INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000400100005-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 58
• Document Creation Date: December 22, 2016
• Document Release Date: August 15, 2011
• Sequence Number: 5
• Publication Date: August 1, 1986
• Content Type: REPORT

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Directorate of -Secret-
Intelligence 25X1
International
Economic & Energy
Weekly
1 August 1986
DI IEEW 86-031
1 August 1986
Copy 8 3 3
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International
Economic & Energy Weekly 25X1
1 August 1986
1 Perspective-Israel: Political Versus Economic Reality 25X1
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3 Israel: Austerity After One Year 25X1
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7 Algerian Gas: Tough Negotiations Ahead 25X1
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11 Malaysia: Persisting Economic Slump 25X1
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15 Tin Market Collapse: Continuing Fallout 25X1
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19 Romania: Economic Adjustment Strategy Falters
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Energy
International Finance
International Trade
Global and Regional Developments
National Developments
Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence
Secret
DI IEEW 86-031
1 August 1986
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International
Economic & Energy Weekly
Synopsis
The Israeli Government faces the dilemma of attaining a high and growing
standard of living while preserving its social welfare system and providing for its 25X1
massive defense needs-it cannot afford all three. While many argue that
economic reform is needed, circumstances-such as Israel's costly defense needs-
and political realities will not allow anything but gradual change at best.
The economic stabilization program begun by Israel's National Unity Government
one year ago has achieved some remarkable results-in particular, cutting
inflation from 27.5 percent to 1.6 percent per month, stabilizing the shekel, and
slashing the budget deficit. Prospects for continued effective austerity, however,
will be severely tested in coming months by delicate wage negotiations, the
scheduled rotation of the prime-ministry from Labor to Likud, and growing
political pressure to spur growth.
With the decline of Algeria's oil reserves, which could well be exhausted by the
end of the century, the country's vast natural gas resources are assuming a more
prominent role in the economy. Ongoing negotiations with Algiers' West European
customers, particularly France, will establish the price and volume of Algerian gas
exports for at least the next two to three years, and, perhaps more important, could
go a long way toward determining Algeria's ability to be a major international ex-
porter of natural gas.
Malaysia's current economic slump, ending more than a decade of dynamic
growth, is likely to continue at least through mid-1987. In spite of the weak
economy, the government of Prime Minister Mahathir will retain power in the 3
August general election.
We expect weak market conditions for tin to persist for the next few years.
Although most major tin-producing countries will probably emerge with smaller,
more efficient industries, some, such as high-cost-producer Bolivia, may see their
tin sectors dramatically reduced.
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DI IEEW 86-031
1 August 1986
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19 Romania: Economic Adjustment Strategy Falters
President Ceausescu's obsession with paying off foreign debt continues to burden
the economy but has left Bucharest still dependent on foreign creditors. Conse-
quently, Romania will have to endure austerity considerably beyond 1988-
Ceausescu's original goal.
Secret iv
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International
Economic & Energy Weekly
1 August 1986
pervasive indexation found throughout the economy should be eliminated.
The Israeli Government faces the dilemma of attaining a high and growing
standard of living while preserving its social welfare system and providing for its
massive defense needs-it cannot afford all three. Many Israeli economists-
people who know what should be done to alleviate the country's substantial
economic problems-lack the political clout to implement needed reforms. Eco-
nomic officials throughout the government agree that marginal tax rates are too
high and the tax system should be reformed; that subsidies should be cut and the
deficit reduced; that the government should stop dominating the capital markets
and allow private businesses freedom to operate effectively; and that even the
will not allow anything but gradual change at best
These same people, who zealously defend their convictions, admit that none of
these reforms are anticipated any time soon. They state that economic stability has
not yet been achieved; that it is not yet time to press these issues. What they mean
is that circumstances-such as Israel's costly defense needs-and political realities
remaining 50 percent.
The outside observer often overlooks the Israelis' affinity for the quasi-socialist
philosophy of government that was instituted by Israel's founders. The government
acts in large part as a leveling agent, taxing at a rate equal to 50 percent of GNP
and then returning over two-thirds (36 percent of GNP) in the form of transfers
and subsidies. The government is Israel's largest employer and owns at least a part
of most of the major enterprises. Moreover, many of the country's agricultural and
business units are communes, many founded in the early years of the Jewish
resettlement of Palestine. Finally, the country's powerful labor organization,
Histadrut, which includes as members over 80 percent of the Israeli labor force,
exercises control over the cooperative sector of the Israeli economy. Histadrut is
also Israel's second-largest employer, and runs the health insurance fund to which
83 percent of the population belongs. Altogether, Histadrut accounts for 20
percent of Israel's GDP; the public sector, 30 percent; and the private sector, the
time since the nation's founding-more Jews left Israel than came in
Perhaps unique to Israel is that, with every important government decision, its
leaders must keep in mind the potential effects that decision may have on . 25X1
migration. Practically everyone in the country is aware that Jewish immigration is
falling, that Jewish emigration is increasing, and that in 1985-for only the second
investment and export growth.
All of these factors and more push the government into a balancing act that strives
to keep worker benefits high and unemployment low, while encouraging business
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Israel:
Austerity After One Year
The economic stabilization program begun by Israel's
National Unity Government one year ago has
achieved some remarkable results-in particular, cut-
ting inflation from 27.5 percent to 1.6 percent per
month, stabilizing the shekel, and slashing the budget
deficit. Foreign exchange reserves have increased
$1 billion to almost $3.5 billion. Prospects for contin-
ued effective austerity, however, will be severely
tested in coming months by delicate wage negotia-
tions, the scheduled rotation of the prime-ministry
from Labor to Likud, and growing political pressure
to spur growth.
Following the failure of the government to cure an
inflationary and deteriorating economy with a series
of so-called package deals-introduced in late 1984-
which tied workers and employers to programs freez-
ing prices and wages, the government in July 1985
imposed an austerity program that consisted of:
? A restrictive monetary policy. The Central Bank
kept interest rates high, pushing real rates as high as
an annualized 100 percent at one time.
Several external factors have helped the government
exceed its goals. The unexpectedly steep oil price drop
helped hold down inflation because part of the bene-
fits were passed on to consumers. The price decline
will also save Israel $550-600 million per year on its
oil import bill.
The fall of the dollar against most of the major
currencies enabled Israel to maintain its competitive
position in nondollar trade areas without a devalua-
tion. The resultant stability of the shekel against the
dollar increased the population's faith in the austerity
program and helped hold down the demand for im-
ported durables and the pressure for increased wages.
A devaluation also would have triggered increases in
the popular dollar-linked savings plan, thus feeding
? A price freeze. After cutting some $750 million in
government subsidies and allowing general prices to
rise 17 percent, the government froze practically all
prices.
? A stable exchange rate. The shekel was devalued 19
percent against the dollar, and then held stable.
? A restrictive wage policy. After giving a partial
compensation for past inflation, the government
froze and deindexed wages, later allowing wages to
rise gradually in line with inflation.
? A restrictive fiscal policy. After cutting annual
expenditures about $1.2 billion, the government
raised taxes. The budget deficit was cut from about
14 percent of GNP'in FY 1984/85 to about 4
percent in FY 1985/86.
purchasing power.
Supplemental US aid in 1985 and 1986-in addition
to the normal annual military and economic aid,
almost $3.2 billion in 1985-provided an extra $750
million per year in economic assistance. The supple-
mental aid, which ends this year, was incorporated
directly into the Israeli budget.
The stabilization program broke the back of inflation,
which had reached 400 percent a year. The govern-
ment has deregulated prices of about 55 percent of
goods and services, suggesting that the underlying
inflation rate remains low, and we expect deregulation
Secret
DI IEEW 86-031
1 August 1986
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Real Wages
Index: 1980=100
Unemployment Rate Real GNP
Percent Percent
it
1983 1984
90 J J A S O N D J F M 0
1985 1986
Inflation ratesa
Percent
I I I J
-5 MAMJJASONDJFMAMJ
1985 1986
a Percentage change from previous month.
b Data for the end of each month.
I II III IV I -1 1980 81 82 83 84 85
1985 1986
Shekel Depreciation Against Other Currenciesb
Index: 31 January 1985=100
I I I I I I I I I I I I I I
J F M A M J J A S O N D J F
1985 1986
-Basket of
currencies
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to continue. Prices of about 20 to 25 percent of all
goods-mostly traditionally controlled goods such as
transportation, water, and electricity-will continue
to be regulated. Even so, inflation in the last few
months has been running. at about 20 percent per
year, well above the single-digit inflation experienced
by most of Israel's trading partners and most of its
trade competitors.
Even with the wage freeze and the gradual compensa-
tion for inflation, real wages are now back to where
they were a year ago. If this trend continues or if the
recently begun round of wage negotiations ends in
excessive increases in wages, Israeli manufacturers
will soon find ,their international competitiveness
eroding further.
While government spending has been cut and the
deficit reduced, the government has avoided the hard
choices it must make to bring about real change. Most
of the spending cuts were through reductions in
subsidies rather than through cuts in government
spending for goods and services. The deficit was also
reduced, by raising taxes of various kinds, increasing
Israel's already burdensome taxation. Total tax reve-
nues equaled 50 percent of Israel's GNP last fiscal
year.
