CARIBBEAN ECONOMIES: SQUEEZED BY STRUCTURAL CHANGES IN WORLD BAUXITE INDUSTRY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97R00694R000500710001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 19
• Document Creation Date: December 22, 2016
• Document Release Date: March 18, 2011
• Sequence Number: 1
• Publication Date: March 1, 1986
• Content Type: REPORT

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Directorate of
Intelligence
World Bauxite Industry
by Structural Changes in
Caribbean Economies: Squeezed
S;avaraf
GI 86-10018
March 1986
Copy 4 0 9
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Directorate of
Intelligence
World Bauxite Industry
Caribbean Economies: Squeezed
by Structural Changes in
Division, OG I
This paper was prepared by Office
of Global Issues. Comments and queries are welcome
and may be directed to the Chief, Economics
Secret
GI 86-10018
March 1986
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Caribbean Economies: Squeezed
by Structural Changes in
World Bauxite Industry
Key Judgments Structural changes in the world bauxite market over the past decade have
l,l it arson available dramatically reduced the market share of Caribbean producers, leaving
as at /anuarv 1986 them in poor economic shape and with little prospect for recovery. As a re-
suit, we expect financial difficulties in the region to mount and political
strains to intensify, creating a number of concerns for the United States:
? Continued capacity shutdowns in the US aluminum industry and the
retrenchment of US aluminum companies in the Caribbean are adding to
the economic burdens of the region, offsetting many of the benefits of the
Caribbean Basin Initiative. As a result, more calls for economic assist-
ance from Washington will be forthcoming.
? Growing debt in the Caribbean will have a negative impact on the US
financial community. The bauxite-led decline in the Jamaican economy,
for example, could provide a springboard for the reelection of Michael
Manley--greatly increasing the chances of a debt moratorium. More
than one-fourth of Jamaican debt is owed to US banks.
? The door could open further for opportunistic meddling by antidemocra-
tic forces such as Libya, Cuba, and the Soviet Union. Already, according
to Embassy reporting, Libya has opened a mission in Suriname. In recent
years, North Korea, Cuba, Bulgaria, and the USSR have all either
increased aid or opened lines of credit to Guyana.
? The weak economic picture for the Caribbean could pave the way for
greater reliance on the underground drug economies. The importance of
Jamaica and Suriname as conduits for narcotics trafficking has grown
sharply as their economies have turned downward. Narcotics operations
will continue to provide lucrative profits and attractive employment
opportunities for the Caribbean work force.
Opportunities for increased exports to the United States offered by the
Caribbean Basin Initiative are not likely to compensate for the bauxite-led
earnings slide. By 1984 annual earnings from the sale of bauxite and
bauxite products for the Caribbean producers stood at only 57 percent of
1980 levels, with lost earnings over the four-year period totaling $ 1.1
billion for Jamaica, $428 million for Suriname, and $320 million for
Guyana. In Haiti and the Dominican Republic, bauxite earnings declined
to zero with the cessation of mining activity in 1982.
iii Secret
(.1 86-100/8
March 1986
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According to our analysis, several factors caused the collapse of the
Caribbean bauxite industry:
? Rapid aluminum demand growth in the 1950s and 1960s spurred an
intensive search for new bauxite deposits, resulting in the discovery of
large, rich bauxite reserves in Australia, Guinea, and Brazil.
? Domestic policies, such as the nationalization of the Guyanese aluminum
industry and the imposition of high levies on bauxite exports by Jamaica
in the mid-1970s, soured the multinational aluminum companies on the
Caribbean as a source of bauxite.
? The increase in oil prices in the early 1970s spurred a major restructuring
of sources of supply within the industry toward those countries that had
both cheap energy and abundant bauxite supplies and away from the
high-cost, inefficient Caribbean producers.
