CENTRAL INTELLIGENCE AGENCY
6
MEMORANDUM TO HOLDERS OF: THE OUTLOOK FOR THE UNITED ARAB REPUBLIC (Dated
corrigendum
Pageonclusion B, Linehange
TABLE OF CONTENTS
Page
THE PROBLEM 1
CONCLUSIONS 1
DISCUSSION 3
L THE UAR'S MOUNTING TROUBLES 3
Economic Problems 3
emen 3
Political Unrest 3
II. THE REGIME'S RESPONSE 7
Domestic Changes 7
Foreign 8
III. THE GENERAL OUTLOOK 0
Economic Prospects 9
Foreign Policy10
Donifitrr Implications of the UAR's Foreign
THE OUTLOOK FOR THE UNITED ARAB REPUBLIC
THE PROBLEM
To assess the situation of the United Arab Republic and to estimate developments in domestic and foreign affairs over the next few years.
CONCLUSIONS
economic difficulties, the costly stalemate Inother troubles have produced considerable discontent andactive opposition in the UAR. The regime has respondedthe security apparatus, bysome solution in Yemen, by cutting civilian spending, andout its five year economic plan to seven years.
program of domestic retrenchment, particularly thecivilian consumption, should help in dealing with economicbut it will have to be continued for several years to beexchange earnings will probably be increased by recentoil discoveries. To meet its economic goals, the UAR hasbillion in aid pledged by Communist countries and aboutpromised from various Western sources; it will, however,aboutillion during the Second Plan periodin foodstuffs and partly in other types of aid. USsupplyood will greatly affect the willingness of otherdonors to contribute to Egypt. The UAR's need for Westernbe an important but not overriding consideration in its conductaffairs.
see no better than an even chanceettlement inthe next two years or so. Nasser is highly unlikely to accept awithdrawal. We also believe that he will try to avoid the risksthough there is some danger of clashes involving UARforces. His most likely course is to retrench militarily, holding
the more defensible areas and hoping for some kind of face-saving settlement In the meantime, antagonism between Nasser and the Saudis is likely to exacerbate Intcr-Arab relations generally,tbe detente of the last two years or so.
Nasser's troubles get much more severe than atdoubt that bis regime will be in serious danger of beingsuccessful move to do so would require considerable backingarmed forces; this appears unlikely in the near term.the government improves its economic performance andto revive greater political support, it will become morethe long run.
relations have fluctuated considerably over diepresent indications areownward turn. This resultsthe reviving antagonism between Nasser and the moreArabFaisal. It is exacerbated bywith the British in the Arabian Peninsula, by histightened US aid policies toward the UAR, and by his beliefUS is increasing support for his adversaries. It is alsoSoviet gestures toward the UAR.
DISCUSSION
I. THE UAFfS MOUNTING TROUBLES
uring the last fewassers government hoi been facing tougher problems than many which confronted It in tbe first decade aftern its earlier period, the regime achieved an impressive series ofDomestically, it was helped by its Icaders, own fresh revolutionaryand favorable contrasts with (be old regime, by the ease with which tt could Up the great wealthmall minority lo help finance Its social and economic programs, and by the availability of huge amounts of foreign exchange accumulated in previous years. Externally, Nasser emerged as tho champion of Arab nationalism against receding British power, and was able to take credit for ending the decades of British occupation in Egypt. He also broke new ground by enfisting Soviet political and material support, thus ending Egypt's historic dependence on the West. And be emerged from hisuezonly in control of the Canal but with the prestige of having frustrated thend Israel
fter nearlyears in power, the revolution has inevitably lost some of its elan. Popular aspirations remain high, but ft is no longer possible to satisfy them through dramatic reforms paid for by soaking the rich and the foreignand by drawing on foreign exchange holdings, since these sources have been largely exhausted. Efforts toocialist, secular stare have alienated various elements of the populace. The economy has continued to grow, but It lias become overextendedesult of efforts to do too much too fast, and large segments of theof the earliercome to feel the pinch of heavier taxation, inflation, and growing shortages of consumer goods. Western imperialism is no longerseful scapegoat, since itssurvive only in areas remote from Egypt The Israeli problemource ofumber of Nasser's fellow-revolutionary leaders tn the Arab and Afro-Asian world have fallen or are in serious trouble. The UAR's relations with tbe major Western powers have generally deteriorated in the past few years, causing them to curtail economic aid. And tbe UAR is bogged downosdyemen with no end in sight.
