NATIONAL INTELLIGENCE ESTIMATE
Problems and Prospects for the United Arab Republic
TABLE OF CONTENTS
I. NASSER'S REVOLUTION
IL DOMESTIC TRENDS
The First Five-Ycar Plan 6
The Present Economic Crisis 7
The Second Five-Ycar Plan 8
V. FOREIGN AFFAIRS11
A The UAR and the Great11
B. The UAR. the Arabs, and Israel13
VI. THE GENERAL OUTLOOK14
PROBLEMS AND PROSPECTS OF THE UNITED ARAB REPUBLIC
To assess recent trends in the United Arab Republic (UAR) and to estimate developments over the next few years.
government has had considerable success over thein fostering economic growth, building up its militaryleadership in the Arab world, and rnaking the UAR ato be reckoned with in world affairs. During recent years,the UAR has become overextendedesult of trying tomuch too fastt has spent overillfon morehas earned, but massive foreign aid has not preventedfrom becoming increasingly urgent The UARostly military stalemate in Yemen; engaged in anexpensive arms race with Israel, made more tense by thequestion; and faces further deterioration of its mostwith Western powers. All these difficulties are producingwithin the UAR, and some strains within.
appears little hope for Nasser toilitary victorya satisfactory settlement in Yemen in the nest year orimbroglio will probably continue to cost him heavily inequipment, and prestige; it may again involve him inwith the Saudis and even the US, and it is hamperingestablish Arab military cooperation against Israel. TheCommand is useful to Nasser for asserting leadership ofunity and anti-Israeli causes, but it also saddles him withif Arab-Israeli tensionsrisis. Nasser will try to
ilitary test with Israel,efeat on the Jordan waters issue would cost Mm prestige. Although most other Arab leaders would be unlikely to follow Nasser in extreme measures againsl the West, no other leader is likely to replace him as the symbol of Arab nationalism.
UAR's relations with the West appear likely towith the establishment of West German-IsraeliAny significant US arms aid to Israel would contributetrend. Tbe corollary is likely to be greater emphasis oninterests between the UAR and the Communist worldWestern influence in the Middle East and Africa. Wehowever, that Nasser will remain determined toindependence against any Soviet encroachments, and thatwill reflect an underlying -belief that the West wouldhis aid if the Soviets turned threatening. )
the UAR's growing population, limited resources,likelihood that foreign aid will at best decline, the regimeforced to hold down investment and consumption. Guts inparticularly will give rise to dissalisfaction, since improvingin the pastears have whetted appetites forin the cities. Even if the UAR exacts substantia]its people, its rote of economic growth will probablyNasser probably anticipates that his policies willdecline in aid from the West. If events leadirtualWesternUAR's economy willthough not to the point of collapse. The Soviets and theArab states mightart of the deficiency, butenough to satisfy the UAR's needs. )
E. In such circumstances, the Egyptians would be inclined to blame the West, and Nasser would strike out against Western interests. For example, he wouldajor effort to force tlie UK and US out of their bases in Libya. He would probably default on some Western debt obligations. He would also probably try to persuade the oil-producing Arab states lo bring pressure on the West, though probably with limited success. We doubt, however, that Nasser would take any action which he thought substantially increased the chancesilitary confTontation with the West.
F. Prolonged economic hardship and foreign policy frustrations could in time undermineomestic position, but we consider this contingency remote. The UAR's intractable problems willto create strains and differences within the readership, andfigures in the regime will rise and fall, possibly morethan heretofore. Nonetheless, we believe that thethe ultimateremain loyal to Nasser, and he Iso be toppled from power even if his domestic political appeal is eroded.)
The United Arab Republicompared with other less developed countries, has achieved an impressive record of social progress, political stability, and economic growth since2 revolution. It has coded the traditional dominance of the wealthy landlords, merchants, and foreigners; it has greatiy expanded educational and medical facilities and other social services; and it has done much to modernize tbe economy. The regime has also fostered Egyptian pride and dignity by successfully operating the Suez Canalurely Egyptian enterprise and by building up Ihe country's military strength. The UAR has secured large amounts of military and economic assistance from the Communist countries as well as extensive Western economic aid. The UAR ts by far the strongest Arab state,ajor role in die Afro-Asian world, and hasation to be reckoned with in world affairs.
