INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97-00771R000707140001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 26
• Document Creation Date: December 22, 2016
• Document Release Date: September 21, 2010
• Sequence Number: 1
• Publication Date: August 24, 1984
• Content Type: REPORT

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Directorate of
Intelligence
sreftt- 25X1
Weekly
International
Economic & Energy
DI IEEW 84-034
24 August 1984
Copy 6 7 2
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21 Financially Troubled LDCs: Growing Labor Protests
International
Economic & Ener y
Weekly
24 August 1984
Synopsis
Energy _
International Finance
Global and Regional Developments
National Developments
Poland: Implications of IMF Membership
jalernational Financial Situa
directed to Directorate of Intelligence
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tion: Few Export Programs Introduced
Comments and queries regarding this publication are welcome. They may be
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International
Economic & Energy
Weekly
Synopsis
Poland: Implications of IMF Membership 25X1
Warsaw's recent amnesty for political prisoners may revive Poland's applica-
tion to join the IMF. IMF membership could facilitate dealing with Poland's
massive foreign debt, but we believe Warsaw will continue to resist needed
economic policy changes.
Financially Troubled LDCs: Growing Labor Protests) 25X1
Several financially troubled LDC debtors are facing increased labor agitation
as real wages and employment continue to be hit by inflation, recession, and
austerity measures. LDC debtors may have to ease austerity programs to settle
labor disputes, which could lead to greater arrearages on debt payments and
more difficulty in obtaining new loans.
23 International Financial Situation: Few Export Programs Introduced
Few LDC debtors have implemented major tax and subsidy programs to
promote exports since mid-1982. Instead, most have relied on devaluation and
the OECD recovery to boost foreign sales
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International
Economic & Energy
Weekly
24 August 1984
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DI IEEW 84-034
24 August 1984
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Energy
EC Hike in EC-Saudi relations have been strained recently by the EC's imposition of trade
Petrochemical Tariff barriers against imports of Saudi petrochemicals. Under its Generalized
Angers Saudis System of Preferences (GSP), the EC provides duty-free access up to a
specified ceiling for Saudi-produced methanol imports. In the first half of
1984, EC imports from Saudi Arabia exceeded the limitations by more than
eight times. No duties were applied to the excess imports, however, until late
June when, in response to industry pressure, the EC began levying a 13.5-
percent tariff against excess methanol imports from Saudi Arabia. Riyadh is
pressing the EC to remove or reduce the tariff.
This trade dispute could intensify. New Saudi production capacity for
methanol, fertilizers, and plastics will come onstream soon, posing a stiff
challenge to higher cost EC producers. While the EC petrochemical industry
probably will call for additional trade barriers, Riyadh has warned that any
discrimination against its petrochemicals could result in the government's
linking the level of oil exports to EC petrochemical imports-the Saudis
account for nearly 15 percent of EC oil imports. Such a retaliatory threat is
not ominous now, however, because of the soft oil market. Nonetheless, the EC
Commission is uncertain how to respond to the Saudis because of the
Community's oil dependence, and Commission GSP experts will meet next
month to discuss the issue.
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Oil Platform Fires August apparently caused no serious damage to production equipment but led
I to the deaths of at least 36 workers and left 25 missing. Drilling and
production operations at this important installation are to be halted only 15 to
20 days. The production director of Petrobras told a US Embassy officer that
the fires were confined to the drilling tower and were quickly extinguished.
Most of the deaths were from drowning when a lifeboat being lowered from
the platform broke loose, throwing the men into heavy seas. Petrobras plans to
draw on its crude oil stockpile to cover the temporary. 40,000-b/d reduction in
production. Before the shutdown of the platform, Brazil was producing about
510,000 b/d-half from the Campos Basin-with consumption running about
910,000 b/d.
Bolivian Oil-Sector
Difficulties
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24 August 1984
unlikely.
Bolivian relations with foreign oil companies suffered last week when oil
workers took over Occidental Petroleum's oilfields and threatened to stop
production unless their demands are met for a 130-percent wage hike and
payroll inspection rights. Workers are occupying the oilfields, but production
remains at normal levels. This job action follows a July strike by oil workers
and other labor pressures that caused the government to reduce the price paid
to Occidental for oil consumed in Bolivia from $29 to $11 per barrel.
