INTERNATIONAL ECONOMIC & ENERGY WEEKLY 3 JUNE 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84-00898R000200090002-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 39
• Document Creation Date: December 22, 2016
• Document Release Date: December 21, 2010
• Sequence Number: 2
• Publication Date: June 3, 1983
• Content Type: REPORT

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egff Directorate of
Weekly
International
Economic & Energy
Seeret
DI IEEW 83-022
3 June 1983
874
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International
Economic & Energy
Weekly F__]
iii Synopsis
1 Perspective-Difficult Choices for Nakasone
Energy
International Trade, Technology, and Finance
National Developments
15 Mexico: The New Wave of Illegal Migration
21 South Africa: Economic and Social Impact of Drought
25 Iran: Five-Year Plan Prospects
Liberia: Living on a Float
directed tol Directorate of Intelligence
Comments and queries regarding this publication are welcome. They may be
Soorot
3 June 1983
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International
Economic & Energy
Weekly F_1
Synopsis
Perspective-Difficult Choices for Nakasone) 25X1
Japanese Prime Minister Nakasone, even more than his predecessors, probably
hopes to use his recent foreign trips to bolster his domestic political standing.
World Grain Markets in the 1980s 25X1
During the 1980s, the international grain market will be affected more by
agricultural policies in the key producing countries than by any other factor.
With large grain surpluses and weak demand, pressures on exporters to protect
their markets are mounting. The main beneficiary of the buyer's market will
Mexico: The New Wave of Illegal Migration 25X1
We expect as many as 1.5 million Mexicans to enter the United States illegally
during 1983 in a search of jobs, compared with an estimated 800,000 to 1.1
million annually in recent years. We see almost no chance that the current
wave of Mexicans coming the United States will soon slow. Moreover, further
deterioration in Mexico's economy this year would cause migration to pick up.
South Africa: Economic and Social Impact of Drought) 25X1
A second successive year of severe drought is creating serious problems in
South Africa. The country's black population-already bearing the brunt of
inflation and unemployment-may become increasingly restless under addi-
tional, drought-related burdens
iii Secret
DI IEEW 83-022
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The resurgence of oil exports during 1982 has helped fuel a modest economic
recovery in Iran and has allowed the regime to draw up its first five-year
development plan. Tehran, however, will not be able to reach its targets unless
it substantially increases oil exports beyond the recent level of 1.6-1.9 million
b/d. Moreover, political infighting, shortages of trained manpower, and
reluctance to sharply expand foreign trade will impede development efforts.
Liberia: Living on a Float
Weak demand for Liberia's iron ore and rubber exports, coupled with
mismanagement and rising corruption, have accelerated economic decline
since Head of State Doe seized power in April 1980.
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International
Economic & Energy
Weekly
Perspective Difficult Choices for Nakasone
Japanese Prime Minister Nakasone, even more than his predecessors, probably
hopes to use his recent foreign trips to bolster his domestic political standing.
In the short run he may be successful.
The Japanese media played up his early May tour of ASEAN and highlighted
his visit to Washington. Nakasone also got favorable press at the Williamsburg
summit, although the media were critical of his support for the arms control
statement. This relatively good press comes on top of signs that Nakasone's
popularity has rebounded from a low point earlier this year, at least according
to one poll by a major Japanese newspaper. Nonetheless, he faces several
difficult decisions on economic and political issues in the next few months, any
one of which could affect his popularity.
On the domestic front, we see little evidence of a resurgence in economic
growth. Politicians-with an eye toward elections later this month and
possibly again this fall-are pushing for a tax cut. At the same time, Nakasone
is under pressure from the powerful Finance Ministry to raise taxes to trim
Japan's fiscal deficit. On the spending side, the Prime Minister has said that
even more austerity than is currently in place will be needed next year.
US-Japan issues may prove even more troublesome:
? All forecasters are projecting an expanding Japanese current account and
bilateral trade surplus this year.
? Japanese officials are increasingly concerned over US criticism of Japanese
industrial policy.
? Nakasone will have a tough time selling the public on budgeting more money
for defense at the same time he is holding down spending on everything else.
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Energy
OPEC Production Preliminary figures show that OPEC's crude oil production rose in May to
Climbs 16.8 million b/d, an increase of more than 1 million b/d from April levels. An
800,000-b/d jump in Saudi Arabian production to 4.6 million b/d-part of
which was sold to Iraq's customers with the proceeds going to Baghdad for war
assistance-accounted for most of the increase. Nigeria's oil production
climbed to 1.6 million b/d in May, 300,000 b/d above its OPEC-mandated
ceiling.
Iranian production
fell 200,000 b/
Other producers-
including Libya and Venezuela-continued to produce within their allocation
levels in a show of support for the OPEC agreement.
1982
1983
1983 a
Quota
January Febru-
ary
March First April
Quarter
May
Total
18.8
17.5
17.0
14.9
15.9
15.9
15.6
16.7
Algeria
0.6
0.725
0.7
0.6
0.7
0.7 '
0.7
0.7
Ecuador
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
Gabon
0.2
0.15
0.2
0.1
0.1
0.2
0.2
0.2
Indonesia
1.3
1.3
1.2
1.0
1.1
1.1
1.3
1.3
Iran
2.3
2.4
2.7
2.5
2.6
2.6
2.3
2.1
Iraq
1.0
1.2
0.8
0.8
0.8
0.8
0.8
0.8
Kuwait
0.7
1.05
0.6
0.8
0.9
0.8
0.7
0.6
Libya
1.2
1.1
1.4
1.2
1.3
1.3
1.1
1.1
Neutral Zone
0.3
b
0.3
0.2
0.2
0.2
0.4
0.3
Nigeria
1.3
1.3
0.8
0.7
0.9
0.8
1.2
1.6
Qatar
0.3
0.3
0.3
0.2
0.2
0.2
0.3
0.3
Saudi Arabia
6.3
C
4.6
3.6
3.6
3.9
3.8
4.6
United Arab Emirates
1.2
1.1
1.2
1.1
1.1
1.2
1.1
1.2
Venezuela
1.9
1.675
2.1
1.8
2.1
2.0
1.7
1.7
a Preliminary.
b Neutral Zone production is shared about equally between Saudi
Arabia and Kuwait and is included in each country's
production quota.
C Saudi Arabia has no formal quota; it will act as swing producer
to meet market requirements.
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Alberta Aids To promote oil and gas drilling activity in the province, the Alberta govern-
Drilling Industry ment has introduced an $80 million incentives grant package for the oil service
industry. The four-month program begun in mid-May will provide as much as
$56 million for development drilling. The remaining $24 million will go to well
maintenance and related production facilities. The incentives package is
essentially an expansion of earlier programs to keep the Canadian drilling
industry afloat.
Drilling activity has plummeted over the past two years; low world oil prices,
the lack of natural gas markets, and the National Energy Program have cut
back severely on the industry's exploration plans. Even with the incentives,
drilling activity this year is expected only to match the depressed levels in
1982. Oil industry officials have acknowledged the short-term aid but have
expresed concern that the grant programs do nothing to eliminate the root
problems of finding markets and inducing long-term exploration investment.
Ivory Coast Prospects for the Espoir field now appear brighter following Phillips Petro-
Petroleum Outlook leum's decision to drill a sixth production well there.
sso has finished in-
stallation of secondary recovery facilities at its Belier field, where the company
estimates 1983 production will average almost 7,000 b/d. Combined produc-
tion from Belier and Espoir probably will average between 25,000 and 30,000
b/d this year, making Ivory Coast petroleum self-sufficient. Although other
firms have exploration programs scheduled, Phillips is the only company
currently drilling. Activity has been steady at the company's Golf field, which
was discovered in late 1982 with a wildcat that flowed about 7,000 b/d of
35.5? API crude. Further drilling and testing must be conducted before
preliminary reserve estimates can be made.