In our judgment, bauxite earnings losses for the Caribbean producers will
be permanent. We expect bauxite trade to continue to shift to those
countries that can produce it most efficiently. Caribbean producers will get
little relief from the expected growth in aluminum demand during the
remainder of the decade because much of the growth will occur primarily
in Europe and Japan, where Caribbean bauxite exports are least competi-
tive. Some relief could result if prices rise, but serious overcapacity will
prevent any significant gains well into the 1990s.
Secret
Gl 86-10018
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Key Judgments
Market Shifts Batter the Caribbean
Factors at Play
2
New Deposits
2
The Energy Crisis
2
Domestic Policies
3
Economic Impact-Lower Export Earnings, Increasing Debt
3
Political Impact- Increasing Discontent and Drug Trafficking
4
Looking Ahead
6
Implications for the United States
10
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G1 86-10018
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Table 1
Bauxite Production
Total
48,715
63,671
78,192
73,476
63,092
63,615
80,849
NA
Caribbean producers
24,191
21,456
20,991
18,957
13,743
11,747
14,595
11,860
Dominican
1,086
785
511
410
152
0
0
0
Republic
Guyana
4,417
3,828
3,052
2,396
1,783
1,087
2,485
2,485
Haiti
657
522
461
539
374
0
0
Jamaica
12,010
11,570
12,064
11,606
8,158
7,682
-
8,735
6,000
Suriname
6,022
4,751
4,903
4,006
3,276
2,978
3,375
3,375
Other Western
24,523
42,215
57,201
54,519
49,349
51,868
66,254
NA
producers
Australia
9,256
20,958
27,179
25,441
23,625
24,539
32,182
32,200
Brazil
510
969
4,152
4,463
4,187
5,239
6,271
7,000
Guinea
2,490
8,406
13,911
12,822
11827
12,986
14,738
14,750
Estimate.
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Caribbean Economies: Squeezed
by Structural Changes in
World Bauxite Industry
Global bauxite production and trade have shifted
dramatically away from the Caribbean producers in
favor of Australia, Guinea, and Brazil. According to
reliable industry statistics, Caribbean bauxite produc-
tion has fallen 50 percent since 1970 (see table I):
? Jamaican bauxite production---after peaking at
more than 15 million metric tons in 1974 has
slumped drastically with output plummenting to an
estimated 6 million tons last year.
? Guyana's production began falling in the early
I 970s when the industry was nationalized and
brought under the control of the Guyana Bauxite
Mining Enterprise (Guymine). Since then, output
has remained far below its 5-million-ton capacity,
reaching only 2.5 million tons in 1984.
? Suriname, once the third-largest Western producer
of bauxite, has seen its production fall from a peak
of about 8 million tons in 1972 to only 3 million tons
in 1983. Production was somewhat improved in
1984 and 1985, but well below peak levels.
? Production in the Dominican Republic peaked in
1974 at nearly 1.2 million tons. Output fell steadily
thereafter, ceasing altogether in 1982 as ores be-
came depleted.
? Haitian production has followed a similar pattern.
Output fell from 657,000 tons in 1970 to 374,000
tons in 1982 when production was halted because of
depleted mines
The decline in the importance of the Caribbean in the
world bauxite market is most directly attributable to
competition from Australia, Guinea, and, more re-
cently, Brazil. Together these three countries' share of
non-Communist bauxite production grew from one-
fourth to roughly two-thirds during the period 1970-
84 (see figure 1). During the I 970s, Australia nearly
Figure 1
Bauxite Production
( i U I I I G I , I iI vI/I
m) d Auslrilia
tripled its bauxite output. After a small dip in produc-
tion during the 1980-83 recession, Australian output
reached a record 32.1 million tons in 1984-40
percent of total non-Communist production. Guinean
bauxite production grew rapidly with the development
of the Boke-Sangaredi deposit. By 1980 Guinea had
overtaken Jamaica as the world's second-largest pro-
ducer with output reaching 14 million tons. After
slumping in 1981-82, production has recovered to the
nearly 15-million-ton level. Brazil's rapid ascendance
can be traced to the opening of the Trombetas deposit
in 1979. Estimates based on industry data suggest
that capacity may have reached 6 million tons at this
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site and expansion is continuing. As a result, Brazilian
bauxite output grew from only 1.6 million tons in
1979 to 7 million tons in 19851
The decline in trade for the Caribbean producers has
been even worse than the production downturn. Ac-
cording to country trade statistics, Caribbean bauxite
exports to the countries of the Organization for
Economic Cooperation and Development (OECD) fell
from 17.5 million tons to 4.6 million tons between the
years 1970 and 1983; and the Caribbean share of
OECD bauxite imports fell to about 20 percent from
nearly two-thirds. Each exporter in the region has
been hard hit. Jamaican, Guyanese, and Surinamese
exports were down approximately 65, 75, and 90
percent, respectively, from their 1970 levels.
