NEAR EAST AND SOUTH ASIA REVIEW FOR 5 JUNE 1987

Created: 6/5/1987

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Near East^ outh Asia Renew IM [V

5

Traditionsilly strong economic ilea between Syria and Lebanon have grown closer during tbc decade of Syrian military occupation.ajor market for Lebanon's trade and services,banooree and open market for foreign exchange and imported goods, compensating for thc failings of Syria's official economy.

Exports Are ImportsJipjL 21

smuggl

. vDrug Money Foeis Corrupfioo ia Rajasiban

;The Indian state of Rajasthaoocal point for lhe trafficking of Pakistani heroin jhroEgh^diaenter for tbc diversion of opiates front'ItsdiaV luge legal opium colli vat ion great. The profits fromrafhe underwrite widespread corruption arisopgllisdUn.offinals and threaten to embarrass Prime

'a^-'The Soviet invasion of Afghanistan batajor changehe balance of trade between Kabul and Itlamabad and in the kinds'. ^of goods traded, at wellonsiderable increase in the amount of

31

Near Eastootb Asia

^.Articles

Escalating

Wartime AauUguarUm

As Iraq'a militarily weak but generous financial backer. Kuwait has been ungled outrimary target of Iranian nntagoniim since the outbreak of the Iran-Iraq war. Iranian aggression toward Kuwait has been demonstrated in several areas over the years:,

haa directed the prcpcuidcrancc of its attacks in the Gulf sgaiast commercial vessels *crviag Kawaiti

ports.

hat bit at leaitankers since it began targeting Persian Gulf ihipping*

Iran hai *ponaored numerouscts by local - Shiaintended so drstabitirr ibe Kuwaiti

" GerverpiTient.

Iran embarkedeavy handed, but unsuccessful campaign to disrupt this year's Islamic Conference meeting in Kawait by threatening repruuls against visiting Arab digmtariei and launchingmissile* from Al Faw. Iran probably alto was behind tevcral captoaion* in the city of Kuwait and neighboring oilfield* shortly after the meeting opened

Moat recently. Iran ha* tiepped up its rhetoric against Kuwait's effort* to teek US. Soviet, aad West European protection for its shipping and has wanted of possible retaliation if Kuwait draws theinto thc Gulf.tgJMu

Kuwait sad Iran have loag held copoMag view* on oil production and pricing policy is. OPEC Iran has traditionally advocated higber prices at any cost, while Kuwait has heldore moderate petition of lower and more sustainable prices. Although the two camp* Joined forces at lasl year'* OPEC meeting, diverging Iranian and Kuwaiti views have reappeared in recent months Iran'* effort* lo increase oil prices could be an trriiaaii at this year't OPEC rnecting scheduled for June and in bilateral lentioni.

Longstanding mercantile interests between Kuwait and Iran have ensured lhat trade between Ihc two countries has remained fairly stable over thceaprie wormy political trillions- Although. Kuwaiti export* lo Iran declinedeak0 milUooO toillionhey rose again ia4 million

irrt of oil and related equipment have foundto circumvent the war'* disruption on

^tit

Hinorical Cooperation

'* Historically. Kuwo.il aid Iron have hadVs.relattons.-Tradt hai bren the earner tione ofelationship, and Kuwait hai traditionally urvedajor transhipment point for goods headed lo and from Iran. People alio hour moved freely brt-een tbe two lountriei. and deeerufanli of Iranian iritleri are among Kuwait's most prominent businessmen. Under the reign of ihe Shan. KuwaitS ruling family looked to Iranuffer against Iran's historical claims so Kuwaiti

The rise of the Khomeini regime9 and the outbreak of lhe Iron-Iraq war the following year ledundamental shift In Kuwait's policies toward -Baghdad and Tehran. Theuccessors wasted no time In making clear their hostility toward lhe Sunni Muslim rulers In Kuwait. Moreover, Kuwait's refusalrant refuge lo Khomeini following Ms rillion from IraqB contributed lo theontempt of Kuwait {jftaV" '

products through Dubai. Ints capons of'iprimarily pistachios, caviar, andKuwait.

Although Kuwait Inillally proclaimed lis mtuiralliyt In the Iran-Iraq wmr. It soonro-It aql lilt Kuwmlti leaders, concerned over the appeal that m adical Shim regime would have among the SO percent of theiropulation thai Is Shia and thelarge Iranian communlty./'elt compelled to oppose Iran's espansionJit designs. The ruling Al Sabahamilytciortdms Iranreater^ore Immediate threat to their legitimacy thanhen began providing significant political, toglittc. and financialo

Hiodlirnj Tehran'* Aggression

Kuwait'* main line of defense against Iran hat been to avoid confrontation. To limit Iranian harassment. Kuwaiti leaders and the press have generally ignored Tehran's hostile rhetoric. Kuwait ha* maintained

Uriel public rilence over inupport forvalued at nort*ranshipment point for Soviet military supplies

In an uocfuracterbtically bold move in defiance ot* Iran ibis -print, Kuwait rec.oejJ.cd Soviet and US PtrxecliotJ of in ifaips traveling in

Kuwait'* liberal rules of engagement, which allow pilots and air defense commanders to fire on unidentified aircraft without higher authority, indicate thairepared to engage Iranian aircraftwhen necessary.