The stabilization program also helped Israel enjoy a
$1.1 billion current account surplus last year com-
pared with a $1.4 billion deficit in 1984. This surplus
included the massive infusion of US aid, however, and
there was a disturbing deterioration in the trade
balance at the end of the year. Imports this year have
continued to be robust, but there has been no corre-
sponding: increase in demand for Israeli exports. Un-
less the drop in oil prices greatly invigorates nonoil
world trade, Israel may experience a considerable
deterioration of its current account this year. A deficit
of more than $2 billion is possible despite the US
supplemental aid.
its budget goes to the military, and the Defense
Ministry's chief economist believes that there is no
more room for further cuts.
Israel also remains highly dependent on outside,
primarily US, aid. Total US aid to Israel in 1985
amounted to about $3.9 billion. With the end of the
US special supplement, the government will have to
increase taxes or cut expenditures next year by at
least $750 million, equal to about 4 percent of the
total budget. Excluding defense and debt service,
which together equal two-thirds of the budget, the
$750 million amounts to more than 11 percent of
Israel's ordinary and development budgets.
The economy, moreover, remains highly indexed at a
time when most countries have abandoned indexation.
Not only are salaries and savings included, but rents
and the government budget are also indexed. This
pervasive system of indexation has taken away the
economic, and thus political, sting associated with
high inflation and probably postponed needed reform.
Taxes remain unhealthily high, with the government
acting in large part as a huge transfer agent control-
ling the flow of funds throughout the economy. Is-
rael's maximum marginal tax rate is 60 percent, and
this rises to 70 to 75 percent when national insurance
contributions are taken into account. The government
also dominates and regulates the capital market to the
virtual exclusion of private enterprise.
Israeli Government officials are pleased with the
results of the stabilization program, particularly that
unemployment has not increased appreciably. They
recognize, however, that the gains are fragile. The
Finance Ministry is preparing a new 45-point pro-
gram for the second year of austerity that will
emphasize further reductions in inflation, but this
Despite some gains, the country remains burdened
with tremendous defense needs that are unlikely to
lessen in the near future. Approximately 25 percent of
plan does not include major initiatives.
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The government budget will have to be pared further,
and government employee salaries are likely to be
held steady in real terms. Cutting government em-
ployment, while probably needed, will most likely
prove difficult politically, although the number of
government workers may be allowed to decline
through attrition.
The government also plans to do what it can to hold
down real wage increases in the private sector. The
manufacturers' association and Histadrut-Israel's
powerful labor organization-recently began a new
round of wage negotiations. The government will try
to influence the outcome of these talks by telling the
manufacturers not to expect to be bailed out if they
give in to excessive wage demands not compensated
for by increased productivity. For this reason, the
government probably will postpone a devaluation of
the shekel-even though it might be justified-until
after the wage negotiations end. A devaluation now
might be perceived by the manufacturers as a sign
that their trade competitiveness will be maintained
even if they give in to excessive wage demandsF_
According to the Director General of the Finance
Ministry, no major tax reform is planned in the near
future-even though extensive reform was suggested
by a government commission. Only minor changes in
the tax laws will occur until the gains from austerity
No government official has mentioned deindexation
of the economy as an issue to be tackled soon, even
though such a move would go far in breaking the
wage-price spiral that has plagued the Israeli econo-
my. Likewise, privatization of the economy is not a
primary concern, although many government officials
recognize the potential benefits of such an effort.
While the stabilization program will be maintained in
the coming year, the government will be tempted to
ease up on austerity-without having made any basic
changes in Israel's economic structure. The special
US aid supplement is ending, and outside factors,
such as the oil price decline, cannot be counted on to
again help out.
Internal dynamics in Israel are also working against
continued progress. The recently initiated wage nego-
tiations will most likely be lengthy and may lead to
wildcat strikes and excessively large wage hikes. In
addition, the scheduled rotation of the prime-ministry
from Labor to Likud will bring in a less economically
attuned prime minister and may dampen the willing-
ness of labor unions to continue to support austerity.
prove to be durable.
In the capital market sphere, the government plans to
loosen its control gradually, allowing more private
issues to be placed. The government also plans to
allow more tradable securities to be issued to foster a
truer market environment.
Due to recent changes in its bylaws, the Central Bank
will-over the next few years-become increasingly
independent of government control on interest rate
and monetary policy. By 1988, the bank will no longer
be legally required to finance the government's defi-
cits. This change, along with the recent appointment
of Michael Bruno-a relatively independent and high-
ly respected international economist-as the new
Central Bank governor, will help consolidate the gains
The government also faces growing political pressures
to undertake a growth strategy at a time when further
budget cuts would improve prospects for continued
economic success. Unemployment, while relatively
low by world standards at about 7 percent, is histori-
cally high for Israel. Many businesses and agricultur-
al units are also facing hard times-an unusually high
number have recently declared bankruptcy-and are
demanding government help. Lastly, the difficulty of
attracting and retaining Jewish immigrants is made
even worse under austerity. These factors will prompt
the government to continue to try to balance the need
for austerity against the requirements to maintain a
relatively high standard of living and to preserve the
current state of Israel's defenses.
of the stabilization program.
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Algerian Gas:
Tough Negotiations Ahead
With the decline of Algeria's oil reserves, which could
well be exhausted by the end of the century, the
country's vast natural gas resources are assuming a
more prominent role in the economy. Natural gas
almost certainly will become Algeria's primary source
of hard currency beginning in the 1990s; proven
reserves are estimated at 3,030 billion cubic meters
(bcm)-sixth largest in the world-with an additional
3,000 bcm in estimated potential reserves. Ongoing
negotiations with Algiers' West European customers,
particularly France, will establish the price and vol-
ume of Algerian gas exports for at least the next two
to three years, and, perhaps more important, could go
a long way toward determining Algeria's ability to be
a major international exporter of natural gas.
Traditionally, Algeria has pushed a hard line on
prices with its natural gas customers. During the oil
boom years, for example, Algiers insisted upon parity
between its oil and gas prices by linking its gas prices
to market baskets of officially priced OPEC crudes.
Algerian-delivered gas prices, as a result, were as
much as 40 percent higher than the industry average.
Algeria was able to secure these generous terms
because its West European customers-France, Italy,
Belgium, and Spain-had few easy alternatives. The
Soviet Union, for example, only stepped up its efforts
to aggressively court-and win-new and expanded
West European sales in the early 1980s. Another
aspect of Algeria's gas policy was the "100 percent
take-or-pay" supply provision, which stipulated that
customers must pay for the entire contracted
amount-most other gas exporters used an 80 percent
formula-whether that amount was actually pur-
chased. As a sweetener, Algiers promised significantly
increased trade and investment opportunities.
West European disgruntlement over unfulfilled prom-
ises of increased economic ties are severely constrain-
ing Algeria's maneuvering room. Stiff competition
from other gas suppliers such as the Soviet Union and
the Netherlands has also weakened Algeria's bargain-
ing position. Most harmful, however, in our opinion, is
the preliminary contract between Norway and several
continental buyers, which virtually closes Algeria out
of the rest of the West European market for the
foreseeable future. As a result, Algiers has been
forced to make some price reductions in an attempt to
maintain its current market share:
temporarily link purchase prices to market prices
rather than to artificially high official OPEC oil
prices-dropping the base gas price by nearly 40
percent to $3.18 per million British thermal units
(MMBtu)-until full contract renegotiations set re-
vised terms this summer.
? In May, press reports indicate Italy, frustrated over
its attempts to get Algiers to agree to reduce its
second-quarter prices below the French quote, uni-
laterally decided to pay $2.00 per MMBtu for its
gas pending a mutually agreeable base price.
? In June, Embassy reports indicate that Belgium won
a temporary cut in the base price to $3.18 per
MMBtu until April 1987 in exchange for taking 3
bcm of gas per year rather than the 2.4 bcm it has
been importing. Ongoing renegotiations will deter-
mine a long-term price and volume.
world gas prices fall sharply.
Even Spanish negotiators, whose contract is not due
for renegotiation for another two years, won a 16-
percent price reduction to $3.18 per MMBtu for
second-quarter sales based on a contract provision
that allows Spain to demand a price cut whenever
In its negotiations with West European gas customers
this summer, however, Algeria is no longer in the
driver's seat. The shrinking world oil market and
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Annual Peak
Volume Contracted
(billion cubic meters)
Contract
Term
(years)
1985 Deliveries
(billion cubic meters)
Adjusted Price a
(US $ per million
British thermal units)
7.5
2.36 as of July 1986
Italy-SNAM (Trans-
Mediterranean Pipeline)
12.3
8.5
2.00 as of July 1986
Belgium-Distrigas
5.0 (3.0 b)
1982-2002
2.4
2.30 as of June 1986
Spain-Enagas
3.8
1979-2004
1.7
2.30 as of June 1986
a On an FOB basis.
b Temporary.
These concessions are setting the tone for ongoing
contract talks with the French. As in the past,
whatever agreement is worked out with the French
probably will determine the parameters for succeed-
ing discussions with other West European customers.
Paris will most likely demand a revised formula,
which pegs natural gas rates to competing fuels prices,
to determine the new base price.' We believe such a
formula is likely to set a price at least as low as
France's second-quarter adjusted price of $2.36 per
MMBtu. In our view, Algiers has little choice-Paris
has already threatened to scrap the entire deal and
take its business elsewhere should Algeria not agree to
an "acceptable" price.
Although the other West European clients will most
likely use the new French accord as a springboard for
their own agreements, they also have their own
agendas:
? Italy, for example, will be insisting on removing the
take-or-pay clause in its contract and will seek the
right to renegotiate prices on demand similar to
what is guaranteed under Spain's contract.
' Although base prices are stipulated in all of Algeria's contracts
with its customers, the actual prices charged are those determined
? Belgium will not only push to get the lowest price
possible, but will also insist on retaining current
volume cuts in a longer term agreement.
