INTERNATIONAL ECONOMIC & ENERGY WEEKLY 12 AUGUST 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84-00898R000300050006-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 34
• Document Creation Date: December 22, 2016
• Document Release Date: January 21, 2011
• Sequence Number: 6
• Publication Date: August 12, 1983
• Content Type: REPORT

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Intelligence
International
Economic & Energy
Weekly
12 August 1983
"Sercret?
DI IEEW 83-032
12 August 1983
Copy
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International
Economic & Energy
Weekly
12 August 1983
iii Synopsis
1 Perspective?Japanese Concern Over Current Account Surplus
3
Briefs Energy
International Finance
Global and Regional Developments
National Developments
17 Japan-USSR: Restricting Access to Technology
19
Tamairs? Fennomic Troubles Undermine Seaga's Popularity
25 Near East: Employment of Foreign Workers
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Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence, 25X1
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12 August 1983
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International
Economic & Energy
Weekly
Synopsis
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Perspective?Japanese Concern Over Current Account Surplus
Japanese officials are concerned that they will be unable to show much
progress in holding down the massive current account surplus before President
Reagan's visit in November. Consequently, Tokyo has been discussing a
number of measures to boost imports or strengthen the yen.
Japan-USSR: Restricting Access to Technology
Tokyo is taking well-publicized measures to stop illegal acquisitions of
technology in Japan, apparently in response to US complaints.
Jamaica: Economic Troubles Undermine Seaga's Popularity
Slack demand for the country's key mineral exports, depressed agricultural
production, and the failure of foreign bankers and investors to provide
sufficient funds forced Kingston to adopt painful austerity measures this year
in an attempt to meet the targets of its IMF program. As a result, we expect
the economy will contract slightly this year, making it difficult for Seaga to
cut the nation's 30-percent unemployment rate.
Near East: Employment of Foreign Workers
Reduced oil revenues have slowed the growth of foreign worker employment in
the oil-exporting countries of the Near East and have even led to reductions
in the number of expatriate workers in Qatar, the UAE, and Iraq. Any
further cutbacks in oil revenues could severely curtail the foreign remittances
of the labor-exporting countries?which we currently estimate at $12 billion
annually
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International
Economic & Energy
Weekly
12 August 1983
Perspective Japanese Concern Over Current Account Surplus
Japanese officials are concerned that they will be unable to show much
progress in holding down the massive current account surplus before President
Reagan's visit in November. Through May the surplus was running at a record
annual rate of almost $20 billion; we believe it will at least triple the 1982 sur-
plus of $6.9 billion by yearend. Moreover, because of the weakness of the yen
and the expected strength of recovery in key trading partners, the surplus is
likely to expand further next year.
Tokyo has been discussing a number of steps to boost imports or strengthen the
yen:
? One measure that enjoys widespread support is some control of capital
outflows that would help the yen appreciate. Nakasone's principal rivals?
Komoto and Fukuda?have been pressing for such controls, but we believe
that opposition by the Ministry of Finance makes direct controls unlikely in
the near future. The government is also considering relaxation of barriers to
capital inflows.
? Nakasone ordered the Liberal Democratic Party to devise policies to boost
imports. According to press reports, the package will include expansion of
agricultural imports, an increase in Nippon Telegraph and Telephone's
overseas purchases, and financial and tax incentives for importers.
We, like most Japanese officials, are skeptical that any of these moves would
have much impact on the current account. Because of its sheer size, the trade
surplus would be little affected by somewhat higher imports or a slight
appreciation of the yen.
Tokyo's concern will undoubtedly increase as President Reagan's visit ap-
proaches. Nakasone's political opponents may try to use his inability to do
anything about the surplus to undermine his position. Nakasone will be
esppcially sensitive to this issue because of the importance of managing the US
relationship. Nakasone will want the President to appear successful in gaining
a wider market in Japan to help contain protectionism in the United States, es-
pecially as the US Presidential election season gets under way.
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One initiative Tokyo may opt for is a signal that they are more willing to nego-
tiate continued restraints on automobile exports to the United States. We
believe that Japan is likely to extend the restraints because of the threat that
the US Congress may pass local content legislation. In addition, the Japanese
will probably offer the President increases in agricultural imports, including a
boost in beef and orange quotas, and also may offer to continue tightening con-
trols on technology exports to the Soviet Union.
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OPEC Oil Production
Tops Ceiling
Briefs
Energy
OPEC production in July rose to 18.0 million b/d-exceeding for the first
time the cartel's 17.5-million-b/d ceiling established in March. Since the
individual quotas are applied on a quarterly basis, countries producing above
their ceilings can comply with the letter of the agreement by reducing output
in August and September. Nigeria continued to be the worst offender,
exceeding its quota by about 400,000 b/d last month. Lagos-after being
called to task twice by OPEC's Monitoring Committee-reportedly has placed
a ceiling on output of all equity producers to bring third-quarter production in
line with its OPEC-mandated quota. Saudi output topped 5 million b/d as
liftings by the former Aramco partners increased. Riyadh's commitment to
'provide war assistance to Baghdad in the form of oil deliveries to Iraq's
OPEC: Crude Oil Production, 1983 Million blel
Quota
1st Qtr
2nd Qtr
June a
July a
Total
17.5
15.9
16.7
17.3
18.0
Algeria
0.725
0.7
0.6
0.6
0.6
Ecuador
0.2
0.2
0.2
0.2
0.2
Gabon
0.15
0.2
0.2
0.2
0.2
Indonesia
1.3
1.1
1.4
1.3
1.3
Iran
2.4
2.6
2.3
2.3
2.4
Iraq
1.2
0.8
0.8
0.8
0.9
Kuwait
1.05
0.8
0.7
0.7
0.7
Libya
1.1
1.3
1.1
1.1
1.1
Neutral Zone
b
0.2
0.4
0.4
0.5
Nigeria
1.3
0.8
1.4
1.5
1.7
Qatar
0.3
0.2
0.3
0.3
0.3
Saudi Arabia
5.0 c
3.9
4.4
4.9
5.1
United Arab Emirates
1.1
1.2
1.2
1.2
1.2
Venezuela
1.675
2.0
1.7
1.7
1.7
a Preliminary.
b Neutral Zone production is shared 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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Oil Consumption
Trends
Saudi Red Sea Oil
Exports Slump
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12 August 1983
customers has also played a role in boosting output levels in both Saudi Arabia
and the Neutral Zone. Crude sold to Iraqi customers by both Saudi Arabia
and Kuwait totaling at least 300,000 b/d is being charged by OPEC against
Iraq's quota. Iraq was able to increase its own output in July by adding
chemicals to enhance the oil flow in its export pipeline through Turkey.
OPEC's Monitoring Committee has scheduled a meeting in September to
assess the demand for OPEC oil and consider calling a special ministerial
session to raise production quotas.
The rate of decline in oil consumption apparently has slowed in recent months
in the major developed countries. Partial data indicate oil sales in the second
quarter registered a 4-percent drop from year-earlier levels compared with a
6-percent decline in the first quarter. Oil sales in the United States have
firmed in recent months in response to the economic recovery, with sales in
June above year-earlier levels. Oil use in Western Europe remains weak,
however, with no clear signs that the consumption decline has abated. So far
this year heavy and light fuel oil sales in the major developed countries are
down 20 percent and 7 percent, respectively, while gasoline sales approximated
year-earlier levels.