According to US Embassy estimates, the July oil-price reduction will cut
Occidental's monthly revenues by $1.4 million. Because Occidental accounts
for 30 percent of total crude oil production, La Paz is working hard to
persuade labor moderates that it is in the national interest to reach an
agreement and avoid an Occidental pullout. Moreover, unless La Paz amends
its domestic oil-pricing structure, additional foreign oil-sector investment is
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Japanese Coyl Imports Coal imports by Japan-the world's largest coal importer-were up 22 percent
in first half 1984 compared with year-earlier levels. Increased purchases of
coking coal by steel mills accounted for most of the increase. Canadian coking
coal registered the largest gain as new mines in British Columbia and
Alberta-with Japanese equity investment-stepped up production. Although
Japanese purchases of US coking coal were up by 1 million metric tons, part of
the increase stemmed from Japanese efforts to take a large portion of annually
contracted volumes before the end of September, when the United Mine
Workers contract expires. As for steam coal, Japanese imports rose nearly 18
percent in the first half of 1984, with Australia and the Soviet Union
accounting for most of the increase. Japanese purchases of US steam coal were
down 50 percent.
Japan: Coal Imports
Million Metric Tons Average Price
June 1984
First Half First Half (US$ per metric ton)
1983 1984
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Indja'Seeks More ADB India, a first-time borrower from the Asian Development Bank, is seeking a
high credit limit as its share of World Bank concessional funds declines. New
Delhi would like to borrow over $1 billion to finance a fertilizer plant, rural
electrification, and industrial development projects according to press and US
Embassy reports. India believes it must secure long-term, low-interest ADB
financing because it wants to avoid foreign payments problems that New Delhi
believes could occur later in the decade. Most industrial nation members and
ADB officials support a credit limit for India of up to $1 billion; other nations
that borrow from the ADB would prefer $300-500 million, according to US
Embassy reports. The United States has proposed a $200 million limit. With a
recent drop in loan demand from traditional ADB borrowers, we expect India
to intensify efforts to secure a high borrowing limit. New Delhi views the US
proposal as parsimonious and believes it is part of a US attempt to punish
India for its international political stance.
A tralia Increases
flultilateral Aid to
Vietnam
humanitarian aid to Vietnam.
Canberra this week announced a substantial increase in its economic assis-
tance to Vietnam through multilateral agencies. Australia suspended bilateral
economic aid to Hanoi in January 1979 in response to the Vietnamese invasion
of Kampuchea and has since provided only small amounts of assistance
through UN agencies. The Labor government's 1984/85 budget, however,
includes a $1.5 million contribution to the UN-sponsored Interim Mekong
Committee for a Vietnamese fishery project, $640,000 to the UN Develop-
ment Program for an English language training program for Vietnam and
Laos, and $2.2 million to UNICEF for unspecified Indochina projects.
According to the US Embassy in Canberra, this is the first time in recent years
Australia has specifically earmarked contributions to UN agencies for non-
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Canadian Grain Severe drought in the western provinces has caused extensive damage to
E ports Threatened Canada's grain crop and is likely to curtail the country's export capabilities.
According to the US Department of Agriculture, Canadian grain production
this year is currently forecast at 41.8 million metric tons (mmt), 13 percent be-
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1983 l
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widespread damage, and output is projected at only 20.2 mmt compared with
26.9 mmt last year. Barley production is also expected to be down.
The Canadian Wheat Board (CWB) does not anticipate any difficulties
meeting its long-term wheat export commitments
Canada's total long-term commit-
ments-covering an estimated 14 mmt of wheat and barley-accounted for 60
percent of Canada's exports of those grains in 1983/84, but will take about 80
percent of the supplies available for export this year. As a result, the CWB ex-
pects to have problems supplying its traditional markets not covered by long-
term agreements-such as Japan and the United Kingdom-or meet demands
for additional grain.
been greatly reduced by aggressive grain marketing in recent years.
The CWB has only limited
flexibility to use its grain stores to offset production losses, because stocks have
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Morocco-Libya
on Accord
Morocco's announcement last week of a political union with Libya is in part an
attempt to gain additional financial aid from Tripoli.
