INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000300050006-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 60
• Document Creation Date: December 22, 2016
• Document Release Date: September 8, 2011
• Sequence Number: 6
• Publication Date: February 28, 1986
• Content Type: REPORT

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Weekly
International
Economic & Energy
28 February 1986
DI IEEW 86-009
28 February 1986
937
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Secret
International
Economic & Energy Weekly
28 February 1986
iii Synopsis
1 Perspective-Economic Implications of the French Elections
3 France: A New Direction for the Economy?
7 International Financial Situation: The Plight of the Commodity Exporters
15 Chinese Agricultural Reform: Consolidating Gains
19 Sub-Saharan Africa: IMF Funding Declines
25 Briefs Energy
International Finance
International Trade
Global and Regional Developments
National Developments
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Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence,
Secret
DI IEEW 86-009
28 February 1986
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International
Economic & Energy Weekly
Synopsis
1 Perspective-Economic Implications of the French Election
The National Assembly election on 16 March seems likely to usher in a period
of political turbulence and economic uncertainty in France. The nub of the
problem lies in the power-sharing arrangement that is likely to emerge. The
next two years are likely to prove even more challenging than usual for US
policymakers dealing with France
3 France: A New Direction for the Economy?
The conservative opposition will probably win the National Assembly election
on 16 March, but its promises to "liberate" the economy through denational-
ization, tax cuts, and market deregulation are unlikely to lead to radical
changes in the short run.
7 International Financial Situation: The Plight of the Commodity Exporters
Recent attention has focused on Mexico and the Cartagena Group, but we are
concerned that debtors outside Latin America also may follow Mexico in
seeking major debt concessions or in unilaterally reducing their debt service
payments.
Expanded acreage and high yields-especially in coarse grains-probably will
boost global grain production to a record 1.35 million metric tons during
market year 1986 (July 1985-June 1986). As a result, grain prices generally
are expected to continue their downward trend and, with record stocks
accumulating, competition for grain sales will intensify.
15 Chinese Agricultural Reform: Consolidating Gains
Agricultural reform in China has brought sharp increases in rural output and
consumption over the past eight years, but there are many problems associated
with reform that need to be addressed. Nonetheless, US farmers will be hurt
by declining Chinese agricultural imports in 1986, and by growing Chinese
competition on the international market.
Secret
DI 1EEW 86-009
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19 Sub-Saharan Africa: IMF Funding Declines
A surge in repayments more than offset new IMF lending to Sub-Saharan
countries last year, resulting in a sharp decline in net drawings of IMF funds,
despite the Fund efforts to respond to the region's economic problems.
Repayments on the heavy IMF lending of the early 1980s are growing; at the
same time, various economic and domestic factors have limited new IMF loan
arrangements by African states.
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Perspective
International
Economic & Energy Weekly
28 February 1986
Economic Implications of the French Election 25X1
looking to run for president himself in 1988.
The National Assembly election on 16 March seems likely to usher in a period
of political turbulence and economic uncertainty in France. The nub of the
problem lies in the power-sharing arrangement that is likely to emerge. By
most projections, the conservative opposition will capture a majority in the
Assembly, ousting the Socialist government that has served since 1981.
Although the right will probably control the government after March, Socialist
President Mitterrand, whose term runs until 1988, has vowed to stay on and
"cohabit" with the conservatives. Never since the Fifth Republic was estab-
lished in 1958 has power been shared by a government from one party and a
president from another. The president, who has always been backed by a
legislative majority, has until now monopolized policymaking. After March,
Mitterrand will probably be pitted against a prime minister who will be
contending with him for dominance over policymaking and who might be
trade questions, notably agriculture.
Economic policy and foreign affairs are likely to be the main battlegrounds.
The right's platform focuses heavily on economic issues. Conservatives promise
to reverse the policies of the Socialists, especially nationalization, and
"liberate" the French economy through tax cuts, price decontrol, and the
elimination of laws constraining business. Although Mitterrand is likely to
cede control over domestic economic policy-where his main recourse will be
to impede reforms-he will make a strong effort to retain the initiative for for-
eign affairs, which has always been considered a "preserve" of the presidency.
Control over foreign economic policy is a potential bone of contention.
Although a consensus exists within France on most international economic
issues-LDC debt relief, greater exchange rate stability, and continued use of
export credits-the right's platform implies a tougher French line on some
economic liberalization.
French economic policy over the next two years will be conducted against the
backdrop of the political jockeying surrounding cohabitation. All eyes will
focus on the Presidential elections in 1988, and each side will be quick to
blame any downturn in the economy on the other. The Socialists hope that the
right's economic program will backfire, enhancing leftist electoral prospects in
1988-and perhaps even giving Mitterrand an opening to call early legislative
elections. The conservatives hope to avoid major pitfalls until 1988, when they
expect to recapture the Presidency and carry out their full program of
1 Secret
DI /EEW 86-009
28 February 1986
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The next two years are likely to prove even more challenging than usual for US
policymakers dealing with France. Initially, at least, the struggle between
president and government for control over policymaking is apt to lead to
confused and contradictory signals from Paris. Mitterrand and the conserva-
tives reportedly are already positioning themselves, for example, to use the
Tokyo Summit as an early test of who will call the shots in foreign economic
policy. France may ultimately become so wrapped up in the problems of
cohabitation that it will turn inward and keep a low profile in international
economic affairs. No one in Paris wants the embarrassment of airing France's
dirty political linen in public, and neither side will want to be accused of
making France look like a fool on the world stage. Alternatively, cohabitation
may cause French policy to veer toward prickly Gaullist nationalism as
Mitterrand and the government try to best each other in the eyes of voters by
promoting strictly French interests and occasionally bashing the United
States.
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France: A New Direction
for the Economy?
The conservative opposition will probably win the
National Assembly election on 16 March, but its
promises to "liberate" the economy through dena-
tionalization, tax cuts, and market deregulation are
unlikely to lead to radical changes in the short run.
The new government will have to cope with the
political confusion and market uncertainties that
will inevitably accompany "cohabitation" or power
sharing with Socialist President Mitterrand. In
addition, it will face considerable practical difficul-
ties in implementing far-reaching programs like
denationalization amid the constraints imposed by
the still recovering French economy. Moreover, the
1988 presidential election leaves the conservatives
little time to produce convincing economic results,
and the new government must be careful not to
appear to undermine the promising but tenuous
economic recovery started by the Socialists.
The French economy today is doing better than at
any time since the Socialists took office in 1981.
However, the government has been getting little
credit in the polls, possibly because of its fumbling
initial attempt at economic management. Soon
after their election, Mitterrand and then Prime
Minister Mauroy launched an ambitious and costly
nationalization program and inaugurated a policy
of domestic economic expansion. The latter, espe-
cially, aggravated inflation and led to a burgeoning
trade deficit, worsening a decidedly mixed econom-
ic picture. Beginning in mid-1982, in the face of
serious economic decline, the Socialists gradually
abandoned their expansionist policies and turned to
conventional austerity more characteristic of con-
servative policymakers. The Socialists also turned
increasingly to market-oriented measures aimed at
encouraging flexibility and competition in the high-
ly regulated French economy. In a recent press
interview, Finance Minister Beregovoy pointed out
that 85 to 90 percent of French industrial prices are
Leaders of the Opposition
Jacques Chirac ... Mayor of Paris, leader of the
neo-Gaullist Rally for the Republic Party ... most
frequently mentioned candidate for prime minister
... top priorities are quick tax cuts and denationa-
lization ... perhaps most pro-US of three top con-
servative leaders ... 53 years old.