During the past few years, however, the costs of the regime's efforts have begun to weigh more heavily on (he country and the people Extensiveand socialization measures carried out1 have hurt many people at least partially sympathetic to earlier-reforms. Continued expansion of the economy and rising^living standards have been achieved only at the cost of extremely heavy foreign and internal borrowing, and the near exhaustion of the country's foreign exchange reserves. The foreign exchange squeeze hasbecome so severe as to cause shortages of consumer goods and ofneeded to keep the UAR's factories operating. At the same time, theof the regime in raising living standards has whetted popular appetites for more, and has increased the risks of discontent if these are not satisfied.
Difficulties at home have been compounded by the UAR's foreign policy problems. It is bogged downar in Yemen for whkh no solution ts in sight. The confrontation with Israel is sharpened by the Jordan waters question and the accelerating Arab-Israeli arms race. In recent months, relations with Western countries have deteriorated markedly. Thus President Nasser todayighly frustrated nun, who is trying to cope with an assortment of problems more difficult Individually end collectively than at any time in the past
and his supporters, aware of the importance of the armedtheir position, have made sure that the officer class has received many offruits of tlie revolution. However, Nasser believes that for theto succeed in the long run ittable institutional foundationparticipation by the Egyptian people. Two efforts in thisLiberation Rally in the early years of the regime and the National Unionlateto gain popular support,ew and more ambitious
effort is now in progress. Nasser hasew constitution, re-estab-iished the national assembly, and setew political organisation, the Arab Socialist Unionhe ASUyramidal structure reaching down to the village level, but is effectively controlled from the top. Its chief function so far is to try to rally popular support for government policies andorum for criticisms and suggestions concerning government administration and relatively unimportant policies of tho regime.
uring the past two years Nasser has released several hundred Communists fromumber of these have been given important positions in the press and in the ASU. Others have found jobs in government ministries and In the trade unions. Nasser apparently is trying to make use of theirtalents and other skills to further his socialist program. He probably also sees this manner of treating local Cocnnrunistieans of pleating the USSR. However, there appears to be some public concern over tbe increasing rale of local Communists and growing ties with Communist countries, and Nasser and other official spokesmen have recently stressed Ihe incompatibility of communism and Arab Socialism He rejects such basic premises of Marxurn-Leninism as atheism, the class struggle, tbe dictatorship of the proletariat, and thecharacter of socialism. Nasser almost certainly believes he can control Egyptian Communists If they get out of line.
he difficulties of the past year have produced growing discontent within the UAR. There has been grumbling about food shortages, black markets, and high prices; there haveew Instances of small-scale protestand sporadic illegal strikes by various groups dissausfied by government economic measures. There is also growing dfstatisfaction with the cost of tbe war in Yemen, Especially in the cities, people are fearful that Western aid will be reduced or even halted, forcing further belt-tightening. Lack ol freedom of expression continues to alienate the Intelligentsia from tbe regime. Many of those who have benefited most by the revolution appear worried that Nailer's socialism curtails their prospects for further gains. All this coincides with an overall decline in the revolutionary elan which characterized much of the middle levels of society In the earlier years of the revolution. Nasser is worried over his domestic situation, and his public utterances are defensive in tone. There arc also indications tliat these strains have led to disagreement* among tlie leaders over how to proceed.
he top leadership lias been remarkably cohesive though its membership has shrunk over the years. Our knowledge about the attitudes of andamong the handful of men at the top is limited. It appears that they are divided along lines of personal rivalry as well as over matters of policy. The principal figures are Prime Minister All Sabrl, Nasser's right-handtrong supporter of socialism and probably the chief proponentolicy of close relations with the Gxrumuiists; Army chief Abd al-IIaldm Amir, who has strong mWrfrg from the military and is otherwise distinguished chiefly for his loyalty to Nasser; and Vice-President Zakariya Muhlrusted counselor who
hu often resisted close lies with ihe USSR and who exerts effective control over the National Police and much of UAR intelligence. Former Vice-President BnglKladi. once influential, is al odds with Nasser over policies of locialism at homo, activism abroad, and close ties with the Communist world. None of these men appears to have the capability In his own right to gain precedence over theless challengetheir rise and fall is in response to Nasser's manipulation of them.
The UAR is nearing the end of Ms First Five-Yearith its economy in severe straitsesult of the regime's attempt to do too much too fast In the. Nasser, concerned over populationthen aboutercent athat the country's economic development program aim at doubling national Income0espite the advice of Egyptian and Western economic advisors thatask wouldat leastears. He 1ms compounded the difficulty of achieving this goal byery rapid rise in domestic consumption and in welfare service*.
