INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000400180004-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 56
• Document Creation Date: December 22, 2016
• Document Release Date: July 27, 2011
• Sequence Number: 4
• Publication Date: September 26, 1986
• Content Type: REPORT

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Directorate of Secret.-
Intelligence
Weekly
International
Economic & Energy
26 September 1986
DI IEEW 86-039
26 September 1986
Copy 8 3 6
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Secret
International
Economic & Energy Weekly
26 September 1986
iii Synopsis
1 Perspective-Latin American Concerns Over Possible OECD Recession 25X1
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3 Big Seven: Prospects for Economic Policy Coordination 25X1
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Algeria: Coping With the Energy Price Slump 25X1
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11 The Philippines: Electricity Shortages Looming 25X1
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17 Soviet Arctic Petroleum: Moscow's Need for Western Capabilities 25X1
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Energy
International Finance
International Trade
Global and Regional Developments
National Developments
Comments and queries regarding this publication are welcome. They may be 25X1
directed to -]Directorate of Intelligenc
Secret
DI IEEW 86-039
26 September 1986
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International
Economic & Energy Weekly 25X1
Synopsis
1 Perspective-Latin American Concerns Over Possible OECD Recession
We believe negotiations to resolve the region's debt problem would become even
more arduous in the event of a recession in the industrialized countries as Latin
governments reassess debt strategies.
3 Big Seven: Prospects for Economic Policy Coordination
Despite the commitment by the Big Seven leaders at the May Tokyo Economic
Summit to a more formal coordination of economic policies, we believe any future
coordinated policy revisions will be restricted to the monetary and exchange rate
areas and that politically difficult fiscal adjustments will be driven more by
domestic priorities.
7 Algeria: Coping With the Energy Price Slump
Algeria is facing its most serious financial crisis since independence because of the
decline in world energy prices. Algiers has taken some steps to rein in government
spending, and we believe additional measures are in the offing.
11 The Philippines: Electricity Shortages Looming
Electric power shortages on Luzon island-where more than 90 percent of the
country's nonagricultural production takes place-are increasingly causing con-
cern among Filipino and US businessmen and will probably constrain any
economic recovery.
17 Soviet Arctic Petroleum: Moscow's Need for Western Capabilities
The Soviet Union has high hopes for the petroleum potential of its Arctic regions,
but Soviet reliance on domestic equipment would retard oilfield projects in these
areas considerably. If the Soviets discover a substantial oilfield in the offshore
Arctic and elect to expedite development, they would need to import large volumes
of equipment.
iii Secret
DI IEEW 86-039
26 September 1986
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International
Economic & Energy Weekly
26 September 1986
Perspective Latin American Concerns Over Possible OECD Recession
Industrial-country delegates attending the annual IMF/IBRD meetings that begin
28 September will. find Latin American representatives worried about world
economic prospects. Slower than expected economic growth in the OECD raises
the specter of a recession that would abort the current gradual recovery in Latin
America. We believe negotiations to resolve the region's debt problem would
become even more arduous in the event of a recession in the industrialized
countries as Latin governments reassess debt strategies.
A flagging world economy would cause Latin American nations' financial needs to
rise. According to our Linked Policy Impact Model, each 1-percentage-point
decline in OECD growth would worsen Latin American current account balances
by at least $1-2 billion in the first year and $2.5-3.0 billion in the second year.
Moreover, uncertainty about Latin economic prospects could boost capital flight,
widening the financial gap. Although the total impact of an OECD slowdown
would depend on its length and severity, the effect of lower Latin export revenues
would outweigh relief from lower interest rates.
The prospect of more austerity to shore up the balance of payments would
probably revive fears of political unrest. In the wake of this summer's Mexico-IMF
accord that linked new lending to oil prices, the region's debtors-especially
Argentina and Brazil-almost certainly would press for further financial conces-
sions to blunt the anticipated political consequences.
Creditors-who already have taken steps to try to protect themselves from
default-would adopt a tougher stance with Latin debtors in the event of an
OECD recession. Bankers probably would contend that they have little leeway to
ease the need for economic adjustment in the debt-troubled countries. Already
reluctant to accommodate IMF pressure for new lending to hard-pressed Latin
governments, they would almost certainly become less inclined to grant additional
large-scale financing because of deteriorating prospects for repayment. In the
event of a severe recession, we believe that individual banks would be tempted to
agree to separate deals with debtors.
Before resorting to the threat of radical debt action, we believe Latin American
governments would first look to OECD governments to share more of the burden
of adjustment by changing current trade and debt policies. During the recent
GATT ministerial meeting at Punta del Este, for example, Argentina and
Uruguay called on the United States, the EC, and Japan to dismantle agricultural
trade barriers and subsidies and indicated that free trade in farm commodities will
be their major goal for a new trade round. We believe financial stringencies caused
by an OECD recession might provoke Latin governments to link farm trade
concessions to debt. In addition, Latin debtors almost certainly would renew calls
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for preferential trade treatment for their industrial products and more lending by
multilateral development banks and the IMF. Moreover, they would probably
lobby Western monetary authorities-particularly the US Federal Reserve-for
changes in banking regulations that would allow commercial banks to take more
innovative approaches to reducing debt service. If Latin debtors perceive industri-
al-country insensitivity to their plight, we believe this would significantly raise the
For the time being, the major Latin American debtors apparently remain
committed to cooperating with creditors. The strain of a severe recession and the
South Americans' belief that Mexico won its concessions by threatening a
moratorium may quickly lead to more confrontational stands. Under such
conditions, Latin debtors might try to use the threat of collective action under the
aegis of the Cartagena Group to intimidate creditors into granting similar
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Big Seven: Prospects for Economic
Policy Coordination
Despite the commitment by the Big Seven leaders at
the May Tokyo Economic Summit to a more formal
coordination of economic policies, we believe any
future coordinated policy revisions will be restricted to
the monetary and exchange rate areas and that
politically difficult fiscal adjustments will be driven
more by domestic priorities. Actively coordinated
macroeconomic policy changes beyond possible dis-
count rate cuts in the near future are unlikely be-
cause, barring a major shift in the current economic
forecast, there is no strong consensus within the Big
Seven that such changes are needed. Moreover, be-
cause central bankers want to preserve their indepen-
dence, we do not foresee the extension of monetary
cooperation to encompass coordinated monetary tar-
geting or major reform of the existing exchange rate
Big Seven: Consumer Price Inflation,
1985-87
United
States
regime.
Big Seven Economic Trends
During the past several years, the Big Seven govern-
ments have had a mixed record on achieving their
economic policy objectives. Inflation rates have fallen
dramatically and are forecast to remain low, though a
number of the governments are expressing concerns
about faster monetary growth. Most fiscal deficits
either have been or are being reduced. The major
problems facing the group are the growth pauses in
the United States and Japan, the US fiscal and
current account deficits, and the current account
surpluses of Japan and West Germany.
Japan. Because of the extraordinary appreciation of
the yen, we expect Japanese real GNP growth will be
unusually low this year but will recover modestly in
1987. The current account surplus will probably
widen in dollar terms, but volume changes suggest
that a long-term reduction in the surplus is already
under way. The price and real income effects of the
1985
1986a
1987 b
West
Germany
United
Kingdom
a Estimated.
b Projected.
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The Framework for Big Seven Policy Coordination
Prior to the Tokyo Economic Summit, macroeco-
nomic cooperation was largely a matter of agreeing
on broad economic objectives while leaving the selec-
tion of appropriate policies to the individual govern-
ments. More extensive economic cooperation involv-
ing the coordinated design of policies was agreed to
by the heads of state at the Summit. The Big Seven
finance ministers were charged with evaluating the
compatibility of the individual nations' economic
forecasts and objectives. In addition, the heads of
state asked their central bankers to meet with the
finance ministers to make their best efforts to reach
an understanding on appropriate remedial measures
whenever necessary.
The finance ministers are to meet periodically to
review their economic forecasts collectively with the
International Monetary Fund using nine indicators:
GNP growth rates, inflation rates, interest rates,
unemployment rates, fiscal deficit ratios, current
account and trade balances, reserves, and exchange
yen appreciation will complement the government's growth has begun to replace the foreign sector as the
recently announced program designed to shift the primary source of economic growth. To the consterna-
structure of demand from the foreign sector to domes- tion of the Bundesbank, monetary growth has exceed-
West Germany. Moderate GNP growth for the re-
mainder of 1986 and much of 1987 is now generally
forecast for the German economy, despite the weak
performance earlier this year. The current account
surplus is growing in dollar terms, but rising import
and stagnant export volumes indicate a trend toward
a more balanced trade account. Domestic demand
France. Bouyant consumer demand is expected to
continue driving the French economy in 1986 and
1987. The roughly 2.5-percent real GNP average
annual growth we expect each of those years, though
low by West European standards, represents a major
improvement over 1985. Healthy but not excessive
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Big Seven Real GNP Growth 1985-87 a
a Data for 1986-87 are projected.
b An average of 43 major private forecasts.
current account surpluses are also likely. French
monetary policy is currently restrained by uncertainty
about the new monetary control procedures and the
desire to avoid weakening the franc.
United Kingdom. The stimulus to private demand
associated with disinflation is being offset by the
decline in North Sea oil earnings, leading to gloomy
economic forecasts for the United Kingdom. We
expect an average annual real growth of 2.3 percent
this year and next. If oil prices remain low, the
current account, once expected to show a substantial
1986 surplus, will be in modest deficit during 1987.
Italy. The Italian Government faces unusually favor-
able economic conditions. A consumer-driven surge of
domestic demand will probably raise real GNP
growth to 3 percent this year and next. Inflation is
still high by West European standards but has fallen
by more than 2 percentage points in the last year. The
current account is expected to move into surplus this
year and remain positive in 1987. Italy's major task
remains the continued reduction of its fiscal deficit.