Valery Giscard d'Estaing ... President of France
1974-1981, former Minister of Finance ... founder
of the Union for French Democracy, the other main
conservative party grouping ... more cautious ap-
proach than Chirac, believes balanced budget and
tax cuts can be accomplished simultaneously ...
strongly pro-EC ... possible prime minister, but
more likely to head finance, trade, or interior
ministry ... 60 years old.
Raymond Barre ... Prime Minister under Giscard,
longtime professor of economics ... also a member
of the Union for French Democracy ... refuses to
serve while Mitterrand remains in office, argues
cohabitation will weaken French political institu-
tions ... most pragmatic approach to economy,
emphasizes budget balancing ... most popular of
three top leaders, clearly eyeing presidential
bid ... in the meantime content to stay in National
Assembly and wield strong influence on economic
policy ... 61 years old.
now decontrolled, roughly double the proportion a
year ago. Another of Beregovoy's legacies is the
series of measures adopted mainly in 1985 to
liberalize French capital markets. The Socialist
government has eased foreign exchange controls,
Secret
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and Paris has given the green light for new finan-
cial instruments-such as commercial paper and
negotiable certificates of deposit-heretofore
banned in France.
These policies, often described by US diplomats as
"slow growth, no accidents," have borne fruit:
? Most important, inflation has slowed considera-
bly-last year it fell to 5.8 percent on an annual
basis, down from 13.3 percent in 1981. Even
more dramatic, the December-to-December in-
crease was only 4.7 percent last year. This is a
singular achievement for France, where inflation
has been above 5 percent since the early 1970s.
? French economic growth, while still unimpressive
by OECD standards, has improved since the
Socialists' 1982 policy reversal. The situation now
is perhaps best characterized as sluggish growth
with prospects for improvement. French GDP,
which grew last year by 1.3 percent, should move
ahead at an annual rate of over 2 percent this
year due largely to declining oil prices and a
recent pickup in domestic demand.
? France's external position should continue to
improve, again largely because of falling oil
prices. The current account was nearly in balance
in 1984 and preliminary figures show a small
surplus last year. Projections by the French sta-
tistical institute, based in part on an oil price of
$22 a barrel and an exchange rate of 7.5 francs to
the dollar, indicate a savings of $5.4-8.1 billion on
the trade account, heightening the prospects for a
trade surplus in 1986-the first since 1978. F_
Nonetheless, the Socialist economic record has
blemishes. Most embarrassing-especially for a
party championing working-class interests-is un-
employment. The French unemployment rate stood
at 10.2 percent last year, up from 6.3 percent in
1980. Even here, however, the Socialists argue that
the picture is brightening; until January the unem-
ployment rate had edged downward for four con-
secutive months, leading Socialist politicians to
proclaim that sustained low inflation and good
growth prospects are paying off in job creation.
France: Economic Indicators,
1980-85
GDP Growth
Percent
Unemployment Rate
Percent
Consumer Price Inflation
Percent
Current Account Balance
Billion US $
Another politically sensitive area is public debt,
which-while still low by European standards-has
risen sharply under the Socialists. According to
OECD statistics, total public debt as a percentage
of GDP jumped from 25.9 percent in 1981 to 34.6
percent last year.
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The Right's Economic Platform
The main provisions of the right's program include:
? Denationalization. Among the early candidates
are the Paribas and Indosuez financial groups,
the bank Societe Generale, glass maker Saint
Gobain, aluminum manufacturer Pechiney, and
chemicals giant Rhone Poulenc. Conservatives
say that, once state-owned companies in competi-
tive sectors become attractive to investors, they
will be denationalized through direct sales, capi-
tal increases to spread ownership, and conversion
of debt to equity. The government probably will
limit foreign investment to 20 to 25 percent of
total ownership to blunt Socialist charges of
relinquishing control of the French economy to
foreigners.
? Tax cuts. The conservatives want to abolish the
wealth tax imposed in 1981 by the Socialists, cut
income tax brackets (lowering the highest bracket
to 50 percent), give more tax incentives to savings
and investment, and reduce corporate taxes and
mandatory corporate social security contribu-
tions. As a gesture to the more moderate mem-
bers of the coalition who favor a cautious policy,
many of these reforms would be delayed until
1987.
? Deregulation. The conservatives intend to liberal-
ize the economy by eliminating controls on for-
eign exchange, prices, interest rates, and oil
pricing and refining. In addition, the right hopes
to abolish the requirement that firms get permis-
sion from the government before making layoffs,
abrogate laws mandating worker representation
on the boards of state-owned companies, lower
employer contributions to mandatory fringe bene-
fit packages, and adjust the minimum wage more
cautiously.
? Public spending. Although the platform does not
specify spending cuts, the conservatives have
promised to seek greater productivity and profit-
ability in state-owned operations. The right com-
plains bitterly that public debt is the Socialists'
most malignant legacy, with former Prime Minis-
ter Barre claiming it will take five years to
reassert control over public spending. The conser-
vatives also argue that the Socialists' 1986 budget
is a sham, fraught with "timebombs" designed to
embarrass the new government. They contend
that some large expenditures, such as shipbuild-
ing subsidies, are not funded through the year,
and that a $140 million social security payment
has been postponed from December 1986 to
January 1987 to shift it to next year's budget.
Prospects for the Right's Program
Whatever the conservatives' intentions, they will
have to work with the political realities of power-
sharing-Mitterrand will enjoy a powerful pulpit
for the next two years, and he will retain some
powers he can wield to help frustrate conservative
programs. Most notably, he is empowered to dis-
solve the National Assembly once a year, thus
forcing new elections. He can hold this sword over
the right's head if conservative policies on bread-
and-butter issues alienate French voters. In addi-
tion, denationalization will require enabling legisla-
tion and during the debate Mitterrand may try to
play factions off against one another. He may also
try to have parts of this legislation declared uncon-
stitutional. Mitterrand must use obstructionist tac-
tics warily, however, and will try to avoid creating a
political uproar that could damage the Socialists'
chances in 1988.
In order to dramatize its program-and capitalize
on the political momentum it will probably enjoy
after the election-the new government's first or-
der of business is likely to be denationalization.
senior conservative officials believe that
the government must move decisively on denation-
alization to maintain its credibility.
the "window of opportunity"
will not exceed six months. In our view, there are
several obstacles to quick, wholesale denationaliza-
tion. Above all, the right must ensure that any sell-
off does not swamp the narrow French financial
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markets. The financial press has reported market
jitteriness over denationalization, including con-
cerns of company managers that denationalization
will complicate their attempts to raise fresh capital.
One of the biggest risks is that the strategy of
cutting taxes and reducing government spending
simultaneously may take time to work its desired
results, causing painful economic adjustments in
the interim. The right is already divided on how
quickly to move on fiscal reform, with moderates
arguing that tax cuts and rapid price decontrol will
rekindle inflation, and that immediate exchange
decontrol will lead to capital flight. In addition, the
Socialists' austerity program has already pinched
France, and the right may find that further spend-
ing cuts are politically costly. Finally, given
France's strong latent import demand, a surge in
growth is likely to cause a deterioration in the trade
balance, which could put pressure on the franc
within the European Monetary System.
Implications for the United States
Perhaps the most troublesome issue the United
States will face with the new government is agricul-
tural trade policy. Although there is broad consen-
sus on trade policy between the two parties, the
opposition depends more heavily on the farm vote
than the Socialists. As a result, the right has called
for measures to shore up farmers' incomes, includ-
ing a strengthening of EC agricultural export subsi-
dies. Late last year, Chirac bluntly told US diplo-
mats that he was opposed to a new trade round
until the United States and the EC work out a
modus vivendi on agriculture. Chirac fears that
without such a prior arrangement, the EC-and
France in particular-will find itself isolated on
agriculture, a situation that would be intolerable.