International Trade, Technology, and Finance
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National Developments
Developed Countries
New Israeli Economic According to press reports, Israel has imposed a 0.3 percent levy on withdraw-
Measures als from checking accounts to help finance the cost of keeping troops in
Lebanon. The fee is designed to replace revenues from compulsory loans levied
on salaries beginning last summer and allowed to lapse last month. Although
the new revenues will cover only a third of the cost of the troops in Lebanon,
Finance Minister Aridor will probably stop pressing the Defense Ministry to
make cuts in other defense expenditures for now. Nevertheless, unless Aridor
finds additional revenue sources or makes cuts elsewhere, the budget deficit
will be increased.
The government will also require importers to deposit 15 percent of the value
of imports into special accounts. We believe Aridor adopted the import deposit
scheme to mitigate criticism from the Manufacturers' Association of the
exchange rate policy that has made imported goods cheaper than those
produced domestically. Reducing imports will also help hold the line on the
trade deficit-already $275 million higher in the first four months of the year
compared with the same period in 1982. Both measures will further fuel
inflationary pressures at a time when prices are already rising at record rates.
Canadian Automotive A federal task force composed of industry and labor leaders has recommended
Task Force Calls for that the 1965 US-Canadian Auto Pact be extended to all firms selling
Protectionist Measures automobiles in Canada. In its report released last month the group proposed
that automobiles sold in Canada have a 60-percent Canadian content by 1987.
Prime Minister Trudeau has questioned the task force's most far-reaching
recommendation that foreign firms invest in Canada in return for access to the
domestic sales market. Although Trade Ministers Regan and Lumley have
been more receptive to the task force's proposals, Regan cautions that
implementation of the recommendations will leave Canadian exports vulnera-
ble to retaliatory actions.
The task force wants to protect Canada's automotive industry from rapidly
rising non-North American imports, which accounted for 30 percent of the
Canadian market in 1982. As a short-term measure the report calls for the
strengthening of present import restrictions on Japanese automobiles. Imports
for the first six months of 1983 were limited to 79,000 vehicles. Negotiations
with the Japanese are now under way to set an import level for the remainder
of 1983. Although Ottawa probably will press for more stringent restrictions
and additional Japanese investment in Canada, it is likely to retreat from its
demands in the face of Japanese opposition. Canada enjoys an overall trade
surplus with Japan and does not want to jeopardize its export market by being
inflexible on auto trade issues.
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Less Developed Countries
Brazil in Precarious The IMF decision to postpone a $410 million payment to Brazil that was
Cash Position scheduled for this week is leading bankers to take stopgap measures to avoid a
Brazilian suspension of payments.
Commercial banks appear willing to allow Brazil's arrearages to rise because
the IMF decision will delay their loan disbursements as well. In the next
several weeks Brasilia probably will resolve its differences with the IMF over
its failure to meet quarterly performance targets. The IMF decision to
postpone the scheduled payments, however, will make it more difficult for
Brazil to gain the short-term loans necessary to handle its daily cash problems.
If commercial bankers fail to honor their commitments to the support package,
a financial crisis is likely this summer.
Increased Orders for Although the Guangzhou fair traditionally serves as an export market for
Imports at China's China, Chinese import orders this year were 24 percent above figures
Spring Trade Fair registered during the fall fair last year; exports rose by only 1 percent. Total
trade reportedly exceeded $2 billion. Chemicals-particularly agricultural-
from the United States and Japan accounted for most of the growth in import
orders. Buyers from the provinces also sought instruments, machinery, and
equipment-particularly from US manufacturers, who offered lower prices
and higher quality than did the Japanese. Hong Kong and Macau purchasers
accounted for 45 percent of China's export sales; Chinese foodstuffs were in
greater demand than textiles, probably as a result of good harvests and tighter
Deals concluded at the spring and fall fairs-accounting for about one-fourth
of China's annual trade-serve as an indicator of trade for the year. The surge
of Chinese imports indicates that Beijing, with $11 billion in foreign exchange
reserves, is committed to a planned 40-percent increase in imports for 1983.
The failure to boost exports at the fair reinforces China's own estimate that
this year's overseas sales will probably remain at about last year's level. F_
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Manpower Shortages Shortages in Siberia of skilled manpower-particularly in energy resources
in Siberia and forest products-are being filled by technicians rather than specialists
with higher education and with workers without formal training. Siberian
higher educational institutions (VUZes) provide insufficient training in the
specialties required by local industries and train only about 20 percent of the
country's graduates in these specialties, even though work in these fields is
concentrated in Siberia.
To compensate, the authorities annually assign about 20,000 engineers from
the European USSR to Siberia, but few stay permanently. Turnover rates for
VUZ graduates run as high as 30 to 50 percent during the first three years.
Moreover, there is a high rate of permanent outmigration among Siberian
young people sent for training to other parts of the USSR. Recognizing the
problem, Soviet planners have called for expansion of existing VUZ training
programs there, but chronic construction lags and difficulties in attracting
teaching personnel to these remote areas present formidable obstacles to
fulfilling the plans.
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World Grain Markets in the 1980s
During the 1980s, the international grain market
will be affected more by agricultural policies in the
key producing countries than by any other factors.'
Except for the United States, the major exporters
have production expansion programs under way.
With large grain surpluses and weak demand,
pressures on exporters to protect their markets are
mounting.
The main beneficiary of the buyer's market will be
the Soviet Union. Moscow will be in a strong
position to bargain for advantageous terms on both
the economic and, at times, the political front.
Beyond this, the grain market glut means that,
barring a serious crop failure, the USSR will be
able to meet the lion's share of its grain import
requirements from non-US suppliers, should
Moscow so choose. In the coming months Moscow
will probably try to use the current world grain glut
as leverage in negotiating a new US-USSR long-
term grain agreement (LTA).
Impact of Government Policies
World grain markets were characterized by tight
supplies and high prices during most of the 1970s.
Poor crops in marketing years 3 (MY) 1973 and
1975 stimulated an all-out production effort by
most grain growers. Increases in production were
reflected in the international grain markets, with
world grain trade nearly doubling in the 1970s. The
rise in grain production and trade was underpinned
by government policies and generally favorable
weather.
barley, rye, oats, corn, sorghum, millet, and mixed grains.
I Marketing years refer to the July/June period ending in the year
Policy initiatives were directed in two areas-direct
support to farmers and measures facilitating ex-
ports. In Canada and the United States, acreage
restrictions were lifted. To further encourage pro-
duction, exporting countries took steps to insulate
farmers from risk and to ensure incomes:
? Canada adjusted its Agricultural Stabilization
Act in 1975, shifting away from strict market 25X1
price stability toward guaranteeing a margin
between revenues and costs.
? Australia, through its Wheat Board, guaranteed
that any cuts in annual prices paid growers would
be limited to 15 percent, thereby reducing income
uncertainty.
? EC support prices promoted grain production by
guaranteeing farmers that production costs would
be covered. Currently, wheat target prices are
nearly twice the world market price.