Algiers' more accommodating policy this spring sug-
gests concessions are likely on most of these points,
including competing-fuels-based prices and at least a
softening of the take-or-pay provisions. These changes
could cost Algeria $1 billion this year alone.
President Bendjedid almost certainly sees these con-
tract negotiations as an important element in his
ongoing efforts to reform his country's economy. The
President is in the midst of trying to move from what
he sees as a cumbersome and inefficient Soviet-style
economy toward a Western-oriented system that re-
lies heavily on private enterprise. Some liberalization
has already taken place, particularly in agriculture,
and is generating complaints from influential socialist
ideologues within the government. Bendjedid will
have to convince his detractors that his more accom-
modating negotiating position allowed Algeria to
maintain its market share. Otherwise, his opponents
may cite the projected lower gas revenues from new
contract terms as evidence of Western collusion
against Algeria and an indication that he is not
working to further Algeria's best interests.
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The President may already be in the position of
bargaining with the hardliners to preserve his eco-
nomic agenda. For example, Algeria has engaged in a
variety of foreign policy activities in recent weeks that
are inconsistent with its professed refusal to condone
international terrorism and its willingness to act as a
bridge between radical and moderate Arab govern-
ments. Examples are rapprochement with Libya, clos-
er ties to radical Palestinians, and renewed activity
within the "Steadfastness Front" involving Iran, Syr-
ia, Libya, and South Yemen. This apparent contradic-
tion suggests that Bendjedid agreed to allow hard-
liners a greater say in foreign policy matters in
exchange for their muting any criticism of his eco-
nomic policies.
Bendjedid may also try to use his more accommodat-
ing gas policy with the West Europeans to uncork
additional bilateral economic aid and new bank loans
from the West. France, for example, one of Algiers'
principal benefactors, has been dragging its feet be-
cause of Algeria's rapidly deteriorating finances.
Bendjedid may also see a more moderate negotiating
position as a necessary criteria in any efforts to obtain
aid from Washington or other multilateral donors. He
may also try to point out to US officials that Algerian
gas prices are considerably more attractive than be-
fore in the event US firms want to reenter the gas
market.
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Malaysia:
Persisting Economic Slump
Malaysia's current economic slump, ending more than
a decade of dynamic growth, is likely to continue at
least through mid-1987. Malaysia's export earnings
are likely to remain depressed well beyond the next
year, forestalling a return to robust economic growth
and possibly straining ties to the United States. In
spite of the weak economy, the government of Prime
Minister Mahathir will retain power in the 3 August
general election. The scattered opposition has not
come together on the economic issue, and recurrent
allegations of high-level corruption have not proved
significant wrongdoing by Mahathir or any of his
Malaysia: Real GDP Growth Rates,
1981-86
chief lieutenants.
The Deepening Slump
Plummeting prices for crude oil, tin, and palm oil and
slack demand for manufactured exports (especially
semiconductors) have put Malaysia into an economic
slump for over a year. Real economic growth fell from
more than 7 percent in 1984 to less than 3 percent last
year. Declining export earnings have pushed unem-
ployment to 8 percent from its historical level of about
5 percent, and the government acknowledges that it
may hit 10 percent by 1990. The Central Bank reports
that only one out of every two new labor force
entrants is able to find a job. The semiconductor
industry has been among the hardest hit, with a 22-
percent job loss in the past two years, according to the
US Embassy, and employment in mining dropped
almost 10 percent in 1985.
Investment plummeted with the downturn, and pros-
pects are poor for an early resurgence. Total private
fixed investment fell by 8 percent in real terms in
1985 after a 10-percent increase in 1984, and the
Central Bank projects a further modest decline this
year. Most foreign investment to date has been in the
now-depressed petroleum and semiconductor indus-
tries, and rising local wage rates and foreign protec-
tionism militate against significant new investment in
palm oil estates or textile manufacturing. In the wake
-2 1981 82 83 84 85a 866
a Estimated.
bProjected.
of the economic contraction, the financial squeeze on
overextended businessmen threatens highly leveraged
investments in real estate and construction, adding to
fears of a financial panic.
The external causes of the slump limit the tools
available to the government to deal with it. The
government's tight financial situation precludes stim-
ulating the economy with heavy deficit spending as in
the early 1980s. Even though Malaysia's debt service
ratio of about 18 percent is small by LDC standards,
Secret
DI IEEW 86-031
1 August 1986
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Secret
Malaysia: Exports, by Commodity,
1979-85
Other
Tin, rubber, and timber
Palm oil
Electronics
Malaysia: Outstanding External Debt,
1981-88
Medium- and
~T
/ ? long-term
op op - J private debt
0 1981 82 83 84 85a 86b 87b 88b
a Estimated.
bprojected.
C
it has doubled since 1981 and ha$ made conservative
Malaysian policymakers reluctant to pump-prime on
borrowed money. Moreover, Western banks are reluc-
tant to raise their exposure in Malaysia, where heavy
public-sector demands have helped to nearly quadru-
ple foreign borrowing since 1979.
In the short term, Kuala Lumpur has sharply cut
development spending for commerce and industry,
communications, and public utilities. This retrench-
ment reduced the overall federal deficit to 4 percent
of GNP in 1985, down from 17 percent in 1982,
Medium- and
long-term
public debt
according to the Central Bank. Moreover, the spend-
ing cuts have freed some funds for public works
programs to absorb some of the 100,000 workers who
have lost their jobs in the past year.
In the longer term, Kuala Lumpur is reorienting its
development strategy away from government-led pro-
grams and toward greater private-sector involvement
in the economy. The recently announced Fifth Malay-
sia Plan scales back costly and inefficient public
investment in industries such as autos, steel, and
cement, most of which require tariff protection be-
cause the small domestic market precludes high-
volume production. Moreover, a new foreign invest-
ment code seeks to shift development finance from
foreign borrowing to private equity investment by
permitting majority foreign ownership in firms that
earn foreign exchange.
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Secret
The weak economy is undermining political support
for Mahathir's administration from both the ethnic
Malay (bumiputra) and Chinese communities:
? Ethnic Malays. Since 1971, Malaysian economic
policy has been governed by the New Economic
Policy (NEP), an ambitious social restructuring
program aimed at creating economic balance be-
tween the Chinese, who dominate the economy, and
the Malays. The economic slump, however, has
forced the government to retrench on the NEP. The
Prime Minister has confirmed, for example, that
cutbacks in public spending have hit bumiputras
hard because their preferential access to govern-
ment contracts was a key feature of the NEP. In
particular, the cutback of heavy industrial projects
will most likely throw disproportionate numbers of
bumiputras out of work.
? Chinese. The commercially dominant Chinese com-
munity, besides being affected directly by the down-
turn, is unhappy over its "second-class status." One
result of this concern, according to the US Embassy,
is that a substantial number of Malaysian Chinese
are responding positively to the racial equality
message of the rightwing opposition Partai Islam
Se-Malaysia, which, though espousing Muslim fun-
damentalism, opposes Malay "special rights."
Moreover, the Chinese are increasingly concerned
about corruption within the ruling coalition. The US
Embassy reports that the Malaysian Chinese Asso-
ciation (MCA), Mahathir's major coalition partner,
is still troubled by the financial problems of MCA
President Tan Koon Swan, who was arrested last
year for his role in the collapse of the Singapore
conglomerate, Pan Electric.
The slowing economy is also bringing to light alleged
financial scandals involving high-level officials and
important Malaysian institutions. For example, recent
press reports charge Tan Koon Swan with further
corruption and charge that Finance Minister Daim
may have used his position to obtain government
approval of his family's acquisition of controlling
interest in Malaysia's third-largest bank. The US
Embassy reports that Daim's apparent proclivity for
mixing private and public interests has made him a
major political liability to Mahathir. Moreover,
charges may still emerge from the Bank Bumiputra
scandal, in which top Malaysian officials knowingly
approved loans to a financially troubled Hong Kong
corporation that later collapsed with $1.2 billion in
debts.
We believe that continued weakness in primary com-
modity markets will plague the Malaysian economy
through mid-1987. Tightly constrained public spend-
ing will add to the effects of reduced export earnings.
Despite the Prime Minister's prediction of up to 2-
percent real growth this year, it is likely to reach only
half that level and might even become negative.
Although Mahathir's personal popularity is declining
as a result of dissatisfaction with the economy and
uneasiness over corruption, his Barisan Nasional rul-
ing coalition will retain power in the general election.
Mahathir recently brightened the coalition's electoral
prospects by admitting Sabah's ruling Partai Bersatu
Sabah to membership in the Barisan Nasional, virtu-
ally guaranteeing the coalition the traditional two-
thirds parliamentary majority. This increasingly dis-
parate coalition, however, might not last long beyond
the general election unless the economy rebounds.
Whatever the election outcome, the weak economy
will discourage foreign investment in Malaysia, while
encouraging capital flight. Resulting unemployment
may also lead to social unrest, perhaps targeted
against US-owned manufacturing facilities. More-
over, local perception of US protectionism against
Malaysian products may strain bilateral relations
with Washington.
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Secret
Tin Market Collapse:
Continuing Fallout
With prices at least 50 percent below last October's
levels, the world tin industry is plodding through a
period of retrenchment. Although Indonesia plans to
increase output, Malaysia, Bolivia, and Thailand
could face serious political problems as mine closures
and production cutbacks worsen domestic unemploy-
ment. Even China and Brazil, relatively unscathed by
last year's tin market collapse, are probably not
planning to expand production. We expect weak
market conditions for tin to persist for the next few
years. Although most major tin-producing countries
will probably emerge with smaller, more efficient
industries, some, such as high-cost-producer Bolivia,
may see their tin sectors dramatically reduced.