The new government is likely to leave most other
aspects of French international economic policy
largely unchanged. The right will doubtless contin-
ue to push for holding talks on international mone-
tary reform in conjunction with the new trade
round. French policy favoring the use of mixed
credits will probably also remain the same, al-
though Paris may eventually reexamine their use in
light of budgetary cutbacks.
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International Financial Situation:
The Plight of the
Commodity Exporters
Recent attention has focused on Mexico and the Key LDC Commodity Exports: Percent
Cartagena Group, but we are concerned that debt- Price Changes
ors outside Latin America also may follow Mexico
in seeking major debt concessions or in unilaterally
reducing their debt service payments. Many of
these countries are just as hard pressed as Mexico Since Since 1980
by the effect of declining export prices and econom- December 1984
ically and politically onerous debt service burdens. Coconut oil -59 49
The attention given the slide in oil prices has
overshadowed even greater declines in the prices of
other primary commodities:
? The price of tin has fallen by some 40 percent
since late 1984, with nearly all of the decline
coming with the collapse of the tin market late
last year.
Palm oil -42 -41
Phosphates - 23 28
Peanut oil - 22 -17
Lead -14 -60
? Zinc, lead, and phosphate prices have declined Soybeans -11 26
between 13 and 27 percent over the last year. Beef 9 -11
Rice -8 -54
? Important LDC agricultural exports also have
suffered, with rice prices off some 8 percent in the
last year, palm oil prices down 42 percent, and
coconut oil prices nearly 60 percent below year-
end 1984 levels.
wheat
-3
-17
Lumber
2
4
Rubber
1
-43
Cocoa
1
-15
Copper
1
-36
Sugar
15
- 86
Indeed, of 22 key LDC commodity exports, only
five have not experienced falling prices over the
past year.
Collectively, these price trends have severely dam-
aged the export performance and prospects of many experiencing falling export earnings largely be-
debtors While lower oil prices will benefit oil cause of the drop in the price of phosphate, which
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importers, the declines in prices of their export accounts for one-fourth of its exports. 25X1
products have, in many cases, outweighed this gain.
In Africa, the impact of lower oil prices on the
economic and political situation in Nigeria is well
known, but other debtor countries are also being
hurt. Egypt has been hit not only by falling oil
prices, but also by lower prices for cotton, second
only to oil as an Egyptian export. Morocco also is
The picture is similar in Asia. Malaysia is being
heavily buffeted by falling palm oil prices and the
fallout from the collapse of the tin market. In
Secret
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Selected Debtors: Debt Servicing Capabilities
Change in Mer- Primary Commodities
chandise Exports as Share of Mer-
for 1985 a (percent) chandise Exports
(percent)
Ratio of Reserves Interest Payments Change in Merchandise
to Imports d As Share of Exports of Imports 1981-85
(months) Goods and Services, (percent)
1985 (percent)
Oil b
Nonoil
Colombia
15
NEGL
66
6
35
-27
25
Ivory Coast
10
___4 _
93
1
14
-42
Jamaica
-20
1
49
1
29
-20
Morocco
-10
2
59
NEGL
26
-15
Nigeria
3
96
3
1
12
Pakistan
-7
1
18
1
18
Peru
-3
21
69
Philippines
-15
3
48
Thailand
-5
NEGL
59
Venezuela
- 11
86
6
Value in US dollars, based on exports to OECD.
b Fuels.
Foodstuffs and raw materials.
d Total reserves minus gold.
addition to receiving lower prices for its exports,
Kuala Lumpur may have to agree to provide funds
to pay the International Tin Council's debts in
order to restore confidence in the tin market and
prevent further price declines. After oil, Indonesia's
leading exports are rubber and lumber; in the last
year, the prices of these commodities have not
changed, but stand 43 and 4 percent, respectively,
If Mexico obtains special treatment, either through
negotiations or unilaterally, these major commodity
exporters may try to make the same case-that
they are beset by world market forces and have no
prospect for an upturn in their export situations,
and cannot for domestic political reasons absorb
the drops in export earnings through further cuts in
imports. Such an outcome would place considerably
greater strains on the international financial sys-
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World Grain Market:
Continued Glut
Expanded acreage and high yields-especially in
coarse grains-probably will boost global grain
production to a record 1.35 million metric tons in
market year 1986 (July 1985-June 1986). Final
tallies of the size of the global surplus await only
the results of the Southern Hemisphere harvest
now under way. While Brazil and Argentina have
suffered significant crop losses as a result of poor
weather, South Africa and Australia will have
near-record production. At the same time, slow
world economic growth, worsening LDC debt prob-
lems, and increased self-sufficiency have led to
greatly reduced import demand. As a result, grain
prices generally are expected to continue their
downward trend and, with record stocks accumu-
lating, competition for grain sales will intensify,
benefiting LDC importers. For key Latin export-
ers-Brazil and Argentina-lower prices and ex-
port volumes will cut sharply into export earnings.
For the United States, provisions of the new US
Farm Bill will boost US competitiveness but put
more pressure on world grain prices, although the
major impact is not likely to be felt until the next
crop year.
Market Impacts
Despite weather problems in the Southern Hemi-
sphere, expanded acreage and high yields-espe-
cially in coarse grains-will boost global produc-
tion to record levels in market year 1986, according
to USDA estimates. World coarse grain production
in 1985/86 is estimated at a record 840 million
tons-up 4 percent from last year. While 1985/86
wheat production has slipped 2 percent from last
year, production will still top 500 million tons.
Meanwhile, the slowdown in world economic
growth and worsening debt problems have led to
reduced demand, rising stock accumulation, and
downward pressure on prices. For example, while
world production has increased 14 percent since
1980, consumption has risen only 8 percent. As a
result, USDA reports world wheat and coarse grain
stocks now top 280 million tons-nearly two-thirds
of annual trade in grains. Declining demand is .
particularly apparent for wheat this year. Accord-
ing to USDA, world wheat imports are expected to
drop 17 percent to 90 million tons-the lowest level
in five years. An expected 11-million-ton drop in
Soviet wheat imports will account for much of the
decline, with other importers such as Brazil and
China also cutting back. Reduced production
among other major importers-the EC, Mexico,
and Japan-will be more than offset by large
stocks in these countries.
The lone exception to the continuation of a buyer's
market is likely to be high-quality wheat. The
quality of the Australian crop is down, and signifi-
cant downgrading of Northern Hemisphere crops
has occurred because of too much moisture:
? In Canada, prolonged wet conditions caused har-
vest delays and reduced wheat quality-a maxi-
mum of only 20 percent of the 24-million-ton
wheat crop is expected to be graded # 1 this year,
compared to 67 percent in 1984/85.
? In the EC, supplies of bread-quality wheat have
been lowered by the effect of poor weather in the
1985/86 crop-especially in the United King-
dom-and heavy sales from stocks.
As a result of these trends, the price outlook for 25X1
grains is mixed. Prices of high-quality wheat, for
example, have rallied by almost 30 percent in
recent months. Supplies of high-protein wheat will
be especially tight, and prices for higher grades will
remain strong until Northern Hemisphere new crop 25X1
wheat is available in July. Other grain prices,
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World Grain Trends
Production and Consumptions
Billion metric tons
however, will continue their downward trend. Ac-
cording to market analysts, grain prices in 1985/86
will average 4 percent lower. The impact of the new
US farm bill will not be felt until the next market-
ing year, making US grain exports more competi-
tive and pushing competitor prices downward.