Governments also took steps to ease shipping bot-
tlenecks and intensify traditional marketing efforts. 25X1
The Canadian Wheat Board, for example, bought
10,000 hopper cars between 1973 and 1979 to move
grain to the ports. Buenos Aires invited internation-
al trading firms to invest in storage and handling
facilities. In most countries agricultural attaches,
official trade promotion tours, and export-enhanc-
ing legislation-such as US provisions for conces-
sionary sales under PL480-provided strong gov-
ernment support for exports. Through these efforts
Canada, Australia, Argentina, and the United
States have been able to export roughly one-half of
their production. 25X1
The expansionary production policies of US com-
petitors are being maintained, even though demand
has slackened because of the recession. As a result,
a massive buildup in stocks has occurred. We
anticipate that record stocks of some 250 million
tons will accumulate this year (MY 1983), equal to 25X1
more than one year's world exports. 25X1
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Production
f
I I I I I I I I
1970/71 71/72 72/73 73/74 74/75 75/76 76/77 77/78 78/79 79/80 80/81 81/82 82/83
a. January 1972, Soviets purchased record amounts of grain.
b. 1973/74, US corn output decreases by 17.1 percent (36 million tons).
c. 1975, Soviet output fell by 50 million tons, imports rose 26 million tons.
d. 1975/76, Soviet grain production increased by 80 million tons-65 percent of the total increase that year.
e. 1977/78, China and the USSR accounted for 55 percent of the increased production.
f. January 1980, US partial embargo on grain to the USSR.
g. 1981, grain production increased 42 million tons, US up 62 million, others down by 20 million tons.
Competition Intensifies
With large stocks and weak demand, .pressures on
exporters to step up sales campaigns are mounting.
World exports, according to USDA estimates, are
expected to fall this year by 6 percent or about
15 million tons. Most of the decline stems from the
slack demand for feed grains. The United States, as
the world's largest feed grain supplier, will be
hardest hit. More than one-half of the 10-million-
ton drop in US exports will result from lower grain
sales to the Soviet Union. Despite an anticipated
loss of 4 percentage points in market share, the
United States will still account for one-half of the
world's grain exports in volume terms.
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3 June 1983
Consumption
^ Surplus
^ Deficit
In an attempt to gain larger market shares, govern-
ments are opting for greater use of attractive sales
and finance packages. Record quantities of EC
wheat have been sold to the USSR and China; to
help promote the sale to China, the EC introduced
a special $6-per-ton freight subsidy. Canada en-
tered the East German market for the first time
this year, selling 1 million tons of grain on the basis
of two-year commercial credits guaranteed by
Ottawa.
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US Grain Export Prices, c.i.f. Rotterdama
These measures are paying off. With the exception
of Australia, the major competitors of the United
States will register increases in their export volume
and market shares this year. According to USDA
estimates:
? Canada's exports will rise by 2 million tons, and
its market share will increase from 12 to 14
percent.
? Argentina's exports will be up by 1..5 million tons,
and its market share will increase from 9 to 10
percent.
? The EC, with about 10 percent of the market,
will post a small gain in both exports and market
share.
? Australia, hit hard by drought, will show a
6-million-ton decline in exports, and its share of
world grain trade will fall from 7 percent to less
than 5 percent.
The intense competition for grain sales is generat-
ing acrimony among exporters. According to press
reports, the EC is once again taking a hard look at
imposing restrictions on imports of US soybeans
and corn gluten (a feedgrain substitute), which now
total about $6 billion annually.
Canada, at the World Grains
Outlook Conference in March, criticized the use of
subsidies by both the EC and the United States as
examples of unfair competition.
Even with production at record levels, key produc-
ther. Production growth is likely to be slower,
ing countries have the ability to raise output fur- 25X1
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1982/83
United States
Canada
Australia
Argentina
EC
however, than the 3-percent annual rate of the late
1970s, given tight budgets, the shortage of invest-
ment funds, and low world grain prices. Still, a
number of techniques to boost production-im-
proved cropping practices, hybrid seed, and greater
use of fertilizers-are available and will be em-
ployed, given sufficient price incentives. With the
exception of the United States, the major exporters
plan to expand production:
? Canada plans to increase grain production in the
Prairie provinces, its main grain region, about 20
percent by 1990.
? During the 1980s we expect output in the EC to
expand by a million tons per year, and perhaps
even faster, in response to domestic support prices
well above market levels.
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3 June 1983
? Argentina plans to raise grain production by 50
percent to 45 million tons in 1990. We think,
however, only about one-half of this gain can be
reasonably expected.
? Australia plans to double wheat production in the
next 20 years, but increasing use of marginal land
will mean larger annual fluctuations in output.
While production policies will in large part deter-
mine the trend in output for the 1980s, weather will
be the most important factor affecting annual
swings in world grain production. Declines in world
output in a given year because of bad weather have
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generally been less than 50 million tons. It is
unlikely, therefore, that weather alone will cause
the current surplus situation to end. This year's
drought in Australia's primary wheat regions, for
example, reduced that country's harvest by nearly
50 percent, but the 10.5-million-ton shortfall has
had little impact on the world market.
We believe slower economic growth and interna-
tional debt problems will cause grain demand to
grow more slowly than the 2.5- to 3-percent rate of
the 1970s. Most private and public forecasters
expect a weak recovery in OECD economic growth
during the next year or two and relatively slow
growth thereafter. Moreover, growth of grain de-
mand in the developed countries may be slowing as
a result of cutbacks in red meat consumption. For
example, USDA presently estimates that per capita
red meat consumption in the United States fell 4
percent in 1982 and will fall again in 1983. Accord-
ing to recent market surveys, grain producers are
concerned that the shift from beef to poultry, which
conserves grain use, could be permanent, reflecting
changing tastes. The failure of beef demand to
recover would significantly dampen overall grain
consumption growth rates during the remainder of
the 1980s.
Grain import demand in the LDCs is likely to be
constrained by their weak financial positions. Many
have had to implement austerity programs in re-
sponse to IMF mandates, thus limiting their im-
ports. Improvements in LDC export earnings can
be expected to lag behind OECD growth
The Stock Overhang: Implications
for the United States
To date, the United States has been the only major
grain producer willing to adjust its production to
market conditions. Unless other countries take
similar actions, the current grain glut is likely to
continue for some time, and competition for export
markets will intensify. While an all-out agricultural
trade war (for example, dumping of surpluses,
import embargoes, and prohibitive tariffs) is unlike-
ly because most exporters generally realize it would
produce no winners, aggressive marketing tactics
will be widespread. Moreover, production-cutting
policies in one country are likely to discourage
similar actions in competing export countries.
The Soviet Union-the world's largest grain im-
porter-stands to gain considerably from the cur-
rent grain glut. From MY 1980 to the present,
Moscow has bought nearly 150 million tons of
grain, reflecting four consecutive poor grain crops.
Moreover, concern over grain availability after the
US partial grain embargo of 1980 led Moscow to
sign five-year grain agreements with Canada and
Argentina for yearly average minimums of 5 and 4
million tons, respectively." So far, shipments have
well exceeded the minimum amounts. In contrast,
US sales to the Soviet Union this year will be at
their lowest level since MY 1975, only slightly
above the minimum 6 million tons specified in the
US-Soviet LTA.
The ready availability of cheap grain greatly re-
duces the economic costs to Moscow of a poor
domestic grain crop. In a buyer's market the Soviet
Union can play suppliers off against each other.
Barring crop failure, the Soviet Union probably
would be able to meet its medium-term grain
import needs entirely from non-US suppliers. It is
unlikely to do so, however, for several reasons:
? Buying grain from the United States gives Mos-
cow leverage in negotiating grain purchases with
the other major suppliers.
? The United States is able to supply grain during
the winter months when logistical problems limit
supplies from other countries.
? Moscow may wish to keep supply lines from the
United States open in the event of a tightening in
'More precisely, the Canadian-Soviet LTA called for a minimum
of 4 million tons in 1981, increasing by 0.5 million tons each year to
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3 June 1983
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Secret
Nonetheless, Moscow will probably try to use the
current oversupply situation as leverage in the
coming months in negotiating a new US-Soviet
grain agreement; the current agreement expires on
30 September. In mid-May, Moscow formally
agreed to the US proposal of 7 April to negotiate a
new LTA.