World Tin Prices, 1984-86a
Following the collapse of the International Tin Coun-
cil's (ITC) negotiations last March, the price of tin has
plummeted to about $2.45 per pound from its precrisis
level of about $5.40. While consumer countries are
reaping windfalls after years of artificially high
prices, producing countries are smarting from the
market's downturn and even relatively efficient mines
are discontinuing operations:
? Western tin production of 160,000 metric tons in
1985 was at its lowest point in 20 years, and we
expect 1986 output to be even lower.
? Mine closures and production cutbacks are occur-
ring in Malaysia, Thailand, and Bolivia-three of
the world's four largest producers.
? More than 25 percent of Malaysia and Thailand's
tin miners have been laid off, and roughly one-third
of Bolivian tin miners may be let go, according to
press reports.
Responding to the market doldrums, governments of
several tin-producing countries are trying to minimize
mine shutdowns while restructuring their industries.
The more efficient producers, meanwhile, are either
I I I I I I I I I I I I I I 1 ~ I I I I I I I I I I I I I I I
0 1984 1985 1986
a Data through October 1985 are LME cash prices. The broken line denotes the tin
market collapse when no prices were quoted. Data from February 1986 are
Penang prices.
Malaysia. Although it is the largest and one of the
lower-cost producers, more than one-half of Malay-
sia's 480 mines have closed since the start of the crisis
last yea The closures
have forced 6,000 Malaysians out of work-most
frequently, the ethnic Chinese who operate the small-
er mines. If weak market conditions continue, officials
expect only 20 mines to survive. Output could fall
below 36,000 tons this year, exacerbating unemploy-
ment and thereby creating additional problems for the
Mahathir government.
In response, the government has adopted a soft loan
program to keep efficient producers in business until
the prices rebound to cover production costs, currently
planning to expand or sit tight.
Secret
DI IEEW 86-031
1 August 1986
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Secret
Malaysia
Q Thailand
Indonesia
? Bolivia
China
fl Brazil
averaging about $3.30 per pound. Even with these soft
loans, however, the number of mines will probably
dwindle further. Moreover, if prices do not rebound,
budgetary constraints may force suspension of the
loan program.
Bolivia. As a high-cost producer, the tin industry,
which traditionally has provided one-third of the
country's foreign exchange earnings, faces severe
cutbacks. Thus far, a few private mines have shut
down, and Comibol, the state mining organization, is
expected to close its second-largest mining complex in
1986 While Comibol
will most likely limp on, industry analysts believe that
one-fourth of medium-sized mines will be forced to
close, with another one-third cutting production by 50
percent. Only 15 percent of the country's medium-
sized mines, according to analysts, will continue to
The Tin Crisis at a Glance
The London Metals Exchange (LME) suspended tin
trading last October, when the International Tin
Council's (ITC) bufferstock manager unformed the
Exchange that he could no longer support the price
because of a lack offunds. This announcement
resulted in afive-month market crisis characterized
by falling prices, minimal trade in gray markets, a
loss of trader confidence in the LME, and continu-
ously stalled negotiations. The Council's attempt to
resolve the crisis failed when Indonesia and Thailand
vetoed a plan to set up a new company administered
by creditor banks to assume the liabilities of the ITC
and to dispose of the 85,000-ton buferstock over a
three-year period. In March of this year, the LME
decided to close out all tin contracts at a fixed price.
Tin trading on the Exchange has been suspended
indefinitely, and ITC members have been hit with
lawsuits by some of their creditors.
A shrinking tin industry threatens a large share of the
mining labor force, and Bolivia's militant labor unions
could create political problems for La Paz. On the
basis of Embassy reporting, we believe a majority of
the remaining Comibol tin miners are likely to lose
their jobs. In response, the government has sought to
divert miners toward more productive sectors such as
agriculture. President Paz Estenssoro is also encour-
aging diversification into gold, silver, and lead, and
many medium-sized mining companies are already
moving in that direction. The government has also
announced plans to decentralize Comibol,'which is ill
prepared to diversify.
Indonesia. In Indonesia-another fairly efficient pro-
ducer-one mine has shut down, another has laid off
almost half its employees, and a third has been sold to
a West German firm. If low prices persist, the state
mining company-PT Tambang Timah, producer of
80 percent of the country's output-eventually will
also feel financial pressure, according to industry
produce at current levels.
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Share of World Tin Export Market, 1985
Other
8
4 Malaysia
Bolivia 34
Brazil
12
inevitable.
Faced with a faltering economy also hit hard by low
oil prices, Jakarta nonetheless plans to increase tin
production by 5,000 tons in 1986. Most of the in-
crease will be produced by the state mining enterprise.
To prevent massive layoffs, Tambang Timah has been
pressed to absorb tin miners laid off elsewhere, a
policy expected to continue through the general elec-
tions due in 1987. However, the company has already
been forced to lower its operating budget by 17
percent, and industry experts believe that job cuts are
below 1985 levels.
Thailand. The Thai tin industry is retrenching dra-
matically. According to a recent government survey,
46 percent of the mines have closed, and many have
curtailed production to as low as 10 percent of
capacity. As a result, business and government offi-
cials expect production ultimately to fall 30 percent
Because of the mine closures, about 30 percent of the
tin work force is out of work. Bangkok does not expect
the rise in unemployment to have a serious political
issue.
impact because some laid-off workers found job op-
portunities elsewhere, such as in tourism. Recent
elections did not evoke widespread discontent over the
Several problems still concern the Thai industry-
taxes, export controls, and smuggling. Even though
the government already has enacted one tax reduction
package, recom-
mended implementation of additional aid measures:
? Lowering taxes on tin exports from 2.2 percent to
1.1 percent.
? Lifting the law controlling the export of tin.
? Promoting foreign sales of tin, particularly in East-
ern Europe.
Meanwhile, the government expects tin smuggling to
decline because of lower taxes and the absence of
export quotas previously imposed on tin-producing
countries by the now ineffective International Tin
Council.
Other Countries. Even at current low prices, the
Brazilian tin industry, which has more than tripled its
production since 1980 to become the world's second-
largest and perhaps most efficient tin producer, can
break even, according to Embassy reporting. As a
result, we expect the industry to continue its present
level of production. The dramatic world price decline
has had little effect on Chinese tin production, which
is still focused primarily on meeting a substantial
domestic demand. Moreover, China is aiming at
boosting foreign sales of manufactured tin products
rather than ore.
We expect weak market conditions for tin to persist
for the next few years. In light of the large stock
overhang worldwide, industry analysts predict that tin
prices will hover between $2.50 and $2.70 per pound.
Prices above $2.70 would bring out additional tin
from inventories held by banks, brokers, and produc-
ers, placing new downward pressures on the price.
Moreover, demand for tin is unlikely to rise because
consumers are substituting other materials.
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Secret
As the tin market languishes, we expect a pared down,
more efficient industry to emerge. Brazil and Indone-
sia should weather the aftermath of the price collapse
fairly well, while the Malaysian and Thai industries
will also survive but with significantly fewer mines.
China, through its increased emphasis on expanding
tin manufactures and relying on its large domestic tin
demand, should continue on course. Bolivia, feeling
the price collapse the strongest, will probably experi-
ence a dramatic reduction of its industry.
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Secret
Romania: Economic Adjustment
Strategy Falters
President Ceausescu's obsession with paying off for-
eign debt continues to burden the economy but has
left Bucharest still dependent on foreign creditors. In
July, Western creditors agreed to reschedule some
1986-87 payments on debt rescheduled in 1982-83
after determining that Romania faces large financing
gaps this year and next. Debt repayment obligations
for 1989-90 have already increased as a result of some
new borrowing and rescheduling. Consequently, Ro-
mania will have to endure austerity considerably
beyond 1988-Ceausescu's original goal.
leading Bucharest to request temporary rollovers of
several debt payments while skipping others. In late
May, Bucharest requested a multiyear rescheduling
of nearly $1 billion on 1982 and 1983 rescheduled
debt due in 1986-88. In July, Romanian financial
officials reached tentative agreement with creditors to
postpone about $350 million owed in 1986 on debt
rescheduled in 1982 and $460 million due in 1987 on
debt rescheduled in 1982 and 1983. Repayments are
scheduled for 1989-92. Creditor banks withdrew their
previous demands for an IMF program, and Bucha-
rest dropped its demand for a rescheduling of 1988
debt.
Romania's current economic dilemma is rooted in
Ceausescu's reaction to the debt reschedulings of
1982-83. Humiliated by having to accept Western
creditors' terms in return for debt relief, Ceausescu
opted for rapid debt repayment and banned new
borrowing to eliminate foreign interference. As efforts
to expand export earnings failed, however, the regime
resorted to ever-deeper cuts in imports and consumer
welfare to generate the required trade surpluses and
to protect the country's industrialization drive. Bu-
charest's adjustment strategy has differed markedly
from that of other financially strapped East European
regimes, which-to placate popular discontent-have
given greater priority to protecting the consumer.
The financial recovery that Ceausescu had hoped to
achieve with this austere approach has been brief.