Higher than anticipated tax revenues have helped
reduce the deficit from 16 to about 14 percent of
GNP over the past year.
Canada. Real GNP growth is projected at or below
3 percent in 1986 and 1987, down sharply from 1985
due to declining US growth and the effect of falling
oil prices on the energy-producing sector. The Canadi-
an current account deficit is expected to widen. In the
most recently announced figures, the inflation rate
edged slightly upward.
Future Coordinated Policy Revisions
We believe the most extensive coordination of macro-
economic policy revisions likely in the near future is a
cut in central bank discount rates. Even here, how-
ever, pockets of resistance in the West German and
Japanese central banks are strong. Monetary growth
in both economies has recently overshot targets, and
strong German domestic demand suggests Bonn will
continue to resist calls for further stimulus. Despite its
reluctance, Bonn would probably cut its discount rate
rather than allow a further appreciation of the
deutsch mark following a unilateral reduction in the
US discount rate. If the West German, US, and
Japanese rates fall, we believe the remaining central
banks would rapidly follow suit.
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Big Seven: Current Account Balances
as a Share of GNP, 1985-87
1985
1986a
United
States
West
Germany
United
Kingdom
The recent movements of the dollar, the yen, and the
deutsch mark have already corrected what many
observers believed were most serious currency mis-
alignments, paving the way for substantially more
balanced trade once the US fiscal deficit is reduced.
Further dollar depreciation would reinforce the de-
cline in the trade imbalance, but would probably be
strongly resisted by the Japanese and the Germans.
Recent press reports suggest the European Communi-
ty has decided to collectively support the dollar.
Despite the sentiments expressed at the Tokyo Sum-
mit, we believe that, over the longer run, Big Seven-
coordinated policy revisions are likely to be confined
to occasional and ad hoc monetary agreements. Indi-
vidual fiscal policies will probably be governed by
either short-run domestic political considerations or
by the longer run objective of fiscal balance. A
precondition for active fiscal coordination-confi-
dence in the parties' ability to "deliver"-is under-
mined by the inability of heads of state to guarantee
the intended outcome of highly politicized budgetary
processes. The staunchly defended autonomy of cen-
tral bankers has allowed them to occasionally act
more decisively, but their domestic priorities also
preclude the more extensive coordination implied by
common monetary rules or fundamental reform of the
world exchange rate system.
a Estimated.
b Projected.
Beyond discount rate cuts, there is no strong consen-
sus about the nature of, or need for, further coordinat-
ed action. To maintain adequate real growth in the
Big Seven, we believe that US net exports must rise to
offset efforts to narrow the fiscal deficit; at the same
time, domestic demand in Europe and Japan must
take up the slack for declining net exports. In fact, the
needed shifts in the structure of demand are already
well under way in West Germany, Italy, France, and
to some extent the United Kingdom, and Japanese
policy is already focusing on that objective.
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Algeria: Coping With the
Energy Price Slump
Algeria is facing its most serious financial crisis since
independence because of the decline in world energy
prices. We estimate that Algeria will lose some $6
billion in crude oil, condensate, products, and natural
gas earnings this year. Algiers has taken some steps to
rein in government spending to offset these losses, and
we believe additional measures are in the offing. The
country is also making a concerted effort to boost
earnings by pushing aggressively within OPEC to
bolster oil prices while becoming more accommodat-
ing in negotiations with its major gas customers to
preserve its market share. Current financial problems
come at a time when President Bendjedid has focused
on the economy as a base for moving away from the
Soviet socioeconomic model. Although he has so far
been able to sell austerity to the public, he may be
forced to step back from some aspects of his austerity
program and many of his progressive goals.
Hydrocarbons are the mainstay of the Algerian econ-
omy, accounting for 98 percent of export receipts,
nearly 50 percent of government revenues, and nearly
25 percent of GDP. Algeria has been switching
gradually since the early 1980s from mostly crude oil
sales to a combination of products. This expansion of
its export base allowed Algiers to escape the full
impact of falling crude prices until the past year. The
collapse in refined product prices as well as increased
competition for gas customers has brought the prob-
lem of export dependency to Algiers' front door:
? Real incomes are plummeting; GDP per capita is
still nominally among the highest in Africa at
$2,500, but wage increases have not kept pace with
inflation, which is running at about 14 percent-
double the 1985 level.
? Unemployment has hit a record 25 percent in many
areas and unemployment and underemployment to-
gether may exceed 30 percent.
? Joblessness is contributing to growing delinquency
and crime among Algerian youth; 65 percent of the
populace is under 25 and the population is growing
at a rate of 3 percent annually.
? Financial constraints are making foreign aid for
liberation groups-including the Polisario-more
burdensome.
The Bendjedid government has announced a variety
of measures to stem the country's deteriorating finan-
cial position. Algiers has revised the national budget,
cutting overall government operating expenses by 11
percent and development expenditure by 26 percent,
according to Embassy reporting. Although we have
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government projects these reductions will slash im-
ports by some $2 billion by the end of the year.
Algiers, additionally, has suspended the government
subsidized c.o.d. postal system, halved foreign ex-
change allocations for tourist travel, and reduced
annual allowances for pilgrimages to Mecca to save
scarce foreign exchange.
Algiers has also taken steps to reduce services im-
ports, which accounted for as much as one-third of
total imports of goods and services last year. Accord-
ing to the US Embassy, Algiers is reducing the
number of foreign technicians in country by restrict-
ing access to work and residence permits. The Italian
expatriate community, for example, has dwindled to
700 from 2,000 only 18 months ago. Technical assis-
tance contracts are also being canceled-including
construction and possibly some maintenance pro-
grams for gas liquefaction plants. These measures
could save Algiers an estimated $600-700 million
annually.
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Algeria: Current Account, 1985-86
Trade balance
3.6
-2.3
0.7
Exports, f.o.b.
12.6
6.7
6.7
Crude oil
6.3
3.1
3.1
Condensates
3.0
1.5
1.5
0.4
2.6
0.3
0.2
9.0
1.7
0.5
6.8
8 Case 1: Assumes average crude oil price for 1986 is $15 per
barrel; condensates' price is $13.42 per barrel; refined products'
price is $15.60 per barrel; second-quarter gas prices are average for
the year (gas contract renegotiations are inconclusive); production
and consumption of all hydrocarbons equals 1985 levels; and no
austerity measures are implemented.
b Case 2: Assumes all conditions in case I hold for the first six
months of the year. Assume these same parameters remain constant
during the latter half of 1986 except each European gas price
equals the French rate of $2.36 per million Btu (the result of
successful gas contract renegotiations) and austerity measures slash
imports, services, and foreign aid.
Algeria has also tapped the international financial
market. after
trying unsuccessfully to float a $500 million loan in
February-bankers felt Algerian terms were too
low-Algiers has managed to win about $900 million
in new funds.
Japanese banks have been especially active in sub-
scribing Algerian loans recently-$650 million so far
this year. Middle Eastern banks, too, have been
active, possibly to try to calm Algeria's increasingly
The Bendjedid government, additionally, has rapidly
drawn down reserves while pushing for higher levels
of foreign assistance. By the end of July, foreign
exchange reserves had fallen from roughly $3 billion
at the beginning of the year to about $1.9 billion-the
lowest level in nearly two years. New foreign aid has
yet to materialize. In addition to problems lining up
concessional loans from the United States, Algiers has
Algiers's efforts to cushion the impact of falling
hydrocarbons earnings, however, have not come with-
out cost, according to Embassy reporting. Import cuts
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have resulted in spot shortages of consumer goods and
foodstuffs such as coffee. Spare parts shortages are
also beginning to affect industrial and agricultural
production. State farms are being hit especially hard.
Parts shortages are immobilizing heavy machinery,
causing planting and harvesting delays. The problem
is compounded by the elimination of the c.o.d. postal
service through which many replacement parts were
previously ordered. Budget cuts are also slicing into
social services such as education and housing. Cuts in
the country's development program-Embassy re-
porting indicates only agriculture and import substitu-
tion industries are being spared-are increasing pres-
sures on the country's already burgeoning
Western-oriented system that relies heavily on private
enterprise. Bendje-
did has had to spend considerable time recently trying
to convince detractors that his economic liberalization
is not responsible for the country's current financial
woes.
There are already indications that Bendjedid has been.
forced to allow the hardliners a greater say in foreign
policy matters in exchange for their tacit support of
his economic agenda. For example, recent Algerian
foreign policy activities include rapprochement with
Libya, closer ties to radical Palestinians, renewed
activity within the "Steadfastness Front," ' and
Algiers's aggressive posture within OPEC.
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unemployment rate.
The prolonged decline in foreign exchange earnings
has had a dramatic impact on Algiers's international
debt position. We believe Algerian debt now exceeds
$21 billion and the country's debt service ratio could
hit 80 percent by yearend if present earnings trends
continue-double the ratio just two years ago. Such a
high debt-service burden is prompting a more careful
monitoring by Algiers's creditors of principal and
interest repayments. In addition, the country's favor-
able international credit rating-long a source of
Cuts-albeit small-in the military procurement bud-
get are also hurting Bendjedid's standing with the
military. Rumors abound in Algiers that Bendjedid's
budget cuts are responsible for stalling Soviet-Algeri-
national pride-is being eroded.
The public response to austerity measures so far has
been muted. Embassy reporting indicates the govern-
ment has mounted an impressive nationwide public
relations campaign to mobilize popular support to
counter the adverse effects of the present internation-
al economic situation. Through media blitzes and
regional meetings and conferences, the government is
urging the people to cut down on imports and elimi-
nate resource waste. Algiers's theme is "self-reliance"
in fighting the "economic war that will be almost as
difficult to win as the war for independence."