Seeftt

Secnrt^

do luck on In own against Iranian ship attacks Kuwait's nascentll nqaipped to proton the country's commercial shipping fleet beyond Kuwait's territorial

Domestically, Kuwait) toughresponse io Iranian-sponsored terrorism has increased sectarian icniions. pejing k'ious Problems lot the government 4HW

emioni between Senals Shiai increased sharply foil owing the arrests of 11

' Kuwaiti Shsat for criJfacsd boanbaags iao andome local Sbiaa deatioatuaied against alkged government lorturt of lhe ckuineea and the confiscation or" cnibm IheJl families.!

Kuwait has refrained from publicizing Iran'i involvemenl in subversive activjtiea to help preserve

h.late

The Kuwaiti Government has kept diplomatic channels open and active, despite having recalled its ambassador from Tehran early in the war.ialogue essential to mitigate Iran's hostility, gauge Iranian inteniions in the war, and discuss OPEC oil policy. Kuwait, as chairman of the Islamic Conference for the neat three years, views Itselfossible mediator in the Iran-Iraq war and hopes to encourage Iranian responsiveness to puce elforis. Consequently. Tehran's envoys have link

meeting with Kuwaiti Government officials.

Prospects -JfiRdaiions between Kuwait and Tehran are likely remain tense for some time..Iran will probably attempt lo intensify its attacks on Kuwaiti shipping, increase its support for Shia dissidents Jn Kuwait, and sponsor more terrorism stains' Kuwait. If terrorism fails to change Kuwait's policies, Tehran probably 'hi--

Kuwai, Isie Gulf Cooperation Council lotronger stand against Iran, but lis request will probably fall on deaf,ears.ujnafjg, f

Kuwaiti leaders could be compelled ao rethink tbe extent of ibeir support to Iraq and their torn to the superpowers if Iranustained and effective campaign of terrorism and subversion coupled with periodic miliury strikes that threaten to shut down^Kuwait'i oil production. In thatuwait might place condiiions on or even restrict Iraqi use of Kuwaiti airspace. Kuwaiti leaders could

Arabia locrease jU shipments through the port of

i.. ff supportraq.fJJ^fta (^

K jmercantile menUlity will restrain Kuwaiti leaders from undcrubngactionithatmight damage lorg-lerm commercial

ma Iwiih the possibility of increased' , rarponsored subversive activities. Kuwait; lit lie choice but to continue lough security measuresas deporting Iranian worker* and removing

'Kuwaiti Shia* from job*e oU fields, tbe miliury. and government irmitutum*af^aat &3

Kuwaiti leaders probably know that they would get link tangible inlcraatiooal supponore aggressive Iran or following aa Iranian attack Therefore, Kuwait will try to avoid sharper conon and will look for ways to reduce Iranian hostility:

' Kuwait will probably mutimicc the trials of Shia

lerrorisu and lhe rcflagging of Kuwaiti shipsThc Kuwaiti press will probably increase its criticism of superpower involvement ia ihe Persian Gulf to put distance bet "ten Kuwait and US polk-in lhe region

Regardless of who wins tbc war, Kuwait wouiu quickly look for ways to exploit ihe newfound peace, bcexng to benefit economically from postwar reconstruction efforts in Irarfus well as Iraq. Kinveitis, however, probably believe that no significanl improvcrneni in bilateral ties is likely until Ihc current Iranian leadership changes or the war Is over AaWgai ti

Lebanon: FundarnentaKst-CTtristian Cooperation?,

Ubanon, lhe ancient principle ihai lhc enemy of anriend apparently can bridge even lhe widen ideological differences, Rcccnl evidenceardline Christian group hai cnieredactical alliance wiih anIslamic furidamenUlbl group. The mere possibility lhat groups like thc Christian Lebanese Forces militia and fundamenUlUt Islamic Unification'ctosely tied tocooperate underscores th* Hobbesisn dynamics of Lebanese

Cverriux War la Beirut?"

For now Higballahb trying to avoid provoking Damascus,

The fluidity of militia politics may haveew high in February aa several West BeirutDruse Progressive Socialist Party, the Communists, and otherforces to challenge Amal, Lebanon's largest pro-Syrian Muilim militia. After Amal lost control ofa lubstantiat amount of turf, Damascus bolstered Its earlier deployment ofbservers in West Beirut withrcops in tale February, In the hut few months Beirut's miliiias have begun to rebound, risking reprisals from Syrian troops whose orders arc lo keep armed elements oh* the streets. Themilitias arc forming new alliances in response to Ibe cirncnl balance of rower in Beirul. 4M

The chances arc better than even*that lhc Lebanese' Forces opened discussions because of the Syrian threat. The Lebanesefavors the partition of Ubanon into Christian and Muslimlhc ShiauaeUrrtcHUllst Islamic state In all ofamong ihe groups threatened by Syria's troops in West Beirut and'have much to lose if Syria capands iu security plan. Although there Is little evidence of susuined cooperaiion between these otherwise incompatible groups, their perceptions of an increased Syrian threat may spuria coordinated

response.

Already lhe Shia fundamenUlbu are using their longstanding uctical alliance with the Palestinians to retaliate against the Syrians.l

_ Recent Syrianuslim BiotlKrhood members or lympathirerin-'MlmMMBMpjm, ,

We believe that Hiiballah has been active in the resisunce to the Syrianince thc deployment there have beenxplosions in West Beirut, tbe vast rrvajority apparently intended as signals of exposition to the Syrian security plan.ittle reason to believe that one group is primarily rtspdnsibte for these bombings. We suspect lhat virtually every Lebanese political actor but Amal opposes tbe expanded Syrian prejcnoc.