Moscow will most likely
resist raising the minimum above the current 6-
million-ton level but will push hard for a higher
maximum, perhaps as high as 15 million tons.
Moscow also wants delivery guarantees. It may use
the US-Soviet grain trade consultations scheduled
for 1-2 June to clarify its position. In any case, we
believe Soviet negotiators will want to hammer out
a new agreement to assure multiyear access to US
grain while market conditions are in their favor.
Secret 14
3 June 1983
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Mexico: The New Wave of
Illegal Migration
We expect as many as 1.5 million Mexicans to
enter the United States illegally during 1983 in
search of jobs, compared with an estimated
800,000 to 1.1 million annually in recent years.
Most of the new arrivals will return to Mexico
within six months, but some 300,000 will probably
remain. They will join the 1.5 to 2.5 million
Mexican illegals that we believe resided here on a
semipermanent basis at the end of 1982. Remit-
tances from Mexicans working illegally in the
United States will total an estimated $1.5-3.5
billion this year. We see almost no chance that the
current wave of Mexicans coming to the United
States will soon slow. Moreover, further deteriora-
tion in Mexico's economy this year would cause
migration to pick up.
Dynamics of Illegal Migration
The current illegal flow of Mexicans to the United
States is an intensification of a long-term response
to the attractions of high US wages and the
problems of poverty and lack of opportunity in
Mexico. Survey data continue to indicate that the
majority of illegals are landless rural laborers or
ejidatarios,' although a growing number of urban
Mexicans-primarily from depressed shantytowns
ringing larger cities-are beginning to cross the
border. The primary sending states include the six
agricultural states of Mexico's central north and
the two northern border states with the largest
populations-Chihuahua and Nuevo Leon. Farm
output per worker in the sending states is much
lower, and rural population density is much higher
than in the five other states of northern Mexico.
Other areas of Mexico are not yet major sources of
illegals. People from southern states have tended to
remain outside the illegal flow because of the
distance to the United States and the traditional
culture that ties the largely Indian population to
their villages. In the central region, Mexico City
until now has exerted a stronger pull than the
United States.
High past population growth provides a continuing
pool of illegal immigrants. Although the rate of
population increase has declined somewhat since
1970, we expect the rate of growth of the labor
force to stay at about 4 percent (excluding immi-
grants to Mexico from Central America) at least
throughout the 1980s.
Characteristics of the Mexican Migrant
Most Mexican illegal immigrants fit into one of
two groups: those who have been in the United
States illegally for a year or more, and those who
enter periodically for a few months. According to
academic studies, members of both groups want to
use savings from US earnings to supplement con-
sumption and provide for upward mobility at home.
Men with longer continuous experience in the
United States tend to earn higher wages than the
temporary migrant; women earn the least, on
average.
While the majority of Mexican illegals continue to
work in agriculture, more and more are finding
their niche in services, industry, construction, and
commerce. Large numbers now work in restaurants
and hotels as dishwashers, kitchen helpers, bus-
boys, waiters, and clerks. Women largely find work
in hotels, domestic service, or in light assembly
operations.
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Mexico: Main Source States of Illegal Aliens
Yuma, Ariz.
?,.49,000
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3 June 1983
uintan
Roo
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El Paso, Ti
151,400
Chihuaa
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Secret
Repeat Migrants. Illegals making annual trips to
the United States are overwhelmingly young and
male; the average illegal immigrant is a male in his
late teens when making his first of as many as five
to 10 trips. The average age at initial entry has
dropped by several years over the past decade. At
time of first entry, the illegal generally has some
education, is unmarried, and has had little experi-
ence outside of agriculture. Of those who have
made several trips, perhaps half are married and
support four or five dependents. Most migrants
have been recently employed and, considering such
migrating costs as smuggling fees of $300 to $500,
cannot be among the poorest.
A sizable but unknown number of small landown-
ers, commercial farm laborers, and shopkeepers
tend to travel to the United States during slack
periods in their regular occupations or during reces-
sions at home. Recent studies indicate that tempo-
rary workers earn $500 to $1,000 monthly, stay an
average of four to six months, and send home about
one-third of their earnings. We estimate the repeat-
ers will remit to their families in Mexico or take
home between $1 billion and $3 billion this year.
Long-Term Migrants. Mexicans who remain in the
United States on a semipermanent basis have
higher levels of education and in most cases either
take their families along or plan to send for them.
Recent work at the US Census Bureau suggests
that slightly more than 40 percent of semiperma-
nent immigrants-estimated at 1.5-2.5 million in
1983-are women, and just over 20 percent are
children under 15 years of age. Because of the costs
of supporting their families who are in the United
States, we estimate that this group remits a smaller
income share. Nevertheless, we expect these remit-
tances to total about $500 million this year.
The economic incentives for migration are substan-
tial. Today, the average rural wage in Mexico
remains about one-tenth that of US migratory
farmworkers. Urban minimum wages in Mexico,
although about 40 percent above the rural wage,
are only a fraction of what an illegal immigrant can
earn here.
Factors in the Recent Surge
The dramatic upturn in illegal migration over the
past months is widely acknowledged. Recently, a
Mexican congressional deputy reported to the legis-
lature's Foreign Relations Committee that the flow
had increased considerably and that professionals,
technicians, skilled workers, and craftsmen were
now among the migrants.
We recognize that there is no one-to-one relation-
ship between border apprehensions by the US
Immigration and Naturalization Service (INS) and
the flow of illegals, but the substantial increase in
apprehensions following Mexico's sharp devalua-
tion and financial crisis in August 1982 suggests
that the numbers crossing the border quickly began
to surge. During August-December last year, bor-
der apprehensions were almost 20 percent above
the same period a year earlier. During January
through March 1983, apprehensions soared, up
more than 45 percent above the same period a year
earlier. In May the Border Patrol apprehended
104,000 border crossers, 58.2 percent above a year
earlier. May's record apprehensions marked the
tenth consecutive time that border arrests set all-
time highs for a given month.
Several new economic pressures spurred the cur-
rent bulge. Sharp devaluations substantially raised
the peso value of the dollars that the illegals earn in
the United States. Even after allowing for higher
inflation in Mexico since the devaluations, the
dollar today buys nearly three times as much in
Mexico as it did in January of last year.
In addition, recent layoffs and falling real wages
are now becoming important inducements to seek
work outside the country. Private-sector economists
in Mexico estimate that more than 2 million jobs
have been lost since mid-1982 and that unemploy-
ment is now in the 20- to 30-percent range. At the
same time, underemployment-which typically
stands at near 40 percent of the work force-is
expected to surpass 50 percent this year. Moreover,
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Mexico-United States: Border Apprehensions
Mexican Government statistics and our calcula-
tions show that real wages fell more than 10
percent in 1982 and are likely to fall another 10 to
20 percent this year. Because of lower wages and
falling imports and production, we estimate person-
al consumption will fall by 7 to 15 percent this
year.
Problems in the agricultural sector last year added
to the flow of migrants. Production was cut deeply
by poor weather and sharply lower farm prices.
Rainfall was 75 percent below normal during the
crucial months of June, July, August, and Septem-
ber. The fall harvest of corn, the peasants' principal
staple and cash crop, fell 40 percent, while all
grains and oilseed production declined 25 percent.
As rural incomes plunged, incentives to supplement
incomes increased. The concurrent Mexican indus-
trial recession has also encouraged peasants to turn
to the US labor market.