Although the regime cut its debt by 35 percent in
1982-85, trade performance slipped badly in 1985,
producing a hard currency surplus of only $1.4 bil-
lion-down from $2.2 billion in 1984. After getting
through only one year-1984-without debt relief or
new medium/long-term borrowing, Bucharest had to
borrow $150 million in 1985. Export performance has
remained lackluster in the first five months of 1986,
in part because of decreased price spreads between
imported crude oil and exported refined products,
The Economy: Spiraling Downward
The decline in export earnings in 1985 resulted mostly
from the failure of the regime's adjustment program.
Since the debt crisis struck in 1981, Ceausescu has
contended that rapid industrialization would quickly
boost productivity and economic growth to offset
import cuts and still produce more export goods. The
regime's investment strategy, however, has yielded
disappointing results:
? The regime has directed substantial investment to
energy production and agriculture, but largely for
costly, long-term projects that will not produce
much return before the end of the decade. Despite
51-percent growth in investment in 1981-84, domes-
tic energy output grew only 9 percent, and the key
goal of reduced dependence on foreign energy has
only been partially achieved.
? Expenditures to repair and maintain existing capital
stock and infrastructure were slashed. Substitution
of domestically produced investment goods for im-
ports of Western machinery and spare parts has
caused a deterioration in Romania's capital stock,
preventing the expected gains in efficiency, particu-
larly in the use of energy.
Secret
DI IEEW 86-031
1 August 1986
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Secret
Romania: Financing Requirements and Sources, 1982-90
Financing requirements
4,160
2,094
452
968
406
501
-717
778
829
Current account
655
922
1,536
915
1,574
1,619
1,500
1,345
1,240
Trade balance
1,525
1,688
2,186
1,445
2,090
2,060
1,870
1,650
1,500
Exports
6,235
6,246
6,892
6,280
7,380
8,270
8,650
8,900
9,200
Imports
4,710
4,558
4,706
4,835
5,290
6,210
6,780
7,250
7,700
Net interest
917
737
706
649
565
478
385
300
245
Other services
47
-29
56
119
49
37
15
-5
-15
Debt repayments
3,170
2,152
1,578
1,659
1,761
1,818
1,912
1,658
1,519
Medium and long term
2,081
1,211
1,045
1,269
1,258
1,361
1,402
1,153
969
Short term
1,089
941
533
390
503
457
510
505
550
Net credits extended
-502
-476
-410
-224
-219
-302
-305
-465
-550
Arrears from previous year
1,143
388
0
0
0
0
0
0
0
Financing sources
4,065
1,791
418
988
410
835
580
853
848
Credits
1,372
903
602
478
686
662
838
853
848
Medium and long term
657
503
274
292
300
400
500
450
450
Short term
414
268
272
361
462
510
505
550
505
IMF, net
301
132
56
-175
-76
-248
-167
-147
-107
Debt relief
2,718
976
0
0
354
462
0
0
0
Change in reserves
-25
-88
-184
510
-630
-289
-258
NA
NA
Errors and omissions
95
303
34
20
4
75
137
250
14
Financing gap/arrears
388
0
0
0
0
0
0
0
0
a Estimated.
b Projected.
The limited payoff from investment, cutbacks in
imports, and chronic bottlenecks slowed economic
growth to 1.5 percent annually in 1981-85, compared
with 3.9 percent in 1976-80. A modest recovery in
1984 was choked off in 1985 by worsened energy
shortages.
Economic Recovery Unlikely
The economy cannot grow and produce more exports
without more imports, but neither can the regime
afford more imports and still cover debt obligations.
Romanian financial officials recently suggested
that Bucharest is considering in-
creasing imports from $4.8 billion in 1985 to $5.6
billion in 1986. This seems unlikely, however, given
Ceausescu's frequent calls this year to restrain im-
ports and the regime's financial constraints. Even if
export earnings are sustained, Bucharest still has a
financing gap of some $200 million and may have to
make further cuts in imports. Debt relief for 1987 will
be sufficient to enable Romania to balance its interna-
tional payments only if Bucharest can hold the line on
imports and prevent further declines in export earn-
ings. Moreover, with Ceausescu's commitment to
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Secret
Romania: Share of Energy in Industrial
Investment
reduce the foreign debt, Bucharest's debt manage-
ment strategy in the next two years is likely to be
more of the same: requests for some debt relief as
needed, while pushing for export gains from an econo-
my that is choking on shortages.
Indeed, the 1986-90 Plan, with its demands for rapid
growth in industrial and agricultural output, appears
even more unrealistic than the previous five-year plan.
The gap between energy supplies and overall growth
targets is likely to worsen, resulting in more wide-
spread bottlenecks. Continued high investment will
soak up scarce raw materials and other resources but
produce little payback in this period. For example, the
country's largest current investment project, the Cer-
navoda nuclear reactor, is unlikely to come on line
until after 1990. Prospects for a more pragmatic
approach to economic management are poor as long
as Ceausescu remains in control. Already this year he
has imposed further restrictions on wages and enter-
prise financing that appear to be disrupting enterprise
operations and sapping worker morale. These factors
probably will limit average annual GNP growth to no
more than 1 percent over the next several years
Ceausescu intended to march the country through a
period of heavy austerity that would diminish after
1988. As originally planned, repayments in 1989-90
on medium- and long-term debt were to be less than
one-half the 1984-88 level. However, debt repayment
obligations for 1989-90 have already increased as a
consequence of some new borrowing and reschedul-
ings; repayments in 1989 and 1990 will be only
slightly less onerous than at present. As a result, the
country will have to endure a considerably longer
period of grinding austerity.
In the event that Ceausescu-who is rumored to be
ill-passes from the scene, Romania's economic diffi-
culties could become more ominous. A new leadership
would have to decide whether to stay the course or
adopt a new approach to financial and economic
recovery. Prolonged austerity that has depressed al-
ready low living standards by some 20 percent since
1980 would raise the risk of serious unrest, particular-
ly if the new leadership appeared weak and divided.
The quickest way to bring about substantial improve-
ments in popular welfare, however, would require
increased imports of raw materials, energy, and con-
sumer goods. This would necessitate major reschedul-
ings of both commercial and government debt and
negotiation of an IMF program that would undoubt-
edly call for some restructuring of the economy.
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Energy
Tehran Petroleum repairs are continuing on the Tehran 25X1
Refinery Repairs Petroleum Refinery, badly damaged by an Iraqi airstrike in early May. The
Continue refinery was shut down completely following the attack but had resumed operation
at about half capacity by late May. It will probably take at least one or two more
months to restore the refinery to its prestrike capacity. When seen in July, work
was continuing on a damaged crude oil distillation unit-one of the critical
elements-although reconstruction of a cooling tower for one of the refinery's two
steam plants had not yet begun. Prior to the attack, the Tehran Refinery provided
about one-third of Iran's petroleum products. Tehran may draw on long-
established arrangements with South Yemen, Singapore, and other countries to
refine more of its crude oil into petroleum products for reexport to Iran. These re-
exports totaled about 100,000 b/d prior to the attack. 25X1
Libya Coping The cessation of US company marketing operations last month has had only a
Without US slight impact on Libyan oil exports primarily because Tripoli continues to heavily
Oil Companies discount its oil prices. Moreover, Tripoli has had no major difficulties operating its
oilfields and has been able to retain
Tripoli has been able to secure new outlets for most of the
200,000 b/d of oil previously marketed by US firms by negotiating netback
contracts with some customers at prices close to $9 per barrel. These contracts
probably kept Libyan crude oil exports at 1 million b/d in July, only 100,000 b/d
below the June level Most Libyan exports
continue to be sold to West European firms The
largest customers are subsidiaries of major oil companies such as British Petro-
leum and Royal Dutch Shell, and refiners with local outlets such as those in Italy
and West Germany. Tripoli probably will continue to aggressively market its oil to
maximize revenues and to help blunt US efforts to make Libya a residual oil
supplier. Meanwhile, the West European response to US initiatives to curtail the
use of Libyan oil has been positive, but limited. Without an increase from the cur-
rent price of $9 per barrel, however, Tripoli's oil revenues for this year will be cut
in half to about $5 billion.
23 Secret
DI 1EEW 86-031
l August 1986
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Secret
US Firm The US firm Panhandle Eastern has reached an agreement with the Algerian
Settles Algerian state-owned oil and gas company, Sonatrach, to settle claims from a suspended
LNG Dispute liquefied natural gas (LNG) import contract dating back to 1983. The agreement
provides for Panhandle Eastern to pay Sonatrach $200 million along with 6 million
shares of Panhandle stock currently worth about $265 million-Sonatrach would
own nearly 12 percent of Panhandle. If the Algerian Government approves, this
would settle the legal battles that followed Panhandle's suspension of imports in
late 1983 when the higher prices renegotiated by Sonatrach in 1982 made the
LNG uncompetitive in US markets.
Security Concerns Amoco announced a temporary halt in its petroleum exploration in the northwest,
Threaten Guatemalan becoming the second US oil company to suspend operations because of security
Oil Exploration concerns. In June, Esso officials announced a temporary stop to their exploration
activities after guerrillas destroyed two helicopters and other equipment in raids on
oil camps. The suspensions increase pressure on President Cerezo to improve
security in the remote areas where the rebels continue to demonstrate their ability
to hit isolated economic targets. The actions also are likely to increase security
concerns of other potential foreign investors.
Creditors React to The angry reaction of foreign bank creditors to Venezuela's unilateral reschedul-
Venezuelan Debt ing of its external private debt has shocked the Lusinchi administration, according
Rescheduling to the US Embassy
Meanwhile, the
government has exempted Paris Club debt and debts of less than $500,000 from
the plan. After taking a hard line with banks with this hastily conceived scheme,
the administration and the political opposition are now weighing its costs,
according to the Embassy. Although concessions will be politically difficult,
bankers' threats to cut credit lines will probably produce a political consensus to
make the plan palatable to creditors.