Cbrtsfixn Opposition lo Daaaascm The Lebanese Forceshe miliury arm of the Christian hardliners. Under Samir Ja'Ja's leadership, the Lebanese Forcesignificant obstacle to the expai4on pt Syrian influence in Lebanon. The Christian militia was responsible for many of thc car bombings in West Beirut after the Syrian observers'

I.n. I

decision to bav

Ke -aa roundly cersdemecd who artillery Jirornft, and tbeof j orced the airport tofor several '-!

-iwc Leteeeae Forces almost certainly believes thai following lhe February deployamascus'! forcei arti better arrayed to use military force aiainst ihc Chruuan eoc lave Syrian forces alto retain pout torn in Use strategically important Metn. Thc deployment ofyrian troopa lo positions near iheine incrcasci lhe credibility of direct Syrian military pressure en ibe Christiana VMaV 3

Would rW Caartotian* Hrla Hlrt-Uai?

Thc Chrittlans would have muchain by cooperating with Hizballah, at least in lbc tbort term. Plancrn'. la -style cantcoive devices near Syrian military Urgclt would make it bardcr for Syria to

ordci and will keep thousands of Syrian iroopa preoccupied with security duties in West Beirut. More fighting or ri plot ions would tend to

- keep the Syrians busy in the already i*en of West Beiru I. Despite the Increased number of Syrian troops in the Muslim quarters aad. tbc imccctSDcx of Synsn pcuuoai along theine, the Lebanese Forces probablyamascus wouldilitary confrontation wiih tbc Christianse re was orspcejtion to lit

plaa tn tbe wesierafJJ ,

From the Christian mililia's perspective,ubatlah could speed up disintegration of <bc current Lebanese political system and hasten ihe formation of ihe cantons Ja'Ja advocales. Both la la and ihc Hiiballah leadership favor ihc ovenhrow of lhe cluing order. We suspect that, dcspiie differences

Would IDahaOah Help the Chrisdaaar Like other Lebanese groups, HUballah hat demonstrated conaaocrsbae uctieavl steajbility. evideoocd by its relations tip* with Iran and thc secular pro-Aralat PLO. Cooperating with Ja'Ja to weaken lbc Syrians could offer Hiiballah greater freedom of action The two groupa' shared goal of overturning the currenl political systemowerful induccancnl toward cooperation.ffl

Like the Christians. Hirhallah wants tofrom cipanding ibeir security plan.the Syrians fromtuburbt has become thepricaity.thea resistance so tbajagyritn prctciscc thatbusyaming order ia the *CCSorsIt alrcadi pat roil

Of all ihe political acton in Lebanon, however, HUhallab it lbc moat dogmatic, and cocrpcrattoe between Hirhellab and lbc Chn.ua as probably would be only temporary For tbe Hirhellab rank and file, bardlincre like Ja'Ja arc tymbolt of thc Christian-dominated order that Hiiballah wants loiweepaway. In the long run thc two groups will differ over the fate of ihc Christians in ihe south, whoegion that it predominantly Shia.

61

4

B3

;Wc believe (bal Hiiballab and tbc Lcbaneac Foices will al least discuss cooperating against the Syrians in West Beirut and nay well coordinate underground anti-Syriant is alsoa uniquely Lebaneseinch coordinationtake place while tbc two groups were carrying out hostile operations against each other. Both groups will take opposite sides oo key issues in tbc long tun and probably will soturable relationship, but the imperative to survive In Beirut and the groups' shared short-term goab will encourage them jo cooperate againat their common enemy. snfaB

a

Syria: Ecooomic Refugeanoni

Iradilionally strong economic tics between Syria ind Ubanon fiat grown dcner during tbe decadeyrian military occupation Although phikwor*ieaUy opposed, the two economic* complement each other. - Syriaajor marketfor Lebanon* trade and .services/while Lebanonree and open market

foreign exchange and imported goodi. cocnpeiLiatmg for the failing! of Syria'i orhCial

r: ccoaiowy. Smuggling through Ubanon aad black-

activity sustain Syria'i amatl private sector, its ^government and party elilea, and Its substantial

middle clans.esult, lha Syrian economy continue to limp along even though chronicshortages and poor economiclimitorma nee of the predominantlyindustrial and

Syrian Rillanc* on the Black Market

Thc Syrian economy has beenealto officialforeign exchange ihonages reprcacnt aPresident Assad'sprivate busineaacaeen forced to

close or reduce operations for lack of Imported raw materials and manufacturede estimate thai Syria's current account deficit amounted lo0 millionue prirnarily to lower oil export revenues, reduced expatriate worker remittanoes, andevel* of bard currency support from Arab donors I

Ubanon'* chaoijc open economy is anto the lightly controlled, stagnant eeonomy. Syria's system of nationalized banks,controls, and unrealistic exchangemost foreign exchange fromfrom expatriate workers.

i private importers rely on an

; illegal currency market and external. resources. Syrian moneychangers who supply

importers wiih foreign exchange are forced to operate elande*tinely and with limited market information. Many private importers turn to Ubanon for foreign

Hardshipsyrian Importer

Syria's private Irnporttri err fo-rdno-"in' lituolioa under Syrian import regulations and foreign exchange eontroli. The/oreign exchange needed to purchase Imports has not been made available by lhe Syrian Commercial Bank to private Importersherefore, ail Imparls must he financed by external resources, alien from hard currency resources held in IrboH^nMJgkfMMJgolB^ aboutmillion of Syrian Imports In the past two years were financed by the large sums of money held atwoad by Syrian businessmen. This supply Is slowly being drplrird Expat'tale worker remittances are dec'tailng. and Syrian currency can no longtr be legally transferred Outside the countryyrian cltlstn djflasw

eichange to finance import transaction! Smuggling aad other black-marketnTer aeveral benefit* to the Syrian regime:

Smuggled imports and Lebanon'* banking lysiemafety valve for Syria, limiting popular discontent over the economic decline.