Nasser's heavy outlays to increase the UAR's power and prestige haveburdened the economy. The current military budget Is on the order0ear. This is about seven percent of the UAR's gross national productrate above that of most advanced industrial nations and more than double ihat of-allew developing nations. Thu amount probably does not Include the0ear being spent onof missiles and jet aircraft, and may not include payments for Communist military equipment, nowear. Further, we estimate that the war in Yemen and support of the Yemen Arab Republic costs the UAR0 million annually, only part of which is in the military budget. Finally, expenditures for nonmilitary government activities abroad increased fromillion2illionovering items such as diplomatic representation, propaganda, and some subversive activities.
The Firstear Plan
First Plan called for expenditures of nearlyillion In orderaercent increase in national income and provide just over onenew Jobs. The plannmlter of weaknesses: agriculture was notresources to raise its growth rateercent annually to5 percentj limited attention was paid to the economic as distinctengineering feasibility of individual projects; and little effort wasdetermining the particular pattern of investment which would make theof the UAR'i limited financial resources. Moreover, the cotton crop failedwhich cost the UAR0 million in foreign currency earnings,wide-ranging nationalization and toctaiism degrees1 placed almostburden of running the economy on ihe government's Inadequate
UAR statisticsrowth rate of over six percent annuallyut these statistics overstate the UAR's progress, and the actual rate is probably closer to five percent. The claimed rate of economic growth has been dependentery rapid rise in services,air amount of thisgam represents no more lhan the addition of unneeded employees toorganizations. Agricultural output hat barely kept pace withercent rate of population growth. Industry expanded0earhen the rate probably declined. Total investment has increased in each year of the plan, but the UAR acknowledges that It has amounted to lets thanercent of planned levels.
The progress of the past five years has been due in large measure to sizable aid and financing from both the Communist and non-Communist worlds. Our figures are not precise, but il is fairly clear lhat the UAR will have received external grants and loans for its economic programs ofillion.0 million of this came from Communist countries and at0 million from Kuwait. The UAR has also received Soviet military equipment priced at0 millionuring this period thr UAR has repaid0 million In foreign obligations. The official economic aid consists principally of Communist support for the Aswan High Dam anddmtrializstion program, large-scale food supplies from the US, and aidide variety of projects from various Western countries. As of tbe endhort-term loans from Western commercial banks accounted for0 million, drawings from the International Monetary Fund (IMF) amounted9 million, and the UAR's deficit on bilateral trading accounts stood ol0 million.
The Present Economic Crisis
UAR's over-ambitious goals have placed ib economy in anposition. Foreign economic and military debt repaymentsrisen sharplyum estimated at0 millionpercent of the UAR's foreignwill rise higher in thePersonal consumption and nondcvelopmental government spendingrapidly in recent years. Hence Investment has failed to risethe share of gross national product it umounted tond thedomestic savings to total output may even have declined in recentaid was equal to something likeercent of gross investment byprobably has risen since tliat time.ubstantial part ofis used for consumption rather than investment;inimum ofof total UAR consumption is provided by foreign aid.factories and equipment has been badly neglected, which will limit theof many UAR projects.
wareness of these dangers has only gradually and partially penetrated tlie top levels ol the UAR, despite several warnings in recent years by the IMF, die World Bank, and other authorities. Beginning inome prices
and taies were Increased and some consumer subsidies decreased, and attempts were made to deal with the foreign exchange problem by cutting back oo imports. Such measures had the effect of slowing down mdustnal production and curtailing the availability of consumer goods in urban markets without, however, significantly reducing consumer demand. Incomes have risen steadily over the past few years, and dry dwellers have come to expect such goods as television sets, refrigerators, sewing machines,favored groups-even cars. They have also liecome accustomedetter dietesult of imported wheat and meat. Adequate funds and fears of shortages spurred increased buying and hoarding. By4 available supplies of food,and manufactured goods in city stores dwindled, and black markets became common, Prices, which had long been stable, have increased noticeably during the past year or so.
he UAR haseries of actions which hate postponed the day when more difficult and far-reaching decisions must be made. It recently sold part of its gold holdings to cover arrears in short-term debts. It is also trying to obtain sizable new assistance from Kuwait. Nasser apparendy has made several attempts toard currency loan from the USSR, and though both Khrushchev and his successors apparently refused, the Soviet leaders did recently agree to postpone some UAR debt repayments. Some Western banks have done tho same. Moreover, several Communist countries have apparently agreed to allow the UAR larger deficitsts bilateral trading accounts and to-accept UAR goods Jrj place of hard currency when UAR trade deficits go above these new levels. UAR trading organizations have been ordered to import from the East in order lo save hard currency even if prices are higher than in Western countries.
