INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000100190007-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 35
• Document Creation Date: December 22, 2016
• Document Release Date: October 14, 2010
• Sequence Number: 7
• Publication Date: August 2, 1985
• Content Type: REPORT

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Directorate of
Intelligence
International
Economic & Energy
Weekly
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DI IEEW 85-031
2 August 1985
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Secret
iii Synopsis
directed to ___]Directorate of Intelligence,
Energy
International Finance
Global and Regional Developments
National Developments
Comments and queries re arding this publication are welcome. They may be
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DI JEEW 85-031
2 August 1985
International
Economic & Energy WeeklyF--] 25X1
2 August 1985
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International
Economic & Energy Weekly
Synopsis
The resounding rejection of the ruling party during recent elections indicates
that voters are fed up with hyperinflation, economic deprivation, and work
stoppages. Much will depend on the ability of the next administration to enact
a market-oriented economic policy, endure criticism and opposition, and
encourage private enterprise.
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DI IEEW 85-031
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Bolivia: Dimensions of
Economic Reconstruction
The resounding rejection of the ruling party during
recent elections indicates that voters are fed up
with hyperinflation, economic deprivation, and
work stoppages. With labor discredited and the
radical left divided, the current front-runners-the
final selection of the president by the Congress is
scheduled for today-are promising to attempt
economic reconstruction. The implementation and
success of such efforts, however, will depend on the
ability of the next administration to enact a
market-oriented economic policy, endure criticism
and opposition, and encourage private enterprise.
Secret
Real GDP growth
-6.6
-8.6
-3.7
Inflation
297
328
2,177
Change in money supply
230
210
1,890
Ratio of public-sector
deficit to GDP
7
18
23
Ratio of external public
debt to GDP
46
55
80
Ratio of debt service to exports
42
45
55
Anatomy of a Crisis
Economic policy under President Siles was geared
to gaining popular support for the government by
granting massive wage concessions, and increasing
government spending and subsidization by printing
money. The results have been disastrous:
? Inflation-running at 8,900 percent for the 12
months that ended in June-is the highest in the
world and caused industrial production to decline
22.4 percent in 1984.
? Thirty percent of the labor force is unemployed or
underemployed, and real wages have fallen 20
percent, according to the US Embassy. Conse-
quently, strikes for increased wages continually
disrupt the economy.
? Decreasing per capita income has resulted in
sharp cutbacks in consumption of basic food
items. A UNICEF study states that 60 percent of
Bolivia's children suffer malnutrition.
The economy is also reeling under major structural
problems. Controls on bank interest rates in the
face of galloping inflation have destroyed the incen-
tive to save. In May, private commercial bank
deposits totaled only $11 million, according to the
US Embassy. Inept administration and economic
controls have driven the mining sector to the brink
of bankruptcy, with tin production falling 25 per-
cent over the past year. Massive cash transfers to
government-owned enterprises, consumer subsidies,
and tax evasion caused a fiscal deficit equal to at
least 23 percent of GDP in 1984, according to US
Embassy reporting.
Government price controls have led to massive
smuggling, as well as thriving black markets.
Smuggling by Bolivian producers accounts for the
fact that in 1984 Peru's official tin production far
exceeded its reported production capacity. On the
black market, consumer staples are bought and sold
at premium prices, and a dollar fetches 12 times
the official exchange rate. The US Embassy reports
that as much as 50 percent of all economic activity
takes place outside of the formal economy.
La Paz has refused to work with bankers and the
IMF and is now in default on its commercial bank
debt. The government claims that its foreign cur-
rency reserves are exhausted. The US Embassy
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DI /EEW 85-031
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Current account balance
-93.8
-183.6
-245.0
Trade balance
399.0
275.0
224.0
Exports, f.o.b.
827.7
756.8
695.0
Imports, f.o.b.
428.7
481.8
471.0
Net services and transfers
-492.8
-458.6
-469.0
reports that the current account deficit rose to $245
million in 1984, despite the suspension of interest
payments to foreign banks.
Campaign Promises
The two front-runners in the current bid for the
presidency both favor a return to more market-
oriented policies aimed at reinvigorating the econo-
my. Former President Hugo Banzer, who won the
count of valid votes,by a narrow 2.7-percent margin
but is unlikely to emerge as president from the
congressional balloting, has publicly promised dras-
tic measures beginning with the deregulation of
exchange rates, prices, and interest rates. He says
he would reduce the fiscal deficit by cutting gov-
ernment employment and raising taxes, and by
selling off or shutting down inefficient government
mining companies.
Victor Paz Estenssoro, who probably will be select-
ed president with the support of a leftist coalition in
Congress, has yet to announce a comprehensive
economic program. According to the US Embassy,
Paz favors.a more gradualist approach, promising
to move exchange rates and consumer prices to-
ward market levels over time. He has also promised
to reduce fiscal deficits, improve the management
of state enterprises, and remove current export
obstacles.
According to press and Embassy reports, both
candidates would promote agricultural develop-
ment. Banzer believes the government should en-
courage privately owned farms in the underdevel-
oped lowland, providing a greater incentive to
increase production. Paz, too, wants to expand
private agriculture, as well as cooperatives. The US
Embassy reports that Paz wants to attract interna-
tional assistance and provide subsidies to farmers to
convert from coca cultivation to staple crops
According to the US Embassy, both Banzer and
Paz plan to promote foreign investment-although
neither has announced specific measures-as well
as renew talks with the IMF. Foreign investment
would provide a much-needed source of capital and
management skills, especially in the oil and gas
sector. An IMF agreement will be required to
renegotiate commercial debts, resume regular debt
payments to private banks, and reestablish trade
credit lines to revive imports already pared to the
bone.
Beyond the Candidates' Proposals
Based on the experiences of governments that have
been successful in breaking hyperinflation, we be-
lieve additional fiscal discipline would be necessary.
A currency reform accompanied by strict control
over the printing press is a prerequisite. To control
the money supply, we believe La Paz will need to
separate the Central Bank and Treasury functions.
A temporary wage and price freeze could be im-
posed to ensure public support and dampen infla-
tionary expectations. Most governments that have
been successful in breaking the inflationary spiral
have also implemented wage restraints.
