ECONOMIC INTELLIGENCE WEEKLY REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80T00702A001000040001-5
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 72
• Document Creation Date: December 12, 2016
• Document Release Date: January 16, 2002
• Sequence Number: 1
• Publication Date: December 15, 1978
• Content Type: PERRPT

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Foreign NOT I W",
Assessment
Secret
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NATIONAL SECURITY INFORMATION
Unauthorized Disclosure Subject to Criminal Sanctions
DISSEMINATION CONTROL ABBREVIATIONS
NOFORN- Not Releasable to Foreign Nationals
NOCONTRACT- Not Releasable to Contractors or
Contractor/ Consultants
PROPIN- Caution-Proprietary Information Involved
NFIBONLY- NFIB Departments Only
ORCON- Dissemination and Extraction of Information
Controlled by Originator
REL. . . - This Information has been Authorized for
Release to ...
Classified by 015319
Exempt from General Declassification Schedule
of E.O. 11652, exemption category:
? 58(1), (2), and (3)
Automatically declassified on:
date impossible to determine
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SECRET
NOFORN
ECONOMIC INTELLIGENCE WEEKLY REVIEW (U)
Italy: Current Account Shows Big Gain (U) ............................................. 1
A positive swing of $8 billion since 1976 stems from the domestic
austerity program, improved terms of trade, a competitive exchange rate
policy, and record tourist receipts. (U) (Confidential)
World Rice: Adding to the Grain Surplus (U) ........................................... 7
Increased acreage and generally good weather suggest a 3-percent rise
in worldwide output in the 1978/79 crop year. (U) (Confidential)
25X6
Chile: Reform Program Revitalizing Economy (U) .....................................
The Pinochet government has used market-oriented policies to restore
growth, break hyperinflation, and ease foreign payments problems. (U)
(Confidential)
Cobalt: US Dependence on Outside Supplies (U) ..................................... 22
Despite global supply difficulties, the United States should be able to
meet its 1979 needs for this critically important metal through imports,
that is, without tapping government reserves. (U) (Confidential)
Malaysia: Steady Growth Ahead for Manufactured Exports (U) ................ 25
Sales of manufactured products abroad will top $1 billion in 1978, putting
Malaysia in eighth place among LDC exporters. (U) (Confidential)
USSR: Improved Trade Balance (U) ......................................................... 34
The Soviets held the third quarter hard currency trade deficit to $400
million by boosting exports and curbing both grain and nongrain imports.
(U) (Secret)
OPEC Countries: Falling Exports, Rising Imports (U) .................................. 36
The combined current account surplus will drop to less than $6 billion in
1978 compared with $30 billion last year. (U) (Confidential Noforn)
Notes ................................................................................................... 42
Italy To Join EMS Despite Communist Opposition (U) (Unclassified)
US Deals Hit New High at Canton Fair (U) (Unclassified)
Arab States Discuss Baghdad Aid Commitments (U) (Secret Noforn)
Publication of Interest, Statistics (U)
i
SECRET
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SECRET
NOFORN
ITALY: CURRENT ACCOUNT SHOWS BIG GAINS (U)
The Italian current account balance has made a stunning positive swing of $8
billion since 1976, thanks to domestic austerity, improved terms of trade, a competi-
tive exchange rate policy, and record tourist receipts. The surpluses on current account
have been used to repay debt and build reserves to a near-record level. As
international accounts have improved, Rome has relaxed its foreign exchange
controls. (U)
Italian government economists view the strong current account performance as a
cyclical phenomenon and are pushing the proposed three-year stabilization program,
which is intended to slow inflation from the present 12-percent rate. Critics contend
that a permanent lowering of the propensity to import is responsible for the surplus
and argue for a more expansionary policy. While favorable momentum on invisibles
should contribute to another strong current account showing in 1979, higher prices for
imported oil, rising labor costs, stockbuilding, and Italian participation in the
European Monetary System (EMS) will be pressing in the opposite direction. (U)
Sources of Surplus
A sharp improvement in the trade account is primarily responsible for the surge
in Italy's current account surplus this year. Data through July indicate that 80 percent
of the improvement was achieved in nonoil trade. The January-October trade surplus
of $3.0 billion (customs data basis, f.o.b./f.o.b., seasonally adjusted) contrasts with a
meager $30 million surplus for the like period in 1977. On a balance-of-payments
basis, Italian trade should be close to $2.3 billion in surplus for all of this year. Now
that trade is so substantially in the black, the large surplus on invisibles, which Rome
has relied on in the past to offset chronic trade deficits, gives the government room to
maneuver. (U)
A number of factors have contributed to this year's unprecedented current
account surplus-some fortuitous, others policy induced:
Note: Comments and queries regarding the Economic Intelligence Weekly Review
are welcome. For the text, they may be directed to of the
Office of Economic Research, telephoneII for the Economic Indicators, to
of OER, telephone
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Italy: Foreign Trade
2.5 1 1 1 1 1 1 1 1 1 1 1 1 I 1 1 1 I 1 I 1 1 I 1 1 1 1 1 1 1 1 1 1 1 1
Jan Jan
1976 1977
Unclassified
Jan
1978
? Government stabilization programs have kept GDP growth low, depressing
imports. In January-September 1978, import volume climbed only 0.7
percent compared with the same period in 1977.
? Export volume meanwhile has risen 4.6 percent.
? The composition of final demand has shifted; investment, with its high
import requirement, has been depressed.
? Slack prices for oil and raw material imports have contributed to an
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improvement in the terms of trade; this accounts for more than one-third of
the trade surplus in 1978. During the first nine months of this year, export
prices were up 10.5 percent in dollars from the like period of 1977, while
import prices increased only 8.1 percent.
? Rome has pursued a competitive exchange rate policy. The CIA trade-
weighted, price-adjusted exchange rate index for Italy (a device for tracking
the international price-competitiveness of Italian manufactured goods) has
fallen continuously since yearend 1976, indicating improvement in their
competitive position, Italian manufacturers are maintaining their world
market share near its all-time high.
? Flocks of tourists from northern Europe, encouraged by a bargain lira, are
seeking the Italian sun. Despite the bad press generated by terrorist attacks,
tourist spending will reach $5.8 billion this year, up from $3.9 billion in
1977. (U)
Uses of Current Account Surplus
Italy has accumulated $7.5 billion in current account surpluses over the last two
years. The money has been used primarily to repay medium-term debt and to build
up reserves. (U)
Rome has been saddled with heavy medium- and long-term debt, much of it
official borrowing to cover balance-of-payments deficits in 1974-76. At yearend 1977,
Italy's gross medium- and long-term hard currency debt (public and private) totaled
$20.8 billion, exceeding foreign asset holdings by $5.5 billion. (U)
The debt service burden rose substantially in 1978, with net principal repayments
of $2.4 billion ($5 billion gross) falling due. Nevertheless, the current account surplus
has allowed repayments to be made punctually. Italy, in fact, has made a number of
payments ahead of schedule as part of an ongoing campaign to restore its international
credit standing. The $2 billion "gold-backed" credit from the Bundesbank was settled
in July by early repayment of the $1 billion balance. Also settled ahead of the due date
was the 1974 $1.4 billion EC standby loan. A $1.2 billion International Monetary Fund
standby was the third major loan paid off this year, with a final installment of $300
million. (U)
Italy has also been using surplus earnings to rebuild reserves. As of October,
official reserves stood close to an alltime high at $14.1 billion. In the 12 months since
October 1977, holdings of convertible foreign exchange grew 28 percent to stand at
$9.6 billion. (U)
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Italy: Foreign Trade Volume
100 L ?
Jan
1976
Jan
1977
I I 1 1
Jan
1978
Million US $
1975
1976
1977
1978'
Trade balance
....................................................
-1,166
-4,239
138
2,350
Exports f.o.b .
..................................................
34,553
36,998
44,546
51,450
Imports f.o.b .
..................................................
35,719
41,237
44,408
49,100
Services, net ........................................................
338
1,144
1,916
2,650
Transfers, net ....... ...... .................. .............. ........
264
277
229
250
Current account balance ................................
- 564
- 2,818
2,283
5,250
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Dismantling Exchange Controls
With the current account improving, Italy launched a series of moves to ease
exchange controls. In early 1977, Rome abolished the tax on foreign exchange
purchases and the import deposit scheme-under which importers had been com-
pelled to deposit a portion of foreign exchange purchases in noninterest bearing
accounts at the Bank of Italy. In October 1977, the reins were loosened on spending by
Italian tourists; an Italian is now allowed to spend $880 abroad each year instead of
$585. At the same time, the ban on the export of lower denomination lira bank notes
was abolished. (U)
In June 1978, the requirement that Italian exporters obtain foreign exchange
financing for 25 percent of short-term credits was eliminated. In November the time
limit for the conversion of foreign exchange earnings into lire was extended. Also, the
Foreign Exchange Office eased restrictions on forward purchases of foreign currency.
Peeved with the Italian penchant for slapping on exchange controls whenever the lira
is threatened, Italy's EC partners have greeted Rome's easing of restrictions with
relief. (C)
One domestic monetary control with interesting balance-of-payments implica-
tions is the tight ceiling the Bank of Italy has imposed on domestic credit expansion by
commercial banks. When unable to obtain lira credit, Italian borrowers press their
banks to arrange loans in foreign exchange. Last year, the net foreign indebtedness of
Italian banks rose about $3.5 billion; this short-term capital inflow accounted for about
60 percent of the 1977 growth in central bank reserves. In the first 10 months of 1978
the net foreign indebtedness of the banks declined about $600 million, mainly due to
shifts in interest rate differentials. (C)
Feedback on Domestic Policy
The gyrations in Italy's foreign accounts traditionally have been explained as
resulting from an inventory stock cycle. About 60 percent of Italy's imports consist of
oil, raw materials, and semifinished goods-the commodities that make up the input
inventories of the industrial sector. In times of government-induced contraction, firms
slash their imports, bringing relief to the foreign accounts. Economic recovery, in turn,
is often accompanied by speculative import buying as manufacturers stock up in
anticipation of lira depreciation and hikes in import prices. (U)
Government planners treat the strong current account performance as a cyclical
phenomenon. They reason that austerity measures have slowed import growth and
that a firmer lira and higher interest rates have discouraged speculative stockpiling.
When viewed in this manner, the surpluses appear transitory. As soon as the
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government releases the financial brakes, an import buying spree would swing the
trade account once again into the red. Wage and public finance reform are needed,
government economists contend, before Italy can attain stable growth. (U)
In recent months, a study published by an Italian bank (Credito Italiano) has
touched off criticism of the government's analysis. The critics argue that the
turnaround in Italian foreign accounts has been too sharp and too prolonged to be
explained by cyclical forces. They maintain that a structural shift has occurred, a
permanent lowering of the propensity to import. According to this line of reasoning,
business firms have developed import substitution measures and have switched to
energy-saving production techniques. Backers of the second theory contend that Italy
has been more successful than other major industrial countries in this adaptation
process due to greater reliance on small, flexible firms. Since the improvement in the
foreign accounts is here to stay-these dissenters argue-the government has ample
freedom to reflate. (U)
Available data are insufficient to confirm or refute the structural-shift theory.
F conometric tests have produced inconclusive results. Nonetheless, the theory has
given powerful intellectual ammunition to opponents of the government's stabilization
program. Industrialists are advocating a return to fast growth through the diversion of
some available foreign exchange from rapid debt repayment to finance imports of
capital goods and industrial materials. Similarly, the unions are insisting that Rome not
follow the West German practice of accumulating exchange reserves. They especially
favor more spending to finance job-creating investment and economic development in
the Mezzogiorno. (U)
Treasury Minister Filippo Pandolfi-author of the three-year plan for the
gradual economic alignment of Italy with the rest of Europe-recognizes the irony of
his present situation. The austerity measures Pandolfi sponsored in 1976-77 have
succeeded so well in rectifying Italy's international payments situation that some of
the pressure for seeking longer term solutions to inflation /growth problems has
dissipated. Enactment of his new plan will require difficult choices by all the political
parties. Historically, foreign exchange crises have been the only stimuli potent enough
to turn the attention of Italian leaders away from political machinations and toward
economic reform. (C)
The Italian current account should make another strong showing in 1979.
Slippage on trade almost certainly will be offset by gains on invisibles, with tourist
receipts continuing to rise. (U)
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As the economy picks up, import volume-propelled by inventory buildups-is
likely to register a sizable increase. A rise in OPEC oil prices will hike the oil import
bill. New labor contracts slated to be negotiated this winter for more than five and
one-half million workers will bring higher wages and probably shorter hours. In the
short run, as negotiations become more heated, strikes and worker rallies are likely to
multiply, causing a reduction in output and exports and a switch to non-Italian sources
of supply. Furthermore, the government's continued inability to stem increases in
transfer payments to state enterprises, local governments, and welfare groups will add
fuel to inflation. In short, some erosion of Italian export competitiveness appears
unavoidable in the absence of lira depreciation. (C)
Participation in the proposed European Monetary System (EMS), which will tie
the lira to the French franc and the currencies already in the European joint float,
could also have a negative effect on next year's current account performance. In
recent years, Italy has been able to preserve export competitiveness by allowing the
lira to depreciate against the currencies of most trading rivals. For example, the lira
has lost more than half its value against the deutsche mark since March 1973, when
the Smithsonian system of exchange rate parities was abandoned. (C) (Confidential)
WORLD RICE: ADDING TO THE GRAIN SURPLUS (U)
Increased acreage and generally favorable weather worldwide will likely bring
world rice production to 380 million tons for the 1978/79 crop year, an increase of
about 3 percent over the 1977/78 crop year.* (C)
The abundant harvest expected in major rice consuming countries should reduce
import demand and keep prices weak. In turn, rice stocks will likely rise to a record
level, adding further to already ample supplies of grain worldwide and causing
problems of storage and surplus disposal in several countries. (C)
Record Production Again
Most of the increase in world production is occurring in the Asian rice bowl
region where favorable monsoons and below-average pest infestation have boosted
yields. Record rice harvests are forecast for India, the Philippines, Burma, South
* Rice production figures are on unmilled basis. All other data are on a milled basis. The crop year for rice is the period
1 August - 31 July. (U)
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Total .............. ....._.....
