NATIONAL INTELLIGENCE DAILY FOR WEDNESDAY, 9 AUGUST 1989

Created: 8/9/1989

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Political inaneu*viing within Iran may haw lotted I'rcsidcni-clcii Ral'tanjam iotep back Irome nude hiM I'mlaj An articleirdJ> in Ttiuauoften Mfa%vehicle loi Kaftainam'sIhc itlcnu of Iranian assets frozen in the US In return fut Iranian help in freeing ihc- Although li..ii.n emark* oo Friday Mere couched .inyMhr* did not stiiHiIalc vpecific conditions for

hardline helnniK I

Thisihectpnntc Rafsatijani has given Since IVS6 whenever atLcd publich if Iran is willingelp the US tain-ihc release oJ Us hosiagcs^Tlic most recent Twin statement wasignalritics that his gesture on Frida> was noi intendedeviation from Iran's longstanding conditions for seeking theuuiim.

European Concern Aboul the Middle Fast Process

handling ol the Lebanese situation appears to base reassured West Luiopcait leaders of its abililv to kfflpiddle Easi process on track. The Wesl European press hasraised US military restraint amiuse of diplomacy. In Ihc nnlv official West European comments on US actionsate. Italian Foreignicliclis said on Monday that Rome would not support miliiary

Comment; The hostage crisis in Lebanon underscores for Wtfal Europeans how nuiekly eve ills can unravel Ihc moM Carefully constructed Middle Last peace proposal. West European leaders arc hkelv iu oppose ihc use of L'S military force except under extreme eiicunistaiu^urder of the remaining aBBamVaMmtaaMaaBBas

IlilhfuU' Sheet

t,nrlready emergedajor flithaiany and thr ministerial trttem .tilt set in, ability tu legislate independently. stMfr

Uortiuehcv lulil Suvici newsmen lasl weekend Hint in hi* view ihc Supivme Smici is miw ihe iiiilinii'h "highest body of power" oiicrmingy-lu>dny basis. peifurniiiir; lhe crucial funiiions ol law making, administration, anil oversight. The invigorated lecitlaiuie was lurpriMiigly reform minded, uuick in eel involved in

uwcrs. One icgiuiiiil pany scririarysome of lhe tciiislaluic's decision* were

haseil hoi on piutessiumil knowledge bul un cinolion. Itcforitiisi deputies have complained ihai its operations are manipulated bv lhc heavy hand of Hie pany and government apparaius-i"

Lllhough Gorbachev exaggerate* ihe insiiiuiional power of ihc Supreme Soviet, ii has ativadyajor force on lhc polilicallhe obvious consternation of many party official* concerned aboul inch eroding role. Il lini been able lo capitalize on it* aura or electoral legitimacy nnd its newfound credibility with lhc Soviet public but is handicapped because ihc siairand lite expertise needed for legislative drafting are still in ihc hands of lhe Central Committeehc ministries, and thr academic institute*.

'vrjce gov eminentneounier stiir (Csiuanee fioui party jhmI.government institution* a* il uvks lo expand il* influence.'

b3

Reaction Mixed In Solidarity Coalition Proposal

Initial reaction has been mixedolidarity leader Walesa's callolidas>ty-lcd coalition governmeni that would include parties traditionally allied with the Communists. Tlic Chairman of lhc United Peasantoman Malinowski. cxpicsscd skepticism.

(heresuppon for the move among Solidarity sy mpathizcrs in ihc rank and file of both panics. Thc United Peasant Pany leadership began meetings lo discuss thesierd:

has managed at least temporarily lo bluntcriticism that the opposition is shirking ilsrefusing to joinrand coalition under Premier Kiirc/ak.also shown those in lhc opposition who argue thaimoderate its all-or-nothing formula in favor of enteringcoalition with other non-CommunisI groups lhat he is willingIhe idea. Thc move also underscores thc fragilitycoalition government will have, and il willihe Communists' junior partners to demand morepolicy before they ap-ccserveiszczak cabinetstrategists apparciilly hope lhat prcssuies ciented byas Walesa's will lead to new. unexpected compromisesioof a