Beyond this, La Paz must, in our view, rein in its
state-owned enterprises. Eliminating subsidies to
state companies would help decrease the deficit and
free up credit for the more productive private
sector. Capital formation and domestic investment
would be encouraged by restoring positive real
interest rates on regulated bank accounts.
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Hyperinflation During the Weimar Republic
The German Weimar Republic endured hyperinfla-
tion for 181 months. By November 1923, prices were
increasing at a rate of 30,000 percent a month,
causing price signals to go haywire. Prudent activi-
ties-such as savings and investment-became fol-
ly, but speculation created wealth. Moreover, real
wages fell, despite indexation that merely escalat-
ed the hyperinflationary spiral.
At the end of 1923, a determined and tough-
minded Reichsbank president, Hjalmar Schacht,
implemented a series of measures that halted
inflation and stabilized the economy:
? A new currency was issued and backed by mort-
gage bonds on Germany's land and physical
assets.
? In order to regain control of the money supply,
the Central Bank refused to accept private cur-
rency issued by businesses and municipalities in
a total amount as great as that of the official
currency.
? The amount of credit outstanding was frozen,
and the subsequent shortage of money caused
hoarders to convert foreign currency into marks,
bolstering the exchange rate. The credit freeze
also led to an inflow of money that had been held
abroad.
? Government employment was cut.
? New taxes were imposed, and real income from
taxes already in place increased dramatically as
restoration of order made collection easier, and
currency stabilization ended the incentive to lag
tax payments.
? Loans of special marks backed by gold were
made on a "constant value" basis, payable in
gold marks sufficient to represent the original
value, not the depreciated value, of the loan.
Thus, debtors no longer benefited from inflation.
We believe La Paz needs to diversify exports to
restore debt-servicing capacity. Tin-the tradition-
al export mainstay-will-continue to lack competi-
tiveness on the world market because of high
production costs
Natural gas sales to Argentina, now the largest
foreign exchange earner, are vulnerable because
Buenos Aires has its own gas deposits. To this end,
Bolivian gold and lithium deposits could be exploit-
ed, and natural gas sales negotiated with other
South American countries, particularly Brazil. Ac-
cording to the World Bank, uncultivated fertile
lowlands could produce large legal export crops.
Given the resounding defeat of the ruling party in
the current election, we judge that most voters-
weary of hyperinflation-would provide initial sup-
port for a thoroughgoing economic reform and
stabilization program. It is also clear from past
attempts at economic adjustment in Bolivia that
popular opposition would develop in response to
government layoffs, tax increases, and the retrac-
tion of subsidies, and could easily cause the govern-
ment to backslide in key areas.
Military and labor reaction will also be crucial.
__Fw-e judge that the armed forces would probably
support stabilization measures. In contrast, the
Confederation of Bolivian Workers would push
hard to obstruct the government. Although labor
will continue to be a major obstacle, the internal
divisions within the country's largest worker's con-
federation and the public disenchantment with
excessive strikes should work to the advantage of
any new government. If the government tries to ban
strikes, however, as occurred during Banzer's first
administration, such action could lead to violence
that would undermine stabilization.
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Beyond the political challenges, economic recon-
struction will. be difficult to put-into practice.. We
judge there is insufficient technical talent to imple-
ment thoroughgoing reforms. Moreover, the high-
land Indians in the past have resisted relocation to
the lowlands =a key feature of agrarian .reform:
The Danger
Without reconstruction, however, Bolivia's formal
economy will likely be paralyzed by hyperinflation
that could move into seven digits. Virtually all
economic activity would probably occur through
barter and on the black market. Savings would
become nonexistent, while external insolvency
would continue.
The drug sector, the only portion of the economy'
where government does not intervene, would con-
tinue to thrive as the sole viable economic alterna-
tive.
although much of the hard currency earned
through the drug trade stays outside the country,
the proportion that flows back supports extensive
employment in drug cultivation and trafficking
networks.
we estimate that at least $200 million in
drug money flowed back to Bolivia last -year to
bolster the economy
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, Energy
Inadequate OPEC . Token price reductions agreed to at last week's OPEC ministerial meeting are
Price Cuts unlikely to alter the market's view that the organization is impotent. The oil
ministers agreed by majority vote to cut.medium-grade oil prices by 20 cents
per barrel to $27.20 and to lower heavy crude prices by 50 cents to $26. The
organization plans to meet again in October to discuss production quotas.
Industry sources of the US Embassy in Riyadh claim the Saudis do not plan to
carry out their threat to flood the market with oil unless OPEC fails in
October to agree to a new output allocation scheme. In that case, the Saudis
may be willing to, risk a price war to regain their share of the market. OPEC
needed to cut heavy oil prices about $1.50 per barrel to bring them in line with
spot market rates, and Venezuela would have to lower prices even further to
meet Mexican competition.
Iraq To Increase
Turkish Pipeline
Exports . .
Iraq plans to raise its oil exports through the Iraqi-Turkish pipeline
contract awards are not made soon.
Meanwhile, Iraq is holding off
awarding a contract to expand the pipeline because the Italians who made the
low bid have been having so many problems on the Iraqi-Saudi pipeline
project. The US Embassy in Ankara reports Baghdad has expressed consider-
able interest in having a US-led group do the work if US Government
financing can be arranged. Baghdad is committed to raising exports by
500,000 b/d this fall, but problems with construction of the line through Saudi
Arabia may force Baghdad to risk using chemical flow enhancers. Completing
the Turkish pipeline construction by January 1987 will be difficult if the
Pushing the Oil could flow through the new Iraqi-Saudi pipeline in September before the
Iraqi-Saudi -line is fully operational, according to the US Embassy in Riyadh. Saudi
Pipeline Into Service authorities have tentatively approved the contractor's unusual plan to operate
the line manually for. several months until electronic controls are installed.
Project managers believe construction will not be complete before early
November, and early export rates will be limited to about 200,000 b/d,
according to the US Embassy in London. Early use of the line will minimize
the effect of delays in completion and support Iraq's request for a higher
production quota at a special OPEC meeting. proposed for October. Although
the line could be manually operated at 500,000 b/d, Riyadh may claim safety
concerns.to limit the flow of Iraqi oil into a tight market. Unless other
producers cut back, even a small increase in Iraqi production would add to
price pressures.
