INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000400160005-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 60
• Document Creation Date: December 22, 2016
• Document Release Date: June 27, 2011
• Sequence Number: 5
• Publication Date: September 12, 1986
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Directorate of
Intelligence
International
Economic & Energy
fl Weekly
Fka
-2 acrt
DI IEEW 86-037
12 September 1986
Copy 8 3 6
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
International
Economic & Energy Weekly 25X1
1 Perspective-The Philippines' Economic Balance Sheet Since the February
Revolution
3 Iraq: Targeting Iran's Economy
7 Eastern Europe: Cloudy Economic Future
11 China: Mixed Results Using Foreign Technology
15 Middle East and North Africa: The Challenge of the Regional Recession
19 Israel: Will Debt Spoil the Economic Outlook?
Energy
International Finance
International Trade
Global and Regional Developments
National Developments
25X1
25X1
Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence25X1
25X1
Secret
DI IEEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 -- Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
International
Economic & Energy Weekly
Synopsis
1 Perspective-The Philippines' Economic Balance Sheet Since the February
Revolution
As President Aquino prepares to visit Washington next week, for the first time in
recent years the economic news out of Manila is not all bleak. Although Aquino
came to power as the Philippine economy was beginning to rebound, and despite
the economic measures taken so far, we believe the economic recovery is in doubt
as long as investors remain on the sidelines.
3 Iraq: Targeting Iran's Economy
Iraqi air attacks on Iranian economic targets are putting additional strains on an
already weak Iranian economy. Although the attacks are likely to add to Iranian
economic hardships, Baghdad would need to be more persistent to critically affect
Tehran's warmaking ability.
7 Eastern Europe: Cloudy Economic Future
Eastern Europe faces continued sluggish growth through 1990. Gloomy prospects
for expanding hard currency exports, outdated capital stock, and lack of economic
reforms will more than offset the favorable trends such as good harvests, the
falling dollar, and lower interest rates.
11 China: Mixed Results Using Foreign Technology
A preliminary assessment of China's use of this technology reveals mixed results.
We believe China's use of foreign technology will improve over the next decade as
a result of Beijing's greater control over imports, better education of industrial
personnel, and introduction of economic policies that reward effective use of new
technology.
15 Middle East and North Africa: The Challenge of the Regional Recession
The region's economies, beset by slack economic activity since world average oil
prices began to slide, will remain weak for the remainder of this year
Secret
DI /EEW 86-037
12 September 1986
25X1
25X1
I
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
19 Israel: Will Debt Spoil the Economic Outlook:
Israel has made great strides toward economic recovery in the past year, but
continued progress will hinge on the government's willingness to reduce spending
to hold the line on budget deficits. The budgetary process will come under added
pressure in the next three years when the government is scheduled to repay about
$4.7 billion to bank share holders stemming from the bank scandal-and
subsequent stock market collapse-of October 1983.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8 25X1
International
Economic & Energy Weekly
12 September 1986
Perspective The Philippines' Economic Balance Sheet Since the February Revolution
As President Aquino prepares to visit Washington next week, for the first time in
recent years the economic news out of Manila is not all bleak:
? On the policy front, Aquino's economic team has scored some success in moving
ahead with the difficult task of economic reform. Finance Minister Ongpin has
dismantled marketing monopolies in sugar, coconuts, and tobacco.
? Restrained growth in the money supply has helped arrest price increases and
stabilized the peso's exchange rate.
? The government has introduced tax reforms and promised to reorganize failing
financial institutions and lower barriers to imports, as part of Manila's negotia-
tions with the IMF for a $500 million balance-of-payments loan.
? Economic moderates on the commission writing a new constitution have defeated
leftist proposals that would have severely restricted foreign investment and
protected local producers from nearly all competing imports.
Moreover, according to our econometric model, the two-year recession bottomed
out late last year and the economy could grow by nearly 2 percent this year and
6 percent next year. In addition, the country's external finances are in a good
position to support recovery. Foreign exchange reserves have grown by 80 percent
to $1.6 billion since February, and we calculate that inflows this year will be
sufficient to meet debt servicing and import requirements. Aid donors have
pledged over $750 million in financial assistance for 1986, and we believe that
more than $1 billion may be raised next year. Negotiations with foreign banks and
aid donors are almost certain to result in a rescheduling of debt ayments due be-
tween 1987 and 1991.
Manila is -serious about starting to whittle down the debt, ac-
cording to Ongpin.
Although Aquino came to power as the Philippine economy was beginning to
rebound and despite the economic measures taken so far, we believe the economic
recovery is in doubt as long as investors remain on the sidelines. Foreign and
domestic investors worry that leftists dominate policymaking, that Aquino's
conciliatory approach to the Communist insurgents will backfire, and that the
administration's inexperienced managerial staff is crippling efforts to implement
economic, programs. The US Embassy reports that the business community is
especially concerned about Labor Minister Sanchez's sympathy for leftist
unions-the number of strikes since March has increased 75 percent from the
same period last year and has involved over 90,000 workers. Moreover, investor
confidence has been eroded by repeated rumors of impending coups. As a result,
foreign corporate investments since January are running at half last year's rate.
1 Secret
DI /EEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Cnn~n4
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Over the longer term, Manila's economic planners cannot count on sustaining
economic growth with exports. Commodity prices this year are at historically low
levels, and most economists expect little improvement for at least the next few
years. Another constraint to growth is that the Philippines is seriously over-
borrowed-servicing its foreign debt absorbs nearly 40 percent of export earnings.
For these reasons, we believe the key to sustainable growth lies in revitalizing the
rural economy, which provides a livelihood for 70 percent of the population and ac-
counts for more than one-fourth of national output.
Aquino's advisers also recognize that an effective counterinsurgency program
requires a "decent" rural standard of living, because close to 3 million Filipinos-
nearly 13 percent of the labor force-are jobless, and the Communist insurgency
continues to thrive. Consumers, small businessmen, and organized labor, however,
are likely to resist exchange rate, tariff, pricing, and tax policies designed to boost
the rural economy if they believe those policies would hurt urban industries or
raise consumer prices. Nevertheless, we estimate that combating the propaganda
gains by the Communist insurgents requires agricultural growth rates in excess of
4 percent annually, a rate not achieved since 1980.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Iraq: Targeting
Iran's Economy
Iraqi air attacks on Iranian economic targets are
putting additional strains on an already weak Iranian
economy. Since the spring, Baghdad has increased the
number, scope, and accuracy of its strikes, expanding
attacks on oil facilities and factories related to mili-
tary production. Although the attacks are likely to
add to Iranian economic hardships, Baghdad would
need to be more persistent to critically affect Tehran's
warmaking ability.
Keeping the Pressure on Tehran
The heightened military pressure on Iran's economy is
a response to Iraq's defeat at Al Faw earlier this year
and an extension of its strategy of pressuring Tehran
to end the war. Since early in the conflict, Iraq has
periodically increased air attacks to compensate for
defeats on the ground and to dispel any perception
among its own people that it has lost control of the
war. Moreover, Baghdad probably sees an opportunity
in Iran's current economic decline to pressure Tehran.
to export oil. Iraq raided Iran's Sirri Island transship-
ment facility for the first time in August, disabling
four tankers and causing some customers to refuse to
load there. The Lavan oil terminal was hit for the first
time on 5 September. Tanker attacks, bad weather,
and maintenance problems have hampered Iran's
shuttle operations and forced Tehran to move its
transshipping operations four times in the past several
weeks.
On land, at least a dozen gas-crude oil separating
plants and crude oil pump stations have sustained
severe damage since June. Because of excess capacity,
however, these attacks have so far caused only tempo-
rary dislocations. Repeated bombings would be neces-
sary to shut down Iranian oil production for an
extended period. Widespread airstrikes on 18 June
that damaged seven separate facilities prove Iraq's
ability to inflict such damage
Iraqi attacks on Tehran's vulnerable domestic refiner-
ies, however, have disrupted domestic supplies of
petroleum products. Since May, Iraq has inflicted
substantial damage to at least three refineries that
account for about 75 percent of domestic production.
Baghdad is exploiting the wartime experience of its
pilots and improved weaponry to carry out more
damaging raids. Iraq has refined its use of its Mirage
aircraft and Exocet missiles and may have used laser-
guided missiles and in-flight refueling for the first
time this year. Fear of Iranian retaliation and reluc-
tance to risk losing aircraft, however, have hindered
the air campaign's effectiveness. Iraq has failed to
destroy critical economic targets because it sends too
few aircraft, uses relatively ineffective tactics, and-
most important-does not follow up its attacks.
Iraqi Attacks ...
Iran's oil production and export facilities have borne
the brunt of Iraqi air attacks. Recent attacks on
Khark, Sirri, and Lavan Islands and tankers in the
Persian Gulf have temporarily reduced Iran's ability
shortages forced Tehran
to impose rationing of gasoline in mid-July. We
expect Iran's annual winter heating fuel shortage will
be more severe this year as a result of the attacks.
Nonoil economic facilities have increasingly been
targeted, particularly those related to military pro-
duction. In late July, Baghdad hit an ammunition
factory; a weapons assembly plant; and machine tool,
aluminum, and steel factories providing inputs for
military industries. Damage to these and other indus-
trial targets are expensive to repair because of dwin-
dling foreign exchange reserves.
Secret
DI IEEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Iranian retaliation-mostly of artillery barrages or
raids of one or two aircraft near the border-has been
largely ineffective. In August, Tehran fired two Scud
missiles against Iraqi oil refineries, but missed. Both
sides have avoided another round of attacks on civil-
ian targets, though each has accused the other of
hitting residential areas. Baghdad's sensitivity to Scud
attacks on residential areas is probably the primary
restraint on pursuing a more aggressive air campaign.
Iraq may maintain the heightened tempo of its air
attacks, but restrictions imposed on the Air Force by
Baghdad will continue to limit Iraqi effectiveness.