349.1
369.0
380.0
China ..... .......... _........... .__..... ......... ...._..... ....... .... ............
125.5
129.0
132.0
India ........ _ ....................... _................................... .............
64.2
79.1
80.3
Indonesia ....... ......... ._.... .........................................._._........
23.3
22.8
26.0
Bangladesh ..................... _........................... ................ ....... .
17.9
19.5
19.5
Japan .......... _.._ ........ ...... .......................... .._................... ........
14.7
16.4
15.7
Thailand ....... ............. ........................ ......_....... ...... ......
15.8
15.0
15.5
Vietnam ........... ......... ............. ............ ......_....... .............
12.0
11.2
10.7
Burma ........ ...... _ ....................................................................
9.3
8.8
10.0
South Korea .__...... ._.._._............ .................... .._...............
7.2
8.3
8.4
Brazil ................ ........... ........................................ ....
8.0
7.5
8.4
Philippines .......................... ....... ..............................
6.5
6.8
7.0
United States ....................... _..................................._..........
5.4
4.5
6.5
Pakistan ........ ................ .......__....................................._........
4.1
4.4
4.3
Soviet Union ..... ........... ........................................................
2.1
2.2
2.3
Sir Lanka .............. ........ .................................... ..... ..........
1.5
1.8
1.8
Colombia ....._..._..........._................... ................................
1.5
1.3
1.6
Italy _._ _ ._......... ..._......... ....... ......... ...._.._.... ._...... ...
1.0
0.7
1.0
Australia .................. ..._ .................... ....................... ......
0.5
0.5
0.6
Laos .......... ................. ...... ...................... ...............................
0.9
0.5
0.5
Other ..... ............... _._...................... ..... ........... .......... ............
27.7
28.7
27.9
Figures are on an unmilled basis; crop year runs from 1 August to 31 July.
Preliminary.
Forecast.
Korea, Sri Lanka, and Indonesia. Production in the People's Republic of China is also
expected to reach a record level despite some drought problems with late rice.
Unfavorable weather has reduced production in Vietnam, Laos, and Cambodia. Total
production in the Asian rice bowl region, which accounts for more than 85 percent of
the world harvest, is expected to be up 2.5 percent. (C)
An increase of 36 percent in acreage and favorable growing conditions have led to
a record US rice harvest of 6.5 million tons, up 44 percent from 1977/78. Higher
support prices and a return to more favorable weather are expected to boost
production in Colombia and Brazil. Small gains are also expected in Australia and the
Soviet Union, and Italian production has recovered to a more normal level as the result
of favorable weather. (U)
Consumption Up, Trade Down
Ample supplies of rice at moderate prices combined with continued population
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growth in Asia will push consumption to a new record of about 240 million tons, A
growing demand for wheat in several Asian countries, especially Japan and Sri Lanka,
has diverted some growth potential in rice consumption. Nonetheless, strong demand
from Middle Eastern OPEC countries and increasing demand from urban areas in
West African countries will keep growth in world consumption ahead of last year's
rate. (U)
World trade in rice in calendar year 1979 is expected to decline 600,000 tons
from the 9.1-million-ton level estimated for 1978. Import demand is expected to drop
in Asia as a result of increased production in four major importing countries.
Indonesia, the world's largest importer, is expected to import only 1.5 million tons, 21
percent less than in 1978. A large rice carryover and the record harvest could result in
even lower Indonesian imports than currently estimated, Other countries expected to
trim imports as a result of good harvests are Sri Lanka (by 125,000 tons) and Malaysia
(by 300,000 tons). Import demand by Bangladesh will probably remain low as a result
of a record harvest and the receipt of wheat from aid donors. India and the
Philippines, formerly net importers, are again not expected to purchase rice; in
calendar year 1979 each may even export 200,000 tons. (U)
Import demand for rice elsewhere in the world is expected to register a small
increase. An additional 250,000 tons of imports may be required to meet consumption
increases in Africa and the Middle East. The major uncertainty clouding this outlook is
the Iranian situation where import demand was expected to account for one-fourth of
the increase. A continuation of the present popular unrest and further port congestion
could sharply reduce Iranian import capabilities and cut the demand for US rice. (U)
Production shortfalls caused by heavy rains and flooding have reduced the
availability of rice for consumption in Laos, Cambodia, and Vietnam. Laos and
Vietnam together will probably have to import a minimum of 500,000 tons of rice to
meet domestic shortfalls. Total imports will be lower than requirements due to hard
currency constraints and the substitution of cheaper wheat for rice. The majority of
imported rice will come as food aid or concessional sales. Cambodia will be forced to
limit its small rice exports and domestic consumption. (U)
Export supplies of rice are more than adequate to meet import demand in
contrast to the situation a year earlier. Thailand's agricultural sector has recovered
from a drought and should furnish 300,000-400,000 tons more than the 1.5 million
tons exported in 1978. Burma should also have an additional 200,000 tons available for
export while Chinese exportable supplies will likely remain the same due to problems
with the late rice harvest. US supplies will be up almost 2 million tons, and
availabilities from Italy and Brazil will also be larger. (U)
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12.1 12.3
0.3 0.2
t.i t 1.8
31
19.0
0.9
United
States
14.6
I Estimate for beginning of marketing year. Data based on aggregate of different local marketing years
and not representative of a specific point in time. Does not include China.
Unclassified
'~I9q.a 12-08
The record rice harvest and ample world supplies of other grains will push rice
inventories to a record level of about 25 million tons * at the end of the current crop
year. The high level of world stocks and reduced trade prospects will keep prices
15 December 1978
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Stocks: Rice, Anyone?
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under downward pressure at least until next year's harvest conditions are known.
Prices for quality US rice have dropped to $340 per ton compared with more than
$400 per ton for the first eight months of 1978. (U)
Burdensome rice stocks have presented serious storage and disposal problems for
several countries. India, after four successive years of good grain harvests, has little in
the way of unencumbered quality storage facilities and may lose considerable
quantities of rice to pests and spoilage. Storage space in Sri Lanka is also short after
two successive record harvests and large imports in 1977/78. In an effort to alleviate
its storage problem, Sri Lanka has attempted to export rice for the first time in over
200 years. The rice has been of such poor quality that sizable export sales are not
likely. (U)
Japan's huge stocks of rice have created a disposal problem. Subsidization of
production and declining domestic consumption have stuffed Japanese storage bins
with 6 million tons of rice, three times the desired carryover level. Favorable weather
boosted yields this year after Japanese administrators were successful in reducing rice
acreage. The Japanese Ministry of Agriculture, Forestry, and Fisheries must now
initiate a program to dispose of 4 million tons of surplus rice over the next five years.
One-half of the surplus will probably be allocated to domestic feed use and 40 percent
will be exported as food aid. The program will likely result in reduced demand for US
feedgrains, and aid donations will further reduce commercial markets for rice
exporters. (U)
US rice stocks will reach a new record at the end of the 1978/79 crop year. With
US rice exports currently projected at 2.1 million tons by the United States
Department of Agriculture, stocks by next July will have doubled to a level of 1.8
million tons. This level is 500,000 tons greater than the previous record carryover of
July 1977. (U) (Confidential)
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CHILE: REFORM PROGRAM REVITALIZING ECONOMY (C)
The Pinochet government's thoroughgoing economic reform program has re-
versed Allende's socialist revolution and transformed Chile into a market-oriented,
free-trade economy. Santiago has restored economic growth, broken hvperinflation,
and at least temporarily eliminated payments problems. Industry and agriculture are
becoming more internationally competitive, the country is now living within its
means, and overriding dependence on copper exports has been greatly reduced. With
US hankers and businessmen in the vanguard, growing international business confi-
dence in the junta's program has paved the way for new loans and new direct
investment, enabling the junta to relax austerity policies that have hit hard at the poor.
(C)
The US Letelier investigation, possible armed conflict with Argentina, and/or the
Regional Inter-American Labor Organization's planned boycott of Chilean products
could trigger international payments problems in 1979. Nonetheless we expect the
economic gains and structural improvements of the reform program to continue
apace. 'l'o maintain economic growth in the 6-percent to 7-percent range beyond next
year the Chilean junta must take steps to boost domestic savings and investment from
their still relatively low levels. (C)
The Chilean economy has recovered from the chaos of the last years of the
Allende government. Comprehensive economic reforms along with stringent austerity
treasures have brought inflation under firm control, restored Chile's economic credit
rating, and fostered economic growth:
? Inflation is down from triple-digit levels in the mid-1970s to 30 percent in
1.978.
? The external accounts will post a $500 million surplus this year compared
with the $100 million deficit recorded in 1973.
? Real economic growth in 1978 will hit about 6 percent in contrast to
a 4-percent decline in 1973. (C)
Reform Program
The junta reform program has touched every aspect of the economy. The it(,"
economic authorities-a group of orthodox economists known as the "Chicago
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Cost of Living
Percent Change- Dec./Dec.
400
360
280
200
120
40
0
Real GDP Growth
Percent Change
10.0 r---
7.5
5.0
2.5
0
-2.5
-5.0
-7.5
Unemployment Rate (Santiago)
Percent at Yearend
20I --------~_-. -
Real Wages
Index:1974=100
200x----- -
120
100
80
40
0
Agricultural Production
Index: 1973/74=100
125
100
75
Industrial Production
Index: 1974=100
Government Surplus or Deficit
Percent of GDP
Average Tariff Levels
Percent
Gross International Reserves
Billion US $
76 77 781 792
1. Estimated
2. Projected
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Boys"-restructured the economy along free-market lines. Prices of industrial pro-
ducts were decontrolled to encourage production and eliminate black markets. At the
same time, wage increases were restrained and strict labor discipline imposed.
Agricultural production was boosted by ending land reform, returning expropriated
farmlands, freeing crop prices, and implementing technical assistance programs. To
reduce state involvement in the economy, the government sold off most nationalized
Firms to private investors. Policymakers slashed government spending, eliminated
oluust subsidies for public enterprises, and revamped the tax collection system.
Monetary expansion was curtailed drastically. Capital markets were rehabilitated by
eliminating interest rate controls, indexing financial instruments, and reducing public
sector borrowings. (C)
The military government also reestablished Chile's interuational credit rating and
unproved its international payments position. To regain the confidence of foreign
vrivestors, Santiago compensated the foreign owners of expropriated copper holdings
and has met the $1 billion annual debt service obligations since 1976. The government
has unified the multiple exchange rates to eliminate implicit export taxes and import
subsidies. Nontraditional exports have been encouraged by revoking exchange con-
trols, devaluing the peso in line with relative rates of inflation, rebating value-added
taxes on overseas sales, and expanding export promotion efforts. Barriers to foreign
direct investment were dropped, and Chile withdrew from the Andean Pact in late
1976 to free itself from restrictive regulations on this investment. (C)
Santiago also moved to revitalize the industrial base and to generate new jobs.
Productive efficiency in the industrial and agricultural sector was fostered by opening
Chilean markets to foreign competition through a program of dismantling import
controls and reducing tariff barriers. To encourage expansion and modernization,
policymakers introduced accelerated depreciation, eliminated restrictive labor legisla-
tion, and encouraged cooperative producer associations. Since 1976, the economic
authorities have channeled subsidized investment credits into fishing, forestry,
agriculture, and copper-sectors in which Chile has the greatest comparative advan-
tage. Earlier this year, commercial banks were permitted to make medium-term loans,
increasing the availability of investment credit for the private sector. (C)
Progress to Date
Before the reform program could take hold, Chile's precarious payments position
was further damaged in late 1974 by the 40-percent plunge in average copper prices
and the quadrupling of oil import prices. To prevent a runaway deficit, the military
government implemented harsh austerity measures. During 1975, industrial produc-
tion fell 23 percent, real CDP declined 11 percent, inflation hovered at 340 percent,
and unemployment doubled to 19 percent. Since mid-1976, the junta reform strategy
plus a cautious easing of austerity have spurred a coordinated recovery. (C)
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Domestic Economy Growing
Chile has managed strong economic gains for three successive years. Real growth
is estimated at 6 percent this year after jumping 8.6 percent in 1977 and 4.1 percent in
1976. The industrial sector is leading the advance. Industrial production has increased
32 percent since 1975, reflecting the recovery in manufacturing and a rebound in
construction. Agricultural output rose 30 percent in 1976-77 because of increased
plantings and improved yields, but dropped 6 percent this year partly because of bad
weather. (C)
As a result of tight fiscal and monetary policies, price increases have slowed to an
annual rate of 30 percent, compared with 64 percent last year and 174 percent in
1976. The budget deficit, which totaled 23 percent of GDP in 1973, has been virtually
eliminated, while the real growth in the money supply has been held to a 20-percent
annual rate since 1976. Competition from imports and the stretching out of automatic
wage adjustments have also contributed to the reduction in the rate of inflation. (C)
Paralleling the upturn in economic activity, employment has risen by 6.7 percent
yearly since 1975. Unemployment in Santiago has fallen to 14 percent from the March
1976 high of 19.8 percent. Real wages, which plummeted 23 percent during the 1973-
75 period, have now climbed to 45 percent above the 1976 level. (C)
Payments Position Improved
Although official loans fell off in protest against the junta's human rights
practices, growing private capital flows have enabled the Chilean regime to avoid
payments problems since 1976. Resumption of loans and direct investments by banks
and businessmen this year will increase capital inflows to an estimated $2.1 billion,
compared with $1.4 billion in 1977. On the strength of its refurbished international
credit rating, Chile is tapping world money markets for $1.5 billion in loans this year
to extend its debt maturity structure and to build reserves. Last month, for example,
Manufacturers Hanover raised $370 million for the Central Bank in the form of a 10-
year credit at 11/s percentage points over the London Interbank Rate. US banks-Citi-
corp, Morgan Guaranty, Chase, Chemical-are underwriting the bulk of the syndicat-
ed credits and providing a substantial share of direct loans. US financial institutions
held an estimated 45 percent of Chile's foreign debt at yearend 1977, and the share
has increased this year. (C)
Growing confidence in the junta's ability to manage the economy has also led to
an expansion of direct foreign investments. Since 1976, policymakers have approved
an estimated $3 billion in new foreign investment projects. Known direct investment
will total about $150 million in 1978; US corporations accounted for approximately 80
percent of this total. The $110 million purchase of the Disputada copper mine by
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Chile: Balance of Payments
Million ITS $
1974
1975
1976
1977
1978'
1979
Current account balance
-214
-578
164
-496
-750
-790
Trade balance
230
-203
491
-111
-280
-360
Exports, f.o.b.