Secret
3 June 1983
No End in Sight
We see almost no chance that the current wave of
Mexican migration will slow dramatically any time
soon. Because of the economic slide thus far in
1983, we believe even a mild recovery later this
year would not be enough to slow the exodus. If, on
the other hand, the drop in economic activity were
to become even more pronounced, migration would
speed up.
Moreover, we expect Mexico's economy to stay
depressed for the next two to three years. Demo-
graphic trends will continue to add to the pool of
potential migrants. These factors are likely to keep
the flow of migrants above the "normal trend"
during the period.
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Even if the economy recovers in the mid-to-late
1980s, we estimate employment in the United
States will remain attractive because the absolute
gap between wages in Mexico and the United
States will almost surely increase through the rest
of this century. As a result, the numbers of Mexi-
can migrants will remain high. Should there be
widespread political instability in Mexico, a dra-
matic increase in those crossing the border would
follow.
Mexican Government Perspectives
According to reports from the US Embassy and
academics, Mexico City believes that there is little
Washington can or will do to alter the pattern of
Mexican migration. Officials in Mexico feel that
the growing political influence of Mexican-
Americans in the United States will prevent
massive deportations of long-term illegals. At the
same time, we believe Mexican policymakers are
unlikely to do much about illegal migration. Al-
though government officials have not publicly stat-
ed the crucial importance of this safety valve, the
US Embassy reports that Mexican policymakers
view continuing access to the US labor market as
critical to the country's economic and social well-
being. Worker remittances are seen as being impor-
tant in relieving both current and long-term bal-
ance-of-payments pressures.
19 Secret
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Secret
South Africa: Economic and
Social Impact of DroughtF
A second successive year of severe drought is
creating serious problems in South Africa. Crop
failures, as well as water shortages and related
power brownouts, threaten to retard economic re-
covery. Costly relief measures could aggravate
Pretoria's budget deficit. Moreover, the country's
black population-already bearing the brunt of
inflation and unemployment-may become in-
creasingly restless under additional, drought-
related burdens
Agriculture
The agricultural sector is bearing the brunt of the
drought. Corn-the dietary staple of South
Africa's blacks and a principal export crop-has
been hardest hit. According to press reports, this
year's crop will only amount to about 4.7 million
tons, down from 8.3 million tons last year and well
below the annual domestic consumption rate of
about 7 million tons. Wheat-most of which relies
on irrigation-is also hard hit.
Stocks of corn will not cover the shortfall, and for
the first time in 20 years South Africa will import
corn for domestic consumption.
Pretoria, more-
over, doubts that it can meet its corn and wheat
export commitments to some traditional customers
such as Zambia and Zaire, although it will report-
edly continue sales to Botswana, Lesotho, and
Swaziland. Corn sales to Zaire and Taiwan have
already been suspended. The losses in export earn-
ings-placed at more than $800 million in press
reports-coupled with the cost of food imports will
offset much of the expected gain in foreign ex-
change earnings from higher gold prices and pro-
jected improvements in mineral sales this year.
Government officials also are concerned about the
drought's long-term impact on white commercial
farming in major grain producing areas-the
Orange Free State and Transvaal-where the rul-
ing National Party fears a loss of Afrikaner support
to the rival Conservative Party. Farmers resent the
government's policy of protecting high-cost domes-
tic fertilizer producers and its slow response to their
financial plight. According to press reports, white
farmers have borrowed more than $1 billion to 25X1
finance the latest crop even though they are having
difficulty repaying the estimated $370 million bor-
rowed last year. Pretoria has recently taken steps to
provide emergency credit and extend the terms of
existing loans.
Widening Impact of Drought
Black Homelands. Conditions in South Africa's
rural black homelands-squalid and poverty-strick-
en regions under the best of conditions-are deteri-
orating further from drought. Peasant subsistence 25X1
crops have failed and livestock losses are massive;
malnutrition and disease are already on the rise.
Drought has deprived many rural blacks of their
usual source of cash income from casual labor on
white farms. In addition, high unemployment
among blacks in the current recession has forced
many to return to the homelands, further curtailing
cash remittances needed for the purchase of basic
necessities and adding to the pressure on food
supplies.
Pretoria announced recently that $18.5 million in
emergency relief funds would be appropriated to
cope with the crisis in nonindependent black home-
lands, but most of these funds will be used for
water projects rather than food relief. South
African aid is also being given to the so-called 25X1
independent black homelands such as Ciskei, where
drought is in its third year.
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*WINDHOEK
Namibia
Botswana
GABORONEE
Maize Triangle
r 2: asol l/
South
Atlantic
Ocean
South Africa
Y:
Sasol /
Zimbabwe
Indian
Ocean
2,i Oil-from-coal plant
J Black homeland
--- Province boundary
200 Kilometers
200 Miles
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Mining and Manrcfacturing. Costly stopgap mea-
sures are also being undertaken by Pretoria to
forestall serious cuts in the supply of water and
electric power to the economically vital mining and
manufacturing sectors, but failure of the rains due
this fall would bring on a crisis. Mining is the
largest consumer of electricity, drawing almost 30
percent of the total supply last year. The Chamber
of Mines estimates monthly losses to gold mines-
the major source of both foreign exchange earnings
and government revenue-of $83 million if elec-
tricity is cut back by 10 percent. Moreover, without
sufficient power to run pumps, some mines could be
abandoned because of flooding.
Current efforts to bolster power supplies include a
$30 million scheme to reverse the flow of a segment
of the Vaal River, which feeds stations in eastern
Transvaal Province that supply about 75 percent of
the country's electricity. If completed on time, the
project could avert the possibility of prolonged
rationing. The US Embassy reports that about 8
percent of generating capacity has already been
shut down, however, and brownouts beginning in
August appear unavoidable.
Costly water conservation equipment is also being
installed in some locales and water rationing has
been imposed in other areas. Some mines and other
industrial facilities-especially in Natal-have
been asked to reduce water consumption by 20 to
30 percent. SASOL, the parastatal oil, coal, and
gas corporation, is installing a pipeline from the
Vaal River at Ermelo to convey water to SASOL's
coal synfuels plants.
Prospects
Even before the full impact of the drought was
known, South African economists projected a de-
cline in real output this year. Drought-related
setbacks will now undoubtedly worsen the outlook,
and food shortages are beginning to aggravate
inflation-already running at a rate of 14 percent.
The total loss in nonagricultural production result-
ing from the drought may amount to $1.8 billion,
according to press reporting. Increased unemploy-
ment among blacks-whose jobless rate ranges
between 25 and 30 percent-and the exodus of
greater numbers of urban blacks to homeland areas
will pose even greater budgetary and social prob-
lems for Pretoria. Moreover, the potential for urban
unrest and violent protests, already high because of
the recession, will grow as the result of drought-
related food shortages and rising unemployment.
Secret
3 June 1983
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Secret
Iran: Five-Year Plan Prospects
The resurgence of oil exports during 1982 has
helped fuel a modest economic recovery in Iran.
Encouraged by this progress and by increased
internal stability, Iran has embarked on its first
five-year development plan. Tehran, however, will
not be able to reach its targets unless it substantial-
ly increases oil production beyond the recent level
of about 2.6 million b/d. Moreover, political in-
fighting, shortages of trained manpower, and reluc-
tance to sharply expand foreign trade will impede
development efforts. Still, in our judgment, popular
dissatisfaction with the economy is not likely to
grow enough to threaten the regime's hold on
power
The Economy in 1982
During 1982 Iran's economic fortunes were domi-
nated by an impressive growth in oil production.