Additional strikes against major targets such as the
Tehran oil refinery or Sirri Island are likely as the
regime seeks to boost morale and keep pressure on
Tehran. Another defeat similar to the loss of Al Faw,
however, would probably prompt Iraq to use its
airpower even more aggressively.
Tehran's vulnerability to Iraqi air attacks on econom-
ic targets and its inability to respond in kind put Iran
at a disadvantage. If Baghdad used its full capabilities
to destroy crucial economic targets, Tehran would
probably find its economic position untenable. At that
point, Iran would probably launch missile attacks
against Iraqi civilian targets and step up tanker
attacks in the Persian Gulf. Tehran may even attack
oil facilities of Iraq's Gulf supporters.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Eastern Europe:
Cloudy Economic Future
Eastern Europe' faces continued sluggish growth
through 1990, despite some recent improvements.
Good harvests for most countries, benefits from the
falling dollar and lower interest rates, and the willing-
ness of creditors to lend to some countries will help
the economies this year. However, gloomy prospects
for expanding hard currency exports, outdated capital
stock, and lack of economic reforms will more than
Eastern Europe: Real Gross Percent
National Product, 1971-90
offset the favorable trends.
Midyear industrial performance in most East Europe-
an countries disappointed government officials, who
hoped for a strong start to the 1986-90 plans after last
year's weak results. The lackluster performance re-
sulted from slow growth in domestically produced
materials, shortages of key imports, and failure to
stimulate productivity. Much of the gain in output
came from the mining and construction industries,
mainly because of fewer disruptions from winter
weather than in the previous year.
Generally, the fastest growing sectors were advanced
technologies-computers, robotics, microelectronics,
and fiber optics-and machine building, reflecting
both their own and CEMA's long-term growth strate-
gies and the relatively small base from which output
grows. The region suffered at least one high technol-
ogy setback, however, when a fire in May severely
damaged a microelectronics plant in Hungary.
Improved Agricultural Production
More favorable weather conditions in 1986 have
assured an improvement in agricultural output in
most East European countries this year. Romania,
Bulgaria, and Yugoslavia-hit by dry weather last
year-expect a rebound in grain output. Hungary,
Average Annual Rate of Growth
1971-75 1976-80 1981-85 1986-90
4.5 1.2 1.2 1.3-1.7
however, expects a minimum 4-percent decline in
agricultural output because of its continued drought.
Meanwhile, the Northern Tier countries expect
above-average harvests again, with near-record grain
crops anticipated in Poland and East Germany.
Hard Currency Trade Surplus Diminishes
Current trade trends suggest that the region's hard
currency trade surplus could fall below $1 billion this
year, less than half the level in 1985 and one-fourth
the 1984 balance. Czechoslovakia, Poland, Hungary,
and Yugoslavia-the only countries for which mid-
year data are available-increased hard currency
imports an average of 9 percent and exports by only
1.5 percent compared with the same period in 1985.
The declining surpluses for some countries may re-
flect a shift in planners' priorities. Hungary, East
Germany, Czechoslovakia, and Bulgaria may feel that
Secret
DI IEEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Eastern Europe: Hard Currency Trade
Balances, 1985-86a
? 1985 0 1986
Bulgaria
Czechoslovakia
East Germany
Hungary
Poland
Romania
have been forced to reduce their imports, while others
have fallen behind in payments. Falling oil prices have
also reduced the revenue from East European reex-
ports of oil. Fear of travel in the region and of
contaminated East European exports because of the
Chernobyl' accident has also hurt hard currency
earnings. In addition, East European manufactured
goods continue to lose ground on world markets,
particularly to better quality products from the newly
industrializing countries.
Despite the downturn in trade results, financial devel-
opments have been generally favorable for several
countries this year. Because of the shortage of attrac-
tive Third World lending opportunities, bankers re-
main eager to lend to East Germany, while Hungary
and Czechoslovakia obtained sizable syndicated loans
this spring. The rapid rise in Hungary's debt, how-
ever, has caused some bankers to become wary about
new lending to Budapest. Poland, Yugoslavia, and
Romania had to seek more debt relief from Western
creditors early this year.
The region has benefited somewhat from changes in
world financial markets. We estimate that the decline
in interest rates will save the East Europeans at least
$700 million in interest payments to commercial
banks this year. Some countries will gain as soft
financial markets allow them to renegotiate higher
'Projected. Projections are based upon 1986 growth rates to date: six
months for Poland, Hungary and Czechoslovakia; seven months for Yugo-
slavia; three months for East Germany, Bulgaria and Romania.
they can afford more imports given their ability to
secure new loans and the financial benefits of the
falling dollar and lower interest rates. For them, an
injection of badly needed Western equipment and
technology at the start of the new five-year plan
period might improve the odds of meeting ambitious
growth targets.
The erosion of trade surpluses also stems from unfa-
vorable economic developments. Many important
LDC trading partners, facing declining oil revenues,
priced loans obtained in the early 1980s.
The falling value of the dollar against other Western
currencies will reduce the cost of loan repayments.
Since much of the region's earnings from trade and
services are in nondollar currencies and a large por-
tion of debt service is in dollars, the decline of the
dollar has made it cheaper to acquire the currencies
needed for debt payments.' The 6-percent drop in the
dollar against 10 major currencies in the first half of
the year alone could save the region as much as $930
' The falling dollar has increased the amount of nondollar debt
expressed in dollars. This is largely a statistical effect and does not
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Eastern Europe: Gross and Net Hard
Currency Debt, 1980-85
1_1_1 1 1-1
60 1980 81 82 83 84 85a
a Preliminary.
million in debt service payments to Western creditors
in 1986. Much of these potential savings may not be
realized this year if some countries postpone pay-
ments, as Poland, Yugoslavia, and Romania have
already done. In theory, Eastern Europe would benefit
most by encouraging exports to Western countries
with appreciating currencies and imports from the
United States, but the inflexibility of their foreign
trade systems largely precludes such adjustments.
Despite Moscow's insistence on more balanced trade,
Soviet data indicate that Eastern Europe-excluding
Yugoslavia, which is not a member of CEMA-ran
more than a 720-million-ruble trade deficit with the
USSR in the first quarter of this year, a sharp jump
from the same period last year. Although results
varied widely among countries, the region's imports
from Moscow rose 8 percent. The Soviets allowed
those countries struggling economically-Poland, Ro-
mania, and Bulgaria-to increase imports briskly.
Romania's import growth was particularly notewor-
thy, nearly 65 percent.
reduction of oil prices with Moscow.
So far, the fall in world oil prices has had a limited
impact. The region imports more than three-fourths
of its oil from the USSR, which prices its oil sales to
CEMA countries on a five-year moving average. Even
though CEMA countries (except Romania) currently
pay the equivalent of $30 per barrel for Soviet oil-
double the world price-they have not substituted
non-Soviet oil imports for Soviet supplies because they
can pay Moscow with lower quality goods instead of
the hard currency usually required for purchases in
world markets. Yugoslavia, however, has negotiated a
We believe the region's overall economic growth will
not return to the rates of the early 1970s, when there
was a major influx of Western credits. Moreover,
some of the favorable developments this year, such as
lower interest rates, may prove transitory. GNP
growth may average between 1 and 3 percent annual-
ly, assuming average winter weather and favorable
harvests. East Germany is likely to fall at the upper
bound of this range, while Romania, Hungary, and
Yugoslavia may lie at the lower end.
Potentially, the most positive development for Eastern
Europe in coming years will be the improved terms of
trade with the USSR when the CEMA price formula
begins to reflect falling world oil prices. Soviet oil
prices may fall by about half in the next few years as
lower world prices are factored into CEMA's moving
average. Unless the USSR tinkers with CEMA
prices, improving terms of trade for Eastern Europe
could help the region pay off its debt to the USSR
more quickly than planned and possibly free resources
for domestic consumption, investment, or increased
trade with the West.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Eastern Europe: Trade With USSR,
First Quarter 1985 and 1986
Exports
Imports
1985
1986
1985
1986
1985
19868
CEMA Six
7,695
7,685
7,780
8,408
-84
-723
Bulgaria
1,436
1,421
1,423
1,607
13
-186
Czechoslovakia
1,550
1,555
1,545
1,537
5
18
The other major long-term influences on East Europe-
an growth are negative:
? Insufficient growth of hard currency earnings will
limit Western imports needed to modernize the
economy. Both supply and demand forces will limit
exports. Enterprises in most countries lack incen-
tives to export to the West, and goods are often of
such low quality that they are unmarketable for
hard currency. Even if effective export promotion
policies were implemented, they might be thwarted
by Soviet pressure to supply more high-quality
goods to support Moscow's modernization program.
? Outdated capital stock will hinder efforts to boost
productivity and exports. Most countries decreased
investment in real terms in the late 1970s and early
1980s to adjust to their external financial problems,
and since then have imported little equipment and
failed to stimulate research and development.
? Lack of economic reforms also will impede growth
in productivity and competitiveness. The East Euro-
pean regimes are echoing Gorbachev's calls for
better management and tighter labor discipline as
the steps needed to cure the ills of centrally planned
economies. While such measures may produce some
temporary improvements, they will not correct the
basic economic weaknesses in Eastern Europe. Al-
though Hungary and Poland have reforms on the
books, many are not fully implemented due to
worker or industry opposition.
Secret
Policymakers in the region will have to make trade-
offs between investment and consumption in allocat-
ing scarce resources. Favoring consumption over in-
vestment will hamper efforts to modernize industry,
while giving priority to investment may thwart efforts
to spur worker productivity and create internal unrest.
Limited resources mean either policy will cause slug-
gish economic growth for Eastern Europe at least for
the next five years.
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
China: Mixed Results Using
Foreign Technology
China sees acquisition of foreign technology as crucial
to its economic modernization and has purchased
billions of dollars worth of equipment and know-how
over the last five years. A preliminary assessment of
China's use of this technology reveals mixed results.
