INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97-00771R000707330001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 22, 2016
• Document Release Date: October 18, 2010
• Sequence Number: 1
• Publication Date: December 21, 1984
• Content Type: REPORT

Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Directorate of ~~
Intelligence
International
Economic & Energy
Weekly
-.s~-
D/ IEEW 84-0SO
1 / December / 984
?py 6 8 5
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
27
iii Synopsis
3 Briefs Energy
International Finance
Global and Regional Developments
National Developments
33
25X1
25X1
International
Economic & Energy
Weekly
Japan: Seeking To Maintain Economic Momentum
Flexible Manufacturing Systems: Competitive Impact and National Security
Implications
Afghanistan: The Economy Five Years After the Invasion
Thailand: Devaluation Brightens Economic Prospects
25X1
25X1
25X1
25X1
Comments and queries regarding this publication are welcome. They may be 25X1
directed to irectorate of Intelligence
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
International
Economic & Energy
Weekly
Synopsis
13 Japan: Seeking To Maintain Economic Momentum
Japan's economic recovery since 1983 has depended heavily on exports to the
United States. With foreign demand slowing, Tokyo must bank on domestic
demand to pick up the slack.
Flexible manufacturing systems (FMS-the integration of advanced manufac-
turing technologies into computer-controlled systems-are revolutionizing pro-
duction in a wide variety of industries and may have an impact on manufacturing
as dramatic as microelectronics .has had on the electronics industry. While no
country enjoys an across-the-board advantage in FMS technologies today, we
believe there is a strong potential for foreign leadership.
27 Afghanistan: The Economy Five Years After the Invasion
The Afghan economy, primitive and slow growing even before the Soviet
invasion in December 1979, continues to be disrupted by the ongoing
hostilities. The Soviets are increasingly involved in propping up the Afghan
economy.
33 Thailand: Devaluation Brightens Economic Prospects
Flexible Manufacturing Systems: Competitive Impact and National Security
Implications
the devaluation and to accelerate the diversification of Thai exports.
Bangkok's large devaluation last month should help boost Thailand's lagging
exports and slow the growth of its current account deficit. It remains to be seen,
however, whether Prem can overcome opposition to reforms needed to support
25X1
25X1
25X1
25X1
Secret
DI /EEW 84-OSO
2/ December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
International
Economic & Energy
Weekly
Secret
DI IEEW 84-OSO
21 December /984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Seven Oil
onsumption Rises at a
Slower Pace ,
7~'iireat
to West European
Energy Security
stabilizing oil prices.
Big Seven oil consumption rose only 3 percent in third quarter 1984 over year-
earlier levels, compared with a nearly 6-percent increase in the first six months
of the year. In addition, more than one-third of the third-quarter increase can
be attributed to the continuing UK coal strike. As a result, heavy fuel oil
consumption in the United Kingdom nearly tripled, more than offsetting
declines in the other six countries. During the same period, Big Seven gasoline
use rose by less than one-half of 1 percent, while light fuel oil consumption in-
creased by more than 9 percent. The slowdown in overall consumption growth
and the sharp rise in heavy fuel oil use have caused a significant disparity in
the demand for light and heavy crudes and compounded OPEC's problems in
public acrimony.
As part of a larger effort against the military establishment, at least two
European terrorist groups have targeted NATO energy facilities in West
Germany and Belgium. The NATO pipeline system, constructed for wartime
use, is highly flexible, and it is complemented by railroad and truck
distribution and an effective military contingency plan. Terrorist attacks are
unlikely to affect operations significantly. The extensive West European crude
oil and gas pipeline distribution systems are also accessible to terrorists.
Alternative transport systems, excess pipeline capacity, and a versatile natural
gas distribution system would minimize the effect of local terrorist attacks.
Successful terrorist attacks on key choke points-large power plants, control
centers, and substations-in the West European power grid, however, could
cause a significant economic disruption. Repair of these choke points could
take months, and there is little surplus grid capacity to provide alternative
power supplies. Despite their ability to damage the electrical system, West
European terrorist groups are likely to hold back from such attacks to avoid
Libya Resumes Tripoli and Dublin have resumed negotiations on a $30-50 million exchange of
Oi Beef Barter Talks oil for Irish beef. Tripoli canceled a $100 million beef contract in November
]th Ireland following Dublin's decision to reduce imports of Libyan oil. The US Embassy
in Dublin says that Qadhafi agreed to restore beef imports from Ireland
following discussions with the leader of the opposition Fianna Fail. Although
Qadhafi has not tied the restoration of beef trade to new crude oil purchases,
the Irish petroleum company has offered to process and market Libyan crude.
If this new deal holds together, Qadhafi will have advanced his goals of
increasing oil sales to Western Europe and seeking West European support
against Washington's policy toward Libya.
3 Secret
11 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Sovj'~t Union
Td Provide Oil
Mozambique
According to press reports, the Soviet Union has agreed to provide Mozam-
bique with about, 4,600 barrels per day (b/d) of refined oil products in 1985-
enough to meet 60 percent of Mozambique's oil needs. We believe that
Mozambique's inability to obtain a secure source of oil because of its foreign
currency shortage induced it to accept the Soviet offer. Although Moscow
generally has demanded payment in hard currency in its commercial deals
with African countries, this agreement reportedly includes three years of
credit. Moscow's willingness to finance sales to Mozambique despite Maputo's
foreign currency crunch probably reflects an effort to regain some of the
ground the Soviets lost when Mozambique signed a nonaggression pact with
South Africa in March.
Shortages of crude oil probably will force a shutdown of Nicaragua's only
refinery again this week. US Embassy officials report that available stocks will
keep operations going only a couple more days,
themselves.
oil tanks at Puerto Sandino empty.
hartered Nicaraguan tanker has been docked in
Pajaritos, Mexico, since 4 December awaiting approval to take on oil. The last
Soviet crude oil delivery was in October, and no Soviet shipment is en route.
Mexican oil officials will probably not release the tanker for its 10-day trip to
Nicaragua until financing is arranged or Managua, again makes ahigh-level
demarche to Mexico City. The Soviets want Mexico to continue to supply a
large portion of Nicaragua's oil needs, but Managua's deepening financial
problems could leave Moscow with no choice but to make the oil deliveries
Philippine Financial The IMF's approval on 14 December of a $615 million loan for the
Res a Package Philippines~ombined with commitments from international banks for over
90 percent of the $925 million new commercial credits sought by Manila-
' concludes long-stalled negotiations to resolve the country's $25 billion foreign
creditors. Formal conclusion of the commercial bank financing package in
mid-February-including rescheduling over $8 billion in debt repayments-
will be the final step paving the way for Manila's gradual return to financial
stability.
Secret
21 December 1984
debt crisis. Additionally, a Paris Club meeting on 19 December has established
L~ terms for rescheduling up to $3.1 billion in debt owed to official bilateral
percent next year.
The accompanying IMF adjustment program includes wide-ranging economic
policy reforms, including a floating exchange rate, severe spending cuts,
significant tax increases, and higher interest rates. Although the economy will
benefit from a bout of belt-tightening and economic reforms-modest econom-
ic growth could resume in 1986-the political costs of the austerity program
will be substantial. The restrictive monetary and fiscal measures requested by
the IMF will contribute to the economy's projected decline in output of 2
25X1
25X1
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
The IMF has postponed approval of the third-and last-phase of Mexico's
must be done to reduce Mexico's proposed 1985 budget deficit and liberalize
trade Mexico City, however, already has
announced a 1985 budget with a deficit equal to 5.1 percent of GDP, nearly 2
percentage points above the original goal. In addition, Mexico recently hiked
prices of key staples-bread and tortillas-over 50 percent, and increased the
peso depreciation rate from 13 to 17 pesos per day. Mexico City will have a
difficult time staying within its proposed 1985 budget, let alone adhering to a
more austere spending program-particularly in an important election year.
Mexico is having difficulty meeting this year's less stringent deficit target of
6.5 percent of GDP and is postponing expenditures equal to 2 percent of GDP
into early 1985, according to the US Embassy. A major delay in reaching an
agreement with the Fund could jeopardize prospects for reaching a final
settlement with private bankers to reschedule $48.5 billion in public debt.
Vietnam's Access
to IMF Funds
~7rhreatened
the Fund voted earlier this month to deny . .
service its foreign debt is unlikely.