Rabat may calculate that stronger ties with Tripoli will not endanger US aid
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Mozambique-South
Africa Transport
Ac rd Signed
L
flows. Despite Rabat's expressed interest in maintaining warm relations with
Washington, however, Morocco could face a sharp reduction in US aid if US
sanctions against Libya are determined to apply to both members of the union.
shipped through Maputo fell to 1.1 million tons annually.
Mozambique and South Africa have signed a transport agreement intended to
restore Maputo as a major port for South Africa's industrial heartland. The
agreement represents one of the first significant economic benefits for
Mozambique of the security pact signed.with South Africa last March.
Pretoria will extend $6 million in credit to refurbish the port and rail facilities.
Before Mozambique's independence in 1975, Maputo handled 6 million metric
tons of South African goods per year, thus ranking third after the South
African ports of Durban and Port Elizabeth. Deteriorating relations after
independence led Pretoria to expand the Durban port facilities and to
modernize the port at Richard's Bay; the tonnage of South African goods
Thai Purchase of-US The Thai budget bureau agreed in principle last week to a $32 million
Tanks Faces Problems purchase of 40 US-made M-48 tanks, but funding problems and political
the tanks-part of a program to modernize the Thai military-during Prime
Minister Prem's visit to Washington in April, but Bangkok has not met the
$25 million initial deposit requirement.
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24 August 1984
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Japanese-Cuban Trade Cuba recently has achieved minor successes in its commercial dealings with
Japan, but trade between the two nations is likely to remain small until sugar
prices rise.
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The US Embassy in Tokyo does not foresee any major expansion of Japanese-
Cuban trade in the near term.
National Developments
Developed Countries
More Bad Economic The Central Bureau of Statistics announced last week that the Consumer
News in Israel Price Index increased 12.4 percent in July. This is a record July rate and
marks the 10th consecutive month in which the rise in the CPI set a monthly
record. Most observers believe the coming monthly increases will be even
higher. The annual rate of inflation for the first seven months of the year,now
stands at about 380 percent.
Unemployment for the second quarter reached 5.9 percent. This is the highest
rate in three years and is 1 percentage point more than the same period a year
earlier. The Histadrut, Israel's large trade union organization, has expressed
concern that recent measures taken by the caretaker government to freeze
government hiring and withhold funds on existing contracts will further
increase unemployment.
Finally, the Bank of Israel has acknowledged that its foreign-currency crisis is
more serious than previously reported. The reported decline in foreign
exchange reserves of $350 million in July would have approached $700 million
except for a change in accounting methods last month. One reason for the
decline was the repayment of maturing long-term loans from the United
States, but the drop was also caused by the public's heavy demand for dollars
and the election eve expectations of a devaluation. According to press reports,
Israel intends to ask the United States Government for increased economic aid
because of the decline in foreign exchange reserves.
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Australian Election
B dget
Fre ch Finance
nisters Views on the
conomy
Pakistan Faces
Declining Remittances
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increases resulting from Australia's strong recovery.
Canberra's FY 1984/85 budget, released to the press on Tuesday, contains
new expenditures and revenue measures to spur' economic growth and to help
important interest groups. The budget should smooth the way for Prime
Minister Hawke's Labor Party to hold early elections either late this year or
early in 1985. The business community is courted with tax incentives to
encourage investment. Canberra also has sought to pacify organized labor-
the linchpin of Hawke's wage-price accord-with across-the-board increases in
social benefits and with tax cuts aimed primarily at middle- and low-income
earners. Despite an increase of 13 percent in total expenditures, the budget
deficit is projected to fall by A$1.2 billion from last year because of revenue
Pierre Beregovoy, in his first interview as Finance Minister, stated that his
goal is to maintain workers' purchasing power and increase economic growth
through improved productivity rather than expansionary policies. The inter-
view coincided with the announcement that French GDP fell at an annual rate
of 1.2 percent in the second quarter, compared with 3.5-percent growth in the
previous quarter. Beregovoy restated the government's commitment to keep
the budget deficit near 3 percent of GDP. His indication that economies would
be sought in current spending increases the probability of conflict with public
employees this fall. In a step to encourage private investment, the government
lowered interest rates slightly last week.