Production In the interim, grain importers will continue to
t
ke -1_
Consumption benefit as exporters scrambl
e
o ma
s We
p
per
aps o
er
ng
1.2 discounts-before the full impact of lower US
prices is felt. Buyers for their part can be expected
1.1 to delay major purchases until US prices come
down. This will be especially true for the USSR-
whom we expect to purchase little US wheat until
1.0 1976 80 85 86 new crop supplies become available in July.
Grain Stocks'
Million metric tons
US Grain Pricesc
$ per metric ton
0 1975 80 85
a Data for marketing year ending 30 June of the stated year.
'USDA projections.
I C.i.f. Rotterdam.
anticipate that competitors of the United States
will attempt to line u
sales-
h
ff
i
i
Key Country Impacts
For Brazil, this year's poor grain crops will squeeze
government coffers. Soybean earnings are expected
to decline by $1-1.5 billion, and
the food import bill for corn and
rice will rise by $1.2 billion. According to the
Ministry of Finance, Brazil will require imports of
3.5 million tons of corn and nearly 2 million tons of
rice by February 1987. Brasilia is counting on
record-high coffee prices and the drop in oil prices
to partially offset the cost of food imports.
Argentine flood damage could result in up to $500
million in lost wheat export earnings. This will
complicate Argentina's efforts to pay interest on its
$50 billion foreign debt and will force further cuts
in the 1986 budget. Prospects for Argentina's other
farm exports-meat. sugar. and cocoa-are not
any brighter.
South Africa's economy will be helped by a re-
sumption of corn exports. The net earnings increase
over last year is expected to approach $300 million,
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Secret
World Wheat and Coarse Grain Production, 1981-86 a
1981
1982
1983
1984
1985
1986b
1,175.8
1,218.3
1,258.3
1,176.3
1,322.7
1,345.7
442.9
448.4
479.1
490.9
513.8
504.3
732.9
769.9
779.2
685.4
808.9
841.4
Argentina
Wheat
7.8
8.3
15.0
12.8
13.2
_ 8.5
21.0
18.4
17.8
17.4
18.6
18.0
Australia
- - -
Wheat 10.9
16.4
8.9
22.0
18.3
16.5
Coarse grain 5.2
6.7
3.9
9.4
8.5
8.7
22.9
23.4
19.9
21.5
21.0
19.6
22.1
26.0
26.5
20.9
22.0
24.5
55.1
54.4
59.8
59.2
76.6
66.1
69.7
67.8
71.6
64.1
74.8
72.6
Coarse grain 15.3
8.8
4.5
5.1
8.5
9.9
280.9
264.2
289.2
300.6
309.8
317.2
378.4
372.2
384.3
409.9
418.3
413.8
a Data are for marketing years ending 30 June of the stated year.
b USDA projections.
Coarse grains include corn, barley, rye, sorghum, and oats.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
Secret
Southern Hemisphere Crops: Droughts and Floods
This year's Argentine wheat crop has been hard hit
by flooding. According to trade reports, damage has
been severe in the provinces of Buenos Aires, Cordo-
ba, and Santa Fe. Most experts predict a production
drop of about 4 million tons-a 40 percent decline
from the previous marketing year's level. As a result,
according to USDA officials, exports could fall to 4.5
million tons from 8 million tons last year. Increases
in Argentine corn and soybean exports will offset
some of the decline in earnings. A bumper corn
harvest of over 13.5 million tons will permit exports
of 8 million tons-a 13-percent jump from last year.
In Brazil, the worst drought in over a century will
mean sharply lower corn and soybean a crops-re-
sulting in the need for sizable corn imports and the
elimination of most soybean exports this year. Brazil-
ian soybean crop estimates range as low as 12 million
tons-a 30 percent decline from last year's record
levels. States most seriously affected include the
main producing regions of Rio Grande do Sul, Santa
Catarina, and Parana in the south. Even with late soy
planting to replace drought-stricken crops, yields will
be reduced in a shortened growing season. Similarly,
Brazilian corn production is expected to decline by
nearly 3 million tons from 1984/85 levels, according
to Embassy and press reports.
a Although not included in grain statistics, soybeans are a mat . or
component of Brazilian agricultural exports.
In Australia, persistent rains in Victoria and New
South Wales have seriously damaged wheat quality,
despite a bumper crop of 16.5 million tons. As a
result, some 10 percent of the harvest will be down-
graded to feedwheat and sold at a sharp discount to
already low prices. On the positive side, Canberra has
lined up large sales this year to the USSR, Egypt,
and China, and is forecast to have its second straight
year of record exports. In response to the wheat
shortage in Argentina, the Soviets recently discontin-
ued talks on further wheat purchases from Buenos
Aires and instead purchased 2.5 million tons of
Australian wheat, the largest Soviet purchase ever
In South Africa, improved weather has resulted in
much better yields, boosting 1985/86 corn production
and export prospects sharply above those of recent
drought-reduced years.
South Africa has planted a near-record corn
area for 1985/86. On the basis of on-site inspections
and South African Maize Board estimates, total corn
planting is estimated at over 4 million hectares-an
8-percent increase over last year. High yields will
reportedly provide 3 million tons for export.
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Secret
World Grain Exports: Shrinking
US Shares
- US
M Canada
O EC
M Australia
M Argentina
South Africa
Brazil
Other
according to press reports. Corn is typically Pretor-
ia's second leading export item-with annual ex-
ports contributing up to one-half of raw agricultur-
al export earnings in nondrought years. In addition
to cash and credit sales, Pretoria plans to promote
barter deals using corn in exchange for other basic
commodities such as rice and coffee.
Implications for US Sales
As competition tightens, the United States will find
both opportunities for and obstacles to increased
grain sales. Large global availability of feed-
wheat-especially in the EC, Australia, and Cana-
da-will provide increased competition for US
exports of coarse grains. On the other hand, weath-
er-induced shortages of high-quality wheat will
provide the United States opportunities for in-
creased sales. Because of weather-damaged wheat
supplies, for example, Canada could lose up to 5
million tons of prime wheat sales to the United
States. Overall, however, US wheat and coarse
grain exports in 1985/86 are expected to fall by 20
percent from last year's level, according to current
USDA forecasts. While US sales have been falling
at a faster rate than global sales in recent years, the
decline could slow dramatically in 1986/87 as US
prices become more competitive.
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Chinese Agricultural Reform:
Consolidating Gains'
Agricultural reform in China has brought sharp
increases in rural output and consumption over the
past eight years. By introducing incentives for
increased productivity, reforms have also freed up
tremendous surplus labor to develop the country's
rural industries. But, while agricultural leaders
have strongly praised the performance of the rural
sector, they note that there are many problems
associated with reform that need to be addressed.
Beijing's reformers are particularly concerned
about declining grain output, rapid food-price infla-
tion, and the corruption that has accompanied the
drive to increase profits. In 1986 they will attempt
to solve these problems and bring a greater degree
of stability to China's countryside. Nonetheless,
US farmers will be hurt by declining Chinese
agricultural imports in 1986, and by expanding
Chinese exports, which increasingly compete with
US farm goods on the international market.
Agricultural Reform Brings New Problems
China's leaders have been using agriculture as a
testing ground for a series of decentralized econom-
ic policies. The experiment began in 1978 with the
implementation of the "peasant responsibility sys-
tem," a program designed to shift more of the
production decisionmaking to the farmer. The six
consecutive years of bumper harvests that followed
brought both progress and problems for the Chi-
nese rural economy. Rural output increased by 50
percent between 1978 and 1984 and peasant con-
sumption increased by over 40 percent. But the
burden of higher government prices drained the
state budget, and the large volume of output tied up
state-controlled transportation lines. Moreover,
state procurement policies that failed to adequately
reward product quality resulted in large stockpiles
of low-quality goods. In reaction, the Chinese last
China's Farm Trade, 1978-84
1
84d
year attempted to integrate the peasant responsibil-
ity system with a streamlined bureaucracy and a
modified agricultural control structure.