Smuggling through Ubanon subsidizes the Syrian elites and enhattees cooperation aad dependence between key leaden and faction* in both countries

Smuggling and drug triInching in Syrian-occupied areas in Ubanon supplement Syrian Army aalaric* and Ubancsc militia revet

Syria'* Hong Kong

Ubanondl-eleveloped financial Infrastructure that compensates for Syria's economic deficiencies. Foreign exchange transactions and capital transfers are unregulated in Ubanon. Lebanon has unrestricted access to importselatively open

6S 4

4

Lebanon's Pathway for Smuggled Wheat and Flour

Lebanese Government buys wheat

allocated tor retugees diverted by Christian Lebanese Forces

Subsidized wheat sold to mills

H t'Ftour sold to bakers

Stocks smuggled 1

to*

priced bakery goods

priced bread

m

--

border with Sjm Lebanons Bankcrr'Ataociation itaiistict induie that (hereranch banks thrown bout Lebanon, many of which are geared toward international trade andaak* id Beirut. Tripoli, and in the Bckaa Valley provide leticn of credit for Syrian import en to purchase eh* nee for imports of raw materials and factured and consumer goods from thc West. Recent statistics indicate local banks still hold8 billion In hard currency accounts, much of which is almost certainly devoted to financing Syrian imports. taaaaasw

ta

Lebanese trade with Syria is crucial for Lebanese merchants and manufacturers. Laical statistics from lebanon'i Chamber of Commerce for the North indicateercent of the region's exports are lo Syria,ercent of which are of Lebanese origin. Almost all imports destined for Syria arc channeled throughpom and are not subject to customs duties. Owe operator of Christina militia-ceatirollcd porta in Lebanon said last year thatercent of his cargos arc destined for Syria. Syria's longstanding military occupation in northern Lebanon and now in Wesl Beirut, tfa>

Tbe most, crucial economic link between Syria and

is in thc supply of key imports like grains

and fuel. Both countries provide heavy subsidies for

- these politically sensitive commodities, but the price

periodic shortages in Syriaof Lebanese llocks.aflttl

03

Wktot. Beirul Chamber of Commerce tl* limes indicate that grains comprise almostercentebanon! legal reexports, although Ihii amountprobably excludes much of the smuggled *heat and Dour Lebanon's Ccreab and Sugar Beets OflVce purchases wheal for about SIetric ton and sells il to millersubtrdiicd price equivalent to SE per metric ion. The official retail price for Arabic bread it fixedents per kilo.esult, lubstsntisl profits accrue to smugglers who can supply the Syrian market with lhe highly tubiidixed Lebanese tupplit

S3

Gasoline. Lebanese oil imports6 werearrels pc'flwauuwl

1 in past years Beirut Port

anoa: Relnliie Citolirtr

i1 riltr ptw JO lUtri

Syr"

unoxey (Mtrkei Price. Raw)

urreno (BUel-Pike Mtrkei

Ham]

kf

IMS

4tl

etn

iwi

16

JOT

Al th* lahaana eumncy hupmeat In iht Mit

ollarof Lcbuon't fiaollne hu fallen. Airun. tht price el)l

percDW of Syrla't nuii-rofitable martinaa traatnon tuxaa ta Syria.

alone imported enough petroleum lo meet domestic consumption. Nevertheless, distribution tHObkms and creaje^jhorta,

llbc Cbrittian Lebanese Forces mititia diverts fuel supplies lo Syria, especially during periods of severe Syrian shortages Despite repealed domestic fuel price incrcaiei by thc Lebanese Governhave been raisedercent since earlytbe rapid deterioration of the Lebanese pound has reduced ihc dollar value of gasoline and encourage* widespread imuggling todaunt

Syria Kruuiag tho Upper Hand

Tbc Astad regime launchc* periodic crackdown*muggling and illegal Currency transactions, bul Damascus generally toteraics lhe black market. In6 Syriaaw prohibiting Syrians from transporting Syrian currency Into Lebanon, thus preventing private importer! from paying their Lebanese suppliers and practically stopping the Lebanon trade for nearly two rnonihs. i

1

The economic cushion provided by Lebanon and thc black markets makes Damascus leu susceptibleiitaitcial pressure from Arab or other states lhan Ibe state's dismal economic performance would imply. Even though Damascus isevc.tr cash squeere and increasing shortages of staple goods, Assad will be sheltered from public disconicoi by economic Iks lo Lebanon.afafJawT.

amascus probably wantsring more foreign exchange transaction) into officialreserves average leas lhan $S0 'I million. The regime hopes to appear commit tod to-resolve economic problems. Highly publicised arresu of merchants and "corrupt" officials and lightened border controlsisible policy response..