Selected Developed Countries: Percent a
1983 Oil Consumption Trends
1st Qtr
April
May
June
2nd Qtr
July b
United States
?5.5
?7.9
?3.7
2.2
?3.2
?1.2
Japan
?3.6
?4.1
?1.1
NA
NA
NA
Canada
?15.6
?12.7
?1.9
NA
NA
NA
West Germany
?5.4
?6.8
NA
NA
NA
NA
France
?3.1
1.0
?1.3
?8.6
?2.7
NA
United Kingdom
?9.4
?2.2
2.1
NA
NA
NA
Italy
?4.3
?13.3
8.3
?10.8
?5.8
NA
a Change from year earlier levels.
b Estimated.
Crude oil liftings from Yanbu Al Bahr, the Red Sea port for Saudi Arabia's
1,100-km-long east-west oil pipeline, are currently estimated
at only about 150,000 b/d. With approximately 100,000 b/d of crude
also going to Yanbu's domestic oil refinery, the 250,00 b/d throughput for the
pipeline is approximately 1.6 million b/d below capacity. Because the mini-
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Oil Terms for
Nicaragua Stiffened
Saudi Arabia's East-West Pipeline
Tel Aviv-Yafo
Israel
A
/Lin
*AMMAN
dan
Iraq-Saudi Arabia
Neutral Zone
K it
UWAIT
Iran
4'4
Ju'ayrna
Ras Tanura
Bahrain
AMA
DOHA
Qatar
RIYADH
Yanbu' al Bab
Imminitaative
Boundary (
Sudan
Pipeline
0 Oilfield
Oil terminal
7 Kilometers 39?
634883 8-83
Saudi
Arabia
darj-
0
Oman
AdministrativN
Line\
Boundary representation jot
not necessarily euthoritative8,
mum flow rate is about 450,000 b/d, the Saudis have been operating the line
only about every other week. Even halving the line's transit fee to 25 cents per
barrel in March has done little to attract new customers. If the threat of
floating mines in the Persian Gulf causes insurance premiums to rise, however,
oil liftings from Yanbu Al Bahr could become more competitive. We estimate
that Saudi Arabia is currently exporting about 4.4 million b/d from the
Persian Gulf terminals of Ras Tanura and Ju'aymah.
Nicaragua reportedly has reached agreements with Mexico City and Caracas
that will put it on the same aid terms as other beneficiaries of the Mexican-
Venezuelan oil facility. A new agreement reported by the US Embassy will
end full Mexican financing of Nicaraguan oil purchases, and Nicaragua will
begin paying Mexico 80 percent of the oil bill on shipment. Managua also has
agreed to repay the rou hl $300 million in accumulated oil debt be inm
1985.
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The new payment requirements probably will end Mexico's role as Nicara-
gua's largest individual bilateral lender and will magnify Managua's financial
difficulties. Mexico may eventually back off the new requirements, however, if
they threaten the Sandinista regime's survival. Unless other lenders step in,
Nicaragua this year will be forced to cut already low import volume by up to
30 percent, a move that would substantially depress economic activity.
Managua's commitment to begin repayment in 1985 of past Mexican oil debt
and about $1 billion in rescheduled foreign commercial debt could plunge the
economy into a prolonged tailspin.
Cutbacks in French Continuing reductions in the growth rate for electricity demand and reduced
Nuclear Power forecasts for economic growth have forced France to reassess its nuclear power
Program program. At the end of July, the Council of Ministers approved plans calling
for a cutback in nuclear power plant orders from three per year to two per year
in 1983 and 1984. Although only one nuclear plant order is planned for 1985, a
second order could be placed if electricity demand grows more rapidly than
presently forecast by the French Government.
Big Seven Electricity
Consumption Falls
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12 August 1983
Despite these cutbacks, the Council's decision is viewed as a victory for
Electricite de France (EDF) and the nuclear power program. A recent
government study on long-term energy supply and demand concluded that no
nuclear power plant orders were necessary until 1987. A minimum order rate
of two units per year is considered necessary to maintain France's nuclear
industrial base without major cutbacks by nuclear component manufacturers
and the loss of many smaller nuclear-qualified suppliers. To encourage
electricity growth, the Council's decision also allows EDF to advertise and use
special promotional rate structures. Exports of electricity will be encouraged,
and loans for industrial electrification will be liberalized. In addition, France is
expected to continue its vigorous pursuit of sales in the international nuclear
reactor market.
Electricity demand during the first quarter of 1983 in the Big Seven declined
3.2 percent?about 630,000 b/d oil equivalent?compared to the same period
a year ago. Consumption in the United States and Canada fell 5 percent,
largely as a result of a mild winter that reduced demand for electric space
heating. Most European countries registered small to modest declines, while
France and Japan registered modest increases in electricity consumption of 3.0
and 1.7 percent, respectively. The recent heat wave in the United States,
however, is causing a surge in electricity demand, with utilities setting new
generating records to meet the increased air conditioning loads. Most analysts
now expect electricity demand to rebound to previous growth rates as the
economic recovery gains momentum.
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Japanese Coal Imports Foreign coal purchases by Japan?the world's largest coal buyer?are down
Tumble 16 percent in the first half of 1983, as compared with year-earlier levels. All of
the decline occurred in coking coal imports because of sluggish steel produc-
tion and high coal stocks. The brunt of the cutback has been borne by US sup-
pliers, with Japanese imports of US coking coal down nearly 50 percent this
year; imports of US steam coal declined by 40 percent. The drop in US coal
sales to Japan is due in large part to the absence of supply disruptions in Aus-
tralia this year and the high price of US coal. The average prices of US coking
and steam coal delivered to Japan are roughly 28 percent and 22 percent above
the average price of coal from other suppliers.
New Mexican Scheme
for Repayment of
Supplier Credits
International Finance
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Mexico City last week announced a new program to pay off supplier credits,
after previous efforts failed to attract many participants. This scheme is for
short-term credits overdue as of 30 June 1983 and medium- and long-term
credits falling due between 30 June and 31 December 1983. This time, a firm
can deposit pesos at the controlled exchange rate in one of six designated
banks. The accounts will be denominated in dollars and will pay interest at the
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Portugal Completes
Negotiations for
IMF Loan
Until Mexico City resolves supplier credits issues, private-sector imports will
remain depressed. Earlier measures attracted only about 10 percent of the
funds necessary to meet the $4 billion in outstanding supplier credits. We
believe participation in the current scheme will also be low because of the
illiquidity of many Mexican firms, doubts about the government's ability to
make foreign exchange available in the future, and some direct payments to
foreign creditors by firms with access to foreign exchange.
Lisbon has reached agreement with the IMF on the terms for a $480 million
standby loan. According to press reports, the Soares administration is obliged
to curtail the growth of the money supply, reduce the budget deficit to 6
percent of GDP by 1984, lower real wages, narrow the current account deficit
to $2 billion this year and $1.2 billion next year, and limit external debt to
$14.6 billion in 1983 and $16 billion in 1984. In addition, Lisbon intends to
halt selected investment projects and dismantle some public-sector enterprises.
Realizing that these measures will add to unemployment, Portuguese officials
are formulating a comprehensive compensation plan to soften the impact.
Meanwhile, the Communist trade unions appear ready to increase strike
activity this fall, but the coalition government almost certainly has the political
will to resist pressure to back down
In our view, Lisbon cannot realistically expect to narrow last year's $3.2 billion
current account deficit by more than $800 million. Tourism revenues and
worker remittances probably were still weak in the first half of this year, as
market expectations of a large devaluation were not realized until June.
Consequently, we estimate that, even with the receipt of the first $160 million
IMF tranche this fall, Portugal faces a financing gap of at least $260 million.