Economic Pro Wens
he First Five-Yearalled far investments of nearlyillion in order to raise total output byercent (sevenn fact, the ecooorny did expand by between five and six percent annually during this period. Industry grew rapidly, and became more diversified; theof chemicals, light machinery, and consumer durable goods made notable gains. Electric power output more than doubled. Food production gains were less striking, but output nonetheless grew slightly more than population.
Dollin
FOREIGN EXCHANGE HOLDINGS'
6 7 8 9 0 1 2 3 4 5
'Cnfuno of eoti hoMiata wtmho oi.ur (iao.DCO.DOO.
Ihr,
DkXn
TOTAL FOREIGN CURRENCY DEBT
6 7 89 0 1 2 3 4 5
US loom ft##yn6fo inouaoi.l nmiaA.
6 Ci*
' Unlet* otherwii* indicated, data are (or tie calendar year. Data are baaed primarily on official UAR Attract.
Ffacalune.
'Estimated.
he UAR also received Soviet military tqiuptmat petal tf0 million, and repaid0 million oi iti mditary debt to the USSR.
1 This Includes espeodituiw Im mtaile and jtfevelopment and the wir in Yemen, and picbublv Includes aaill ion due annually for Soviet arm*.
However, this impressive recordumber of weaknesses. Tlie UAR bad used up virtually all its foreign exchange reservesndgrowth was made possible onlyet Inflow of about 9L8 billion in foreign economic credits and grants, ranging from long-terra Communist loans to US PL-4S0 and short-term borrowings from Westernoreover, much of the aid received was consumed directly or used to produce consumer goods, as Nasser attempted to sell the attractions of socialism by increasing living standards. Dornestic savings, scheduled to Increase fromo overercent of gross national product, rose very little, and investments fell below plan targets. Defense expenditures roughly doubled and are currently budgeted at0his is about eight percent of Cross National Productrate above that of most advanced industrial nations and more than double that of allew developing nations. Finally, the annual rate of population growth has gone up fromo nearly three percent; in absolute terms this brought the UAR's population tond ft Is growing by nearly one million annually.
The effects of Nasser's osxrambitious programs began to be apparentespite massive foreign aid, excessive imports led to foreign exchange shortages, this forced the regime to adopt import curbs, which curtailed the availability of consumer goods and industrial raw materials and components. However, only minor efforts were made to reduce consumer demand. Prices, which bad been stable for many years, began to rise and black marketsthese problems became worse afterhipments were interrupted tnndustry was particularly hard hit by the shortage of Imported Items; after expanding by about ten percent annually for several years, the rate of growth45 fell to about four percent. Nonetheless, until
he regime balked at making any major changes in its economic policies, resorting Instead to debt postponements and new foreign borrowing.
Sro/emo'e in Yemen
In Yemen, tbe UAR has been unable to win and unwilling to withdraw.he venture has cost heavily In Egyptian lives and money, as well as prestige. By00 UAR troops were in Yemen, unable tn achieve anything approaching victory, and casualties had reached estimated totals ofgyptian dead, andounded, captured, or missing. Initially, Nasser intervened to to help the Yemen republicans in line with his policy of supporting like-minded revolutionaries, and because it promised to giveoothold tn the Arabian Peninsula. He doubtlessuick ond easy success against the royalists, which would have resulted in preponderant Egyptian influence in Yemen. It would also have represented :ifur Nasser's Saudi rivals, who openly backed the royalists, and for the British, ^HoiHra^rHra^HraMraH Instead, the Yemen Arab Republic (YAR) has proved weak and ineffective, with only limited support in the areas over which it does claim control. The royalists still bold much of the country, and Yemeni resentment of Egyptian heavy, handedness has become almost universal.