New Moroccan Morocco is preparing for negotiations with the IMF on a new standby loan that
Austerity Measures probably will require additional budget cuts-especially reductions in food
Likely subsidies and education spending. Rabat lost access to badly needed IMF funding
earlier this year when it failed to meet Fund performance targets. Agreement
appears to have been reached on the basic elements of a new 18-month standby
loan that could be in place by early this fall. The government probably will cut
food subsidies soon to pave the way for a new Fund program, according to the US
Embassy. These cuts could be the largest since those that precipitated the January
1984 food price riots, which claimed up to 100 lives. Obtaining a new IMF loan is
Secret 24
1 August 1986
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crucial to cash-short Morocco, which now has sufficient foreign exchange reserves
to cover less than two weeks of imports. Moreover, Rabat still faces an onerous
debt service burden-about 40 percent of export receipts this year-and new debt
rescheduling talks with commercial lenders are stalled until an IMF package is in
place.
Taiwan, Hong Kong As the expiration of the current Multi-Fiber Arrangement (MFA) draws nearer,
Agree to US two major LDC exporters-Hong Kong and Taiwan-have agreed to hold annual
Textile Limit average growth of overall textile exports to the United States to 1 and 0.5 percent,
respectively, per year, on the basis of 1985 export levels, through the end of 1988.
These agreements extend coverage to items such as silk blends, ramie, linen, and
other fibers not previously regulated by the MFA. South Korea, concerned that
any concessions will only invite further demands, has yet to reach a bilateral
agreement, while Brazil, China, India, and Pakistan continue to hold out for
further liberalization of the old MFA. Smaller LDCs fear that trade concessions
such as those accepted by Taiwan and Hong Kong will undermine the LDC
negotiating position at the MFA renewal talks. Meanwhile, press reports of the
recent US agreement with South Africa increasing that country's export quota by
4 percent-effective 1 September 1986-will most likely prompt a negative
reaction from LDC textile exporters in bilaterals and at the MFA negotiations.
Ecuador and Ecuador and Colombia signed an agreement on 21 July they hope will generate
Colombia Sign $190 million in bilateral trade by the end of 1986. The agreement is intended to
Record Trade Accord aid Ecuador's faltering petroleum-based economy by encouraging trade in goods
previously banned by Colombia on the grounds that importation would hurt
domestic producers. The US Embassy estimates Ecuadorean nonoil exports-
primarily chocolate, large kitchen appliances, fish meal, and wooden goods-to
Colombia may reach $110 million, surpassing a 1980 high of $93 million.
Colombian exports will probably consist largely of petrochemical and metallurgi-
cal products. The agreement is based on a new Andean Pact created in May to lib-
eralize trade between members.
Global and Regional Developments
New Soviet Payment Moscow has won an apparent financial concession from Japanese companies
Arrangements for supplying large-diameter steel pipe for the Siberian natural gas pipeline. Accord-
Japanese Steel Pipe ing to press reports, the Soviet Steel Trade organization last month signed an
agreement with four major Japanese steel producers that would allow payment for
50 percent of the pipe imports in dollars, rather than yen. Moscow, whose exports
are largely denominated in dollars, had originally requested to convert all
payments into dollars to ease the foreign exchange costs stemming from the
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rapidly appreciating yen. Further strengthening of the yen relative to the dollar-
which we believe likely-may cause Moscow to renew its request for a larger share
of dollar-based payments. Although the Japanese companies extending suppliers'
credits in dollars will attempt to adjust other contract terms to offset their
increased foreign exchange risk, the depressed market for steel exports will
probably not allow them to do so fully.
Japanese Push Nine Japanese firms have formed a consortium, the Space Telecom Development
for New TV System Company, to develop a high-definition-television (HDTV) system for the 1990s. At
the same time, several West European companies are pursuing an alternative
HDTV system. An unofficial Eureka project list, for example, shows some $180
million budgeted for HDTV with France, West Germany, the Netherlands, and
the United Kingdom participating. Uniform HDTV received a setback earlier this
year when the International Telecommunication Union, at its May meeting, failed
to agree on an international production standard. According to State Department
officials, the EC Commission along with France played an instrumental role in
organizing opposition to the Japan-US backed standard, probably to keep
Japanese technology out of Western Europe.
India Reaches India has agreed to cooperate with Libya in new areas of industry, trade, and com-
Economic Cooperation merce. India will assist Libya in the management and construction of infrastruc-
Agreement With Libya ture, power, and telecommunications facilities, but the recent agreement did not
identify specific projects. We believe New Delhi's participation is prompted, for
the most part, by India's interest in maintaining an inflow of foreign exchange
from Libya. There are currently about 40,000 Indian workers in Libya, whose
remittances account for some $200 million in hard currency annually. In addition,
several companies are engaged in lucrative construction activities in Libya.
Although recent attempts by Libya to recruit Indian Muslims for terrorist
activities and its failure to pay Indian workers on time have caused minor tensions
between New Delhi and Tripoli, the agreement signals both countries' desire to
maintain friendly economic relations.
National Developments
Secret
/ August 1986
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Secret
Tokyo To Study Political concern in Japan over the appreciation of the yen will probably allow
Deregulating Tokyo's economic policy makers to press ahead with financial deregulation.
Capital Outflows According to press reports, Finance Minister Miyazawa believes that, at 155 yen
to the dollar, the appreciation has become too economically painful and must be
halted. The US Embassy believes that the Finance Ministry staff is being directed
to find creative ideas that might weaken the yen, and, thus far, deregulating
financial outflows appears to be the leading candidate. A senior Finance Ministry
official told the US Embassy that one immediate step would probably be the
relaxation of exchange controls on trust activities. Although a gradual deregula-
tion of capital outflows will probably not have much of an impact on the exchange
rate-the regulations under discussion affect the composition of the flows rather
than the total-Finance Ministry officials view the current political concern as an
opportunity to pursue financial reform in general, including both liberalizing
capital outflows and inflows. Political necessity suggests, however, that such moves
are likely to be presented domestically as liberalization of capital outflows.
Japan Debates The new Minister for Post and Telecommunications (MPT), appointed by Prime
Tax Exempt Minister Nakasone last month, has publicly opposed the Finance Ministry's efforts
Savings Accounts to eliminate the tax exemption for interest earned on small-denomination savings
accounts. Last April, the Maekawa Commission called for the abolition of the
current system in which accounts are divided among a number of financial
institutions and the postal savings system. The government's tax system council is
currently debating the interest exemption and may recommend a small tax on such
interest in its final report this October, according to press reports. Such a
recommendation would face strong opposition not only from the MPT but also
from influential politicians. In last month's election campaign, for example,
Nakasone pledged to keep the interest exemption. A key indicator of the eventual
decision will be the recommendations of the ruling party's tax study group, also
due this October.
Secret
I August 1986
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Secret
Less Developed Countries
Mounting Deteriorating economic conditions have hurt President Duarte politically and are
Economic Woes likely to intensify his requests for additional US aid. The US Embassy reports that
in El Salvador the economic measures adopted last January have been poorly implemented and
have neither solved budget problems nor stimulated growth. The austerity
measures also have adversely affected workers and peasants-Duarte's traditional
constituents-without restoring private-sector confidence. Inflation-fueled by
wage increases and an expanding money supply-has reached an annual rate of 35
percent. Meanwhile, lower-than-anticipated coffee prices and slack regional trade
may reduce export earnings by as much as $65 million from earlier estimates,
according to the US Embassy. Public pressure-particularly from the unions-
will limit the President's willingness to seek additional reforms such as a new
devaluation and hikes in utility rates. Duarte probably realizes that failure to act
will delay economic recovery, but he may calculate that increased US aid would
shore up his domestic support, at least in the short run.
Secret
I August 1986
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Secret
Libyan Increasing financial constraints have caused Tripoli to make additional sharp cuts
Project Freeze in key development projects and postpone or delay new projects.
the Zwara aluminum smelter project has been put on hold for
at least four years and may be canceled. Moreover, the steel mill under
construction at Misratah is in serious trouble and also may be shelved if a foreign
partner cannot be found. Libya for the next several years
will only be interested in maintaining existing industrial infrastructure. If oil
prices remain below $10 per barrel, even this goal may be impossible. At this price,
Libya will earn less than $5 billion from oil exports this year, down by more than
half from 1985. The regime, however, probably will continue to give priority to
maintaining the oil industry-the ultimate source of Qadhafi's domestic and
international influence. These project delays probably will have little direct impact
on the general population, but may free some resources to relieve shortages of food
and consumer goods.
Libyan Water Progress on Libya's Great Man-Made River project has slowed considerably as a
Scheme Problems result of Tripoli's cash crunch. construction of
the two large-diameter pipe plants is nearly complete, but production probably will
not begin before December. Work also has slowed on construction of the road
parallel to the ditch in which the large pipe segments will rest. Qadhafi, however,
continues to give top priority to the project, and, despite growing payment delays,
the South Korean contractor, Dong Ah, currently has 23,000 workers in Libya. In
addition to cash payments, Dong Ah probably is accepting as much as 60,000 b/d
of Libyan crude oil. US trade sanctions have so far had only a limited impact on
the US-designed project. The sharp drop in Libyan crude oil revenues this year
probably will push back the scheduled 1990 completion date of the project by at
least several years, further aggravating Libya's water shortage.