Less Developed Countries
Revised Pakistani estimates of remittances for the fiscal year ending in June
show receipts of slightly more than $2.7 billion-5.0 percent below last year
and the first decline since the 1970's oil boom. Islamabad did not anticipate
falling foreign remittances and a rising number of workers returning from
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political instability.
principally the Persian Gulf. The government's Five-Year Plan ending in 1988
assumes an average annual growth in remittances of nearly 9 percent and a net
outflow of workers. Some government planners are now assuming a net annual
return of 10,000 to 15,000 of the 1.5 to 2.0 million Pakistanis working abroad.
These pressures on the foreign payments and the domestic labor market come
when President Zia wants to present a buoyant economy before the elections.
We believe Zia will turn to the United States and other Western and Arab
donors for increased financial assistance to guard against economic and
Indonesia Experiences Inew foreign and domestic investment
Falloff in Investment declined sharply during the first six months of 1984. The falloff has prompted
a lively domestic debate, with government officials blaming external causes,
and the private sector citing ambiguous investment regulations, new tax laws,
bank-credit reforms, and the economic slowdown. President Soeharto has
sought to reassure investors while quietly pressuring the bureaucracy to
streamline regulations. According to the US Embassy, however, there is little
indication Soeharto will succeed in engineering the radical overhaul of
investment policy and procedures necessary to restore past levels of capital
formation.
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Poland: Implications of IMF Membership
Warsaw's recent amnesty for political prisoners
may revive Poland's application to join the IMF.
Poland submitted its formal request in November
1981, but Western governments shelved it follow-
ing the declaration of martial law in December
1981. Although Poland apparently does not have to
reapply, entry could take at least a year. Moreover,
snags in negotiating a stabilization program are
likely to delay sizable IMF credits until mid-1986
at the earliest. The Fund will require tough adjust-
ment measures, but-without a consensus on eco-
nomic reform within Poland-we doubt Warsaw
will implement the major changes needed to cure
Poland's economic ills.
Processing the Application
Even if Western governments reconsider Poland's
application, it is unclear whether Warsaw will
pursue membership at this time. Polish negotiators
have repeatedly pressed for IMF membership in
talks with the Paris Club of government creditors.
These demands, however, may be just a bargaining
ploy or may reflect only the views of some officials
in the Ministry of Finance who favor membership.
Some Polish political leaders apparently oppose
closer cooperation with Western creditors, and
debate within the regime over IMF entry is possi-
ble.
Soviet opposition could stall Poland's application.
Moscow reportedly approved Warsaw's request in
1981, probably calculating that IMF financial as-
sistance would reduce the cost of propping up the
economy. In recent months, however, Moscow has
criticized-both directly and indirectly through
allies such as Czechoslovakia-some East Europe-
an countries for maintaining too many ties with the
West. The Soviets could.object to Poland's closer
relations with the West via IMF membership.
Poland's entry into the Fund is likely to take at
least a year. Even Hungary's uncomplicated appli-
cation took seven months in 1982. The IMF proba-
bly will not be ready for several months to send a
technical team to Warsaw to hammer out the
specifics of membership. Once there, the team is
likely to encounter difficulties. Recent meetings of
the Paris Club have proved arduous because of the
intransigence and inconsistency of Polish negotia-
tors.
Poland could experience problems in paying the
membership subscription. New members must pay
75 percent of their quota in domestic currency and
25 percent in gold or convertible currencies. Given
our estimate of a $900 million quota, Warsaw
would have to pay $225 million in hard currency-
a sum the Poles may not have if they meet obliga-
tions under rescheduling agreements. Poland's sub-
scription might be less and could be paid in install-
ments.
An IMF Program for Poland
Poland probably would draw IMF credits as soon
as possible.. We estimate Warsaw probably could
obtain about $450 million without difficulty. This
would include $225 million from the reserve
tranche and $225 million from the first credit
tranche, neither of which requires strict condition-
ality. Warsaw must only demonstrate a need and
show an effort to solve the problems. Since the
reserve tranche is Warsaw's own money, the net
gain would be just $225 million.
Another option for relatively "easy" money is the
Fund's compensatory financing facility, which as-
sists members after unavoidable temporary export
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Type of
Credit
Percent
of Quota
Million
US $
Conditions
First credit tranche
25
225
Demonstrate foreign payments need and show reasonable efforts to solve
the problems.