China's use of foreign technology is fairly poor in
industries such as electronics and computers. Never-
theless, success in integrating foreign equipment into
China's more mature industries-textiles, shipbuild-
ing, energy, consumer electronics, and arms-has
contributed significantly to foreign exchange earn-
ings. We believe China's use of foreign technology
will improve over the next decade as a result of
Beijing's greater control over imports, better educa-
tion of industrial personnel, and introduction of eco-
nomic policies that reward effective use of new tech-
nology.
Shopping for Foreign Technology
The Chinese have used a variety of channels-includ-
ing direct imports, joint ventures, licensing, and covert
acquisition-to procure the needed technology.' Ac-
quisition strategies have shifted over the last eight
years. After a period during which big-ticket imports
of whole plants in the late 1970s caused China's
import bill to rise precipitously, Beijing became more
selective in its purchases of foreign technology in the
early 1980s, generally buying individual pieces of
equipment that Chinese technicians then tried to
integrate into existing production lines. More recent-
ly, Beijing has encouraged foreign firms to transfer
more technology and know-how through the establish-
ment of joint equity ventures, licensing agreements,
and assembly lines. We estimate that China has
imported $6 billion worth of computers, instrumenta-
tion, and telecommunications equipment over the last
' China's access to Western technology through legal channels has
increased as a result of a relaxation of US and multilateral controls
on exports of advanced equipment to China. China nonetheless uses
covert acquisition methods to acquire selected pieces of controlled
equipment. We believe China has acquired only a small portion of
China: Sources of Advanced Equipment
Imports," 1985
aComputers, scientific instruments, and telecommunications equipment.
bEstimates based on partner country trade data reported to the UN. Re-
exports through Hong Kong included in country of origin statistics.
five years, spending over $2 billion on those items in
1985 alone. Japan was the leading supplier to China
of advanced equipment, followed by the United
States, Western Europe, and Hong Kong.
With a few exceptions, the impact of foreign equip-
ment in high priority dual-use technology areas has
been largely disappointing.
Electronic Components. China's record in absorbing
imported technology is extremely poor in the micro-
electronics sector.
'China continues to
have serious difficulties operating and maintaining
Secret
DI IEEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
the sophisticated equipment it has acquired and pro-
viding the reliable energy supplies and pure chemical
inputs that are needed.
Computers. China's record at using foreign computer
equipment and production technology is spotty. In
aggregate terms, the record is not good: Beijing
acknowledges, for example, that as much as 80 per-
cent of China's computers are used only sporadically;
nearly half of the computers in China remain in
warehouses. Nonetheless, in selected high-priority ar-
eas-such as petroleum exploration and computer-
aided design of aerospace vehicles and integrated
circuits-China's use of imported computers is much
better. Imported technology has also been vital to the
development of China's computer production capabili-
ty. Although domestically produced microcomputers
continue to have quality and reliability problems,
output has jumped from fewer than 2,000 units in
1982 to more than 30,000 units in 1985, according to
Chinese press reports. The Chinese acknowledge that
nearly all the microcomputers produced in China in
recent years were assembled from imported compo-
nents.
Telecommunications. Installation of imported tele-
phone switching equipment has improved communica-
tions services in selected locations, although systems
integration problems and the vast demand for services
tend to overwhelm the effect of these additions to the
network. In recent years, Beijing has concluded sever-
al major joint venture agreements with foreign firms
to produce telecommunications equipment in China,
but the slow process of obtaining multilateral export
approvals and difficulties such as shortages of skilled
workers have hindered implementation of these deals.
In some priority areas, however-usually related to
military research or production-China has been
successful in using imported technology to enhance
research and production capabilities. For example,
China effectively used foreign components and oper-
ating manuals to produce the Galaxy supercomputer
in 1983. Although we believe the Galaxy operates at
only one-fourth the speed of the US supercomputer
after which it was modeled, the success of this
military project was in marked contrast to a concur-
rent civilian effort, which took four years longer and
resulted in a computer with only a fraction of the
capability of the Galaxy.
The impact of foreign technology on China's econom-
ic development is more noticeable in several mature
industries.
Shipbuilding. China has used imported technology to
develop an industry capable of building and repairing
oceangoing ships and offshore oil rigs to world stan-
dards. In the early 1980s, China contracted with
foreign firms to import a wide range of marine
equipment, including diesel engines, steering gear,
and deck cranes. Largely as a result of the technology
acquired, China currently is the world's fifth-largest
builder of commercial ships; the industry earned $130
million in foreign exchange in 1985.
Energy. Imported equipment and resident foreign
advisers have generally led to better petroleum reserve
estimates and new discoveries at existing fields and
improved drilling and recovery techniques for China's
onshore oil industry. Foreign technology also is a key
factor in the development of China's electric power
industry; Beijing has imported large generators and is
using licensed Western technology as the basis for
upgrading its ability to produce power plant equip-
ment. Imported high-voltage power transmission lines
and Western mining equipment have upgraded
China's power grids and coal mining capabilities.
Textiles. China's textile industry has relied heavily on
imported technology, acquired through both joint
ventures and direct equipment purchases. Through
participation in cooperative production arrangements,
primarily with Hong Kong firms, China has raised the
quality and quantity of textile exports dramatically.
Foreign technology also has enabled China to upgrade
exports from fairly simple items such as fabrics,
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Industrial production, economic planning, Weapons design, logistics, command and control,
education and research, energy exploration, cryptanalysis
weather forecasting
Composite materials
Biotechnology
Consumer goods such as sporting equipment Aircraft, missile nosecones, rocket motors
Agriculture, medicine Chemical/ biological warfare
Communications, machine tools, surgical Directed-energy weapons
instruments
towels, and work gloves to more complex products and
fashion apparel. Technological upgrading helped to
boost China's textile exports, which in 1985 accounted
for 27 percent of China's export earnings.
Consumer Electronics. China has rapidly increased
production of consumer appliances and electronics
largely by assembling imported components in plants
purchased from Japan. China's consumer electronics
industry has also begun to export televisions, radios,
and cassette recorders. According to Chinese officials,
electronics exports in the first half of 1986 reached
$223 million-10 times the level of the same period in
1985.
Arms. Since 1980, Beijing has sold over $7 billion in
arms abroad and is aggressively pursuing new sales by
offering weapons upgraded with Western technology.
China's 1986 arms sales brochures show tanks, infan-
try fighting vehicles, and artillery pieces-improved
with British, West German, Austrian, and Israeli
assistance-for sale at highly competitive prices.
China's use of Western equipment and technology has
been severely hampered by a variety of systemic,
institutional, and financial factors, including:
? Inappropriate technology import choices. In the
past, Beijing has generally not purchased the neces-
sary training and service contracts, software, and
peripherals when buying equipment. Moreover, Chi-
na purchased a good deal of hardware in recent
years without regard to compatibility with existing
equipment or availability of electricity and spare
parts, which limited its use.
? Poor management. Managers-many appointed for
political reasons rather than for their skills-often
are unfamiliar with sophisticated production pro-
cesses and are unwilling to take the risk of introduc-
ing new technologies that might temporarily disrupt
production schedules.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
? An unskilled workforce. While researchers in major
institutes and universities often are more familiar
with Western equipment, factories suffer critical
shortages of educated workers and midlevel techni-
cians.
Beijing is aware of its problems in absorbing technol-
ogy and is working to overcome them by exercising
greater control over imports, improving and enlarging
China's pool of skilled workers and managers, and
providing more economic incentives for technological
innovation:
? Since mid-1985, Beijing has required that training
and support services accompany purchases of for-
eign technology. Beijing has also centralized control
over technology imports, particularly in priority
industries such as semiconductors and computers, to
ensure that imported equipment and know-how
meet the country's needs.
? The education of students abroad, a new emphasis
on technical training, and the introduction of better
management techniques will improve China's use of
foreign technology and raise the levels of indigenous
scientific research and production.
? Economic reforms are encouraging factories to be-
come more competitive and providing new incen-
tives for them to use technological innovation to
improve productivity and product quality.
Opportunities and Risks for the United States
Involvement by US companies, universities, and gov-
ernment agencies will be critical to improvements in
China's use of foreign technology. Chinese leaders
view US managers as more willing than their Japa-
nese counterparts to engage in cooperative production
projects and the transfer of technological know-how.
As a result, as Beijing cements the link between
hardware imports and transfers of know-how, US
market opportunities in some sectors may improve.
The education Chinese technical and managerial stu-
dents receive in US universities will also remain a
vital part of Chinese efforts to improve technology
use; US universities host an estimated two-thirds of
the Chinese students currently studying abroad. Fi-
nally, Chinese managers and planners have gained
familiarity with mechanisms used in the United
States to encourage technological innovation.
The critical role the United States plays in China's
technological development also poses several risks.
The short-term marketing advantages US firms may
gain by engaging in cooperative production projects in
China will, in the longer run, permit Chinese factories
to substitute domestic products for imports. US firms
may also suffer from China's move into new export
markets. Chinese exports to the United States have
already brought increased competition for US firms in
sectors such as textiles. If China's effective use of
foreign technology spreads, US firms could also face
increased competition in such areas as machine tools
and food processing.
25X1
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Middle East and North Africa: I The
Challenge of the Regional Recession
The region's economies, beset by slack economic
activity since world average oil prices began to slide,
will remain weak for the remainder of this year. Real
economic activity in the Middle East and North
Africa probably will decline by 4 to 5 percent in
1986-compared with 3- to 4-percent growth in 1983-
84. If OPEC states continue to comply with the recent
agreement on lower production quotas and regional
leaders are able to tap the private sector for nonoil
investment, growth probably will rebound in 1987.
Otherwise, the regional economic outlook will remain
weak and raise prospects for domestic unrest in some
states. The poorer states probably will request further
aid from the United States.
Hard currency earnings plummeted during the first
half of 1986 in the Middle East and North Africa and
show few signs of improvement for the remainder of
the year:
? Revenues from the sale of oil and petrochemicals-
which are by far the major source of foreign
exchange earnings in the region-have fallen as
much as 50 percent in some countries because of the
weak oil market. Others also have been hurt because
of price declines for natural gas and commodities
such as phosphates.