2,243
1.571
2,072
2,186
2,320
2,500
Copper
1,716
850
1,238
1,159
1,060
1,150
Other
527
721
834
1,027
1,260
1,350
Imports, c.i.f.
2,013
1,776
1,581
2,297
2,600
2,860
Net services and transfers
-444
-373
-327
-385
-470
-430
Interest payments
-272
-284
-310
-336
-396
-372
Capital account balance
-402
71
318
511
1,230
370
Debt amortization
-596
-747
-680
-842
-850
-930
Capital inflows
463
797
991
1,353
2,08(1
1,500
Direct investment
-538
-4
0
22
150
150
Commercial credits
131
492
538
726
1,500
1,000
Official credits
870
309
453
605
430
350
Errors and omissions
-269
21
7
0
0
0
Debt relief
560
232
tl
0
(1
0
Change in reserves
-56
-275
482
15
480
-220
Estimated.
Projected.
Including compensation for nationalization.
Exxon Minerals International represents the largest US investment, while Goodyear
Tire, Diamond Shamrock, and Atlantic Richfield have made smaller acquisitions.
European firms have made several investments in manufacturing, Canadian compan-
ies are prospecting for new copper deposits, and Japanese interests have invested in
the fishing industry. (C)
Despite the 14-percent decline in copper earnings since 1976, Chile's exports have
increased 12 percent to $2.3 billion in 1978. Shipments of noncopper products-such
as fruits, lumber, fish, pulp, and wine-have increased 51 percent since 1976. Export
gains and the increased inflow of foreign credit have enabled Santiago to relax
austerity programs. As a result, imports have increased by 64 percent since 1976, to an
estimated $2.6 billion. US exporters, the country's largest suppliers, have not kept pace
with these gains; their trade share declined to 20.9 percent in August 1978, compared
with 23.8 percent in December 1976. A sharp falloff in US agricultural sales was only
partially offset by gains in shipments of machinery and consumer goods. (C)
Structural Changes
Economic reforms are slowly introducing structural changes that should enhance
Chile's future growth. Tariff reductions programs are fostering industrial efficiency.
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The industrial sector, coddled behind protective tariffs since the 1930s, now produces
only 25 percent of real GDP, compared with 31 percent in 1973. To survive the
industrial shakeout, firms have cut their workforces, adopted new technology, and
improved management. Despite fierce competition from imports, industrial produc-
tion in most sectors has recovered to historic highs. Exports of industrial products
increased from 10 percent of industrial output in 1973 to 23 percent in 1977. (U)
The interplay between market and government incentives is encouraging the
growth of Chile's agriculture. Agricultural production has shifted away from tradition-
ally subsidized crops-sugarbeets, barley, rapeseed-to more profitable items such as
fruits, vegetables, meat, and dairy products. As a result, Chile is now a net exporter of
foodstuffs, with a surplus of about $40 million this year compared with the $470
million import deficit recorded in 1973. (C)
Government modernization programs coupled with incentives to foreign investors
are revitalizing the mining sector despite low world copper prices. In particular, these
efforts have enabled Chile to increase mine production from installed mine capacity
while improving the efficiency of mining operations. Since 1975, the Chilean Copper
Corporation, the state firm that manages the large mines, has invested about $300
million in new equipment and cost-reduction technology. As a result, copper
production increased from 735,400 tons in 1973 to 1.06 million tons in 1977, the
recovery of byproducts has risen, and production costs have declined. Moreover, the
liberalized foreign investment climate is spurring renewed foreign interest in develop-
ing Chile's copper reserves, about 20 percent of the world total. In 1977, for example,
a US-Canadian consortium spent $5 million in studying the feasibility of developing
the Quebrada Blanca copper deposits which will require a minimum of $500 million
to bring into production. (C)
New export policies are sparking the growth and diversification of the export
base. During the past five years, Chile has tripled the number of commodities sold
abroad and has established new markets, especially in the Third World. Latin
America, for example, now accounts for 30 percent of Chile's exports compared with
only 12 percent in 1973. Chilean exporters have also established a toehold in the
OPEC countries, Africa, and the Far East. As a result, dependence on copper revenues
declined from 81 percent of exports in 1973 to 53 percent in 1977. Even if coppper
prices in 1977 had equaled historic averages, copper would have accounted for only 63
percent of total exports. (U)
Government austerity and new taxes are greatly increasing the public resources
available to help finance new investment. Introduction of a value-added tax,
indexation of tax liabilities, and a crackdown on tax evasion have doubled government
revenues since 1973. These measures have been sufficient to cover public sector
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consumption and generate savings equal to 7.7 percent of GDP in 1977. About one-
half of these savings are being channeled into private sector projects such as
agriculture and copper. Commercial loans have quintrupled since December 1974 in
response to increasing confidence among private entrepreneurs, the fall in monthly
interest rates from an average of 16 percent in 1975 to about 5 percent this year, and a
gradual easing in reserve requirements. Chilean corporations have also found foreign
capital markets receptive to medium- and long-term credits necessary to finance
industrial expansion projects. (C)
Continuing Troublespots
The poor and the workers, who have borne the brunt of the stabilization program,
still represent a source of potential social and economic unrest. The abandonment of
price controls has raised the cost of essential goods, while tariff reforms and austerity
measures have helped to keep unemployment at a high level. Moreover, a study by the
t niversity of Chile indicates that real earnings of miners, utility workers, and
government employees has not yet regained 1970 levels. The Pinochet regime is
forestalling social unrest by restricting political liberties, maintaining strict labor
discipline, implementing a public works employment program, and increasing
spending on social services for the poor. (C)
Labor trouble has flared this year, however. Since July, blue-collar workers have
been demanding higher wages to recoup lost purchasing power. At the end of July,
laborers at the Chuquicamata copper mine protested the erosion of wages and benefits
and the absence of trade union freedoms. Workers at the other large copper mines, at
the Huachipato steel complex, and at the Lota coal mines followed their example.
Despite some economic concessions, the government has taken a hard-line approach
toward labor. In October, for example, the junta dissolved seven trade union
federations and announced a general election to replace all incumbent union leaders.
In the longer term, a new crop of inexperienced labor leaders could cause trouble by
making unrealistic wage demands if the government honors its pledge to restore
collective bargaining next year. (C)
Inadequate domestic savings and the consequent sluggish rate of new capital
formation are worrying policymakers. The low rate of total fixed investment, 11
percent of GDP last year, is primarily the result of (a) the low level of private domestic
savings and (b) the still small contribution of foreign capital, an estimated 3.2 percent
of GDP in 1977. The sluggishness of new investment will pose a less serious constraint
to economic growth in the short run because of the availability of considerable unused
industrial capacity. Unless domestic savings can be greatly increased, however, Chile
over the longer period will have to depend increasingly on foreign capital to sustain
growth and prevent substantial increases in unemployment. (C)
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If Santiago can maintain labor peace and defuse international tensions, the
Chilean economy should manage another year of solid economic gains. We expect real
growth to increase by 7 percent in 1979, led by continued growth in manufacturing
output, further recovery in construction activity, and a rebound in agricultural
production. Inflation should fall to 20 percent, and the rate of unemployment should
dip below 13 percent by yearend. (C)
Labor will continue to press for higher wages and fewer restrictions. Strikes are
unlikely in the next several months because of government controls. Moreover, new
concessions to labor demands should calm growing worker restiveness. This month, for
example, the government decreed a 12-percent salary increase for Chilean workers.
This should add only marginally to inflationary pressures. (C)
Chile's external payments position will likely deteriorate next year. Anticipating
this development, policymakers have nearly doubled gross reserves of international
exchange (to $1.5 billion). These measures are intended as precautions against the
Chile: External Debt
1974 1975 1976 1977 1978' 19792
Million US $
External debt ........... ..... ................. 4,774 5,263 5,195 5,434 6,100 6,400
Debt service payments .................. 868 1,031 990 1,178 1,246 1,300
Estimated.
2 Projected.
possibility of (a) a clash with Washington over the Letelier investigation, (b) an armed
conflict with Argentina over the Beagle Channel, and (c) a $150 million loss in export
earnings because of the recently announced boycott of Chilean products by the
Regional Inter-American Labor Organization. (C)
We expect that Chile's gross financial requirements will total $1.7 billion in 1979,
up 8 percent over 1978. The trade deficit will probably widen to about $360 million,
compared with $280 million this year, as economic recovery spurs increased imports
while the international boycott limits export gains. Debt servicing costs should total
about $1.3 billion, an increase of 4 percent compared with 1978. Despite higher
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capital investments, foreign borrowings are unlikely to match last year's level. Chilean
entities have rushed to complete major syndications this year, and apparently only a
few small credits remain in the international pipeline. Policymakers will therefore
have to draw down accumulated reserves to finance the payments gap. (C)
(Confidential)
COBALT: US DEPENDENCE ON OUTSIDE SUPPLIES (U)
Despite the rise in US consumption of cobalt, persistent production problems in
Zaire, and generally tighter worldwide supplies, we estimate that the United States
will be able to meet its 1979 needs for cobalt out of current global production and will
not have to dip into government reserves (now at a two-year level). Aside from scrap,
the United States relies on imports for all its cobalt-a critical vulnerability since
cobalt is an often irreplaceable element in the high-temperature parts of jet engines
and turbines and in cutting tools. (U)
Key Industrial Applications
Cobalt is one of the few critical metals, denial of which would severely impede
output of a wide range of important industrial products. It is nearly irreplaceable in an
estimated 60 percent of its applications:
? Jet engine parts-Superalloys of up to 65 percent cobalt provide resistance
to stress and high temperatures.
? Tools, dies, and drill bits-Cobalt imparts wear and abrasion resistance.
? Wellhead and pipeline valves and seamless tubing--Alloys of up to 35
percent cobalt are vital for hardness, corrosion resistance, and protection
against abrasion and heat buildup.
? Chemical processing-Cobalt serves as a catalyst in petroleum hydrogena-
tion and as a drying agent in paints. (U)
Particular Significance to the United States
Cobalt has been designated as one of two critically important minerals that pose
serious supply problems to the United States. (Chromium is the other.) The Mineral
Review Committee of the President's Nonfuel Minerals Policy Study in October 1978
noted that:
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? At present the United States has no cobalt reserves (that is, identified and
economically mineable deposits). Taking into account recovery from scrap,
the United States is 97-percent import reliant.
? Up to 80 percent of current US supply originates in Africa (in 1977, 65
percent from Zaire, including 22 percent transshipped through Belgium for
further processing, and 13 percent from Zambia); Africa accounts for about
45 percent of world output
? Zaire and Zambia possess nearly 40 percent of the world's cobalt reserves.
? Cobalt is of critical importance to US national defense due to its use in
high-temperature parts of jet engines and turbines and as a vital ingredient
in cutting tools. In these applications, a suitable substitute for cobalt often
cannot be found, especially where ultrafine cobalt powder is a necessity; the
United States relies on Belgium for some 80 percent of its requirements of
cobalt ultrafine powder. (U)
US Demand Increasing
US consumption of cobalt, about 8,000 metric tons in 1977, has increased in
response to expanded demand from the aircraft industry for superalloys containing
cobalt. We estimate that 1978-79 demand will range between 8,500 and 10,000 tons
annually, or roughly one-third of total non-Communist demand for cobalt. The USSR,
which normally is almost self-sufficient in cobalt, together with the other European
Communist countries consume a total of 6,000 to 7,000 tons annually. (U)
US Supply and Stockpile Situation
Despite the increasingly tight worldwide cobalt supply, the 200 to 300 firms that
account for US cobalt consumption have managed to expand operations. Even with
intensified pressure on supply following the May 1978 invasion of Zaire's Shaba
Province, US users of cobalt were able to obtain needed supplies through supplemental
purchases on the "free" or "gray" market which consists of small independents and
speculators. Prices for small-lot free market sales of cobalt have soared from $6.85 per
pound prior to the Zaire invasion to an estimated $50 per pound at present. The
official producer price over the same period has tripled to $20 per pound and
probably will go higher. (U)
US manufacturing firms have experienced little difficulty passing these stiff price
increases to their consumers because the added cost of cobalt is only a small fraction of
the final product price. For example, tripling the price of the 200 pounds of cobalt
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used in a JT-9 jet engine adds less than 0.2 percent to the $2 million final product cost.