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Shakeup at National The National Iranian Oil Company (NIOC) has replaced its marketing
Iranian Oil Company manager because in May he used barter deals to move bulging stocks at the
Sirri transshipment terminal, according to a source of the US Embassy in
Kuwait. The new marketing chief disapproves of barter. In May the president
of NIOC stepped down amid similar criticism of sales policies. These
personnel moves reflect serious disputes within: the regime over oil policy. The
Oil Ministry and NIOC prefer cash sales, but lack of hard currency has
pushed other ministries to meet- import needs through barter deals. NIOC is
blamed by the Consultative Assembly (Majles) for Iran's foreign exchange
shortage but is also criticized for selling oil too cheaply when it attempts to in-
crease sales.
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Eastern Europe's Eastern Europe has undertaken in recent months a resurgence in borrowing
Western Borrowing from Western commercial banks reminiscent of the loan boom of the late
Resurgence 1970s. Syndicated credits to Bulgaria, Czechoslovakia, East Germany, and
Hungary have totaled nearly $2.5 billion so far in 1985-compared with just
over $3 billion in 1982-84-and have carried favorable terms. Competition
among bankers seems to be due more to high -bank liquidity and a lack of bet-
ter lending opportunities elsewhere, however, than to enthusiasm over East
European economic performance and prospects. Moreover, troubled debtors,
Poland and Yugoslavia, are still shut out, and a current loan effort for
Romania faces uncertain prospects. East European borrowers apparently are
using the new bank credits largely to refinance existing commercial debt on
better terms', and not to cover payments deficits. Official and officially-
guaranteed debt is also likely to continue rising. Most Western governments
seem willing to extend more trade credits, and the East Europeans appear
ready to begin importing more capital goods typically financed with these
loans. Debt to the World Bank is likely to increase as a result of major project
loans for Hungary and Yugoslavia. Under present arrangements, the com-
bined obligations of Yugoslavia, Romania, and Hungary to the IMF should
begin to fall this year, but, if Poland joins the Fund in 1986, East European
debt to the Fund could begin growing rapidly again.
Gross debt 8
5,841
80,568
81,600 ?
80,795
Commercial 5
9,552
52,778
48,110
42,700
Official 2
1,305
21,110
26,122
30,106
IMF/IBRD
4,984
6,680
7,368
7,989
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Poland Still
Seeking Credits
and Canadians have yet to decide.
Poland is seeking $600-800 million in new credits from Western governments
in the wake of last month's rescheduling of about $11 billion in official debt
which became due during the period 1982-84. Its chances of receiving
significant funding soon appear slim. Earlier this year, Warsaw requested $1.7
billion in credits from Western governments, but received no firm commit-
ments. NATO sanctions on new credits to Poland are still in effect, but some
countries, including the United Kingdom and West Germany, have indicated
they will base their lending on economic rather than political grounds. Even
the economic grounds are shaky-a recent survey by US embassies found that
most countries are waiting for complete payments on the 1981 and 1982-84 re-
scheduling agreements and the signature of a 1985 accord before making a de-
cision on new. loans. The Poles probably will be at least $500 million short of
meeting the minimum payment required by governments. Even if some
payments are forthcoming, the West Germans plan to grant only $30 million,
while the British and Swedes may provide only small short-term credits. The
Danes probably will not extend any new credits, while the Portuguese, Greeks,
Global and Regional Developments
Advanced Technology Use of advanced technologies on the new 150-seat A320 presents difficulties
and Regulatory for airworthiness certification in Western Europe and the United States. The
Concerns of "fly-by-wire" control systems, advanced cockpit technologies, and "relaxed
Airbus A320 static stability" aerodynamics do not technically comply with published flight
standards. The new technologies, nevertheless, have the ability to provide
levels of flight safety and passenger comfort far in excess of existing
commercial aircraft. We.believe the Airbus consortium has taken significant
steps to ensure the A320's certification.
Overall, we believe that the A320 is likely
to inspire US aircraft manufacturers to apply similar advanced technologies in
future designs.
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Argentina Boosts Sales Argentina has scored a major coup in the global.grain market by agreeing to
in Brazilian Wheat sell Brazil 1.4 million metric tons of wheat valued at about $150 million for de-
Market livery from October 1985 through.July 1986. The accord more than doubles
the flow of Argentine wheat to Brazil's 4 to 5 million ton-per-year import
market-the largest in Latin America-largely at the expense of higher priced
US wheat. It also will help alleviate Argentine concern over Brazil's bilateral
trade surplus that has ranged from $50 to $350 million over the past five years.
The pact reportedly stems, in part, from high-level pressure in Brasilia to
improve Brazilian-Argentine relations. This-pressure apparently outweighed
the technical views of the Brazilian Wheat Board, the sole purchaser of wheat,
which has generally favored US wheat based on product quality, financing,
and shipping arrangements.
Propfan Technology A recent meeting of Western government and industry aerospace propulsion
for Commercial experts featured extensive discussions on propfan engines for commercial
Aircraft aircraft. Although the propfan's efficiency promises savings of up to 8 percent
of direct operating cost, difficult- problems remain. Present NASA programs
and industry programs in France, the United Kingdom, as well as the United
States, are seeking solutions to-the excessive vibration and cabin and airport
noise associated with the large propeller-driven aircraft. Given these problems,
most experts do not see a program launch until the late 1980s with expected
airline operation in the late 1990s. This limits potential propfan sales in the
present round of competition to replace existing short haul fleets.
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 National Developments
Developed Countries
Japanese ,Japanese semiconductor manufacturers are.continuing to reduce investment
Semiconductor levels for plant, and equipment this fiscal year. Although the amounts noted in
Investment Declines.. Japanese press reports. vary, the trend has been sharply downward since
February. when Japanese semiconductor makers were reporting plans to
increase their investment level 10 to 20 percent above the record fiscal 1984
levels (up-to 1. trillion yen, or $4 billion by one estimate). By May planned in-
vestment 'levels,were revised downward.to 6 to 7 percent less than in FY 84.
Since then, five of the nine major manufacturers-Hitachi, Toshiba, Fujitsu,
Matsushita, and Mitsubishi-have announced planned cuts of 10 to 30
percent.
Japan Reducing ::. .