Lisbon is hoping that the receipt of IMF assistance will renew bankers'
willingness to extend loans and help narrow the gap
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Possible Philippine Manila is considering ways to reschedule its short-term foreign debt, but the
Debt Rescheduling government is divided over its financial options
Financial Relief
for Ghana
Rescheduling the debts of various government financial institutions would ease
pressures on the Central Bank, which for several years has kept them afloat
with its own funds. However, private creditors would probably insist that the
burden be slowed by other government institutions. Manila will have to decide
on a course of action quickly, in any case, if it expects to protect the Central
Bank from the government's broader financial problems. The government
almost certainly wants the Central Bank to retain its good international credit
rating so it can continue foreign borrowing operations.
The extent of recent foreign exchange leakage from the official
market suggests that the Central Bank cannot defend the current exchange
rate for long. Manila's 8-percent devaluation in June apparently was too
limited to ease strains on the Central Bank's reserves. The government may
hope that financial assistance from Washington will enable it to avoid a large
devaluation and the ensuing disruption to the economy.
The US Embassy reports that Ghana has concluded a one-year agreement
with Libya for 24,000 barrels per day of crude and that Tripoli has agreed to
refinance the $95 million oil credit it granted in 1982. Accra has used the
agreement to demonstrate to the IMF that enough financing of oil imports is
available. The IMF then approved two loans for Ghana that will give the
government access to roughly $380 million over the next year and allow it
immediately to arrange for much-needed imports. According to the Embassy,
the IMF agreement also will enable Ghana to qualify for $60 million in
commercial financing. The Libyan crude oil will not meet all of Ghana's
petroleum needs. The economically hard-pressed regime will have to spend an
estimated $8-10 million a month of the IMF and bank loans on spot market
purchases.
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Japanese Extension of Tokyo has agreed in principle to extend for five years the deadline on Iraq's
Credit to Iraq use of a $2.5 billion credit package, according to the US Embassy in Tokyo.
The loan offer originally was to expire on 15 August. Differences still have to
be resolved over the interest rate for the loans, which originally were offered
during the 1970s. Iraq had used only a small portion of the funds before the
war with Iran started, and Japan soon froze further disbursements.
Negotiations Between
Madagascar and
the IMF
Specialty Steel Dispute
Iraq needs all possible financial assistance in order to ease its foreign exchange
shortage. Several Japanese companies already have deferred Iraqi payments or
are receiving oil from Saudi Arabia on Iraq's behalf to help cover Iraq's $1.8
billion debt to Japan. In 1982 Japanese companies reportedly were involved in
projects in Iraq worth an estimated $4.7 billion. Japan wants to maintain good
economic relations with Iraq, but it will offer no new credits until the existing
loans are fully disbursed.
Madagascar's negotiations with the IMF for another badly needed standby
agreement have been stalled
In June the IMF suspended the last tranche?$12 million?of
the 1982 standby agreement because the government failed to reduce external
arrears and to furnish complete reporting of the country's external debt.
Without IMF funds Madagascar will be forced to cut import spending by over
20 percent, probably on spare parts and industrial equipment, which will limit
prospects for longer term economic improvement.
Madagascar's economic picture also has been clouded recently by other aid
and trade developments. According to the US Embassy in Antananarivo,
government officials predict that 1983 export earnings will decline by about 25
percent if Indonesia, the principal buyer of Madagascar's cloves, does not
make its usual purchase of about 90 percent of the crop. Indonesia is upset
with Madagascar's lack of support on the East Timor issue in the United
Nations.
Global and Regional Developments
Major foreign specialty steel exporters have strongly criticized the US decision
on 5 July to increase tariffs and impose quotas on specialty steel imports for
four years, but most are also maneuvering to maximize their shares of the
newly established quotas. Supplier governments have been invited to negotiate
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Selected Exporters: Share of Stainless Steel Percent
Exports Going to the United States
1979
1980
1981
1982
1983
1st Qtr
Japan
19.9
19.2
15.2
12.9
13.8
West Germany
1.3
1.2
5.3
6.4
3.2
France
3.0
4.0
8.7
11.0
9.2
Italy
1.7
1.7
2.6
NA
NA
Sweden
11.8
8.3
10.7
NA
NA
South Korea
12.3
9.9
23.2
16.6
NA
orderly marketing agreements (OMAs) on products?alloy tool steel and
stainless bars and rods?subject to global quotas. State Department sources
indicate that Japan, Sweden, Spain, Canada, Austria, and Brazil are interest-
ed in OMAs in order to preserve their share of the US market. The Brazilian
press reports that some Brazilian steel industry officials even view OMAs as a
way to increase their share of the US market.
The European Community, the harshest critic of the new controls, has initially
rejected OMAs, choosing instead to seek compensation under GATT Article
XIX. Although French officials have expressed interest in a separate OMA,
Paris for the moment is acquiescing to the wishes of the EC Commission,
which wants to present a united front to the United States. EC demands for
compensation and threats of retaliation may also be a negotiating tactic to
extract concessions from the United States on carbon steel, which might more
than offset potential specialty steel export losses. The Commission's case
before the GATT would be weakened considerably if EC member states
negotiate separate OMAs with the United States.
French-Quebec The agreement between the separatist government of Quebec and the national-
Economic Agreement ized French aluminum company Pechiney-Ugine-Kuhlman (PUK) to construct
May Harm US a $1 billion highly automated smelter in the province may cause PUK to
Interests curtail operations or close its older facilities in the United States. Quebec
apparently secured PUK's commitment by offering to provide electricity,
through its crown corporation Hydro-Quebec, at a 60-percent discount during
the period 1986-89 and at a significantly reduced rate thereafter. The initial
four-year discount is estimated to be worth $120 million. In addition, the
project will create 800 permanent jobs in Quebec and provide a market for a
portion of Hydro-Quebec's surplus electricity. According to US officials,
Quebec's actions in subsidizing electricity rates may be inconsistent with
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Canada's obligations under the OECD's Declaration on International Invest-
ment and Multinational Enterprises issued in 1976.
The importance of the project to Levesque's government, the provincial
economy, and, in turn, the separatist cause, probably will force him to resist
modifications to the agreement?even if it is found to contravene Canada's
OECD commitments. The provincial government apparently recognizes the
potentially discriminatory aspects of the subsidy and has therefore offered
similar discounts to other foreign aluminum companies. If it is found to be in-
consistent with OECD regulations, the Quebec-PUK agreement will not only
prompt a controversy between Canada and the United States but will promote
a confrontation between the federal government and Quebec should Ottawa
attempt to bring the project under international guidelines.
National Developments
Developed Countries
Belgian Budget The 1984 budget announced by the Martens government on 1 August fails to
Deficit trim expenditures or add significantly to revenues and calls for a deficit of
$10.4 billion, nearly 11.5 percent of GNP. Even at this level the deficit may be
substantially underestimated if real economic growth continues to stagnate.
The $9.1 billion deficit originally called for this year by the government has
grown to an estimated $10.9 billion?over 13 percent of GNP. The budget
reflects, in part, a compromise on regional financing and the need to
restructure troubled steelmaker Cockerill-Sambre in late July. In addition,
falling real GNP and rising unemployment over the past three years have
added to the budgetary problems by boosting social welfare transfers and
cutting tax revenues.
Unable to finance large deficits domestically, the government has been forced
to rely on foreign borrowing. The resulting 6.4-percent increase in debt service
payments, coupled with a 10-percent rise in regional capital investment
expenditures, will increase external financing requirements. Belgium's huge
deficit probably will limit the government's ability to borrow in foreign
markets without paying a higher risk premium and could result in an eventual
default if credit conditions deteriorate significantly.