These "second-stage" reforms, however, have 25X1
brought new problems. The inflation that followed
the deregulation of food prices has been more
serious than Beijing anticipated, with one-year
price jumps of 30 to 70 percent in some cities.
Government attempts to fight food price inflation
have not worked well. State-controlled markets,
which sell merchandise at below-market prices,
have had trouble fending off middlemen who buy
goods from these stores and resell them at higher
Secret
DI IEEW 86-009
28 February 1986
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
China: Gross Value of Agricultural
Output, 1970-84
I I I I I I I I I I I I I
0 1970 75 80 84
prices on the open market. Government attempts to
use wage subsidies to soften the effects of rapid
price rises have only been partially effective be-
cause of the unequal distribution of these subsidies
in many major cities.
One of the most significant results of reforms has
been the shift away from traditional grain produc-
tion to cash and industrial crops such as oilseeds
and cotton. The State Statistical Bureau estimated
that crop areas planted to grain in 1985 declined by
4.6 percent. Moreover, because of the lower profit
margins for grain, peasants skimped on inputs such
as fertilizer and labor for these crops. These fac-
tors, combined with poor weather in the Northeast,
probably resulted in a 7- to 8-percent drop in 1985
grain output.
The peasant responsibility system, which increased
incentives by linking income to decisionmaking re-
sponsibility and production, was adopted in Decem-
ber 1978 during the party's Third Plenary session of
the 11th Central Committee, but was not fully imple-
mented until 1980. Under this system communes
were dismantled and individuals and families were
allowed to rent farmland for 15-year periods and to
make their own production decisions. Moreover, pro-
curement prices were increased, giving farmers more
incentive to raise production.
The second stage of reforms, implemented in 1985,
eliminates the state monopoly purchase of agricultur-
al goods and encourages peasants to sell more on the
open market. The reforms:
? Permit peasants to sign contracts to sell part of
their grain, cotton, and oilseed harvests to state
commercial departments at negotiated prices.
? Require noncontract grain, cotton, and oilseed pro-
duction to be sold on the open market.
? Eliminate state purchases of nonstaple products
such as vegetables, fruit, and meat.
? Promote rural industrial development
Production of nongrain crops, on the other hand,
continues to increase. China expects 1985 oilseed
output will be up by more than 30 percent, and
preliminary reports estimate red meat output to be
up by 7 percent. Egg production jumped 23 percent
and milk production gained nearly 10 percent.
The more efficient and profit-conscious agricultur-
al economy has freed up large amounts of surplus
labor for other types of work. This movement has
also been helped by government-sponsored pro-
grams to develop rural industries. By mid-1985,
according to Chinese press reports, 60 million
peasants had left farming to set up restaurants,
service shops, repair businesses, and transport
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firms. Recent US Embassy reports indicate that
the rate of growth of rural industry during 1985
increased by nearly 50 percent over 1984.
A major setback to reform in 1985 was the demon-
strated inability of many local officials to fill their
new role. While their actual degree of authority
and responsibility increased with reform, many
rural leaders saw their prestige and power slip as
the peasantry looked to rural entrepreneurs as the
new prototype of success.
Press reports indicate that, while most rural offi-
cials openly support the new policies, there are
questions about how responsibly they implement
reforms. To push their own programs, such as road
and building construction, some local cadre have
illegally docked funds from procurement checks,
and increased taxes and tolls to pay for these
programs. Other rural leaders, resentful of those
who made money from private activities, set up
bureaucratic roadblocks to business entry or taxed
away the profits of successful businessmen. Press
reports state that some corrupt cadre used public
funds to pad their own bank accounts or to build
themselves new homes.
Rural Policy Outlook for 1986
While some senior party leaders oppose the "sec-
ond-stage" reforms, policymakers in Beijing insist
that they will push forward in 1986. We do not,
however, foresee major changes in Chinese agricul-
tural policies such as those that took place last
year. Rather, we anticipate that Beijing will merely
fine-tune the present program. We expect policy-
makers to try to slow rural industrial growth by
controlling official and private forms of rural cred-
it. After a substantial decline in grain output last
year, we expect higher grain prices and state
directives to stimulate an increase in 1986 grain
production. In 1986, we believe Beijing will be able
to maintain overall economic control and still offer
the incentives peasants need to attain the goal of
6-percent annual growth in agricultural output as
set forth in the new Seventh Five-Year Plan.F_
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Implications for the United States
The agricultural reform program will be doubly
damaging to US farmers as Chinese agricultural
imports decrease and as expanding Chinese exports
increasingly compete with US agricultural goods in
the world market. National and provincial agricul-
tural leaders are pushing the export of Chinese
farm products, and foreign sales of Chinese corn,
soybeans, cotton, and other agricultural commod-
ities have increased as a result. The drop in Chinese
agricultural imports will continue this year even
though a weather-induced decline in Chinese soy-
bean production has forced the Chinese to increase
purchases of foreign soybeans. China will be look-
ing to the United States and other Western coun-
tries for breeding stock, hybrid seeds, and other
agricultural technology, but, for the time being, the
years when major Chinese purchases of agricultur-
al commodities made the United States one of
China's top trading partners appear to be over.
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Sub-Saharan Africa:
IMF Funding Declines
nomic problems.
West in an international dialogue on African eco-
the region. The UN General Assembly's Special
Session on Africa in May will provide African
nations with a major opportunity to engage the
IMF funds to Africa has come when both foreign 2.0
donor countries and African states are calling for
increased assistance to promote economic growth in
rangements by African states. The reduced flow of
A surge in repayments more than offset new IMF Sub-Saharan Africa: Financial
lending to Sub-Saharan countries last year, result- Flow From the IMF, 1978-858
ing in a sharp decline in net drawings of IMF
funds, despite Fund efforts to respond to the re-
gion's economic problems. Repayments on the Billion US $
heavy IMF lending of the early 1980s are growing; - Drawings
at the same time, various economic and domestic - Repayments
political factors have limited new IMF loan ar- 0 Net flow
Drawings Down, Repayments Up
Sub-Saharan Africa's net drawings of IMF funds
were $118 million last year, compared with
$554 million in 1984 and a record $1.6 billion in
1981, according to IMF data. The decline reflects
both a fall in gross drawings to $751 million, the
lowest since 1979, and a rise in repayments to $633
million. Lending would have been larger had Nige-
ria concluded a $2.5 billion arrangement with the
IMF. Some countries also became ineligible for
IMF funding because of payment arrears to the
Fund. The upsurge in repayments has been the
result of heavy IMF lending to Africa in the early
1980s with the onset of a major economic crisis
aggravated by drought.
We believe the decline in IMF lending to Africa
has been offset, although barely, by financial flows
from other multilateral institutions and bilateral
' Excludes South Africa.