Although President Bendjedid has so far averted a
popular backlash from the economic crisis, he is
encountering problems within his government. The
President is in the midst of trying to turn the cumber-
some and inefficient Soviet-style economy toward a
Algeria's economic outlook for the remainder of 1986
is bleak. Without any improvement in current prices
for oil and gas, Algiers could incur a current- account
deficit as high as $7 billion. Indeed, Algeria's losses
could be even greater should OPEC's new production
accord collapse or gas negotiations currently in train
with major European customers not settle in Algiers's
favor.
A deficit of this magnitude will require further adjust-
ments. Even assuming that Algeria fully implements
austerity measures already in place, the financial gap
still far exceeds available reserves. We believe the -
government will try to reduce government spending
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even more by trimming imports, consumer subsidies,
and development expenditures. We believe, however,
this is not a viable solution because the government
cannot make deep enough cuts without jeopardizing
the modern economy and risking political backlash
from urban workers and the military.
Western bankers believe Algiers will seek to combine
moderate new spending cuts with new borrowing of
about $900 million this year. Willing lenders, howev-
er, could be difficult to find. Recent loan syndications
suggest that US and European bankers probably will
not participate. Japanese enthusiasm may also wane
as Algeria's economic problems deepen. Bankers also
expect rising debt pressures will force the Bendjedid
government to reschedule some of its debt by next
year. Contrary to previous policy, we believe Algeria
in the interim may well seek oil and gas barter deals,
particularly in exchange for needed food and other
essential imports and possibly arms. Algiers may even
go so far as to try to convince Libya to resume support
to the Polisario, so Algeria can reduce its financial
obligations there.
Algiers probably will be able to maintain public order,
despite the hardships the new austerity programs are
likely to produce. The government has a large and
efficient security force and it has not hesitated in the
past to move quickly to suppress dissent. To be sure,
expectations among the predominantly youthful popu-
lation are rising. Younger Algerians probably will not
be as ready to accept the scarcities that have been a
hallmark of the government's emphasis on investment
over consumption since independence. There has been
an increasing number of demonstrations and riots in
recent years attributable to social and economic griev-
ances, and more are likely. Islamic fundamentalists-
although a disparate and disorganized group-will
attempt to take advantage of the disgruntlement.
Although we do not expect Bendjedid to be toppled
from power, we do believe he could be forced to step
back from some aspects of his austerity program and
many of his progressive goals. Leftist ideologues
would attempt to use domestic problems to curtail
Bendjedid's economic liberalization program and out-
reach to Western countries. This leftist challenge,
however, would only become serious if it had the
support of a large group of military officers.
Bendjedid will almost certainly continue his search
for aid from the West to help offset any budding
opposition. We believe Algiers will try to use its still
decent international credit rating to secure more
commercial funds from Western and Arab banking
sources. We doubt Algiers would seek large amounts
of official lending because many government leaders
probably do not want to become overly dependent on
foreign governments. Likewise, Bendjedid will also
continue to seek military hardware from both the
Soviet Union and Western suppliers as a bargaining
tool to obtain favorable prices and credit terms but is
unlikely to make political concessions to either
Moscow or the West to obtain them.
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The Philippines: Electricity
Shortages Looming
Electric power shortages on Luzon island-where
more than 90 percent of the country's nonagricultural
production takes place-are increasingly causing con-
cern among Filipino and US businessmen and will
probably constrain any economic recovery. The
Aquino administration's decision to halt the long-
postponed completion of the Philippines Nuclear Pow-
er Plant (PNPP) has left a gap in planned electrical
capacity that will take at least five years to fill, even if
plans for other new plants are implemented quickly.
Moreover, the government-owned National Power
Corporation (NPC) and the Philippine Government,
already saddled with more than $1.5 billion in debts
from the Bataan plant, will be hard pressed to pay the
more than $1.2 billion cost of new plants and renova-
tions. Under these circumstances, Soviet offers of
financial and construction assistance will present a
strong temptation to the Aquino government. Mean-
while, periodic electricity shortages are likely to wors-
en-particularly during and immediately following
the December-June dry season-until the new and
upgraded plants come on line.
shortfall of about 450 MW.
The Luzon electrical supply looks good on paper with
peak demand-2,300 megawatts (MW)-only 56 per-
cent of installed capacity-4, 100 MW. Actual operat-
ing capacity, however, is much lower. According to
the US Embassy, equipment failures have reduced
the capacity of Luzon's 10 oil-fired plants by a total
of about 500 MW. Low water levels resulting from
the December-June dry season cause a loss of another
500 MW in hydropower. A power industry analyst
estimates that weather, maintenance, and other prob-
lems altogether cause a drop in the total dependable
capacity to 2,350 MW in the dry season and about
3,040 MW in the rainy season. According to the
NPC's low GNP growth scenario, demand will in-
crease to more than 2,750 MW by 1990, resulting in a
400 MW dry season electrical shortfall even in the
unlikely event-given years of deferred mainte-
nance-that all existing plants will be able to main-
tain current production levels. Our own estimate-on
the basis of our econometric model-suggests a
Brownouts and blackouts are once again plaguing the
electrical grid on Luzon-the northern Philippine
island where 75 percent of the nation's electricity is
consumed. Dependable capacity of the Luzon grid
during and immediately following the December-June
dry season when hydrocapacity is down is barely
adequate to cover peak demand. Brownouts-a seri-
ous problem in the early 1980s until the economic
downturn lowered demand for electricity-began to
reappear in mid-June and probably contributed to a
blackout on 21 August that affected some 90 percent
of the island's residents.
Although the onset of monsoonal rains is increasing
hydropower production and decreasing the frequency
of brownouts, the US Embassy reports that business-
men's concern about the power situation ranks just
behind their worries over labor problems and the
political situation. Many US-owned companies have
experienced losses from production shutdowns and
equipment damage, and they believe the situation will
worsen when the long-expected economic recovery
increases the demand for electricity. The business
community in Manila cites high power costs-by far
the highest in non-Communist East Asia-and loom-
ing shortages as among the reasons it is keeping new
investments on hold.
Secret
DI IEEW 86-039
26 September 1986
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Secret
East Asian Electrical Power
Cost Comparison, 1986
Cents per
Kilowatt Hour
Index: Manila
Price per
Kilowatt
Hour= 100
Bangkok
5.78
50.1
Taiwan
5.48
47.5
the debt totals more than $1.5
million, mostly from foreign loans-including $644
million from the US Export-Import Bank. The Philip-
pine Government assumed the NPC's foreign obliga-
tions on the plant on 13 August, according to the US
Embassy. Manila. hopes to trim the massive debt
servicing costs-currently $114 million per year and
scheduled to rise to an average of $240 million
annually between 1987 and 1993-through:
? Legal actions against the plant's contractor, Wes-
tinghouse, for alleged overbilling and fraud.
? Suits against former members of the Marcos
administration.
? Considering a separate rescheduling of loans for the
nuclear plant, according to the US Embassy.
According to late August press reporting, the NPC
has suspended payments to Westinghouse and the
a Nominal cost for large consumers. Data are from Philippine
Chamber of Commerce and Industry, July 1986. Cost converted
from pesos at the rate of 20.25 pesos to US $1.
Much of the projected shortfall in electrical capacity
over the next several years can be attributed to the
Aquino administration's decision-following months
of internal debate and the Chernobyl' disaster-to
mothball the nearly completed 620-MW PNPP on the
Bataan Peninsula. Reviving the plant would be politi-
cally very costly for the Aquino administration given
the widespread public opposition to it and President
Aquino's campaign promises to halt the project.
Moreover, security would be a major problem; 18 of
the plant's transmission towers have been toppled by
Communist insurgents and by criminal groups-loot-
ing the metal for sale as scrap-over the past few
years. converting the
PNPP from nuclear to coal-fired operation would cost
$1.0-1.5 billion and require six to seven years to
complete, roughly twice as costly and time consuming
as constructing two new 300-MW coal-fired plants.
In addition to delaying expansion of Luzon's electrical
capacity, the debt from the nuclear plant constrains
NPC's ability to solve the power problem.
plant's insurance carriers.
Officials Overly Optimistic
Philippine energy officials discount reports that elec-
trical shortages will worsen. According to the US
Embassy, the president of the NPC insists that the
present system can handle increased demand until
new plants come on line and that any shortfalls could
be made up by using emergency gas turbines. In
August 1986, an energy official announced that the
Cabinet has approved NPC's plan to add 400 MW to
the Luzon grid by 1992. A 300-MW coal-fired plant
will be built near Batangas, south of Manila, and the
other 100 MW will come from expanding Luzon's
geothermal capacity. In the meantime, the NPC will
rehabilitate four oil-fired plants.
We question the Philippine energy officials' optimism.
They do not take into account the likely equipment
failures at existing plants. Short-term use of gas
turbines to reduce power shortages is technically
feasible, but is extremely expensive, according to an
industry source. The plans for upgrading the Luzon
electrical grid by adding new plants and renovating
existing ones will take several years to complete-
even if implemented quickly-and we believe such
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Secret
Luzon Electric Power Developments, 1986
o p
Mothballed nuclear
power plant
Planned n6w
coal-fired power p,
0 150 Kilometers
r r
r
0 150 Miles
I
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secret
plans will require enormous expenditures that the
NPC and the government will find difficult to pay.
According to the US Embassy:
? All 10 existing oil-fired plants need rehabilitation at
a total cost of roughly $1 billion. We believe
rehabilitation will require each plant to be taken off
line for at least several months, reducing the de-
pendable capacity by an average of 150 MW for
each plant.
? The planned coal-fired plant near Batangas will cost
at least $250 million, and, as a Philippine official
admits, will not be ready until at least the early
1990s.
? Expansion of geothermal capacity is unlikely, ac-
cording to the US Embassy, until the NPC pays the
$85 million it owes UNOCAL, the operator of
Luzon's two geothermal fields.