Hanoi further access to IMF resources unless payment of $23 million in
arrearages on existing IMF obligations is made by 15 January. With
Vietnam's weak foreign exchange position, it will probably have trouble
meeting this deadline. Hanoi has made no payments on IMF loans since last
February, and we estimate it is behind in total foreign debt payments by
approximately $400 million. Hard currency shortages are so acute that
Vietnam recently was forced to sell some of its gold holdings-possibly to
finance rice imports. Hanoi may try to make token payments in the hope of
preventing the threatened cutoff, but near-term improvement in its ability to
Global and Regional Developments
European Parliament The European Parliament last week overwhelmingly rejected the 1985 EC
Vetoes EC Budget budget, a move that may force the Community to curtail some spending next
year. According to press and diplomatic reporting, Parliament members were
/ unhappy that the Commission's draft budget would cover essential expenses
only through October, leaving at least a $2 billion shortfall. They also wanted
to register their displeasure over erosion of the Parliament's. budgetary powers
by recent Council decisions to impose automatic EC spending controls. Under
the Treaty of Rome, 1985 EC spending will be on a monthly basis, with each
month's allocation equal to one-twelfth of the 1984 budget. The Commission
probably will give priority to compulsory agricultural expenditures, and it may
be forced to cut back foreign aid and social and regional development
spending. If the Parliament accepts a revised budget before next summer, the
Commission may be able to avert a serious spending crunch. The final EC
budget almost certainly will not cover projected 1985 spending, necessitating a
supplementary budget late next year.
5 Secret
11 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
~'urkey, Iran, and
akistan Revive
the RCD
The agreement by Turkey, Iran, and Pakistan to revive the Organization for
Regional Cooperation and Development (RCD), inactive since 1979, reflects a
desire in all three capitals to lessen Iran's regional isolation and increase trade.
Turkey and Pakistan hope that a revived RCD will help moderate Iran's
foreign policy. Iran, which already is the largest export market for Pakistan
and the second largest for Turkey, is mainly interested in increasing oil sales to
its neighbors. Overland trade between the RCD states bypasses the Persian
Gulf, where shipping is subject to Iraqi attacks. Prospects for the RCD's
success, however, are threatened by overloaded transportation systems, tight ~,
budgets in all three countries, and ill-defined organizational objectives.
ya-Malta
ies Improve
Tripoli and Valletta recently signed afar-reaching security and economic
agreement that promises Libyan support of Malta against any external threat
and training for the island's small military. Both parties also agreed not to al-
low foreign military operations-including NATO operations-on their Terri-
tory. Malta will welcome any Libyan financial assistance and an opportunity
to ease unemployment by supplying workers to Libya. Qadhafi probably views
the treaty as a way to secure a convenient platform for launching foreign
intelligence operations and expanding Libya's military presence in the central
Mediterranean. Relations had been cool during the past four years because of
disputed claims to potentially rich offshore oil reserves. The real test of the
rapproachement probably will come with the World Court decision on this
boundary dispute scheduled for late February, even though both sides have
agreed to abide by the Court's decision.
Sout ~9frica-
Mo ambique
S' n Fishing
greement i , .
Mozambique and South Africa have signed an agreement that provides
financial assistance to the Mozambican fishing industry and allows South
Africa to fish in Mozambican waters, according to the US Embassy. The
agreement sets quotas on the amount and types of fish South African firms can
catch and calls for joint programs to investigate marine resources and
exchange scientific and technical information. Mozambique will also earn
much needed hard currency from license fees and taxes levied on the South
African catch. The fishing agreement represents the latest bilateral economic
accord since the nonagression pact concluded last March. In a further effort to
revitalize its ailing fishing industry, Maputo has announced a new agreement
with China, which exchanges the right to fish in Mozambican waters for
technical assistance.
National Developments
Developed Countries
/Kohl Rules Out
/ New Tax
West German Chancellor Helmut Kohl abruptly decided last week against
new tax measures to replace a surtax on upper-bracket taxpayers ruled
unconstitutional in November. The surtax would have brought in $1 billion.
Secret 25X1
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Rom~beralizes Rome recently further eased foreign exchange controls on investment and
tourist expenditures abroad. These measures were probably designed, in part,
to meet EC appeals for capital liberalization. The ceiling on currency that
Italian tourists can take abroad is increased from about $160 to $500 per trip
and free use of credit cards for tourist purchases is permitted. The amount
Italian investors must deposit in noninterest-bearing accounts is lowered from
50 percent to 40 percent of the total value for direct investments in :OECD
countries. A similar requirement on investment in securities of official EC
institutions is reduced from 50 percent to 30 percent. The changes will have
relatively more impact on Italian tourists than on investors. The mandatory
deposit on direct investment has been routinely waived for some time, while
portfolio investment should still be effectively barred. Moreover, Rome will
still retain control over credit card use, since tourists must document 75
percent of all purchases over a $2,600 yearly limit to prove their tourist nature.
Ottawa To Ease The Mulroney government introduced legislation on 7 December that will shift
F reign Investment the tone of the foreign investment review process toward encouraging foreign
investment. The Foreign Investment Review Agency. (FIRA) will be replaced
by a new agency, Investment Canada. The threshold for review of direct
but the threshold for indirect
75 million
investment will remain at US $3
,
.
investment will rise from US $12 million to US $37.5 million. The new agency
will continue to review all ventures in the oil and gas industries and.in
culturally sensitive sectors such as publishing and telecommunications. The
legislation, which the government hopes will be passed by March, would
exempt from review 90 percent of all investment proposals previously covered
by FIRA. Although FIRA approved a vast majority of projects, many foreign
investors were discouraged by the lengthy bureaucratic approval process.
Many foreign investors are likely to see how Ottawa moves on such issues as
liberalized trade and the proposed revamping of the National Energy Program
before undertaking new investment in Canada.
Less Developed Countries
US-South Korean
Steel Compromise
South Korea's agreement to voluntarily limit finished steel exports to the
United States over the next five years will help avert a major trade showdown.
South Korea, which currently accounts for 2.4 percent of the US finished steel
market, had earlier pushed to keep exports at that level. The 1.9-percent
market share agreed on satisfies the Koreans, who were under domestic
political pressure to maintain 1985 finished steel tonnage shipped to the
7 Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
United States at least at the 1983 level. The steel export issue has challenged
the influence of the liberalizers in the Chun government who advocate greater
reliance on market forces. The appearance of equal treatment with other steel
exporters such as Japan and a reduction in US dumping duties on Korean
color televisions announced this week will, we believe, help bolster the position
of the liberalizers as well as ease strains in US-South Korean trade relations.
Panama's Austerity Panama's two-month-old civilian government has been unable to regain the
Program on Hold initiative following the recent political crisis that forced the repeal.of President
Barletta's austerity program. After an earlier agreement to replace the law
with a less stringent one, on 9 December the President bowed again to
continuing protests and announced an unconditional repeal. He promised a
more widely coordinated compromise measure, which probably will be re-
viewed by the Assembly sometime in January. Barletta, who had attributed
the need for immediate belt-tightening to comply with IMF targets for
meeting debt payments, was able to get some short-term help from the
international banking community. Terms were quickly negotiated fora 90-day
extension of payments due to banks so that the FY 1985-86 IMF loan can be
restructured. This should enable the President to obtain legislative approval of
the 1985 budget and seek new fiscal measures early next year.
Agrarian Reform
in Mexico
Costa Rica: Impact
of Banana Operation
Shutdown
Secret
21 December 1984
again.
After two years of inactivity on agriculture, the de la Madrid administration
has unveiled a new Land Rehabilitation Program aimed at putting govern-
ment-owned land farmed by peasants to better use, improving productivity and
agribusiness, and settling land disputes. The apparent goal is to increase
support among peasants before next summer's elections and reduce violence in
economically depressed rural areas. The administration, recognizing that no
more idle land is available for distribution, is hoping that these measures will
increase agricultural production. To offset the continuing demand for more
land, the President recently promised to redistribute land confiscated for drug
violations, although few landless peasants will benefit. While the government
may attract greater support in rural areas, steps announced so far will not
assuage peasant dissatisfaction or end small-scale land seizures. Following the
elections, we expect agricultural problems to slip from national attention once
San Jose fears considerable economic dislocation and leftist labor unrest if a
US firm follows through with plans to close down its banana plantation on
Costa Rica's Pacific coast. The company's decision is based on falling profits
resulting from banana disease and a recent two-month Communist-inspired
strike. According to the US Embassy, the firm has rejected a government
proposal to lease their Golfito operation to a growers' cooperative and is trying
to sell the property for $15 million. ~
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Thai Devaluation
Further Cuts
Rice Prices
seize the land, possibly provoking armed clashes with security forces.
these earnings would hurt debt service capacity and probably undermine the
proposed standby agreement with the IMF. Moreover, plans to fire 1,000 of
the 2,500 workers by 31 December 1984 would increase the 10-percent
unemployment rate. Leftist labor leaders would probably encourage workers to
The shutdown would hurt Costa Rica's already troubled economy. Before
1984, the Golfito plantations produced about $40 million annually in foreign
exchange earnings-almost 5 percent of Costa Rica's total exports. The loss of
Western Europe in 1985.