25X1
388389286
drought in most of Sub-Saharan Africa last year,
the unchanged reserve position suggests that net
financial flows to the region in 1985 did not register
a major increase. 25X1
25X1
More Net Payers Than Net Recipients
sources. According to IMF data, the region's com- Sixteen African countries were net payers to the
bined international reserves of $4.4 billion in No- IMF last year, led by Uganda, Ivory Coast, and
vember 1985 were at the same level as at yearend
1984. Because we expect a slightly improved com-
bined current account position with the ending of
Secret
DI IEEW 86-009
28 February /986
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Secret
Sub-Saharan Africa: Net Financial Flows
From the IMF a
1978
1979
1980
1981
1982
1983
1984
1985
Total
? IU.c
l,ocJ.1
1,153.4
1,553.11
554.2
118.2
6
129.7
2.5
1.9
,
4.4
Burundi
-4.1
12.3
-1.8
Cameroon
-5.8
-14.7
-16.7
-10.0
-3.3
13.4
7.2
-29.9
Central African Republic
-1.4
-3.1
1.9
16.4
2.0
5.8
0.2
1.6
23.4
Chad
-3.3
-1.5
Comoros
Congo
4.1
1.2
-6.9
-7.9
3.5
2.6
-3.4-
Djibouti
0.6
Equatorial Guinea
-0.3
Ethiopia
9.1
46.5
Gabon
12.5
9.7
0.7
-2.8
27.0
Ghana
-6.0
28.8
-12.6
214.8
121.8
617.0
Guinea
-7.3
-1.8
Guinea-Bissau
1.0
1.4
1.5
-0.9
5.5
14.0
-37.8
656.3
Kenya
5.4
72.0
69.0
Lesotho
2.2
16.3
-7.0
248.4
18.4
-4.1
162.6
Ethiopia. Both Uganda and Ethiopia were without
standby or extended arrangements with the IMF
that would have led to new loans. Uganda was
stymied by uncertain political conditions, insurgen-
cy, and economic chaos. Ethiopia has avoided an
IMF arrangement since 1982. The Ivory Coast's
net payment reflects repayments for substantial
IMF assistance received each year since 1979.
Some Potential Borrowers Reluctant
Only 17 of 44 African member countries drew on
the Fund last year. Some countries chose not to use
the IMF; others were prevented from doing so
because of failure to make payments due to the
Fund or to meet economic performance criteria
under standby arrangements
Ghana, Zaire, and Kenya led the 12 African
countries that were net recipients of IMF funds.
These three countries are actively implementing
major economic adjustment programs under IMF
auspices. Ghana's agreement with the Fund expired
at yearend and a new agreement is expected soon;
Zaire's current agreement runs for one year from
Economic Reasons. Some African IMF members,
in our judgment, believe their economic problems
are not serious enough to warrant the constraints of
an IMF-supported program:
? Botswana has never drawn IMF funds, despite
being hit by drought the past three years. Surging
April 1985; and Kenya's expires this month.
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(continued)
Malawi
-4.8
27.5
30.6
27.8
2.3
25.5
17.8
7.2
Mali
-1.5
-2.3
3.8
-2.7
26.8
17.0
21.3
8.6
Senegal
18.9
7.9
48.0
60.5
44.0
28.3
17.4
15.0
Sierra Leone
-5.3
0.3
0.4
28.9
-0.2
23.1
11.0
-4.5
Sudan
24.7
63.9
140.7
172.9
45.9
161.8
14.2
-5.0
Swaziland
0.2
4.7
10.7
-1.0
Tanzania
-28.8
27.1
19.5
-12.3
-10.4
-20.3
-25.0
-4.4
Togo
-9.4
21.6
8.6
23.4
13.1
6.6
Uganda
-12.5
3.4
35.8
132.3
92.2
107.8
- 17.1
-65.2
Zaire
-12.1
-14.9
16.8
107.1
120.9 128.2 _
106.6
66.2
7.8
367.9
-49.3 80.0
78.1
-19.0
Gross purchases minus repurchases (excludes transactions with
the IMF-administered Trust Fund). SDR values converted to US
dollars at period average SDR/$ exchange rates. Excludes South
Africa.
b Regional IMF totals adjusted for countries covered in this paper.
Country data may not add to totals shown because of rounding.
133.9
___71.0
0.9
240.0
53.7
619.1.
14.6
_54.6
63.9
276.7
-51-8.-8--
747.0
diamond exports in 1983 and 1984 contributed to
current account surpluses and helped cushion the
impact of drought on the country's important
cattle industry.
? The tiny Cape Verde islands have been mainly
supported by remittances from Cape Verdeans
abroad and bilateral economic aid from OECD
countries. These combined resources have appar-
ently enabled the economy to limp along without
IMF support.
Ideological Objections. In our view, some African
countries, such as Ethiopia, have avoided the IMF
on ideological grounds:
? Marxist Angola, with its heavy economic depen-
dence on the Soviet Union, remains a non-
member.
? Burkina, another leftist state, perennially buffet-
ed by drought, has not sought IMF assistance.
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Secret
Head of government Sankara consistently en-
gages in anti-IMF rhetoric while receiving sub-
stantial bilateral economic aid from France and
West Germany.
In contrast to these hardliners, at least two leftist
governments have shown signs of accommodation
with the IMF. Despite its close relationship with
the Soviet Union, Mozambique pragmatically
chose to join the IMF in 1984, probably to pave the
way for increased economic aid from the West.
Guinea, which is hard pressed economically, has
imposed economic austerity measures that could be
the groundwork for an IMF-supported economic
adjustment program in the near future.
Domestic Political Restraints. Some IMF mem-
bers wished to avoid the political unpopularity of
adopting IMF-sponsored economic adjustment
measures. They hoped to struggle along on bilateral
and non-IMF multilateral support. For example:
? Nigeria, in response to popular sentiment, chose
not to enter into an IMF agreement. Lagos has
since drawn up its own economic adjustment
program that we believe is likely to fail in the
face of plummeting oil revenues.
? Tanzania has negotiated unsuccessfully with the
IMF for five years as it continues to resist making
enough economic reforms to satisfy the Fund.
According to US Embassy reporting, Tanzania's
ex-President Nyerere, with a history of anti-IMF
positions, continues to influence the Tanzanian
negotiations. In the meantime, Tanzania contin-
ues to depend on bilateral economic aid mostly
from West Germany, Nordic countries, and the
United Kingdom.
Some Countries Ineligible for IMF Funds
Some African countries had their funding cut off
because of arrears due to the IMF or failure to
meet performance criteria under their IMF-sup-
ported programs:
? The IMF terminated Liberia's $43 million stand-
by agreement last year, after suspending it in
1984, for failure to meet performance criteria and
for payments arrears. Because of growing arrears,
the Fund in January 1986 declared Liberia ineli-
gible to further use its resources.
? Somalia's drawings under its $24 million 1985
standby arrangement were suspended later in the
year for payments arrears and failure to carry out
programed economic reform.
? Sudan, whose IMF funding under a standby
arrangement was suspended in 1984, had its IMF
program canceled last year, and was this month
declared ineligible to use any IMF resources,
because of unpaid arrears to the Fund that
exceed $200 million and for failure to adopt
appropriate economic adjustment measures.
? Zambia received no funds last year under its
$247 million standby arrangement, because of
arrears to the IMF and other foreign creditors.
The IMF arrears have since been paid and the
Fund approved a new standby arrangement this
month.
For several African countries the funds they re-
ceived from or paid to the IMF last year were
linked to economic adjustment programs that they
were implementing under formal agreements with
the IMF. Some foreign donor governments and
multilateral institutions also have required econom-
ic reform as a condition for continued assistance.
As a result, 15 countries had IMF-supported eco-
nomic adjustment programs at yearend 1985 com-
pared with 14 countries at yearend 1984.