At the same time, Australia, Guinea, and Brazil were
making huge gains at the Caribbean producers' ex-
pense. Australian bauxite exports grew by more than
20 percent to 4.3 million tons during this period.
Guinea's sales to the OECD increased from just
160,000 tons in 1970 to nearly 7 million tons in 1983,
and Brazil's bauxite tonnage to the OECD went from
zero to more than 2 million tons. Together these three
countries now account for nearly two-thirds of OECD
bauxite imports.
Factors at Play
The depression in the Caribbean bauxite industry, in
our view, has been caused by a number of factors: the
discovery of new deposits, the energy crisis, and
domestic policies.
New Deposits
The boom period of 1950-70, in which aluminum
demand in the OECD countries grew from only 1.5
million tons to nearly 8 million tons, spurred an
intensive search for new bauxite deposits. According
to the Bureau of Mines' estimates, bauxite reserves in
Australia have increased from 2 billion tons to nearly
5 billion tons over the last 20 years. Guinea's reserves
are now placed at nearly 6 billion tons, an increase of
40 times since 1965. Bauxite reserves in Brazil,
believed to be nearly nonexistent 20 years ago, today
stand at an estimated 2.3 billion tons. Moreover, the
ores in these countries were of higher grade and
quality and as a result could be processed more
cheaply than those in the Caribbean. Refiners, in
their quest to reduce costs, increasingly sought this
material for their plants.
The Energy Crisis
The rapid increase in the price of fuel in the early
1970s catalyzed a series of structural adjustments
within the industry that had a major negative impact
on Caribbean producers. As fuel costs rose to about
one-fourth the total cost of producing aluminum and
transportation costs escalated, the multinationals
were spurred to develop those deposits in countries
that had both cheap energy and abundant supplies of
bauxite. As a result, Australia and Brazil gained
increased favor among aluminum producers. For ex-
ample, over the past
decade the Aluminum Company of America
(ALCOA) has focused all of its investment on new
smelters and refineries in Brazil and Australia, where
energy costs are as much as 50 percent lower than in
the United States.
The movement to locate alumina refining capacity
near energy-rich bauxite sources decreased the need
for exported Caribbean bauxite. Indeed, during the
period 1970-83, bauxite imports by the OECD coun-
tries dropped by 21 percent while alumina imports
more than doubled from 5.1 million tons to 12.6
million tons. This trend was accelerated by increasing
transportation costs. Because alumina has roughly
twice as much aluminum content as bauxite, it is
more cost effective to ship.
Caribbean producers were further disadvantaged by
the fact that their bauxite processing operations,
already established, were not energy efficient. This
made alumina production there even more expensive.
In Jamaica, for instance, it takes roughly 3 barrels of
oil to produce 1 ton of alumina. The standard con-
sumption in a modern, fuel-efficient plant is only
about 2 barrels per ton of alumina.