(U)
No one knows precisely how much cobalt is held in the inventories of US
merchants and processors. The best guess, based in part on consumer stocks reported to
the US Bureau of Mines in August, is the total commercial supplies do not currently
exceed one or at most two months' requirements. Small quantities also are held by US
dealers in various free ports outside the continental United States. US cobalt consumers
are trying to husband these stocks through economies of one form or another-for
example, cutting unit usage and saving scrap for reprocessing. Some are taking the
ultimate step of replacing cobalt with other metals, but this takes time, involves
exceedingly high costs, and does not always give fully effective technical results. (U)
Ultimately, if the United States faces shortages sufficient to warrant a Presidential
decision that the national security is endangered, supplies would be doled out from US
strategic stocks. These stocks, equal to approximately two years' consumption at 1978
levels, were acquired several years ago and probably would require some reprocessing
to meet present specifications. (C)
Outook for Continued Tight Supply
We believe that the world cobalt supply will remain tight over the next year or
two, given the likelihood of nagging production problems in Zaire. We assume that the
fragile security now maintained in Zaire's cobalt/copper mining belt will continue and
that, if insurgents make occasional forays into the area, they will spare vital cobalt
facilities such as the refineries in Liulu and Likasi. (C)
Zaire's cobalt industry did not sustain any appreciable physical damage during
the 13 May invasion; output resumed shortly thereafter at near or slightly above the
immediate preinvasion level. Loss of the 400 or so foreign (mostly Belgian) specialists
did not prove to be as serious a problem as forecast by earlier field reports, due in part
to the redundancy of many expatriates and also to the exceptional efforts by the
Zairian work force to demonstrate a go-it-alone capability. Even the Zairians,
however, recognize that additional technicians are needed now to cope with
inadequate maintenance, shortages of spare parts, and aged equipment. Purchases of
spare parts-a chronic but increasing problem-have been restricted by government
limitations on the foreign exchange made available to GECAMINES, the state
company responsible for operating and financing the cobalt facilities. An estimated
$100 million is needed now to replace major equipment and to provide the required
inventory of spare parts. Even if orders were placed immediately, however, deliveries
would stretch out over a year or more. In the interim, production problems would
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continue; in the absence of these expenditures, such problems will reduce recent levels
of output. (C)
The shortfall in Zairian cobalt output next year is not expected to precipitate a
global supply crisis. Production in other countries could rise by 5,000 tons. Zambia
alone is planning to expand output by about 2,000 tons, roughly doubling its current
production rate. Other anticipated increments to 1979 output include: Norway, 500
tons; Finland, 500 tons; Canada, 770 tons; South Africa, 160 tons; and Japan, possibly
1,000 tons (using ores from the Philippines). (U) (Confidential)
MALAYSIA: STEADY GROWTH AHEAD FOR MANUFACTURED EXPORTS (U)
With exports of manufactured products continuing to rise this year, Malaysia will
join an exclusive group of LDC exporters whose annual sales of manufactures top $1
billion. Malaysia ranks eighth among LDC exporters, ahead of the Philippines and
Thailand but well behind such middle-tier exporters as Singapore, India, and Brazil.
Plentiful and inexpensive labor, a rich natural resource base, and government
encouragement have enabled manufactured exports to grow at an impressive 38
percent annually in the 1970s. These gains have been based largely on the export of
transistors and other semiconductors, phonograph and radio parts, wood manufac-
tures, and clothing to OECD markets.* (U)
Despite some slowdown in total export growth over the next several years,
Malaysia should continue to do well in selected markets. By the early 1980s exports of
manufactured goods almost certainly will approach the $2 billion mark, as the
government continues to capitalize on wage rates below other Asian LDC manufactur-
ing centers. Moreover, Kuala Lumpur is taking a pragmatic approach toward
implementing its policy of "Malayanizing" the economy to sustain inflows of foreign
investment in manufacturing. (U)
Export Dynamics
Export growth in the 1970s stems from economic policy decisions taken after
Singapore's separation from the Malaysian Federation in 1965. At that time the
Malaysian Government viewed development of export-oriented manufacturing indus-
tries as a means (a) cushioning fluctuations in export earnings of raw materials; (b)
reducing the historic dependence on Singapore for processing and upgrading Malay-
* Export data in this article include the large volume of semiprocessed tin exports which distort underlying trends in
manufactured exports. Tin exports amounted to $760 million in 1977. (U)
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Malaysia: Commodity Export Trends
Dollar Value Index: 1974=100
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sia's raw materials; and (c) creating employment opportunities for a rapidly growing
and increasingly youthful labor force. Serious anti-Chinese riots in 1969 by native
Malays spurred the government to greater efforts to accelerate economic growth. In
1970, Kuala Lumpur enacted the Industrial Coordination Act to increase the stake of
native Malays in the economy; the government hoped to raise the overall share of
Malay ownership from the then existing 3 percent to 30 percent by 1990. In 1971-75,
Malaysia established five Free Trade Zones to encourage investment in manufacturing
and to create job opportunities for the growing labor force. Malaysia has also
periodically improved the benefits to business enterprises provided under the
Investment Incentive Act of 1968. (U)
The government's success is witnessed by the rise in manufactured exports from
$100 million in 1970 to almost $1 billion in 1977. In the process, Malaysia has
broadened its manufactured export product mix to include transistors and other
semiconductors, phonograph and radio parts, and watches and automatic control
devices in addition to processed raw materials. Consumer goods accounted for more
than 30 percent of the overall gain in manufactured exports since 1970, transistors and
other semiconductors 40 percent, processed raw materials (mainly wood and rubber
products) almost 15 percent, and capital goods and miscellaneous items about 15
percent. (U)
Malaysia: Leading Manufactured Commodity Exports
Total ......................................................... 100 940 38
Transistors and other semiconductors 5 328 82
Watches and automatic controls ...... 2 143 84
Wood manufactures 29 126 23
Textiles ............................................... 5 64 44
Clothing ............................................... 5 62 43
Nonelectric machinery ........................ 12 58 25
Transport equipment .......................... 11 46 23
Chemicals .............................................. 12 35 16
Rubber products ............ ........_.... ........ 5 20 22
Footwear ................................................ 2 16 35
Other .................................................. 12 42 20
' Estimated.
2 Average annual rate.
Manufacturing in Malaysia runs the gamut from labor-intensive assembly
operations to capital-intensive heavy industrial production such as oil refining and
steel manufacturing. Much of export manufacturing in such fields as radios and
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electric appliances consists of labor-intensive assembly of imported parts into finished
products. Likewise, Malaysian workers in electronic factories in the Free Trade Zones
assemble imported integrated circuits and other parts into calculators and other
consumer products. (U)
In the 1970s, OECD countries have replaced Asian LDCs as Malaysia's largest
market for manufactured exports. Foreign sales to OECD countries increased from
$32 million in 1970 to nearly $600 million in 1977, largely the result of increased sales
of semiconductors, phonograph and radio parts, and consumer goods to the United
States, West Germany, and Japan. Still, Malaysia holds only a small share of the
OECD market, providing 0.3 percent of manufactured imports in 1977. Exports to
LDCs go mainly to other East Asian countries, especially Singapore and Hong
Kong. (U)
Malaysia: Destination of Manufactured Exports
(Million US $) (Percent Growth) Z
World ..... .............. __........... _._............... 100 940 38
OECD ......... _...... _.......... _ ............... 32 589 52
United States ............. ___ 14 277 53
Japan ..... 5 57 42
Australia 1 35 66
EC ...... _..... ............. __._._ .......... ._. 11 185 50
West Germany .--._...... _ Negl 71
United Kingdom ......... ._.............. 10 54 27
France ......... ........... _.... _..... Negl 25
Other ....,... .._. _._..........___..__..... 1 35 66
Other 1 35 66
LDCs ............. 67 350 27
OPEC .. ... ........ . 8 47 29
Asian ....... _...._,__.._....._ ................. 57 291 26
Singapore ___ _.......... ... 42 205 25
Hong Kong _.......... _.___.......... .... 5 42 36
Other _ ......... ........._...__..... 10 44 24
Communist Countries .__.. _.... ..... 1 1 0
Estimated.
Average annual rate.
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The United States is Malaysia's leading customer for manufactured exports. Led
by sales of transistors and other semiconductors, wood manufactures, and phonograph
and radio parts, exports of manufactured goods to the US market reached almost $280
million in 1977. Malaysia has done exceptionally well in exporting semiconductors,
raising its share of the US import market from zero to 4.9 percent since 1970. As for
phonograph and radio parts, Malaysia holds a 0.6-percent share of the US market, up
from zero in 1970. Overall, Malaysia's share of the US import market in manufactures
has grown from 0.1 percent in 1970 to 0.5 percent in 1977. (U)
Malaysia: Major Commodity Market Penetration, 1977'
Share of Import Market (Percent)
Transistors and
other Semiconductors
4.9
2.4
I Phonograph and
Radio Parts
0.6
1 Watches and
Automatic Controls
0.4
Clothing
10.4
Wood Manufactures
1.5
Transistors and
other Semiconductors
1.1
. Clothing
0.7
Watches and
Automatic Controls
0.6
' Footwear
0 .3
Wood Manufactures
4.6
Phonograph and
Radio Parts
1.9
Transistors and
other Semiconductors
1.8
Textile Fabrics, Yarn
0.7
Watches and
Automatic Controls
0.6
Wood Manufactures
5.3
Footwear
3.1
Transistors and
other Semiconductors
1.8
Phonograph and
Radio Parts
1.1
I Textile Fabrics, Yarn
0.6
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Manufactured exports to the EC reached $185 million in 1977. going mainly to
West Germany and the United Kingdom where Malaysia has a 0.4-percent share of
the import market. * Like several other LDCs. Malaysia has found that penetration of
the clothing and textile import markets generates strong protectionist reaction; under
restrictions imposed by the EC this year, Malaysia's share of items such as knitted
shirts, T-shirts, blouses, and woven shirts are limited to an overall quota of 9.5 million
pieces annually for five years. Despite proximity to Japan, sales to that market amount
to less than $60 million annually. (U)
Sales of manufactured goods to LDCs more than quintupled to $350 million from
1970 to 1977. Singapore, Malaysia's second largest market for manufactures, took $205
million in 1977, five times the amount bought in 1970. Semiconductors, wood
manufactures, and watches are leading exports to Singapore. This same group of
products boosted sales to Hong Kong from $5 million in 1970 to $42 million last year.
Other Asian LDCs, including the Philippines and Thailand, together imported $44
million of Malaysia's manufactured exports in 1977. (U)
Competitive Factors
Malaysia has capitalized on several basic economic strengths to spur exports of
manufactured products in the 1970s. Rich natural resources, particularly timber, have
underpinned several export manufacturing industries. A well-educated labor force of
4.5 million and competitive wage rates have also given Malaysian exports an
advantage. In 1977 average hourly earnings in Malaysia of 52 cents were about 20
percent lower than earnings in South Korea, Taiwan, and Singapore. Malaysia has also
benefited from its proximity to Singapore, which gives Malaysian firms access to that
country's international financial and commerical connections. (U)
Malaysia has seen some of its export competitiveness erode in the last three to five
years. Average dollar prices of its manufactured exports have increased slightly faster
than the prices of its regional competitors. Labor productivity has increased only 2.7
percent annually since 1973, substantially lower than gains achieved by Singapore and
South Korea. Wages have been rising, but unit labor costs are still below costs in other
* Malaysia's market share in EC countries decreases considerably when intra-EC trade is taken into account, dropping
from 0.3 percent to 0.1 percent of all EC manufactured imports. Its share of both West Germany's and the United
Kingdom's manufactured imports, for example, drops to 0.2 percent. (U)
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Malaysia: Selected Exports by Destination, 1976
us
;Asian LDCs
Other LDCs
OPEC
Clothing
US $ 62 Million ,-negl.
negi.
Machinery, non-Electric
US $ 53 Million
Watches and Automatic Controls
US $ 138 Million
Textile Fabrics, Yarn
US$ 51 Million
Transistors and Other Semiconductors
US $ 205 Million
Wood Manufactures
US $ 128 Million
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Asian exporting nations. Some of the upward pressure on export prices has been offset
by depreciation of the Malaysian ringgit. Since early 1975, the ringgit has depreciated
on a bilateral, price-adjusted basis 15 percent against the US dollar, 14 percent against
the West German mark, and 26 percent against the Japanese yen. (U)
Multinational corporations have played a key role in export growth, particularly
in the electronics industry, which now employs 50,000 workers. Among the leading US
multinationals operating in Malaysia are Motorola, RCA, and Texas Instruments;
foreign multinationals include Matsushita and the Dutch electronics gaint, Philips.
The multinationals have used Malaysia as a base to supply both developed country and
LDC markets; in the process, they have made Malaysia one of the major exporters of
semiconductors and electronic products in the world. (U)
Malaysia: Price Adjusted Bilateral Exchange Rates
Index: March 1973=100
I I
I II III IV
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Government Policy
Kuala Lumpur has used a variety of direct and indirect incentives to spur exports
of manufactured products including (a) accelerated depreciation allowances for firms
exporting 20 percent or more of outputs; (b) income tax deductions for promotion
expenses; (c) income tax deductions for increasing export sales that incorporate
domestic materials and components; (d) export financing at preferential interest rates;
and (e) substantial technical marketing assistance from the Ministry of Trade. (U)
To boost foreign investment inflows, Kuala Lumpur is currently considering the
sweetening of the incentives package as well as improvements in ports and inland
transportation systems. In response to frequent investor complaints about red tape for
new ventures, the government recently introduced procedures to make the Federal
Industrial Development Authority truly a one-stop promotion agency. As part of the
effort to garner new foreign investment, government trade officials this year
sponsored investment conferences in the United Kingdom, West Germany, France,
Denmark, and the United States. (U)
Kuala Lumpur goes to great lengths to assure potential foreign investors that its
policy of fostering greater participation in the economy by native Malays poses no
threat to their interests. Although preferring joint ventures with majority ownership in
Malay hands, the government has shown considerable flexibility toward the allowable
share of foreign ownership. Indeed, it will permit 100-percent foreign ownership if the
project is entirely export oriented. (C)
The benefits of the Generalized System of Preferences (GSP) to Malaysia have
been partially offset by recent rises in nontariff barriers, such as quotas on clothing
and textiles. Even so, Malaysia is one of its important beneficiaries, particularly in US
and EC markets. In 1976, $210 million worth of its manufactured exports were
eligible for GSP coverage, about one-twentieth of the total benefit accruing to all
LDCs. Malaysia has campaigned for increased GSP coverage of its exports. Last year,
for example, it joined other members of ASEAN (Singapore, Indonesia, the Philip-
pines, and Thailand) in urging the developed countries to extend product coverage,
deepen tariff cuts, and liberalize rules of origin. (U)
Moving Into the 1980s
We expect Malaysia's manufactured exports to grow at 20 percent annually in the
next few years, a pace that would raise foreign sales to approximately $2 billion by the
early 1980s. Malaysia should continue to benefit from its competitive edge in labor
costs; the annual entry of 150,000 young workers to the labor force, should moderate
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wage increases over the next few years. As countries such as Taiwan and Singapore
emphasize more capital-intensive industries to overcome rising unit labor costs,
Malaysia stands to gain new labor-intensive manufacturing operations. Indeed,
Singapore's Prime Minister Lee Kuan Yew has said that he hopes much of his
country's existing labor-intensive industry moves to other East Asian countries-such
as Malaysia-over the next several years because he sees little hope of remaining
competitive. (U) (Confidential)
USSR: IMPROVED TRADE BALANCE (U)
The USSR managed to hold down its third quarter hard currency trade deficit to
$400 million by boosting exports while reducing both grain and nongrain imports. We
expect this trend to continue, putting trade roughly in balance in the fourth quarter.