The Second Rve-Yeor Plan
he current problems make it extremely difficult for the UAR to draw,eaningful final version of the Second Five-Year Plan, which is due to start inhen the ten year development program was drawn uphe Second Plan called for investment of aboutillion lo3 percent Increase in output and the creation of nearly two million additional fobs. Tbe average level of investment called for is not much above the levels planned for the later years of the First Plan, but is far above the levels actually reached. Nasser has recently reiterated his aim of doubling national income0ighly unrealistic goal in view of tbe shortfalls of the First Plan and the country's present financial position. However, tbe government apparently intends to go ahead only with those projects for which foreign aid has been secured. Much oi the aid now in sight is from Communist countries for heavy industrial projects with which the UAR has littleeavy machinery and machine tools. In addition, in some cases aid has been secured for specific projects but not for tbe necessary associated facilities, nor is an adequate supply of raw materials, spare parts, or competent technicians and managers in sight
UAR would have to achieve several simultaneous improvementsperformance if If Is to limit net drawings on external resourcesSecond Plan to the level of recent years, while meeting its debtand maintaining its recent rate of economic growth. Earningsthe Suez Canal and tourism would have to grow at least as rapidlyservicereach0ear more byand other foreign currency payments would have to be held atFinally, domestic savings and the proportion of tavestment goodsin tbe UAR would have to increase rapidly enough to offset theIn total investments.
simultaneous performance of all three of these tasks Is mostcurrency earnings from the Suez Canal and tourism probablyto grow steadily but unspectacularly. UAR cotton exports willface sharp competition In world markets, but other exports probablymoderaten balance, the UAR probably will Increase itsby0 million annuallyolding down Impartsproduction from consumer items to Investmentthe sameexports arc beingrequire both considerablemuch improved economic management We think the UAR is unlikelysufficient progress toward the latter. The task of running theis Increasingly complex and the changes required in currentmany' and difficult.onsiderable degree of inefficiency seemspersist However, there is considerable scope for holding consumptionand the UAR probably svill make some progress oo this score. Allwe believe the shortfall In these various tasks will be suchforeign aid of0 million annually will he rcouired Ifin the UAR's programs are to be avoided. Thus the UARillion in foreign economic aid5inuspostponements which It can arrange.
IV. MILITARY AFFAIRS
he UAR army has more than doubled In size over the past0 men5oday. Army eapahiUlirs hase improved considerably through receipt of large quantities of Soviet arms,of Soviet military doctrine, reorganization along Soviet lines from division level down, and from better training The general calibre of Egyptian military men has improved, but only in the case of Junior officers has this change been significant. Ship strength ofan UAR navy has more than doubled in the pastears, and now Includes six destroyers,ubmarines,atrol ships (including eight KO-MAH gnided-mlssilr boats) andotor torpedo boats. Air force capabilities have increased even more dramatically, and the
UAR has recently made promising oil strikes, which in time probably will improve it* trade balance. However, it fa too early to judge the likelyol this Improvement.
an air force today possessesets, including( and TU-18
mediumombers. The logistic capabilities of bothairimproved significantly, but shortages of technically trained peopleon foreign sources of supply are continuing problems,equipment becomes more complex
UAR ARMED FORCES *
Division Being Organized
Jet Light Bombers
Beats oy ers
Guided Missile Patrol Boats
Mine Warfare Ships
the militaryof. "The Arab-Isrsrilatedor additional Information on the UAR rauiUry fores*
he Yemen campaign has given the UAR armed forces their first combat experience since they were reorganized and re-equipped following the Suez conflict. They have benefitted in terms of staff planning, logistical support, end small-scale combat experience, though the latter would be of only limited usefulness in any war with Israel. Forear nearly one-durd of the army has been In Yemen, and most units have seen service there as the result of rotation. The air force has obtained bombing and strafing experience,it remains untriedodern air defense system, such as that of Israel. However, the units in Yemen have generally not covered themselves
with glory, aod the (allure toecisive victory and the difficult conditions in Yemen probably haveetrimental effect on the self confidence of the armed forces.