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Domestic Policies
Caribbean bauxite problems were heightened by det-
rimental national economic policies. Direct govern-
mental takeovers in the bauxite industry and the
imposition of stiff bauxite export levies combined to
sour the aluminum-producing multinationals on this
region. In 1971, Guyana took control of bauxite
mining and processing operations owned by the Alu-
minum Company of Canada (AI CAN). Four years
later, nationalization of the industry was completed
with the takeover of the Reynolds Metal Company's
facilities. In Jamaica during the mid-1970s, properties
belonging to aluminum companies that were not being
used in the production or transportation of bauxite or
alumina were nationalized. Kingston also began to
acquire equity interest in bauxite and alumina opera-
tions. As a result, the Jamaican Government gained a
51 percent controlling interest in the bauxite opera-
tions of both Kaiser Aluminum and Reynolds, and
minority shares in ALCOA and AI CAN alumina
facilities. In June 1974 the Manley government jolted
the multinational aluminum companies with a sixfold
increase in its bauxite export Icvy. Following the
Jamaican move, Suriname, Guys+na, Haiti, Guinea,
and Dominican Republic matched this increase.
While there were few closures of Caribbean facilities
in the early years of the higher bauxite levies because
producers were technically captive to deposit-specific
ore types, ' closures in the Caribbean became more
widespread with poorer market conditions in the
1980s. Jamaica, because of its high cost of production,
has been especially hard hit:
? Reynolds closed all mining operations in 1984,
citing the availability of cheaper ores elsewhere. Its
decision was probably prompted by the imminent
start-up of the Worsely bauxite and alumina com-
plex in Australia in which it has a 40 percent
interest.
? In February 1985 ALCOA shut down all opera-
tions, citing an aluminum glut and high costs.
the ALCOA plant
Alumina refining operations are tuned to particular bauxite ores.
Switching bauxite sources entails considerable costs because the
processing technologc must be revamped to accommodate the Hess
was producing alumina at a cost of about $230 a
ton against a world market price of only $110 a ton.
The plant was subsequently reopened under a five-
ycar-lease arrangement with the .Jamaican Govern-
ment, whereby ALCOA operates the plant for the
government.
? More recently, the financially troubled Alpart alu-
mina refinery the largest US investment in Jamai-
ca closed down operations because of mounting
losses. Alpart is jointly owned by Atlantic Richfield,
Kaiser, and Reynolds. Kaiser and Reynolds have
alternative Australian sources of supply that are
producing under capacity and at considerably lower
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? According to Embassy reporting, Al CAN has indi-
cated that it will soon close one of its two alumina
plants unless substantial tax relief is provided.
Similar trends prevail elsewhere in the Caribbean.
For example, in Suriname, ALCOA has reportedly
asked the government for financial concessions to
keep operations going
Economic Impact-bower Export Earnings,
Increasing Debt
Loss of market share and weak prices for bauxite and
alumina have led to mounting economic difficulties
for Caribbean producers. Since 1980 annual bauxite
and derivative export earnings have dropped about 50
percent in .Jamaica, more than one-third in Guyana
and Suriname, and disappeared entirely in Haiti and
Dominican Republic (see table 2(. Although the re-
gion's importance as a world supplier of these materi-
als has diminished greatly, bauxite and bauxite prod-
ucts remain the cornerstone of the Caribbean
producers' economics. Guyana, .Jamaica, and Suri-
name, for example, depend on bauxite, alumina, and
aluminum sales for roughly 45, 65, and 80 percent of25X1
their total export earnings, respectively. With few
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The US Connection: A Bane for Caribbean Producers
The plight of the Caribbean bauxite industries has
been made worse because of strong ties to the US
market--ties that were a decided advantage in the
1950s and 1960s. The ongoing depression in the US
aluminum industry has hit particularly hard, leading
to closure of plants that relied on Caribbean feed-
stocks. In 1982 Ormet permanently closed its Burn-
side, Louisiana, refinery. This was followed by the
shutdown of the larger Kaiser plant at Baton Rouge.
In 1983 Reynolds closed and put up for sale its
mining and alumina operations at Hurricane Creek,
Arkansas. More recently, Reynolds Corpus Christi
alumina refinery switched from Jamaican material to
Brazilian and Guinean ores. Altogether some 4 mil-
lion tons of US refining capacity that relied on
Caribbean bauxite has been closed or switched to
other bauxite sources since 1982.
alternatives for earning foreign exchange, dependence
on these exports has remained high even though
earnings have fallen precipitously.