Compensatory financing facility b
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100
Demonstrate an unavoidable temporary export shortfall.
Standby
125
1,125
Adhere to relatively strong stabilization program approved by the IMF.
a Data for the first 12 to 18 months after IMF membership, based
on quota of $900 million. The quota is determined by "the
members' economic characteristics relative to those of other mem-
bers of comparable size."
b Although a member could draw up to 50 percent of the quota
without much difficulty, Poland is unlikely to qualify for more than
$100 million.
shortfalls. Up to 50 percent of a member's quota-
$450 million in Poland's case-can be made avail-
able with only minimum conditions. Although the
three East European IMF members-Hungary,
Yugoslavia, and Romania-have used this facility,
Warsaw could have difficulty demonstrating an
export shortfall according to IMF procedures.
Warsaw's longstanding, deep-seated economic
problems would make for an unconvincing argu-
ment that the shortfall is "temporary and due to
external factors." Thus, we estimate that Warsaw's
drawings from this facility are unlikely to exceed
$100 million in the first year or so of membership.
Polish financial officials apparently are counting on
more IMF loans than can be provided through the
reserve tranche, first credit tranche, and compensa-
tory financing facility. Warsaw's recent memoran-
dum to the Paris Club, which projects IMF funding
of $3 billion during the first three years of member-
ship, evidently assumes the establishment of a
standby credit program. Current IMF regulations
on standby arrangements allow members to draw
up to 125 percent of their quota annually-and
even more under special circumstances-for three
years. Assuming a quota of $900 million, Poland
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would be eligible for around $1.1 billion annually.
Any standby arrangement with the Fund will not
come quickly or easily. Poland's large arrears to
Western governments and other nonbank creditors
are likely to be the initial stumblingblock. The IMF
might require Poland to settle these accounts be-
fore granting a standby credit, because arrearages
violate the IMF charter. The IMF probably would
not force Poland to pay all arrearages, but it might
insist that Warsaw show readiness to settle unpaid
obligations through rescheduling agreements. War-
saw probably would have to make downpayments
of several hundred million dollars to implement the
agreements.
In addition to resolving the problem of arrears, the
Fund will require Warsaw to pursue a comprehen-
sive stabilization program that the regime so far
has avoided. Poland's problems, as well as the
increasingly tough attitude of the Fund, suggest
that the two sides will have trouble agreeing on
stabilization measures. In recent dealings with
other East European countries, the IMF has
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demanded more restrictive policies, probably be-
cause earlier programs failed to keep Romania and
Yugoslavia from rescheduling. Moreover, the IMF
has come under attack by bankers for the softness
of its East European programs.
Although IMF programs are tailored to each mem-
ber, recent standby arrangements concluded with
other East European members point to the likely
provisions of a program for Poland. The Fund
program probably will include restrictions that
prohibit the borrower from:
? Imposing or tightening restrictions on foreign
payments and transfers for current international
transactions.
? Introducing or modifying multiple exchange rate
practices.
? Concluding bilateral payments agreements incon-
sistent with the Fund's charter.
? Imposing or tightening import restrictions for
balance-of-payments purposes.
In addition, the Fund is likely to impose:
? Targets for hard currency trade and current
account balances.
? Limits on net hard currency debt.
? A target for minimum hard currency reserves.
? Limits on net domestic assets of the banking
system.
Poland-benefiting from the advice of an IMF
team-would have to outline policies to achieve the
goals of the program. The initial program is likely
to focus on improving Poland's debt-repayment
capacity, and the Fund will call for greater domes-
tic austerity-largely by slowing the growth of
consumption and government expenditures-to
shift resources to the external sector. Recommen-
dations are likely to include reducing subsidies,
hiking interest rates and prices, and tying wage
increases to productivity. In the foreign sector, the
Fund is likely to urge simpler trade and foreign
exchange systems.
The IMF probably will advise the Poles to rely
more on market mechanisms than administrative
controls. The Fund also is likely to suggest ways to
reduce the inefficiencies of Polish economic plan-
ning. We doubt, however, that the IMF will suc-
deed in dictating policies at odds with Warsaw's
political objectives and economic institutions. The
IMF's experience with the other East European
countries demonstrates that the impetus for major
changes must originate in Warsaw.