Most of the better performers had IMF programs
last year:
? Ghana's three-year-old economic recovery pro-
gram successfully attained its economic adjust-
ment objectives, according to IMF documents. A
larger-than-expected cocoa crop, bumper food
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Sub-Saharan Africa: Standby
and Extended Arrangements
With the IMF, 31 December 1985
Member Date of Date of Amount
Arrangement Expiration (million
us $)
Central 23 September 1985 22 March 1987 16.0
African
Republic
Equatorial 28 June 1985 27 June 1986 10.0
Guinea
Ivory Coast 3 June 1985 2 June 1986 73.0
Kenya 8 February 1985 7 February 1986 94.0
Madagascar 23 April 1985 22 April 1986 32.0
Malawi 19 September 1983 18 September 1986 89.0
Mauritania 12 April 1985 11 April 1986 13.0
Mauritius 1 March 1985 31 August 1986 54.0
Niger 5 December 1985 4 December 1986 15.0
Senegal 16 January 1985 15 July 1986 84.0
Somalia 22 February 1985 21 February 1986 24.0
crops, and increased diamond and gold produc-
tion helped. Accra has also been receiving struc-
tural adjustment loans from the World Bank.
? Ivory Coast had substantial economic recovery,
with estimated real economic growth of about 5
percent. Like Accra, Abidjan has been receiving
structural adjustment loans from the World
Bank.
? Kenya remains a favored pupil of the IMF be-
cause it successfully implemented economic re-
form and met IMF performance criteria. A good
harvest in 1985 and increased receipts from
tourism also helped.
? Zaire has continued to meet IMF economic
performance criteria, although sometimes with
difficulty. The country has shown marked im-
provement in the management of government
finances, according to the IMF.
? Mali and Mauritius performed fairly well last
year, according to IMF documents. Mali has had
to contend with the serious impact of drought on
its economy, and serious imbalances remain,
Mauritius has made
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:ZbA1
good progress in restoring financial stability with
major reductions in inflation rates and in both the
budget and current account deficits as a percent
of GDP. High unemployment remains a lingering
problem, however, according to US Embassy
reporting.
Although African economic conditions eased some-
what last year with the return of seasonal rainfall
to much of the region and good harvests in several
countries, a few states did not do well either with or
without IMF help:
? Liberia continued to suffer from chronic foreign
exchange shortages and budget deficits aggravat-
ed by preelection spending by President Doe.
Liberia was in arrears to the African Develop-
ment Bank and the World Bank as well as the
IMF. As a result, many important bilateral lend-
ers suspended payments to Monrovia.
? Somalia's economic position worsened because of
lower-than-expected economic aid and high debt
service requirements.
? Hit by drought, a civil war in the south, and a
crushing $9 billion external debt, Sudan's eco-
nomic problems were aggravated by a temporary
military-civilian leadership that lacks the man-
date or the will for major economic reform.
? Zambia's chronic foreign exchange shortage,
stemming largely from prolonged weak copper
prices, restrained economic growth.
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Additional African countries will become net pay-
ers to the IMF over the next few years as repay-
ments rise. According to World Bank estimates,
Sub-Saharan Africa is due to repay a gross total of
$4 billion to the IMF over the next three years.
This net outflow will occur even if the IMF imple-
ments a proposal to recycle some $2.9 billion
through 1991 to low-income countries, most of
them in Africa. These recycled funds would come
from loans made to similar countries in 1976-81
from an IMF-administered Trust Fund and could
be supplemented by contributions from some IMF
members. The already economically beleaguered
African countries almost certainly will pursue vig-
orous campaigns in the United Nations and other
international forums in an effort to increase finan-
cial flows to the continent.
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Oil Aid for Iraq The US Embassy in Kuwait reports that Kuwait and Saudi Arabia will
continue oil sales from the Neutral Zone on Iraq's behalf in 1986. Iraqi
earnings, however, are likely to fall because of lower world oil prices. A senior
Kuwaiti official cited concern over Iran's offensive into Al-Faw as the reason
for renewing the agreement, which expires at the end of this month. Both
Saudi Arabia and Kuwait had been reluctant to renew the agreement because
of their own financial problems. Saudi and Kuwaiti aid to Iraq from Neutral
Zone oil-which was sold at official prices-totaled about $2 billion in 1985.
The US Embassy in Riyadh reports that future sales will be in line with
market prices. This will yield lower proceeds for Iraq unless Saudi Arabia and
Kuwait agree to increase sales above the agreed-to level of 248,000 b/d.
USSR and Kuwait Sign Kuwaiti Oil Minister Sabah signed an economic cooperation protocol in
Economic Agreement Moscow earlier this month. The agreement reportedly calls for joint oil and en-
ergy development projects in Kuwait and in the USSR, as well as in third
countries, and for oil swaps whereby the USSR is to ship oil to Kuwaiti
customers in Europe and Kuwait is to provide an equal amount to Soviet
customers in Asia or Africa. It also provides for cooperation in banking and for
consultations on the world oil market. The US Embassy in Moscow reports,
however, that the Soviets refused a Kuwaiti request for an official public
statement in support of OPEC. The extent of the protocol suggests that recent
events in South Yemen will not mar Soviet relations with Kuwait. It reflects
Moscow's desire to earn more of the region's petrodollars by building economic
development projects and banking ventures. The USSR already has oil-
exchange agreements with other countries to reduce transportation costs.
Angolan Contingency Angola is making contingency plans to maintain oil sales and to take over
Oil Plans operations from US oil companies in the event of an embargo. Angolan oil offi-
cials project world oil prices will continue to decline sharply. They foresee a
need to offer extremely favorable terms to assure continued high sales.
President dos Santos has stated publicly that Angola will lose about
$600 million in 1986 even if prices remain at mid-February levels of about $18
a barrel. Luanda is gathering data on Chevron-Gulf's Angolan exploration and
production budget through 1988, its Angolan development plans, its US and
British maintenance and construction contractors, and its use of US machinery
and equipment. To diversify control of exploration, Luanda recently awarded
Spain's Hispanoil an interest in a new exploration contract headed by US-
owned Conoco. Angola probably could count on French, Italian, British,
Belgian, and Brazilian, as well as Spanish and Portuguese oil companies to
take the place of Chevron-Gulf and other US companies.
Secret
DI IEEW 86-009
28 February 1986
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Libyan-Italian Tripoli is consolidating control over its recently purchased TAMOIL refinery
Refinery Update in Milan.
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25X1
e re nery is t e most modern in Italy. Moreover, Tripoli plans to
terminate all employees of Jewish descent and intends to utilize only Libyan or
Cuban crude. The refinery and distribution network will substantially improve
Tripoli's ability to stabilize its oil exports and revenues.
Soviet Oil Well The Soviet press claims that a major well blowout in the Tengiz oilfield in
Disaster western Kazakhstan was brought under control with explosives after burning
for seven months. The US Embassy reports that a knowledgeable Western
observer has indicated that, because of the fragile structure of the Tengiz
deposit, the blowout could ruin the entire field. Although it is too early to as-
certain the extent of the damage, severe damage to the deposit would be a ma-
jor setback for the Soviet Petroleum Ministry. Tengiz, rumored to contain
about 3 billion barrels of oil and one of the first deep sour-oil deposits
developed, was counted on to help offset declining output elsewhere in the
USSR. Soviet capability to drill and develop deep sour-oil and gas deposits is
extremely limited because of a lack of modern equipment and appropriate
high-pressure blowout prevention devices.
Falling Oil Prices Falling oil prices make it unlikely that London will meet its target of returning
Pinch British the coal industry to profitability by 1987-88. The price decline has widened
Coal Industry oil's advantage over coal, and the National Coal Board (NCB) will have to ei-
ther lower prices or lose customers. If oil stabilizes at $20 per barrel, the NCB
probably can make a profit, although later than previously forecast. If oil
prices fall below $18 per barrel, however, it becomes economically feasible for
the coal industry's biggest customer, the Central Electricity Generating Board,
to begin using several idle oil-fired power stations. The NCB has already cut
prices slightly and is likely to ask the government for a further cut if oil prices
continue to fall. These new problems are especially disappointing to the NCB
because productivity has risen to record levels since last year's miners' strike,
and may dash hopes that the NCB could show a profit sooner than anticipated.
