week. Thc leadership has lost its gamble lhatas yesterday's opening of the border withhead off more demands for change, and it probably will be unahlclg resist the renewed pressures for genuine change.


t% "


Special Analysis

Facing President Aquino

Even if President Aquino survives the second nearly successful coup attempt in two years, her authority to rule is in jeopardy. She trill need to move decisively on military, political, and economic grievances If she is to hold onto her legitimacy and political support until lhe presidential election

and Defense Secretary Ramos, whose credibility also has been eroded by the coup attempt, need to reassert controleriously fragmented, demoralized miliury. They need to decide bow to punish the rebels swiftly, especially key renegade leaders like Colonel Honasan, without antagonizing those soldiers who remained uncommitted during the coup attempt. Nevertheless, coup plotting probably will continue as long as most junior and midlevel officers believe the military is justified in seizing power JfAquino fails, in their view, to lead the country adequately^ ,

The President's base of popular support, which has eroded over tbe past few months because of allegations of corruption and inefficiency in her government, probably will slip even

Aquino's relations with thc Philippine Congress, her Cabinet, and the government administration will be tense; many whom she had counted on for support probably will question her leadership ability.

coup attempt almost surely will shatter the confidence ofthe local and foreign business communityime when the Philippine economy is doing reasonably well.I

new investors are likely to stay on the sidelines until stability is restored. Nevertheless, Manila still needs to address thc economic problems that preceded the coup attempt, including rising inflation and interest rates, the trade deficit, and public dissatisfaction over power and traffic gridlock in ManiIa.vQiJm ^ fy3

The Communists mayecond wind as thc coup attempt interrupts the government's counter insurgency effort.!

_ In the aftermath of thexoup

attempt, the Communists may find that key Philippine and USfficials have temporarily become easy targets and that US citizens in particular can be portrayed as enemies of Philippine aspirations.





Western Assistance to Poland and Hungary

Western governments have offered or arc about to offerillion in loans, credit guarantees, grants, or debt writeoffs to assist economic restructuring in Poland and Hungary:

has offered assistance worth0 million, about half in export credit guarantees.

Italy has offered more0 million, mostly export credit and investment guarantees.

addition, the EC Com nissidn hasackage ofillion in European Investment Bank project loans and0 million in food aid and technical assistance grants.

The bulk of the financial assistance committed or being considered by the donor governments does notirect budgetary outlay. The final cost of the export credit and investment guarantees will depend first on the extent to which commercial partners in the East and West draw on them and second on the economic viability of the activity being financed. If there are few defaults, the donor governments will not be required to cover the guarantees.

Most donor governments have concluded that managerial training and modern technology are what these East European countries need most and that commercialdirect governmentthe most effective way for them to obtain it. Thc assistance programs are designed to encourage, not compete with, that form of investment.


Special Analysis

Price of Reform


East European reform governments will need maiiiwe infuiioniassistance to survive over tke long term. Most sack aidfrom private investors, wkose insistence on tke freeflow oflabor will tie Eastern Europe more closely to tke world economyexpense of tke Soviet

The new governments need to do better lhan iheir predecessors in narrowing the economic gap with the West. Over the past decade or so, the region's economic performance has fallen further behind that ofthe West:er capita GNP had dropped to onlyercent of that ofthe US. down fromercenter capita figures^ for Poland and Romania arc nowhird that forjajflaaaf^

* Eastern Eorope probably would need nearlyrillion inraise the region's per capita GNP to three-fourths of the current US

figure. The Poles alone need nearly half that amount because of theirt largernd relatively lower level of developsV V)

Domestic financial resources are inadequate. Politicalwill force East European governments to be more

responsive to their citizens' economic needs, limiting the optioneconomic growth at the expense of privatecuts in defense spending, already under way. will help, buiThe bulk of the funding required will have to comesources, primarily Western. Parceling outractionlevel of aid will require careful monitoring. Past neglectin roads, railroads, communications, housing, andsystems has left most of the area unable io absorb large surgesequipmentechnology.

The new governments also will require help in developing social programs to enhance their legitimacy. They will need Western guidance on how to build social safety nets as inefficient state enterprises are restructured and unemployment rises sharply. The governments also will require help in lessening environmental pollution caused by the burning of coal, an increasingly controversial

easingjy cof

issue, particularly in Poland and

Over the longer term, economic reform will hinge on the region's ability to attract private Western investment. Official Western aid so far totals aboutevel thai cannoi be sustained for long. On the positive side. Western investors will require an operating environment that guarantees the free flow of capital and labor as well as market access. These prerequisites will hasten thc formation of ties to the internaiional economy, further underminingoicntnl economic


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