We believe that Poland will have great difficulty
agreeing to an IMF stabilization program. Some
Polish officials-particularly in the Ministry of
Finance-have argued that reform measures
adopted in 1982 would go far toward meeting IMF
demands. In our view, these reforms do little to
ensure achievement of any reasonably stringent
criteria. Although some Polish officials would like
to use the Fund as a scapegoat for imposing
austerity measures, the regime might not accede to
IMF proposals if it felt social tensions would
increase as a result.
Even if Warsaw and the Fund eventually agree to a
program, the regime may try to avoid full imple-
mentation. Warsaw might agree to policies to begin
drawing funds, but then not adhere to the agree-
ment. If performance criteria are not met, the IMF
will have to decide how tough it wants to be. The
Fund's mixed record with recent standby programs
for East European members points to problems:
? The IMF has fared poorly in its dealings with
Romania. Bucharest implemented some price and
exchange rate adjustments, but the changes have
not improved the economy significantly, largely
because of the regime's -tight controls over the
economy. Prodding by the Fund for more adjust-
ments resulted in a mutually agreed cancellation
of the standby program at the beginning of this
year, and the regime has not reapproached the
Fund.
? Yugoslavia has resisted some IMF recommenda-
tions, arguing that they interfere with its sover-
eignty. Yet most differences with the Fund have
centered on the pace, not the direction, of the
adjustment effort. Most Yugoslav leaders agree
that the IMF program is consistent with their
long-term stabilization program, but they believe
that the Fund wishes to do too much too quickly.
Before the recent standby agreement, Belgrade
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threatened to "go it alone." Difficulties may yet
arise with the Fund over implementing the
program.
? Hungary's relations with the IMF, on the other
hand, have been amicable. Budapest adopted
adjustment measures and economic reforms long
before joining the IMF. The Fund has praised
Hungary's efforts and views its role as providing
a financial cushion during the period of decen-
tralization.
Other Benefits of Membership
World Bank. Poland almost certainly will seek to
join the World Bank along with joining the Fund.
Membership would qualify Poland to bid on World
Bank construction projects. Such contracts could
provide some gains to the current account. More
importantly, World Bank project loans could help
modernize key sectors of the Polish economy, such
as agriculture and energy
Warsaw projected World
Bank loans at $500 million in 1986 and $1 billion in
1987. These amounts are overly optimistic. Hungar-
ian borrowings from the World Bank, for example,
averaged a little over $200 million annually in its
first two years of membership.
Improved Credit Standing. Foreign creditors gen-
erally are more receptive to rescheduling the debts
of a country following an IMF stabilization pack-
age. The recent rescheduling packages for Yugosla-
via and Romania have been made conditional on
compliance with IMF programs. Moreover, IMF
technical expertise has aided both sides during
rescheduling negotiations. For example, the IMF
was instrumental in helping the Romanian finan-
cial team overcome its inexperience during the
early stages of the first rescheduling talks.
Secret
24 August 1984
The IMF could play an important role in-debt
reschedulings for Poland. Warsaw's seemingly in-
surmountable debt troubles suggest that the Poles
will, be unable to meet their rescheduled obliga-
tions. The rescheduling of earlier "reschedulings"
would prove complicated and contentious, and the
IMF could help ensure that Warsaw cooperates
with its creditors.
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Secret
Financially Troubled LDCs:
Growing Labor Protests
Several financially troubled LDC debtors are fac-
ing increased labor agitation as real wages and
employment continue to be hit by inflation, reces-
sion, and austerity measures. Strikes and work
slowdowns have led some governments to give in to
wage demands and partially restore subsidies on
food and basic services. LDC debtors may have to
ease austerity programs to settle labor disputes,
which could lead to greater arrearages on debt
payments and more difficulty in obtaining new
loans.
Country Developments
President Alfonsin's inability to curb Argentina's
hyperinflation has contributed to a succession of
short strikes since late May. The General Confed-
eration of Labor has threatened a general strike to
pressure Alfonsin to raise real wages as promised.
Recently he called for "austerity" and "sacrifice"
to dampen inflation. Reflecting this spirit, the
government granted public-sector workers a 12-
percent increase for July-well below the June
consumer inflation rate of 17.9 percent; most lower
paid government workers, however, were given a 3-
to-4-percent real wage hike. Unions in the private
sector are demanding bigger increases. Continued
high inflation, coupled with bankers' reluctance to
extend new loans until an agreement with the IMF
is reached, will restrict Alfonsin's attempts to
balance union and creditor demands.