The 1978 hard currency trade deficit would thus equal the accumulative three-
quarter figure of $3.4 billion. The deficit for 1979 should be lower because of reduced
imports and higher exports. (U)
Hard Currency Imports
Soviet imports through September amounted to $12.8 billion-a 20-percent rise
over the same period in 1977. A jump in grain deliveries after the disappointing 1977
harvest caused most of the increase. Fourth quarter grain imports are expected to drop
sharply, reflecting in part this year's bumper crop. Nongrain imports for the first nine
months were up slightly. Data from major Western suppliers show a small increase in
sales of machinery to the USSR. Last year's substantial drop in Soviet equipment
orders, however, points to a decline in machinery deliveries, perhaps beginning in
fourth quarter 1978. (U)
Hard Currency Exports
Exports in the first three quarters of 1978 were $9.4 billion, 18 percent more than
in the first three quarters of 1977. Except for West Germany, Soviet exports to its
major Western trade partners grew little and in some cases declined substantially.
Deliveries to the United Kingdom, Japan, and the United States were off 10 percent
while exports to the Netherlands fell by nearly 30 percent. The year-to-year increase
in exports has been slowed by stagnation in the volume of oil exports; oil deliveries in
1978 are expected to be about the same as in 1977 (1.1 million b/d). Soviet exports to
Iraq-traditionally machinery and equipment-more than doubled, accounting for
most of the 65 percent gain in hard currency sales to developing countries. Exports to
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USSR: Hard CurrencyTradel
u
1978-
1 Trade totals are based on official USSR foreign trade statistics while the value of Soviet grain imports are from Western
partner country reporting. The "Other" category is a residual. Import data for 1977 exclude about $890 million worth
of machinery and pipe bought by the USSR on behalf of other CEMA members. These imports were used in the
construction of the Orenburg pipeline-a joint CEMA project.
Secret
Ethiopia, Libya, and Nigeria also increased. Fourth quarter exports are expected to
rise over third quarter levels because of both secular trend and seasonal factors. (U)
Financing the Deficit
Moscow has easily covered its 1978 hard currency trade deficit. Earnings through
September from gold sales-estimated at more than $2 billion-already exceed those
for all of 1977 by roughly $500 million. In addition, drawings on an ample supply of
long-term government-backed credits for equipment purchases, substantial Soviet
holdings of foreign exchange, and arms sales have left the Soviets in a strong payments
position. (S)
The 1979 Soviet national economic plan calls for enlarging the share of trade with
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other socialist countries, and implies a continued slowdown in the growth of trade with
the West. The hard currency trade deficit next year is likely to be lower than in 1978.
Machinery imports should be down as a result of the substantial cutback in 1977-78
Soviet orders for Western equipment. Grain deliveries next year are unlikely to
increase because of this year's large harvest and high level of imports. Although the
outlook for exports in 1979 is less certain, a moderate rise seems likely. Total Soviet oil
exports next year probably will not increase and could drop by as much as 100,000
b/d; the expected price rise could bring a small increase in receipts. (Oil deliveries
account for about one-half of Soviet hard currency earnings.) Meanwhile, Soviet
exports of gas should increase by 20 percent, to roughly $960 million, while the growth
of other exports will be limited by sluggish economic conditions in the West. (U)
(Secret)
OPEC COUNTRIES: FALLING EXPORTS, RISING IMPORTS (U)
Most OPEC countries have suffered a serious deterioration in their current
account positions in 1978 because of reduced world demand for OPEC oil and import
price inflation. The rise in import prices has resulted primarily from the depreciation
of the dollar against the currencies of the other industrialized countries and
secondarily from domestic inflation within supplier countries. As a consequence of
these unfavorable developments, most OPEC countries will slow down their foreign
investment and increase their foreign borrowing. (U)
The overall current account surplus of the OPEC countries is expected to drop to
less than $6 billion in 1978, down 80 percent from the 1977 level. The surplus will he
roughly $3 billion in each half of 1978. (U)
Saudi Arabia, faced with declining oil export earnings and rising import
expenditures, will account for more than 36 percent of the decline in OPEC's surplus
from 1977 to 1978. The same factors plus serious domestic turmoil will move the
Iranian current account into balance or even produce a small deficit in 1978 after a
$4.6 billion surplus in 1977. Venezuela and Nigeria will each see their deficits grow by
$2.9 billion. In Venezuela, the primary cause will be rapidly rising import expendi-
tures; in Nigeria, declining oil revenues as well as increased import spending are
taking their toll. Among OPEC countries, only Kuwait and Algeria will improve their
current account positions this year. (U)
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OPEC Countries: Estimated Current Account Balances, 1977 and 1978
Billion US $
Ecuador
Negl
Gabon
-0.1
FO 2
H 0.7
Qatar
0.6
ted Arab
Emirates
J 3.4
2.3
l 3.2
4.7
5.1
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Billion US $
1977 1978 Assumed oil prices rise Jan 1979
1st Half 2d Half 1st Half 2d Half 1977 1978 0% 5% 10% 15%
Exports (f.o.b.) 72.3 73.7 67.1
Oil ......... 67.5 68.9 61.7
Nonoil ............. _...... 4.8 4.8 5.4
Imports (f.o.b.) 39.3 44.8 46.8
Trade balance 33.0 28.9 20.3
Net services and private
73.1 146.0
67.6 136.4
5.4 9.6
51.7 84.1
21.3 61.9
transfers .... ..__.._ -13.2 -14.1 -15.8 -16.5
Freight and insur-
Investment income
receipts ._.... ...... . 4.3 4.3 4.7 4.7
Other -11.6 -11.6 -14.0 -14.0
Grants .......................... -2.1 -2.7 -1.8 -1.8
Current account
Oil Exports
UNCLASSIFIED
Slack world demand for OPEC oil, partly reflecting growing output from the
North Sea, Alaskan North Slope, and Mexico, cut OPEC export earnings sharply in the
first three-quarters of 1978. Oil exports of nearly all cartel members, skyrocketed in
the fourth quarter, however, as liftings increased in anticipation of a January 1979 oil
price hike. Total OPEC oil revenues in 1978 will be an estimated $129 billion, down
$7 billion from record 1977 levels. OPEC's oil exports are projected to drop by 1.6
million b/d in 1978, to 28.0 million b/d. (U)
The impact of the softer oil market has varied widely among OPEC countries:
? Saudi Arabian oil export earnings will drop by an estimated $3.3 billion in
1978.
? Iran will lose an estimated $2 billion in oil revenues this year. The oilfield
workers' strike in the fourth quarter is a major factor in the Iranian shortfall.
? Nigerian oil revenues will decline $1.5 billion in 1978 as a result of sluggish
first quarter demand for high-quality crude.
? Stepped-up sales will raise the oil export revenues of Iraq, Kuwait, and
Qatar above 1977 levels. (U)
8.5
-23.3
-4.8
140.2 144.5 150.9 157.3 163.8
129.3 132.3 138.7 145.2 151.6
10.9 12.2 12.2 12.2 12.2
98.6 112.7 113.8 114.9 115.9
41.6 31.8 37.1 42.5 47.8
9.5 9.5 9.6 9.7 9.8
-28.1 -31.1 -31.1 -31.1 -31.1
-3.6 -3.4 -3.4 -3.4 -3.4
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1977
Total: 29.6
Million bid
Indonesia 3.5%
4.8%
Nigeria
6.9 %
United Arab
Emirates 6.8%
Venezuela
6.7%
Libya
7.0%
Kuwait
6.6%
Iraq
7.5%
Saudi Arabia
30.3%
Iran
17.3%
1978
Total: 28.0
Million bid
There were small changes in the export shares of individual cartel members in
1978. Oil production restrictions-ceilings on production and/or share restrictions on
liftings of light crude-have been imposed by Saudi Arabia and the United Arab
Emirates. On the other hand, the reduced Iranian oil liftings have resulted in
increased exports by some producers, especially Saudi Arabia. Overpricing of crude
resulted in slack sales in Kuwait, Ecuador, Algeria, Libya, and Nigeria early in the
year; they then adjusted price differentials between their crudes and Saudi benchmark
crude, and exports picked up. (U)
Nonoil Exports
The value of OPEC nonoil exports, including reexports, will be $11 billion in
1978, roughly 8 percent of total export earnings. Increased sales of liquefied natural
gas will nearly triple Algerian nonoil exports. Kuwaiti nonoil exports will grow almost
30 percent because of increasing reexports of manufactured goods and, to a lesser
extent, growing fertilizer sales. In Indonesia and Venezuela, nonoil exports will grow
more slowly. Declining market prices of cocoa and coffee had a large negative impact
on Nigerian and Ecuadorian nonoil exports, respectively. The value of nonoil exports
from Nigeria will stagnate after increasing by 50 percent in 1977; Ecuadorian nonoil
exports will fall in 1978. (U)
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Imports
In 1978 the value of OPEC imports is expected to rise by 17 percent, to $99
billion. Both the amount and the causes of import spending growth vary widely among
cartel members; some even will experience a decline in the real value of imports:
? Increased development spending will raise imports over 20 percent from
1977 levels in Iraq, Saudi Arabia, the UAE, Qatar, and Venezuela.
? Spiraling import price inflation will cause nearly all of the 15 to 20 percent
growth in import expenditures in Indonesia, Kuwait, and Libya this year.
? In Iran, dock worker strikes and internal political unrest hampered import
offloading in the fourth quarter of 1978, and imports will be only about 14
percent above the 1977 level.
? Algeria, Ecuador, Gabon, and Nigeria will constrain import spending in
1978 in order to hold down their current account deficits.
Import prices for OPEC countries rose 14 percent in 1978. They were particularly
hard hit by exchange rate changes because oil revenues are collected in dollars. The
depreciating dollar accounted for 80 percent of import price inflation; inflation in the
developed countries accounted for the remainder. Import volume will only grow 2
percent this year. (U)
Service Expenditures
We estimate that combined OPEC deficit on invisibles in 1978 will be $32 billion,
$5 billion above the 1977 level. Growth in expenditures for freight and insurance,
foreign technology fees, interest payments on debts, and net private remittances will
far exceed the increase in investment income receipts. (U)
For most OPEC countries, freight and insurance costs will remain level. In Saudi
Arabia, however, an improved internal transportation network and an easing of port
congestion (the latter holds for Iran also) should lower these costs, while Nigeria
continues to be plagued by severely congested ports. As a result of the diminishing
surplus, investment income receipts for OPEC countries in 1978 will rise less rapidly
than in 1977, increasing only $1 billion. At the same time imports of other services will
rise 20 percent on the average. In Gabon, Iran, Kuwait, Qatar, and Saudi Arabia, other
service payments will increase more than 20 percent owing to large imports of foreign
technology and services for infrastructure development, while Venezuela's expendi-
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tures will grow by one-half because of burgeoning payments for debt service and
travel. (U)
Surplus for Investment
With OPEC's sharp current account dropoff in 1978, its ability to finance capital
outlays will diminish. Nonetheless, the investable surplus will contract less rapidly
than the current account, due to OPEC's increased borrowings in international capital
markets this year. Total loan commitments to OPEC countries in 1978 include $13
billion in publicly announced syndicated bank loans, and $2-$3 billion more from
other private and governmental sources. Probably only $6-$10 billion worth of these
commitments will be drawn upon in 1978. (C)
Billion US $
Preliminary Projected
Investable surplus ..... ...... .............
Sources of investable surplus
Current account surplus ..... .:.......
Loan receipts .... ................ .....
Change in oil company indebtedness ..... ........
Uses of investable surplus
3 1
Official foreign asset accumulation ..._..- 26 32 6-10
Other use of funds (Net of adjustment for changes in asset
values due to exchange rate fluctuations) 7 12 5- 9
As in previous years, OPEC countries will use the bulk of their available funds to
add to official foreign asset portfolios. New OPEC official foreign investment will
probably be between $6 billion and $10 billion in 1978, down from $32 billion in 1977.