UAR seems bent on strengthening its armed forces, andof acquiring about all the modem arms Its forces cany that time it may increase the standing armyen, and the air force and the navy byercent.vrifl continue its effort to expand the UAR's defense production andits dependence on foreign sources for armaments. There is nothe UAR becoming self-sufficient in defense production, but it mayits capability to produce the less sophisticated items needed forforces. Present attempts to produce Jet aircraft andare likely to yield items of only limited military value, butprestige probably will lead the regime to continue the programs despitecosts.
V. FOREIGN AFFAIRS
A. The UAR ond the Great Powers
UAR's conduct of external affairs reflects Nasser's personaltemperament particularly strongly. He wants to establish the fullestArab units- under his aegis andeading role in the world as anA successful revolutionary himself, he is emotionally andattracted to revolutionary and anti-Western movement? and believesUAR's and his own interests are generally best served by activelyforces in the Arab world and former colonial areas. 'I'd- heritageentury of British domination of Egypt has left Nasser, as wellmodern Egyptians, deeply sensitise to anything which might appear tointerference or exploitation. In addition. Nasser sees the West,support of Israel and his conservative Arab opponents, as an obstacle toin the Near East and Alriea. The corollary of this feeling is thatleadersertain community of interest with the USSR; theySoviets as being free of tlie colonialist stigma, as likewise favoringgoals, and as sharing Cairo's desire to eliminate Western pokrkal,and economic positions In the Middle East These motives andsometimes resulted in Nasser acting as middleman for the Soviets. Inof Cyprus, he provided the base facilities and training for the Sovietsupplied to the Greek Cyptiots. while receiving more modernHe has facilitated shipment of aims to the Congo rebels. Seenit is the Communist countries which support the UAR, not the UARthem,
his Egyptian view has been reinforced by tbe Communist world'sen! and forthcoming aid policy toward the UAR over the last decade. Since5 Soviet-sponsored arms deal broke the Western monopoly of arms supply to the Middle East, the bloc lias supplied overillion worth of arms
for0 million. Communist economic credits3 amounted to0 million of which about half has been drawn to date. The UAR has received about one-third of ull economic aid that the USSR has supplied to non-Communist countries. Tbe USSR has furnished to the UAR about as much arms aid as to Indonesia, and far more than to any other non-CommunistAbout half of UAR's exports have gone to the Communist world in recentayment for such assistanceilateral trade
ver this period, however, the West has supplied aboutercent of the UAR's imports and purchased about half of Its exports. Suez Canalpaid largely by Westernwith Western tourism provide aboutercent of the UAR's hard currency earnings. Moreover,estern credits, which amounted to30 million inhe amount of Communist economicow-ever, the sharp increase in Communist credits extended since4 and the apparent decline in Western willingness to extend new credits suggest that Nasser will End ft more difficult to avoid osTrdependenee on the Communist
docs not include military equipment.
Unit figures availabl*
'USSR, East Europe,uba, and Yugoslavia.
espite the extensive economic ties between the UAR and the West,relations have fluctuated between fair and very bad. The UAR view that revolution and radical change are the correct means to shake tho Arab and underdeveloped worlds out of their backwardness has conflicted with the West's preference for orderly progress, with minimum disturbance to existingmilitary bases, and commercial interests. This incompatibilityariety of places and issues in theWestern base rights in Libya and Saudi Arabia; US backing of Middle Eastern monarchies and other moderate governments; and UAR support for rebel movements in sub-Saharan Africa and In the Arabian Peninsula. Underlying all this is the Arab conviction that tbe US stands at the sponsor of Israel, which has embittered the UARand has set strict limits on the range of US Initiatives in the Arab world.
