NATIONAL INTELLIGENCE DAILY TUESDAY 8 OCTOBER 1985

Created: 10/8/1985

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INTERNATIONAL: UNESCO

'flow

sing countries In oppose major changes

Tne biennial UNESCO Gonsrol Conterence. which opens loOay In Bulgaria, wHI assess ihe Halo of the organisation In Ihe wake of the US withdrawal. The Conlrironco will consider lhe luture of US criuens working in the Secretarial and the alleged responsibility of Ihe USinancial contributionvep though It withdrew midwa* throughudget)

S Octant' 'MS

|The Conference might. In the worst case, ask iheo declare the US liable for usontribution. Several members win can tor the removal of ad UShe Secretariat, but the Conlwence ta "Very to decide on reducing the US contingent through attrition The Soviets watow to replace the Amo'Vcam wtiti Soviets and East Europeans.'

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In Brief

Norlh Korean, South Korean sports officials mastingol International Olympic Commit ice toittle progress expected on Pyongyang's demand lo gfi'ii'

China, Czechoslovakia signed trade. Industrial cooperation agreemeni lastgreed to double value ol two-way trade next year to at5zechs to defiver two SOO-megawatt thermal power stations to Chlna.1

Leonean Army Commander Momoh confirmed as President Stevens's successor In-referendum lasttevens wtll be underpressure Irom military to step aside before term expires In December!

day of prayer planned lomorrow by Southleaders, including Bishop Tutu, drawing mixedanllaparmeldome nonwhftos may boycoi:

militant nonwtiito youths may mount violent protests *J H

CEMA deputy promiers ineptember stresseddirect regional links among enterprises lo achieveprogress coordinatingtor

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Special Analysis

Down But Noi Out

Inears ol Intermittent cMI wmr tne Lebanese economy nas shriveled to about halt Ita prewar level. In the leal tear, Inlletlon haa soared ro more thanercent annually, the Lebanese pound has depreciated byercent, and government debt has grown byne-third. But thc central bank has been able to rebuild Its foreign exchange reserves to some extent, and agricultural production in the aouth Is beginning to recover from he disruptions caused by the Israeli Invasion three years ago.

Much o* Lebanon's economic Infrastructure has been damaged or destroyed, many ot Its most skilled people have emigrated, snd the country Is cut Into sectarlen zones of Influence where factional militias independently collect taxes and operate illegal ports J

Borrowing To Stay Alive

^ngovornmont spendingpayroll and public worksone ot the principal reasons the economy retains any vitality. Such spending has continued to grow, although revenues have dropped to practically nothing. Receipts f'om custom duties, formerly the main souroe o( funds, totalednallon tor the first halt of this year, less thanercent ol Ihe amount needed to meet thexpenditures were nevertheless increased at midyear0 million. The deficit torjfl85j8 rikoly toew record, probably well5 minion JM B

Government debt grew6 billion at the end41 billion at the end ol July. So tar. however, the government has had no problem In funding Us deficit because Lebanese banks have few Other alternatives for investment"""

The Economy Hangs On

Industry continues to function, butery tow level. The unstable security situation keeps industrialists from expanding capacity, maintaining large Inventories, or even anticipating future sales. Limitations tn credit and the drop In the value of the pound have hurt the ability ot manufacturers lo Import raw materials. Goods smuggled In through illegal ports also make many domestic products uncompetitive. The contraction of local demandJItlecredli, and fear of damage to stocks have also hurt com-nt;rceM|H^

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Agriculture probably Is the brightest spot In Lebanon's economy. Agricultural sales suflered considerably following Israel's invasion ol southern Lebanon Inwere destroyed and transportation difficulties and boycotts by some Arab countries caused sales and exports to lalL Wllh the pullback by Israel, most of those problems probably will ease and more land will be put back Into production. In addition, the fall of lhe Lebanese pound makes thr, nation's farm products more competitive In export nwkels.1

Unusual Sources ol Income

Lebanon's economic plciure Is gloomy, the Lebanese are survivors; no one Is slarvlng, and sources of funds are still available. There have been numerous reportsenewed flow of money from abroadMomMrnestnLebanon^err^ as much0 minion a

Beirul financial community

bellevos Palestinians trying to reestablish thei- position in Lebanon brought In0 million during April, May, and June, although nothing in July and AugusL The many militias, both Muslim and employment for otherwise unemployed youth.