? Worker remittances probably will drop by about
one-third from their 1985 level. As Saudi Arabia
and the smaller Gulf states are slowing construction
projects, expatriates are leaving because of de-
creased job opportunities. Egypt and Sudan, in
particular, are faced with the difficult task of
providing returnees with housing and jobs.
' Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon,
Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Sudan,
Syria, Tunisia, United Arab Emirates, North Yemen, and South
? Tourism-an important moneymaker for Egypt,
Morocco, and Tunisia-has declined because of the
fear of terrorism.
? The lower value of the dollar also has substantially
reduced the real value of current oil earnings and
has eroded assets denominated in dollars.
Symptoms of poor economic performance are evident
throughout North Africa and the Middle East. Busi-
ness failures are becoming more common. Banks
throughout the Gulf are awash with bad loans be-
cause Arab debtors are delaying repayment of princi-
pal and interest. Some banks are reluctant to grant
more credit, further depressing economic activity.
Capital flight continues as investors seek higher rates
of interest and greater political stability abroad.
Lower foreign exchange earnings are barely adequate
to maintain imports of essential consumer and mili-
tary goods in some countries. Shortages of goods and
black-market activity could become more of a prob-
lem in Iran, Iraq, Libya, Sudan, and Syria. Some
regimes postponed finalizing their budgets because of
uncertain oil revenues. Libya, Oman, Saudi Arabia,
and Tunisia have been forced to devalue their curren-
cies.
Severe labor force problems lie ahead for many area
governments. Unemployment and underemployment
are at least 30 percent in Algeria, Iran, Morocco, and
Tunisia. Unemployment is compounded by the return
of large numbers of foreign workers to countries such
as Egypt and Sudan. The younger generation faces
particularly tough times. Population growth is
rapid-3.5 percent in Kuwait and 3.3 percent in
Jordan-and in several nations over 50 percent of the
population is under the age of 25. In many cases,
untrained young people cannot compete with more
highly skilled South Asians willing to accept lower
Secret
DI IEEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
North African and Middle Eastern Countries Experiencing Recession
Central African
Republic
e e9!
Western
Sahara
genegalY
~, The
Gambia
7ea.Bis s auL_
Sidire
L. dge
Algeria
Malta a yprus f
Mediterranean Sea Lebano
Israel
Libya
Egypt
Red
Sea
, Y.
(N
Ethiopia
Som
Efforts To Cope
NORTH
ATLANTIC
OCEAN
Ivory Togo Beni n Nigeria
Coast rha?al
wages to secure jobs in the region. Women also have
been hit hard by tight labor markets. In Saudi
Arabia, Kuwait, and Oman, women increasingly are
as well educated as men but do not have the same job
opportunities because of cultural prohibitions. The
economic decline has reinforced these prohibitions.
To contend with large budget and current account
deficits, most governments have used a combination
of reducing subsidies and salaries, cutting back devel-
opment expenditures, and slashing imports. Some
regimes have tried to increase revenues by raising
customs duties and licensing fees. Austerity measures,
however, generally have not been tough enough. Poor-
er nations have relied heavily on continued Saudi aid
and foreign borrowing to muddle through rather than
Saudi
Arabia
Oman
11
P_BAY
(South
Yemen)
face the difficult economic and political decisions that
present conditions demand. Non-Saudi aid and loans
to the region probably will dry up, however, unless
recipients implement stricter reforms. Egypt, Mauri-
tania, North Yemen, and Sudan almost certainly will
ask for more aid from the United States.
Richer countries, such as Saudi Arabia and the
smaller Gulf states, have bought time by drawing
down foreign exchange reserves. Reserves in Saudi
Arabia and Oman probably will shrink dramatical-
ly-by almost 30 percent in 1986. These states will
have to rethink this course and enforce more rigid
austerity measures if the oil market does not turn
around.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
25X1
25X1
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Middle East and' North Africa: Economic
Indicators," 1982-87
Real GDP Growth Rate,
Weighted Average
Percent
Current Account Balance
Billion US $
A few countries highly dependent on imported oil-
particularly Lebanon, Morocco, and Sudan-have
benefited from lower oil prices. Furthermore, regional
Foreign Exchange Reserves borrowers will save about $1 billion-roughly 10
Budget Deficit
Billion US $
percent-of their collective interest payment obliga-
tions in 1986 because of lower interest rates.
A number of governments increasingly are calling for
more free market competition and privatization to
boost economic growth, according to Embassy report-
ing. Such policy developments are unusual in the
Middle East, where governments traditionally have
distrusted market forces. Bahrain hopes to establish a
regional stock exchange where some successful pub-
lic-sector companies would be privatized and shares
would be traded by Gulf state nationals. Some offi-
86b 87~ cials in Morocco are promoting industry deregulation.
'Data for Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon,
Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, South Yemen,
Sudan, Syria, Tunisia, U.A.E., and North Yemen.
bEstimated.
Projected.
Saudi Arabia is encouraging private investors to
match the government's funding of some development
projects. Saudi government agencies also have con-
tracted with local companies to improve existing
infrastructure. Despite these moves, the poor outlook
for the economy and oil revenues has discouraged
private domestic investment and promoted capital
flight.
Under a scenario of continued OPEC compliance with
lower production quotas, oil prices probably will
strengthen but still remain volatile. Given higher oil
revenues, modest improvements in government effi-
ciency, and private-sector investment, real GDP
growth of 2 percent could be achieved next year.
On the other hand, regional economic and political
difficulties will mount if the OPEC agreement col-
lapses. A prolonged recession would weaken political
support for regimes in such countries as Iran, Iraq,
and Libya, where living standards have fallen off
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Middle East and North Africa: Billion US $
Expatriate Worker Remittances,
1982-86
Total
4.95
6.26
6.90
6.57
4.51
Egypt
1.94
3.17
3.93
3.78
2.00
Jordan
0.93
0.92
1.05
1.03
0.90
North Yemen
1.18
1.13
1.06
0.94
0.87
Sudan
0.11
0.25
0.25
0.23
0.14
Syria
0.42
0.44
0.30
0.30
0.35
Tunisia
0.37
0.35
0.31
0.29
0.25
sharply in recent years. Although economic difficul-
ties could provide the stimulus for popular unrest in
Egypt and Sudan, the recession alone is unlikely to
produce instability in other countries in the region
where generally strong domestic security forces dis-
courage organized protest.
Worker remittances probably will level off rather
than continue their dramatic decline, even if the
OPEC agreement does not hold. Saudi Arabia and
the smaller Gulf states would like to reverse their
dependence on expatriate labor but are constrained
for several reasons:
? Nationals are unwilling to do manual labor-which
they consider demeaning-or are not appropriately
trained for jobs expatriates now hold.
? Demand for maintenance and operational staff re-
mains high outside the construction sector.
? Influential groups within the native populations-
particularly landlords and merchants-have vested
interests in maintaining their incomes by keeping a
large immigrant population.
Continued reliance by the Arab Gulf states on expa-
triate labor could relieve pressure on labor-sending
countries in the Middle East and North Africa that
have suffered from the recent drop in remittances.
A prolonged recession probably will aggravate exist-
ing problems in regional labor markets and present
further impediments to economic growth. Disaffec-
tion-especially among unemployed and underem-
ployed young people and women-will grow unless
regional governments train local labor more effective-
ly, create more jobs, and permit freer entry into the
labor force.
25X1
25X1
J
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Israel: Will Debt Spoil the
Economic Outlook?
Israel has made great strides toward economic recov-
ery in the past year, but continued progress will hinge
on the government's willingness to reduce spending to
hold the line on budget deficits. The budgetary pro-
cess will come under added pressure in the next three
years when the government is scheduled to repay
about $4.7 billion to bank share holders stemming
from the bank scandal-and subsequent stock market
collapse-of October 1983. Israel's debt structure,
although not presently a great burden on the econo-
my, may also present serious problems for economic
decision makers-borrowing constituted about 41 per-
cent of total government revenue in Israeli fiscal year
1984/85. If borrowing levels have to be increased-in
response to greater revenue needs stemming from
insufficient budget-cutting action-the government
will find an ever growing portion of the budget
devoted to debt repayment.
eco-
nomic policy makers are most concerned with the
growth in domestic public debt. By yearend 1985,
domestic public debt-defined as total private-sector
claims on the public sector-stood at 143 percent of
GNP, up from 123 percent of GNP in 1984. This
ratio is likely to increase in light of the large antici-
pated bank share repayments the government will
undertake from 1987 to 1989. In contrast, foreign
public debt-total claims by foreigners on the public-
sector minus foreign reserves-stood at 60 percent of
GNP in 1985, up from 51 percent the previous year.
The maturity structure of the debt-although not
currently a problem-could become a more important
issue over the next several years. At yearend 1985,
short-term debt constituted only about 15 percent of
total debt, while long-term debt made up 70 percent.
This distribution may change drastically, however, if
sustained economic growth and additional budget cuts
are not forthcoming. We believe Tel Aviv would opt
for short-term borrowing in hopes of lining up addi-
tional foreign assistance. Nevertheless, increased bor-
rowings through short-term loans would be a two-
edged sword for Israel. Tel Aviv would be able to
cover periodic revenue shortfalls more easily but
would have to refinance a larger debt more frequent-
ly. Additional borrowings in 1986 and 1987 would
compound financing problems in 1987 and 1988 when
the bulk of the bank share repayment is to take place.
social programs.
The bank share scandal and subsequent stock market
collapse of October 1983-caused by the questionable
stock trading practices of Israel's leading banks-was
resolved when the government agreed to purchase
back from individual shareholders the full value of
their shares, thereby assuming a large future debt
obligation. Under terms of the bank stock guarantee
program, the government promised to redeem shares
worth $6.5 billion. To date, the government has
purchased about $1.8 billion. Current plans call for
the government to absorb $1.0 billion in either 1987
or 1989 while redeeming $3.7 billion in 1988. The
government will probably redeem the $3.7 billion in
shares through a firm created by the government and
eventually resell them to the public. If the firm cannot
repay the government loan by 1993, Tel Aviv would
have to convert the $3.7 billion loan into a grant. In
any case, the government will have to make interest
payments on any replacement bonds or paper issued,
increasing pressures for spending cuts on sensitive
Israel's long-term economic outlook depends not only
on the ability of the economy to sustain meaningful
growth while fundamental changes in the economic
Secret
DI /EEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
How Does Israel Stack Up?