The export earnings decline has contributed substan-
tially to growing debt problems in the region (see
figure 2 and table 3) and is of increasing concern:
? In Jamaica, debt totaled $3 billion in 1984, up
roughly $1.2 billion over 1980. Lost bauxite and
alumina earnings alone have totaled $1.1 billion
since 1980.
? Since 1980 Guyana's debt grew more than 70
percent, amounting to more than $1 billion in 1984.
Lost bauxite and alumina export earnings total
$320 million. Although the balance of trade has
remained positive through sizable reductions in
imports, the debt-service ratio remains high-ac-
counting for two-fifths of every export dollar
earned.
? Although the debt situation in Suriname has im-
proved slightly, the international financial commu-
nity is reluctant to lend to Paramaribo. Contribut-
ing to this stance has been a loss of $428 million in
potential bauxite, alumina, and aluminum earnings
between 1980 and 1984.
In Dominican Republic and Haiti, where external
debt has skyrocketed to roughly $2.9 billion and $600
million, respectively, bauxite earnings declines have
played only a small role.
Political Impact- Increasing Discontent
and Drug Trafficking
Deepening economic problems-largely the result of
the collapse in bauxite earnings-are spilling over into
the political arena. Measures taken to deal with the
financial troubles-such as wage freezes, higher tax-
es, and currency devaluations-have led to growing
economic hardships for the populace and mounting
discontent, especially in Jamaica. The January 1985
round of gasoline price hikes resulted in widespread
public demonstrations. The protest sent a clear signal
to Prime Minister Seaga that the patience of the
general public with a seemingly endless series of
economic hardships was near its limit. In June strikes
by public-sector workers protesting International
Monetary Fund (IMF) recommended adjustments-
including 2,700 layoffs-paralyzed the country for
several days. Job losses in the bauxite and public
sectors totaled at least 4,200 in 1985. Prolonged
economic troubles will make it increasingly hard for
Seaga to carry out IMF stipulations to raise prices on
key consumer imports or to allow the Jamaican dollar
to further depreciate without creating more social
unrest. With real income per capita lower than when
he took office in 1980, Seaga's popular support has
eroded substantially, boosting the electoral chances of
former Prime Minister Michael Manley and his leftist
People's National Party.
The situation is similar in Suriname and Guyana
where the bauxite and aluminum slump has led the
economic decline. Both countries are experiencing
shortages of basic goods and commodities as a result
of government imposed austerity measures, according
to Embassy reporting. The situation in Suriname
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Table 2
Export Earnings From Bauxite,
Alumina, and Aluminum
Dominican Republic
1982
1983
1984
Lost Export
Earnings
Bauxite
I8.5
15.7
5.3
0
0
53.0
Guyana
188.0
142.4
94.5
75.2
119.7
320.2
Bauxite
144.3
111.8
82.5
72.9
1 19.7
Alumina
Haiti
43.7
30.6
12.0
2.3
0
Bauxite
12.6
16.3
13.5
0
0
20.6
Jamaica
735.7
759.7
484.1
265.7
378.2
1,055.1
Bauxite
198.4
171.9
129.5
67.0
119.9
Alumina
537.3
587.8
354.6
198.7
258.3
Suriname
422.8
377.5
329.7
275.0
280.8
Bauxite
73.9
63.0
29.4
24.9
39.9
Alumina
284.8
265.5
230.9
215.6
198.6
Aluminum
64.1
49.0
69.4
34.5
42.3
Lost earnings assumes that earnings during the period 1981-84
remained at 1980 levels and is calculated as the sum of the annual
difference between actual and assumed earnings for these four
years.
could worsen significantly if ALCOA-the dominant
company in this sector-decides to cut back opera-
tions there as it did in Jamaica in 1984 and in Haiti
earlier in this decade.