The proportion of surplus OPEC funds placed in short-term assets is likely to increase
as OPEC governments ajust their asset portfolio to compensate for increased import
costs and the fall-off in oil revenues. A slowdown in private foreign investment from
OPEC countries is also likely in 1978. Other uses of surplus funds will include OPEC
subscriptions to multilateral aid institutions and amortization of past foreign borrow-
ings, especially by Algeria, Indonesia, Iran, and Venezuela. (C)
Prospects for 1979
The outlook for the OPEC current account surplus in 1979 will depend primarily
on the pricing decision made by the cartel at its regular ministerial meeting in Abu
36 30 4- 8
4 11 6-10
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Dhabi this week. OPEC's current account balance in 1979, for example, could fall to a
$7 billion deficit if prices are frozen, or rise as high as a $9 billion surplus, if a January
15-percent increase is established. The situation in Iran will also be a key factor. (U)
All major components of the OPEC current account are projected to increase in
1979. OPEC oil revenues could range from $132 billion to $152 billion depending on
the price increase. The volume of oil exports in 1979 is expected to rise by nearly
700,000 b/d from the 1978 level, to about 28.6 million b/d. In any case, oil revenues
will comprise more than 90 percent of total export earnings. OPEC imports are
anticipated to rise to $113-$116 billion in 1979-up some 14 to 18 percent from 1978,
reflecting both a 6.5- to 8-percent increase due to import price inflation and a 7- to 9-
percent growth in import volumes. The net services deficit will probably increase by
10 percent to $36 billion reflecting continued growth in development-related services
and debt service and slackened growth in investment income. (U)
Without a 1979 oil price increase of at least 10 percent, OPEC as a whole will
almost certainly become a net borrower of funds next year. Loan commitments will
probably approach $15 billion as cartel members continue to rely on external
financing to deal with balance-of payments problems and pay for capital-intensive
development projects. Asset accumulations will decline if the current account surplus
falls from the already-low 1978 level. (C) (Confidential Noforn)
Notes
Italy To Join EMS Despite Communist Opposition (U)
Prime Minister Giulio Andreotti has won parliamentary approval of his govern-
ment's decision to take Italy into the European Monetary System (EMS) on 1 January,
notwithstanding opposition from the Communists. Although PCI members abstained
on parts of the government resolution that referred in general terms to Andreotti's
economic goals and to Italy's European commitment, they voted to keep Italy outside
the system. The resolution passed the parliamentary test because the Socialists-Italy's
third largest party, after the Christian Democrats and Communists-were persuaded
to swallow their own objections and abstain. (U)
Communist spokesmen argue that EMS will have a deflationary impact on the
Italian economy. They probably will try to impute future economic difficulties to
membership in the system. Political infighting in Rome threatens to make Italy's affair
with EMS stormy and perhaps short. (U) (Unclassified)
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US Deals Hit New High at Canton Fair (U)
US sales and purchases at China's 1978 Fall Canton Trade Fair reached record
levels. Purchases-consisting largely of textile products-rose to $60 million, up 35
percent from the level achieved at the spring fair and 20 percent above the record
established last fall. The upswing was facilitated by stable prices for most Chinese
goods and by a continued trend toward greater Chinese flexibility on contract terms.
US sales came to about $80 million, almost three times the level achieved at any earlier
fair. Polyester chips, pharmaceuticals, and agricultural chemicals made up the bulk of
Chinese purchases. (U)
The increase in transactions at the fair, although impressive, actually understates
the current rise in overall US-China trade. We estimate US exports to China may top
$800 million in 1978, more than four times last year's figure. Renewed Chinese
purchases of US wheat and corn will account for most of the increase. US imports are
also expected to show a substantial growth, perhaps to $340 million, 70 percent more
than the record set in 1977. Next year, total US-China trade may top $1.4 billion, with
US shipments of agricultural products rising to more than $900 million. (U)
(Unclassified)
Arab States Discuss Baghdad Aid Commitments (U)
A survey of Arab donor intentions indicate that the new financial aid arrange-
ments stemming from the November Baghdad Arab Summit agreement will be less
striking then announced earlier. At the Summit meeting the donor states had agreed
(a) to pay out $3.5 billion annually for 10 years as follows: Syria, $1.85 billion; Jordan,
$1.25 billion; and the PLO, Gaza, and the West Bank municipalities, $400 million; and
(b) to discontinue financial support for Egypt should Cairo sign a peace treaty with
Israel. We now believe, however, that little more aid will be made available to Syria or
Jordan in 1979 than in previous years and that Arab aid to Egypt might continue even
if a peace treaty is signed. (C)
Libya and Algeria, which together would provide about one-quarter of the total
Baghdad commitment, will probably renege on their pledges. Libyan President
Qadhafi has long been cool to the idea of contributing to such a consortium fund
because he sees no political benefit to Libya; furthermore, he regarded the Summit's
indictment of Sadat as far too mild. Algeria will likely withhold assistance partly out of
sympathy to the Libyan position and partly due to a critical shortage of funds. (C)
Saudi Arabia, Kuwait, the United Arab Emirates, and Qatar were reluctant
participants in the Summit. Even if the largest donors, Saudi Arabia and Kuwait,
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honored their respective pledges of $1 billion and $550 million, the portions
earmarked for Jordan and Syria would merely approximate the corresponding 1977
sums. Although the aggregate pledges of the UAE ($400 million) and Qatar ($230
million) at the Summit represent a substantial increase over 1977 levels, these donors
are unlikely to meet their obligations. Both have encountered periodic cash flow
problems and have been delinquent in meeting past commitments. (S)
Iraq, with pledges of $460 million, is the most likely source of additional aid for
Syria and Jordan, but even this prospect is uncertain. Iraqi assistance to Syria is
contingent on a continuation of progress in conciliating past differences between rival
Baathist regimes in the two countries (C)
As for a conclusion of a peace treaty with Israel, the UAE and Qatar have already
indicated that they intend to continue to make funds available to Egypt, and Saudi
Arabia may also continue its support, especially if some agreement on the West Bank
and Gaza Strip questions is reached. According to Egyptian Vice-President Mubarak,
the Saudis have indicated that they intend to continue financial assistance to Cairo,
including at least partial financing of Egypt's purchase of F-5 fighter aircraft from the
United States. (C) (Secret Noforn)
Arms Flows to LDCs: US-Soviet Comparisons, 1974-77
(ER 78-10494U, November 1978, Unclassified)
This publication presents alternative methods of assessing the magnitude of Soviet
arms sales and deliveries to LDCs in 1974-77 and comparing these activities with
corresponding US programs. US and Soviet arms flows are compared in terms of:
physical units, actual prices charged recipients, and US dollar export costs. A
Confidential version of this report was published in August 1978.
25X1A
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Secret
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oreign
Assessment
Center
Economic Indicators
Weekly Review
ER EI 78-050
15 December 1978
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This publication is prepared for the use of U.S. Government
officials. The format, coverage and contents of the publication are
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Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
1. The Economic Indicators Weekly Review provides up-to-date information
on changes in the domestic and external economic activities of the major non-
Communist developed countries. To the extent possible, the Economic Indicators
Weekly Review is updated from press ticker and Embassy reporting, so that the
results are made available to the reader weeks-or sometimes months-before receipt
of official statistical publications. US data are provided by US government agencies.
2. Source notes for the Economic Indicators Weekly Review are revised every
few months. The most recent date of publication of source notes is 16 February 1978.
Comments and queries regarding the Economic Indicators Weekly Review are
welcomed.
Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
 BIG SIX FO Cb F If 7C.ZJIVR-'VM'1-C ?4tffl 7o--1'6RS
Industrial Production
140
130
INDEX: 1970=100, seasonally adjusted
Semilogarithmic Scale
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT
Apprpj4,For Releasq /05/07: CIA1 0T00702A9 9 0040001-5 1978
llncluding Japan, West Germany, France, the United Kingdom, Italy, and Canada. A-2
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
Consumer Price Inflation Percent, seasonally adjusted, annual rate
20
4.0
Industrial
Production
Big Six
United States
Consumer Prices
Big Six
United States
United states tauu .o
Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5 Unclassified
578017 12a8
2Average for latest 3 months compared with average for previous 3 months, seasonally adjusted at annual rate.
AVERAGE ANNUAL
Percent Change GROWTH RATE SINCE
LATEST from Previous 1 Year 3 Months
MONTH Month 1970 Earlier Earlier2
AUG 78 -0.6 2.8 3.1 1.8
AUG 78 0.6 3.9 6.4 9.7
Billion US $, f.o.b., seasonally adjusted
3 Months
LATEST MONTH 1Year Earlier Earlier
Unemployment Rate
Big Five SEP 78 4.5 4.4 4.5
United States SFP 78 6.0 6.8 5.7
LATEST MILLION CUMULATIVE (MILLION US $) JJJ
MONTH US $ 1978 1977 Change
 IN DUSTRIergxfgF.Q~~'e~e,, f?Q~/Q5/07 : CIA-RDP80T00702AO01000040001-5
FF'' VV CC.... ~~ VV~~vv INDEX: 1970=100, seasonally adjusted
West Germany
130
120
JAN APR JUL OCT JAN APR JUL OCT JAN APR JU N PR
1973 Appr~6efl4For Release.;Q ~/E/0f C1A-Rb08a'fOd? 2X601'b`OObc4OdO"I-~"PR JUL OCT
1976 1977 1978
A-4
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
Italy
United States
Japan
West Germany
France
LATEST
MONTH
Percent
AVERAGE ANNUAL
Change
GROWTH RATE SINCE
from
Previous
1 Year
3 Months
Month
1970
Earlier
Earlierl '
OCT 78
SEP 78, 0.8 3.1 1.6 -1.0
Percent AVERAGE ANNUAL
Change GROWTH RATE SINCE
from
LATEST Previous 1 Year 3 Months
MONTH Month 1970 Earlier Earlierl
Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
lAverage for latest 3 months compared with average for previous 3 months.
Unclassified
 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5
UNEMPLOYMENT RATE
United States
West Germany
Approved For Release 2002/05/076 CIA-RDP80T00702A001000040001-5
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
United Kingdom
Italy (quarterly)
3.8
A labor force survey based on new definitions of economic activity sharply raised the official estimate of Italian unemployment in first quarter 1977. Data for earlier periods thus are not comparable.
Italian data are not seasonally adjusted.
THOUSANDS OF PERSONS UNEMPLOYED
APR JUL OCT
1978
LATEST MONTH
1 Year
Earlier
3 Months
Earlier
1 Year
Earlier
3 Months
Earlier
United States
OCT 78
5,870
6,688
6,193
United Kingdom
NOV 78
1,339
1,430
1,392
Japan
SEP 78
1,330
1,120
1,310
Italy
78 III
1,658
1,692
1,455
West Germany
SEP 78
986
1,035
986
Canada
NOV 78
919
903
941
France
OCT 78
1,215
1,097
1,241
NOTE: Data are seasonally adjusted. Unemployment rates for France are estimated. The rates shown for Japan and Canada are
roughly comparable to US rates. For 1975-78, the rates for France and the United Kingdom should be increased by 5 percent and
15 percent respectively, and those for West Germany decreased by 20 percent to be roughly comparable with US rates. Beginning in
1977, Italian rates should be decreased by 50 percent to be roughly comparable to US rates.
Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
A-7
Unclassified
578019 11-78
 Approved For Release 2002/05/07 : CIA-RDP80T00702A001000040001-5
CONSUMER PRICE INFLATION Percent, seasonally adjusted,
annual rate'
1973 1974 1975 1976 1977
1Three-month average comparApedtFormfdMease 2002/05/07 : CIA-RDP80T00702A001000040001-5
A-8
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
United Kingdom
4.7
Canada
Percent AVERAGE ANNUAL Percent
Change GROWTH RATE SINCE Change
from from
LATEST Previous 1970 1 Year 3 Months LATEST Previous
MONTH Month Earlier Earlier2 MONTH Month
AVERAGE ANNUAL
GROWTH RATE SINCE
1 Year 3 Months
Earlier Earlier2
West Germany SEP 78 0 5.1 2.2 2.5 ? Canada OCT 78 1.0 7.7 8.7 5.8
France OCT 78 0.8 9.1 9.3 10.1 P. _
Unclassified
578016 12-78
Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
A-9
 ' Approved For Release 2002/05/07
: C*TW%gTJ0702A001000040001-5
GNP
Constant Market Prices
Constant Prices
Average
Average
Annual Growth Rate Since
Annual Growth Rate
Since
Percent Change -- - - -
Percent Change -
-- - ---
- - -
- - -
Latest
from Previous 1 Year Previous
Latest
from Previous
1 Year
3 Months
Quarter
Quarter 1970 Earlier Quarter
Month
Month
1970
Earlier
Earlier '
United States
Sep 78
0.8
3.5
4.9
3.6
United States 78 III
0.8 3.2 3.8 3.4
Japan
Jun 78
1.9
9.3
6.4
11.9
Japan 78 III
1.0 5.3 6.3 3.9
West Germany
Aug 78
0
2.7
2.5
6.6
West Germany 78 II
2.1 2.7 4.2 8.8
France
Jan 78
9.9
0
1.0
10.5
France 78 I
1.8 4.1 1.4 7.4
United Kingdom
Oct 78
0
1.2
6.6
2.8
United Kingdom 78 I
1.7 1.8 2.3 7.2
Italy
Jul 78
-7.0
2.9
3.0
28.3
Italy 78 I
2.0 2.8 -0.8 8.2
Canada
Sep 78
6.3
4.6
7.3
6.3
Canada 78 III
0.9 4.6 4.1 3.7
' Seasonaly, adjusted.
Seasonally adjusted.
7 Average for latest 3
months compared with average for previous 3 months.
FIXED INVESTMENT '
WAGES IN M
ANUFACTURING'
Nonresidential; constant
prices
Average
Annual
Growth Rat
e Since
Average
Percent Change
Annual Growth Rate Since
Latest
from Previous
1 Year
3 Months
Percent Change ------- -----
Period
Period
1970
Earlier
Earlier
Latest
from Previous I Year Previous
Quarter
Quarter 1970 Earlier Quarter
United States
Jul 78
1.2
7.6
7.6
6.8
United States 78 III
1.0 3.2 8.5 4.0
Japan
Aug 78
0
15.4
4.8
2.8
Japan 78 III
1.8 1.8 8.3 7.2
West Germany
78 II
1.7
8.8
4.2
7.1
West Germany 78 II
-0.5 1.2 7.8 -2.0
France
77 IV
3.1
14.1
12.0
12.9
France 77 IV
0.8 4.0 4.7 3.3
United Kingdom
Jun 78
0.1
16.3
20.5
84.0
United Kingdom 78 I
2.8 1.8 11.3 11.6
Italy
Aug 78
4.0
20.2
14.7
15.6
Italy 78 I
2.3 1.1 - 19.6 9.4
Canada
Sep 78
1.2
10.8
6.7
10.7
Canada 78 III
3.2 6.5 5.9 13.6
' Hourly earnings (seasonally adjusted) for the United States, Japan, and Canada;
hourly wage
Seasonally adjusted.
rates for others. West German and
French data refer
to the beg
inning of the quarter
7Averoge for latest 3
months compared with that for previous
3 months.