West German Economic West German industrial production and new orders for capital and consumer
Indicators Improving goods both rose 2 percent from May to June and business sentiment improved
accordingly, further evidence of a mild rebound in economic activity. The
turnaround is due largely to an improving domestic market for capital goods
and consumer durables, especially autos, but the weakness in new orders from
the foreign sector suggests export demand will remain sluggish through the
summer. First-half 1983 exports were down 2 percent in value from the 1982
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Record New Zealand
Budget Deficit
level, heightening concerns that slack export trade could slow economic
recovery. Exports equal nearly one-third of West German GNP, and the
foreign sector historically has provided the stimulus for upturns in the business
cycle. We believe that exports should pick up later this year because of
recovery in the OECD, the weakening deutsche mark, and higher raw material
prices that should enable many LDCs to boost imports.
The 1983/84 budget Prime Minister Muldoon presented to Parliament last
week has raised serious concerns in the financial community about the
projected $2.1 billion deficit, a record 9.5 percent of GDP. Higher social
welfare costs and a 37-percent increase in debt servicing payments would push
up spending while the 1982 tax cut, flat economic growth, and the wage-price
freeze will combine to hold down projected tax revenues. Wellington will find
it difficult to finance the deficit without forcing interest rates up or intensify-
ing inflation, which slowed to a 3.4-percent annual rate in the first quarter of
1983.
Less Developed Countries
Brazilian Austerity The austerity policies implemented this summer by Brasilia to reduce triple-
Measures Causing digit inflation are creating additional financial difficulties and are depressing
Strains in Private investment in the private industrial sector. According to the US Embassy,
Sector recent steps by monetary authorities limiting interest rates that banks may
charge?and thus the commercial deposit rates that the banks can profitably
pay?have caused a paralysis of bank lending, thereby exacerbating the severe
liquidity shortage for the business community. Also, Brasilia is squeezing
profits in private industry by holding price increases to no more than 80
percent of the general rise in inflation for some 300 manufactured goods.
Businessmen indicate that the central banks' new controls over the allocation
of all foreign exchange are likely to create additional problems for private
industrial firms, particularly those that depend heavily on imported raw
materials and intermediate goods
These recent measures, combined with the prolonged Brazilian recession, have
caused the private sector to lobby for changes in the government's economic
strategy. Most businessmen blame the country's economic misfortunes on an
excessively large public sector and harmful government policies and are calling
for increased incentives to private activities, such as more credit and lower
taxes. Business leaders are especially critical of Planning Minister Delfim and
other members of the economic policy team and may yet exert enough political
pressure to force their removal.
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Ethnic Riots a Setback Although few basic production facilities were damaged during the late July?
to Sri Lankan Economy early August riots, Tamil shops, warehouses, homes, and a major part of the
textile industry were destroyed. The vital trading network was disrupted as
almost 130,000 Tamils fled to refugee camps. Essential economic operations
are being restored quickly, but the cost of reconstruction combined with
reduced government revenues and lost private incomes will curtail resources
available for export promotion and development efforts. Increased government
controls and subsidies may be introduced to avoid rekindling ethnic conflicts.
We believe there is a better than even chance that Sri Lanka will need to seek
rescheduling of part of its debt service obligations within the next two years as
a result of additional strains on a balance-of-payments situation that the
World Bank had already characterized as worrisome.
New Moroccan
Austerity Measures
Rabat's announcement last week of stiff austerity policies has cleared the way
for a new IMF standby loan and raised the prospect of additional support from
traditional benefactors?primarily Saudi Arabia. Criticism of the new pro-
gram has been limited because of careful advance preparation of the public by
the government and linkage by King Hassan of Morocco's economic plight to
the Saharan war effort. In addition, the impact on the nation's poor has been
cushioned by a 20-percent increase in minimum wage levels. The new program
includes sharp reductions in government hiring and investment, a 25-percent
average increase in basic food prices, a gradual devaluation of the dirham, and
continuation of restrictive import policies. Discontent with these measures
could escalate later this fall, however, when students return to class and the
full impact of the food price increases are realized.
Pakistan Seeks President Zia may soon be forced to define lines of authority more clearly
Changes in Economic between Minister of Finance and Economic Affairs Ishaq Khan and Minister
Policy for Economic Planning Haq. The dispute between the two ministers is
complicating efforts to ensure new debt relief and continued high aid inflows
from important Western sources. While Ishaq Khan, who controls the
country's purse strings, favors established policies and management practices,
Haq believes that decisionmaking must evolve beyond the authoritarian
economic command and control system established in the 1960s. The World
Bank, the IMF, and major Western aid donors, upon whom Zia is counting to
help finance the country's ambitious new five-year development plan, favor the
more liberalized approach advocated by Hag.
Communist
Moscow Launches New Pravda last week announced a new decree to improve labor discipline that
Labor Discipline called for "tougher measures" against absentees, drunks, and other offenders.
Campaign It provides for loss of pay and vacation privileges, demotion, or even dismissal
for those guilty of such offenses. On the other hand, it promises to reward good
workers with increased vacation time and greater opportunities for apartments
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New Soviet Economic
Experiment
Soviet Economic
Reform Proposal
and other benefits. Pravda last week also published an article calling for a
crackdown on "parasites"?individuals who manage to avoid work. The article
claimed that forcing such people to work could ease the labor shortage
there was strong sentiment in
the bureaucracy to deal harshly with the estimated 2-4 million such "para-
sites" in the USSR.
With the new decree, General Secretary Andropov appears to have gone well
beyond the limited crackdown on labor that he initiated late last year. The de-
cree suggests, however, that he is adopting a mixture of punishments and
rewards. Andropov probably hopes that a crackdown, which is popular with
most citizens, will improve economic performance. Nonetheless, labor short-
ages throughout much of the country may cause managers to overlook many
abuses.
The regime recently unveiled a new experiment to relax some central planning
restrictions on enterprises in several industrial and consumer sector ministries.
The experiment is intended to give these enterprises greater autonomy in
controlling some decisions on investment and to expand their role in the
planning process. In April, longtime Defense Industry Minister Afanas'yev
was transferred to head one of the two all-union ministries that is now
participating in the experiment. Afanas'yev's involvement in the experiment
supports other indications that, to help reinvigorate the economy, the regime
wants to capitalize on the effectiveness of the defense industry sector.
Afanas'yev, a protege of Defense Minister Ustinov, was a proponent of efforts
to increase enterprise autonomy in the 1960s. Those experiments were
undermined by bureaucratic resistance, but the Politburo may hope that
Afanas'yev's participation in the current undertaking will improve its chances
of success.
A paper presented to an economic conference in April?copies of which were
leaked to some Western newsmen in Moscow last week?declares that the 50-
year-old system of centralized controls is the cause of the USSR's economic
slowdown and implies that the leadership will have to engage in "conflict" with
entrenched interest groups to reverse the situation. The paper was prepared by
a group of economists from the Siberian Division of the Academy of Sciences
in Novosibirsk. The mentor of this group is academician Abel Aganbegyan,
whose incisive criticism of the USSR's economic failings has agitated Soviet
officials from time to time for almost 20 years. In the 1960s one of
Aganbegyan's defenders wrote in a Soviet newspaper that his critics had
"practically accused him of sedition."