Thai rice prices continue to decline from already record-low levels as a result
of the November devaluation. The gap between Thai export prices and those of
the United States, its nearest competitor, had widened to $236 per metric ton
by 14 December, making Thai rice less than half the cost of comparable
grades of US rice. Thailand-the world's leading rice exporter-has eroded
US market shares in the Middle East and Africa in recent years through
aggressive marketing, good credit terms, low prices, and advances in product
quality. The latest price declines will begin to put pressure on US sales to
9 Secret
21 December 1984
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Deteriorating
Ban adesh Economic
P formance
but would seek to phase them in to defuse political opposition.
Inflationary and foreign payments pressures are adding to strains in the
Bangladesh economy. The increase in money supply, combined with the
removal of grain and fuel subsidies and the large wage hikes granted to unions
this year, could fuel inflation, now running at an estimated annual rate of 18
percent. Growing import demand could reduce foreign exchange reserves to a
meager $230 million, hardly enough for one month's imports. In response,
Dhaka has increased interest rates, tightened credit for imports, and widened
the gap between the exchange rate for expatriate workers and the official rate
to stem the outflow of foreign exchange. Bangladesh officials will probably
agree to even more stringent reforms, if pressured by US and IMF authorities,
Neal Loan Scandal An international loan scandal involving high-ranking Nepalese officials, as
well as an Indian film actress, has implicated the Prime Minister and resulted
in the dismissal of the Governor of the Central Bank. This group allegedly at-
tempted to profit from a scheme to borrow money from West European banks
under government guarantee to relend at higher interest rates. According to
US Embassy reports, the Prime Minister sacked the highly respected Central
Bank Governor because he interfered with the ploy. We believe the scandal
will tarnish Nepal's reputation in international banking circles and possibly
damage Kathmandu's efforts to secure funds for expensive hydroelectric
projects needed for the country's development.
Communist
Sov' t-East European Trade protocols for 1985 signed recently with Poland, Hungary, Czechoslova-
1 S Trade Protocols kia, and East Germany indicate that Soviet exports will grow, but almost
Continuing the Trend of entirely because of price increases, while the East Europeans will have to
Recent Years deliver more goods. East European exports will include increased quantities of
agricultural machinery for the Soviet Food Program, high-quality consumer
goods, and Polish coal and raw materials. Moscow will maintain energy and
raw material deliveries in 1985 at this year's level. Poland will receive credits
to cover a planned 1985 deficit of 500 million rubles-down from this year's
planned deficit of 700 million rubles-but Moscow apparently is insisting on
balanced trade with its other East European allies.
Soviet Agricultural There has been an unusually high number of complaints about the poor
Transport and preparedness of agricultural and transport equipment this year. Wet fields
Eq pment Problems prolonged the 1984 harvest and caused excessive equipment wear. Mainte-
nance personnel were being used to help with the harvest. Even though most
crops were smaller than last year, the nearly total withdrawal of military
support from the 1984 harvest increased the burden on the civilian equipment
fleet. the fleet's perform-
ance deteriorated and off-season repair schedules were delayed, possibly
increasing pressure on the leadership to use additional military support next
year.
Secret
21 December 1984
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
~viets Seek Western The Soviets have solicited bids from the United Kingdom, West Germany, and
Synthetic-Fiber Japan for the five-plant, $1 billion polyester complex. This turnkey project will
Technology be financed on a compensation basis and is scheduled for completion before the
Soviet Housing
onstruction Increase
Continues
probably will be handled by Yugoslav or Finnish companies.
end of the 1986-90 Plan. The complex, to be sited at Blagoveshchensk near
Ufa, will have an annual capacity of 230,000 metric tons of terephthalic acid
and 100,000 tons of polyester fibers. Feedstock for the complex will come from
a Western-built paraxylene plant recently opened at Ufa. Construction work
tion has occurred.
Pravda reports that new housing completed in 1984 will reach 113.7 million
square meters-a 1.2-percent increase over the 112.4 million square meters
commissioned in 1983. Although this year's increase was small, it follows a
sharp rise of 4.2 percent in 1983 and virtually ensures substantial overfulfill-
ment of the modest target of the Five-Year Plan (1981-85). If next year's goal
of 114 million square meters is met, the five-year average will be 111 million
square meters. The leadership has apparently upgraded the priority of housing,
particularly in rural areas, where most of the increase in residential construc-
Soviet ogram The Politburo recently announced. a "vast" program to fight industrial air
To 'ght Air Pollution pollution. It includes measures to build new air pollution control installations
U eiled and improve those already in operation; tighten enforcement of air-quality
China Buys
US Dpiry Cattle
laws; convert polluting facilities to cleaner types of fuel; and, when necessary,
remove industry from residential areas. No details on implementation were
given, but all "relevant" ministries and departments were charged with
preparing plans for inclusion in the scientific-technical program for the 12th
Five-Year Plan. The vagueness of the program, coupled with past inaction,
suggests that Moscow is unwilling to significantly increase investment in
environmental control equipment or change the incentive system for industry
by raising the priority of environmental protection relative to output goals. The
program seems primarily an attempt to heighten the awareness of plant
managers to decrease the likelihood of "catastrophic" pollution accidents.
China has completed arrangements for the purchase of 220 US dairy cattle, its
first purchase of dairy stock from the United States. China plans to increase
milk production by more than 90 percent by 1988 under afour-year World
Food Program dairy development project designed to improve herd size,
processing facilities, and technical knowledge. China now has joint dairy
ventures with the United States, New Zealand, the Netherlands, and Sweden
involving sales of milk products and livestock. In addition to purchases of dairy
stock, China's dairy program will generate significant imports of animal
genetics, equipment, and technology from the United States and other
countries. US industry experts predict US dairy cattle sales to China totaling
some 20,000 head over the next three to five years.
11 Secret
2/ December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Japan: Seeking
To Maintain
Economic Momentum
Japan's economic recovery since early 1983 de-
pended heavily on exports to the United States.
With foreign demand slowing, Tokyo now must
bank on domestic demand to pick up the slack.
While increased investment spending has bolstered
the domestic economy in recent months, consump-
tion-which makes up over half of GNP-remains
weak. Moreover, some Japanese analysts are con-
cerned that investment could decline when net
exports drop off. Stimulative fiscal policies are
constrained by the persistent budget deficit, leaving
Tokyo, in the short run, with limited options to
sustain growth.
Foreign Demand
Foreign demand accounted for half of the increase
in GNP in 1983,' the first year of the current
recovery, and net exports continued to provide a
substantial proportion of the economy's growth
during the first half of 1984. Strong US demand
for imports was a major factor in pushing export
earnings to the fore. Japan's quarterly trade surplus
with the United States roughly doubled in 1983,
from $3.1 billion in the first quarter to $6.3 billion
in the fourth quarter. Exports to the United States
during the year were up by $4.2 billion, while
Japanese imports from the United States rose by
only $1.0 billion. Sales to Asian NICs were also up,
but the rising surplus with the United States
accounted for 72 percent of the increase. in Japan's
trade surplus during the period.
The yen's persistent weakness, especially against
the dollar,. has been a major factor in Japan's
strong export growth, boosting the competitiveness
and profitability of Japanese exporters. Forecasts
of substantial appreciation of the yen.this year
Japan: GNP Growth in the First Year of
Recovery; Foreign and Domestic Components
II I .IV.. III ?,,. ?. 'I , IV
1975-1976 .1977-1978 1983_ ~.
,Domestic
-Foreign
? GNP
proved wrong. Capital outflows :continued to accel-
erate in response to higher overseas interest rates,
preventing the clirrent account surplus:from driving
the exchange rate up:
In fact, foreign demand :was,:buoying;the.Japanese~
economy even .during'the 1.980-82 recession.: Net
exports have accounted-for. half or more of GNP
growth in three. of`the~last,foui:years:~The foreign:.
sector's.strength~in L983:;was a sharp..contrast.to.
previous postwar. recoveries~~ when foreign demand
never accounted-?for more than one=third?of GNP '~
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Japan: GNP Growth; 1980-83
a
1
81 82
a Calendar year average over previous year.