B. The UAR. thend Itrael
umber of years of quiescence, the Arab-Israeli dispute is heating up again. In response to planned Israeli diversion of water from the Jordan Valley to southern Israel, Nasser obtained the agreement of Arab leadersrogram to divert the rivers flowing into the Jordan basin, to build up their military forces to protect the diversion works, and to contribute substantial sums,ontinuing basis, to support these programs. These efforts at Arab cooperation haveair amount of success to date, and even Lebanon and Jordan, traditionally cautious about cooperating with Nasser or provoking
Israel, feel compelled to Join In the common Arab effort. These development!
have caused growing alarm in Israel, which feels mcreasmgly isolated and
is concernedajor turning point in its dispute with the Arabs may
ilitarily, Nassers chief aim in this activity Isleast for the next few years. He does not want toilitary conflict between Israel and its Arab neighbors, because he still fears defeat. He doubtless dreams of the reduction of Israelower factor and even of its ultimate cUrnjnation as an independent state, but we believe he sees such hopes as restinghe future. Meanwhile, he sees the United Arab Command basicallveans of increasing the Arab's defensive capabilities against Israel and of Increasing UAR influence over the Arabs. He also recogruzes that' little can be accomplished by military force as long as the major world powers refuse to countenance any armed Arab attempt to eliminate Israel.
he UAR's eontimiing involvement in Yemen threatens such Arab solidarity as has been achieved. It was initially viewrd by Nasser as an opportunity to bolster his prestige by Supporting Kke-nunded revolutionaries and looothold on theelatively modest cost. Twoialf years later he hasroops hogged down inrrulrtary stalemate with the Saudi- and British-supported royalists. UARamong Yemenis of almost all areas and political factions bos risen to epic proportionsesult of UAR lieavy-handedness and determination to dominate the Yemen Arab Republic. In cwsequcnoe, many Yemenis, once favorable to the republic, have fallen away, either to Join the royalists or to build up an independent force opposed to the Egyptians. The costs of the campaign have steadily mounted, and include angyptian dead, and00 wounded, captured, or missing.
asser has three broad choices in Yemen. He could renew efforts toegotiated solution with Saudi Arabia and the contesting Yemenirecognizing that this would be likely to result In the establishmentovernment distasteful to him Secondly, he could pursue the general line of his present policies, which wouldontinued dram with no prospect
'See. The Anb-ImrUilrtlufri dAcuoSoo af Arab-Uraett mattea.
forictoryettlement Finally, he could step up his rniUtary effort, including renewed air attacks on Saudi Arabia, in the hope of eitherilitary victory or greatly improving his position for any future negotiations.ot yet ready to accept the loss of prestige that would be involved in the first choice, and he probably would be hesitant to follow the third course very for owing to the dangers involved. In these circumsta nccs. we believe that bis most likely course wfll be the second, though he probably
will at times step up the fighting and let tbe attack spill over the Saudi Arabian border. erious Saudi-UAR clash would cause Faisal to call on the US for
support. In time, however, we believe Nasser wfll feel compelled to renew
negotiations, but the longer the stalemate drags on the less satisfactory the
settlement is likely to be to him.
VI. THE GENERAL OUTLOOK
"Positivehe hallmark of Nassers foreign policy on matters outside the Middle East, rests on an assumption that the UAR Is extremely important to both the West and the Communist states. If either side should abandon its interest, the policy would be undercut but his conviction of the importance of thehe Middle East in Africa, and on the world scene makesevelopment scarcely conceivable to him. Meanwhile, he derives considerable comfort and freedom of maneuver from the underlying conviction that he can count on the Soviets to protect him from any unfriendly moves -by the WestQnyersely, that the interests of the Western powers would require that they come to his help if the Soviets turned threatening. Tbe history of tbe past ten years provides much support for this thesis, and it is likely to remain fundamental to his thinking.
We believe that positive neutralism willentral doctrine of Nassers foreign policy, but this will not mean cvenhandrdncss as between the USSR and the US; there are too many areas In which Soviet policy and interests are more Immediately compatible with the UAR's than the policies of the US are, or can be made to be. This is generally true of the Arab-Israeli conflict of remaining Western facilities and special political positions in the Middle East and Africa, and of Western commercial and oil Interests in the area. In Nasser's mind, these matters often loom larger than calculation of the UAR's economic Interests. It will probably at times be possible, and to the interests of both sides, to de-emphasize these differences, but tliey will remain UTipediments to good relations.
n contrast to the situation in the, US-UAR relations now seem headedifficult time. In part this is dueelief by the UAR leaders that the present US administration lacks sympathy for theeeling of some importance in view of the Arab tendency to place great stress on die personal relations between heads of state. In addition, the UAR's present active policies in the Congo, in the Yemen, and in the Arab-Israeli controversy have brought it into particularly sharp conflict with the US. Strong criticism of Nasser in die US press has intensified his antagonbm.