Pakistan Announces In an interview, the Minister of Planning provided details about Prime Minister
Employment Scheme Junejo's $120 million "National Employment Fund" that he announced earlier
this year. Designed to reduce the jobless rate-official statistics put unemployment
at 3 percent and underemployment at 43 percent-the fund will be financed by
windfall savings from a declining oil import bill; the government has not lowered
domestic prices to match the fall in world oil prices. The scheme calls for the con-
struction of highways and housing for federal employees, doubling the capacity of
polytechnic schools, and creation of provincial centers to advise professionals on
how to establish viable businesses. Junejo is trying to mute public criticism of his
29 Secret
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Secret
refusal to significantly reduce prices for petroleum products. In addition, opposi-
tion leader Bhutto has been calling for the reinstatement of workers dismissed
from government enterprises, removing hiring and firing authority from the
managers of state enterprises, and establishing new training centers in each of the
four provinces, according to US Embassy reporting.
Philippine Government President Aquino's strong criticism of domestic businessmen and defense of her
and Businessmen populist economic policies are deepening the frustrations of business leaders,
at Odds alienating one of her principal political constituencies, and delaying an economic
recovery. Aquino-who questioned the patriotism of the country's leading busi-
nessmen at a meeting with the Philippine Chamber of Commerce last week-is in-
creasingly impatient with the wait-and-see attitude of local investors. Investments
during the first quarter of this year-half the level during the same period in
1985-have not picked up since the business-supported revolution in February that
swept Aquino into power. moreover, overseas
businessmen also are postponing investment, in part because of the low level of
confidence exhibited by the local business community. According to the US
Embassy, labor militancy is largely responsible for the poor investment outlook. In
particular, businessmen are concerned with Labor Minister Sanchez's sympathy
for leftist unions-the number of strikes since March has increased 75 percent
from the same period last year. Aquino, however, defended Sanchez in her speech
and argued that strikes are centered in "sweatshop" industries-a comment that
jangled businessmen's nerves, according to Embassy reporting.
businessmen believe that the new government is no closer to policies that
will solve the country's trade, investment, and labor problems than when it
assumed office. The business community also opposes Manila's plans to free the
exchange rate, reduce tariffs, and boost sales taxes, because these measures would
hurt industries selling to the domestic market. In addition, the Philippine Chamber
of Commerce has concluded that the investment sections of the government's draft
five-year economic plan are "anti-big-business."
Hong Kong's China and Britain agreed to establish a separate shipping register operated by
Independent Economic Hong Kong last week at the fourth meeting of their Joint Liaison Group. Hong
Status Strengthened Kong ships are now listed in a special section of the British registry. During the
London meeting, the two sides also agreed to allow Hong Kong to maintain its own
separate postal administration after China regains sovereignty in 1997. In response
to Beijing's complaints that it was kept in the dark about a recent civil aviation
agreement between Hong Kong and the Netherlands, London agreed to keep
China informed about future civil aviation negotiations, although it does not want
Beijing to have a veto power. The British also used the meeting to explain how it
will handle civil service pensions and to describe its plans to replace expatriate
officials with local hires. The relatively smooth progress being made toward Hong
Kong's transition during these sessions should help sustain investor confidence in
the territory.
Secret
I August 1986
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Secret
China's Capital China's capital construction expenditures in the first half of 1986 increased 7.9
Construction Exceeding percent above first-half 1985 levels, according to official statistics, but a mainland
Planned Targets newspaper reported that "technical renovation" expenses jumped dramatically in
the same period, pushing total investment in state-owned fixed assets over
17 percent above 1985 levels. The newspaper report indicated that many units are
using "technical renovation" spending as a loophole to continue construction
projects, undermining Beijing's efforts to regain control over the economy
following last year's overheating. Beijing's target for 1986 called for overall
investment at roughly 1985 levels. The People's Bank has been instructed to
charge 30-percent interest on new loans for out-of-plan investment projects, and
Beijing is looking for other ways to tighten control over construction projects. The
pressure for increased capital construction traditionally grows during the year,
with one-fourth of yearly expenditures often chalked up in December alone.
31 Secret
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Secret
Secret
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Directorate of
Intelligence
Economic & Energy
Indicators
DI EE/ 86-016
1 August 1986
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This publication is prepared for the use of US Government
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Economic & Energy
Indicators
Economic Industrial Production
Gross National Product
Consumer Prices
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
Crude Oil Prices 10
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Percent chan
seasonally adj
ge from previous period
usted at an annual rate
West Germany
-2.3
-3.2
0.3
2.4
4.8
-0.6
72.6
-1.5
1.1
2.5
0.5
-5.8
55.7
-46.5
United Kingdom
-3.9
2.1
3.9
-1.6
-3.1
-3.2
3.3
1.2
11.7
16.4
-55.3
0.5
-10.0
5.3
8.8
4.3
-0.9
4.6
-21.9
Japan 4.1
3.1 3.3 5.0 4.5 5.7 2.7 5.8 -2.1
West Germany -0.2 -1.0 1.5 3.0
United Kingdom -1.4 1.9 3.4
Percent change from previous period
seasonally adjusted at an annual rate
Percent change from previous period
seasonally adjusted at an annual rate
12.0 9.5 7.7 5.8 0.8 1.6 2.6 5.0
19.3 16.4 14.9 10.6 8.6 6.2 5.0 5.8 6.4
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Money Supply, M-1 a
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr
Apr
May
Jun
United States b
7.1
6.6
11.2
7.0
9.1
7.9
15.5
25.9
15.6
Japan
3.7
7.1
3.7
2.8
5.0
7.7
9.2
9.1
West Germany
1.1
3.6
10.2
3.3
4.4
9.8
1.9
-5.8
25.4
France
12.2
13.9
8.7
17.0
-17.0
-3.1
NA
13.0
14.7
16.7
9.1
31.6
4.7
14.7
Italy
11.2
11.6
15.1
12.3
13.7
8.9
11.9
Canada
3.8
0.7
10.2
3.2
4.1
-13.3
-14.0
9.9
28.7
a Based on amounts in national currency units.
b Including MI-A and MI-B.
Unemployment Rate a
1981
1982
1983'
1984
1985
1986
Year
4th Qtr 1st Qtr
2nd Qtr
May
Jun
9.6
9.4
7.4
7.1
6.9 7.0
7.1
7.2
7.0
9.3
9.0 10.2
8.6
8.5
8.4
10.0
9.7 9.9
10.0
10.0
10.1
11.3 11.5
11.6
11.6
11.7
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Foreign Trade U
United States b
Exports
233.5
212.3
200.7
217.6
213.3
Imports
261.0
244.0
258.0
325.7
345.3
92.9
32.0
28.8
30.3
Balance
-27.5
-31.6
-57.4
-108.1
-132.0
Japan
Exports
149.6
138.2
145.4
168.1
173.9
47.8
15.8
16.7
17.6
Imports
129.5
119.6
114.0
124.1
118.0
30.0
9.4
9.7
9.1
Balance
20.1
18.6
31.4
44.0
55.9
17.8
6.4
7.0
8.5
West Germany
Exports
175.4
176.4
169.5
171.9
184.3
55.0
17.4
21.8
17.6
Imports
163.4
155.3
152.9
153.1
158.9
45.0
14.2
17.2
14.4
Balance
11.9
21.1
16.6
18.8
25.3
10.1
3.2
4.6
3.2
France
Exports
106.3
96.4
95.1
97.5
101.9
30.4
9.9
9.9
9.7
10.1
Imports
115.6
110.5
101.0
100.3
104.5
30.3
10.2
10.6
10.0
10.3
Balance
-9.3
-14.0
-5.9
-2.8
-2.6
0.1
-0.4
-0.7
-0.3
-0.2
United Kingdom
Exports
102.5
97.1
92.1
93.6
100.9
26.2
8.4
9.1
8.9
8.8
Imports
94.6
93.1
93.7
99.3
103.5
28.3
10.2
9.5
9.9
9.7
Balance
7.9
4.0
-1.6
-5.7
-2.5
-2.0
-1.8
-0.4
-1.0
-0.9
Italy
Exports
75.4
73.9
72.8
73.4
78.8
23.3
7.6
8.2
8.1
8.2
Imports
91.2
86.7
80.6
84.4
90.8
25.7
8.4
8.2
7.9
7.9
Balance
-15.9
-12.8
-7.9
-10.9
-11.9
-2.4
-0.8
0
0.2
0.3
Canada
Exports
70.5
68.5
73.7
86.5
88.0
21.6
6.7
7.4
7.0
Imports
64.4
54.1
59.3
70.6
75.7
19.8
5.8
6.6
6.4
Balance
6.1
14.4
14.4
15.9
12.3
1.8
1.0
0.8
0.6
:, Seasonally adjusted.
b Imports are customs values.
Imports are c.i.f.