The UAR's frustrations in Yemen have had repercussions at home. Tho Egyptian people are unhappy about the costs and casualties, and among the military there is widespread anger and humiliation over the failure to win. Within the government, there are almost certainly divided counsels over how to proceed. Some of Nasser's chief political and military advisors probably favor cutting their losses and withdrawing, or at least reducing UAR forces and lunging onew strong pointsace-saving settlement is worked out. Others probably want to increase tbe military commitment and try for some kind of victory.
Political Unrest
'Al about tbe lame time tbe regime aim discoveredlusoiganlied by men with some link lo the CIiIimic Communist*.
stalemate in Yemen and the country's economic problems havepolitical unrest Discontent became apparent inithfood shortages, black markets, and high prices; there were someprotest demonstrations and sporadic Illegal strikes. Popularat the funeral of tlie Wafdist leader of pre-revolutionary Egypt gavecause for thought These events were overshadowed byuslim Brotherhood plot to assassinate Nasserwo aspects of this ail air were particularly unsettlinghe plot was discovered only after it was well advanced,by accident than by efficiency on the part of the security farces,some of the people involved were "children of theandNasser hod believed to be immune toof tlie nationalist Muslim Brotherhood.
II. THE REGIME'S RESPONSE Domestic Changes
hese accumulating difficulties convinced Nasser thatwas required. It became apparent that the security apparatusthe grandiose economic plans bad to be scaled down, andof the Yemeni involvement had to be lightened. Prime Ministerardent socialist and strong advocate of UAR activism abroad, was hardlyto preside over tbe necessary changes. Indeed, it probably wasreplace Sabri in order to convince both Egyptians and foreigners that ataking place. His successor, Zakariya Muhieddin, was known to favorpragmatic economic policy and to be less enthusiastic about foreignSuch considerations, more than Sabrfs alleged pro-Soviet orientationreputation for being more friendly toward the West, probablyNasser's decision to install Muhieddin.
tbe regime apparently has decided to continue, at Wastime. Us costly and trouble-ridden programs to produce jet aircraft and sarfacc-to-surtaoB missiles.
Muhieddin, who is Minister of the Interior as well as Prime Minister, is concentrating on domestJc'problerns. He has moved with considerable vigorumber or areas. He has purged the administration, removing over half of the provincial governors and all the provincial security directors. He has been less tolerant of the activities of localof whom had been released from prison4 and given jobs by the government, Muhieddin and Nasser have also warned the peopleeriod of austerity Is necessary and that the country cannot consume what it cannot produce or pay for. Taxes and prices have been raised to curtail civilian consumption, some uneconomic projects have been dropped, and increased attention is being given to industries with export potential' The government has alsoirth control program, though whether it willigh priorityrolonged period is uncertain. In any case it will have no appreciable-effect on population growth in the next few years.
These measures restored foreign confidence somewhat and led to some new foreign aid. In general, Muhieddin's economic policies are moves In the right direction and have improved the domestic economic situation. They will, however, have to be supplemented by Improvements in economic planning and management, and continued for several years, if the UAR is to maintain its rate of growth. Moreover, the government needs to find some way to rekindle the popular political support that it had in; so far it has not had any notable success in doing so.
The military continue toource of concern to Nasser. He has been apprehensive over the attitudes of troops returning from tbe Yemen. There have been recent revelations of smuggling and corruption in high military as well as civilian circles. Some ten officers have been arrested on charges of conspiring against the regime. The government probably fears that there are other plots as yet unknown to it
Foreign Affairs
asser's most critical foreign problem arises from Yemen- Ine went to Saudi Arabia to try toettlement with King Faisal, whose support of the Yemeni royalists has been crucial to their cause. Both Nasser and Faisal then saw advantages in bringing the conflict to an ond, and theyompromise settlement which providedease Are, an end to Saudi aid to thehased withdrawal of UAR troops, and the formation of an Interim coalition government in Yemen to conduct aon the future form of government.
he Yemeni accord has not been successful. The provisionsease firealt of Saudi aid have been largely Implemented. However, tliere have been disagreements over the composition of tbe coalitionuestion not covered In the accord. Nasser and the Yemeni republicans insist that two-rjurds of Its members be republicans; Falsa! and tbe royalists are holding outivision of government positions. Nasser has also insisted that Faisal agree to keep tbe royalHamid alof Yemen. Nasser has puEed back UAR troops from some Important areas in the Yemen and hasew troops to Egypt. He has done this, however, not In compliance with the agreement, but in order to deploy his forces In more tenable positions and to lighten the burdenrotracted occupation becomes necessary.