Foreign
GNP
growth in any year, except for the post-oil-shock
years of 1974 and 1975..The behavior of net
exports during most of the postwar period was
countercyclical-declining during expansions and
increasing again during recessions.
Domestic Demand Slowing?
In-the absence of much stimulus from government
fiscal policy since 1979, domestic growth has been
very low by Japanese standards-averaging 2.0
percent per year in 1980-83, compared with annual
averages of 5.2 percent in 1970-79 and 10.7 percent
in 1960-69. Private consumption, which accounts
for over half of GNP, has lagged despite some
increase in real incomes. During the first year of
recovery, private consumption increased more slow-
ly than it had during the previous recession year.
Uncertainty in the face of the labor market's
continuing weakness and slow growth in real dis-
posable incomes may .underlie the weakness in
Secret
21 December 1984
Japan: Trade Balance, 1983
United States
OPEC LDCs
Asian N[Cs
? Total
consumption. Japanese observers expect disposable
incomes to rise next year if strong corporate profits
result in higher yearend bonuses and larger real
wage settlements next spring.
Investment demand has generally been strong dur-
ing this recovery, but this sector is smaller and
typically more volatile than the consumption sector.
Corporate fixed investment has increased rapidly,
on the basis of higher earnings and the prospect of
more rapid growth in the near term. Housing
investment, however, stagnated during the 1980
recession and has declined slightly since the begin-
ning of the recovery.
Japanese surveys show companies plan to invest
more during the coming year, but there is uncer-
tainty over whether the investment boom will con-
tinue once export growth slows. Some Japanese
officials argue that business cost cutting and inter-
est in continued technological improvement will
25X1
25X1
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Japan: Foreign Demand as a Share of
GNP Growth, 1965-83
fuel strong investment demand for some time to
come. They point to surges of investment in indus-
tries such as pulp and paper as examples. More
pessimistic observers-supporting the Economic
Planning Agency's preference for fiscal stimulus-
argue that most of the current pickup in investment
is based on export-fueled demand. They insist that
in the long run the changing structure of the
economy will reduce the need for expenditures on
new capital, as less capacity will be added in
capital-intensive heavy industry. A slowdown in
foreign demand would therefore cut short the in-
vestment boom, leaving the economy with no source
of strong growth.
The government's continuing efforts to reduce the
persistent deficit mean fiscal stimulus will probably
provide little economic growth. Tokyo's policy
could change, of course, and some Liberal Demo-
cratic Party (LDP) politicians have argued for more
spending, but we expect that any changes in the
short run will be too small to help much. The
LDP's supporters in the business and financial
community favor even tighter spending controls
and a smaller government sector, as does the
powerful Ministry of Finance, making a change in
government commitment to fiscal austerity unlikely
soon.
When Export Growth Slows
Without stimulus from the foreign sector, it is
difficult to see how Japan can sustain economic
growth at the 4-percent level called for in most
long-term forecasts and in the government's long-
term economic "visions," let alone at the 5-percent
rate called for by Prime Minister Nakasone's com-
mission on the economy. If the growth rate of net
exports should decline, domestic demand would
have to grow faster than in recent years to maintain
even the 3-percent GNP growth rates Japan
achieved during the 1980-82 slowdown.
Our own analysis, based in part on our econometric
model, shows a significant decline in real growth if
foreign demand slows:
? The baseline forecast projects growth of 5.2
percent in 1984 and 4 percent in 1985 on the
basis of real merchandise export growth of 6.5
percent. If exports to the United States stopped
increasing, however, growth would drop immedi-
ately. With exports to the United States held
constant at the level of 1984's first quarter, the
growth rates are 4.6 percent and less than 3
percent in 1984 and 1985 respectively.
? If exports are slowed by an increase in the value
of the yen, the effect is delayed but eventually is
as severe. Appreciation of the yen to 180 per
dollar (the baseline case calls for 215 per dollar)
would not affect growth significantly in 1984, but
GNP would increase by only 3 percent in 1985.
Most forecasters expect Japan's trade surplus to
remain at high levels for the foreseeable future and
to provide some stimulus to growth for the next few
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Japan: Sectoral Contributions to GNP Growth
Total
GNP
Net
Exports
Domestic
Demand
Consumption
Investment
Government
Spending
1965
5.4
0.9
4.5
5.0
-1.3
0.8
1966
11.0
0.0
11.0
6.4
2.3
2.3
1967
10.7
-1.9
12.6
5.8
5.8
1.0
1968
12.7
0.5
12.2
4.9
5.3
1.9
1969
12.3
0.3
12.0
5.8
5.1
1.1
1970
10.0
-0.8
10.7
3.9
5.4
1.4
1971
4.7
1.1
3.6
3.2
-1.3
1.7
1979
5.2
-1.1
6.2
3.3
2.4
0.5
1980
4.8
3.5
1.3
0.7
0.8
-0.3
1981
4.1
2.1
2.0
0.4
0.8
0.9
1982
3.3
0.3
3.0
2.2
0.6
0.2
1983
3.1
1.6
1.5
1.8
-0.5
0.2
years. This year's EPA white paper on the economy
sees a growing role for Japan as a capital exporter
as a result of its chronic trade surplus and the
excess of savings above domestic investment. Fore-
casts by the Japan Economic Research Center,
Nomura Research Institute, and others also predict
continuing trade surpluses and capital exports.
It is possible, despite these forecasts of a growing
surplus, that the foreign sector has already turned
the corner. Import growth is picking up as the
modest domestic expansion continues, and the
current account surplus has not been growing
rapidly- in recent months. A drop in net exports in
third quarter 1984 cut GNP growth to an annual
rate of 3 percent. Should US growth slacken,
growth of net exports will slow even more. Import
demand in the past has grown rapidly in the
expansion phase of the business cycle. A combina-
Secret
11 December 1984
tion of yen appreciation, slower growth, protection-
ism in major foreign markets, and growing imports
would reduce the growth of net exports enough to
keep them from contributing significantly to GNP
growth.
Tokyo's Options
The slow growth of the domestic sector is already a
political issue. Nakasone's rivals within the LDP
have used their own proposals for boosting econom-
ic growth to raise questions about his handling of
the economy:
? Former EPA Director General Komoto has re-
peatedly called for fiscal stimulus.
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
? Kiichi Miyazawa, a potential prime minister, has
advocated more public works spending to "double
the nation's assets."
These traditional pump-priming measures-or oth-
ers that could be devised-would be limited by the
government's commitment to cutting the persistent
budget deficit. Even so, they would please at least
some domestic constituencies and would give the
appearance of action designed to increase growth,
whether or not they proved successful.
We have examined the effect of several possible
measures to stimulate specific sectors of the domes-
tic economy-more public investment, business tax
cuts, sharper wage increases-under the assump-
tion of slower export growth. In all the simulations,
we assume that slower growth is accompanied by
appreciation of the yen to 180 yen per dollar.
Our simulations suggest that increased government
spending would have the strongest effect on growth.
If total government spending (both consumption
and investment) were increased by 10 percent,
GNP growth would reach 4.7 percent in 1985,
compared with 2.9 percent if fiscal policy were
unchanged, despite the slowdown in export growth.
Private consumption and investment would be diffi-
cult to stimulate directly. Rapid wage increases
might boost consumption but not by enough to
offset the induced decline in net exports. According
to our simulation, even a dramatic increase in
wages and salaries would increase real growth only
slightly. Inflation would also increase. A corporate
tax cut has been proposed to boost the economy by
stimulating investment, but in our simulation even
a large cut produced only a slight effect.
Secret
2/ December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Q
Next 1 Page(s) In Document Denied
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Flexible Manufacturing
Systems: Competitive
Impact and National
Security Implications
Flexible manufacturing systems (FMS}--the inte-
gration of advanced manufacturing technologies
into computer-controlled systems-are revolution-
izing production in a wide variety of industries and
may have an impact on manufacturing as dramatic
as microelectronics has had on the electronics
industry. While no country enjoys an across-the-
board advantage in FMS technologies today, we
believe there is a strong potential for foreign lead-
ership. The most innovative uses of FMS thus far
are occurring in Western Europe, primarily in the
aircraft, auto, machine tool, and computer indus-
tries. Moreover, we expect the major West Europe-
an governments to increase their support of re-
search and development for new FMS systems, as
well as to provide incentives that increase the use of
FMS. Japan's leadership in industrial robots and
its excellence in computers almost assure a strong
presence in this technology during the next several
years.
FMS can dramatically reduce production costs and
thus increase the competitiveness of user firms.