Iranian price discounts facilitated a dramatic rise
in oil exports to an average of 2 million b/d, double
the 1981 level. Discounts averaging $3 per barrel
below the OPEC benchmark price of $34 more
than offset the premium on war zone shipping and
insurance charges of $1 to $2 per barrel.
The $1.6 billion in monthly oil earnings enabled
Tehran to sustain the war and to rebuild foreign
exchange holdings. We estimate official assets at
the end of 1982 were $15 billion, compared with
roughly $10 billion in December 1981.
Oil earnings also allowed the economy to slowly
recover from some of the effects of the revolution
and the war with Iraq. Tehran began to ease import
restrictions imposed at the end of 1981. The result-
ing improvement in the availability of fuel, materi-
als, and spare parts led to a 12-percent increase in
industrial production during 1982, according to
Iranian data. Despite recent gains, however, indus-
try is still operating well below capacity. The
construction sector, a key indicator of growth,
remains severely depressed.
Increased imports of farm equipment and fertiliz-
ers, together with favorable weather, boosted agri-
cultural production in 1982. The wheat harvest
was approximately 5.3 million tons, about the same
as the 1981 level and roughly comparable to pro-
duction during the Shah's regime. Iran still needed,
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Secret
Iran: Official Foreign Assetsa
however, to import about 3 million tons of wheat in
1982 as well as large quantities of other foodstuffs
to satisfy domestic requirements.
Economic conditions for the population have im-
proved. In late 1982 Western observers in Iran
noted increased quantities of better quality con-
sumer goods, and rationing of some items ended.
Iranian statistics indicate the inflation rate dropped
to 30 percent, half our estimate for the previous
year. The urban lower classes remain relatively
immune from rising prices because the bulk of their
food requirements is subsidized. The unemploy-
ment rate was 26 percent, according to Iranian
statistics, not much different from our estimate for
the previous year. Large numbers of unemployed,
however, earn income in black-market activities.
progress that has been made in the past year
represents only a limited recovery from the nega-
tive growth of 1979-81, when we estimate GNP
declined by more than one-half.
The Debate Over Economic Policy
Major differences between two political factions
have hampered implementation of an economic
policy capable of producing sustained growth. Eco-
nomic activists-clerics who stress social change
rather than Islamic law-advocate accelerated gov-
ernment investment in industry and sweeping land
reform. They also favor government control over
foreign trade and most industrial enterprises. Op-
posing the activists are conservative clerics who
support a more gradual approach to development
that will not threaten the "Islamic" character of
Iran. Many within this group have extensive rural
land holdings and are opposed to land reform
measures. With strong links to the bazaari mer-
chant class, the conservatives also favor a larger
role for private enterprise.
The clash between these factions has stymied policy
in a number of areas. An extensive land reform bill
passed in 1982 was returned to parliament (Majles)
as "un-Islamic" by the conservative-dominated
Council of Guardians, whose task is to ensure that
legislation complies with Islamic law. A foreign
trade bill passed by the Majles was also returned to
the legislature by the Council.
The economic activists have, nevertheless, made
significant progress toward implementing their
goals. Iran's foreign trade is dominated by govern-
ment agencies, and the activists have proceeded
with limited land distribution schemes and other
rural sector development without reference to the
Majles and the Council.
The Activist Agenda
The overall level of economic activity, by our
estimates, still remained low, perhaps only two-
thirds that of prerevolutionary Iran. The economic
Secret
3 June 1983
The primary goal of the economic activists, as
outlined in the 1983-87 Development Plan, is to
25X11
25X1
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Secret
achieve economic independence in both agriculture
and industry. Food self-sufficiency is to be the
center of the investment effort; the plan projects a
7-percent average annual growth rate for agricul-
tural production. Key investment areas are rural
roads, water, power, and communications facilities.
The government is to provide technical assistance,
credit, and price supports to stimulate agricultural
production. A limited program of land reform,
involving distribution to farmers of land not pres-
ently being cultivated, is also included within the
plan
In the industrial sector, development plans focus on
petroleum. Highlighting the 30 petroleum-related
projects are:
? The Kangan Gas Gathering and Treatment Fa-
cility designed to produce 40 million cubic meters
of gas per day for oilfield reinjection and for
domestic consumption.
? Construction of a new oil refinery, probably at
Arak.
? Completion of the $3.5 billion petrochemical
complex at Bandar Khomeini.
? Construction of the Domestic and Industrial Gas
Distribution System, comprising seven distribu-
tion networks designed to cover all regions in
In addition, Iran is expanding the Soviet-built
Isfahan steel plant and is completing the Ahwaz
steel complex. Other projects include construction
of the Kavian pipe plant, completion of the Sar
Chesmeh copper complex, and commissioning of
the Arak aluminium plant. To alleviate an acute
shortage of electricity, at least seven large thermal
power plants are to be built in Tehran, Shiraz, and
other cities.
We believe Iran has overestimated the revenue that
will be available to fund the development plan. We
calculate the cost of the petroleum projects alone at
$15-20 billion. Activating just the Bandar Khomei-
ni petrochemical complex will cost about $1 billion.
Funding for the remaining industrial projects, as
17.3
22.9
23.2
Development
13.1
10.8
14.1
War
0
6.4
4.1
Reconstruction
0
1.6
1.2
3.9
0
0
28.8
31.7
43.5
21.2
17.5
26.5
Taxes
6.3
8.0
10.0 b
Other
1.3
6.2
7.0 b
-5.5
-10.0
0.9
a Fiscal years ending 20 March for the years indicated.
b Estimated.
well as ambitious agricultural development plans,
could easily bring total hard currency costs of the
five-year plan to $50-60 billion.
The Iranian Government has budgeted $14 billion
for development projects in FY 1984, most of
which will be highly dependent on imports. If
nondevelopment imports hold steady at last year's
$11 billion, total import requirements could
approach $25 billion.
Iran has budgeted $26.5 billion in oil revenues to
finance these ambitious spending levels. Oil reve-
nues for FY 1984, however, are more likely to be in
the $20 billion range. Iran's lower OPEC produc-
tion quota, along with the subsequent decline in oil
prices, will mean a 30-percent cut in projected
Iranian oil earnings. Revenues at this level are only
adequate to support recurring government expendi-
tures, continuation of the war, and a moderate
increase in development. We doubt the regime,
given its opposition to dependence on the West, will
Secret
3 June 1983
25X1
LORI
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Secret
14.3
7.1
7.3
8.4
5.5
13.1
2.7
2.0
9.4
11.7
21.6
20.0
23.3
24.2
21.7
21.1
13.5
11.8
19.4
23.0
20.8
19.3
22.5
23.5
21.2
20.3
12.9
11.3
18.7
22.3
0.8
0.8
0.9
0.7
0.4
0.8
0.6
0.5
0.7
0.7
7.3
12.9
16.0
15.8
16.2
8.0
10.8
9.8
10.0
11.2
Net services and private
transfers
-1.3
-2.4
-2.8
-2.8
-3.2
-1.0
-2.3
-3.1
-3.3
-4.2
Freight and insurance -0.9
-1.7
-2.2
-1.9
-2.2
-1.1
-2.7
-2.9
-2.5
-2.2
Investment income receipts 0.5
0.6
0.8
1.0
1.3
2.1
2.4
1.8
1.1
1.4
-0.9
-1.3
-1.4
-1.9
-2.4
-2.0
-2.0
-1.9
-1.9
4
0
0
0
0
0
0
be willing to borrow on the international credit
markets to make up the difference. In any event,
Western banks are not likely to extend large loans
to a regime still regarded as a major political and
economic risk.