these specific disagreements is the growing distrust andbetween Faisal and Nasser. Faisal now believes that Nasser intendshis troops in Yemen regardless of last year's agreement, not only toYAR but also to undermine the Saudi and British positions in theIndeed, Faisal insists that Nasaer hasool of thethe area. Nasser, in turn, suspects thatorking for thethe YAR, which would indicate to the world, and particularly to thethat their sacrifices for the Yemen revolution have been in vain.that Faisal is determined to oppose him in South Arabia andCub* and is cultivating dissident elements in the UAR. Faisal'sfor closer ties among Islamic countries is viewed in Cairo as anisolate the UAR and its brand of Arab Socialism. Nasser hasFaisa! other Arab rulcrse and Western powers on this score andthat be will keep his troops in Yemen as long as necessary tosurvival of the Yemen resolution- He has threatened to occupy Saudiany "aggression" against Yemen.
asser made some moves to placate tho US. Thesethe form of limited adjustments on various issues, rather than anyconcession, and in most cases be had other motives inplacating the US. Nevertheless, he became, aware that PL-4S0 aid wasbe had for the asking
HE GENERAL OUTLOOK
relations have fluctuated considerably over the yeais.s arcownward turn. Nasser suspects that the US Iswith his adversaries in the area and in Europe to weaken andHis frustrationsis Washington are fed by his resentment atUS sales of arms to hisSaudi Arabia, andaid to the UAR is now extended in reduced amounts and forNasser is making counlermoves by stepping up political andattacks against Faisal and other conservative and moderate Arabby cultivating closer relations with thethrough tbeHe has also stepped up pubhc crincism of the US.
Economic Prospects
1asser announced that the period of the UAR'sPlan would be extended to seven years. Although revisednot been announced, apparently the national income goalsave been postponedhis would Imply an averagerate of about six percenteven year period, rother thanercent growth rate for five years. The investment target hasfrom aboutillion over five years toillion over sevenof increased opportunities for domestic savings, however, totalrequirements are only slightly higher, and it appears that Iheborrowing requirement has been scaled down from0 million.
he stretched-out plan appears more compatible with the UAR'sNonetheless, the UAR will have to achieve several simultaneousin economic performance if it is to maintain its recent rate of economic growth, and reduce drawings on external resources somewhat below thehigh level of the First Plan, as well as meeting its deb*ebt serviceise from their present level of0 million annually to at0 million- Earnings from exports, the Suez Canal, and tourism will have to grow rapidly enough to cover these increased payments. Foreign currency payments for imports and other current expenses will have to be held close to present levels. Finally, domestic savings and the proportion of Investment goods produced in the UAR will have to Increase rapidly enough to make possible the necessary rise in total investment.
f the UAH can obtain the requisite foreign aid itood chance of succeeding in those tasks. Success, however, will also require sustained effortollow through along tho more realistic lines recently adopted. Whileexpenditures are unlikely to decline, civilian consumption lias akcady been considerably curtailed, and the government is unlikely to lift restrictions on con-
wimp*.ion in the near future. The UAR'i earnings from its traditional sources of foreign currencyexports, Suez Canal fees, andprobably will continue to grow steadily.izable oil field has been discovered in the Culf of Suez. It seems likely thatew years the UAR will be earning substantial sums fromnnuallyhe sum could be even larger if there are strikes In promising areas in the Western desert. Finally, the benefits from the Aswan Dam will be increasingly felt throughout tho economy over the next few years. Nonetheless, the UAR will still need5 billion in foreigninus any debt postponements it can arrange, if It Is to maintain its five to six percent rate of economic growth.
o far the UAR has secured commitments of1 billion in aid from Communist countries far the Second Plan period; substantial additionalfrom tbese sources presently appear unlikely. It has also obtainedide variety of ncrt-Ccrrununlst aources pledges of aid and ofthat total0 million,illion PL-4S0 agreement with the US that0 million of this sum fa from West Germany and probably will be slow to materialize while diplomatic relations remain susrxnded. The other major Free World commitments are fromJapan, France, Spain, and Italy, and from US oil companies and Western banks under private agreements.