Judged on available excerpts, the current paper calls for extensive decentral-
ization of planning and decisionmaking authority in the economy. Such moves
would be intended to release the "creative energies" of those groups in the low-
15
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Romanian Miners
Plan Strike
Bulgarian Economic
Reform on Hold
er management levels that are interested in innovation and progress. The paper
also takes the unusual step of calling for "immobilizing" those higher level
administrators who prefer that the current system continue. General Secretary
Andropov probably does not directly support all of the paper's conclusions. Its
authors are likely to have been emboldened to make them, however, by public
statements by Andropov and his former rival Chernenko that the USSR
should examine proposals that seem to contest long-accepted policies.
The miners are unhappy with the regime's
broken promises, and they want a reduction in the eight-hour work shift
imposed by President Ceausescu earlier this year.
Miners are the most militant of the country's workers, and the security police
have closely watched them since violent protests swept some mining areas in
1981. The police presumably recognize the planned strike could cause unrest
among other disgruntled workers, and they will move quickly to preempt it.
The regime might make some limited economic concessions to the miners, such
as slightly increasing consumer supplies. It is unlikely to reduce working hours,
however, because of its high priority on increasing coal production to ease the
energy shortage.
During last week's meeting with the US Ambassador, General Secretary
Todor Zhivkov acknowledged that Bulgaria has temporarily slowed the
implementation of economic reforms. He confirmed that the use of the profit
motive had gone too far and caused disruptions in the economy. Zhivkov
denied that East European reforms to decentralize economic decisionmaking
conflict with Soviet desires for increased CEMA integration and that disagree-
ments with Moscow delayed the CEMA summit.
The Bulgarian leadership has been cautious about the pace and extent of
economic reforms since their introduction in 1979, and hardliners are especial-
ly nervous over the emphasis on profits. The leadership may wait for Soviet
leader Andropov to further clarify his position on Soviet economic reforms.
Contrary to Zhivkov's denials, CEMA integration would inhibit some aspects
of reforms. Moreover, a variety of reports indicate that East European
opposition to Soviet plans for increased CEMA integration has delayed the
summit.
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Japan-USSR: Restrictin
Access to Technology
Tokyo is taking well-publicized measures to stop
illegal acquisitions of technology in Japan, appar-
ently in response to US complaints. The new
actions and the publicity surrounding them are
hindering Soviet collection of scientific and techni-
cal information in Japan and are forcing Japanese
firms to be more cautious in exporting high tech-
nology and sponsoring scientific and technical ex-
changes with the USSR.
Recent Actions
The expulsion in July of two Soviet diplomats for
industrial espionage was the latest and most visible
development in Japan's increasing efforts to control
unwanted technology transfers to the USSR. The
diplomats were involved in a scheme to acquire
computer technology and design information ille-
gally from the Japanese firm, Hitachi, Ltd.
Several Soviet delegations have been forced to
change their itineraries and cancel tours of plants
where restricted technologies and equipment are
housed. For example, a Soviet delegation from the
Ministry of the Shipbuilding Industry was allowed
17
to visit an Ishikawajima-Harima shipbuilding facil-
ity only after assurances were given that the Soviets
would not be allowed to view computer-aided de-
sign technology.
Tokyo has allocated additional manpower and
funds for enforcement and improved coordination
among the ministries involved in technology trans-
fer and export control. The Foreign Ministry has
established a special group in the Soviet Division to
study the problem and to coordinate activites with
MITI and the security agencies.
Domestic Impact
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The Foreign Ministry has emerged as the most
active proponent of these precautions, overshadow-
ing trade officials who have viewed technology
exports solely in commercial terms. Japanese offi- 25X1
cials were apparently concerned that recent crack-
downs in the United States and Western Europe
left Japan open to criticism that it was not doing its
part. The Foreign Ministry was convinced that
failure to follow the US and West European exam-
ples would affect relations with the United States.
As a result, the Foreign Ministry has succeeded in
raising technology transfer from a trade adminis-
tration matter to a broader foreign policy issue.
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plan to Prime Minister Nakasone or Chief Cabinet
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growth in Soviet military power than were their
predecessors. Foreign Minister Abe recently reaf-
firmed Tokyo's commitment to reducing illegal
outflows of technology. Using the bluntest lan-
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guage yet on the issue from Tokyo, he noted that
Japanese technology had indeed benefited the Sovi-
et military effort and that the United States had
convincingly explained the dimensions of the threat
posed by unregulated exchanges of technology.
The Japanese business community now recognizes
the government's commitment to controlling the
flow of technology to the USSR. In light of the
expulsions and other actions, one major industrial
firm has indicated it will limit its technology
exchange and trade promotion agreements with the
USSR State Committee for Science and Technol-
ogy. Several other firms have cited increased diffi-
culty in getting export licenses approved for high-
technology goods for the USSR as a reason for
canceling or discouraging sales. Tokyo-Boeki, a
trading company with well-established routes for
illegal sales of high-technology goods to the USSR
and PRC, recently turned down two potentially
profitable Soviet requests for equipment embar-
goed by COCOM. Kyocera, a leader in microelec-
tronics packaging and production technology, has
also canceled a sale. Kyocera claims that it will
discontinue all plant sales to the USSR, a business
which has generated nearly $40 million since 1975.
The USSR's Response
Moscow, according to Japanese officials, has react-
ed "rather moderately" to the new security meas-
ures and has continued to stress the need for
improved relations. At the same time, the Soviets
give no sign of cutting back their efforts to acquire
sensitive or restricted technologies and equipment
through both overt and clandestine means. The
Soviets are likely to place increasing pressure on
the friendly and specialized trading firms that
depend on trade with the USSR.
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12 August 1983
Continuing Efforts
Tokyo is considering even tighter review of high-
technology exports, stricter interpretation of
COCOM guidelines, and more thorough inspec-
tions of shipments of electronics parts to the USSR.
The Foreign Ministry is preparing a campaign to
acquaint the business community with the Soviet
collection effort in Japan and its implications for
Japan's national security and foreign relations. As
a part of the effort, the Ministry plans to publish a
pamphlet for general distribution containing exam-
ples of technology transfer of strategic importance.
For the near term, MITI is likely to follow the
Foreign Ministry's lead.
the industrial bureaus in particular may
become the target of political pressure from the
ruling Liberal Democrats to adopt stricter
COCOM guidelines. These bureaus, which repre-
sent the interests of particular industry groups,
have in the past opposed US initiatives for stricter
controls. Press reports state that MITI may adopt
stricter procedures of its own for exports to coun-
tries in Southeast Asia that can act as transit points
for restricted goods destined for the USSR.
The crackdown will not end the unauthorized
transfer of technology to the USSR, but it will
hinder Soviet collection efforts. The greater public
attention being given to the problem and the
increased risks of detection will tend to discourage
most Japanese trading firms and manufacturers
engaged in illegal activity. The firms most likely to
be deterred are those for whom the Soviet market
composes only a small percentage of their total
trade. Additionally, Japanese business interests
fear that the United States could deny trading
privileges in the United States to firms suspected of
illegal transfers to the Soviets.
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Jamaica: Economic Troubles
Undermine Seaga's Popularity
A deteriorating economy is threatening the reelec-
tion prospects of Prime Minister Edward Seaga.
Slack demand for the country's key mineral ex-
ports, depressed agricultural production, and the
failure of foreign bankers and investors to provide
sufficient funds forced Kingston to adopt painful
austerity measures this year in an attempt to meet
the targets of its IMF program. As a result, we
expect the economy will contract slightly this year,
making it difficult for Seaga to cut the nation's 30-
percent unemployment rate. As matters now stand,
we believe Seaga has only an even chance of
winning the next election, which must be held
before November 1985.