mistrust of Ihe US was enhanced by the revelation that theand, in part, sponsored West German arms aid to Israel. Thewas further complicated by the visit of East German PresidentCairo, by Bonn's efforts to stop the visit, by its suspension of economicthe UAR, and by the prospective establislunent of diplomatic relationsIsrael and West Germany. Nasser Is attempting to get all theto break relations with West Germany. However, several Northhave refused to do so, and this stand encouraged others, such asSaudi Arabia, to go slow. While the UAR and certain other Arabprobably break diplomatic relations with West Germany, most willmaintain commercial and otlser ties with it It is unlikely that anywill recognize East Germany, save possibly Cairo and one or twoArab states will continue to pressure the West on the issue of Israel,of them would be willing to take extreme measures against thethe US, which would damage their basic interests.
the Arab-Israeli conflict erupts into fighting or remainspolitical tensions, it Is already creating additional strains in Nasser'sthe West, and will probably create even more in the years ahead.of any US decision to supply significant quantities of arms to Israelbe Interpreted In Cairo as confirmation that. In the last analysis,are basically with Israel rather than the Arabs. Nasser willstep up attacks on the West for its part In the creation andIsrael and for its. political and military support of his chief adversary.will also involve continued pressures on Ihe more moderateto follow suit Yet if this trend seems inescapable, there islimitation on how far It might go: just as Nasser oftendegree of Western support and responsibility for Israel, he also regardsas the party most able to restrain what he considers aggressiveIf it chooses to do so. This belief does not reconcile him tofor Israel, but it may set some limits on how far he feels he cauUS over the Arab-Israeli controversy.
he UAR's growing estrangement from both the US and West Germany comesime when the UAR is at odds with the other major Westernas well. The UAR will continue its pressure against the Britishhe area. Apart from continuing to organize and support guerrilla and terrorist operations in Aden and Oman, the UAR will encourage Kuwait and other Persian Gulf stales to loosen their ties with the UK. Nasser willto support elements opposed to the British bases In Cyprus. Libya, and Malta as svell The UK, in turn, fa likely to continue its support for royalist forces in Yemen and Increase its ties with Saudi Arabia in order to oppose the UAR's efforts in the Arabian Peninsula. Nasser apparently admires de Gaulle for his independent attitude toward the US and tho UK. There is likely to be anrench-UAR economic relations, along tbe lines of the recent French agreement to provideons of wheat on favorable credit terms. There may even be some measure of political cordiality, but
ties between the two countries are unlikely to expand much as long as France opposes the spread of Nasser's Influence invant and continuesajor supplier of weapons to Israel.
The serious difierenoos between the UAR and the West will make for greater cooperation between tlie UAR and the Communist world, particularly when It comes to opposing Western interests in the Near East and elsewhere in the underdeveloped world. Nassers experience in cooperating with the USSR forecade without losing his independence has increased his belief in his ability to do so safely. Moreover, he Lt aware that the Communist world Is no longer monolithic, and probably feels thatumania can assert its will against Moscow there is little danger that the UAR will loseesult of closer cooperation with and greater dependence on the USSR.
The UAR's relation* with outside powers are particularly significant in view of its heavy dependence on foreign aid for its economic development. Its total foreign aid renuiremenls for tbe next five years probably will behat needed for debt repayments. The UAR has already5 million in credits from Communist countries for use in the next fiveontinuation of ri.-JSO. say at the average level of the last three years, would represent another WOO million. This would leave SIS billion (at0 million annually) to be obtained, minus any debt repayment that could be postponed' The UAR has no chance of obtaining this amount Aid from Western governments almost certainly will decline substantially from its recent level of5 million In new credit extensionsleast for the next few years. Nasser is likely to seek considerably more help from oil-rich Arab states, such as Kuwait, Libya, nnd Iraq, but we doubt that aid from these countries will Gil moreodest pail of this gap. Nor do we tliink the Communist countries will increase their aid markedly. Very little opportunity remains for obtaining more loans from Western banks or iricreasing bilateral trading deficits- though some further postponement of debt repayment' might be arranged. All things considered, we think the UAR will receive0 million annually less than it would need to continue its present programs.