the UAR has commitments for7 ofiffionince the amount of aid in the pipeline at any time cannotillion without hindering growth, the UAR still needs nearlymoreivided about equally between foodstuffs andof aid. Its pjospects for securing more assislance from Westernpublic andheavily on its ability, to obtainupply ofoodstuffs enhances the willingness ofand private Western firms to provide financial backing; withoutUAR has to use foreign exchange for food imports, thus limiting itshandle new debt sen-icing obligations. The UAR's need for PL-4S0 willto be an important but not an overriding consideration inforeign pohcy.
foreign Policy
dedication to nonalignment will not mean evenhandednessthe CS and the USSR; there are too many areas in which Sovietinterests are more immediately compatible than are the interests ofand the US and other Western powers. This fa generally true withremaining Western installations and special political positions in theand Africa, Western commercial and oilertainIsraeli question. Moreover, Nasser is aware that his completeSoviet arms fa likely to continue.
Nasser's troubles with the West and with his local adversaries have no doubt made him anxious for greater Soviet support. During the Kosygin visit, however, the Soviets apparently showed greater caution about commitments to the UAR than Nasser would have liked, and in any case there remain hrnits on how far Soviet-UAR cooperation is likely to go. In particular, wc still doubt that Nasser would violate his basic principle of opposition to foreign bases by granting military base rights to the USSR.
Nasser deplores the Sino-Soviet split and Communist China's quarrel with India, as well as the more general disarray among the nonaligned states. He believes that these developments weaken his struggle against Westernexploitation, ande will seek to secure the backing of the Communists and the Afro-Asian states in his controversies with tbe UK, ihe US, Israel, and Saudi Arabia.
olicy toward Western European states will vary. Cairo wiQimprovements in relations with France, hoping to benefit from de Gaulle's differences with the US. However, French-UAR relations are not likely tovery close, in large part because of French ties with Israel. UAR relations with West Germany arc unlikely to improve much because of frictions over West German-Israeli ties and UAR-East German relations. Nonetheless, Cairo will seek to maintain such relations with West Germany as will assureeconomic assistance. There is little prospect of improved UAR relations with the UK.
Policy in the Arab World. Nasser is aware that his position of dominance in the Arab world hasn an attempt to reestablish his position, he is trying to rally the Arab revolutionaries against his conservative and moderate Arab rivals. He may abandon the cooperative line which he initiated in the Arab Summitarticularly if he thinks that Faisal's campaign toonservative Islamic alignment is succeeding. While Nasser will remain the single most influential Arab leader, he is not likely to regain the paramount influence be had in the, when he personified the Arab revolutionary movement. He Is no longer the only Arab nationalist leaderof facing up to the West, of getting aid from the Soviets, and of carrying out major social reforms. The other Arab leaders, once overshadowed by him or on the defensive against his movement, have successfully resisted UAR efforts to run their affairs. Moreover, tbe Egyptian people appear less interested in Arab or world affairs than theyecade ago, and political "victories" abroad would not help the regime much at home. Indeed, the major foreign problem, as far as most Egyptians are concerned, is how to end thein Yemen.
Nevertheless, Nasser appears unwilling basically to subordinate foreign affairs to domestic considerations. He sees an Indissoluble connection between the revolution in the UAR and that in the Arab world at large. He is convinced
he Eastern Arabatedeneralof head* la the Arab world aod in Arab-Israeli affairs.
that hln leadership end approach alone can enable the Arab world to eliminate Its legacy of colonialism and backwardness. While he realizes that hisforominant role are presently less than theyew years ago, he probably believes that, in time, upheavals will occur in such places as Libya and Saudi Arabia which he can exploit.
ar some bVne to come, Nassers policies In the Arab world wfll be strongly Influenced by the trend of events in Yemen and In the Arabiangenerally. Essentially, Nasser has three broad choices open to him. On the one hand, he can try againettlement with Faisal on Yemen.asic policy shift would require more concessions to Faisal than we believe haikely to make. At the other extreme, Nasser could try forin Yemen byilitary offensive there, and perhaps attacking Saudi border towns. We are doubtful Nasser will follow this line; he probably thinks that it would not fundamentally improve his military position in Yemen, would cost him Arab sympathy and badly needed Western aid, and would even risk military clashes with Western forces.