MONEY MARKET RATES
Percent Rate of Interest
1 Year
3 Months
1 Month
Representative rates
Latest Dote
Earlier
Earlier
Earlier
United States
Commercial paper
Dec 6 10.25
6.54
8.30
10.01
Japan
Call money
Dec 8 4.50
5.00
4.13
3.75
West Germany
Interbank loans (3 months)
Dec 6 3.87
4.21
3.63
3.83
France
Call money
Dec 8 6.63
9.38
7.38
7.00
United Kingdom Sterling interbank loans (3 months)
Dec 6 12.13
6.96
9.24
11.54
Canada
Finance paper
Dec 6 10.36
7.37
8.96
10.31
Eurodollars
Three-month deposits
Dec 6 11.56
6.99
8.85
11.44
A-10
 EXPORT PRICEApproved For Release 2002/05/07:
CCpW% 702A001000040001-5
US $
National Currency
Average
Average
Annual
Growth Rate Since
Annual Growth Rate Since
Per
cent Change
-
Percent Change
Latest from Previous
1 Year
3 Months
Latest from Previous 1 Year
3 Months
Month
Month
1970
Earlier
Earlier
Month Month 1970 Earlier
Earlier
United States
Aug 78
1.3
9.7
11.0
19.5
United States Aug 78 1.3 9.7 11.0
19.5
Japan
Sep 78
-1.0
11.7
31.3
12.8
Japan Sep 78 -0.2 3.3 -6.6
-30.5
West Germany
Aug 78
1.7
11.7
14.3
23.3
West Germany Aug 78 -1.2 3.7 -1.5
-0.3
France
Jul 78
4.2
11.9
16.5
16.5
France Jul 78 1.0 8.9 6.6
2.2
United Kingdom
Oct 78
2.8
12.5
22.2
36.3
United Kingdom Oct 78 0.3 14.9 7.7
8.2
Italy
Aug 78
2.6
11.4
10.9
28.2
Italy Aug 78 2.6 15.4 5.2
9.5
Canada
Sep 78
-4.7
8.0
0
-1.2
Canada Sep 78 -2.5 9.4 8.6
17.0
IMPORT PRICES
OFFICIAL RESERVES
National Currency
Average
Billion US
$
Annual
Growth Rate Since
Latest Month
Percent Change
1 Year
3 Months
Latest from Previous
1 Year
3 Months
End of Billion US $ Jun 1970 Earlier
Earlier
Month
Month
1970
Earlier
Earlier
United States Sep 78 18.8 14.5 19.0
18.9
United States
Aug 78
0.6
12.7
7.9
3.3
Japan Aug 78 29.2 4.1 17.8
27.7
Japan
Sep 78
-0.4
5.0
-23.7
-37.8
West Germany Sep 78 44.7 8.8 34.5
40.7
West Germany
Aug 78
0.4
3.4
-3.4
7.6
France Apr 78 10.6 4.4 10.0
10.2
France
Jul 78
-2.3
8.7
-2.1
-9.0
United Kingdom Sep 78 17.6 2.8 17.3
17.3
United Kingdom
Oct 78
0.5
17.0
4.1
5.2
Italy Oct 78 14.1 4.7 11.1
13.5
Italy
Aug 78
0.8
18.4
1.8
1.3
Canada Nov 78 4.5 9.1 4.2
4.2
Canada
Sep 78
-0.9
9.6
13.1
13.8
CURRENT ACCOUNT BALANCE '
BASIC BALANCE '
Current and Long-Term Capital Transactions
Cumulati
ve (Million us a>
Cumulative (Million
US $)
Latest
Period - Million US $
1978
1977
Change
Latest
Period Million US $ 1978 1977
Change
United States
78 II -3,261 -
10,119 -8,762
-1,357
United States No longer published 2
Japan
Sep 78
1,900
13,982
6,442
7,540
Japan Sep 78 600 6,746 4,390
2,356
West Germany
Aug 78
10
2,725
788
1,937
West Germany Aug 78 -75 1,730 -3,308
5,038
France
78 I
-84
-84 - 1,628
1,543
France 78 1 -863 -863 -1,889
1,025
United Kingdom
78 I
-803
-803
-896
94
United Kingdom 78 I -326 -326 543
--869
Italy
78 I
288
288 -1,025
1,313
Italy 77 Ill 2,427 N.A. N.A.
N.A.
Canada
78 11 -1,201 -2,381 -2,658
277
Canada 78 II 883 327 -482
809
Converted to US dollars at the current market rates of exchange.
Converted to US dollars at the current market rates of exchange.
' As recommended by the Advisory Committee on the Presentation of Balance of Payments
s Seasonally adjusted.
Statistics, the Department of Commerce no longer publishes a basic balance
.
TRADE-WEIGHTED EXCHANGE RATES'
EXCHANGE RATES
Spot Rate
As of 1 Dec 78
Percent C
hange from
Percent Change from
As of 1 Dec 78
US E
1 Year
3 Months
1 Year 3 Months
Per Unit
19 Mar 73
Earlier
- Earlier
24 Nov 7B
19 Mar 73 Earlier Earlier 24
Nov 78
Japan (yen)
0.0050
31.81
21.98
-4.17
1.47
United States -1.89 -5.93 0.92
-0.45
West Germany
0.5229
47.09
15.34
3.32
1.10
Japan 35.57 19.56 -4.02
1.24
(Deutsche mark)
West Germany 35.04 4.63 2.81
0.19
France (franc)
0.2277
2.59
10.25
-0.40
1.09
France -10.92 -1.09 -1.62
0.16
United Kingdom
1.9600
-20.72
7.69
-0.04
1.11
United Kingdom -28.73 -1.10 -0.65
0.38
(pound sterling)
Italy -43.65 -6.87 -2.74
-0.24
Italy (lira)
0.0012
-32.91
3.51
-1.75
0.68
Canada -16.44 -8.17 -0.96
-0.90
Canada (dollar)
0.8500 -15.28
Approved For
- 5.78 -1.131 -0.67
Release 2002/05/07:
IAjj C x 10 &,oW'?he or countries
 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
Big Other Corn-
World Seven OECD OPEC munist Other
UNITED STATES
1975 .......................... 107.59 46.93 16.25 10.77 3.37 30.27
1976 .......................... 115.01 51.30 17.67 12.57 3.64 29.82
1977 .......................... 120.17 53.92 18.54 14.02 2.72 30.97
1978
1st Qtr ................ 30.96 13.65 4.60 3.76 1.00 7.95
2d Qtr ................ 37.05 16.14 5.25 4.43 1.44 9.79
Jul .......................... 10.94 4.51 1.51 1.38 0.40 3.14
Aug ........................ 11.61 4.95 1.65 1.32 0.37 3.33
JAPAN
1975 .......................... 55.73 16.56 6.07 8.42 5.17 19.52
1976 .......................... 67.32 22.61 8.59 9.27 4.94 21.91
1977 .......................... 81.12 28.03 9.72 12.03 5.33 26.01
1978
1st Qtr ................ 22.11 7.79 2.43 3.35 1.32 7.22
2d Qtr ................ 24.07 8.60 2.44 3.55 1.74 7.74
Jul .......................... 8.58 2.99 1.02 1.33 0.51 2.73
Aug ........................ 8.18 2.94 0.86 1.19 0.58 2.60
WEST GERMANY
1975 .......................... 90.11 28.33 36.44 6.78 7.21 11.33
1976 .......................... 101.93 33.44 41.86 8.25 7.02 11.36
1977 .......................... 118.01 39.00 48.01 10.78 7.30 12.92
1978
1st Qtr ................ 32.45 11.17 13.05 2.76 1.97 3.49
2d Qtr ................ 34.69 11.94 13.71 3.01 2.26 3.77
Jul .......................... 10.42 3.64 3.93 1.01 0.65 1.18
Aug ........................ 10.99 3.38 4.57 1.01 0.71 1.32
FRANCE
1975 .......................... 53.03 20.01 15.50 4.90 3.13 9.50
1976 .......................... 57.05 22.49 16.15 5.08 3.23 10.10
1977 .......................... 64.86 25.90 18.18 5.96 2.99 11.82
1978
1st Qtr ................ 18.49 7.66 5.07 1.57 0.66 3.53
2d Qtr ................ 20.36 8.31 5.60 1.70 0.84 3.91
Jul .......................... 6.66 2.78 1.72 0.59 0.27 1.29
Aug ........................ 4.86 1.92 1.25 0.46 0.24 1.00
UNITED KINGDOM
1975 .......................... 44.46 12.54 16.59 4.55 1.56 9.21
1976 .......................... 46.56 14.03 17.53 5.13 1.39 8.48
1977 .......................... 58.04 17.29 22.20 6.77 1.63 10.14
1978
1st Qtr ................ 16.86 5.09 6.27 2.03 0.55 2.92
2d Qtr ................ 17.60 5.38 6.59 2.20 0.51 2.92
Jul .......................... 5.80 1.84 2.10 0.71 0.16 1.00
Aug ........................ 5.77 1.73 2.18 0.69 0.15 1.02
ITALY
1975 .......................... 34.84 15.61 7.86 3.72 2.46 5.19
1976 .......................... 37.25 17.58 8.73 4.27 2.18 4.48
1977 .......................... 45.04 20.91 10.20 5.84 2.46 5.64
1978
1st Qtr ................ 10.80 5.22 2.40 1.37 0.48 1.33
2d Qtr ................ 13.65 6.51 2.92 1.81 0.66 1.75
Jul .......................... 4.46 2.17 0.93 0.57 0.22 0.57
CANADA
1975 .......................... 34.07 26.30 1.72 0.71 1.20 4.14
1976 .......................... 40.52 32.01 2.03 0.81 1.25 4.40
1977 .......................... 43.08 34.83 2.20 1.17 1.08 3.80
1978
1st Qtr ................ 10.87 8.88 0.45 0.23 0.22 1.10
2d Qtr ................ 12.66 10.32 0.56 0.23 0.36 1.19
Jul .......................... 3.53 2.81 0.13 0.08 0.15 0.36
25X1X
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 Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
Big Other Com-
World Seven OECD OPEC munist Other
UNITED STATES
1975 .......................... 103.42 49.81 8.83 18.70 0.98 25.09
1976 .......................... 129.57 60.39 9.75 27.17 1.16 31.10
1977 .......................... 156.71 70.48 11.09 35.45 1.23 38.47
1978
1st Qtr ................ 43.14 20.39 3.51 8.15 0.47 10.62
2d Qtr ................ 45.99 22.53 3.68 7.90 0.48 11.40
Jul .......................... 15.67 7.56 1.29 2.62 0.14 4.04
Aug ........................ 14.96 6.92 1.11 2.91 0.19 3.83
JAPAN
1975 .......................... 57.85 16.93 6.08 19.40 3.36 12.07
1976 .......................... 64.89 17.58 7.78 21.88 2.91 14.73
1977 .......................... 71.32 18.88 7.92 24.33 3.41 16.79
1978
1st Qtr ................ 18.32 5.04 2.06 6.46 0.86 3.89
2d Qtr ................ 19.39 5.51 2.30 5.95 1.01 4.63
Jul .......................... 6.47 1.95 0.80 1.82 0.30 1.60
Aug ........................ 6.92 2.17 0.81 1.92 0.32 1.70
WEST GERMANY
1975 .......................... 74.92 27.09 27.78 8.24 3.51 8.30
1976 .......................... 88.14 31.28 32.64 9.73 4.38 10.11
1977 .......................... 101.42 36.39 37.37 10.12 4.92 12.61
1978
1st Qtr ................ 28.24 10.11 10.88 2.32 1.39 3.55
2d Qtr ................ 29.75 11.10 11.43 2.24 1.40 3.58
Jul .......................... 9.57 3.60 3.48 0.77 0.54 1.18
Aug ........................ 9.43 3.41 3.51 0.82 0.50 1.19
FRANCE
1975 .......................... 53.99 23.04 14.33 9.43 1.94 5.24
1976 .......................... 64.38 27.81 16.93 11.36 2.24 6.04
1977 .......................... 70.49 30.28 18.24 11.81 2.46 7.69
1978
1st Qtr ................ 19.76 8.58 5.40 3.05 0.64 2.09
2d Qtr ................ 20.42 9.16 5.62 2.77 0.68 2.19
Jul .......................... 6.31 2.88 1.65 0.94 0.23 0.61
Aug ........................ 5.56 2.49 1.29 0.95 0.21 0.63
UNITED KINGDOM
1975 .......................... 53.93 18.47 18.52 6.91 1.68 8.36
1976 .......................... 56.20 19.65 18.81 7.29 2.08 8.36
1977 .......................... 64.06 24.03 21.38 6.32 2.42 9.91
1978
1st Qtr ................ 18.87 7.44 6.68 1.80 0.55 2.40
2d Qtr ................ 19.31 7.66 7.27 1.30 0.59 2.48
Jul .......................... 6.42 2.58 2.17 0.58 0.21 0.88
Aug ........................ 6.30 2.48 2.08 0.60 0.23 0.91
ITALY
1975 .......................... 38.39 17.32 6.75 7.85 2.09 4.39
1976 .......................... 43.43 19.35 8.05 8.12 2.65 5.26
1977 .......................... 47.57 20.80 8.66 9.03 2.80 6.28
1978
1st Qtr ................ 11.26 5.03 2.10 2.18 0.51 1.44
2d Qtr ................ 13.38 6.14 2.58 2.15 0.73 1.76
Jul .......................... 4.90 2.18 0.93 0.82 0.37 0.61
CANADA
1975 .......................... 38.67 29.78 1.70 3.43 0.32 3.43
1976 .......................... 43.04 33.55 1.82 3.48 0.38 3.81
1977 .......................... 44.91 35.75 1.79 3.06 0.34 3.98
1978
1st Qtr ................ 10.80 8.60 0.44 0.77 0.08 0.91
2d Qtr ................ 13.52 11.08 0.50 0.71 0.09 1.13
Jul .......................... 3.88 3.05 0.17 0.26 0.04 0.35
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 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
FOREIGN TRADE BILLION US $, f.o.b., seasonally adjusted
2.0
JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT
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A-14
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
United Kingdom
6.3
6.0
CUMULATIVE (MILLION US $)
LATEST
MONTH
MILLION
US $ 1978
1977
CHANGE;`
LATEST
MONTH
MILLION
US $ 1978
1977
CHANGE
United States
OCT 78
13,011
117,064
100,727
16.2%
United Kingdom
OCT 78
6,264
56,265
46,177
21.8%
15,138
141,859
121,889
16.4%
6,025
57,957
49,019
18.2%
Balance
-2,128
-24,795
-21,162
-3,633
Balance
239 .