Although the Philippine Government has relieved the
NPC of its $300,000 daily interest payment on the
PNPP, the NPC corporation faces massive financial
problems, largely due to mounting debts of local
power cooperatives. According to the US Embassy,
NPC accounts receivable totaled about $270 million
in 1985-Manila Electric Company (MERALCO)
alone owes $175 million. In Manila, the continuation
of the Marcos administration's "social pricing" poli-
cies for small residential consumers produces a reve-
nue loss that MERALCO cannot make up with its
sharply higher rates for large consumers. Additional
NPC losses have stemmed from widespread meter
tampering and from the tendency of many residents in
recently electrified rural areas to ignore electric bills
because they believed electricity to be a gift from the
government
Dry-season brownouts and blackouts on Luzon will
probably increase. The long leadtime required to plan
and construct any large power plant means that even
if financing is found-increasing the government's
already large debt burden-it will be at least 1990
before new plants come on line. Renovation of some
existing plants and equipment failures are likely to
cause additional capacity reductions over the next
several years, which would increase shortages even if
demand remained constant.
With the PNPP out of the picture-at least for the
present-Manila's alternatives for reducing electric
power shortfalls before the early 1990s will be of
limited effectiveness:
? Raising rates for small consumers and enforcing
payment of electric bills are necessary steps if the
NPC is to regain financial solvency, but both would
likely arouse political opposition. Moreover, neither
measure is likely to forestall electrical shortages in
the short term, and both could promote additional
meter tampering.
? Publicity campaigns to encourage electricity conser-
vation, especially during dry-season peak hours, are
a viable option, but will probably not shrink demand
enough to close the gap.
? Regulating the timing of brownouts and providing
sufficient warning would ease the disruptions for
many industrial users. MERALCO, however, has
had only limited success with its current warning
system; US businessmen in Manila report that the
warnings are often wrong and that most brownouts
occur unexpectedly.
Luzon's electrical problems may lead to increased
Philippine ties to Moscow. According to the US
Embassy, the Soviets recently offered to construct two
300-MW coal-fired power plants on Luzon, a proposal
endorsed by Manila's Ambassador to Moscow as a
means of strengthening bilateral economic ties. Ac-
cording to the Philippine press, a senior energy official
will travel to the USSR and Austria late this year to
discuss the financing and construction of the
Batangas plant. A late September 1986 press report
claims that a US corporation has offered to finance
the plant.
We believe that Luzon's electrical power problems
will act as a brake on Philippine economic recovery as
existing industries are unable to operate full-time and
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as local and foreign investors hold off new spending
until a stable supply is assured. To the extent that the
economy starts expanding next year, as widely pre-
dicted, pressure on the government to find solutions to
the energy problem could increase dramatically, open-
ing the door to additional Soviet overtures and adding
to the political troubles of the Aquino administration.
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Secret
Soviet Arctic Petroleum:
Moscow's Need for Western
Capabilities
The Soviet Union has high hopes for the petroleum
potential of its Arctic regions-in particular the Ba-
rents and Kara Seas-but Soviet reliance on inade-
quate domestic technology and inferior equipment
would retard oilfield projects in these areas considera-
bly. If the Soviets discover a substantial oilfield in the
offshore Arctic and elect to expedite development,
they would need to import large volumes of equip-
ment. Even with Western equipment, any offshore
production in the Soviet Arctic is unlikely before
1990. Western companies have mastered onshore
petroleum operations in the Arctic and have devel-
oped the equipment and techniques needed to work in
offshore-Arctic conditions. Although Moscow would
probably prefer to keep a large Western presence out
of their Arctic regions, delays in development and the
high risk in Arctic offshore operations could force
Moscow to seek Western management and operation-
al expertise.
Soviet Arctic Development Needs and Options
In the northern reaches of West Siberia, the Soviet
Union has primarily focused on developing gas re-
sources, progressively moving farther north to the
permafrost zone above the Arctic Circle. In recent
years the Soviets have also emphasized exploration
and development of Arctic onshore oil resources, but
production from Arctic fields is less than 50,000 b/d.
The Soviet offshore program is focusing on explora-
tion of the Barents Sea, which we believe has out-
standing potential although no commercial deposits
have yet been confirmed. In addition, the Soviets have
been trying to convince the Japanese to support
development of gas reserves found in the subarctic
fields off Sakhalin Island, but high development costs
and Japan's numerous alternative sources of liquefied
natural gas have stalled negotiations.
The Oil Potential of the Barents Sea
The Barents Sea has the potential to be a major oil
bonanza for the USSR. We conservatively estimate
that recoverable oil resources in the Soviet portion of
the Barents Sea could amount to about 25-30 billion
barrels-about the same as North Sea reserves. In
fact, the aggregate oil potential of the Barents Sea
could match or exceed that of West Siberia. While
geochemical indicators point to large potential re-
serves, we do not have information on the size of the
reservoirs that may exist
The Barents Sea is a harsh area but presents no
insurmountable environmental or technical obstacles
to oil development. Because of the influence of the
Gulf Stream, conditions in the southern part of the
Barents Sea are similar to those in the North Sea.
Conditions in the north' are similar to those in the
Canadian Beaufort Sea, which is currently being
explored by Western firms and will be developed
when economic conditions permit.
Indigenous Soviet offshore Arctic petroleum technol-
ogy is virtually nonexistent. Most of the equipment
and technology used by the Soviets has been either
purchased from the West or reproduced from technol-
ogy supplied from Western firms. The Soviets rely
heavily on Western drilling equipment in current
exploration efforts in the Barents Sea and the area off
Sakhalin Island. Soviet officials have indicated that
exploration drilling is proceeding slowly, largely be-
cause of difficulty in assimilating the advanced tech-
nology.
Secret
DI IEEW 86-039
26 September 1986
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secret
The Arctic Challenge. Development of petroleum resources in the
Arctic poses immense challenges. Ice poses the greatest obstacle to
Arctic Offshore petroleum development. Arctic offshore petroleum
structures must be able to withstand d variety oficeforces
including 'the movement of sea ice, the impact of icebergs on
surface facilities, and seabottom gouging by pressure-ridge-ice
keels. Temperatures as low as -46? C, high, winds, and perma-
frost complicate Arctic onshore operations. Logistic support is
hampered by remoteness of projects. and lack of infrastructure.
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Secret
The USSR probably has enough vessels on hand to
sustain a fairly extensive exploration program without
foreign assistance; we believe the USSR would en-
counter serious delays and problems if it pursues
single-handed development of any oil discovery. In
addition to acquiring the operational expertise to
install offshore Arctic platforms, Moscow would have
to substantially expand its equipment and platform-
fabrication facilities. Because the Soviets would be
starting out near the bottom of the learning curve,
they would require considerable time to develop the
engineering and designs for offshore Arctic equip-
ment. In addition to consuming scarce investment
resources, the indigenous manufacture of Arctic off-
shore equipment would probably impinge on the
availability of onshore equipment, the demand for
which will grow rapidly during 1986-90. Moreover,
the Soviets would need to undertake a major effort to
upgrade their capability to make Arctic-grade steels.
this threshold would be less attractive to the Soviets
than applying enhanced recovery techniques to exist-
ing onshore finds.
Soviet success in developing offshore Arctic petroleum
resources will depend heavily on access to Western
equipment and technology. In our judgment, the most
likely Soviet development strategy would involve huge
equipment purchases from the West including every-
thing from fixed production platforms to drill pipe,
well casing, and production tubing. Because of Soviet
bureaucratic reluctance to relinquish control and mili-
tary sensitivities to foreign presence in these areas, we
judge that the Soviets would prefer to remain the sole
developer and operator. Nonetheless, if prospects for
oil production slipped drastically, Moscow might turn
to the West for management and operating expertise
to avoid further delays and to minimize risks.
Because large-scale reliance on Western equipment
would require several billion dollars of hard currency,
we judge that Moscow would need to discover large
and highly productive fields to justify the outlay. At
the current low market price for crude oil, such fields
would have to have recoverable reserves on the order
of 1 billion barrels of oil and be capable of producing
approximately 200,000 b/d to warrant Arctic offshore
development. Development of offshore projects below
Although Western Arctic equipment is not essential
for Soviet onshore oil and gas development, it would
greatly improve efficiency. We believe that hard
currency constraints will limit the Soviets to selective
purchases of some items-drilling rigs, insulated cas-
ing, all-terrain vehicles, and modularized gas plant
components-with the intent of copying part or all of
the embodied technology. Domestically produced
equipment, although not as good as the Western
equipment, can supplement these imports.
Technology and Equipment Availability
Exploitation of Arctic resources in the West has
occurred primarily on Alaska's North Slope and in
US and Canadian offshore areas of the Beaufort Sea.
US and Canadian companies have drilled in the
Canadian Arctic islands region and in the subarctic
regions of eastern Canada. In Western Europe, Nor-
way has sporadically drilled off its northern Arctic
coast.
US and Canadian firms active in developing North
America's Arctic onshore and offshore petroleum
resources have pioneered the development of the
specialized equipment and technology needed to oper-
ate in the Arctic environment. West European and
Japanese companies also have a major stake in-the
Arctic petroleum equipment market, especially for
offshore operations. Specialized equipment and tech-
nology for Arctic conditions include:
? Onshore
- Modular drilling rigs equipped with enclosed
work areas.
- Downhole drilling and well completion equip-
ment and techniques.
- Transportation equipment to cope with
permafrost.
- Modular construction techniques.
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Secret
Relative Strength of Key Countries Engaged in Arctic Petroleum Operations,
Equipment Manufacturing and Technology, 1986
Q Developing capability 0 Potential capability
Engineering and
Equipment Categories
United
States
Canada
Finland
France
Japan
Norway
United
Kingdom
West
Germany
Arctic onshore
Drilling rigs
0
(5
0
0
0
0
0
0
Specialized transport
0
(5
0
0
0
0
0
0
Drilling/production
0
0
0
0
0
0
0
Construction
0
?