Semiconductor Exports
to the United States
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Last week; Hitachi and Toshiba, Japan's second- and third-largest semicon-
ductor?producers, announced plans to reduce exports, and press reports
indicate all-other major producers will follow. Hitachi-often criticized in the
United States for aggressive pricing and marketing-will reduce semiconduc-
tor exports to the US market by 30 percent, while other manufacturers will
lower shipments. by about 20 percent: Japanese market share will remain
constant,, however,-.because of lower US semiconductor demand.
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London Steps Up The Thatcher government took a series of steps in mid-July to bring down the
Fight Against 13-percent unemployment rate. In a reversal of policy, London said it would
Unemployment begin to use state funds to encourage companies to shift orders to areas hit
hardest by unemployment. Employment secretary King told a gathering of
business leaders that the "on-your-bike" approach-referring to the govern-
ment's philosophy that workers should relocate to find jobs-has its limits.
London also announced proposals for broad deregulation of small businesses
and removing youth from minimum wage controls to stimulate job creation.
Thatcher can be expected to take even more active measures on unemployment
as national elections-due by mid-1988-draw nearer; polls show the public
continues to view unemployment as the most serious problem facing the
nation.
Spanish Austerity Spain's new Minister of Economy and Finance, Carlos Solchaga, has pledged
To Continue to adhere to the austerity program introduced in 1982 by former Minister
Boyer. In particular, Solchaga aims to further cut the budget deficit as a
percentage of GDP in an effort to reduce inflation, nudge down real interest
rates, and avoid crowding out private investment. Anticipating pressure to
accelerate government spending before next year's elections, he stated firmly
that an expansionary policy would provide only a short-lived stimulus that
would reverse the progress made thus far. Solchaga tried to strike a less
confrontational stance than his predecessor by offering to discuss economic
policy with labor and business leaders. Nevertheless, we believe Solchaga's
commitment to tough austerity-including wage moderation, pension cuts,
layoffs in declining industries, and labor reforms-makes a reconciliation with
the Socialist trade union unlikely.
Less Developed Countries
Soviet Oil Credit A Soviet diplomat recently told the US Embassy in Managua that the USSR
Terms for Nicaragua is supplying roughly 80 percent of Nicaragua's oil needs over the next few
years on commercial terms. He claimed that virtually all economic transac-
tions with the Sandinistas are handled on nonconcessionary terms with only a
few outright donations of wheat, medicine, and vehicles. He said Managua
repaid $7 million for commercial loans last December but admitted problems
with debt service since then. Even though Moscow is trying to show
Washington it is distancing itself from the Sandinistas, it probably has not
changed the highly concessional economic relationship. Specific details are
unavailable, but Moscow appears to be conducting most of its trade, especially
oil, on a commercial basis that includes generous trade credits. Nevertheless, it
almost certainly will be unable to hold the Sandinistas to a strict repayment
schedule because of insufficient funds in Managua and the importance the
Soviets ascribe to keeping the Nicaraguan regime afloat.
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Drought Threatens Normal rainfall so far this year in regions of Ethiopia that feed the Nile River
Flow of Nile may indicate a break in. the long drought and reduce the threat of a
catastrophic water crisis in Egypt in 1986 or 1987. Even so, several years of
above-normal rainfall will be required to fill Lake Nasser, Egypt's main
reservoir on the Nile. By the end of this month,-the lake will have only about
one-fifth of its normal usable volume, and electric power generating capacity
at the Aswan High Dam is already down by about 20 percent, according to the
US Embassy. The Nile supplies 95 percent of Egypt's water and about 85
percent, of Nile water originates in Ethiopia. Egyptian authorities are optimis-
tic that the current.drought is now ending. If the drought continues through
1986, all usable.storage will be gone; by 1987 power generation and irrigation
water release will have-to be cut drastically:
Lebanese Economy The Lebanese. economy continues.to function, albeit at a very low level,
Hangs-On according to the US Embassy. Industry is at a virtual standstill due to the poor
security situation, credit limitations, imported raw material shortages, and
competition from tax-free goods imported. through the numerous illegal ports.
Commerce has. been kept. alive by continued government deficit spending via
its bloated payroll and through black-market trade with Syria. Although the
Lebanese pound has recently stabilized at approximately 16 to the dollar, its
fall from nine to the dollar at the start of the year has contributed to price
hikes of approximately 70 percent. One factor reportedly helping the economy
and the pound is the inflow of money-estimated at up to $50 million a
month
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2 August 1985 ? ? .
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Tunisia Sports The government is estimating this year's cereal harvest at 1.95 million metric
a Bumper Crop tons, up a surprising 90 percent over 1984. Press reporting claims that no
durum wheat imports will be necessary through early 1986 and that limited
exports of barley may be possible for the first time in several years. If the esti-
mates hold true, the bumper crop will provide badly needed relief to Tunisia's
current account and budget deficits. Food imports cost an estimated $350
million last year and food subsidies totaled $320 million. Good weather-after
several years of drought-is the primary cause of the rebound. Nevertheless,
expansion of agricultural education programs and liberalization of government
price controls will be necessary to sustain the turnaround, measures that the
regime probably will be slow to implement.
Mauritania's Mauritania has begun the uphill battle to reopen its long-dormant copper mine
Copper Mine with the help of wealthy Arab states-Algeria is a key backer-and foreign
expertise, according to the US Embassy in Nouakchott. The project, however,
has no assured outlets for the ore and is plagued by high extraction costs and
low world prices for copper. In addition, the hasty closure in 1978 has left the
mine in a poor state of repair-tailings were dumped on the most promising
site for new open pit operations. The reopening, scheduled for 1987, would
provide 900 badly needed jobs in the drought ravaged interior. Unless world
copper demand substantially improves, reopening Mauritania's second-largest
industrial project will require substantial subsidies, something the financially
strapped government cannot provide. Moreover, use of outside management
will require a major departure from the government's preference for heavy
state control.