Seaga's Record: 1981-82
An unprecedented inflow of foreign funds in 1981
following the election of Seaga contributed to the
first real growth in GNP in eight years-3.9
percent. Moreover, the inflation rate was more than
halved to 13 percent as Kingston increased supplies
of producer goods and maintained tight monetary
controls. Despite these achievements, popular ex-
pectations for economic recovery were largely un-
satisfied.
In 1982, real GDP growth stagnated. Despite a
further cut in the inflation rate to only 7 percent,
public dissatisfaction mounted over Seaga's eco-
nomic record, particularly his failure to provide
jobs. The major obstacle to growth was the nearly
30-percent drop in Jamaican bauxite and alumina
output?which contributes 20 percent to both GDP
and government revenue. In addition, agricultural
production shrank by 4 percent because of the
extended drought, a shortage of imported inputs,
relatively tight domestic credit, and strong compe-
tition from relatively cheap food imports.
19
Considering the hopes pinned on the US-sponsored
Caribbean Basin Initiative, the pace of new private
investment was especially disappointing. Although
Kingston's goal of 100 new investment projects by
yearend 1982 was met, many of the new undertak-
ings were small and not export oriented. Investor
caution stemmed from evidence of the slowing
recovery in Jamaica and elsewhere, Kingston's
unexpected administrative difficulties in preparing
project proposals, and investor concerns about lim-
ited supplies of water and electricity.
Jamaica's foreign payments situation matched the
intractable problems in the domestic economy. The
slide in bauxite/alumina sales was responsible for a
25-percent decline in nominal export earnings in
1982. Nominal imports fell only 7 percent in
response to easier access to foreign exchange. De-
spite buoyant tourist earnings, the current account
deficit ballooned to a record $427 million.
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every available source of foreign funds. Although
foreign capital inflows fell well below Kingston's
expectations, economic aid was nearly double the
1980 level. Rising foreign investment and some
$150 million in new commercial bank loans to the
private sector also contributed sufficient foreign
exchange to eliminate external payments arrears by
March 1982, nine months ahead of the IMF-
targeted deadline. By yearend, Jamaica had
achieved a slight foreign payments surplus.
The Economic Slide in 1983
Renewed foreign exchange pressures and efforts to
satisfy requirements of Jamaica's current IMF
Extended Fund Facility (EFF) are further narrow-
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Jamaica: Economic Indicators
Note change in scale
Real GDP Growth 4
Percent
2
0
?2
?4
1977 78 79 80 81 82a
Consumer Price Growth 35
Percent 30
25
20
15
10
5
1977 78 79 80 81 82a
Debt Service Ratio 30
Percent
25
20
15
10
5
1977 78 79 80 81 82a
Exports, by Sector, 1981
Percent
Agriculture
Other
M an u i'actu re s
Bauxite and alumina
Bauxite Production
20
Million metric tons
15
Bauxite production
0 Alumina productionb
10
5
1977 78 79 80 81 82
a Estimated.
b Bauxite equivalent of alumina production.
300330 (A03166) 8-83
ing the range of Seaga's policy options. Austerity
measures instituted since January already are rip-
pling through the economy. To free scarce foreign
exchange for key producer and government im-
ports, Kingston in January shifted some $100 mil-
lion in consumer goods from the official exchange
market to the costlier parallel market. Neverthe-
less, Jamaica missed the IMF's net foreign asset
target in March by $150 million as scheduled
foreign loans failed to materialize in the first
quarter of 1983. This shortfall, in turn, contributed
to failed targets for net domestic assets and public-
sector credit. By May, gross foreign reserves had
fallen to less than three weeks' imports coverage
despite the buildup in arrears. To keep the IMF
program on track after a last-ditch effort to obtain
$150 million from Kuwaiti sources failed, Seaga
instituted much harsher measures in June that
included:
? A $150 million cut in imports of consumer and
capital goods, 11 percent below the level original-
ly projected through March 1984.
? A twofold increase in the value of imports shifted
to the parallel market.
? An additional $82 million pared from the budget
that will contribute to a 20-percent drop in real
spending in the fiscal year ending 31 March
1984.
Although these actions are designed to maintain
access to foreign funds, tightened austerity is likely
to cause the economy to contract slightly this year.
Even with steady global recovery, current inven-
tories will preclude any sizable spurt in bauxite/
alumina production until late 1984. Although new
foreign exchange restrictions will encourage a shift
to domestic foods, the ongoing drought probably
will cause agricultural production to slip across the
board. At the same time, tightened austerity could
slow growth in manufacturing and construction as
businessmen reevaluate investments in light of ris-
ing import costs and growing uncertainty over a
possible devaluation. Only tourism, benefiting
largely from the US recovery and energetic publici-
ty, is likely to show strong growth this year.
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Jamaica: Foreign Financial Gap
Million US $
1978
1979
1980
1981
1982a
1983b
Current account balance
?50
?140
?166
?337
?427
?370
Trade balance
81
?65
?75
?323
?477
?400
Merchandise exports, f.o.b.
831
818
963
974
726
750
Bauxite/alumina
438
523
734
758
483
500
Merchandise imports, f.o.b.
750
883
1,038
1,297
1,203
1,150
Net services and transfers
?131
?75
?91
?14
50
30
Debt amortization
124
113
91
140
182
340
Financial gap
?174
?253
?257
?477
?609
?710
Capital account
185
258
298
457
631
Net direct investment
?27
?26
28
?12
20
Medium- and long-term loans
113
138
216
210
557
Net short-term capital, including errors
and omissions
99
146
54
259
54
Change in gross reserves
11
5
41
?20
22
a Estimated.
b projected. Excludes debt rescheduling now under negotiation.
On the inflation front, recent import curbs are
likely to push the rate above 15 percent this year.
Kings-
ton may yield within the next year to IMF pressure
for a relatively modest currency devaluation in
order to retain IMF funding. A formal devaluation
would boost prices further because the economy is
highly import dependent.
Jamaicans already are balking at rising import
costs?particularly for petroleum and food. As a
result, demands for wage increases by the country's
powerful labor unions seem inevitable. Contract
negotiations in the key bauxite industry, scheduled
to start later this month, will pose an early chal-
lenge to Seaga. Wage settlements with the militant
bauxite miners, already Jamaica's highest paid
industrial workers, generally are a bellwether for
other labor negotiations. A rash of wage hikes
could jeopardize the government's ability to keep
on the IMF track. Moreover, according to Embassy
21
reporting, recent budget cuts will be concentrated
on public works programs, suggesting that Seaga
will fail for the third straight year to slash unem-
ployment.
Jamaica's foreign exchange problems are ap-
proaching crisis proportions and could require fur-
ther difficult adjustments to avert slippage of IMF
targets. The targets that appear most out of reach
are those calling for a buildup in international
reserves and the near elimination of arrears by
yearend 1983. Driven by slowly recovering
bauxite/alumina sales, exports can be expected to
rise less than 5 percent this year. Imports will be
cut slightly for the second consecutive year by the
recent austerity measures, but we still expect a
$400 million trade deficit.
Even with an almost 15-percent cut in the current
account deficit, we believe soaring amortization
obligations could widen the financial gap this year
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"Ganja": The Hidden Economy
The export of Jamaican marijuana, principally to
the US market, was estimated by the US Embassy
in Kingston to total just under $1 billion last year.
Although the bulk of drug income is deposited
abroad and is excluded from official balance-of-
payments data, the US Embassy estimated that
$200-300 million remained in Jamaica, making
"ganja" a key source of foreign exchange to fi-
nance essential imports, in addition to providing
badly needed income for the local farmers.