Specifically, the most important benefits of FMS
stem from its ability to provide:
? Flexibility. An FMS is able to manufacture
different products as demand shifts or as engi-
neering design changes are introduced. Produc-
tion volume can also be varied from one or two
shifts to two or three shifts with little increase in
manpower.
? Improved Quality Control. The high level of
automation, the reduction in the number of ma-
chines visited, better designed permanent fix-
tures, and greater emphasis on part/machine
alignment typically result in improved quality.
Higher quality, in turn, reduces scrap and rework
costs.
As the potential benefits of FMS become more
widely recognized, we believe countries that most
quickly go ahead with FMS installations will be
better positioned to quickly and effectively expand
the technology's use in the future. While not all
industry experts agree, those close to manufactur-
ing operations believe that, if US business falls
behind the leading edge of FMS technology or
application, US commercial competitiveness, espe-
cially in such industries as electronics and aero-
space, will be at risk. Similarly, in the manufacture
of advanced weapons systems, the United States
may not benefit from the latest in production
efficiencies and, over the long term, become in-
creasingly dependent on foreign sources.
? Higher Capital Equipment Utilization. Comput-
er control of parts flow within a plant maximizes
equipment usage. Machine utilization rates of 70
to 80 percent are typically reported-more than
double the rates achieved in conventional manu-
facturing. Moreover, the consistency of computer
control results in higher peak load capacity for an
FMS than for a conventional shop with the same
nominal capacity.
? Reduced Inventories. Work-in-process inven-
tories are reduced for a variety of reasons: effi-
cient computer scheduling of parts, more process-
Secret
D/ /EEW 84-OSO
2/ December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Flexible Manufacturing Systems
The typical FMS today is built around metal-
cutting machine tools. Usually it consists of a
group of machining centers-multipurpose ma-
chine tools that can drill, mill, tap, and bore a
,fixed workpiece and are equipped with automatic
tool changing and loading features-which are
linked by a centralized computer system. A mate-
rial-handling system, under control of the central
computer, moves parts between machining centers.
At its most advanced stage, a flexible manufactur-
ing system requires no human intervention except
,for maintenance and programing for new parts.
Bringing all these components under central com-
puter control makes possible productivity gains
and cost savings that are greater than the sum of
the parts. Flexible manufacturing systems achieve
these results~primarily by reducing waiting time;
industry studies show that 95 percent of the time a
part spends in manufacturing is spent waiting to go
on a machine. FMS also increases machine utiliza-
tion by ensuring that machines do not stand idle
waiting for parts. Users- report machine utilization
rates of'70 to 80 percent, compared with 30 to SO
percent in conventional manufacturing.
Initially, most FMS will be used for products
characterized by low-to-medium volume produc-
tion, such as machine tools, construction equip-
ment, and aircr~'t. Uproduction volume is high,
large expenditures for automated machinery dedi-
cated to making a single part can be justified, as in
the case of a transfer line to make automobile
engine cylinder blocks. In addition, because FMS
is expensive, it will tend to be used to produce
high-value-added items. The ability of FMS to
produce a variety of different items simply by
changing the central computer program, for exam-
ple, is unmatched by any other form of automa-
t i on.
Secret
2/ December 1984
ing on each machine, and closer machine spacing.
In addition, spare parts inventories can be cut
sharply because small batches of parts can be
produced as needed simply by storing the parts
programs.
Many industry experts believe the benefits arising
from the flexibility of FMS are more significant
than the large reductions in production costs. Flexi-
bility permits economic production of a wider range
of models, rapid implementation of design changes,
and better quality control. FMS also allows firms
to produce profitably at lower output levels. More-
over, FMS allows aggressive firms to respond
quickly to changing market conditions.
Many of the benefits that accrue to commercial
users of FMS are advantageous for defense produc-
tion, especially the manufacture of advanced weap-
ons. The ability of FMS to easily and economically
accommodate engineering design changes, for ex-
ample, is particularly useful in producing highly
sophisticated weapon systems such as fighter air-
craft. The ease with which FMS can add shifts also
allows defense manufacturers quickly and economi-
cally to accommodate changes in procurement lev-
els as well as providing surge capacity for mobiliza-
tion. Moreover, the reduced need for large spare
parts inventories can help hold down the cost of
maintaining weapon systems.
National Patterns of FMS Development and Use
Industry observers estimate that there are about
200 full-fledged FMS installations worldwide. Geo-
graphically, Western Europe has more systems
than any other area, but on an individual-country
basis Japan is the leading user.
Japan. Applications of FMS in Japan, while the
most numerous, are also the most narrowly based.
Currently, according to several industry surveys,
most are metal-cutting systems in machine tool
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
factories, many of which were built to showcase the
machine tool builder's products as much as to
improve productivity. The scope of FMS use in
Japan has begun to broaden, however, involving
areas such as sheet metal forming and assembly
processes. Probably the fastest growing application
of FMS in Japan is in electronics assembly.
Western Europe. Compared with Japan, in Western
Europe the range of FMS applications is broader
and the usage more widespread. According to
industry surveys, all of the major countries of the
region boast some applications. West Germany is
the region's largest user, with systems in the auto,
aircraft, machine tool, and computer industries.
Systems range from traditional machining systems
to those for forming sheet metal parts and robotic
assembly systems. In addition, West Germany is
probably the largest and most sophisticated user of
FMS based on metal-forming rather than metal-
cutting machine tools.
A wide variety of sophisticated systems have been
installed elsewhere in Western Europe. In France;
Citroen's FMS at Meudon for producing prototype
engine parts has the largest tool-handling system of
any FMS currently in use. In the United Kingdom,
the 600 Group's SCAMP System for machining
cylindrical parts for lathes incorporates an unusual-
ly diverse set of machines, including gear shapers
and a broaching machine as well as lathes. In Italy,
Fiat uses Robogate, a flexible body-framing system
developed by Comau, its automation subsidiary.
This system allows a mix of body styles to be
produced on the same line and has proved so
successful that Comau has sold several systems to
US automakers.
We believe that West European firms will move
aggressively over the next few years to install new
FMS. According to a worldwide survey of factory
automation, many West European companies are
planning to incorporate FMS in existing plants, and
a wide variety of new plants have been designed for
eventual inclusion of FMS.
Forces Influencing FMS Use
A key to FMS use is the nature of demand, in
particular the speed at which demand for finished
goods changes in either volume or type. Growing
international competition spurs a more varied prod-
uct mix and quicker introduction of new products.
FMS provides an answer to the problem of holding
down manufacturing costs in the face of fluctuating
levels of demand and rapid changes in consumer
tastes. In this respect, we believe Japanese and ..
West European firms may have a stronger incen-
tive for FMS use; their smaller domestic markets
and greater reliance on export sales require more
product variations in relatively smaller quantities.
In contrast, the pressure for flexibility in manufac-
turing is often less on US firms because the large:
domestic market can make investments in.equip,-_
ment dedicated to a single product profitable.
The ease and cost of financing is a major factor
influencing the spread of FMS. Firms in Japan are
probably best able to afford the expense of FMS.
Because their industries' financial.structure allows
them to take along-term view, Japanese managers
have less difficulty justifying these expenditures
and generally face.lower borrowing costs as well. In
contrast, we believe the availability of investment
funds is probably the most important constraint to
potential FMS users in Western Europe. Vendors
of FMS equipment point to the, high cost of an
FMS as a major deterrent to prospective users. As
technology develops, however, we believe system
costs will fall, primarily on the basis of the: reduc-
tions in cost for software and electronics.
The social climate is another factor influencing the
application,of FMS. Foreign press reports highlight
growing concerns that increased levels of automa-.
tion will seriously increase unemployment. Unions
in Japan and Western Europe have made it clear
that they consider job loss from automation to.be a
subject for negotiation.,In Japan, however,.the
Secret
2/ December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
25X1
25X1
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
organization of unions along company lines is an
advantage for Japanese firms. Since workers have a
strong stake in their company's welfare and many
jobs are largely guaranteed, workers have so far
posed few obstacles to efforts to automate.
In contrast, the influence of organized labor in
Western Europe is seen by some industry experts as
a substantial constraint on management's freedom
to introduce automation. We believe, however,
labor's strength in Western Europe may actually
provide an impetus to firms to introduce new
automation:
firms would rather invest in automation than in
new hires to increase output, because workers have
strong legal protections against layoffs. An addi-
tional impetus comes from labor's drive for a
shorter workweek, which will necessitate increased
labor productivity if firms are to remain interna-
tionally competitive. The capacity of FMS to
quickly and economically adjust to a wide range of
production levels with little change in staffing
requirements makes it an attractive proposition for
West European manufacturers.