Even if adequate financing were available, the
Iranians will encounter formidable problems in
implementing the plan. The flight of professional
Iranians has created a chronic shortage of trained
personnel. As a consequence, Iranian companies
tasked with overseeing oil, gas, and petrochemical
contracts with the West are reportedly already
asking Western companies to help solve production
and refining problems. Shortages of trained man-
power also will affect rural development efforts
because large numbers of agro-engineers, health
care workers, and teachers would be needed to
assure the plan's success.
The shortage of skilled workers promises to get
worse. significant
numbers of the middle class continue to flee the
country despite the regime's promise of amnesty
and return of property confiscated during the revo-
lution. We estimate the development plan would
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3 June 1983
require a minimum increase of 20,000 skilled work-
ers. We believe that anything approaching such a
large influx of labor would probably spark a politi-
cal backlash among conservative elements, espe-
cially if this immigration were heavily Western in
origin.
Prospects for Economic Growth
Oil. Iranian oil pricing and production policy will
remain the critical determinant of growth. Despite
the revenue shortfall Tehran probably will abide by
OPEC production guidelines so long as the oil
market remains soft. The Iranians recognize the
risks of a downward price spiral if OPEC members
fail to adhere to the agreement.
The regime, more than most other OPEC produc-
ers, will be hard pressed to maintain its current
price. Following the OPEC accord, Tehran cut its
official crude price $1 below the Arab light bench-
mark to $28 per barrel for Iranian light. Because of
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its refusal to offer additional discounts, Iran has so
far been able to sell Japanese customers only
60,000 b/d compared to anticipated contracts for
450,000 b/d. Tehran may be forced to offer dis-
counts of as much as $1 to its customers to prevent
any further slide in exports.
A firming of the market during the latter half of
the year, as most industry analysts expect, will
tempt Tehran to exceed its production quota of 2.4
million b/d. Iranian officials have already stated
they will reassess Iran's commitment
to the OPEC guidelines in a few months and, if
conditions permit, raise production to 2.7 million
b/d. A precipitous drop in oil revenues because of a
renewed weakening of the oil market could also
push Iran to increase production, but Iranian op-
tions over the near term are limited; its production
capacity is currently about 3 million b/d
To improve its revenue potential, NIOC plans to
increase capacity to about 4 million b/d by 1984.
The major constraint to expanding production is
the required reopening of shut-in wells. Because
Iran has only a few operable rigs, we estimate it
will take up to two years to increase production
capacity by 1 million b/d without foreign assist-
ance. With substantial foreign participation, such a
program could be largely completed within one
year, according to oil company estimates. If Iran
were to produce at a level of 4-5 million b/d, it
could, depending upon market conditions, again
undermine world oil price stability.
Agriculture. We believe the regime will be forced
to move slowly in the agricultural sector. Iran lacks
the administrative talents to implement a program
that will require not only sizable investment in
infrastructure but skill in coordinating the techni-
cal assistance, credit, and price supports needed to
stimulate production. In addition, large subsidies
provided to urban lower classes will continue to
frustrate government objectives as rural residents
leave the countryside for the benefits of urban life.
Despite recently improved performances, we do not
believe agricultural output will keep pace with
domestic demand over the plan period-let alone
allow Iran to reach self-sufficiency. A major stum-
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Without a clear national agricultural policy, uncer-
tainty over land ownership and lack of significant
financial incentives will continue to encourage rural
migration. Government spending for agricultural .
projects and infrastructure is unlikely to increase 25X1
productivity rapidly enough to offset the declining
agricultural workforce. 25X1
Industry. Development of the petroleum sector, is
likely to show the strongest growth. The rehabilita-
tion and upgrading of oil facilities is a priority for
the regime. In mid-March NIOC requested formal
tenders from West European companies for at least
six projects, and contract awards are likely to be
announced with growing frequency. In addition,
the government is making a major effort to settle
outstanding claims of international corporations it
hopes to do business with in the future. Recently,
Tehran settled with Shell and Compagnie Fran-
caise des Petroles (CFP) for $42 million and $333
million, respectively.
In the nonoil industrial sector, attempts to build an
industrial base will lead to increasing requirements
for imports. Moreover, the completion of showcase
projects, such as the Isfahan Steel Works, probably
will not generate substantial production and em-
ployment opportunities in other industries. Iran
cannot use substantial quantities of the steel do-
mestically, and export markets are limited. More-
over, a coordinated program will be difficult to
implement because decisionmaking remains in the
hands of clerics with little administrative or
technical expertise.
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3 June 1983
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Liberia: Living on a Float
Weak demand for Liberia's iron ore and rubber
exports, coupled with mismanagement and rising
corruption, have accelerated economic decline since
Head of State Doe seized power in April 1980.
Although Doe has consolidated his position and
imposed relative stability since his takeover, he has
been unable to deliver on promises to improve living
conditions. Indeed, his most immediate problem is
finding a way to reverse three years of economic
decline during which national output has dropped
15 percent.
Prospects for improvement depend on a substantial
firming of the market for Liberian exports, some-
thing we do not anticipate soon. In the meantime,
Doe will come under increasing pressure from
Liberia's creditors for more severe austerity meas-
ures. He will be looking to Washington to persuade
Western donors, particularly the IMF, to be more
accommodating in their demands.
The Economy Under Doe
When he came to power in 1980, Doe pledged to
improve living standards and to revive Liberia's
economy. His government's actions and policies-
exacerbated by continuing global recession-have
had the opposite effect. US Embassy reporting and
official Liberian statistics indicate that national
output declined by 10 percent during 1980-81 and
probably slipped at least an additional 5 percent
last year. Embassy sources claim the country's
financial position is weaker now than at any time
since the 1960s, that the modern economy is slowly
grinding to a halt, and that only international
assistance is preventing even greater damage. F_
Liberia: Iron Ore Production,
World Prices, and Western
Purchases
a Estimated.
b Projected.
One of the Doe government's first acts was to
execute a number of prominent Americo-Liberians,
including President Tolbert, most of his family, and
nearly all of his cabinet. The executions prompted
an exodus of Americo-Liberians, depleting the
country's skilled labor pool. Large-scale capital
flight accompanied the elite's departure. According
to the US Embassy, currency withdrawals jumped
over 25 percent within weeks of the coup, leaving a
big dent in the government's access to funds.
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Liberia, unlike most other African states, cannot
turn on the printing presses to solve its liquidity
crises, as the US dollar is Liberia's legal tender.
The coup brought to power a group of undereducat-
to go to the IMF for help and to secure an
agreement with Paris Club members to reschedule
payments on part of its nearly $600 million in
outstanding loans.
ed, inexperienced soldiers whose lack of expertise in The Doe regime showed during 1981 and early
dealing with economic issues quickly became ap- 1982 little evidence that it had learned any lessons
parent. In support of his objective to redistribute in dealing realistically with the country's economic
the country's wealth, Doe doubled salaries for
civilian government employees and tripled military
pay. He also increased subsidies for rice, fuel, and
other necessities. In addition, US Embassy officials
report that the new. regime tacitly supported wild-
cat strikes against the iron ore and rubber compa-
nies, resulting in a further souring of the invest-
ment climate. Even more worrisome, in our
judgment, was Doe's willingness to let his col-
leagues on the ruling military council spend as they
pleased. Taken together, these moves boosted ex-
penditures for 1980 by more than 25 percent.F_
Doe did not anticipate that the increase in govern-
ment spending would be. accompanied by a falloff
in revenues:
? Customs receipts-an important revenue
source-declined as a result of a 45-percent
plunge in the monthly volume of imports shortly
after the coup.
? The departure of Americo-Liberians hurt busi-
ness profits and reduced related taxes.