The lucrative and widespread nature of the illicit
trade has bred corruption within the police force
and other elements of society. Corruption and
popular acceptance of "ganja"?two out of three
Jamaicans oppose government efforts to stop mari-
juana trade, according to a 1982 poll?as well as
the island's pressing need for foreign exchange, and
inadequate personnel and material to police the
industry have weakened past efforts to halt the
trade.
The upcoming election is likely to dampen future
interdiction efforts as Jamaica's two leading par-
ties vie for the political and financial support of
marijuana growers and traders. Although Seaga is
concerned by the harm to the Jamaican society
from drug trafficking, he perceives it primarily as
Washington's problem and he will continue to look
to the United States to take a lead in enforcement.
to over $700 million. To close the financial gap and
choke capital flight that ran in excess of $100
million during the first six months of this year,
Seaga in June approached major foreign banks to
reschedule that portion of the public and publicly
guaranteed debt due between July 1983 and March
1985. Meanwhile, Seaga's room to maneuver will
continue to narrow.
although Seaga is again seeking large
loans from Arab sources, few funds are available to
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12 August 1983
repay some $80 million in external debt coming due
mostly this month. Consequently,
least a partial default is possible soon.
The Next Few Years
Anticipated improvement in mining and agricultur-
al activities through 1985 could begin to rekindle
the Jamaican economy. The extent of any recovery,
however, will turn on Seaga's ability to maintain
investor interest and to tap foreign capital markets.
The current IMF program, crucial to fostering
investor confidence, will end next March. Based on
the IMF's already high exposure on the island, we
believe another EFF program may not be forth-
coming quickly. Although Jamaica could receive a
shorter term standby program that would require
less financial discipline, it might also yield less
credit than an EFF program. The growing pros-
pects that Jamaica will require at least a partial
debt rescheduling and will fall short of meeting
strict Fund performance targets increases the likeli-
hood that Kingston might have to weather some
months without a new IMF program.
Any lapse in IMF financing before a revival of key
bauxite and alumina exports would be likely to
prolong Jamaica's need for substantial foreign
funds. In the absence of a major debt rescheduling,
we calculate that Jamaica will need foreign funding
in the $600-700 million range during both 1984
and 1985 to resume modest economic growth.
These funds already are proving hard to come by.
Mexico and Venezuela, for example, have hard-
ened the terms of concessional oil credits to Jamai-
ca and other LDCs. We expect that Kingston will
have limited success in signing new commercial
bank loans, stemming largely from the reluctance
of international bankers to increase their exposure.
As the election nears?the constitution requires
Seaga to call an election before November 1985?
political factors will play a significant role in
Jamaica's economy. Seaga will come under increas-
ing pressure to boost spending on make-work jobs
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Jamaica: Socioeconomic Comparisons
Note change in scale
Adult Literacy, 1980
Percent
Haiti
23
Guatemala
47
Honduras
60
Dominican Republic
68
Jamaica
90
Per Capitia GDP, 1981
US $
Haiti
300
Honduras
690
Dominican Republic
1120
Guatemala
1160
Jamaica
1320
Agriculture as a Share of GDP, 1981
Percent
Jamaica
9
Dominican Republic
17
Guatemala
26
Haiti
31
Honduras
32
Imports as a Share of GDP, 1981
Percent
Guatemala
18
Haiti
23
Dominican Republic
23
Honduras
34
Jamaica
44
Western Official Assistance Per Capita, 1981
US $
Guatemala
Haiti
Dominican Republic
Honduras
Jamaica
17
18
27
43
89
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23
and to maintain agricultural development projects
to sustain rural support. Even if political calm can
be maintained, investors will want to see increased
evidence of Seaga's staying power before they
commit themselves to many new undertakings. A
return to the political turmoil that characterized
the 1980 election not only would jeopardize private
investor confidence and boost capital flight, but
also could quash recent gains in the tourist indus-
try.
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Near East: Employment of
Foreign Workers
Reduced oil revenues have slowed the growth of
foreign workers' employment in the oil-exporting
countries of the Near East and have even led to
reductions in the number of expatriate workers in
Qatar, the United Arab Emirates, and Iraq. Any
further cutbacks in oil revenues could severely
curtail the foreign remittances of the labor-export-
ing countries?which we currently estimate at $12
billion annually
The Changing Labor Force
On the basis of government data and Embassy
reporting, we estimate that about 6 million expatri-
ate workers, as compared with less than 2 million in
1975, currently hold jobs in the oil-exporting coun-
tries. Arabs from neighboring countries were the
first to respond to the burgeoning demand for labor
in the sparsely populated oil-rich countries and still
constitute just over half of the expatriate work
force regionwide. During the construction boom of
the late 1970s and early 1980s, however, workers
from South and East Asia met most of the in-
creased demand for new recruits.
The Arabs: Stabilized Numbers
We believe that expatriate Arab workers peaked at
about 3.2 million in the late 1970s:
? The easily recruited workers from neighboring
countries such as Egypt, Jordan, and the Yemens
had already responded to job opportunities in
Libya, Saudi Arabia, and elsewhere in the Gulf.
? The supplying countries, enjoying some economic
prosperity themselves and suffering shortages of
skilled manpower, lost some of their enthusiasm
for the labor exodus.
25
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? The labor-importing host governments were con-
cerned about their growing dependence on fellow
Arabs, many of whom they feared held radical
political views.
? Host governments were also uneasy because Arab
workers who had many years of service in the
Gulf were settling permanently and bringing
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A review of the balance-of-payments accounts in
Arab countries for the past several years shows that
remittances remain a key input to the balance of
payments for Egypt, North Yemen, Lebanon, and
Jordan:
? In Egypt, the largest Arab labor supplier, remit-
tances from the approximately 1.7 million over-
seas workers peaked at $2.7 billion in 1980; we
estimate remittances will total about $2.4 billion
this year.
? In North Yemen, remittances have provided the
underpinning for the economy for a decade.
Official net earnings from remittances reached
about $1.1 billion in 1980 but recently have
declined to about $900 million as the work force
in the Gulf has declined from nearly 1 million to
approximately 700,000.
? Jordan was one of the earliest beneficiaries of the
oil producers' scramble to hire foreign workers.
Remittances from the approximately 300,000
Jordanians working abroad?many of whom are
Palestinians using Jordanian travel papers?now
total about $900 million. They have grown at an
annual rate of nearly 60 percent since 1972.
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Estimated Expatriate Workers in
Labor-Importing Countries, 1982
Thousand workers
Arab
South
Asian
East
Asian
Others a
Total
3,034.2
2,155.3
506.1
325.8
Percent of total
50.4
35.8
8.4
5.4
Saudi Arabia
1,230.0
787.1
372.0
106.0
Libya
321.7
72.3
40.9
157.3
United Arab Emirates
70.0
647.9
10.0
10.0
Kuwait
164.0
205.5
10.5
34.0
Oman
3.0
192.0
1.0
4.0
Qatar
45.0
160.0
10.0
4.0
Bahrain
0.5
63.0
6.5
10.0
Iraq
1,200.0
27.5
55.2
0.5
Total
6,021.4
100.0
2,495.1
592.2
737.9
414.0
200.0
219.0
80.0
1,283.2
a Includes Europeans, North Americans, and Iranians.
? In Lebanon, the Central Bank estimates that one-
third of the labor force-about 250,000 work-
ers-has emigrated to the Gulf states as a result
of the civil war. These workers are sending back
approximately $1.5 billion yearly, covering more
than 80 percent of Lebanon's trade deficit.