Q
0
0
0
0
Arctic offshore
Drilling rigs
Design
0
%
?
Q
?
0
Construction
0
0
0
0
0
0
Production platforms
Design
0
?
0
?
0
0
0
Construction
0
0
0
0
?
0
0
0
Specialized vessels
0
0
0
?
?
0
0
Operations
?
0
0
0
0
0
0
Technical support
(3
0
0
0
0
0
0
Arctic research facilities
C)
?
?
O
?
0
0
Arctic-grade steel
0
0
?
0
? Offshore
- Drillships, jack-ups, and semisubmersibles re-
inforced against ice.
- Floating and bottom=founded drilling units for
severe ice conditions.
- Artificial gravel islands and stacked caisson-
retained islands.
- Arctic oil production platforms.
- Transportation equipment and techniques in-
cluding subsea storage tanks, subsea pipeline
installation, and icebreaker tankers.
- Specialized vessels for Arctic waters including
supply ships, accommodation vessels, and
heavy lift barges.
Western Business Opportunities
West European and
Asian countries view the USSR as a potential growth
market for their petroleum equipment industries-
particularly for specialized Arctic equipment. Soviet
officials at the high levels have encouraged foreign
suppliers with the prospect of large development
projects such as Sakhalin Island and the Barents Sea.
Western companies are eager to do business with the
Soviets, especially because the current oil industry
depression has reduced world demand for oilfield
equipment.
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Moscow would be able to choose among a number of
Western suppliers. Canadian firms are well positioned
because of their operational experience in the North
American Arctic. Norway, Sweden, and Finland are
all trying to gear up to sell Arctic equipment, particu-
larly for offshore development, and the Soviets have
responded by raising the possibility of collaborative
development of the Barents Sea. Finland has pioneer-
ed the sale of Arctic offshore equipment to the Soviets
and has built its offshore petroleum equipment indus-
try largely on this business. Japanese companies are
expecting large Soviet orders for Arctic-grade pipe
and would be eager to fabricate Arctic offshore
drilling and production platforms for the Soviets.
Despite a lack of Arctic expertise, other countries
with sophisticated petroleum equipment industries
could seek a share of the Soviet Arctic petroleum
equipment market-including France, Italy, Nether-
lands, United Kingdom, and West Germany. In addi-
tion, emerging industrial nations such as Brazil and
South Korea could be in a position to supply the
Soviets with some offshore equipment adaptable for
use in the Arctic.
Although US companies are world leaders in offshore
Arctic development-especially in fields such as con-
ceptual engineering for ice-infested waters and project
management in harsh environments-adequate Arctic
equipment and services are widely available in other
countries. The Soviets remain cautious toward large-
scale petroleum equipment deals with US firms be-
cause of the 1981-82 pipeline equipment embargo and
existing petroleum equipment controls. If equipment
quality is critical and US equipment is clearly superi-
or to other Western equipment, however, Moscow
would probably opt to buy the US equipment. Before
any large-scale deal or joint development project
could be consummated, Moscow would probably de-
mand delivery guarantees or stiff financial penalties
for breach of contract.
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3ecrei
Briefs
OPEC OPEC's marketing committee has sent a sharp reprimand to Venezuela for
Reprimands Venezuela exceeding its 1.6 million b/d quota in September. During July and August-
before the OPEC quota system was reinstituted-Venezuela boosted crude oil
output to about 1.9 million b/d, permitting an increase in stocks of about 200,000
b/d, according to the US Embassy. Although Venezuela reduced crude output to
1.6 million b/d on 1 September, inventory drawdowns have allowed Venezuela to
continue exports of about 1.5 million b/d and to meet domestic demand of about
325,000 b/d. In its reprimand, the marketing committee asserted that the quota
applies to stock drawdowns as well as to current crude production, warning that
Caracas's tactic would result in a saturation of the world oil market and a further
deterioration of prices, if adopted by other OPEC members. Because of its acute
need for foreign exchange earnings, we believe that Venezuela is unlikely to accept
a definition of quota that would reduce its petroleum exports, unless OPEC agrees
to increase Venezuela's quota.
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Increased Pressure Iran probably will face severe difficulty in providing the petroleum products it
on Iran's needs for domestic use in the coming months.
Petroleum System Iraqi air attacks severely damaged five key pipeline pumping
stations supplying oil to refineries at Esfahan, Tehran, and Tabriz. These
refineries supply about two-thirds of Iran's domestic market for refined oil
products. Damage to the pumping stations may have substantially curtailed crude
supplies to all three refineries. Unless the pumps can be repaired quickly or
emergency pump sets found-neither of which is probable-shortages of gasoline,
diesel fuel, and heating oil are likely to become increasingly severe in the coming
months. Operating problems, bad weather, and Iraqi attacks continue to disrupt
Iran's shuttle system for exports. A shortage of crude oil forced Iran to suspend
loading operations at least temporarily at its Larak Island export transshipment
point last week. In addition, Tehran has told customers that shipments from Khark
Island will be impaired for the rest of the month. Other technical problems may be
reducing shipments from Khark, despite a continuing loading capacity of nearly 2
million barrels per day. 25X1
Japanese Japanese gasoline imports have risen sharply following Tokyo's decision early this
Gasoline Imports year to liberalize its oil product import system. During the first seven months of
1986 Japanese gasoline imports averaged 42,000 b/d, or 7 percent of total gasoline
requirements. Singapore, South Korea, and the United States have been the major
suppliers. The United States accounted for about 5,000 b/d, or 14 percent of total
Japanese gasoline imports. Although MITI is reviewing its petroleum product
imports system
concern for domestic refiners will probably lead MITI to avoid allowing
unrestricted product imports.
Secret
DI IEEW 86-039
26 September 1986
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V.
Bank of France's Bank of France Governor Camdessus-whom France has proposed as a replace-
Views on IMF ment for outgoing IMF Director Larosiere-told the US Embassy that he does not
Meeting expect any significant new initiatives to emerge from the IMF/World Bank
annual meetings in Washington this week. Camdessus felt that the primary issue
will be the divergence of opinion between the United States and the other major
industrialized countries on exchange rates, particularly the appropriate level for
the US dollar. He also stated that it may be a good time to nudge West Germany
to make at least a symbolic move toward cutting its interest rates. A realistic
outcome for the meetings, according to Camdessus, may be the projection of a re-
newed public spirit of cooperation in international monetary affairs-particulary
efforts to dampen exchange market volatility-and reinforcing confidence in the
continuing efforts to handle the LDC debt crisis.
Venezuela Last week in New York, Venezuelan debt negotiators outlined to international
Advances Debt bankers the government's plan to amend the February 1986 agreement that
Relief Plan rescheduled $21.2 billion in public-sector debt. the
Venezuelans requested reschedulings of $1.0 billion in principal due in 1987 and
$1.9 billion of the $3.6 billion due over the 1988-90 period, linkage of principal re-
payments to oil revenues and interest rate levels, and reduction in the 1.125-
percentage-point spread over LIBOR specified in the February agreement.
Although not part of the request, Venezuela indicated it would seek $600 million
in new money through a voluntary loan syndication deal with commercial bankers.
Although the proposal contains no major surprises, it was not well received by the
bank advisory committee, Before bankers agree to
amend the February agreement, they are likely to demand that Venezuela resolve
the uncertainty over the repayment of the private-sector debt and pay banks the
$750 million promised in February as a downpayment on the public-sector debt
deal. Bankers also are likely to question the need for interest rate relief and new
money when Venezuela has more than $15 billion in international reserves.
Nigeria
Maneuvering on
IMF Agreement
Secret
26 September 1986
Lagos has signed a letter of intent with the IMF to undertake economic reforms
that could pave the way for a full IMF standby agreement.
IMF agreement in the Ruling Council.
the US Embassy reports that the government is continuing preparations for
its proposed two-tier foreign exchange system and is seeking a $400 million bridge
loan from official creditors to fund its operation. Babangida probably still hopes to
avoid signing or drawing from an IMF standby agreement, but creditors will
continue pressing him to sign. He is likely to gauge political reaction to the two-
tier currency system before deciding whether he can override opposition to the
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Secret
Tunisia-IMF Tunis has signed a letter of intent with the IMF obligating the government to a se-
Reach Agreement ries of stiff economic reforms over the next 15 months. The letter removes the final
obstacle to Fund approval of $250 million in new financing, according to the US
Embassy. The new funds are critical to government efforts to stem the drawdown
of foreign exchange reserves-which cover less than a few days' worth of
imports-and to offset the effects of the drought this spring. Nevertheless, to meet
IMF-supported targets the government will have to curtail domestic consumption,
keep the lid on wages, and trim the budget to the bone. As a result, Prime Minister
Sfar almost certainly will have difficulty maintaining the domestic calm while
adhering to the IMF program. Missed targets or popular unrest, however, will
greatly hinder government efforts to raise additional commercial lending to cover
the still large projected financing gap next year.
Thai Concessions to The Thai Cabinet approved Ministry of Foreign Affairs' recommendations
the United States concerning the US Generalized System of Preferences (GSP). The Cabinet
on GSP approved in principle revisions of the copyright law to extend protection to more
US products, replacement of the existing import licensing system for soybeans and
products with a tariff system within one year, and presentation of a new trademark
bill within six months that would increase infringement penalties and extend
coverage for services trademarks. The Thai Government hopes that making
concessions on these major bilateral trade issues will improve their chances of
retaining US GSP benefits. However, opposition from members of parliament over
alleged US protectionism could delay or block implementation of the changes.