*

KINAMK:ndcrminini;ccord

Sun name'* niilitaiy it etintmuingjiu aecurtl wtil thehai the National Monday. Military iiiigiiian Humcrac Ii tlic Army would refute to implementu' iu In- uiictjr.in-i] mto nulitnichai

: Dcspiic ihc Assembly's approval of the accord, lhc government will probably make majoriors io the militarv and may even back out of the agreement iillogcllicr.inimum, ilic governmeni will delay implementation, which might cause Ihe accord to fall apart- The miliiary' probably will take advantage of dcUtvs to intensify pressure on lhe governmeni and spread propaganda against thc rebels. Thealready suspect ihc government is backing away fiom iulikely io become frustrated at the slow pace and turn again to light ii

65

Suiici Railway* Ministry averted rail strike b> tinu-Uvjk-ccpline

for bciiei working, living condui JMa)*IJaasi4atl'ollow* similar handling of coalay encourage other worker* lo increaseaaV

Estonian legislature yesterday passed election law disenfranchising recent immigrants. Sovietejected Russian deputies" proposalcar residencyocal Russian workers threatening general strike loca*

-Chinese Vice Foreign Minister. Vietnamese Foreign Minister met Monday at Cambodia conference inel bilateral talks ia>IOietnamese called meeting frank,o meet again du-mg conference. AsmtaWR

Philippine Government willing to sun bases talks with US before Aquino visit inaiting to be asked, according too maintain pressure, alsospecdinginning for commercial use of bast Mb%

violent left holied electoral coalition lasl week to back far-IcA presidentialest of coalition must decide whether to endorse relativeisarray enhances prospects ofeenler-righiist Vargas Llosa.*

b3

Special

SOU1II hOKt.A. EconomicMl

Huffned by economic pressures ai home and ab i. Seoul in Iheonth has lightened credit, issued wagend towed to halt currency appreciation lo ease rising inflation and ret he flanging economic limn ih. High nage increases, in particular, hare eroded export competitiveness, and Seoul probably trill have to move Informal nag, controls by lhe end of the year if labor does not respond to government calls for moderation. In any case. President ftvh will be reluctant to mate concessions tu leading partners on currency appreciation or

agricultural liberalization.

Seoul has scaled bad iht*economic projections as performance hai fallen below target on almost all fronts. Real ONI', after grow ing more* thanercent in each of ihc past threeosecar-over-year rate of lessercent in ihc first quarter, largely because of fl decline In exports. Inflation, meanwhile, is runningercentage points above thccrccnt goal for Ihc year and well abovecrecnl rale of recent yeais.

6 3

Soaring wages, labornd steep currency appreciationprime cause* of slumping economic performanceages haw risen byercent and strikesas democrat* political reforms have emboldenedunleashed pent-up labor grievances At the same time. Seoulthe won to appreciate more thanercent in reiponscfrom it* trading partners. As export competitivenessbusiness ha* dimply scaled back investment andha* plummeted.3

Respond*

ublic's io^

governmentonetary policy and. despite business complaints, lias indicated it will tighten credit further in thc second half of the year.

The government also is edging away from its sofl approach to labor. It has announced il will hold government pa> raise* belowercent ond form labor-management committees io set wage guidelines for ihe private sector. To educate the public on the importance of wage restraint, the Economic I'laitning Board has is*tied piojcctions

hi

null nurd

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showing thetilleivni talc* of wage growth: wage gain* ofnrcvni nnnunllyesult in ffuwihercent and iiiltotiiitiercent, while salary bikes ofercent utkgedlv willruv.ihercent and infiauori olvncnt<^lfJJffBJ)>

Seoulo address loreign pivisurv wiih concessions on less sensitive Hade issues and io delay movement in areas lhal have broader political and economic implications. Tu avoid being dcnguaicd as an unfair trading partner under US iradc law. for example. Seoul took significant ticn* le ease lotah/anon requireiiK-nisand rcvUK lions on foreign, probably will coniinue litis, approach,ore conciliatory position wHIl us trading partners un issues like iclccummunicalions but (figging in its heels on the Ifceruluaiion nl agriculture, because farmers arc one of the ruling party's key cousliluvncics