-1,692
-2,842
1,149
Japan
SEP 78
8,618
71,117
58,515
21.5%
Italy
OCT 78
5,162
43,005
36,261
18.6%
6,216
50,210
46,130
8.8%
4,746
39,996
36,231
10.4%
Balance
2,402
. 20,907
12,385
8,522
Balance
416
3,009
30
2,979
West Germany
AUG 78
11,974
90,233
76,223
18.4%
OCT 78
4,398
38,533
34,870
10.5%
9,258
74,131
62,846
18.0%
4,439
36-329
33 228
93%
Balance
2,715
16,102
13,378
2,725
Balance
-41
2,204
1,642
562
OCT 78
7,311
M - 55
16.5
Balance
171
589
-2,187
2,776
Unclassified
578020 12-78
Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
A-15
 FOREIGNeTRRelease RICES IN-R_4S8o oo7o2AOOloooo40001-5
United States
Japan
West Germany
APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT JAN APR JUL OCT
1Wooroved For F asge 2002/05/d 17gZ k-RDP80T0b 1A001000040W?,43
1Export and import plots are based on five-month weighted moving averages.
A-16
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040
1974pproved FolI~giase 2002/0991@7 CIA-RDP803gb7T-62A0010000 -6$ 5
Unclassified
A-17 577971 12-78
 ApprovMq -Ife 2nQJ QLO,5 fqk6DPd95U-N -100040001-5
MONEY SUPPLY'
INDUSTRIAL
PRODUCTION '
Average
Average
Annual
Growth Rate
Since
Annual Growth Rate Since
Percent Change
Percent Change
Latest
from Previous
1 Year
3 Months
Latest
from Previous
1 Year
3 Months
Month
Month
1970
Earlier
Earlier'
Period
Period 1970
Earlier
Earlier'
Brazil
Mar 78
2.7
36.4
43.3
34.7
India
Jun 78
- 1.8 5.1
5.4
18.2
India
Apr 78
2.5
14.0
16.3
13.1
South Korea
Aug 78
6.4 22.8
23.1
12.8
Iran
Jul 78
0
28.2
26.7
17.9
Mexico
Jun 78
0 6.2
8.5
27.7
South Korea
Sep 78
-5.8
30.0
17.7
10.3
Nigeria
78 I
6.8 11.4
0.5
30.0
Mexico
Jul 78
1.9
21.0
37.3
36.4
Taiwan
Aug 78
3.0 16.3
31.0
42.1
Nigeria
May 78
-2.4
33.5
9.3
14.8
Taiwan
May 78
0.6
25.1
32.8
40.8
' Seasonally adjusted.
Thailand
Apr 78
-3.2
13.3
12.5
32.3
'Average for latest 3 months compared with average for p
revious 3 months.
' Seasonally adjusted
.
'Average for latest
3 months compared with average for previous 3 months.
CONSUMER
PRICES
WHOLESALE
PRICES
Average
A
nnual Growth
Rate Since
Average
Percent Change
Annual Growth Rate Since
Latest
from Previous
1 Year
Percent Cha
nge
Month
Month
1970
Earlier
Latest
from Previous
1 Year
Month
Month
1970
Earlier
Brazil
Jun 78
4.1
28.3
38.0
Brazil
May 78
3.4
28.4
34.5
India
Jun 78
1.2
7.5
2.2
India
May 78
0.6
8.0
-2.8
Iran
Aug 78
-0.4
11.8
7.8
Iran
Aug 78
-1.3
10.0
7.8
South Korea
Oct 78
0.9
14.6
16.8
South Korea
Oct 78
1.1
15.7
13.1
Mexico
Aug 78
1.0
15.1
17.0
Mexico
Aug 78
-0.2
16.3
13.8
Nigeria
Dec 77
3.1
16.6
31.3
Taiwan
Aug 78
0.4
8.1
1.6
Taiwan
Aug 78
1.9
9.8
-0.6
Thailand
Mar 78
-0.1
9.4
5.8
Thailand
Jun 78
0.9
8.7
8.4
EXPORT PRICES
OFFICIAL RESERVES
US $
Million us $
Average
Latest Month
A
nnual Growth Rate Since
1 Year
3 Months
Percent Change
End of
Million US $ Jun 1970
Earlier
Earlier
Latest
from Previous
1 Year
Month
Month
1970
Earlier
Brazil
Feb 78
6,733
1,013
5,878
5,994
Brazil
Feb 78
0.4
14.0
1.5
India
Jul 78
6,117
1,006
4,395
6,064
India
Sep 77
-2.7
10.0
18.4
Iran
Oct 78
11,951
208
11,546
11,982
South Korea
78 II
2.4
8.8
8.9
South Korea
Sep 78
4,354
602
4,040
4,199
Taiwan
Jun 78
1.9
11.3
3.3
Mexico
Mar 78
1,766
695
1,422
1,723
Thailand
Dec 77
0.1
10.2
-7.8
Nigeria
Sep 78
li 1,558
148
4,597
2,387
Taiwan
Jun 78
1,462
531
1,411
1,433
Thailand
Sep 78
2,269 ,
978
1,925
2,161
Unclassified Approved For Release 2002/05/07A:1($IA-RDP80T00702A001000040001-5
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
Latest 3 Months
Percent Change from
Cumulative (Million US $)
3 Months 1 Year
Latest Period Earlier' Earlier 1978 1977 Change
May 78
Exports
84.8
-3.7
4,743
4,979
-4.7%
May 78
Imports
26.6
1.4
5,110
4,939
3.5%
May 78
Balance
-367
40
-407
Mar 78
Exports
- 19.6
-13.5
1,476
1,707
- 13.5%
Mar 78
Imports
-24.1
9.7
1,444
1,316
9.7%
Mar 78
Balance
32
391
-358
Iran
Aug 78
Exports
2.9
10.4
15,868
15,635
1.5%
May 78
Imports
-1.6
1.6
5,705
5,259
8.5%
May 78
Balance
4,087
4,871
-783
South
Korea
Aug 78
Exports
12.6
21.6
7,798
6,217
25.4%
Aug 78
Imports
52.3
33.7
8,561
6,574
30.2%
Aug 78
Balance
-764
-357
-407
Mexico
Jul 78
Exports
78.8
29.8
2,867
2,453
16.9%
Jul 78
Imports
225.3
41.9
3,596
2,751
30.7%
Jul 78
Balance
-728
-298
-430
Nigeria
78 II
Exports
86.7
-26.0
1,808
2,526
-28.4%
78 1
Imports
579.5
115.0
1,808
841
115.0%
78 1
Balance
-974
368
-1,342
Taiwan
Aug 78
Exports
84.2
38.7
8,044
5,884
36.7%
Aug 78
Imports
68.9
32.5
6,439
5,119
25.8%
Aug 78
Balance
1,605
765
840
Thailand
Jul 78
Exports
7.1
10.4
2,246
2,099
7.0%
Jul 78
Imports
51.5
13.8
2,697
2,330
15.7%
Jul 78
Balance
-450
-231
-219
Approved For Release 2002/05/074:'eIA-RDP80T00702A001000040001-5 Unclassified
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
AGRICULTURAL PRICES MONTHLY AVERAGE CASH PRICE
$ PER BUSHEL
7.5
No. 2 Medium Grain, 4% Brokens,
f.o.b. mills, Houston, Texas
1-7 DEC 11
1974 1975 1976 1977 1978 0
RICE
37,5 $ PER HUNDRED WEIGHT
1-27 NOV II
1.0 $ PER POUND..
Memphis Middting 1 1/16 inch
2,000
350
7 DEC
0.6563
30 NOV ' 0.6765
150
NOV 78
0.6646
500
DEC 77
0.4938
100
1974
1975
1976
1977
1-7 DEC II
1978 0
50
COFFEE
Other Milds Arabicas, ex-dock New York
7 DEC , 132.00
30 NOV 141.42
NOV 78 147.31
DEC 77 202.39
TEA
London Auction
SEP 94.2
AUG 90.3
JUL 78 96.2
DEC 77 93.6
1-7 DEC II
0
1-7 DEC 1[
.8,000
6,000
4,000
136.00
Approved For Release 2002/05/0Z_iCIA-RDP80T00702A001000040001-5
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
SOYBEANS
15 $ PER BUSHEL
SOYBEAN MEAL
$ PER TON
500 400
7 DEC
6.83
7 DEC
191.30
30 NOV
6.73
30 NOV
178.50
NOV 78
6.66
NOV 78
175.95
DEC 78
5.87
DEC 77
160.88
Crude, Bulk, c.i.f. US Ports
7 DEC 0.2900
30 NOV 0.3000
NOV 78 0.3042
DEC 77 0.2392
AUSTRALIA
Boneless Beef,
f.o.b., New York
1-7 DEC 11 0 80
1976 1977 1978
SOYBEAN OIL
Crude, Tank Cars, f.o.b. Decatur 1,0
7 DEC 0.2583
30 NOV 0.2565
NOV 78 0.2489
DEC 77 0.2264
1-7 DEC II
1976 1977 1978
UNITED STATES
Wholesale Steer Beef,
Midwest Markets
22 NOV
109.00
25 NOV
82.12
15 NOV
110.50
18 NOV
80.12
OCT 78
107.40
SEP 78
81.64
DEC 77
71.89
DEC 77
50.70
108.10 2,500
1-22 NOV
1-25 NOV II 1,000
1974 1975 1976 1977 1978
1-7 DEC RGH
1975 1976 1977 1978T
NOTE: The food index is compiled by the Economist for 16 food commodities
which enter international trade. Commodities are weighted by
3-year moving averages of imports into industrialized countries.
Approved For Release 2002/05/07 : &If-RDP80T00702A001000040001-5
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
INDUSTRIAL MATERIALS PRICES MONTHLY AVERAGE CASH PRICE
COPPER WIRE BAR
140 a PER POUND
us
LME
us
1050 C PER POUND
LME
us
6 DEC
30.3
35.0
2,000
6 DEC
647.7
695.8
29 NOV
30.9
35.0
29 NOV
671.2
725.8
NOV 78
31.1
35.0
NOV 78
680.8
745.9
DEC 77
24.4
31.0
DEC 77
579.7
615.1
$ PER LONG TON
1-6 DEC 111,000 yn 1-6 DEC II200
PER METRIC TON 45 C PER POUND
3,000
20,000
18,000
16,000
14,000
12,000
10,000
8,000
350 PLATINUM
$ PER METRIC TON 150 550 $ PER TROY OUNCE
...........
MP
$ PER METRIC TON
22,000
IJSD
4 DEC
88.2
6 DEC
300.0
323.0
29 NOV
84.8
125
29 NOV
300.0
322.5
NOV 78
82.2
NOV 78
284.0
331.9
DEC 77
61.3
DEC 77
171.0
176.6
1-30 NOV (I 0 150 1-6 DEC II
1974 1975 1976 1977 1978 1974 1975 1976 1977 1978
Approved For Release 2002/05/07 : CIA-RDP80TOO702AO01000040001-5
A-22
82.2 100
30 NOV
 Approved For Release 2002/05/07 : CIA-RDP80T00702AO01000040001-5
CPYRGHT
ALUMINUM
Major US Producer
t per pound
55.25
53.00
53.00
48.00
US STEEL
Composite
$ per long ton
419.31
395.81
359.36
327.00
IRON ORE
Non-Bessemer Old Range
$ per long ton
22.55
21.43
21.43
20.51
CHROME ORE
Russian, Metallurgical Grade
$ per metric ton
NA
NA
150.00
150.00
CHROME ORE
S. Africa, Chemical Grade
$ per long ton
56.00
56.00
58.50
42.00
FERROCHROME
US Producer, 66-70 Percent
it per pound
43.00
42.00
41.00
43.00
NICKEL
Composite US Producer
$ per pound
2.02
2.06
2.07
2.41
MANGANESE ORE
48 Percent Mn
$ per long ton
67.20
67.20
72.24
72.00
TUNGSTEN ORE
Contained Metal
$ per metric ton
18,095.84
17,169.00
22,113.00
18,082.00
MERCURY
New York
$ per 76 pound flask
157.00
150.55
138.43
134.50
SILVER
LME Cash
t per troy ounce
596.19
514.64
482.70
436.90
GOLD
London Afternoon Fixing Price $ per troy ounce
195.64
176.31
162.10
130.44
F PER POUND
80
LUMBER INDEX6
1Approximates world market price frequently used by major
world producers and traders, although only small quantities of
these metals are actually traded on the LME.
2Producers' price, covers most primary metals sold in the US.
3As of 1 Dec 75, US tin price quoted is "Tin NY lb composite."
4Quoted on New York market.
5S-type styrene, US export price.
6This index is compiled by using the average of 13 types of lumber whose
prices are regarded as bellwethers of US lumber construction costs.
150
1-24 NOV
1978
NOTE: The industrial materials index is compiled by the Economist for 19 raw
materials which enter international trade. Commodities are weighted by
3-year moving averages of imports into industrialized countries.
Unclassified
578022 12-78
Apprmiarl For Ralaasa 9009/0-5/07 ? fit.IA-RDP80T00702AO01000040001-5