According to industry observers throughout West-
ern Europe, the perception is shared by labor,
government, and business alike that steps must be
taken to retain or regain the region's competitive-
ness in key industries. The involvement of orga-
nized labor in planning for new automation, the
common perception of the need to boost productivi-
ty, and the difficulty of making short-term adjust-
ments in the labor force combine to facilitate the
move to FMS by West European firms.
The adverse effects of changing demand patterns,
financial constraints, and social climate can make
government involvement a crucial factor in reduc-
ing the risk of FMS development and application.
Although the scale and scope of foreign govern-
ment support measures vary considerably among
countries, we expect government involvement to
grow on the basis of the announcement and imple-
mentation in major countries of new projects to
increase support of manufacturing technologies.
Secret
2/ December 1984
Foreign Technological Leadership
Leadership in various FMS technologies is scat-
tered among the major industrial countries. The
French are leaders in the design of sophisticated
tool-handling systems, for example, and Japan
leads in flexible assembly technologies; the United
Kingdom excels in the design of control systems.
FMS technologies where foreign excellence exists,
or, in our judgment, is likely to develop, include:
? Software. Although the US National Bureau of
Standards Automated Manufacturing Research
Facility is conceptually more advanced in the
design of an overall system for factory integra-
tion, we believe the French are the most advanced
in developing software for FMS applications. The
French research in robotics and artificial intelli-
gence, for example, has produced the leading
universal robot programing language, important
in FMS installations where robots from a variety
of manufacturers are used. Additionally, France's
Dassault has brought to the market aComputer-
Aided Design/Computer-Aided Manufacturing
package for aircraft manufacturing that has
achieved worldwide acceptance.
? Sensors. West
Germany leads in the integration of sensors and
machine tools, providing the capability to inspect
parts while still on the machine and monitor
cutting operations in process. Such capabilities
are vital to producing high-precision or very large
parts such as airframe components, where in-
process adjustments must be made for tool wear
and other variables. These capabilities are impor-
tant to the manufacture of a variety of defense
products, such as components for nuclear
weapons.
? Tool Handling. The French have demonstrated
leadership in the design of sophisticated, high-
capacity tool-handling systems, which are key to
25X1
4-
25X1
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
A variety of government-
sponsored research pro-
grams, including projects at
the National Engineering
Laboratory, at universities
sponsored by the Science
Research Council and the
Production Engineering Re-
search Association. The
Automated Small-Batch
Production Program pro-
vides some support for re-
search projects in industry.
Flexible Manufacturing
Complex provided with
laser, 1977-85. Project
funded at $60 million, re-
search by consortiums of
private companies under
leadership of MITI's
Mechanical Engineering
Laboratory.
FMS included in Advanced
Automation and Robotics
Research Program of the
National Center for Scien-
tific Research; 25-percent
tax credit for research by
firms provided under the
Factory Automation Plan in
the amount of $13.8 million.
Grants to universities and
research institutes to match
contract funding from com-
panies. Government funding
contained in research bud-
gets of Ministry of Educa-
tion and Ministry of Re-
search and Technology.
Italian National Council of
Research Polytechnic of
Milan.
Government-supported re-
search on FMS at the Royal
Institute of Technology
(KIT) and in joint projects
between the Institute of
Production Engineering
Research and KIT and be-
tween Linkoping University
and KIT.
FMS scheme, government
grants for up to half of costs
to design of new equipment
for FMS. Budgeted at $110
million through 1985.
Some assistance available
through programs aimed at
robotics and NC machines.
Not a significant source of
funding.
A three-year Factory Auto-
mation Plan, launched in
October 1983, includes ex-
tra depreciation and loans
and grants from the Fund
for Industrial Moderniza-
tion (FIM). These funds are
part of $1 billion disbursed
by FIM in 1983-84.
Manufacturing Technology
Program to provide subsi-
dies to users of robots and
CAD/CAM, but not specif-
ically aimed at FMS. Bud-
geted at $175 million over
next four years.
National Industrial Board
budgeted $2 million over the
next three years to help
small companies invest in
FMS. The Swedish Board
for Technical Development
also subsidizes up to 50 per-
cent of the costs of installing
FMS.
Development contracts for manufac-
turers under the Factory Automation
Plan. Some support also from French
program to rationalize the industry
and nationalize important firms.
The Italian Machine Tool Builders As-
sociation seeking $320 million from the
government to aid smaller firms incor-
porating new technology in both their
plants and products.
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
F1VIS applications where complex machining op-
erations or excessive tool wear require frequent
tool changes. Japanese firms are rapidly catching
up, however, with the capacity of recently in-
stalled systems approaching that of the French
systems.
Implications for the United States
According to major trade journals, US manufac-.
turers have a favorable view of FMS in general, but
few feel they can financially justify the high cost of
FMS applications in their own plants at this time.
Consequently, the application of FMS in the Unit-
ed States has been uneven, with some firms em-
bracing it enthusiastically-usually installing mul-
tiple systems-while others, even in the same
industry, remain aloof. The United States is in a
strong position in some industries, such as agricul-
ture and construction equipment, where US use of
FMS is probably greater than~anywhere else in the
world. In other sectors, such as machine tools and
electronics, industry experts generally agree that
US firms substantially lag. European and Japanese
producers in the use of FMS.
Foreign~deveIopments in FMS could have a major
impact on the competitive position of the United
States over the longer term. As indicated above,
most US industrial analysts believe that the current
pace of FMS development and application in West-
ern Europe and Japan is significantly greater than
in the United States. If this pattern is maintained
over the next several years, it will provide foreign
firms with a competitive edge by giving them the
ability to meet surges in demand, quickly redesign
products, and economically produce in small batch-
We believe FMS development and application will
be especially important to~the modernization of the
US defense industry, both in its ability to produce a
wide variety of weapons and key components on a
cost-effective basis and to meet surge requirements
at varying levels of mobilization. Foreign defense
industries have already had some success in mod-
ernizing their production of advanced weapon sys-
tems using FMS: If-the-United States fails to keep
Secret
11 December 1984 .
without FMS capabilities.
pace with FMS, we believe it will lose opportunities
to reduce the time from design to production of new
weapon systems, expedite design changes, and re-
duce costs for spare parts inventories. In addition,
we believe the levels of investment necessary to
achieve surge requirements for a wide variety of
military components are likely to be much higher
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Afghanistan:
The Economy Five Years
After the Invasion)
The Afghan economy, primitive and slow growing
even before the Soviet invasion in December 1979,
continues to be disrupted by the ongoing hostilities.
Although overall food output is probably near the
level of the 1970s, some rural areas are facing
serious food shortages because of below normal
water levels, a disrupted distribution system, and
military operations. The small industrial sector
continues to be plagued by labor and raw materials
shortages, frequent power blackouts, and fuel ra-
tioning. Economic development programs have fall-
en by the wayside because of a lack of security and
the loss of Western assistance.
The Soviets are increasingly involved in propping
up the Afghan economy, but the financial costs are
relatively small. The Soviets probably will not be i
able to reduce economic assistance soon because
the deteriorating military situation makes any eco- I I ~ ~ ~ ~ I ~ ~ ~ ~ I
nomic improvement unlikely. Increasing dissatis- o ~9~0 ~s so ss
faction with cuts in an already low standard of a Fiscal year ending 20 March. 1970-84 Afghan Government statistics;
living makes it likely that more Afghans will join 1986 CIA estimate.
the insurgents.
Agricultural Problems and Resiliency
military operations affects only a small portion of
Since the Soviet invasion, agriculture-the main- cultivated land. We believe that by and large the
stay of the economy-has faced numerous disrup- destruction is a byproduct of the fighting and not a
tions, and we believe the land under cultivation has result of Soviet policy.
declined. About 3 million people have fled to
neighboring Pakistan and Iran, and 3 to 4 million
people have been displaced within Afghanistan. Overall Food Situation
Routine maintenance of vineyards, orchards, and
irrigation networks is being neglected. Commercial Total food supply in fiscal year (FY) 1984 and most
crops, such as cotton, have been particularly hard of 1985 probably was near the levels of the 1970s.
hit as farmers shift to food reduction. Local We believe that in each of the last two years
observer however, indi-
cate that destruction of crops and farms caused by
Afghanistan: Foodgrain Production,
1970-85a
Secret
DI IEEW 84-050
11 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
domestic production and imports have supplied 2.8
to 3.3 million metric tons of wheat to feed roughly
14 million people. Afghanistan was generally con-
sidered self-sufficient in wheat in 1976, when pro-
duction reached 2.9 million tons and the population
was roughly 14.5 million. Nonetheless, shortages
still occur-especially in the rural areas-because
of crop failures in isolated areas, distribution prob-
lems, private stockpiling and hoarding, and the
destruction of some food in storage.