The Roh government is especially likely lo resist pressureappreciation because ol*perceni reduction in ilssurplus and the near eradication of the merchandiseol the year

the -on itai an "appropriate" level, will huilrctt theuniici appreciation. Several high-level Korean economic ollicial* believe lhc won is over* alued. and Seoul's .op economic policy makci has rcceiiilyevaluation. Moreover. Seoul is under inercasing picssurc from Korean busiiicssnicn and political parties to depreciate tbe won io reflate exports. Seoul probablv calculates its dr. re.-istHf irade surplus has undcrcui US demand for appreciation.

Key In flic Economic Outlook

Hading

IfScoul succeed* in gelling labor on board, domestic pressure should ease markedly by the end of ihe year. Labor nobility would reassure domesticnd lhc cconontv probablv could mainiain poUi'vally acceptable CNrgrovvrh ralesercent. The current account probably would coniinue lo decline. anaWnports. buoyed by brisk consumer demand and market-openinn measures, would grow fatter than exports, reducing the prominence of Southn irritant io ilt

im pi ui as ;

labor remains unruly, however. Hie economy pre luiihci. and the choice* facing Seoul willould probably optore stringent approach possibly including formal wage controls. And il wn under new pressure lo depreciate the won in order tion of its trading partner!

tself

io reflate thc inland ing.

b3

Special AnulytU

KVS1 OKHMAW; After HunccUrho?

il Cerman leader Hunecker', rectal illness doe, not appeal ,rr,uus. ait advanced*ther indications he may sour, step down, and divisions in lhe pany arte political and economic reform almost certainly hat* intensifiedmong hi, potential successors. The succession picture remains cloudy, but only ISsjon Krenz, the nrlhodox party secretary for xecurity. youth, andndsl Berlin party boss Ouenter Schabowskl have the requisite mix of national prominence, relative youth, and access to the party inner circle. Xeilher is likely to make major nnlic, changes if he becomes party leader.

people. Srliabowsli. orthodox party linedomesi privately ridiculed rii..il and suppu aecepinbic to both il

i*Krcnrs chief rival. His pupulist stylo is like Soviet Presidemnd he uses his Berlin platform effectively to lint selfragmatic problem solveran ofo lira* far from the

In the lloniesireich

The successailure of East Bloc reform movements and the elimaie ol East-tt est iclaliims arc crucial pans of the Honcrkcr successionII Poland or Hungary faces widespread violent unrest, if Gorbachevr if new tension* surface in the Eail-Wcat tvlulionsltip.ull lioiia list Kiciu will almost eeriainly remain

lOiitiitiivd

Ihe I'l', ill II root inrn however.ikely to tnullify Ihe1 pnruiliitiun wlti'lc Ma

LtlllUdtll(1

ilu- cunx-m

ill utin.iiuli It

lake litni

.

mciilioneda- district party leader* Siegfriedam-Joachim Myelinic, and Hans Mndrnw and party secretary WVinei Juruwnixky. The party eluc prubahly views ihem as compromiseheaternal? between Krcn/ and SeliabowikiC ncrnenko" solution, ha* ins Honecker relinquish his pom iu one of hi* contemporaries, is

Gorbachev undoubtedly would likeee Honcckci replacedore tcl'orm-miiidcd leader bul Is0 accelerate lhc successionpenly support any contender while Honecker stillirm crip on power. Thc Snvicix prefer nut to intervene in East Europeanand generally trust their allies to make leadership choices ihey can accept. Gorbachev probably would prefer Schaliowtki to Kien/ but would not object tu ihr latter

Ncither Krenr nor Schabowski would be likely to make major policy changes aa pany leader. The omnipresent example of prosperous, democratic West Germany means East Germany cannot move loo far toward economic decentralization anditeral nation without calling inioic existence. Srliabowski would be more likely than Krcnr to introduce limited reforms bui probably would concentrate on careful adjustments loexiMine polilical and economic siructutvi

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