Tanzania At least one of the 12 sisal plantations President Nyerere promised to
Proceeding With denationalize was recently purchased by a British firm. Further sales and
Denationalizations subsequent private operation of the sisal estates, whose production dropped 80
percent under parastatal management, should inject much needed foreign
private investment into the collapsing economy. This revenue, however, would
provide only a fraction of the estimated $200 million a year the government
needs for agricultural rehabilitation. The privatization of the sisal estates, the
sale of the Moproco oilseed processing concern, and recent rental housing
reforms suggest the stage is being set for Nyerere's successor to take even
more pragmatic steps to moderate Tanzania's unproductive socialist policies.F
Poor Philippine Prime Minister Virata is urging the IMF to set less stringent budget and
Economic Outlook -money supply targets in its loan program for the Philippines, according to press
reports. The government now projects that the economy will contract this
year-it declined by 3.5 percent in the first quarter-and it is searching for
ways to stimulate the economy. Virata contends that adhering to the IMF's
guidelines has kept interest rates at prohibitive levels, depressing business
activity hopes for an economic recovery are
being dimmed by the expectation that export earnings for the year will decline
Secret
2 August 1985
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by 15 percent-in contrast to the 10-percent growth rate originally. projected
by the IMF. Virata's lobbying effort underscores Manila's fear that a deeper
recession.. will further diminish the ruling party's prospects in local elections
scheduled for 1986, aggravate unrest in the increasingly militant labor
movement, and pave the. way for further gains by the Communist insurgents in
the countryside. The IMF is likely to grant Manila some leeway, but only if
Manila devalues the peso and enforces long-sought reforms in the sugar and
coconut industry.
Increased Soviet Recent press reports from Hanoi claim Soviet economic aid to Vietnam for the
Aid to Vietnam 1986-90 five-year plan will be more than double that for the current plan.
Moscow currently provides Vietnam approximately $1 billion in economic
assistance annually. These reports add detail to the late June announcement of
a new economic package for Vietnam concluded during party Secretary Le
Duan's visit to Moscow. Although we believe the claimed increase is exagger-
ated, the Soviets probably will boost economic assistance-much of it may be
earmarked for oil exploration and development in the South China Sea. Other
reports suggest Soviet interest in building, an oil refinery and possibly
beginning offshore oil exploration in the Tonkin Gulf.
Soviet Problems in Ivestiya reports that robotization, one of the key programs in the current
Manufacturing Soviet modernization drive, has not been cost effective and must be revised. A
Modernization recent study of robot use in 52 Soviet machine and instrument manufacturing
plants shows only 9 percent of these robots are used for more complex tasks
such as welding, painting, and electroplating, while 72 percent perform simple
functions such as loading and, carrying. This reflects the fact that although the
USSR now produces between 14,000 and 15,000 robots annually, more than
double US production, most Soviet industrial robots are quite rudimentary and
would probably be classed in the United States as manipulators. In the Soviet
plants studied, 91 percent of the newly introduced robots replaced only one
worker-or less-per shift. Thus, installation of such a robot saves only one
annual salary, or 4,000 rubles, but costs 40,000 to 50,000 rubles each.
Polish-Japanese Nissan has recently begun negotiations with Warsaw to construct a large
Auto Venture automobile facility in Poland. The plant, which would manufacture automo-
biles for both the West and East European markets, is seen as a threat by Fiat,
which traditionally has had a lock on the East European auto market:
Fiat recently signed an agreement with Warsaw to provide a $50
million, five-year credit-one of the few Poland has been able to arrange in the
West since its financial crunch in 1981-for modernization of the plant in
Secret
2 August 1985
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Secret
southern Poland that produces the Fiat 126. A Warsaw-Nissan pact-which
faces many hurdles such as financing and Poland's poor reputation for
quality-would put further pressure on the major West European auto
producers that already suffer from a serious overcapacity problem and need to
shed more than 200,000 jobs over the next five years.
Serious Chinese Beijing has sent 850 troops to help ease a backlog of more than 500 ships at
Port Delays Dalian, Qingdao, and Shanghai. The military also will provide wharves,
warehouses, and vehicles to transport and store cargo. Last month Beijing
began confiscating cargoes that were not picked up on schedule. A sharp
increase in trade has intensified the usual delays caused by China's antiquated
and limited port facilities. China has less than 400 berths, and the 5,300 ships
that called at Chinese ports during the first half of 1985 represented a 29-per-
cent increase over the same period last year. Beijing has accelerated plans to
build additional port facilities and associated infrastructure. Meanwhile,
delays of three months or longer may discourage some foreign firms from
trading with China.
Sino-Japanese The latest session of the Bilateral Investment Treaty talks ended with three
Investment major issues unresolved-treatment of investment, free transfer of assets, and
Negotiations Recessed dispute settlement.
(Another round of talks may be
scheduled for this fall. Nakasone has promised Beijing an accord by the end of
this year, and the Japanese seem willing to grant concessions despite Chinese
intransigence. If a Sino-Japanese treaty is signed within the next few months,
China probably will expect the United States to become more interested in
negotiating a similar treaty.
29 Secret
2 August 1985
25X1
25X1
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Secret
Secret,
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Directorate of
Intelligence
Economic & Energy
Indicators
DI EEl 85-016
2 August 1985
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This publication is prepared for the use of US Government
officials, and the format, coverage, and content are designed to
meet their specific requirements. US Government officials may
obtain additional copies of this document directly or through
liaison channels from the Central Intelligence Agency.
Requesters outside the US Government may obtain subscriptions to
CIA publications similar to this one by addressing inquiries to:
Document Expediting (DOCEX) Project
Exchange and Gift Division
Library of Congress
Washington, D.C. 20540
or: National Technical Information Service
5285 Port Royal Road
Springfield, VA 22161
Requesters outside the US Government not interested in subscription
service may purchase specific publications either in paper copy or
microform from:
Photoduplication Service
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or: National Technical Information Service
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(To expedite service call the
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Comments and queries on this paper may be directed to the DOCEX
Project at the above address or by phone [phone]), or the
NTIS Office of Customer Services at the above address or by phone
(703-487-4660). Publications are not available to the public from the
Central Intelligence Agency.
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Economic & Energy
Indicators
Industrial Production
Gross National Product
Consumer Prices
Page
Energy
Money Supply
Unemployment Rate
Foreign Trade
Current Account Balance
Export Prices in US $.