? In Syria, remittances peaked at $900 million in
1979 and declined to less than $600 million in the
early 1980s. The decline reflects strict controls to
reduce the loss of skilled workers.
? For South Yemen, remittances run at about $350
million annually.
South Asians: Steady Growth Based on Strong
Regional Ties
According to government statistics, the South
Asians' share of the expatriate labor force in the
Near East increased from 19 percent in 1975 to an
estimated 36 percent in 1982. South Asian workers
outnumbered Arab expatriates in Bahrain, Qatar,
and the UAE as early as the mid-1970s. The
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12 August 1983
number of South Asian workers in oil-exporting
states grew dramatically from 350,000 to nearly
2.2 million between the mid-1970s and the present.
The largest number of South Asians is in Saudi
Arabia, where nearly 800,000 are now employed.
The rapid growth in South Asian workers in the
Near East has been paralleled by a dramatic
growth in their remittances. On the basis of official
South Asian government statistics, we estimate
that remittances from the Near East totaled $3.0-
3.5 billion in 1982, and that overall remittances
may total $4.5-5.0 billion in 1983:
? According to estimates from the US Embassy in
Islamabad, remittances of about $2.8 billion from
the approximately 1.5 million Pakistani workers
in the Near East will exceed Pakistan's export
earnings in 1983.
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Official Foreign Exchange Earnings From Worker Remittancesa
Million US $
1,000
500
Pakistan
India
Bangladesh
Sri Lanka
1978 79 80 81 82 83b
North Africa
1,500
1,000
500
1978
79 80 81
Sudan
Tunisia
82 83b
a Fiscal years.
b Projected.
C Includes estimate of earnings only from other Near East countries, total
remittances reached an estimated $3.0 billion in 1982.
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Near East
2,500
2,000
1,500
1,000
500
1
Lebanonc
Jordan
North Yemen
Syria
South Yemen
1978 79 80 81 82 83b
East Asia
2,500
2,000
1,500
1,000
500
1978
79
80
81
82
South Korea
Thailand
83b
? Sri Lanka's remittances of $300 million from its
70,000 workers in the Gulf rival tea exports as its
largest source of foreign exchange.
? For India, remittances from 670,000 workers in
the Near East peaked at about $2.7 billion in
1981. With the return of workers from Iran and
27
Iraq, remittances have fallen to about $1.5 bil-
lion. We expect that there may be a further drop
in a year or two because the value of new
contracts won by Indian firms has begun to fall.
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Expatriate Workforce by Origin in Near East and South Asia
Net Labor Importers, 1975 and 1982
Percent
0 Arab
Saudi Arabia
United Arab Emirates
Kuwait
Oman
Qatar
Bahrain
Libya
Iraq 1975
1982
El South Asian 0 East Asian 0 Other
1975
1982
1975
1982
1975
1982
1975
1982
1975
1982
1975
1982
1975
1982
1
I
1
6
II
I
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East Asians: Last in, First out?
Following the Camp David Agreement in 1978 and
the seizure of the Grand Mosque by Muslim
fanatics (including Yemenis and Pakistanis) in
1979, Gulf state governments became increasingly
uneasy with the potential for political activism
among the Muslim expatriate workers. They thus
welcomed East Asian efforts to break into the
lucrative Gulf labor market. Even though East
Asians make up only about 8 percent of the
expatriate work force in the oil-exporting countries,
they supply much of the more highly skilled labor
needed for the industrial projects initiated in the
late 1970s.
Analysis of East Asian government financial re-
ports shows the growing importance of worker
remittances:
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50
75
100
? Philippines. Annual remittances from the approx-
imately 190,000 Filipino workers in the Near
East doubled between 1979 and 1982 to an
estimated $400 million. In an effort to capture
more foreign exchange from foreign workers,
President Marcos late last year increased manda-
tory remittances, strengthened other regulations
governing remittances, and instituted a lottery
system designed to reward deposits.
? South Korea. In 1981 and 1982, Korean firms
won more than $24 billion in new construction
contracts in the Near East. They employed about
160,000 workers whose remittances in 1982 to-
taled $460 million.
? Thailand. Remittances from the approximately
150,000 Thai workers in the Near East increased
from an estimated $200 million in 1980 to about
$400 million in 1982.
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? Indonesia. Remittances from the approximately
42,000 Indonesian workers in the Near East
reached $100 million in 1982.
? China. We believe that total foreign exchange
earnings from close to 30,000 Chinese workers in
the Gulf amounted to about $400 million in 1982.
Beijing is negotiating contracts that could in-
crease earnings substantially over the next few
years.
Outlook: Prospects for the Competitors
We believe that most of the oil-exporting countries
will continue to slow the growth but not reduce the
size of their foreign work forces. Consequently,
competition for jobs in the Near East will intensify
among the Arab and Asian labor-exporting coun-
tries.
The Arabs. Even if oil revenues stabilize or rebound
somewhat, we expect little additional growth in the
numbers of Arab workers. Sending-country govern-
ments will attempt to restrict the emigration of
skilled nationals needed at home, and unskilled
Arab labor will continue to be more costly than
unskilled Asian labor. Given their growing uneasi-
ness with the potential political activism of Pales-
tinians, Yemenis, and Syrians, we anticipate that
the host country monarchies will hesitate to in-
crease the numbers of these Arab workers in their
midst. If oil revenues and financial reserves drop
precipitously or continue to decline beyond 1985,
we expect a small net decline in the numbers of
expatriate Arabs working in the region. As Arabic
speakers, fellow Muslims, and the first workers in
the region, they will be, we believe, the last to leave
the Gulf.
The South Asians. If oil revenues stabilize or
rebound, we anticipate additional growth in the
numbers of low-cost and politically compliant
South Asian workers who will take jobs in the
service, operations, and maintenance sectors. We
believe, however, that if the economic downturn in
the Near East continues, South Asians, too, will
suffer a modest net loss of jobs in the region. Large
29
numbers of South Asians are in low-skill jobs on
construction projects that will be canceled or de-
layed if development money is tight.
The East Asians. East Asians have the brightest
prospects, in our view, if economic recovery returns
to the area. Experienced and relatively skilled
Koreans, Filipinos, Chinese, and Thai are poised to
expand their share of the work force by emphasiz-
ing their political neutrality, productivity, and will-
ingness to live apart from host country nationals. If
economic conditions in the Near East deteriorate,
however, we believe that East Asians will be most
vulnerable to reductions because of their close ties
to the construction industry.
Implications for the United States
For the most part, international labor migration in
the Near East?South Asia serves US interests well.
Egypt, Pakistan, and Jordan?major labor export-
ers and important friends of the United States?
have used emigrant workers' remittances to ease
their way through serious balance-of-payments dif-
ficulties during the late 1970s and early 1980s. The
continued receipt of billions of dollars in remit-
tances, moreover, will ease the pressure for US
financial assistance.
Growing economic dependence of Asian countries
on the Near East oil-producing states could present
some political difficulties for the United States.
Asian labor-exporting countries may distance
themselves from policies advocated by the United
States in order to avoid conflicts with Arab posi-
tions. For example, South Korea, which receives 80
percent of its crude oil and 90 percent of its
overseas construction contracts from the Near
East, has been reluctant to actively support US
efforts to oppose anti-Israel resolutions introduced
by Arab states in various international forums. 25X1
Late in 1982, South Korea decided not to provide
troops for the Lebanese peacekeeping force despite
a Lebanese request that had strong US support.
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