The hardship brought on by the bauxite depression
has created openings and opportunities for leftist and
anti-US regimes and has increased the risks of height-
ened drug trafficking as the underground economy
becomes a more viable option:
? According to Embassy reporting in 1985, Libya
opened a mission in Suriname. At the same time,
Suriname's role as a major drug transit center has
grown sharply as its economic prospects have turned
downward.
? Guyana remains in economic shambles, and oppor-
tunities for meddling by leftist regimes appear rife.
North Korea, Cuba, Bulgaria, and the USSR have
all either increased aid or opened lines of credit to25X1
Guyana in recent years.
? Narcotics production and trafficking continues to
pose a major threat to security in the region.
According to a State Department assessment, Ja-
maica continues to be a major supplier of marijuana
to the US market. In addition, South American
drug traffickers increasingly favor Jamaica and
Suriname as transit points for US-bound narcotics.
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Comprehensive up-to-date information is not avail-
able, but fragmentary data suggest that 1985 was no
better for Caribbean bauxite producers. According to
the Latin America Commodities Report, Jamaican
volume of trade deteriorated badly in 1985. Bauxite
exports were 2.3 million tons in 1985, down 50
percent in comparison with 1984, and alumina ex-
ports were 7 percent lower. Incomplete International
Monetary Fund data indicate that Caribbean earn-
ings from bauxite and derivative products exports
also performed poorly:
? Jamaican earnings from the sale of bauxite and
alumina amounted to just $270 million last year,
down a whopping 30 percent from the previous
rear's total and almost a half billion dollars less
than 1980 earnings.
? Suriname's bauxite, alumina, and aluminum earn-
ings were $230 million in 1985, off almost a fifth
from the previous Years level.
Only in Guyana did 1985 bauxite earnings remain on
a par with those of 1984. We estimate that bauxite
exports in 1985 may have been a third higher than in
1984; however, since most of this increase was
achieved through barter with the USSR, earnings did
not reflect the added business.
We judge that, despite steady US pressure, continued
economic distress will further weaken Seaga's willing-
ness and ability to pursue drug producers and traf-
fickers
We believe that Caribbean producers will get little
relief from aluminum demand growth during the
remainder of the decade.
non-Communist alumi-
num consumption will reach 14.7 million tons in 1989,
up from 12.3 million in 1984-a 3.6 percent average
annual increase. This will not translate into greatly
increased Caribbean bauxite exports, however. Non-
Communist aluminum demand growth will occur
primarily in Europe and Japan where Caribbean
bauxite exports are least competitive, and continued
curtailment of US aluminum production will hurt
Caribbean producers. Once self-sufficient, the United
States now relies on imports of aluminum for increas-
ing shares of domestic needs. This will mean less
demand for Caribbean inputs-bauxite and alumina.
Elsewhere, Canada's aluminum output will continue
to expand but with its bauxite needs being filled
increasingly from Guinea and Brazil.
The Caribbean position will be further disadvantaged
by capacity additions elsewhere:
? In Brazil, expansion of the Trombetas bauxite
deposit is continuing. Last year 3.5 million tons of
new capacity was added at this site. We estimate
Trombetas's present capacity at 7 million tons.
We
estimate that by the end of this decade overall
bauxite production in Brazil will amount to roughly
14 million tons.
Venezuela's first
venture into bauxite production-the Los Pijiguaos
bauxite mine-is expected to come on stream in the
second half of 1986. This project will initially add I
million tons a year to world capacity. The Inter-
American Development Bank estimates that the
production goal of 3 million tons will be achieved in
1989.
? In India the 2.4-million-ton bauxite mine at Panch-
patmali will come on stream this year, bringing total
capacity to 3.6 million tons.
when the Grandhamardhan deposit
reaches capacity in 1987 another 600,000 tons of
bauxite could be produced each year.