We estimate the FY 1984 wheat crop at between
2.5 and 3 million tons, and analysis of
~neterological data indicates that
output in FY 1985 declined by about 10 percent
because of less-than-normal precipitation. Al-
though we cannot measure production of all crops,
we believe the wheat harvest is a useful indicator of
total food production.
We estimate that between 300,000 and 360,000
tons of wheat were brought into Afghanistan-
about half from the USSR and half from Paki-
stan-in 1983. According to
Soviet and Afghan press reporting, wheat
imports from the Soviet Union increased from
about 75,000 tons in 1980 to 160,000 to 180,000
tons in 1983. While we do not have specific report-
ing for FY 1985, we speculate that imports of
wheat may have declined slightly because of favor-
able domestic production in FY 1984. We expect
wheat imports to increase next year because of the
poor crop this year. Most of the Soviet grain is sent
to Kabul and to other major cities. We believe that
in rural areas where domestic supplies are insuffi-
cient, particularly near the eastern and southern
borders, shortages are largely alleviated by imports
from Pakistan. Western observers estimate that
140,000 to 180,000 tons of wheat are brought in
annually from Pakistan.
]Energy-)(Dependence on USSR
The Soviet Union is Afghanistan's primary petro-
leum supplier. Nevertheless, Kabul has suffered
periodic shortages of virtually all petroleum prod-
Secret
21 December 1984
ucts since 1980. These shortages have resulted from
Soviet refusal to ship fuel until overdue accounts
are paid and from delays caused by insurgent
attacks on convoys and the pipeline from the Soviet
Union.
War-related disruptions of electricity are making
Afghanistan increasingly dependent on the Soviets
for deliveries of fuel for electric power generation.
Brownouts and supply interruptions in Kabul are
frequent because of insurgent sabotage of transmis-
sion lines carrying hydroelectric power to Kabul as
well as a lack of precipitation to power the hydro-
electric generators. The US Embassy reports that
electricity shortages in 1984 have been among the
worst since the Soviet invasion.
Afghan Gas Still Profitable
The Soviets dominate production and distribution
of natural gas, Afghanistan's most important natu-
ral resource and major export. Since 1957, the
Soviets have provided credits, equipment, and tech-
nical assistance for development, and the Soviets
import nearly 90 percent of Afghan gas production.
This gas, while not vital to the Soviets, is a useful
supplement to fuel supplies in areas bordering
Afghanistan as well as a feedstock for a nearby
petrochemical plant. The Afghans use the remain-
der of their natural gas output in a nitrogen
fertilizer plant and agas-fired electric power sta-
tion in Mazar-e Sharif, a textile factory in Balkh,
and the city of Sheberghan.
Gas exports to the Soviet Union last year were
officially reported at 2.4 billion cubic meters, com-
pared with the 2.9 billion cubic meters delivered in
1975, and, according to a Kabul press report, the
FY 1985 contract for exports to the USSR calls for
no increase in volume. The Soviets. valued FY 1984
gas imports at $3.00 million. Gas exports now
account for about 45 percent of government reve-
nue, compared with less than 25 percent before the
invasion.
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Afghanistan: Natural Gas Production,
1975-84a
0 1975 76 77 78 79 80 816 82 83 84
~ Fiscal year ending 20 March.
6 New field on stream, but output significantly less than original target of
4 billion cubic meters. -
lateral aid institutions were the primary factors in
the deterioration. Official foreign reserves are just
over $200 million, less than half that in 1979.
Individual Western countries and most multilateral
institutions have cut off economic assistance to
Afghanistan. Total aid from Western countries and
the Organization of Petroleum Exporting Countries
was about $100 million annually in the late 1970s.
In December 1980, the World Bank had almost 20
ongoing or proposed projects involving credits total-
ing more than $200 million. In October 1981,
however, it canceled all but about $30 million in
credits and currently is not making disbursements.
The UN Development Program is one of the few
international agencies that has maintained funding
in Afghanistan, but annual contributions have de-
clined to a few million dollars.
Soviet Financial Support Critical
Soviet economic aid has become critical, with the
decline in Afghan economic activity, the inability
Other Industry Remains Depressed
The performance of the other industrial sectors has
been weak in recent years, and production declines
have been particularly pronounced in the textile,
sugar, and vegetable oil industries. The decline is
caused by damage to production facilities, short-
ages of agricultural raw materials, internal trans-
portation difficulties, power outages, shortages of
skilled labor, and the loss of Western markets.
Foreign Balances Go Into the Red
Afghanistan's foreign payments position went into
the red in FY 1982, and the deficit probably
reached about $170 million in FY 1984. Stagnating
exports, rising imports, a decline in workers' remit-
tances through official channels, and a cutback in
foreign assistance from Western donors and multi-
to collect taxes and buy food in the rural areas, and
the decline in Western assistance. Moreover, the
exodus of many of the educated bureaucrats has
made it difficult for the government to provide
sufficient services for areas under its control. Only
with Soviet economic assistance-at -least $1.3
billion since the invasion-and a tripling of the
price the Soviets pay for gas has Kabul been able to
meet its import requirements.
External debt has grown rapidly. The official debt
was $2.4 billion in March 1984, an amount more
than three times FY 1984 exports of goods and
services and twice the preinvasion level. Over 80
percent of the debt is owed to Communist coun-
tries, primarily the USSR, with long maturities and
at relatively low interest rates. The Soviets have
repeatedly allowed the Afghans to delay payments
of interest and principal.
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
25X1
25X1
25X1
25X1
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Afghanistan: Balance-of-Payments Summary a
Changing Trade Patterns
The value, composition, and direction of Afghan
trade have changed dramatically over the past five
years. Total recorded exports in FY 1984 were
slightly less than $700 million, compared with
about $340 million in FY 1979, with almost all of
the increase resulting from increases in the price of
gas paid by the Soviet Union. The volume of most
commodities exported has remained relatively con-
stant or has declined. Total recorded imports ap-
proached $950 million in FY 1984, compared with
$630 million in FY 1979. Commercial imports,
primarily fuel, manufactured goods, machinery,
and food accounted for most of the increase, with
price increases a significant factor. Commodity aid
imports also increased, but project aid imports
declined.
Trade with the Soviet Union has increased signifi-
cantly. The Soviets' share of total recorded exports
rose from about 35 percent before the invasion to
almost 60 percent in recent years. The Soviet
Union was Afghanistan's major export market even
before the invasion, because it is the only feasible
recipient of natural gas exports. The Soviet share of
Secret
11 December 1984
Afghan imports has more than doubled to about 70
percent in the past few years, largely because of
increases in food and capital goods imports.
Recorded trade with almost all non-Communist
countries has declined. India and Pakistan continue
to be important trading partners purchasing about
25 to 30 percent of Afghan exports. Japan provides
about 10 percent of Afghanistan's commercial im-
ports. Trade with the United Kingdom and West
Germany, while still important, is about one-half
the value of the preinvasion level.
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Afghanistan: Foreign Exchange Reserves,
1978-848
I
3so
n
l i
l
n
I
I
I
n
zso I
I I
I
n
.~
zoo
I
I
I
I
tso
I
I
I I
I
too
I
I
I I
I
so
II
1978
Outlook: Economic Improvement Doubtful
With no end in sight for the insurgency, we do not.
expect the Afghan economy to show any real
improvement. As long as the insurgency continues:
? Transportation will be disrupted.
? The government will be unable to procure agri-
cultural products and collect taxes from the
countryside.
? Industry will face shortages of power, equipment,
raw materials, and labor.
? The country will be more vulnerable to regional
food shortages.
? Trade with and aid from the West will remain
curtailed.
The Soviets are unlikely to reduce the economic
assistance they provide to the Afghan Government.
They still must ensure that sufficient food and fuel
are available to feed the population under its
control and handle economic and military transpor-
tation needs. We do not believe economic assistance
is a major issue in Soviet policy toward Afghani-
stan.
The insurgency receives benefits from a deteriorat-
ing Afghan economy and disruption in government-
sponsored economic activity:
? The Afghan population becomes more dissatis-
fied with the regime in Kabul and its Soviet
sponsors, providing more recruits for the insur-
gent cause.
? Insurgent morale is bolstered by success in dis-
rupting the economy.
? The cost to the Soviets of propping up the regime
is increased.