Global and Regional Developments
Venezuela Offers Venezuela has offered to sell oil to Haiti on concessionary terms in response to US
Aid to Haiti requests. According to US Embassy sources, Caracas has also formed a coordinat-
ing committee to provide other emergency assistance. Venezuela apparently
believes that helping President Namphy's government will advance its regional
interests. The shipment of oil and the promise of more aid are calculated to induce
Port-au-Prince to maintain its commitment to democracy and to expand on
25 Secret
26 September 1986
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Secret
Soviet-Afghan
Trade Relations
informal political organizational efforts in Haiti by Venezuela's two major parties.
The price of the oil-to be supplied under the San Jose accords, by which Mexico
and Venezuela provide oil on concessionary terms to countries in the Caribbean
basin-may not offer significant savings compared with current spot market
prices, but Venezuela's support could improve Haiti's standing with other foreign
Union as debt repayment may constrain Kabul's development efforts.
Afghan merchants are facing growing pressure to trade with the Soviet Union,
according to the US Embassy. The merchants complain that this barter trade is
less profitable than their hard currency trade and they have no choice but to
accept poor-quality Soviet products in payment. According to a Kabul business-
man, the Soviets are also delaying the passage of Western-bound goods shipped
through the Soviet Union in an attempt to disrupt Afghanistan's trade with
Western firms. Furthermore, an increasing share of Afghanistan's exports are
being used to finance the regime's mounting debt to the Soviet Union, according to
press reports. A Soviet diplomat recently stated that about 85 percent of Soviet aid
to the regime is now in loans that will eventually have to be repaid. The diversion
of resources-such as natural gas and cement-from domestic use to the Soviet
National Developments
Miyazawa Taking Tokyo's expanded package of economic pump-priming measures, announced last
Charge of Japan's week, marks the growing influence of Finance Minister Miyazaa on economic
Economic Policy policy. At the center of the $23.2 billion package are an expansion in public works
spending and additional government loans for housing. The package is more than
$3 billion larger than the Finance Ministry had originally planned, and it includes
a 5-percent subsidy for large private projects as well as low interest loans to bail
out small firms hurt by the strong yen.
Miyazawa-leader of the second-largest faction in the ruling Liberal Democratic
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Secret
Party-requested the increase in the pump-priming package. He wants to use
government bonds-as opposed to existing revenues-to finance the package in
order to increase the stimulative effect on the economy, according to press reports.
Miyazawa is also recommending abolition of a reserve fund to redeem government
bonds The real
test of Miyazawa's influence will come next month when the government decides
how to finance its package. The lackluster economy will make his bond option
more attractive. Although the use of bonds could raise growth this fiscal year,
which ends in March, by one-half percentage point over current estimates, it would
still be difficult to reach Tokyo's 4 percent growth target.
French Government Prime Minister Chirac and other Cabinet members last week detailed significant
Outlines Electronics changes in electronics policy that are likely to improve opportunities for foreign
Policy suppliers trying to break into the French market. These changes should also make
French electronics firms-many of which are scheduled to be denationalized-
more attractive to foreign investors. True to their campaign promises, the
27 Secret
26 September 1986
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Secret
conservatives are stressing competition in electronics and trying to limit govern-
ment influence in the market. The government rejects central planning for the
entire industry and will no longer insist on an independent French capability in all
aspects of electronics. In particular, France will abandon the practice of designat-
ing "national champion" companies, which in the past have been used as channels
for all government investment in a given product. Furthermore, a number of
government-sponsored electronics agencies-notably several dealing with comput-
ers and software development-are to be abolished. Despite these changes,
government aid to the electronics industry is slated to grow from about $370
million this year to about $390 million in 1987, while becoming increasingly
project-oriented. This continued financial support indicates that, in spite of its free
market rhetoric, Paris does not intend to let key electronics sectors languish.
Lisbon Introduces The Portuguese Government has introduced two tax incentive measures as part of
Investment Incentives its continuing effort to stimulate industrial investment. One allows firms a tax
credit equal to 10 percent of new investment this year, with the rate declining to 4
percent by 1989. The other measure permits retained earnings and reinvested
profits to be deducted from taxable income in the three years following the
completion of the investment. Despite the new incentives, we believe real
investment this year will fall several percentage points short of Lisbon's ambitious
9-percent target because firms have had little time to take advantage of the
August decree law. The new measures' effectiveness also is questionable because
corporate taxes have not traditionally played an important role in investment
decisions. Moreover, business lacks confidence in the staying power of the minority
Cavaco Silva government, and even now there is speculation about a possible
Cabinet crisis and a new election after the budget debate this fall.
New Greek Athens will apparently announce in November a new set of belt-tightening
Austerity Plans measures designed to boost productivity. In his major annual economic address,
Prime Minister Papandreou described the need for new reforms, stating that
wages must be linked to productivity and that unprofitable firms would no longer
be subsidized. The government has already announced the upcoming liquidation of
20 firms that were nationalized under the "ailing enterprises" law, and plans to
privatize the remaining 23 unless they are considered strategically important. The
new measures may also include a 20-percent devaluation and eased rules for the
dismissal of workers. Papandreou is under pressure to substantially reduce
inflation and the public-sector borrowing requirement in order to receive the
second part of an EC balance-of-payments loan. He hopes that these measures will
bring Greece into line with these terms, or at least send the right signals to the EC.
While the new policies probably will boost unemployment from 8.5 to 10 percent,
Papandreou appears determined to stick with austerity despite political costs,
including possible losses in the October municipal elections.
Secret 28
26 September 1986
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Secret
Swedish Wage Most Swedish public-sector unions and firms last week rejected the final 1986-87
Proposal Rejected wage proposal of the state-appointed mediating commission despite a discount rate
cut timed to appease labor. The unions want a larger raise for lower paid workers,
while management-backed by the Carlsson government-regards the proposal as
inflationary. With both sides firm in their positions, increased labor unrest in both
the public and private sectors is likely to result. Workers believe that the increased
business profits and tighter fiscal policy of recent years have come at the expense
of higher wage increases. The government, however, believes that giving in to the
public-sector unions would cause the private-sector unions to boost their own wage
demands in renegotiations that may occur in early 1987. Because additional wage
increases in either the public or the private sector would hinder government efforts
to boost Sweden's sagging competitiveness by containing labor costs and reducing
inflation-which is over twice the rate of Sweden's main competitor countries-
the government side was willing to risk potential strikes to demonstrate its
commitment to these objectives. The discount rate cut may, however, add to
Stockholm's problems. Following the already strong growth in credit and private
consumption of recent months, it probably will prevent inflation from falling much
below the current 3.6-percent rate. This could further boost wages because the
agreements with private-sector unions earlier this year enable them to hold the
new talks if inflation exceeds 3.2 percent.
Mexico Makes The de la Madrid administration recently allowed several foreign-owned firms to
Token Foreign establish 100-percent ownership of their Mexican operations
Investment Reform Although this circumvents foreign investment laws requiring
majority Mexican ownership, it probably does not signal a permanent shift in
Mexican foreign investment practices. In our view, Mexican officials probably
believe this would demonstrate to the IMF and commercial creditors their
willingness to liberalize foreign investment. The administration in 1984 made
similar moves to attract foreign investment, none of which resulted in significant
improvements. Like those actions, the current initiative does not involve modifica-
tions to investment laws and is unlikely to encourage potential investors. In
addition, high inflation, this year's recession, and uncertainty over next year's
economic performance will continue to make the Mexican investment climate
unattractive.
Brazil's President Sarney was irritated by remarks of senior US officials during his visit
Reaction to US urging Brazil to accept increased imports and surprised by the "hardness" of US
Economic Stance economic position As a result, he took a
harder public line on these issues than he had planned. Nevertheless, Sarney still
wants to resolve the dispute with the United States over protection of Brazil's
computer industry Although Sarney wants to settle the
dispute before Brazil's congressional election in November, he will be reluctant to
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26 September 1986
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Jordan's Arab
Aid Cutback
make further major concessions, fearing a voter backlash. To avoid being labeled a
weak president, he might react to any new US trade sanctions by taking a harder
line with creditors, restricting US agricultural imports, or finding new suppliers for
imported computer components. These actions would ease the political repercus-
sions, but they would also strengthen hardline protectionists in the long run.
Emirates-to curtail assistance to Jordan.
Reduced Arab aid will seriously strain Amman's ability to meet its foreign
exchange obligations. The US Embassy in Amman reports that payments under
the Baghdad Pact and other assistance are likely to reach only $436 million in
1986-a 35-percent drop from last year's level. So far, only Saudi Arabia, which is
honoring its Baghdad commitments, and Oman are providing aid. Riyadh,
however, has turned down Jordan's requests for additional financial assistance for
military purchases and West Bank development projects. Arab aid accounts for
about .three-fourths of Jordan's foreign assistance and is Amman's most important
source of foreign exchange after worker remittances. Jordan will have to cut
imports and further draw down its foreign exchange reserves, which at about $376
million are now the equivalent of only two months' imports. Declining oil revenues
have forced the other major Arab donors-Kuwait, Qatar, and United Arab
Kenya's President Moi recently placed two Kenyan-owned banks under receivership. To
Banking Crisis prevent a run on the financial system, however, and possibly to avoid escalating
tensions with the economically dominant Kikuyu tribe, he has apparently decided
not to close additional banks-at least for now. Several Kenyan banks, protected
from Central Bank oversight by their politically influential owners, have been in
trouble since 1984 because of management incompetence, corruption, and under-
capitalization. The US Embassy reports that a number of financial institutions
would be closed if Kenya's banking laws were rigidly enforced. Moi has appointed
a special committee to recover depositors' money and has ordered the Central
Bank to accelerate implementation of last year's Banking Act amendments.
Nonetheless, government assistance will probably be needed to keep some banks
open. Despite the President's intervention, worried customers are shifting funds to
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Secret
more conservative and better managed banks, some owned by foreigners. These
developments probably will set back Moi's efforts to increase local participation in
the country's economy.