Import Prices in US $
Exchange Rate Trends
Money Market Rates
Agricultural Prices
Industrial Materials Prices
World Crude Oil Production, Excluding Natural Gas Liquids 8
Big Seven: Inland Oil Consumption 9
Big Seven: Crude Oil Imports 9
OPEC: Crude Oil Official Sales Price 10
OPEC: Average Crude Oil Official Sales Price (Chart) 11
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Industrial Production
Percent change from previous period
seasonally adjusted at an annual rate
United States
2.6
-7.2
5.9
11.6
2.1
2.2
2.9
2.9
1.0
1.9
Japan
1.0
0.4
3.5
11.1
-2.6
11.7
-15.7
39.0
25.1
-8.4
West Germany
-2.3
-3.2
0.3
2.4
-4.6
15.6
18.2
-15.4
France
-2.6
-1.5
1.1
2.6
-3.0
19.8
-23.8
19.9
United Kingdom
-3.9
.2.1
3.9
1.2
5.9
28.5
3.4
13.1
Italy
-1.6
-3.1
-3.2
3.1
7.4
3.7
-41.1
7.8
Canada
0.5
-10.0
5.7
8.7
-1.1
-2.5
10.5
Gross National Product a
Percent change from previous period
seasonally adjusted at an annual rate
Percent change from previous period
seasonally adjusted at an annual rate
United States
10.3
6.2
3.2
4.3
3.3
4.2
5.8 4.6 2.7 2.6
Japan
4.9
2.6
1.8
2.3
2.3
1.1
0.2 3.0 -1.0 8.7
West Germany
6.0
5.3
3.3
2.4
3.7
2.6
5.6 1.9 1.4 -0.8
France
13.3
12.0
9.5
7.7
5.7
6.3
6.7 5.9 6.7 6.4
United Kingdom
11.9
8.6
4.6
5.0
7.0
9.8
12.5 12.1 6.0 5.5
Italy
19.3
16.4
14.9
10.6
10.2
10.5
10.9 11.8 9.1 9.1
Canada
12.5
10.8
5.8
4.3
5.4
3.9
2.0 6.3 2.0 3.0
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Money Supply, M-1,-
Percent change from previous period
seasonally adjusted at an annual rate
United States b
7.1
6.6
11.2
6.9
10.9
10.6
5.8
6.0
14.9
21.7
Japan
3.7
7.1
3.0
2.9
11.1
70.0
-48.2
18.3
West Germany
1.1
3.6
10.3
3.3
1.4
-0.4
13.2
-9.0
-1.2
6.8
a Based on amounts in national currency units.
b Including M1-A and M1-B.
United Kingdom
10.0
11.6
12.4
12.6
12.9
13.1
12.9
13.0
13.1
13.2
Italy
8.4
9.1
9.9
10.4
10.8
10.2
Canada
7.5
11.1
11.8
11.3
11.1
10.6
11.2
10.9
10.5
10.5
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a Seasonally adjusted.
b Imports are customs values.
c imports are c.i.f.
Japan
4.8
6.9
20.8
35.0
6.8
4.1
3.6
West Germany
-6.8
3.3
4.2
6.0
1.7
3.0
1.3
2.0
-0.2
United Kingdom
15.3
8.5
4.5
0.9
0.1
1.5
0.3
0.9
0.3
Italy
-8.6
-5.7
0.6
-3.2
Canada
-5.0
2.1
1.4
1.9
0.5
Foreign Trade
United States b
Exports
233.5
212.3
200.7
217.6
55.7
17.8
17.4
Imports
261.0
244.0
258.2
325.6
84.4
28.3
28.7
Balance
-27.5
-31.6
-57.5
-107.9
-28.7
-10.5
-11.3
Japan
Exports
149.6
138.3
145.5
168.2
40.3
14.2
14.3
Imports
129.5
119.7
114.1
124.1
28.8
10.3
9.8
Balance
20.1
18.6
31.5
44.1
11.5
3.9
4.5
West Germany
Exports
175.4
176.4
169.4
172.0
41.0
42.9
14.5
14.5
13.9
Imports c
163.4
155.3
152.9
153.1
36.5
36.9
12.4
12.4
12.1
Balance
11.9
21.1
16.6
18.8
4.5
6.0
2.1
2.1
1.8
France
Exports
106.3
96.4
95.1.
97.5
22.5
24.4
8.2
8.0
8.1
Imports
115.6
110.5
101.0
100.3
23.6
24.7
8.7
8.1
7.9
Balance
-9.3
-14.0
-5.9
-2.8
-1.1
-0.4
-0.4
-0.1
0.2
United Kingdom
Exports
102.5
97.1
92.1
93.7
22.7
25.4
8.5
8.5
8.3
Imports
94.6
93.0
93.8
99.2
24.2
25.7
8.9
8.2
8.6
Balance
7.9
4.1
-1.8
-5.5
-1.5
-0.4
-0.3
0.3
-0.3
Italy
Exports
75.4
74.0
72.8
73.6
17.6
5.5
Imports
91.2
86.7
80.6
84.3
21.4
7.0
Balance
-15.9
-12.8
-7.8
-10.7
-3.8
-1.6
Canada
Exports
70.5
68.5
73.7
86.8
21.9
7.4
7.3
Imports
64.4
54.1
59.3
70.8
18.0
5.9
6.0
Balance
6.1
14.4
14.4
16.1
3.9
1.6
1.3
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
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Export Prices in US $
Percent change from previous period
at an annual rate
United States
9.2
1.5
1.0
1.4
0.1
7.4
-6.7 8.8
Japan
5.5
-6.4
-2.4
0.2
-11.9
-11.2
93.0 -20.0
West Germany
-14.9
-2.8
-3.2
-7.1
-18.9
4.0
119.6 -2.6 18.5
France
-12.0
-5.5
-4.8
-2.9
-12.8
26.4
Percent change from previous period
at an annual rate
1st Qtr
Mar
Apr
May
Jun
United States
5.3
-2.0
-3.7
1.7
-10.6
-7.7
1.4
12.3
Japan
3.6
-7.4
-5.0
-2.8
-10.9
19.2
-7.2
-2.1
West Germany
-8.6
-4.7
-5.2
-4.8
-12.9
22.1
76.0
-6.8
-1.9
France
-7.8
-7.2
-7.0
-3.8
-10.4
32.4
-15.7
57.5