25X1
25X1
25X1
25X1
25X1
2bAl
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Figure 2
Bauxite Related Export Earnings and
Aggregate Debt
,ll
Billion I S ti Million l S S`' Billion I'S ti
100 0h
0 3
'Willi III 1 11111
II 11
\lillinn l , ti ~
III
ill ii I S ti I'
~oo
I, Ilh
III {
Il
\lillion lS ti
~0
Million lS 5~ Blllllill l'S
800 4
I v )mI -Irnii1
h.\eric i1c rlrht
Billion I ' ti
I18
100
,II~~
III
I ~~~m b,wvlc
r~~ni I~.iuvil . ,iluniirl i. ,roil .iluinir1unl
..,m Ild dunill,
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Table 3
Aggregate Debt
1982
1983
1984
Increase in
Debt Since
1980
Dominican Republic
2,019
2,296
2,459
Guyana
607
725
757
763
1,047
+440
Haiti
291
441
548
563
602
+311
Jamaica
1,783
1,982
2,439
3,118
2,993
+ 1,210
Suriname
31
96
98
75
44
+ 13
11 Lost earnings for bauxite and/or alumina and/or aluminum.
Lost Export
Earnings
1981-84 (as a
percentage of
increase in
debt)
73
7
87
3,300
In addition, Australia--which is presently conducting
a feasibility study on the development of a fourth
bauxite mine has the capability to expand the three
existing mining operations when required.
These additions to worldwide capacity ensure that the
current oversupply situation will continue. We esti-
mate that in 1984 bauxite production exceeded de-
mand by about 30 million tons, or roughly 60 percent.
With capacity additions of at least 13 million tons
projected by 1990 and increased demand of only
about 10 million tons, the buyer's market will not
abate.
As a result, significant recovery in the Caribbean
bauxite sector appears extremely unlikely. The earn-
ings losses already sustained have been caused pri-
marily by structural change within the industry, and
lost market shares probably should be considered
more or less permanent. At current production levels,
bauxite prices would have to more than triple for
Caribbean producers to enjoy even the same level of
earnings they did just five years ago (see figure 3).
Falling oil prices would help restore some of the
region's competitiveness in the bauxite market, but
relatively old and inefficient plants will offset most of
Options available to Caribbean producers within the
bauxite and aluminum sector appear extremely limit-
ed. Lacking cheap energy resources, Caribbean pro-
ducers would have difficulty becoming competitive
even if they were to expand into alumina refining on a
large scale. Caribbean producers will also have diffi-
culty finding other nearby buyers of bauxite to re-
place the shrinking US market. Brazil, already self-
sufficient in this material, will instead become a
competing exporter, while Venezuela is well on its
way toward satisfying its own bauxite needs.
Actions taken by Jamaica and Suriname so far focus
mainly on maintaining markets and retaining an
industry presence-measures that fail to come to
grips with the basic ills of the industry in these
countries, such as inadequate investment, declining
ore grades, high energy costs, and inefficient plants.
Jamaica has lobbied successfully for US strategic
stockpile purchases of bauxite on both a barter and a
cash basis and has negotiated a long-term contract to
sell bauxite to the USSR. Jamaica is seeking to
expand into aluminum smelting so that it can have an
assured market for its alumina.
this impact.
25X1
25X1
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Soviet Activity in the Caribbean
Bauxite Producing Nations
Direct Soviet activity and influence in Guyana, Ja-
maica, and Suriname have been fairly limited so far.
The USSRs largest aid effort has been its scholar-
chip program. More than 60 students from the three
countries were studying in the USSR on all-expense
scholarships in 1984. Moscow has been largely un-
.cuccessful in promoting its credit programs in the
Caribbean, which are designed mainly to push Soviet
exports.
a $10 million
export credit to Jamaica was for the purchase of
Soviet automobiles, rather than for development.
Moscow also has offered to aid Guyana in bauxite
and gold mining, but no agreement has been signed.
There are no Soviet technicians in the three countries.