? Ship registrations and associated fees and taxes
from the operation of the world's largest flag-of-
convenience fleet fell off as the world waited to
see how the new government would conduct itself.
On the international side, export volume declined
and prices were starting to drop by the end of 1980
as a result of the international recession. Service
payments reached a record level because of rising
interest charges on foreign debt and huge transfers-
abroad to the exiled Americo-Liberian community.
Monrovia had to resort to international loans just
to cover its monthly operating expenses. Only six
months after seizing power, the regime was forced
problems. US Embassy reporting indicates that
Western creditors were particularly disturbed by
Doe's dismissal of Planning Minister Tarr and the
Bank of Liberia's president, both of whom were
viewed by international bankers as the only senior
officials left with any appreciation of what had to
be done to keep the economy going. Monrovia also
interfered in day-to-day operations of foreign and
local businesses and demanded exorbitant fees and
taxes in return for immunity from physical violence
and arrest. Spending remained out of control; by
the end of 1981, according to official Liberian
statistics, operating expenses were up more than
half from just before the coup and net claims on the
government had more than doubled.
Admitting his ignorance of economic issues, Doe
decided to call on Washington to help sort out the
country's problems. By the spring of 1982, the
Embassy assumed an instrumental role in orches-
trating efforts of the Liberian Government, the
country's major creditors, and the IMF to head off
one crisis after another. In addition to the role of
financial coordinator, Monrovia looked to Wash-
ington to provide monetary assistance. Throughout
most of 1982, US advice and injection of funds
were the only barriers standing between Liberia
and financial default.
Growing Pressure for Reform
According to US Embassy reporting, Liberia's
creditors decided in late 1982 on a much tougher
approach in their dealings with Monrovia:
? Private banks, particularly in the United States,
refused to extend new loans unless they were
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Trade balance
130.5
111.9
63.2
57.8
-16.1
5.5
30.0
66.5
54.0
50.0
Exports (f.o.b.)
324.0
400.3
394.4
457.0
447.4
486.4
536.6
600.4
531.4
480.0
Iron ore
196.7
262.2
293.6
328.7
273.5
274.4
290.0
310.2
331.4
300.0
Rubber
42.9
64.5
46.2
53.3
59.1
69.2
87.8
102.2
89.2
60.0
Diamonds
49.3
29.9
18.4
16.6
21.4
30.3
39.6
33.5
23.4
32.0
Timber
16.6
17.1
12.8
34.6
29.3
46.7
50.1
65.3
36.8
NA
Coffee
5.1
4.0
4.5
6.6
43.0
25.3
27.1
33.0
19.4
NA
Other
13.4
22.5
18.9
17.2
21.1
40.5
42.0
56.2
31.2
NA
Imports (c.i.f.)
193.5
288.4
331.2
399.2
463.5
480.9
506.6
533.9
477.4
430.0
Services and transfers
-135.0
-141.9
-144.4
-103.6
-95.0
-146.0
-148.0
-164.6
-186.0
-200.0
Current account balance
-4.5
-30.0
-81.2
-45.8
-111.1
-140.5
-118.0
-98.1
-132.0
-150.0
Capital account balance
NA
27.9
76.2
80.2
47.0
40.3
102.6
80.1
40.0
19.0
Official capital
NA
NA
NA
21.4
38.9
64.6
102.6
80.1
50.0
32.0
Private capital
NA
NA
NA
58.8
8.1
-24.3
-10.0
-13.0
Balance on current and capital
accounts
NA
-2.1
-5.0
34.4
-64.1
-100.2
-15.4
-18.0
-92.0
-131.0
Net borrowing
NA
-2.4
-5.0
-28.7
15.8
9.5
22.6
4.6
22.5
NA
Change in central government deposits
abroad
NA
-4.5
-10.0
7.2
9.1
-12.5
-29.4
-69.7
-106.0
NA
Errors and omissions
Estimated.
b Projected.
guaranteed by the US Government. In November
1982, the banks decided not to continue a $50
million oil facility that had financed Liberia's
petroleum imports for several years. Government
efforts to replace the facility with spot market
purchases have been only partially successful
because of the lack of funds.
? In November 1982, the IMF expressed its displea-
sure with Liberia's performance, particularly the
lack of a 15-percent budget cut requested by the
Fund in mid-1982, by suspending a $10 million
disbursement until budgetary reforms were in
place. The Fund's position was enhanced substan-
tially when the US Congress linked continued
official aid to Doe's ability to satisfy the IMF.F_
50.0
450.0
295.0
55.0
30.0
NA
NA
NA
400.0
-215.0
-165.0
NA
NA
NA
NA
NA
NA
Doe got the message and announced in December a
number of budgetary reforms based on IMF guide-
lines. These included across-the-board civil service
and military salary cuts of between 16 and 25
percent, immediate retirement for government
workers aged 65 or above, restrictions on govern-
ment travel, and reduced gasoline subsidies for
government employees. Although Monrovia nar-
rowly missed meeting IMF guidelines on the bud-
get deficit in April 1983, Embassy sources indicate
the problem was that revenues were substantially
lower than anticipated, reflecting, in our judgment,
the continued slump in both export receipts and
local business activity and government reluctance
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to pursue a more vigorous collection effort. In
addition, we believe that an increasing amount of
money is being siphoned off by government officials
to offset the reduction in salaries.
Outlook: Few Options for Doe
We see nothing on the horizon to suggest that the
Liberian economy will turn around any time soon,
and certainly not during 1983. We believe Monro-
via will experience the fourth consecutive year of
declining output, perhaps again around 5 percent.
Projections of slow growth this year for the West-
ern economies indicate, in our opinion, no meaning-
ful improvement in international demand for Libe-
rian exports, particularly iron ore. Without a sharp
increase in export earnings, Monrovia will not be
able to increase imports needed to expand produc-
tion of local industries. Neither can the Doe regime
count on sizable increases in capital inflows. Doe
has indicated to US Embassy officials that last
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3 June 1983
December's austerity program is all he can do
politically, and we anticipate that he will resist
efforts by Washington or other Western creditors
to adopt a more stringent program.
In our opinion, these developments point to the
continuation of periodic domestic financial crises
that have plagued the Doe regime. An important
element in popular acceptance of last December's
budget cutbacks was Doe's statement that he would
start paying salaries on time. Liberian officials
have indicated to US Embassy representatives,
however, that they are not averse to delaying
paychecks if that is necessary to meet other obliga-
tions. Public tolerance of such tactics, in our opin-
ion, could wear thin as urban workers try to cope
with already high rates of unemployment and
inflation.
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Doe will continue to rely on Washington for both
advice and financial assistance to bail him out of
his economic dilemma. He expects this because of
Liberia's "special relationship" with the United
States and Doe's support of US positions on south-
ern Africa and other international issues. Doe's
concern about Washington's commitment to his
own survival is certain to rise if popular discontent
over last year's austerity measures, which he claims
were implemented in response to pressure from the
US Government, becomes widespread. He will be
particularly mindful of Washington's attitude when
Liberia begins negotiations this summer for anoth-
er IMF standby agreement.
In our judgment, Washington's failure to respond
to what the Doe government believes are reason-
able bailout requests could prompt Monrovia to
explore more actively means of applying pressure
on the United States. One possibility is to threaten
to impose sizable rental fees on strategically impor-
tant US communications and navigation facilities
in the country. In addition, Monrovia could once
again publicly declare its willingness to establish
better relations with the Soviets, Libyans, and
other radical states. Moscow and Tripoli, while
welcoming Doe's overtures, probably would not
respond positively to requests for money. They
almost certainly believe that they could not suc-
cessfully compete with high US aid levels and that
any aid would only help bolster a pro-Western
regime.
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