Syria will remain dependeol on Lebanon for many essential goods aad services. Despite border controls,believe Syrian Army personnel still purchase and often requisition goods from establishmentsebanon, supplementing ibeir poor salaryllowances. Underground tradealve againsi more open public disconicoi over i= econcenic conditions and Assad's beavyhaadedolicies. Thc Lebanon trr-de will continue to benefii domestic economic eliies who exploitctfuiectiona wilb ihc government and military io II provide smuggled goods and illegal servkaaVgJIJfJJi

JtV

je"y

Arab States: Regional Employment Picture Bleak

Tbe Arab lUici face iunrated unemployment duehe regional recession Unemployment ralet rangeerecfll in thc Persian Gulf0 perocnl in tbe Maghreb conn tries Rapid population growth throughout the area and returning ctpatriate workers in many stales feed thc problem and pitgue government attempts lo meet the growing demand for Jobs. Persalent unemployment will eeetribete to social am eat aad increase political pressure* on many regimes, especially Egypt aad Algeria I

Employment proa poets are grim aa thc region'! eoonootir recession continues Hard currency earning] arc depressed due lo weak international markets for oil. petroleum products, pbosphaics, and natural gas. Lower revenues have forced governments to reevaluate, aad often reduce, spending on in vest mem and development projects that would create new jobs.

In additioa to tbc recession, labor-exporting countries loch as Tunisia. Morocco, and Egypt face chronic unemployment because growth of tbc labor force and tbe population consistently exceeds economic growth. In Jordan, for example, the increase in real GDP slowedercent annuallyhile tbc labor force and population grew ercent, respectively. SvtMBwa^ffawMMHfeMBHIk^h

Unemployment is further heightened by increasing female participation rates. Anotherncreased urbanization as unskilled peasants move to the cities seeking work. In Morocco.ercent of tbe urban Ubormillionchronically unemployed because of weak domestic demand for labor and/or lack of employable skills.

Among the Ubor-importing countries in tbe Persian Gulf, domestictructural and ex bis primarily within specific groups such as thc young and recent college graduates. In Bahrain and Saudi Arabia, Shiamostisadvantaged groupfeel thc brum of the recession. tMahttu

The Siailsiieat Morai,

Thereark of reliable statistics on ihe labor forte In lhe Middle Eon and Nonh

Given the forge, predominantly rural word such countriei a, Morocco and Algeria, accural* statistics are difficult lo obtain, waaaaafts

Siailillcal collection method. In uie In ihe Arab world, as In LDCs In general, do not accurately measure the level oferson Is underemployed If he Is eligible for work and does notull-time fob orone stentob. Employment statistics may be Inflated when ihey Include thost IndMduali who art underemployed:

Uuocco. family members who contribute marginally io ihe family Income through pan-time employment or by working in cottage Industries are counted ai employed.

Algeria, oajstimotedoerceni ofgricultural tSbrk force Is considered

underemployed.*

Jordan, where the goremmem art! at iht employer of last resort, aboutercent of the Royal Jordanian Airliner payroll and overerceni of lhe Jordan fhosphair Mining Company's workers ore underemploy

ti

Alihough some of iht statistics may be outdated or Inaccurate, wt believe tht available data ihh" unemployment trends In tht Arab world. gwVI?

I laeesastci)

h rales in tow-iiscornc Arib countries have compounded unemployment problems among youth, who accountisproportionatef total unemployment. In moat Arab countries, ewer half of lhe population isnd many are jobless For (umpb:

ercent of thed in Algeria and Morocco arc bclween

ercent of Tunisian males bclween II andrc

We bebeve the bgypiian Government will he hard

pressed to create enough jobs to keep pace with a

labor forcerowingate of JI perceni or

er year. Onlyercent of recent university

graduates have been able lo find work, the rest

waiting up to four yearsovernment

Youth and recent college graduates in oil-producing countries such as Saudi Arabia. Kuwait, and Qatar face dim employment prospects as low oil prices

depieai Ibeir countries'ollege diploma no longer guarantees employment in desired professional position _

'university graduates in Saudi Arabia are receiving reduced wage offers

and fr-tr fringe

Increased education typically raises job eaprciationi among graduates, la Qatar and Oman, new entrantshe labor force continue to seek nondema riding, middle management positions with impressive sounding inks, according io diplomatic reporting These rsprciations arc no longer being met because of the recession and employer needs (or wcll-lislncd. capable workers.i

Declining Op poet unities Abroad

Arab countries that rely on the export of labor to ease their domestic unemployment and provide much* needed foreign eichange have been hurt both by the

Graph 2

ARABIAN PENIfiSUUA: COMPOSITION OF LABOR FORCE. 6

14

.10

801

Bahrain Qatar

Es*teste Hosed on tne eost recent data available.

in the Arab world ind cutback! in economic eoportuniUes elicwberc. Western Euiope.'Bl jftafety valve for Morocoo/AJjiria, and Ttrttisla. In recent years has reduced its reliance on forerun workers.!

ewer jobs abroad mean greater competition for jobs at botne. In Jordan and Egypt, returning workers from the Golf compete with recent gradiuW and youth entering the domestic job market. Jordan's unemployment rate of approximatelyercent may riseercentage points per year and couldeachercent0 unless the fovernment's attempts to stimulate job creation arid investment in the private sector are successful, I

UhwSaortages

Tbe Gulf state* are generally experiencing less unemployment and continue to rely heavily on foreign labor. Many expatriate Arab workers, however, have been forced to accept significantly reduced wages aad benefits. The foreign work force is increasingly composed of relatively less expensive Asian workers instead of Arabs. In Saudi Arabia, tbc Sri Lankan and Bangladeshi presence has almost doubledn the last year because they are wijling to lower mages,We expect the reliance on expatriate labor" throughout the region to continue despite official

U

attempt*educeihe presence of foreigners inork force through mining and cducaiion programs.

In lh< Gulf itita. dcir-ow ICChlUCal. maftagerner:.