Beginning in April, the Bolivian Workers' Central
(COB), the major trade union organization, called
several general strikes to protest an austerity pack-
age that included a 75-percent devaluation and
100-to-600-percent increases in the prices of sugar,
bread, cooking oil, and other staples. As part of a
strike settlement, the Siles government on 30 May
suspended principal and interest payments to for-
eign banks. Prices on some basic foods were low-
ered and wages boosted by 130 percent. Following
antagonizing labor.
a coup attempt on 30 June, the unions demonstrat-
ed in support of the democratically elected Siles
government. Nevertheless, the COB called another
general strike on 4 July to protest perceived govern-
ment backsliding on the agreement. US Embassy
reports indicate that strikers returned to work only
after the government agreed to an expanded settle-
ment package that included food price controls.
Most recently, oilfield workers struck Occidental
Petroleum for higher wages. Because Occidental is
responsible for 30 percent of total crude production,
the government wants to prevent a pullout but fears
Since early August, Bolivia's public sector has
suffered ongoing strikes. Because the state had not
been able to pay salaries, teachers protested by a
strike starting on 6 August. Intensive and lengthy
negotiations with state employees about pay and
other issues resulted in a settlement of their griev-
ances earlier this week.
Work stoppages in Brazil's steel, auto, consumer
durables, and metal industries early this year ended
when wage hikes well above government guidelines
were granted. In the state of Sao Paulo, migrant
farmworkers demanded higher pay and better
working conditions. They obtained a 300-percent
wage increase after setting fire to sugarcane fields
and destroying government water company offices.
Elsewhere in the state, orange grove workers
pressed their demands by blocking roads and ston-
ing and burning growers' trucks. In all cases, wage
concessions exceeded guidelines adopted late last
year-one of the centerpieces of Brazil's IMF
austerity program. Last week, a two-day strike
against Embraer, Brazil's large aircraft manufac-
turer, was suppressed by the government.
Since April, workers in Costa Rica have struck
railroads, prisons, banks, ports, and schools to
Secret
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24 August 1984
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protest declining real wages. In the past year,
incomes have been buffeted by higher sales taxes,
an import surcharge, and increased prices for es-
sential services.
In Ecuador, the 80,000-member national driver's
organization staged a one-day strike in April after
discussions with the government over proposed
hikes and the rising cost of spare parts broke down.
Workers at Emelec, an electric utility company
owned by a US firm, went on strike in June for a
wage bonus. According to the US Embassy, the
government pressured the firm into granting a
profit-sharing bonus as well as back wages
throughout the strike.
According to press accounts, the largest labor
organization in Honduras threatened a general
strike to protest government austerity measures
that included higher taxes and budget cuts. The.
austerity package was proposed to help Honduras
qualify for IMF funding. Scheduled for 20 June,
the strike was averted when the government agreed
to modify the package.
Strikes by civil servants and teachers hobbled Peru
for most of June. The government responded by
declaring a 30-day state of emergency that sus-
pended all civil rights, banned meetings and travel,
and expanded police power of search. Demonstra-
tors were dispersed by water cannon and troops. To
settle the teachers strike, the government boosted
pay by 23 percent and recognized the major educa-
tion workers union as the sole bargaining agent for
teachers. Civil servants were granted higher wages
the following week. There also have been shorter
strikes by hospital workers demanding higher
wages, and by taxi and bus drivers in Lima protest-
ing petroleum price rises.
In the Philippines a strike over wages at a Manila
textile company resulted in several deaths when riot
police attempted to break a picket line. Although
strikes have not increased substantially, inflation,
lower real wages, and layoffs could aggravate labor
unrest.
Secret
24 August 1984
Outlook
Over the near term, debt-troubled LDCs will face
the need to take further economic adjustments.
Because this process often involves real wage cuts,
the potential for labor unrest will tend to grow. In
Venezuela, for example, tensions between labor
unions and the Lusinchi government increased in
July because of labor's perception of unfair treat-
ment on wages.