127.8
-19.4
11.1
-7.9
12.3
Canada
8.7
-1.1
-3.3
-0.1
-4.8
-7.6
10.6
9.7
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Exchange Rate Trends
Percent change from previous period
at an annual rate
United Kingdom
2.5
-2.1
-5.0
-2.5
-10.5
86.6
17.2
Italy
-9.2
-5.1
-1.6
-3.1
1.3
-11.9
0.1
Canada
0.3
0.2
2.3
-2.3
- 2.1
- 5.3
-8.2
Japan
2.7
-12.8
4.5
0
-19.6
9.9
25.2
0.5
12.5
West Germany
-24.6
-7.2
-5.2
-11.5
-28.0
19.0
53.5
-4.3
14.6
France
-28.7
-20.8
-15.9
-14.7
-26.7
19.6
54.3
-5.5
15.7
United Kingdom
-13.2
-13.4
-13.3
-11.9
-28.6
59.9
207.5
10.5
35.5
Italy
-32.8
-18.8
-12.3
-15.6
-30.3
9.5
45.4
-2.9
14.7
Canada
-2.5
-2.9
0.1
-5.1
-10.5
-5.0
14.3
-9.3
6.7
United States
90-day certificates of
deposit, secondary market
16.24
12.49
9.23
10.56
8.76
8.61
9.13
8.61
Japan
loans and discounts
(2 months)
7.79
7.23
NA
6.66
6.55
6.54
6.55
6.55
West Germany
interbank loans
(3 months)
12.19
8.82
5.78
5.96
6.12
5.98
6.35
5.98
France
interbank money market
(3 months)
United Kingdom
sterling interbank loans
(3 months)
13.85
12.24
10.12
9.91
12.98
12.67
13.63
12.67
Italy
Milan interbank loans
(3 months)
Canada
finance paper (3 months)
18.46
14.48
9.53
11.30
Eurodollars
3-month deposits
16.87
13.25
9.69
10.86
9.04
8.74
9.43
8.86
8.61
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Australia
(Boneless beef,
f.o.b., US Ports)
United States
(Wholesale steer beef,
midwest markets)
Cocoa
(0 per pound)
Coffee
($ per pound)
Corn
(US #3 yellow,
c.i.f. Rotterdam
$ per metric ton)
Cotton
(World Cotton Prices, "B"
index, c.i.f. Europe, US 0/lb.)
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
US
(No. 2, milled,
4% c.i.f. Rotterdam)
Thai SWR
(100% grade B
c.i.f. Rotterdam)
Soybeans
(US #2 yellow,
c.i.f. Rotterdam
$ per metric ton)
Soybean Oil 598 507 447 527 727 651 658 652 630
(Dutch, f.o.b. ex-mil.
S per metric ton)
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
Sugar
(World raw cane, f.o.b.
Caribbean Ports, spot
prices 0/lb.)
Tea
Average Auction (London)
(US 0 per pound)
Wheat
(US #2. DNS
Rotterdam c.i.f.
$ per metric ton)
Food Indexa 232 203 167 184 194 176 168 165 166
(1975= 100)
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Aluminum (Q per pound)
Major US producer
71.6
77.3
76.0
LME cash
80.8
57.4
44.9
Chrome Ore
(South Africa chemical
grade, $ per metric ton)
55.0
53.0
50.9
Copper a (bar, ? per pound)
98.7
79.0
67.1
72.0
62.4
62.1
67.6
70.0
65.7
Gold ($ per troy ounce)
612.1
460.0
375.5
424.4
360.0
300.0
319.8
317.5
315.7
Lead a (0 per pound)
41.1
32.9
24.7
19.3
20.0
17.2
17.3
17.1
17.4
Manganese Ore
(48% Mn, $ per long ton)
78.5
82.1
79.9
73.3
69.8
69.6
68.4
68.4
68.4
Metals week,
New York dealers' price
677.0
446.0
326.7
40.6
47.5
45.7
44.0
44.4
46.6
NA
45.8
NA
73.8
56.8
45.4
56.2
49.6
42.0
41.5
41.0
41.6
Silver ($ per troy ounce)
20.7
10.5
7.9
11.4
8.1
5.9
6.3
6.3
6.2
Steel Scrap d ($ per long ton)
91.2
92.0
63.1
73.2
86.4
83.7
71.9
70.2
66.3
Tin a (0 per pound)
761.3
641.4
581.6
590.9
556.6
501.1
541.3
536.0
556.6
Tungsten Ore
(contained metal,
$ per metric ton)
18,219
18,097
13,426
10,177
10,243
11,515
10,974
10,832
10,195
US Steel
(finished steel, composite,
$ per long ton)
Zinc a (? per pound)
34.4
38.4
33.7
Lumber Index a
(1975= 100)
.167
159
140
Industrial Materials Index r
184
166
142
e This index is compiled by using the average of 11 types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
rThe industrial materials index is compiled by The Economist for
18 raw materials which enter international trade. Commodities are
weighted by 3-year moving averages of imports into industrialized
countries.
(1975= 100)
a Approximates world market price frequently used by major world
producers and traders, although only small quantities of these
metals are actually traded on the LME.
b S-type styrene, US export price.
c Quoted on New York market.
d Average of No. I heavy melting steel scrap and No. 2 bundles
delivered to consumers at Pittsburgh, Philadelphia, and Chicago.