11

Tbe Iran-Iraq war baa worsened labor ihociagc* in Iraq. Many lectors of Ibe economy, including oil and bunking, arc understaffed a* (killed manpower is rotated through the military. Dcaratc tbc recruit.meet of Undent* and otber temporaryeak *caional agricultural and Industrial labor it in short tupply. flf

and profeuaooal manpower hi in ihorl supply, ln Saudipcciaiurd toot in medicine,ornpuicr sciencay bw.and engineering arcbut iiudenu coniinue to favor lhe *ocialome Gulf iiaies, such a* Oman, Qatar, and lhc ;'United Arab Kmiratcs, thc demand in all aegmenu; the labor force hai far ouutripped the availability of liwaj

J

Despite high levcli of chronic unemployment in other Arab stales, labor shortages eaist in certain fields and occupations In Jordan, fordemand for tkilied and tern, skilled workers ia construction, agricullurc. aad industry remains unmet in lhe rural area* due to poor wages and working conditions a* well a* thc lack of prestige atsociatcd with these tj or" work. I

Tunisia need* ikillcd technical workers, but vocational program* are woefully inadequate for those leckini alternative*ollccc cducaiion.

Arab governmenu are giving high priority to Job creation prograrns as well a* technical and vocational training to provide youth and olher workers with the skills needed in the sob market. Tunisia, which mutl0 jobs per year for new entrant* over tbe neatears, hasour-part plan to increase employ mem. but training program* are

by funding comiramtt. wawawawBHwaUwaW Instead ofmore money in infrastructure and industrial prorects, Jordan it concentrating on cducaiion and training, investment and capon incentives, and olher policies io increase the produciivily of rusting investments and to stimulate the domestic demand for labor aJgghuT

We believe implementation of effective job-ill be harmed by limited private-tec Iand the lack ol vocationalan job creation programsihorl of ihe.r

Tunuia'i last five-yearo0 new domestic rob* and toobs abroad per yearercent below the official yearly target.'

ive-year plan called forillion jobs, butere creat

Reduced employment opportunities will add to social tensions in Arab laorting countries, especially Tuaixa. Algeria, and ligypt Unemployment woes, when combined withhcvlltc* inch a* ItlamicU mental ism. economic austerity, urban nation, and crime, will increase the political challenges for the governments of these

In the labor-importing countries of lhe Gulf, programs lo reduce reliance on capairiatc workers will probably continue to flounder due to the small indigenous populallom and thc scarcity of skilled native workers. The young and minority groups will continue to make up the bulk of lhc unemployed. Traditional culturalhich encourage disdain fee manual labor and i* averse to technical and vocational iraining. will ronjjnuc to undermine tbe governments* elumpti al ettlbt.thing aa efficient native work force Atatares, and others continue to shun prrvate-*ecter employment, we believe ihe number of cipatriaic workers will remain stable or decreaie only iligbtly. given current economic conditions Arab workers from labor-exporting countriei will probably have fewer fob opportunities in the Gulf unless economic activity improves

Pakistan-Afghani* tan: Where Exports Are Irnporls

Soviet invasion of Afghanistan hasayor change in the balance of track between Kabul and Islamabad and in the hinds of foods traded, as wellk increase in she amount of smuggling Thc Soviets have used trade through Afghanistan to make inroads into Pakistani Mack markets. Track thai transili Pakistan, destined for Kabul, has been disrupted because tbe Pakistanis Ihernselvcs have attempted lo regulate the trade to slow ihc diversion of goods into the Pakistani black market. Maintenancemall keel of official trade rs important to support the Kabul regime's claim lo legitimacy, but the benefits of capanding unofficial track will makeore attractive form of trade for both Pakistani and Afghan merchants.

i| 'fm-- rade between Pakistan and Afghanistan nearly

doubled in the last half oftflattuftvMlekW

ahhVfataVauTatuna Afglsaftistanlean

net exporter lo Pakistan, mainly because of food

experts Besides food. Pakistan imported raw

materials and aerm-finis bedas lumber

andAfghanistan More than iwo-

thirdt of Pakistani exports to Afghanistan were

manufactured goods, mostly cigarettes, leather

products, and coiton fabric or yarn. Being landlocked.

Afghanistan railed on Pakistan's port at Karachi foe

mech of ils imports. Afghanistan's external trade wiih

the Scarlet Union accounted forne-third of

Kabul's im porta and capons0 wVaHa*

Traakfrariasg th* War

Officially reported trade between PakistanInnolkrcoaster patternSoviet invasionising comiderablyfirst two years, dropping precipitously theand then leveling off after fiscal yearimport* increased from0 iothen fell diamaticalh^tcuno exports

' lacatull aad tiuti Onlaw. A

have increased almostercent during theesult, lhe trade balance has shiftedfavoreficitillionUKurplus ofullion in

ibal growing Afghan eiports io the Sonet Union, lower production, and increased smuggling have accounted for much of ihc fill in Pa tint n't official import iiattsiicsJnttuaV|answ*aw*a^

illion in smuggled goods cross tbc border annually

Even though Kabul increasingly relies on customs duties on imported goods to fill government coffers, these duiiea arc so low compared with those Imposed by Islamabad thai there is considerable transit trade from Afghanistan into Pakistan. Aa Afghan

I commentedil "the only business in Kabul islaiming thai nearlyerceni of imported goods arc reexported to Pakistan. Kabul has purposely kept duties low to ensure Ihat Afghan merchants can import goods, pay ihc duty, and still smuggk or reexport thc goodsrofit Pakistani restriction* thai put heavy tariffs on goods from developed countries and relax duties on imports from less developed countries also provide an incentive for lbc (IStml trade BgBBV

The war and Iht emigration ofne-fourth of Afghaniitani population have significanily changed Ihe kind of goods being traded. Cigarette export* were roughlyercent of Pakistani eiporta to Afghanistaa inut tbey have Increased to more lhanerceni ia6 Most of ihe

back

into Pakistan ioigh domestic eitisc lax.