At the same time, labor organizations must be
concerned about layoffs of strikers and competition
from unemployed workers willing to work for less.
Thus, in some countries with large and growing
unemployment, unions may hesitate to strike. For
example, the US Embassy reports that the number
of strikes in Morocco is significantly lower than
usual because of high unemployment and recent
layoffs.
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Secret
International Financial Situation:
Few Export Programs Introduced
Few LDC debtors have implemented major tax and
subsidy programs to promote exports since mid-
1982. Instead, most have relied on devaluation and
the OECD recovery to boost foreign sales. We have
examined 15 LDC debtors' and found that only
Mexico and Costa Rica provide more financial
incentives to exporters than existed two years ago.
Because of budgetary constraints, most LDC debt-
ors probably will continue to rely on devaluation
and the OECD recovery to increase foreign sales.
Most LDC debtors have relied on devaluation to
promote exports. In most cases, the devaluation is
part of the country's IMF-supported adjustment
program. Eleven of the 15 countries examined
experienced a real currency devaluation last year.
Brazil, for example, had one large devaluation
followed by smaller, periodic devaluations. Mexico,
which has an active export promotion effort, also
relies heavily on devaluation to maintain competi-
tiveness.
Export Promotion Programs
Only Mexico and Costa Rica are providing more
financial assistance to exporters than at the outset
of the debt crisis.
Mexico, under de la Madrid, has been very active,
primarily through its National Development Plan,
which promotes nonoil exports. Since last year, the
government has provided tax incentives and techni-
cal assistance, relaxed foreign exchange controls
' We examined Argentina, Brazil, Chile, Costa Rica, Ecuador,
Indonesia, Ivory Coast, Kenya, Mexico, Morocco, Nigeria, Peru,
for exporters, eliminated the need for.export per-
mits for most goods, and removed some licensing
requirements for imports used in the production of
exports. Some export tariffs have been eliminated-
and others reduced. Mexico has also expanded its
export financing program.
Costa Rica, in February of this year, passed emer-
gency legislation containing an export promotion
package. The legislation eliminates taxes on export
profits and tariffs on inputs for nontraditional
exports to countries outside Central America. This
latter measure is aimed at diversifying both the
geographical and commodity mix of Costa Rican
exports. The package also grants a 50-percent tax
credit on share purchases in firms that produce
entirely for export. In addition, San Jose is provid-
ing incentives to attract foreign investment in
nontraditional export sectors, including foreign ex-
change guarantees, political risk insurance, and
freedom to remit capital and profits abroad.
Although most LDC debtor countries continue
assistance to their export sectors, many retain
export barriers to keep domestic prices low. A few
countries have even reduced existing promotion
programs:
? Brazilian trade policy is moving away from incen-
tives to devaluation as a means of promoting
exports. Brazil has aggressively promoted exports
since the 1960s through direct subsidies, tax
exemptions, and subsidized credit. Brazil's finan-
cial problems, however, have forced cutbacks.
Furthermore, threats by the industrialized na-
tions to impose trade restrictions have led Brasilia
to eliminate or scale down subsidies.
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? The Philippines is adjusting its program because
of Manila's foreign exchange crisis. Since 1979,
the Philippines has followed a World Bank-
supported program, which includes efforts to
increase exports, particularly of manufactured
goods. The program provides tax incentives to
promote labor-intensive exports, reduces redtape,
eases exporters' ability to obtain scarce foreign
exchange, and reduces tariffs for less expensive
raw materials and semifinished goods. Manila's
foreign exchange crisis, however, is forcing
spending cutbacks, which will curb the export
promotion program.
? Most other LDC debtors have limited their ex-
port promotion to bilateral trade agreements,
countertrade, and preferential treatment for ex-
porters in obtaining raw material imports. Many
consider aggressive export promotion too expen-
sive during a period of austerity. LDC debtors
such as Argentina, Chile, Ecuador, Nigeria, and
Venezuela earn most of their export income from
only a few commodities and lack competitive
industries. The African debtors have been partic-
ularly weak in promoting exports, in part because
most lack an industrial base.
Financial problems probably will prevent most
debtor LDCs from introducing major export pro-
motion programs in the near term. Instead, L" DC
debtors will continue to rely on devaluation and the
OECD recovery to boost exports.
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