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World Crude Oil Production Thousand b/d
Excluding Natural Gas Liquids
1980
1981
1982
1983
1984
1985
1st Qtr
Feb
Mar
Apr
May
World
59,463
55,827
53,014
52,588
53,827
51,855
53,684
52,974
53,037
Non-Communist countries
45,243
41,602
38,810
38,228
39,257
37,638
39,474
38,762
38,588
Developed countries
12,859
12,886
13,276
13,864
14,302
14,587
14,793
14,692
14,721
United States
8,597
8,572
8,658
8,680
8,735
8,737
8,968
8,871
8,907
9,032
Canada
1,424
1,285
.1,270
1,356
1,411
1,467
1,450
1,500
1,450
United Kingdom
1,619
1,811
2,094
2,299
2,535
2,728
2,600
2,660
2,621
Norway
528
501
518
614
700
695
755
719
765
Other
691
717
736
915
921
977
970
975
978
Non-OPEC LDCs
5,443
6,036
6,633
6,823
7,515
7,682
7,949
7,792
7,957
Mexico
1,936
2,321
2,746
2,666
2,746
2,634
2,810
2,711
2,820
2,792
Egypt
595
598
665
689
827
890
935
916
915
Other
2,912
3,117
3,222
3,468
3,942
4,158
4,204
4,165
4,222
OPEC
26,941
22,680
18,901
17,541
17,440
15,369
16,732
16,278
15,910
14,446
Algeria
1,020
803
701
699
638
625
690
660
600
600
Ecuador
204
211
211
236
253
268
283
276
280
280
Gabon
175
151
154
157
152
150
150
150
150
150
Indonesia
1,576
1,604
1,324
1,385
1,466
1,150
1,152
1,152
1,050
1,050
Iran
1,662
1,381
2,282
2,492
2,187
1,800
2,300
2,097
2,400
2,000
Iraq
2,514
993
972
922
1,203
1,300
1,300
1,300
1,300
1,370
Kuwait b
1,389
947
663
881
912
900
850
914
800
800
Libya
1,830
1,137
1,183
1,076
1,073
1,000
1,100
1,034
1,000
1,100
Neutral Zones
544
370
317
390
410
460
502
481
340
280
Nigeria
2,058
1,445
1,298
1,241
1,393
1,400
1,700
1,590
1,600
1,430
Qatar
471
405
328
295
399
280
315
292
260
290
Saudi Arabia b
9,631
9,625
6,327
4,867
4,444
3,400
3,700
3,659
3,300
2,450
UAE
1,702
1,500
1,248
1,119
1,097
1,106
1,155
1,123
1,155
1,161
Venezuela
2,165
2,108
1,893
1,781
1,813
1,530
1,535
1,550
1,555
1,555
Communist countries
14,220
14,238
14,289
14,396
14,417
14,217
14,210
14,212
14,449
USSR
11,700
11,800
11,830
11,864
11,728
11,407
11,400
11,402
11,639
China
2,113
2,024
2,044
2,120
2,280
2,390
2,390
2,390
2,390
2,480
Other
407
414
415
412
409
420
420
420
420
420
a Preliminary.
b Excluding Neutral Zone production, which is shown separately.
c Production is shared equally between Saudi Arabia and Kuwait.
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Big Seven: Inland Oil Consumption
United States
17,006
16,058
15,296
15,184
15,708
15,813
15,321
15,345
15,160
15,276
Japan
4,674
4,444
4,204
4,193
4,349
West Germany
2,356
2,120
2,024
2,009
2,012
1,993
1,815
France
1,965
1,744
1,632
1,594
1,531
1,766
1,561
1,390
1,288
United Kingdom
1,422
1,325
1;345
1,290
1,624
1,872
1,599
Italy b
1,602
1,705
1,618
1,594
1,513
1,715
1,573
1,368
Canada
1,730
1,617
1,454
1,354; '
1,348
1,343
1,244
1,269
a Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports?
United States
5,220
4,406
3,488
3,329
3,402
2,545
2,808
3,401
3,488
3,301
Japan
4,373
3,919
3,657
3,567
3,664
3,777
4,083
West Germany
1,953
1,591
1,451
1,307
1,335
1,419
1,529
1,242
France
2,182
1,804
1,596
1,429
1,395
1,578
1,701
1,469
United Kingdom
893
736
565
456
482
534
671
Italy
1,860
1,816
1,710
.1,532
1,507
Canada
557
-521
,334 .
247
244
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Algeria
42? API 0.10% sulfur
19.65
37.59
39.58
35.79
31.30
30.50
30.15
29.50
29.50
29.50
Ecuador
28? API 0.93% sulfur
22.41
34.42
34.50
32.96
27.59
27.50
26.82
26.50
26.50
26.50
Gabon
29? API 1.26 % sulfur
18.20
31.09
34.83
34.00
29.82
29.00
28.35
28.00
28.00
28.00
Indonesia
35? API 0.09% sulfur
18.35
30.55
35.00
34.92
29.95
29.53
28.88
28.53
28.53
28.53
Light
34? API 1.35% sulfur
19.45
34.54
36.60
31.05
28.61
28.00
28.38
28.05
28.05
28.05
Heavy
31 ? API 1.60% sulfur
18.49
33.60
35.57
29.15
27.44
27.10
27.41
27.35
27.35
27.35
Iraq c
35? API 1.95% sulfur
18.56
30.30
36.66
34.86
30.32
29.43
28.78
28.43
28.43
28.43
Kuwait
311 API 2.50% sulfur
18.48
29.84
35.08
32.30
27.68
27.30
27.30
27.30
27.30
27.30
Libya
40? API 0.22% sulfur
21.16
36.07
40.08
35.69
30.91
30.40
30.40
30.40
30.40
30.40
Nigeria
34? API 0.16% sulfur
20.86
35.50
38.48
35.64
30.22
29.12
28.24
28.37
28.37
28.37
Qatar
40? API 1.17% sulfur
19.72
31.76
37.12
34.56
29.95
29.49
28.48
28.10
28.10
28.10
Berri
39? API 1.16% sulfur
19.33
30.19
34.04
34.68
29.96
29.52
28.48
28.11
28.11
28.11
Light
34? API 1.70% sulfur
17.26
28.67
32.50
34.00
29.46
29.00
28.32
28.00
28.00
28.00
Medium
311 API 2.40% sulfur
16.79
28.12
31.84
32.40
27.86
27.40
27.48
27.40
27.40
27.40
Heavy
27? API 2.85% sulfur
16.41
27.67
31.13
31.00
26.46
26.00
26.50
26.50
26.50
26.50
UAE
39? API 0.75% sulfur
19.81
31.57
36.42
34.74
30.38
29.56
28.52
28.15
28.15
28.15
Venezuela
26? API 1.52% sulfur
17.22
28.44
32.88
32.88
28.69
27.88
27.69
27.60
27.60
27.60
a F.o.b. prices set by the government for direct sales and, in most
cases, for the producing company buy-back oil.
b Weighted by the volume of production.
? Beginning in 1981 the price of Kirkuk (Mediterranean) is used in
calculating the OPEC average official sales price. .
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OPEC: Average Crude Oil Sales Price
11188..667
11.29 11.02 11.77 12^88 12^93 I I
34.50 33.63
30.87 - -
29.31 28.70
n ~.
e e
o m o
v c ~
6 .6 .6 n oo m ~
N rv rv v
M o~
28.59 28-09 28.06 28.10 28.11 28.11
I II III IV I 11 111 IV 1 11 111 IV I II III IV 1 II 111 IV I 11 111 IV 1 11 J F M A M J
1979 1980 1981 1982 1983 1984 1985
The 1973 price is derived from posted prices, not official sales prices.
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