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Thailand: Devaluation
Brightens Economic
Prospects
Bangkok's large devaluation last month should help
boost Thailand's lagging exports and slow the
growth of its current account deficit. Equally en-
couraging for domestic economic management is
the way the devaluation was planned and the
skillful manner in which Prime Minister Prem
defused the ensuing political outcry. It remains to
be seen, however, whether Prem can overcome
opposition to reforms to support the devaluation
and to accelerate the diversification of Thai exports
from commodities into light manufactures and
processed agricultural products.
Pressures Leading to Devaluation
The devaluation was aimed at easing Thailand's
deteriorating external finances, which had tar-
nished an otherwise impressive economic perfor-
mance since 1982. Export earnings over the past
two years were depressed, not only by low prices for
Thailand's key commodities-rice, sugar, tin, and
rubber-but also by a substantially overvalued
currency. The baht-last devalued in 1981-had
been pegged to the US dollar and thus had been
appreciating in terms of other currencies. A recent
World Bank study showed that the trade-weighted
exchange rate had increased by about 20 percent
since 1981.
The overvalued baht-in combination with low
international commodity prices and an expansion-
ary monetary policy-led to a deterioration in
Thailand's foreign payments position. Despite
growing foreign exchange earnings from tourism
and overseas remittances, the current account. defi-
cit reached a record $2.9 billion in 1983. By
yearend, the government imposed a tight money
policy and increased tariffs to slow imports, im-
prove the trade balance, and ease the currency
speculation that had reduced net foreign exchange
reserves by nearly $1 billion in 1983. These mea-
sures produced only a slight improvement in the
current account through mid-1984, however, while
aggravating a domestic liquidity crisis.
debt payments.
Bangkok became increasingly concerned with the
increase in foreign debt from $10 billion in 1981 to
$14 billion this year. The debt service ratio rose to
22 percent, primarily reflecting the expiration of
grace periods on loans from the late 1970s. Plans
by the military and some civilian officials to use
relatively cheap foreign loans to fund a foreign
spending spree promised to compound the country's
Heading Ofl Financial Strains
Prem initially resisted IMF and World Bank advice
to devalue because of concern about possible politi-
cal unrest. By late summer, however, his advisers
had apparently convinced him that a currency
adjustment was necessary to promote long-term
export competitiveness.
On 5 November, the government
devalued the baht 17 percent against the US dollar
and began floating the currency against a basket of
trading partner currencies. Many businessmen, pol-
iticians, and some major Thai banks lost money
with the devaluation. Nonetheless, Prem was able
to defuse political reaction
Secret
DI IEEW 84-050
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
25X1
25X1
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Thailand: Economic Indicators, 1978-84a
Growth Rates
Percent
Manufacturing
Consumer prices
GDP
Exports
Billion US $
Agricultural and
fishing products
Metal products
^ Manufactured products
Other
Balance of Payments
Billion US $
Merchandise trade
balance
Current account
Foreign Debt
Billion US $
Official sources debt
Private sources deb[
1 1 1 1 1 1 1
0
z ri
. ~~~ _ i
Z 1-- I I I_ I I
In addition, Bangkok has heeded World Bank and
IMF advice to impose new austerity measures to
limit increases in the budget deficit that would
undermine the devaluation. The Cabinet last
month cut the 1985 budget by 10 percent, froze
civil service salaries, and postponed "nonessential"
development projects. It also reduced the 1985
ceiling on government-guaranteed foreign loans by
30 percent to $1.6 billion. Tax increases-especial-
ly in the controversial exit tax on Thais traveling
abroad-are also under consideration.
The government is also moving to reduce the
burgeoning informal financial sector that lent to
small manufacturers and exporters. Such lending
mushroomed during the past year because of credit
restrictions and high commercial interest rates. A
Cabinet decree last month ordered "chit" funds-
lending schemes with more than ten partners or
deposits exceeding roughly $200,000-to disband
within a year. Bangkok had been concerned that
such schemes-which have many politically influ-
ential depositors rain funds from the commer-
cial banking system.
Although Prem easily survived the first round of
political opposition, debate on economic reform will
probably persist through 1985 as it becomes clear
that the promised benefits of the devaluation will
not materialize quickly. The current account
should improve somewhat next year. We believe
the deficit will decline to roughly $2.3 billion, with
most of the improvement reflecting slower import
growth. This, together with cutbacks in foreign
borrowing, will.add to popular dissatisfaction.
Export earnings are unlikely to be affected immedi-
ately. The international prices of rice, sugar, tin,
and rubber; which are denominated in dollars,
remain depressed. The volume of tapioca, sugar,
and tin exports meanwhile are limited by interna-.
tional commodity agreements. Expected gains in
25X1
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Political Fallout
From the Devaluation
Opposition to the devaluation arose quickly from
the military, the political opposition, and orga-
nized labor. Armed Forces Commander in Chief
General Athit attempted to enhance his position as
the leading contender to succeed Prem with a
strident campaign against the government's action.
In an emotional television address, Athit delivered
what was in e./ject an ultimatum, calling for revo-
cation of the devaluation and a Cabinet shul.~le. At
the same time, the major opposition party led a
drive to convene a special National Assembly
session to debate the move.
Adding to the political tensions in Bangkok, labor
leaders threatened action ij their demands for
wage adjustments to offset the anticipated infla-
tionary effects of the devaluation were not met.
Three days cuter the devaluation, railway workers
began walking ojj their jobs in preparation for a
nationwide strike.
With the support of the Palace, Cabinet, and
leading technocrats, Prem was able to weather the
storm. He mollified critics ojthe ir~ationary
impact of the devaluation by pledging to:
? Subsidize domestic oil prices.
? Increase surveillance over prices of necessities to
prevent profiteering.
? Lift recently imposed tax surcharges on imported
products, except some luxury items.
? Increase foreign exchange available for military
purchases.
? Review the government's September decision to
freeze the minimum wage.
? Consider, on a case-by-case basis, remedies for
business losses attributable to the devaluation.
Athit withdrew his demands on 11 November, and,
without military backing, support for reconvening
Parliament withered. Furthermore, the railway
strike proved largely unsuccessful
exports of manufactured goods will be limited,
however, by higher costs for imported materials for
assembly operations that make up much of Thai-
land's export industry.
The US Embassy notes that the devaluation was in
part timed to take effect when most of the 1984
rice crop was still in farmers' hands, not yet sold to
middlemen. We believe that higher farm income
will encourage greater rice production next year.
The devaluation has already allowed ~Thailand-
the world's largest rice exporter-to reduce effec-
tive export prices roughly $20 a ton last month.
This will further undercut sales by the United
States, Thailand's major competitor in the world
rice market.
The size of the devaluation, moreover, has reas-
sured most international bankers and foreign inves-
tors that currency speculation will not force anoth-
er currency adjustment soon, Q
Bangkok is currently arranging
a $300 million commercial line of credit on ex-
tremely favorable terms. Financial journals report
a sharp increase in capital inflows in the last
month, suggesting increased confidence in the Thai
economy.
Longer Term Reforms
We believe Thai economic policy makers-espe-
cially Finance Minister Sommai and chief planner
Dr. Snoh-will use the devaluation as a spring-
board to implement other long-discussed, but politi-
cally controversial, reforms. They are designed,
over time, to shift the structure of Thai exports
from commodities-still 60 percent of export earn-
ings-to processed agricultural products and man-
ufactured goods. We believe these measures, which
would involve a major restructuring of the tariff
and tax systems, had been postponed because they
would financially damage a number of influential
business and military figures. If the measures
currently under discussion are implemented, we
believe they will-in combination with the tradi-
Secret
2/ December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
25X1
25X1
25X1
25X1
25X1
I
25X1
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
tionally strong and dynamic private sector-proba-
bly prevent the recurrence of serious external finan-
cial problems and allow the continuation of the
current 6-percent growth rate through the end of
the decade.
We believe Prem's deft handling of the devaluation
has placed him in a strong position to implement
reforms. His forceful resolution of numerous prob-
lems over the past few months-including limiting
the military's access to foreign loans and restricting
the chit funds-belies his previous reputation for
indecisiveness.
We would not rule out the possibility, given the
unpredictable nature of Thai politics, that the
recent momentum toward economic reform could
slacken. In the face of public demonstrations, Prem
would probably shift tactics and slow the pace of
reform as he has done in the past. A successful
political challenge to Prem or a recurrence of his
recent health problems, however, would probably
cut short the implementation of these measures.
Secret
21 December 1984
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
 Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2
Secret
Secret
Sanitized Copy Approved for Release 2011/03/07 :CIA-RDP97-007718000707330001-2