Paper product exports have increased nearly sevenfold

fromoprobably lobe uted In

*3

IBALAt^^

Million US$

F-po-ts

3 4

Fiscal Year

genet for Ike ex pa riding reexport business Inajor Afghan product ihai probably ii being produced in greater quantity been ate of the war ia animal bidet, falling agricultural prod aci ion In ArghanitUD hat caused locals to rely on thc tlaughicr of animals for income. Hides are becoming an Increasingly important export from Afghanistan to Pakistan's growing leather garments industry.

Official transit trade has fallen because Islamabad now requires that goods transiting Pakistan for Afghanistan be accompaniedetter of credit on

aa Afghaa bank.l

thato 70

perceni of the goods bound for Afghanistan via Karachi never leave Pakistan. Pakistani middlemen divert these goods from the transit trade inip black

markets

ercent of the value of transhipped goods thai reach Afghanistan are immediately smuggled back into Pakistan.aaUjaUja.

Trade betsvecn Pakistan and Afghanistan has been substantially altered by tbc graving Soviet involvement in ihc AfghanAfghanistan naw relics on tbe USSR for nearlyerceni of its external trade. The reorieniaiion of Afghan irade toward lhe Soviet Union in recent years has resultedecrease in ibe capon of someparticularly fruit andPakistan Conversely. Afgtaanisian is importing some goods from Pakistan thai are ultimately destined for Soviet

7*

Trait Terms Defined

Ofhilal trade refers io roods coming Into aad tearing Official ports of entry that are reported In govrmmenl it ' based on customs reports. The official reports on Pakistan-Afghan trade only account for those items that ore inspected by customs officers at

Unofficial trade means those goods smuggled to avoid Inspection by customs offieiali In lhe mountainous frontier area of the^Fassstam-Afghan border, mules are fremuently used to transport smuggled Items. By avoiding customs dalles, si.mugglers can sell their goodsoi'dnccunt prices oran offer turns that areft

.ransit trade applies io goods lhat are Imported Into. ountry only to be reexported to another country

typically Imparled goodshe port of Karachi and then overland across the

. border. These are not recorded as Pakistani Imports.

terms transit trade and reexports aresynonymous. 0b

coin ur

exports from Pakistan to Afghanistan of such luxuryerm as tangerines,hocolate, and confectionary sugar can beo their incTcased consumption by Soviet soldiers sUtioned in AfghanisUnor the recspon of these -products to theaWfr

Tbe Sorter Angle

*.

change in official trade pattern, over the last several years is more an outgrowth of thc developing economic relationship between Moscow and Kabulibe case of the reroutipg of Ihe transitdecisions in Islamabadoviet plan to alter traditional Pakistan-Afghan economic relations.!

Soriel goods abound in the

caviar and

* -

be trying to foster torniptjon and irnaTltcalc sabotage of the Pakistani economy. But we believe their efforts will noterious impact on Pakistan's economy because they are to minuscule.'

Wtaawr* aad Learn

Although official trade withercent of Pskittaa'i local trade, itfor tbe underdevelopedaBBBjaBBtaaajaaa BaBBBjaBaaaaasaaw

Puihlun In ba menthe province Sic ly invcTVcd in Irani porting goods between the two countries,ubstantial portion of Afghan exports to Pakistan are marketed in tbe North-West Frontier Province. Maintenance of official trade ties to Pakistan sbo enhances the Kabul regime't claim toma cy. ujMga

Tbe much larger illegitimate Pakisun-Afghan iradeumbai-of partiet on both tides of the border. Ibe Afghan reciport trade is extremelyable for the Kabul merchants who import Use merchandise, the Pushtun traders who transport it to Pakistan, and Pakistani merchants who caniscount compared with competing mercrsan-tu- on which cuttoms duties were paid.aaTawSasaBaasM'"

male profit!ercent, respectively. The reexport track alio incrcaici ihc Afghanevenues from customs duties, la addition, because Afghan merchants receive payment in-hard currency. Kabul maintains an important source of foreign exchange by encouraging ihli trade.

79

Moscow hai benefited from ihe rerouting of much of ihc transit trade away from Pakistan to Ihe Soviet Union. Tbe reexport trade has pro*cn lucrative for joint Semet Japanese emerpesse* lhat import manufactured goods into Afghanistan. As an added benefit, lhe Sovietsrj currency through these firm* aw^antakjaasananaM Moscow earni hard currency through the handling of transit freight and. at the same time, hai increased traffic on Ibe underutiliied Trans-Siberian Railway.