Malaysian Economy The Malaysian Central Bank has quietly let it be known that real GDP actually
Shrank in 1985 fell by 1 percent last year-the first full-year decline-instead of growing nearly 3
percent as it had announced in March. Although the economy has been in a slump
for over a year because of depressed prices for its commodity exports, the timing of
the release will probably produce widespread criticism that Prime Minister
Mahathir withheld the bad news until after the August national election. The
unexpected revision in the growth rate will almost certainly force Kuala Lumpur
to revise its revenue estimates downward, and we expect that the budget to be an-
nounced in October will probably contain larger spending cuts than those
anticipated by domestic observers. The Bank's revised growth figures, in our
judgment, will also bolster speculation about possible currency devaluation to
boost exports and investment and to spur economic growth-which the Bank
forecasts at only 1 percent this year.
Soviet Industrial Soviet industry performed respectably for the first eight months of 1986, but
Growth Good, but growth for the year is likely to fall a little short of plan. Industrial production
Short of Plan through August-as estimated from Soviet statistics-increased by roughly 4.5
percent over the same period in1985. Production of machinery-important to
General Secretary Gorbachev's modernization program-grew at approximately
the same rate. In August, for the first time since 1980, oil liftings met a monthly
target. Industrial growth continues to slow gradually. Output in the first four
months of this year was about 6 percent higher than the unusually poor
performance registered in the same period of 1985, but the rate of increase in the
next four months was roughly 3 percent. Production of machinery so far this year
falls well short of Gorbachev's ambitious plans. Producers of machine tools and
chemical equipment, in particular, are under heavy pressure to deliver on schedule.
The manufacture of equipment for the oil industry and agriculture has increased
rapidly, however, helping those sectors raise current production.
Yugoslav Premier Mikulic has postponed new economic reforms scheduled to be implement-
Premier Delays ed this month because he was not able to achieve a consensus among Yugoslavia's
Economic Program regions, according to a source of the US Embassy. Mikulic had warned that some
measures-raising interest rates and closing chronically unprofitable firms-
would be unpopular and provoke interregional debate. According to the source, the
proposals, which the government still hopes to implement by yearend, may require
significant changes in Yugoslavia's system of worker self-management and
possibly the Constitution itself. The government's failure to build a consensus
among the regions has already weakened the initial phases of its economic
adjustment program. Chances for major reforms now appear slim. The regions
almost certainly will block meaningful changes to the Constitution and obstruct
modifications to the self-management system. Public disputes over the new
measures will increase as their contents become known.
Secret
26 September 1986
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Secret
Financing China's China is increasing its gold sales and commercial borrowing in an attempt to offset
Modernization Program its trade imbalance and finance its economic modernization program. China has
already sold more than $1 billion worth of gold in international markets this
year-10 times its sales for all of 1985. The Bank of China reportedly has decided
to export gold bullion to help pay for the capital imports China needs for its
modernization program and to partially compensate for the revenue lost because of
lower world oil prices. Chinese press reports indicate that Beijing also is increasing
its commercial borrowing and has signed loan agreements for $2.5 billion during
the first half of the year-twice the amount borrowed during the same period in
1985.
China also is trying to improve its trade balance by increasing exports
and reducing imports of automobiles, consumer goods, and some raw materials.
Nonetheless, Chinese customs statistics through August indicate the trade deficit
this year will probably approach $9 billion. Even if oil prices recover, trade
imbalances will persist because Western quotas are limiting export growth in other
important sectors-such as textiles-and because China's demand for imported
capital goods remains strong. Although China may continue to sell large quantities
of gold over the next few months, Beijing will probably need to increase gold
mining efforts to avoid drawing down its gold reserves much more. The press
reported those reserves were about $4 billion in December 1985. Increased
borrowing abroad may lead Beijing to restructure its external debt, now heavily
weighted toward short-term commercial credits.
China Pushing Chinese officials, alarmed at a continuing slowdown in applications of agricultural
Agricultural chemicals, are engaging in a low-key publicity campaign to encourage use of
Chemical Use fertilizers, insecticides, and herbicides. According to People's Daily, weeds alone
have cost China 17 million metric tons yearly in lost grain production.
China's imports of insecticides and
herbicides-which we estimate peaked at $240 million in 1983-slipped to $230
million in 1984 and plummeted to only $30 million in 1985. Reform measures that
have made farmers responsible for their own profitability underlies the decline in
usage of agricultural chemicals; they are simply reluctant to spend the money. If
government efforts convince farmers of the benefits of using such chemicals,
however, rising consumption would stimulate imports and reopen a market for US
and other Western products.
Vietnam
Fails To Halt Vietnam's economy is not responding to the price, wage, and management reforms
Currecny Slide introduced over the past year. Despite a nationwide self-criticism program aimed
at correcting deficiencies in implementing the reforms, continuing shortages of
goods and soaring inflation reflect a loss of public confidence in the leadership.
Symptomatic of the loss of confidence, the black-market rate for Vietnam's
currency has slumped to 325 dong per dollar since the regime pegged the official
rate at 15 dong in September 1985. Rumors that a ship had unloaded a cargo of
newly printed currency have sparked expectations of another devaluation and
further inflationary pressure.
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26 September 1986
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Secret
Secret
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Directorate of
Intelligence
Economic & Energy
Indicators
DI EEl 86-020
26 September 1986
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
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
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liaison channels from the Central Intelligence Agency.
Requesters outside the US Government may obtain subscriptions to
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or: National Technical Information Service
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Comments and queries on this paper may be directed to the DOCEX
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
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
Big Seven: Inland Oil Consumption
Big Seven: Crude Oil Imports
Crude Oil Prices
8
9
9
10
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Industrial Production
1983
1984
1985
1986
1st Qtr
2nd Qtr Jun Jul
United States
2.6
-7.2
5.9
11.2
2.0
1.2
-2.1 0 3.9
an
J
1.0
0.4
3.5
11.1
4.6
0.7
0.9 4.0 -3.8
ap
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
d
Gross National Product
Percent change from previous perio
seasonally adjusted at an annual rate
1981
1982
1983
1984
1985
Year
3rd Qtr
4th Qtr 1st Qtr 2nd Qtr
2.7 4.1 2.1 3.8 0.6
4.5 2.7 5.8 -2.1 3.6
1981 1982 1983 1984 1985 1986
West Germany 6.0 5.3
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr 2nd Qtr Jul Aug
1.8 2.3 2.0 0 -0.8
Percent changefrom previous period
seasonally adjusted at an annual rate
4.0 4.7 3.0 7.9 5.4
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Money Supply, M-1 a
Percent change from previous period
seasonally adjusted at an annual rate
9
1
81
1982
1983
1984
1985
1986
Ist Qtr
2nd Qtr
Jun
Jul
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
7.7
9.4
7.5
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 1
1
.
.2 1
1.6
15.1
12.3
13.7
8.6
Canada
3
8
.
0.7
10.2
3.2
4.1
-13.4
-1.9
28.7
41.6
a Based on amounts in national currency units.
b Including M1-A and M1-B.
Unemployment Rate a
Aug
22.9
13.0
27.3
-3.3
198
1 1982 1983 1984
1985
1986
1st Qtr
2nd Qtr
Jun
Jul
Au
7
g
.5 9.6 9.4 7.4
7.1
7.0
7.1
7.
66
8
6
7
Japan 2
2
.
.
.
2.4 2.7 2.7
2.6
2.6
2.8
2.7
2.9
West Germany 5.6 7.7 9.2 9.1
9.3
10.2
8.6
8.4
8.6
8
5
France 7.6 8.4 8.6 9.7
10.0
9.8
10.1
10.2
10.2
.
10
3
United Kingdom 10.0 11.6 10.7 11.1
11.3
11.5
11.6
11.7
11.7
.
11
7
8.4 9.1 9.9 10.4
10.7
11.5
.
7.5 11.1 11.9 11.3
10.5
9.7
9.6
9.5
9.9
9.7
I Prior to May 1986
unem
lo
m
t
t
f
,
p
y
en
ra
es
or France were estimated.
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Foreign Trade a
1981
1982
1983
1984
1985
1986
1st Qtr
2nd Qtr
May
Jun
Jul
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
Balance
-27.5
-31.6
-57.4
-108.1
-132.0
Japan
7
9
7
47
51
3
17.6
16.9
17.7
orts
E
149.6
138.2
145.4
168.1
1
3.
.
.
8
9
xp
rts
I
129
5
119.6
114.0
124.1
118.0
29.9
29.0
9.2
10.1
.
7
9
mpo
Balance
.
20.1
18.6
31.4
44.0
55.9
17.8
22.3
8.4
6.9
.
West Germany
184
2
1
55
9
60
17.6
21.4
21.2
orts 175.4
E
176.4
169.5
171.9
.
.
.
0
0
16
xp
orts c 163.4
I
155.3
152.9
153.1
158.9
45.0
47.6
14.4
16.
4
.
3
5
mp
Balance 11.9
21.1
16.6
18.8
25.3
10.1
13.3
3.2
5.
.
France
9
101
4
30
8
29
9.7
10.1
10.8
3
106
t
E
96.4
95.1
97.5
.
.
.
10
6
.
xpor
s
6
115
110.5
101.0
100.3
104.5
30.3
30.9
10.0
10.3
.
2
.
Imports
Balance -9.3
-14.0
-5.9
-2.8
-2.6
0.1
-1.1
-0.3
-0.2
0.
United Kingdom
8
9
8
8
0
9
102
5
97.1
92.0
93.7
100.9
26.2
26.8
.
.
.
9
9
.
Exports
94
6
93.1
93.3
99.4
103.5
28.4
29.2
10.0
9.7
.
9
.
Imports
Balance 7.9
4.0
-1.3
-5.7
-2.6
-2.1
-2.4
-1.1
-0.9
-0.
Italy
24
5
1
8
2
8
8.6
4
rts 75
E
73.9
72.8
73.4
78.8
23.3
.
.
.