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Illegal trade with Syria, which may amount to as muchonth, also increases commercial activity and provides Income. Lebanese workers and businessmen abroad still send0o

lucrative drug trade is another source of funds. Hashish cultivation In the Bekaa Valley has been unencumbered by government control or Syrian interference lor several years. The trade in hashish has been estimated to be worth0 million andear, Lebanon Isransit point for heroin and

iiiionjj^car. cocameVfJ

Outlook

Lebanese economy cannot rebound until the security situation is brought under control. This will require political accommodation among the various factions,does noi appear to be In the cards. The government will have no choice bul io finance Its spending through borrowing, even though Ihe process will eventually generate greater inflation. Lebanon can expect little In the way ol foreign jid lor rebuilding as long os the war continue

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Special Analysis

ol Foreign Minister

most from lha

raqi foreign Minute, Tsrlq Ails preperei le visitBeghdod Im optimistic ebout Its relations with theMotions caused by US ties to ll/eel. The Ireqlsencouraged by consistent US support in theIran tor the past year and by progress Inties. Because ot Iraq's dependence on Soviet armsambitions In the Nonaligned Movement, however.continue to oppose Ihe US on many Issue: Moreover,relation, andhigh9spectett0n,S el, lo complicate the relationship "

Continued US support against Iran la what Iraq wlstt. US efforts

Iraq believes lis relationship with the US also serves Its ambitious economic development plans. The Iraqis view Ihe recently initialed draft agreement on commercial, financial, and technical relations as jrtant symbolic and practical step In developing closer ties.

need for US support has helped moderate its foreign policy, athe Middle East. It no longer allows radical Palestinian terrorist groups to operate from Iraqi territory end has cooperated with US elf or to to combat terrorism. Iraq late last year In effect closed down theay organization Inside tho country end put Its leader under house arrestoxpelled Abu Nidal and the remnants of hla group

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Olllerencaa Hemain

ft Oflooer

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Thefaql-US Ilea, moreover, has not extended to Iraqi behavior In the UN and olher international forums. Baghdad's aspirations to leadership ol the Nonaligned Movement have led ll to rom attacks on alleged US Imperialism to avoid charges of seMnq outashington

ant to Moscow reflect rts

Problems

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Baghdad will continue to view US wfllfngneas to provide trade credits and sophisticated tochnology as an Important tost of thc relationship US refusal of Iraqi requests would load Baghdad to turn Increasinglyestern Europe and Japan lo meet lie economic needs. In the short term, however. Iraq probably would muie_tla anger because II needs Washington's support In the wai JfJHfc

imp,ov*

superpowers regard

hiprovemenf in US-tranfen bee probably would not cause major damage to US relations with Iraq, however, unlesso sen Tehran weapons or soohisiicateri iech.nc4ocy with

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Special Analysis

Steps In Punjab

Tne accord1 between Prime Minister Gandhi and Puniab's Slkha lasl July and Iho aiata elaellon Iwo weeks ago will allow Qandhl lo put tha Sikh issue behind him tor at least the next lew months. Problems ot sharing local power and resourcea and the continued opposition ol Sikh extremists, however, make Itf> willalor challenge lor his government.

Gandhi would clearly like to lurn to economic modernization,priority. The Jury accord, however, let! severalsharing with neighboring states, contestedand. most Importantly, increased autonomy forresolvedumber ol commissions, some of which thegovernment has already appointed. Neighboring statesbegun to pressure Gandhi Io ouarantpp their anilities as , of the July settlement are worked _X

Gandhi alsoortlirkilnfl challenge from Sikh extremiststheurnout In the Punjab election,to overturning the accord Thoy can be expectedstriking at both Sikh moderates and the Congresstheyhold responsible for anti-Sikh riots last November:attacks last week in Amrltsar may be the beginning ot acampaign. The Indians believe the threat of anGandhi hlmsell or Indian installations abroad may be

higher now than before Ihe elections]

Gandhi is calculating that tho moderate Sikhs who now govern Punjab can broaden their support omong Punjabis and gradually Isolate Ihe radical while Ihe commissions deal with remaining Stkh grievances on sharing power and resources. The accord may encounter Its next major hurdle in January, whet- the commission on water sharing is to announce Its finding

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In the meantime, however, if lhe Punjab governmont can not contain the extremists' violent actions, both Congress Party and opposition politicians will press Gandhi to reuiBtltule Army patrols and restrict civil liberties. They may alsoajor issue of alleged Pakistani Involvement with the extremists and demand stronger action to deal with H:

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