.Soviet influence through Cuban and Bulgarian activi-
ties is considerably more important. Cuba has been a
major donor to the bauxite producers in the Caribbe-
an, providing about $5 million in technical assistance
(mostly from small rural development projects) over
the past five years. More than 400 students from the
three countries are studying in Cuba. In 1984 Bulgar-
ia extended Guyana the largest Communist commit-
ment to the Caribbean/Latin America with $155
million for hydropower, mining, forestry, and fishing
projects.
Figure 3
Aluminum Prices
11 1979 80 81 82 81 84 8> 86
25X1
25X1
market will probably dry up in the next few years as
Venezuela becomes self-sufficient in bauxite produc-
tion.
Only in Guyana have measures been taken to revital-
ize the industry in addition to maintaining markets. In
March 1985 Guyana signed a five-year agreement
with Reynolds International for managerial and tech-
nical assistance in the bauxite industry, which is 25X1
currently operating at half capacity. Guyana contin-
recently failed negotiations with Colombia --
which would have led to the construction of a
140,000-ton smelter there using cheap Colombian
power and abundant Jamaican raw material result-
ed in Jamaica's decision to examine the possibility of
buying an aluminum smelter in the United States. In
addition, Jamaica has recently begun to more aggres-
sively market its bauxite and alumina in Western
Furope. Suriname has begun supplying Venezuela's
Interalumina Plant with bauxite. However, this
ues to seek funds for the purchase of new mining
equipment and spare parts. On the marketing front25X1
Guyana is seeking countertrade arrangements in at,
effort to circumvent its foreign exchange deficiencies.
According to press reports, Guyana recently signed a
seven-year agreement to supply bauxite to the USSR.
Guyana is to be paid for the ore with a range of Soviet
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goods, including agricultural machinery, pharmaceu-
ticals, and electronic equipment. Some aircraft, in-
cluding light planes and helicopters, are also likely to
be supplied. Such countertrade arrangements, wheth-
er offered by the East or the West, will probably be
viewed favorably by the financially troubled Caribbe-
an bauxite producers.
Continuing difficulties for the Caribbean bauxite
producers will cause a policy dilemma for the United
States because of problems with its own aluminum
industry. The preponderance of old plants and high
energy and labor costs assure that the United States
remains a high-cost aluminum producer. Since pro-
jected output and consumption trends give us no
reason to anticipate a dramatic increase in aluminum
prices over the next few years, the United States will
face increased pressures for further retrenchment
within its industry. If idled capacity in the United
States is permanently shelved and if plant closures
continue, prospects for bauxite imports from the
Caribbean will worsen.
Under these circumstances, more calls for aid from
Washington are certain to be forthcoming. Kingston
is likely to press for greater assistance, whether in the
form of additional bauxite purchases for the US
strategic stockpile, barter proposals, or direct econom-
ic aid. Indeed, the Caribbean bauxite producers may
perceive that they are being abandoned to a large
extent by US companies at a time when investment in
the region is being encouraged for other products
under the Caribbean Basin Initiative (CBI).2
The CBI itself will do little to help the Caribbean bauxite
industry. There are no investment tax credits to stimulate US
companies to invest in the bauxite industry, and bauxite imports
already had duty-free access before CBI. Suriname and Guyana
have yet for CBI eligibility because of political reasons.
Mounting debt in this region could also cause prob-
lems for the United States. Jamaica, for example,
owes more than one-fourth of its debt to US banks.
The chances of Jamaica declaring a moratorium on its
external debt would, no doubt, increase if Manley
were reelected prime minister. With no help from the
bauxite sector, the Jamaican economy is likely to
stumble badly and further jeopardize Seaga's
position.
The United States will thus face some difficult
choices. Assistance that provides the most visible and
immediate relief could well prove counterproductive if
it fosters continued overdependence on bauxite and
alumina. On the other hand, development assistance
and private investment in infrastructure, agriculture,
and light manufacturing-structural adjustments
that Washington and its allies agree are necessary for
the long-term economic viability of the region-will
require time for fruition. Buying that time in the face
of mounting political assaults from the left and
increasing economic and social strains from drug
trafficking will require deft political tactics as well as
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