We think that Nassers most likelyo retrench mlhfariry in Yemen, holding the more easily defensible areas, and probably withdrawing some troops from the country. This would have the virtue of reducing the burden on the UAR whileAR defeat. Some fighting between UAR and royalist forces may occur, and perhaps even between UAR and Saudi forces as well. Such clashes arc likely to be limited, but will carry some danger of drawing both sides In deeper. Nasser may make new attempts toettlement with Faisal, though the longer he delays the harder it will be to reach asatisfactory to him in the face of growing Yemeni antagonism. However, the chancesettlement do not depend entirety oo Nasser; the degree of flexibility shown by Faisal will be important, as will the attitudes and policies of use major powers. All things considered, we see no better than an even chancehe Yemen in the next two years or so. In theNasser will nuke recurrent political and propaganda attacks upon Faisal and other Arab conservatives. He will also continue his attempts to undermine the British and Saudi positions In the Arabian Peninsula.
Israel. We foresee virtually no chance of the UAR moving toward any settlement with Israel, though Nasser wfll continue to avoid actions which risk hostilities with the Israelis. He Is aware that they are able to defeat his forces, and that both the US and the USSR are opposed to Arab-Israeli hostilities.
Domestic Implications of thu UAR's Foreign Refcrffons
the most favorable conditions, the UAR ts not likely totbe next two years or so, the kind of widely-felt economic progresssubstantially enhance the regime's domestic political appeal. Evenbenefits from the Aswan High Dam and with substantial amountsear from the West plus the pledgedtho Communistexpansion is bound to be slow In
Ihe next year or two. becoming more rapid only toward the. At best, therefore, the kind of domestic discontent which arises from economic grievances will persist We doubt, however, that grievances of this kind will endanger the regime's control of the country.
If, on the other hand, thereear cessation of WesternUAR wiU face major economic dislocations and hardships. While the UAR could reduce its need for imported foodstuffs somewhat by curtailing consumption, it probably would have to make up part of any major curtailment by imports from other sources, probably costing0 million annually in bard currency. Such outlays, in conjunction with the reduction of other Western aid, would probably leadharp decline in mdustrial production, since UAR industry is heavily dependent on imported raw materials andgoods. Tbe rate of economic growth would decline substantially.
Drastic cutbacks In Western aid would be regarded by Nasser as politically motivated and would almost certainly lead him to strike back at the West throughout the Middle East, though not to the extent of risking military clashes withNasser apparently fs already growing in-aeasingly restive over what heS policy of making aid conditional on his good behavior. It is likely that this feeling will strengthen tie UAR's tendency to adopt attitudes and understakc activities unfavorable to the US. However, wo believe that the UAR's leaders, while prepared to accept theof Arab Communists and exploit the East-West contest to their own poUucal advantage, will remain ready and able to repress local Communists if the latter seem to threaten the regime's interests.
There remains the question of how such severe economic difficulties and foreign controversies would affect Nasser's hold on the country. In theseNasser would probably have some initial success in raUying domestic support by blaming the UAR's troubles onWest. However, the level ofwould soon rise, particularly if Nasser had been unable to extricate the UAR from the Yemen. In addition, too close an identification with theworld and too great alienation from the US probably would foterasify this process. Strains within the leadership would also increase. We cannot judge with confidence how secureoiition would be under such stress, chiefly because we know very little about the political attitudes of the military officer corps. We assume thatracticed conspirator himself, wiUto keep dose watch over the loyalties of his officers. The chances seem to be against Nasser's overthrow In the near future; he has done too much for too many people In Egypt, and he probably still retains toorip on the ultimate source ofarmed forces. However, several more yearsat least occasional successes either at home or abroad could causeto grow to serious proportions, even to the extent of sparking serious moves against him. Any such moves, to be successful, would almost certainty require backing by military elements.
Original document.
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