According to various debt service measures, Israel
does not presently appear to have significant debt
servicing problems. The debt-service-to-exports ratio
stood at 42.1 percent in 1985, up only marginally
from the year-earlier figure of 41.8 percent. Further-
more, the ratio of total debt to GNP was 139 percent
last year, while the ratio of net foreign capital imlows
to debt service payments was 111 percent, both within
the bounds of debt manageability. Poor export
growth, when combined with the upcoming bank
share repayments, however, may push the debt ser-
vice ratio over 50 percent, straining an already finan-
cially strapped Israeli economy. In addition, any
decline in US economic assistance, which makes up a
large part of net foreign wows, would add to a
worsening debt situation.
The potential impact of the bank share repayment
problem can be seen in the following scenarios:
? The first case assumes the government's budget
deficit and the current account deficit remain at 5
percent and 20 percent, respectively, of GNPfor the
period; real interest rates are fixed at 5 percent; and
GNP grows at 2 percent annually. If the bank share
repayment problem did not exist, the debt/GNP
ratio falls from 143 percent in 1986 to 97 percent by
1990.
? The second case assumes the bank share repay-
ments are fully paid by the government in 1987 and
1988. The impact of the bank share repayment
scheme is evident as the debt/GNP ratio would fall
to 137 percent in 1987, increase to 144 percent in
1988-as the large $3.7 billion payment is fully
absorbed-while decreasing to 133 percent in 1989.
Israel: Domestic Public Debt Scenarios,a
1986-90
With bank
share repay-
ments
Without
bank share
I I I I I repayments
90 1986 87 88 89 90
aDebt/GNi ratio. Domestic public debt is defined as total
private-sector claims on the public sector.
system are implemented, but also on the government's
ability to keep debt growth within manageable
bounds. If the economy fails to perform up to govern-
ment expectations, Tel Aviv will be hard pressed to
undertake meaningful long-term economic reforms. A
sputtering economy may then lead to an increasingly
larger debt service burden.
Prime Minister Peres and Finance Minister Nissim
may bring debt relief to the forefront of economic
discussions during their September visits to Washing-
ton. Both Peres and Nissim are likely to press for a
reduction in the average interest rate on the approxi-
mate $10 billion in debt owed to the United States
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
from 10 percent to 8 percent. This would save Israel
up to $200 million in annual debt payments. In late
1985 Israel unsuccessfully sought debt relief that
would have saved as much as $500 million annually.
Beyond the September visits, the scheduled govern-
ment rotation in October will be an important test. If
then-Prime Minister Shamir can build upon the
economic gains achieved by Peres, the economy will
be better able to weather larger debt payments and
the end of the $1.5 billion in 1985-86 supplemental
US economic assistance. Given Likud's poor economic
track record, however, it may encounter serious prob-
lems in coordinating economic policy with Labor,
thereby imperiling the gains made during the past
year and worsening prospects for controlling debt.
i
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Spot Oil Spot oil prices have risen in recent weeks following OPEC's decision to reduce
Price Trends production in September and October. Key North Sea and US crudes are selling
for $15.40 and $16.35 per barrel, respectively, compared with $9.30 and $11.15
the first week of August. We estimate the average world oil price in early
September was about $14 per barrel. Higher prices probably also reflect increased
concern over an escalation in the Iran-Iraq war. Barring a supply disruption, prices
may weaken in coming weeks, however, unless OPEC producers adhere strictly to
the production agreement, especially given an unusually large increase in inven-
tories in recent months.
Oil Demand Rises Oil demand in the six major developed countries in the second quarter rose by 5
in Six Major percent above year-earlier levels. The six countries-France, Italy, West Germa-
Developed Countries ny, the United Kingdom, Japan, and the United States-account for approximate-
ly 60 percent of non-Communist oil demand. All six registered higher sales-
ranging from 3 percent in Japan and the United States to 23 percent in West Ger-
many-reflecting lower retail prices and some inventory building at the secondary
and tertiary levels. Sales of all major products rose, including an average 12-
percent increase in light fuel oil sales over year-earlier levels. Sales in West
Germany and France rose by 53 and 25 percent, respectively. In West Germany,
homeowners' stocks of heating oil, for example, reached an alltime high of 115
million barrels, almost 65 percent above year-earlier levels. Oil consumption gains
may wane in coming months as higher prices slow consumer stockbuilding.
New World Bank The International Finance Corporation (IFC), the World Bank's private-sector
Investment Program financing arm, announced a program that eliminates the risk of loss for foreign in-
vestors in projects that the IFC originates. Under the new program, called
Guaranteed Recovery of Investment Principal, investors would deposit funds with
the IFC for a fixed term, which then would be invested in a developing country
project. At the end of the prescribed period, the investor would have the option to
extend the agreement with the IFC, take full ownership of the project shares, or
withdraw its principal. The program aims at investments of $20-30 million but
would guarantee projects up to $100 million-considerably greater than previous
IFC investments. This new program represents the Bank's third major effort in the
past year to encourage capital flows to LDCs. In June, the IFC helped launch the
Emergency Markets Growth Fund, a mutual fund that invests in securities of
developing countries. A year ago it established the Multilateral Investment
Guarantee Agency (MIGA) to insure investors against noncommercial risks such
as war, political unrest, currency nonconvertibility, and expropriation
23 Secret
DI IEEW 86-037
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
LDCs' Stake in Because of the dramatic rise in exports of some LDCs, many more developing
New GATT Round countries participating in the new GATT round now have a greater stake in
lowering barriers to trade. While several other factors will be involved in the
negotiations, we believe the shifts in world trade will of themselves work in favor of
reducing the traditional global trade barriers such as tariffs and quotas. LDCs now
account for 13 percent of the world's manufactures exports-nearly double their
share in 1973 and almost equal to that of the United States. Within certain
product categories, the LDCs' increase in shares has been even more expansive-
16, 18, and 26 percentage points for apparel, electrical machinery, and consumer
electronics, respectively. Developing countries, therefore, have emerged as impor-
tant players in the new round of GATT negotiations.
Secret
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Share of World Exports, 1973 and 1984
Total Food- Raw Fuels Manufactures
Trade stuffs Materials
Japan 5.8 1.0
European Community 38.6 30.6
European Community 32.2 34.4
Shares of Selected World Export Products, 1973 and 1984
Total Steel Textiles Apparel Consumer Electrical
Trade Electronics Machinery
European 38.6 57.0
Community
European 32.2 47.1
Community
LDCs 26.3
Secret
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
GATT Services Issue Brazilian, Indian, and EC GATT representatives in Geneva have agreed on a two-
Still Troublesome meeting approach to the services issue, and the EC representative is lobbying other
LDCs for support, according to diplomatic sources. Under this approach, goods
negotiations would be conducted under GATT auspices, and a separate meeting-
outside of GATT-would consider services. This agreement does not have the
formal support of EC member states; however, British and West German trade
officials have indicated that the two-meeting approach may be a good fallback
position should the GATT ministerial become deadlocked over this issue. The
discussions in Geneva have strengthened the position of hardline LDCs-led by
Brazil and India-as the negotiations on services continue. A number of so-called
moderate LDCs lean toward the hardliners' position on services and could be
induced to support the two-track approach. Most industrialized countries fear this
would undermine the fragile consensus among developed countries and the
moderate LDCs worked out during the GATT preparatory meeting in July. A split
between industrialized countries and the LDCs would complicate launching of a
-...... n A TT i
Soviets Questioning
Nicaragua's Aid
Expenditures
Secret
12 September 1986
Global and Regional Developments
Moscow is again pressing Managua to make better use of the economic aid it
receives.
Moscow has already agreed to increase economic
aid by 60 percent this year and is not likely to cut funding, but the Soviets appear
determined to press for improved accounting. The Soviets apparently are con-
cerned that Nicaraguan incompetence is contributing to economic deterioration,
and they may insist on more say in Nicaragua's economic planning. Managua is
dependent on the USSR for oil, military hardware, and foodstuffs, and it probably
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29 : CIA-RDP88-00798R000400160005-8
Secret
Developed Countries
Japanese Economy Tokyo announced this week that the Japanese economy grew at an annual rate of
Grows in 3.6 percent in the April-June quarter, leading us to believe that real GNP will in-
Second Quarter crease by about 2 percent this year. According to Japanese Government statistics,
the economy-which declined by 2 percent in the first quarter-was bouyed in the
second quarter by both consumer and government spending. The 53-percent
appreciation of the yen against the US dollar since last summer has lowered
import prices, boosting the real income of households and increasing the real
purchasing power of government expenditures. Large increases in import volumes
and weak exports continue to act as a drag on the economy, however. We believe
that further declines in exports are likely in the months ahead, suggesting that
growth may slow again. If this occurs, the Nakasone government increasingly
would face calls for a change in Tokyo's austere fiscal stance, but the forces in fa-
vor of a continued tight policy remain formidable. The Finance Ministry-one of
the key supporters of fiscal austerity-is now beginning work on the fiscal 1987
budget. Although the requests submitted to the ministry add up to a 6.7-percent
increase in the general account budget, the Finance Ministry will probably work to
reduce the figure to 5 percent at most.
Secret
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
,ecret
Japanese Interest Nippon Telegraph and Telephone (NTT) is turning to the United States to fill gaps
in its basic research capabilities. the company
is pursuing R&D projects with foreign firms-particularly US-that have techni-
cal capabilities or areas of expertise it lacks. So far this year, it has entered four
agreements with US firms-three in the area of semiconductor processing
equipment and one in multiple cell technology.
Although NTT advertises these projects as
joint relationships, the bulk of the research activities will fall to the US firm.