'W *ioaen from tbc new trade trendi areCOtTeri aad tbe Pakistaniused to handle lhe Afghan transit tradeThe rruddlemen complain lhatof credit requirement and otherto traasit iradc destined forlubatantialiy reduced their businessout on cuitotns duties on goods imuggled inI" addition, since tbc unof-ml trad'with hard currency, it acts aa adrain on thc Pakistani economy

volume of smuggled goods is probably aot sufficient locrioui impact on lhc overall economy. Furthermore, the influx of smuggled Western con su oyer goodsafety valve for penl-up consumer demand I

Outlook

in our view, orbeial Pakiitan-Afghan trade will coniinue to be constrained by the increasing oricotatiori of Afghan trade lo the Soviet UnMa. decreased industrial and agricultural pt-odeci k* ia Alghaniitan, and lhc diversion of goods into unofficial channels. Never! be lew. Kabul wiU endeavor tobasic minimum" of official tradeslamabad for political and puUicity rxurpose*.

ash. S3

We judge thai urwflicial trade will increasereasons. With the decrease inwith Ihe Weal in recent years, toe importanceregime of hard ciirrency earning* fromtrade hai increased, in ourmost of the economic activityI roiled area* of AfghanIIcontinue to lake place throughIl ia uaUkaly thai lilemabad willon amuggliog from Afghanistan infulure because of its inability loborder, iu limited control over the triballis interest In keeping the border open forof weapons and supplies for the

insurg' '

t*3

't I' ;

4

. rrotmni. iNe* Dtlrtl

proAvaxn to international

; miealBcasre ot preccwe

aiic lo*jeaeeu aioetpilo)

W sMittni of ilit sew crop ii diWned vo ia* blxkK year tx'ai ii

enter* ottkut ehanacb. Of (hit. man ti probaMv by

. India) awauwnggannt)

New Detail Conferral

Drug traltlcking in thc Rajasthan border areaindrance to Rajiv Gandhi's political goal* in tbc region. Gandhi want* his Congress Party to continue lo rule Rajasthan, but corrupt Csngrcaa politicians threaten lo undermine tbc party'* s'rength in ihe state. Gandhi abo would lite So demonstrate to Islamabad Ihai hb government control* the entire Indo-Pakistani border, including ibe clandestine movement of contraband J

Drug inttrdietion efforts in Rajasiban have had only limited success, however, in large pan becausecurrupiion and kickbacks quickly seduce

Garidhi'i decision to tend the director of the national Narcolics Control Bureau.. Kumar, to Rajasthan lo April reflects, in ourradual increase in New Delhi's awareness that there is an important sccuntjaspcct to drui trafficking in border.

W* believe Gandhi was sympathetic to Kumar's rcxomrrxrxlationiampaign against Rasuihan't drug and corrupt ioe problems, but he has not focused on thc drug issue. We believe Gandhi's prime concern in the slate is on military preparedness to offset potential threats from Pakistan. Until Istdiaa drug inteidmson otTkuls can convince thc Prime Minister that controlling- ihe flow of contraband across ihc border Is an important feature of maintaining national security, we do not believe New Delhi will engageajor antidrug crackdown

Gandhi also probably is reluctant to try lo breakcAcsal-drug trafficker link for feartoo many high-ranking members ofpony in Rajasihan. Although Gandhiibe public relations rewardsrogramthat timulUneousIy demonstratedfor antioarecuses objectives, security,government, he lsprepared to facecapote of leadingnvolvementdrug trade. We believe Gandhi willfor opportunities to restore the "Mr.given him by the Indian press, butdruglbcprobably be limited to reducingof Congress Party coemption

TV US Rate

New Delhi generally spurns foreign involvement in domestic programs and consequently hat not approachedales for help with any proposed antidrug crackdown in Rajasihan. We believe, however. Gaodbi would welcome future orppesrtianiiies to demonstrate ha gcnVrnment's commitment lo ar ti ii. - . efforts. If New Delhiuccessful antidrug program in Rajasihan. Indian cehciab mighi seek credil in Washiogioo for responding u> US tatcouragctMni io reduce India's growing roleonduit for Pakistani heroin lo tbc

West, ggggggt

the corruption and drug issues are politically delicate for Gandhi. In our judgment, he is seeking ways to deprive state and national opposjiion

ul

Near East aad South Asia Brief

1 Ifc

t Ctuttaalmfioe Restricts Food Ittportsi

onsumer goods froroEurope. Mtny area countries

rely

tocmwnduiioii from Ibe nuclear accident al Chernobyl ia6 has led aome Middle Eastern and Sooth Allan counirict lo restrict im porta of

I

heavily on imported food, and lbc reatriClions, which vary from couniry to couniry. may result in_some shortages. Evaporated milk imports have been especially bard hit by the tKw^rtguUiions. Egypt, Iraq. Iran, BangUdesb. Qatar, and Saudi Arabia have refused delivery of powdered milk and otber milk products because of actual or^iijpected high levels of radiation. Iran's spedfkatMns arc particularly hard to meet because they appareoily require radiation levels In imported food that are towertbu what -as tbc oorm before tbe Chernobyl accident, ft nf)

The discoveryin IniporU has aomciimcs resulted in conspiracy

| In otber area countries auch as Hani" exporters have been accrued of dumping contaminated goods in Third World

Rdatlona between Middle Eastern and South Asian countries and some caponing countries have suffered, and some capon companies have uken Iceaes when customers have refused to accept couttouoatcd food shipments. Bangladesh is trying to get Poland to pay net only for rejected importi but also for thc cost of testing the imports for radiation. One US tirm bad its food exports rejected by Saudi Arabia because they bad been transhipped through Europe. Tbe United Stales subsequently has certified food products processed in (he United States at free of radiation In response lo these concerns. Wc believe (he Middle Eaitcrn and South Aaian countries .ill torn iocrcasingly loatS tupptics of fcodstuffs because of concents over radiation in European goodsaunajfc

Original document.

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