9
0
.
xpo
91
2
t
I
86.7
80.6
84.4
90.8
26.3
24.3
8.0
8.1
.
4
0
.
mpor
s
Balance -15.9
-12.8
-7.9
-10.9
-12.0
-2.9
0.2
0.1
0.1
.
-
Canada
9
21
3
21
7
2
6.7
7.0
orts 70.5
E
68.5
73.7
86.5
88.0
.
.
.
4
6
2
7
xp
4
rts 64
I
54.1
59.3
70.6
75.7
20.3
19.2
6.4
.
.
2
0
.
mpo
Balance 6.1
14.4
14.4
15.9
12.3
1.6
2.1
0.7
0.3
.
-
Seasonally adjusted.
b Imports are customs values.
c imports are c.i.f.
Current Account Balance a
1st Qtr 2nd Qtr May Jun Jul
West Germany -6.8 3.3
-117.7 -34.0 -34.7
49.2 12.7 23.2 7.7 7.6 8.0
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
Export Prices in US $
Percent change from previous period
at an annual rate
1981
1982
1983
1984
1985
1986
United States
9.2
1.5
1.0
1.4
-0.7
-0.5
1.5
9.2
7
8
Japan
.
5.5
-6.4
-2.4
0.2
-0.6
26.1
24.9
-3.5
43
8
West German
'
.
y
-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
United Kingdom
NA
NA
-6.2
-5.1
2.3
-2.6
7.2
-1.7
-15
8
Italy
.
-7.8
-3.0
-4.4
-5.2
-0.3
26.1
6.4
-14
9
Canada
.
3.9
-2.0
0.2
-0.4
-3.5
-16.3
6.0
11.1
-30.7
Import Prices in US $
Percent change from previous period
at an annual rate
-4.3
-5.3
West German
8
y
-
.6
-4.7
-5.2
-4.8
-1.5
9.8
-11.6
-24
1
6
7
France
.
.
-7.8
-7.2
-7.0
-3.8
-0.3
10.3
United Kin
dom
g
NA
NA
-5.7
-4.5
0.5
-0.5
2.4
-18
2
-8
2
Italy
0
.
.
1.
-5.3
-6.6
-3.7
-1.0
10.9
-20.6
-11
6
Canada
8
.
.7
-1.1
0.6
1.0
-2.1
- 9.1
3.8
-21.3
14.4
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
Exchange Rate Trends
Percent change from previous period
at an annual rate
1981
1982 1983 1984 1985
1986
1st Qtr 2nd Qtr May
Jun
Jul
Aug
10.5
10.6
5.8 9.1 6.3
-17.8
-11.3
-13.7
21.7
-17.2
9.3
-5.7
10.4 6.2 6.8
26.8
42.4
81.8
18.4
113.6
-2.1
7.0
5.8 1.0 1.7
8.5
6.0
11.3
6.5
17.0
-5.1
-6.1
-4.7 -2.1 2.7
5.8
-10.4
-3.1
7.4
2.2
2.5
-2.1
-5.0 -2.5 2.0
-26.0
9.5
11.8
3.7
-21.5
-9.2
-5.1
-1.6 -3.1 -3.8
5.5
5.2
9.3
11.7
15.1
0.3
0.2
2.3 -2.3 -3.6
-13.1
1.7
6.2
- 7.6
2.9
Dollar Cost of Foreign Currency
an 2.7
Ja
-12.9
4.6 0 -0.3
32.2
33.5
42.8
-2.2
48.3
27.5
p
West Germany
-24.6
-7.2
-5.2 -11.5 -3.3
31.3
17.1
19.5
-1.0
35.5
40.0
France
-28.7
-20.8
-15.9 -14.7 -2.7
29.7
4.4
15.7
-2.8
27.7
28.1
United Kingdom
-13.2
-13.4
-13.3 -11.9 -3.0
1.7
20.8
19.3
-7.7
-2.0
-16.7
Italy
-32.8
-18.8
-12.3 -15.6 -8.6
30.1
14.5
18.8
-2.0
35.2
37.9
Canada
-2.5
-2.9
0.1 -5.1 -5.4
-6.9
5.7
6.4
-13.1
6.8
-0.9
Money Market Rates
1981
1982
1983 1984
1985
1986
1st Qtr
2nd Qtr
Apr
May
Jun
United States
90-day certificates of
secondary market
osit
de
16.24
12.49
9.23 10.56
8.16
7.68
6.77
6.67
6.75
6.88
,
p
Japan
loans and discounts
(2 months)
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
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798ROO0400180004-7
1st Qtr
2nd Qtr Jul
Aug
Bananas
Fresh imported,
(Total world, $ per metric ton)
214.0
217.0
232.0
243.0
110.3
109.8
108.5 108.9
NA
Beef (Q per pound)
Australia
(Boneless beef,
f.o.b. US Ports)
112.4
107.4
111.1
101.0
96.6
97.6
91.3 90.0
91.5
United States
(Wholesale steer beef,
midwest markets)
100.0
101.4
97.6
100.9
90.7
87.8
84.4 89.6
90.3
Cocoa (?
er
ound)
p
p
89.8
74.3
92.1
106.2
98.7
95.7
82.6 87.6
89
1
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.)
72.69
74.48
85.71
63.91
57.87
53.60
45.51 36.35
37.03
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
571
445
502
730
501
289
241 221
195
Rice ($ per metric ton)
US (No. 2, milled,
4% c.i.f. Rotterdam)
632
481
514
514
484
453
352 288
NA
Thai SWR
(100% grade B
c.i.f. Rotterdam)
573
362
339
310
249
236
224 230
NA
Soybeans
(US #2 yellow,
c.i.f. Rotterdam, $ per metric ton)
288
244
282
283
225
218
213 203
198
Soybean Oil
(Dutch, f.o.b. ex-mill,
$ per metric ton)
507
447
527
727
571
407
348 336
273
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
252
219
238
197
157
188
184 183
185
Sugar
(World raw cane, f.o.b.
Caribbean Ports, spot prices Q per pound)
16.93
8.42
8.49
5.18
4.04
5.83
7.45 5.58
5.50
Tea
Average Auction (London)
(? per pound)
91.0
89.9
105.2
156.6
90.0
86.4
85.6 79.8
86.5
Wheat
(US #2. DNS
c.i.f. Rotterdam, $ per metric ton)
210
187
183
182
169
172
158 129
124
Food Index e (1980=100)
88
78
86
92
81
95
94 83
81
The food index is compiled by The Economist for 14 food commodities which enter international trade. Commodities are weighted by 3-
year moving averages of imports into industrialized countries.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
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
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
LME Cash
Platinum ($ per troy ounce)
Major producer
475.0
475.0
475.0
475.0
475.0
475.0
475.0
475.0
475.0
Metals week,
New York dealers' price
446.0
326.7
422.6
358.2
291.0
383.1
420.1
438.0
495.7
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
71.8
75.0
Tin a (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)
Lumber Index a
(1980=100)
95 84
Industrial Materials Index r
85 71
(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.
c Quoted on New York market.
d Average of No. 1 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.
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.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
World Crude Oil Production
Excluding Natural Gas Liquids
1981
1982
1983
1984
1985a
1986a
1st Qtr
May
June
July
World
55,837
53,092
52,625
53,674
52,931
54,039
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
2,196
Norway
501
518
614
700
785
856
826
848
Other
717
736
915
921
1,022
1,077
927
915
Non-OPEC LDCs
6,036
6,633
6,823
7,515
7,845
7,556
7,998
7,964
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
753
Other
3,117
3,222
3,468
3,942
4,238
4,422
4,626
4,664
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 Zone c
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
14,281
USSR
11,800
11,830
11,864
11,728
11,350
11,350
China
2,024
2,042
2,121
2,280
2,496
2,506
2,557
2,557
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.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
Big Seven: Inland Oil Consumption
1981 1982
1983
1984
1985
1986
Jan
Feb
Mar
Apr
May
June Jul
743
15
852
15
309
998 16
15
16,058 15,296
15,184
15,708
15,726
15,923
16,056
16,188
,
,
,
,
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
427
1
330
1
United Kingdom 1,325 1,345
1,290
1,624
1,402
1,286
1,483
1,447
,
,
b 1,705 1,618
Ital
1,594
1,513
1,516
1,718
1,855
1,535
1,495
1,345
1,506
y
Canada 1,617 1,454
1,354
1,348
1,259
1,261
1,280
1,109
1,239
1,325
a Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports
1981 1982
1983
1984
1985
1986
Jan
Feb
Mar
Apr
May
June Jul
United States 4,406 3,488
3,329
3,426
3,201
3,329
2,993
3,000
3,701
3,872
4,675 4,291
an 3,919 3,657
Ja
3,567
3,664
3,377
3,126
4,273
3,673
3,469
2,756
2,798
p
West Germany 1,591 1,451
1,307
1,335
1,284
1,321
1,253
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
1,454
dom 736 565
ited Kin
U
456
482
523
493
445
494
610
767
442
g
n
1,816 1,710
1,532
1,507
1,462
521 334
247
244
283
353
424
260
185
276
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798ROO0400180004-7
US $ per barrel
1980
1981
1982
1983
1984
1985
1986
OPEC Average a
(Official Sales Price)
30.87
34.50
33.63
29.31
28.70
28.14
World Average Price
NA
NA
NA
NA
NA
27.16
20.55
13.65
11.42
12.33
a F.o.b. prices set by the government for direct sales and, in most cases, for the producing company buy-back oil. Weighted by the volume
of production.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
Average Crude Oil Sales Price"
US S per barrel
The 1973 price is derived from posted prices, 1974-84 prices are derived
from OPEC official sales prices, and beginning in 1985, prices are a
measure of average world sales prices.
STAT
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7
Declassified in Part - Sanitized Copy Approved for Release 2012/01/09: CIA-RDP88-00798R000400180004-7