British Note Sale London's issue of a $4 billion floating-rate note in the Eurobond market last week
Boosts Foreign boosts its foreign exchange reserves to about $23 billion. Official reserves have
Exchange Reserves fallen steadily since 1982, as London has paid off high-cost foreign borrowing from
the late 1970s, and were down to the equivalent of only about six weeks of imports
by last year. Both the Treasury and the Bank of England indicated that the recent
note issue was undertaken solely because of the low interest rate-one-eighth of a
percentage point below the London interbank bid rate-and denied there was any
other motive, such as bringing sterling into the European Monetary System. It is
likely, however, that London took advantage of good market conditions to boost its
reserves in the event sterling comes under downward pressure in the runup to the
next election, due in 1988 but possible as early as next spring. The Treasury is par-
ticularly concerned about the sterling/deutsche mark exchange rate and would
prefer to intervene in the foreign exchange market to stabilize the pound rather
than risk a domestic outcry by raising already high British interest rates.
Secret
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
French Unemployment in France reached an alltime high in July with almost 2.5 million
Unemployment Up, people out of work on a seasonally adjusted basis; the 10.5-percent unemployment
Inflation Down rate is a postwar high. At the same time, inflation fell to just over 2 percent for the
last 12 months, the lowest rate in 20 years. While pleased with the low rate of in-
flation, French Government officials are coming under increasing public pressure
to do something about persistently high unemployment. Further job creation
initiatives are under consideration, including extension of a youth public employ-
ment program for first-time job seekers, measures to encourage work at home, and
creation of more community service jobs.
French Economics Minister Balladur confirmed on Wednesday the selection of giant
Denationalization glassmaker Saint-Gobain, banking group Paribas, and insurance company Assur-
Candidates Named ances Generates de France as the first firms to be spun off in the government's am-
bitious denationalization program. All are internationally well known and profit-
able-chalking up a total of over $500 million in profits last year-and were
carefully selected to ensure a successful first venture into privatization. Press
reports indicate that shares with a total market value of about $6.7 billion are like-
ly to be sold between November and February 1987. Under the denationalization
plan passed by the National Assembly in July, foreigners will be allowed to
purchase up to 20 percent of the companies' shares. Although these privatizations
are likely to go smoothly, the government will probably proceed carefully in
offering the other 65 state-owned firms slated for denationalization. Many of these
enterprises will not be as attractive to investors as the first three, and too many
selloffs could innundate the Paris capital market.
Italian Cabinet The Italian Cabinet this week outlined a budget proposal for 1987 that has at least
Agrees on 1987 a fighting chance of passing Parliament by the end of the year. The most
Budget Proposal contentious issue will be the call for no real growth in current spending to reduce
the public-sector deficit to 12 percent of GDP-from a projected 14.5 percent this
year. Capital spending will rise, however, to woo voters in upcoming elections.
Parliament will flesh out the proposal over the next two weeks and the formal bud-
get will be presented at the end of the month. Rome hopes such early discussion
will ease the budget's passage, but debate on spending limitations is likely to be
prolonged in part because the healthy economy has reduced pressure to control the
deficit. In conjunction with the budget, Rome also plans to introduce legislation to
cut government costs for pensions, unemployment compensation, local government
financing, social security, and family allowances. The proposed reforms face
intense opposition from all political parties and will undoubtedly be mired in
heated parliamentary debate for several years. The furor over the reform
legislation may serve to deflect criticism of the spending limits in the budget and
help get a deficit-reducing package through the Parliament by yearend.
29 Secret
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Spanish Economic Bank of Spain estimates indicate that the Spanish economy grew at an annual rate
Growth Picks Up of 3 percent in first half 1986, almost twice as fast as in the same period last year.
Domestic demand was the engine of growth-private consumption increased 3
percent, due primarily to rising real wages and lower taxes, while fixed investment
surged 8 percent, buoyed by improving company profits, declining interest rates,
and renewed corporate optimism. The foreign trade picture wa's weak, however,
despite the gains from declining oil prices, as imports are rising rapidly in the wake
of EC accession. We believe growth will remain at about 3 percent in the second
half, again restrained by the foreign sector. With the inflation rate still about 5
percentage points above the EC average, Spanish firms will find it difficult to
compete on world markets with their West European counterparts. In addition,
wage increases will continue to outpace productivity, leading to increasing unit
labor costs and a further deterioration in competitiveness.
Less Developed Countries
Ecuador Liberalizes Quito plans to reduce tariffs by 50 percent on 153 import items as part of IMF-
Imports Under supported economic measures announced 11 August, according to US Embassy
Reform Package reporting. Duties on industrial goods and raw materials will be lowered as Ecuador
moves to broaden its export base in response to overdependence on fluctuating oil
revenues. More than 60 percent of Ecuador's imports are inputs to local industry.
Liberalization of tariffs on foodstuffs, liquor, and luxury consumer appliances is
expected to decrease contraband and help offset price increases on key consumer
and industrial imports resulting from the recent 35-percent devaluation
Tunisian During the past month, the Tunisian Government has instituted currency devalua-
Reform Efforts tion and other economic reforms to eliminate mounting deficits and curry favor
with the international donor community. In addition to the 15-percent devaluation
announced midmonth, Tunis has:
? Indirectly increased bread prices by reducing the loaf size.
? Raised prices of couscous and pasta, local staples.
? Announced the first sale of public enterprises in the construction, textile, and
tourism sectors.
? Furloughed nearly 1,000 public-sector workers.
? Adopted budget cuts totaling about $70 million.
? Inaugurated a "national loan" program to raise $25 million through individual
donations.
The government also approved further reforms to be implemented in the next few
months, including price increases for milk, sugar, and cooking oil, and layoffs of an
additional 3,000 workers. Tunis, however, ruled out rescheduling any of its nearly
$1 billion in debt service payments due this year.
Although opposition to the reforms has been muted, the Bourguiba government is
concerned about the need for a steady stream of aid to maintain domestic stability.
Tunis is hoping the IMF team currently in country will be impressed with reforms
to date and will approve the pending $180 million standby loan. The government
Secret 30
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
also hopes to impress the World Bank before talks begin in Washington later this
month on a $125 million agricultural-sector loan. Moreover, Tunis is counting on
its newly adopted austerity measures to sway Western governments-particularly
the United States and France-to provide immediate balance-of-payments sup-
port. Tunisian reserves now equal less than four days' worth of import needs.
Afghan approximately 80 percent of the goods
Reexport Trade imported into Afghanistan by Kabul merchants are reexported-or smuggled-
abroad, mainly to Pakistan. Textiles, electrical equipment, tires, and plastics are
the principal products in this trade. Smuggling from Afghanistan is encouraged by
Pakistani trade restrictions, which exclude the importation of some items, subject
others to quota and licensing restrictions, and apply high tariffs to additional
categories. Kabul merchants pay customs duties averaging 35 percent on imports
and then tack on a 15-percent profit margin for themselves before selling the
products to traders from Pakistan. The traders cover the costs of shipment to
Pakistan and usually pay "taxes" to insurgent forces along the road to Peshawar.
By encouraging 25X1
the reexport trade, Kabul substantially increases its revenues from import duties
and maintains an important source of foreign exchange earnings. 25X1
Thailand To Protest Foreign Minister Sitthi plans to raise the issue of US sugar "dumping" during his
on US Sugar Sale visit here later this month; according to media reports. Sugar is Thailand's fifth-
largest commodity export, and US sales could add to recent bilateral trade
tensions over export subsidies for US rice. The Thai sugar industry alleges that a
recent US sale to China of 146,000 metric tons of sugar at below-market rates has
depressed world sugar prices by about 20 percent and Thai producer prices by
more than one-third. Bangkok almost certainly fears that additional US sales
would cut into its share of China's sugar imports-75 percent last year-as well as
result in further price slides.
Soviet Joint Ventures the USSR has established guidelines for joint ventures
With Western Firms with Western firms The guidelines will permit 25X1
49-percent foreign ownership, a convertible medium-such as dollars-for ac-
counting purposes, and repatriation of profits. The Soviets are soliciting specific
proposals from US firms; according to a press report, they have already received
proposals from the Japanese. Moscow must still legalize foreign ownership and
formally issue guidelines for establishing joint ventures. Such provisions may be
included in an impending decree reorganizing the foreign trade structure, but
separate legislation is also likely along the lines of that adopted by other
Communist countries. Western businessmen will need more details on such issues
as the amount of Western control over management, supply of raw material and
intermediate goods, and labor policy before they can formulate firm proposals.
Although many businessmen will be wary of joint ventures given the inefficiencies
of the Soviet economy, others may accept the risks to gain entry to the Soviet mar-
ket. 25X1
31 Secret
12 September 1986
i
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
USSR Announced The Politburo reformed the Soviet wage and salary structure late last month,
Wage Reform promoting greater differentiation between the lowest and highest skill categories to
encourage improved job performance and acquisition of advanced skills.
the reform calls for higher salary rates for managers
and engineers and increased wage rates for highly skilled workers. The greatest in-
creases would go to those with skills vital to the modernization program, such as
designers and machinists. Enterprises are to generate their own funds for financing
the increased wages and salaries, primarily by raising labor productivity. Actual
increases in wage and salary rates are likely to be slow in coming. Most enterprises
will be hard pressed to achieve the increase in labor productivity necessary to fund
the program because of slow technological progress, supply problems, and
traditional pressures to meet ambitious production goals at any cost.
New Soviet Terms The Soviets are demanding that all grain exporters provide a 30-day grace period
for Grain Contracts on payments. This is in addition to Moscow's insistence in July on the right to re-
ject shipments for quality reasons-including breakage, high moisture content,
and contamination-on arrival at Soviet ports.