Under these circuimUncpi, Nasser will almost certainly be forced toboth consumption and investment. He will be most reluctant to cut defense spending; any cuts in this area are likely to be small and there may even be some increases. One of the few bright spots for tlie UAR is that the High Dam is to go into operationew years, and when it does its benefits in tlie form of greater irrigation and electric power output gradually wiU be felt throughout the country. However, over the next few years the rate of economic growth will probably decline markedly, and perhaps not be much above the rate ofgrowth. Moreover, unemployment will rise and some factories will be
"There is0 millionestern aid in the pipeline, but this could not be drawn down much within the five-sear period OTlhout damaguig future growth prospects.
forced lo curtail production for lack oi row materials and spare parti, as most of the UAR's foreign assistance would be from Communist countries for new projects.
virtual cessation of Westernsubstantial reductionsconfront the UARajor economic crisis. Whilecould reduce its needs for imported foodstuffs somewhat byit probably would have to make up part of any majorimports from other sources. For example, the near elimination ofprobably would require the UAR to spendillionlevels for food imports. Such outlays, in conjunction with theOther Western aid, would probably leadharp decline in industrialsince UAR industry is heavily dependent on imported rawsend-manufactured goods. The rate of economic growth wouldat leastew years. While the ecottuuty would not collapse, it
would be faced with growing dislocations accompanied by widespread urban
drastic cutbacks In Western aid svould almost certainly leadstrike back at the West. He would almost certainly cancel the limitedafr transit rights through the UAR. He would probably defaultWestern debt obligations. He would alsoajor effort toUS and tbe UK out of their bases In Libya, pressuring the Libyanitself and stirring up the Libyan people to force the government'swould also probably try to persuade the oil producing Arab states toon the West, We are doubtful that these states would cooperatescheme, such as cutting off the flow of oil to the West, that would costHowever, they probably would provide loans or grants to theNasser appeal to the Arab masses to push for nationalization of the oilor the overthrow of their regimes. We doubt, however, thattake any actions which he thought substantially increased the .risks ofconfrontation with either the West or Israelariety ofbeing that he doubts the availability of effective Soviet support in such an
If UAH-Western relations deteriorate seriously, there is likely toarked increase in activities and attitudes within the UAR favorable to the Soviets, most conspicuously in the press, radio, and movie Acids. Some of the few hundred UAR Communists would probably lie allowed greater prominence in tbe ASU or other activities of the regime. However, we believe that the UAR's leaders, while prepared to use local Communists and the East-West dispute for their own political advantage, will remain ready and able to repress the Communists if they seem to threaten the regime's Interests.
A sharp curtailment of Western aid would pose difficulties as well as opportunities for Moscow. While the USSR probably would make available some additionalpostpone debtthe propaganda and political benefits Involved, we do not think il would moveore than
a modest part of the gap leftestern withdrawal. Moscow wouldfee! that events were already movingashion satisfactory to its interests. Though it would take advantage of the situation to entrench itself hi the UAR, it would not want to risk actions that might push Nasser back toward the West, such as making crude attempts to dominate the UAR. If Moscow shouldto use its leverage to gain greatly increased political influence, we believe that Nasser would react by seeking to mend fences with the West, and bypolitical efforts to curtail Soviet Influence in the Arab world generally. He would count on other Afro-Asian countries to support him.
Nasser would probably have considerable initial success in rallyingsupport by blaming the UAR's economic troubles on the West, but the level of discontent and even disaffection would soon rise. There would be strains within the leadership as the pinch was felt and hard decisions became more inescapable and more urgent. While Nasser remains fully in control of the UAR today, his position is not invulnerableustained period ofProlonged economic hardships and continued stalemate in Yemen would gradually undermine his domestic support. Under these conditions, Nasser would probably resort to whatever repressive measures he felt were needed to keep himself in power.
Moreover, the key military officers are loyal to Nasser as well as to the revolution. There is no reason to believe that be will lose his considerable adroitness in playing off suboidinates against one-another, and in assuring that popular blame for hardships arid mistakes is deflected from himself. All things considered, we believe tbat he is likely to remain in control of the UAR.
7 9 1 3 7 9 1 3
INDEXES OF INDUSTRIAL AND AGRICULTURAL . PRODUCTION
45 6 7 8 9 0 1 2 3 4
am*. FOREIGN EXCHANGE HOLDINGS
6 7 89 0 1 2 3 4
'exdetkm ol eetd houmgi whicha9,ooo,eooniy dnoped to.
dote cepmnefl, o>enied.
TOTAL FOREIGN CURRENCY DEBT'