Japan
4.8
6.9
20.8
35.0
49.2
16.0
12.7
6.8
7.9
7.7
West Germany
-6.8
3.3
4.3
6.7
13.8
7.3
6.9
2.1
3.6
2.7
United Kingdom
15.3
8.5
4.7
1.9
5.0
1.1
0.7
-1.0
0.7
0.1
Seasonally adjusted; converted to US dollars at current market
rates of exchange.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
Percent chan
ge from pre
at an
vious period
annual rate
United States
9.2
1.5
1.0
1.4
-0.7
-12.0
7.7
-2.4
2.1
Japan
5.5
-6.4
-2.4
0.2
-0.6
111.0
-5.7
48.1
12.9
West Germany
-14.9
-2.8
-3.2
-7.1
0
60.6
32.8
0.2
20.4
France
-12.0
-5.5
-4.8
-2.9
2.5
34.7
28.0
United Kingdom
NA
NA
-6.2
-5.1
2.3
-16.0
26.4
6.0
9.1
Percent change from previous period
at an annual rate
Japan
3.6
-7.4
-5.0
-2.8
-4.3
46.8
-66.7
-59.0
-54.3
West Germany
-8.6
-4.7
-5.2
-4.8
-1.5
12.9
-2.2
-22.9
-7.9
France
-7.8
-7.2
-7.0
-3.8
-0.3
19.7
16.9
United Kingdom
NA
NA
-5.7
-4.5
0.5
-2.0
26.2
-3.6
3.9
Italy
1.0
-5.3
-6.6
-3.7
-1.0
0
-38.4
-19.8
Canada
8.7
-1.1
0.6
1.0
-2.1
6.5
0
21.1
-2.6
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
Percent change from previous period
at an annual rate
Italy
-9.2
-5.1
-1.6
-3.1
-3.8
5.5
4.2 -0.1 9.3
Canada
0.3
0.2
2.3
-2.3
-3.6
-13.1
-5.6 11.2 6.2
Money Market Rates
United States
90-day certificates of
deposit, secondary market
Japan
loans and discounts
(2 months)
7.79
7.23
NA
6.66
6.52
6.38
NA
6.12
5.98
NA
West Germany
interbank loans
(3 months)
France
interbank money market
(3 months)
United Kingdom
sterling interbank loans
(3 months)
Italy
Milan interbank loans
(3 months)
Canada
finance paper (3 months)
18.46
14.48
9.53
11.30
9.71
11.08
9.03
9.52
8.78
8.80
Eurodollars
3-month deposits
16.87
13.25
9.69
10.86
8.41
7.91
7.00
6.95
6.99
7.07
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
Bananas 214.0 217.0 232.0 243.0 110.3 109.8 NA 109.2 NA
Fresh imported,
(Total world, $ per metric ton)
Australia
(Boneless beef,
f.o.b. US Ports)
United States
(Wholesale steer beef,
midwest markets)
Corn
(US #3 yellow,
c.i.f. Rotterdam, $ per metric ton)
Cotton
(World Cotton Prices, "A"
index, c.i.f. Osaka, US ?/Ib.)
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
US (No. 2, milled,
4% c.i.f. Rotterdam)
89.8 74.3 92.1 106.2 98.7 95.7 82.6 81.4 81.4
1.28 1.40 1.32 1.44 1.43 2.01 1.73 1.77 1.51
Thai SWR 573 362 339 310 249 236 224 221 226
(100% grade B
c.i.f. Rotterdam)
Soybeans
(US #2 yellow,
c.i.f. Rotterdam, $ per metric ton)
Soybean Oil 507 447 527 727 571 407 348 345 351
(Dutch, f.o.b. ex-mill,
$ per metric ton)
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
Sugar
(World raw cane, f.o.b.
Caribbean Ports, spot prices C per pound)
Tea
Average Auction (London)
(? per pound)
Wheat 210 187 183 182 169 172 158 163 140
(US #2. DNS
c.i.f. Rotterdam, $ per metric ton)
The food index is compiled by The.Economist for 14 food commodities which enter international trade. Commodities are weighted by 3-
year moving averages of imports into industrialized countries.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
Chrome Ore
(South Africa chemical
grade, $ per metric ton)
Gold ($ per troy ounce)
460.0
375.5
424.4
360.0
317.2
342.6
341.6
342.6
342.5
Lead (Q per pound)
32.9
24.7
19.3
20.0
17.7
16.7
17.6
17.0
19.0
Manganese Ore
(48% Mn, $ per long ton)
82.1
79.9
73.3
69.8
68.4
67.2
64.8
64.8
64.8
Metals week,
New York dealers' price
446.0
326.7
92.0
63.1
73.2
86.4
74.4
74.0
NA
71.5
NA
641.4
581.6
590.9
556.6
543.2
357.4
250.5
249.3
244.2
Tungsten Ore
(contained metal,
$ per metric ton)
18,097
13,426
10,177
10,243
10,656
8,673
7,567
7,474
7,474
US Steel
(finished steel, composite,
$ per long ton)
Lumber Index
(1980=100)
Industrial Materials Index r 85 71
(1980=100)
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. As of February 1986 tin
prices from the Penang market.
n S-type styrene, US export price.
Quoted on New York market.
a Average of No. I heavy melting steel scrap and No. 2 bundles
delivered to consumers at Pittsburgh, Philadelphia, and Chicago.
This index is compiled by using the average of 10 types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
1The 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.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
World Crude Oil Production
Excluding Natural Gas Liquids
World
55,837
53,092
52,625
53,674
52,931
54,029
54,684
53,683
53,520
Non-Communist countries
41,602
38,810
38,228
39,257
38,692
39,758
40,423
39,417
39,181
Developed countries
12,886
13,276
13,864
14,302
14,730
15,022
15,070
14,872
13,949
United States
8,572
8,658
8,680
8,735
8,933
8,898
8,934
8,821
8,791
Canada
1,285
1,270
1,356
1,411 '
1,457
1,480
1,480
1,480
1,300
United Kingdom
1,811
2,094
2,299
2,535
2,533
2,711
2,699
2,699
2,554
Norway
501
518
614
700
' 785
856
870
860
319
Other
717
736
915
921
..1,022
1,077
1,087
1,012 -..
. 985
Non-OPEC LDCs
6,036
6,633
6,823
7,515
7,845
7,556
7,393
7,605
7,712
Mexico
2,321
2,746
2,666
2,746
2,733
2,376
2,400
2,219
2,358
Egypt
598
665
689
827
874
758
600
800
760
Other
3,117
3,222
' 3,468
3,942
4,238
4,422
4,393 "
4,586
4,594
OPEC
22,680
18,901
17,541
17,440
16,117
17,180
17,960
16,940
17,520
Algeria
803
701
699
638
645
602
550
600
600
Ecuador
211
211
236
253
280
275
220
300
300
Gabon
151
154
157
152
153
160
160
160
160
Indonesia
1,604
1,324
1,385
1,466
1,235
1,223
1,300
1,175
1,215
Iran
1,381
2,282
2,492
2,187
2,258
1,890
2,200
1,800
2,000
Iraq
993
972
922
1,203
1,437
1,732
1,880
1,650
1,500
Kuwait b
947
663
881
912
862
1,169
1,100
1,400
1,400
Libya
1,137
1,183
1,076
1,073
1,069
1,000
1,000
900
900
Neutral Zone
370
317
39.0
410
355
276
300
230
240
Nigeria
1,445
1,298
1,241
1,393
1,464
1,417
1,400
1,550
1,650
Qatar
405
328
295
399
302
352
300
350
.180
Saudi Arabia b
9,625
6,327
4,867
4,444
3,290
4,256
4,600
4,000
4,600
UAE
1,500
1,248
1,119
1,097
1,146
1,287
1,400
1,305
1,255
Venezuela
2,108
1,893
1,781
1,813
1,621
1,541
1,550
1,520
1,520
Communist countries
14,235
14,282
14,397
14,417
14,239
14,271
14,261
14,266
14,339
USSR
11,800
11,830
11,864
11,728
11,350
11,350
11,350
11,350
11,390
China
2,024
2,042
2,121
2,280
2,496
2,496
2,496
2,496
2,496
411
410
412
409
393
425
415
420
453
Preliminary.
b Excluding Neutral Zone production, which is shown separately.
c Production is shared equally between Saudi Arabia and Kuwait.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
Big Seven: Inland Oil Consumption
United States a
16,058
15,296
15,184
15,708
15,697
15,923
16,056
16,188
15,833
15,843
16,150
Japan
4,444
4,204
4,193
4,349
4,121
4,661
5,005
4,532
3,949
France
1,744
1,632
1,594
1,531
1,493
1,626
2,009
1,525
1,679
1,222
United Kingdom
1,325
1,345
1,290
1,624
1,402
1,286
1,483
1,447
1,416
Italy b
1,705
1,618
1,594
1,513
1,516
1,718
1,855
1,535
1,495
Canada
1,617
1,454
1,354
1,348
1,344
1,346
1,374
1,183
1,239
a Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports
United States
4,406
3,488
3,329
3,402
3,216
3,329
2,993
3,000
3,701
4,085
4,508
West Germany
1,591
1,451
1,307
1,335
1,284
1,321
1,225
1,429
1,285
1,404
France
1,804
1,596
1,429
1,395
1,476
1,430
1,420
1,380
1,608
United Kingdom
736
565
456
482
523
493
445
494
Italy
1,816
1,710
1,532
1,507
1,462
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
1980 1981 1982 1983 1984 1985 1986
OPEC Average a 30.87 34.50 33.63 29.31 28.70 28.14 28.09 28.08 28.07 28.11
(Official Sales Price)
F.o.b. prices set by the government for direct sales and, in most cases, for the producing company buy-back oil. Weighted by the volume
of production.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
Average Crude Oil Sales Prices
US S per barrel
11.29 11.02 11.77 12-88 12.93
29.331 28.70 27.16
nl II II II II II II II II II 11
1973 74 75 76 77 78 79 80 81 82 83 84 85
V N
M O
2
4.8
1
20.32
16.53
14.03 14.06
The 1973 price is derived from posted prices, 1974-84 prices
are derived from OPEC official sales prices, and beginning
in 1985, prices are a measure of average world sales prices.
STAT
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000400100005-4