The Soviets have
made few grain purchases in the last few months, in part because of exporters' r
fusal to sell under the new guidelines
The present buyers' market for wheat and the recent
softening of sellers' resistance to past demands make it unlikely that the USSR
will back down on its new terms
China's Labor China's Labor Minister has announced a reform package that eliminates guaran-
Reform Package teed lifetime employment for new workers in state factories and gives managers
additional authority to fire employees. Effective 1 October, all new state workers
will sign renewable employment contracts, now in experimental use for roughly 4
percent of the state workers. The reforms also institute national retirement and
unemployment systems. The announcement indicated that workers already under
the lifetime employment system will not be placed under contract. The fact that
these reforms bear significant political and social costs demonstrates the strength
of the reform coalition and its commitment to push ahead with other urban
industrial reforms in management and finance. Resistance from lower level
bureaucrats and party members, however, poses a serious obstacle that is already
slowing implementation of some measures. Labor reforms will not sit well with
workers if employment security is threatened. Chinese economists have said that
15 million "surplus" state workers may be laid off over the next five years.
Secret 32
12 September 1986
25X1
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
secret
Shanghai Adopts The Shanghai branch of China's State Administration of Foreign Exchange
Flexible Foreign Control recently arranged for two joint ventures-one with excess Chinese
Exchange Measures currency but no foreign exchange, the other with excess foreign exchange and no
renminbi (RMB}-to swap US $1 million worth of RMB for an equivalent amount
in US dollars. The swap will allow the foreign exchange-short venture-the
Shanghai Foxboro Company-to purchase the US components needed for its
assembly operation, while providing the RMB-short apartment complex-which
rents to foreigners and receives only foreign exchange-currency for local
expenses. Earlier this year, China's State Council issued regulations easing their
rules under which joint ventures are allowed to remit profits.
however, the regulations have done little to ease the
chronic foreign exchange problems of most joint ventures. Shanghai has been
having trouble attracting foreign investment because of its poor infrastructure and
notoriously bureaucratic administration and appears to be interpreting the regula-
tions liberally to lure and retain foreign investors. For example, Shanghai may
grant foreign exchange loans to enterprises against future export earnings.
Shanghai also is allowing some joint ventures that produce goods China would
otherwise have had to import to demand foreign currency for their products sold in
China. Despite this flexibility, we believe joint ventures in Shanghai and elsewhere
will continue to have difficulty obtaining the foreign exchange needed to buy
imported components, pay expatriate salaries, and remit profits.
Impact of Damage from Typhoon Vera to the east coast of North Korea in late August will
Typhoon Vera aggravate the serious shortages that already exist throughout the North Korean
on North Korea economy. As of early September, nearly 300 people reportedly had lost their lives.
There was extensive damage to military facilities, factories, houses, roads,
railroads, powerlines, and fishing and cargo ships. Agriculture was hard hit, with
several thousand acres of corn, rice, and vegetables flooded. P'yongyang is giving
priority to reconstruction of damaged facilities and is trying to save as much of the
grain as possible. It is also hoping to make up for some of the loss by reseeding to
fall vegetables. We have not heard of any offers of help by the USSR or China.
The typhoon damage will hinder Pyongyang's drive to fulfill many construction
and production targets by Kim 11-song's 75th birthday on 15 April 1987. They
may also put a damper on the start of the next long-term economic plan, already
two years behind schedule. Moreover, the losses to agriculture and fishing came at
a time when food shortages apparently already were worsening.
33 Secret
12 September 1986
I
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Directorate of
Intelligence
Economic & Energy
Indicators
DI EE! 86-019
12 September 1986
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
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
Library of Congress
Washington, D.C. 20540
or: National Technical Information Service
5285 Port Royal Road
Springfield, VA 22161
(To expedite service call the
NTIS Order Desk [phone]
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.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Economic & Energy
Indicators
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
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Percent chan
seasonally adj
ge from prev
usted at an
ious period
annual rate
United States
2.6
-7.2
5.9
11.6
2.3
0.5
-2.7
-3.8
-1.0
1.0
0.4
3.5
11.1
4.6
0.7
0.9
4.0
-3.8
West Germany
-2.3
-3.2
0.3
2.4
4.8
-0.3
11.8
41.0
France
-2.6
-1.5
1.1
2.5
0.5
-4.9
5.1
31.2
United Kingdom
-3.9
2.1
3.9
1.3
4.7
3.2
-2.7
-13.5
Canada
0.5
-10.0
5.3
8.8
4.3
-0.9
Percent change from previous period
seasonally adjusted at an annual rate
United States
2.5
-2.1
3.6
6.4
2.7
4.1
2.1 3.8 0.6
4.1
3.1
3.3
5.0
4.5
2.7
5.8 -2.1 3.6
West Germany
-0.2
-1.0
1.5
3.0
2.4
6.8
-0.2 -6.5
France
0.2
1.8
0.7
1.5
1.4
3.6
2.3 0 4.0
United Kingdom
-1.4
1.9
3.4
2.6
3.3
-1.1
1.8 2.9
Canada
3.3
-4.4
3.3
5.0
4.5
7.0
5.4
Percent change from previous period
seasonally adjusted at an annual rate
United States
10.3
6.2
3.2
4.3
3.5
1.4
-1.7 0.4
Japan
4.9
2.6
1.8
2.3
2.0
0
-0.8
West Germany
6.0
5.3
3.3
2.4
France
13.3
12.0
9.5
7.7
5.8
0.8
1.7 0.8
United Kingdom
11.9
8.6
4.6
5.0
6.1
4.5
0.4 0.7
16.4
14.9
10.6
8.6
6.2
5.0 3.8 5.9
Canada
12.5
10.8
5.8
4.3
4.0
4.8
3.0 6.8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Money Supply, M-1 a
Percent change from previous period
seasonally adjusted at an annual rate
United States b
7.1
6.6
11.2
7.0
9.1
7.9
16.8
15.8
18.1
Japan
3.7
7.1
3.7
2.8
5.0
7.6
9.4
7.0
6.5
West Germany
1.1
3.6
10.2
3.3
4.4
9.8
11.3
21.3
-0.4
France
12.2
13.9
8.7
20.4
1.9
16.4
United Kingdom
NA
NA
13.0
14.7
16.7
9.2
33.0
14.7
14.0
Italy
11.2
11.6
15.1
12.3
13.7
8.9
Canada
3.8
0.7
10.2
3.2
4.1
-13.4
-1.9
28.7
35.0
a Based on amounts in national currency units.
b Including MI-A and MI-B.
Unemployment Rate
United States
7.5
9.6
9.4
7.4
7.1
Japan
2.2
2.4
2.7
2.7
2.6
West Germany
5.6
7.7
9.2
9.1
9.3
France
7.6
8.4
8.6
9.6
10.0
United Kingdom
10.0
11.6
10.7
11.1
11.3
Italy
8.4
9.1
9.9
10.4
10.7
Canada
7.5
11.1
11.9
11.3
10.5
1st Qtr
2nd Qtr Jun
Jul
Aug
7.0
7.1
7.0
6.8
6.7
2.6
2.8
2.7
2.9
10.2
8.6
_
8.4
8.6
8.5
9.9
10.0
10.4
10.5
11.5
11.6
11.7
11.7
11.5
9.7
9.6
9.5
9.9
9.7
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Foreign Trade o
1981
1982
1983
1984
1985
1986
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
90.8
30.3
31.8
34.1
Balance
-27.5
-31.6
-57.4
-108.1
-132.0
Japan
Exports
149.6
138.2
145.4
168.1
173.9
47.7
51.3
17.6
16.9
17.7
Imports
129.5
119.6
114.0
124.1
118.0
29.9
29.0
9.2
10.1
9.8
Balance
20.1
18.6
31.4
44.0
55.9
17.8
22.3
8.4
6.9
7.9
West Germany
Exports
175.4
176.4
169.5
171.9
184.2
55.1
60.9
17.6
21.4
21.2
Imports c
163.4
155.3
152.9
153.1
158.9
45.0
47.6
14.4
16.0
16.0
Balance
11.9
21.1
16.6
18.8
25.3
10.1
13.3
3.2
5.4
5.3
France
Exports
106.3
96.4
95.1
97.5
101.9
30.4
29.8
9.7
10.1
10.8
Imports
115.6
110.5
101.0
100.3
104.5
30.3
30.9
10.0
10.3
10.6
Balance
-9.3
-14.0
-5.9
-2.8
-2.6
0.1
-1.1
-0.3
-0.2
0.2
United Kingdom
Exports
102.5
97.1
92.1
93.6
100.9
26.2
26.8
8.9
8.8
9.0
Imports
94.6
93.1
93.7
99.3
103.5
28.4
29.2
10.0
9.7
9.9
Balance
7.9
4.0
-1.6
-5.7
-2.6
-2.1
-2.4
-1.1
-0.9
-0.9
Italy
Exports
75.4
73.9
72.8
73.4
78.8
23.3
24.5
8.1
8.2
8.6
Imports
91.2
86.7
80.6
84.4
90.8
26.3
24.3
8.0
8.1
9.0
Balance
-15.9
-12.8
-7.9
-10.9
-12.0
-2.9
0.2
0.1
0.1
-0.4
Canada
Exports
70.5
68.5
73.7
86.5
88.0
21.7
21.2
7.1
6.7
Imports
64.4
54.1
59.3
70.6
75.7
19.9
19.6
6.4
6.5
Balance
6.1
14.4
14.4
15.9
12.3
1.8
1.7
0.7
0.3
Seasonally adjusted.
b Imports are customs values.
Imports are c.i.f.
Japan
4.8
6.9
20.8
35.0
49.2
12.7
23.2
7.7
7.6
8.0
West Germany
-6.8
3.3
4.3
6.7
13.8
6.9
8.2
2.7
1.9
2.7
United Kingdom
15.3
8.5
4.7
1.9
4.9
0.8
0.7
0
0.1
0
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Export Prices in US $
Percent change from previous period
at an annual rate
United States
9.2
1.5
1.0
1.4
-0.7
-0.5
1.2
7.1
Japan
5.5
-6.4
-2.4
0.2
-0.6
26.1
24.9
-3.5
West Germany
-14.9
-2.8
-3.2
-7.1
0
40.7
16.6
-2.4
48.8
France
-12.0
-5.5
-4.8
-2.9
2.5
33.2
Percent chan
ge from pre
at an
vious period
annual rate
United Kingdom
NA
NA
-5.7
-4.5
0.5
-0.5
2.4
-18.2
-8.2
Italy
1.0
-5.3
-6.6
-3.7
-1.0
10.7
Canada
8.7
-1.1
0.6
1.0
-2.1
- 8.9
3.6
-23.0
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Exchange Rate Trends
Percent change from previous period
at an annual rate
Trade-Weighted
United States
10.5
10.6
5.8
9.1
6.3
-17.8
-11.3
-13.7
21.7
Japan
9.3
-5.7
10.4
6.2
6.8
26.8
42.4
81.8
18.4
West Germany
-2.1
7.0
5.8
1.0
1.7
8.5
6.0
11.3
6.5
France
-5.1
-6.1
-4.7
-2.1
2.7
5.8
-10.4
-3.1
7.4
United Kingdom
2.5
-2.1
-5.0
-2.5
2.0
-26.0
9.5
11.8
3.7
Canada
0.3
0.2
2.3
-2.3
-3.6
-13.1
1.7
6.2
- 7.6
Dollar Cost of Foreign Currency
Japan
2.7
-12.9
4.6
0
-0.3
32.2 ?
33.5
42.8
-2.2
48.3
27.5
West Germany
-24.6
-7.2
-5.2
-11.5
-3.3
31.3
17.1
19.5
-1.0
35.5
39.7
France
-28.7
-20.8
-15.9
-14.7
-2.7
29.7
4.4
15.7
-2.8
27.7
27.8
United Kingdom
-13.2
-13.4
-13.3
-11.9
-3.0
1.7
20.8
19.3
-7.7
-2.0
-16.9
Italy
-32.8
-18.8
-12.3
-15.6
-8.6
30.1
14.5
18.8
-2.0
35.2
37.6
Canada
-2.5
-2.9
0.1
-5.1
-5.4
-6.9
5.7
6.4
-13.1
6.8
-0.7
Money Market Rates
United States
90-day certificates of
deposit, secondary market
16.24
12.49
9.23
10.56
8.16
7.68
6.77
6.67
6.75
6.88
Japan
loans and discounts
(2 months)
7.79
7.23
NA
6.66
6.52
6.38
5.98
6.12
5.98
5.82
West Germany
interbank loans
(3 months)
12.19
8.82
5.78
5.96
5.40
4.51
4.52
4.47
4.55
4.55
France
interbank money market
(3 months)
15.47
14.68
12.51
11.74
9.97
8.96
7.41
7.55
7.27
7.41
United Kingdom
sterling interbank loans
(3 months)
13.85
12.24
10.12
9.91
12.21
12.26
10.09
10.41
10.14
9.72
Italy
Milan interbank loans
(3 months)
20.13
20.15
18.16
15.91
14.95
16.00
12.71
13.66
12.50
11.97
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
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Bananas
Fresh imported,
(Total world, $ per metric ton)
Australia
(Boneless beef,
f.o.b. US Ports)
United States
(Wholesale steer beef,
midwest markets) I
Cocoa (Q per pound)
89.8
74.3
92.1
106.2
98.7
95.7
82.6
87.6
NA
Coffee ($ per pound)
1.28
1.40
1.32
1.44
1.43
2.01
1.73
1.49
1.47
Corn
(US #3 yellow,
c.i.f. Rotterdam, $ per metric ton)
150
123
148
150
125
116
116
98
87
Cotton
(World Cotton Prices, "A"
index, c.i.f. Osaka, 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
(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 ? per pound)
Tea
Average Auction (London)
(? per pound)
Wheat
(US #2. DNS
c.i.f. Rotterdam, $ per metric ton)
a 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.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Chrome Ore
(South Africa chemical
grade, $ per metric ton)
Copper a (bar, ? per pound)
79.0
67.1
72.0
62.4
64.5
64.5
64.5
60.6
59.1
Gold ($ per troy ounce)
460.0
375.5
424.4
360.0
317.2
342.6
341.6
348.4
365.4
Lead a (Q per pound)
32.9
24.7
19.3
20.0
17.7
16.7
17.6
17.0
17.5
Manganese Ore
(48% Mn, $ per long ton)
82.1
79.9
73.3
69.8
68.4
67.2
64.8
64.8
65.6
Nickel (S per pound)
Metals week,
New York dealers' price
Synthetic b
47.5
45.7
Silver ($ per troy ounce)
10.5
7.9
11.4
8.1
6.1
5.9
5.2
5.0
5.1
Steel Scrap d ($ per long ton)
92.0
63.1
73.2
86.4
74.4
74.0
71.8
NA
NA
Tina (0 per pound)
641.4
581.6
590.9
556.6
543.2
357.4
250.5
244.0
245.5
Tungsten Ore
(contained metal,
$ per metric ton)
18,097
13,426
10,177
10,243
10,656
8,673
7,567
7,112
6,360
US Steel
NA
(finished steel, composite,
$ per long ton)
Zinc a (? per pound)
38.4
33.7
34.7
41.5
35.4
28.5
33.8
36.5
36.5
Lumber Index C
95
84
114
105
103
100
121
111
NA
(1980 =100)
Industrial Materials Index f
(1980 =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. As of February 1986 tin
prices from the Penang market.
b S-type styrene, US export price.
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.
e This index is compiled by using the average of 10 types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
f The 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.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
World Crude Oil Production
Excluding Natural Gas Liquids
1981
1982
1983
1984
19858
1986a
1st Qtr
May
June
July
World
55,837
53,092
52,625
53,674
52,931
54,029
Non-Communist countries
41,602
38,810
38,228
39,257
38,692
39,758
Developed countries
12,886
13,276
13,864
14,302
14,730
15,022
United States
8,572
8,658
8,680
8,735
8,933
8,898
8,848
8,808
8,800
Canada
1,285
1,270
1,356
1,411
1,457
1,480
United Kingdom
1,811
2,094
2,299
2,535
2,533
2,711
2,538
Norway
501
518
614
700
785
856
826
Other
717
736
915
921
1,022
1,077
927
Non-OPEC LDCs
6,036
6,633
6,823
7,515
7,845
7,556
7,998
Mexico
2,321
2,746
2,666
2,746
2,733
2,376
2,527
2,547
2,500
Egypt
598
665
. 689
827.
874
758
845
Other
3,117
3,222
3,468
3,942
4,238
4,422
4,626
OPEC
22,680
18,901
17,541
17,440
16,117
17,180
18,000
19,300
20,320
Algeria
803
701
699
638
645
602
600
600
600
Ecuador
211
211
236
253
280
275
300
300
285
Gabon
151
154
157
152
153
160
160
170
170
Indonesia
1,604
1,324
1,385
1,466
1,235
1,223
1,305
1,235
1,250
Iran
1,381
2,282
2,492
2,187
2,258
1,890
2,100
2,200
2,300
Iraq
993
972
922
1,203
1,437
1,732
1,700
1,700
1,900
Kuwait b
947
663
881
912
862
1,169
1,400
1,500
1,600
Libya
1,137
1,183
1,076
1,073 .
1,069
1,000
1,100
1,200
1,150
Neutral Zones
370
317
390
410
355
276
220
300
340
Nigeria
1,445
1,298
1,241
1,393
1,464
1,417
1,550
1,490
1,600
Qatar
405
328
295
. 399 .
302
352
360
430
400
Saudi Arabia b
9,625
6,327
4,867
4,444
3,290
4,256
4,250
5,100
5,600
UAE
1,500
1,248
1,119
1,097
1,146
1,287
1,405
1,505
1,505
Venezuela
2,108
1,893
1,781
1,813
1,621
1,541
1,550
1,570
1,620
Communist countries
14,235
14,282
14,397
14,417
14,239
14,271
USSR
11,800
11,830
11,864
11,728
11,350
11,350
China
2,024
2,042
2,121
2,280
2,496
2,496
2,496
Other
411
410
412
409
393
425
a Preliminary.
b Excluding Neutral Zone production, which is shown separately.
c Production is shared equally between Saudi Arabia and Kuwait.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Big Seven: Inland Oil Consumption
1981
1982
1983
1984
1985
1986
Jan
Feb
Mar
Apr
May
June
Jul
United States
0
16,058
15,296
15,184
15,708
15,726
15,923
16,056
16,188
15,743
15,852
15,998
16,309
-
Japan
4,444
4,204
4,193
4,349
4,123
4,661
5,002
4,547
3,924
3,568
3,577
West Germany
2,120
2,024
2,009
2,012
2,060
2,096
2,406
2,141
2,640
2,388
2,473
France
1,744
1,632
1,594
1,531
1,493
1,626
2,009
1,525
1,702
1,245
1,284
United Kingdom
1,325
1,345
1,290
1,624
1,402
1,286
1,483
1,447
1,427
1,330
Italy b
1,705
1,618
1,594
1,513
1,516
1,718
1,855
1,535
1,495
1,345
1,506
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
3,426
3,201
3,329
2,993
3,000
3,701
3,872
4,508
4,291
Japan
3,919
3,657
3,567
3,664
3,377
3,126
4,273
3,673
3,469
West Germany
1,591
1,451
1,307
1,335
1,284
1,321
1,258
1,429
1,285
1,340
1,263
France
1,804
1,596
1,429
1,395
1,476
1,430
1,420
1,380
1,608
1,235
United Kingdom
736
565
456
482
523
493
445
494
610
767
442
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
OPEC Average a
(Official Sales Price)
30.87
34.50
33.63
29.31
28.70
28.14
28.09
28.08
28.07
28.11
World Average Price
NA
NA
NA
NA
NA
27.16
20.67
NA
14.06
12.87
it
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.
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Average Crude Oil Sales Price"
US $ per barrel
1 1.29 1 1.02 1177 12,88 1 93
3.39
34.50 33.63
30.87
29.31 28.70 27-16
r r
? 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
20.32
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
 Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8
Declassified in Part - Sanitized Copy Approved for Release 2011/12/29: CIA-RDP88-00798R000400160005-8