Delay in Canadian Ottawa's decision to reconsider the approval of a $560 million loan guarantee
Oil Project Stirs for a facility to upgrade heavy crude oil has rekindled regional disagreements
Regional Dissension that conceivably could call the Tories' commitment to a free market energy
policy into question. Because of budget constraints and uncertainty about
future oil prices, Ottawa is withholding approval even though it agrees with
Alberta and Saskatchewan that the project is needed to limit Canada's
dependence on imported oil in the 1990s. Alberta Premier Getty has lashed out
at Eastern Canada's neglect of the western provinces' interests, and Ottawa's
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timid defense of the region. The oil-consuming eastern provinces, however,
consider the loan risky and contrary to Ottawa's policy of cutting back the go-
vernment's role in the energy sector. Critics also fear future measures favoring
expensive domestically produced oil over cheaper imports. The Cabinet is
divided over the issue, and to defuse the situation Ottawa will probably seek a
compromise, perhaps involving a partial guarantee.
Turkish-Soviet The USSR and Turkey recently concluded a 25-year gas deal-after nearly 18
Natural Gas months of negotiation-when Moscow unexpectedly agreed to buy Turkish
Contract Signed goods to offset the cost of 70 percent of the gas and to reduce its initial gas de-
liveries. Peak deliveries are to reach 4 billion cubic meters annually in 1992,
rather than the 5-6 billion discussed earlier. Pricing and other terms have not
been disclosed. The Soviets' sudden willingness to meet Turkish terms may be
part of an effort to improve political relations following continued disagree-
ment over Black Sea issues and a recent Soviet proposal on Cyprus. The
agreement probably will increase slumping bilateral trade and ultimately
provide Turkey with about 90 percent of its gas needs, although this will be
less than 5 percent of its total energy requirements. Most of the gas is likely to
go to Turkish industry.
Burma Postpones Rangoon has shelved the $1 billion 25X1
Gulf of Martaban Gulf of Martaban offshore gas project for three to four years because of an
Project acute shortage of foreign exchange, a mounting debt service ratio, and poor
marketing prospects for downstream products such as urea. Long opposed to
private foreign investment, the government had planned to carry out the
project with borrowed funds. With a debt service ratio above 50 percent and
foreign exchange reserves of only $20 million, however, Rangoon has shifted to
exploiting onshore gas, which does not require costly foreign technology.
Nonetheless, we believe continued economic difficulties in time could prompt a
shift in Rangoon's policies toward foreign investment. 25X1
Argentine Debt Gambit Buenos Aires claims it will limit debt-service payments to 30 percent of export
receipts and seek foreign financing for the remainder-a politically acceptable
way of telling bankers it wishes to borrow roughly $2.6 billion this year,
according to the US Embassy. Bankers are warning that these moves will
increase uncertainty about Argentina's debt policies, further delay disburse-
ment of $1.2 billion in loans, and stall talks on debt rescheduling. Argentina
apparently is seeking debt relief similar to any Mexico may obtain. The
government also hopes that its rhetoric on debt will build domestic support for
its economic reforms, but this may prove counterproductive. President Alfon-
sin's political support could weaken, and pressure for more radical debt action
could intensify unless Buenos Aires achieves substantial concessions from
creditors and faster economic growth.
Secret
28 February 1986
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Secret
Brazil's Evolving While Brazilian officials have publicly taken a hard line on new IMF
Approach on Debt programs, their private comments indicate some flexibility. Finance Minister
Funaro boasted on local television in January, for example, that Brazil would
never again need a formal Fund program. Moreover, a draft of the message
President Sarney will deliver to Congress on 1 March registers strong
opposition to any economic plan that imposes a severe burden on the country
and warns that Brazil "can react to the detriment of creditor institutions."
Privately, however, Funaro approached Embassy officials early this month
soliciting US support for a rescheduling of Brazil's commerical debt over 15
years on the basis of a consulting agreement with the IMF. Although Funaro
did not provide a detailed proposal, he made it clear that Brasilia does not
want a formal Fund monitoring program and that the major criterion of any
such arrangement would be the performance of external accounts. He stressed
that Brazil's strong external performance-it will not need any new bank loans
this year-obviates the need for a Fund program. The Sarney administration's
public stance on the IMF probably is designed to curry domestic favor in an
important election year. We believe President Sarney realizes that it would be
political folly to attempt an IMF program this year, but he realizes that some
sort of accommodation is necessary to obtain the multiyear debt rescheduling.
Brasilia probably views its flexibility as an important concession to creditors
anxious to forestall any radical action on the debt.
Implications of South The agreement last week between South Africa and major creditor banks to
Africa's Debt Accord reschedule $14 billion of suspended debts could unravel if domestic unrest
persists. Pretoria agreed to repay at least $500 million this year and to accept a
one-year deferral of repayments on the remaining principal. South Africa also
has $3.6 billion falling due this year outside the rescheduling agreement. The
agreement may ease the financial pressure on South Africa, but many details
remain unresolved, and the unwritten accord is vulnerable to pressures on the
banks from antiapartheid groups. Even though Pretoria may slow economic
growth to cut imports and fight inflation-which jumped to 21 percent, the
highest rate in more than 60 years-the current account surplus this year is
unlikely to reach the estimated $3 billion of last year, increasing the need for
other debts to be rolled over
Tokyo To Ease In an effort to slow the yen's appreciation against the dollar without inciting
Capital Restrictions US criticism, the Finance Ministry is considering relaxing controls on capital
outflows. The US Embassy reports the Finance Ministry may expand the
amount Japanese insurance companies can invest in foreign bond holdings;
currently such holdings are limited to 10 percent of the total portfolio. In
addition, trust banks are reportedly planning to resume investing loan trust
funds in non-yen bonds, a practice halted by informal guidance from the
Finance Ministry in September 1985. We expect these moves to moderately
increase capital outflows, but not by enough to overcome factors contributing
to the current strengthening of the yen.
Secret
28 February 1986
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Shifting World Worldwide trade balances continue to shift dramatically. For the United
Trade Balances States, the strong dollar and domestic economic recovery have been responsi-
ble for the $75 billion deterioration in the trade balance. Japan, Western
Europe, and the Asian NICs have been the major beneficiaries of the surge in
US import demand. Key debtors improved their trade position through
austerity measures and higher exports to other countries (although trade
among the debtors has fallen dramatically). Middle Eastern oil exporters
sharply cut imports in response to lower oil revenue, holding the trade balance
decline to $6 billion.
Bilateral Trade Balance Shifts, 1983-85 a Billion US $
Overall
United
Japan
Canada
Western
Key Asian
Middle
States
Europe b
Debtors c NICs d
Eastern
OPEC e
Japan
25
28
1
-1
-3 NEGL
I
Canada
2
6
-1
-3
-1 -1
NEGL
Middle Eastern
OPEC
-6
2
-1
NEGL
-2
a Most 1985 figures are projections based on partial-year data. All
countries are not included.
b Western Europe excludes Portugal, Iceland, and Turkey.
Argentina, Brazil, Chile, Colombia, Indonesia, Malaysia, Mexico,
Nigeria, Peru, the Philippines, and Venezuela.
d Hong Kong, Singapore, South Korea, and Taiwan.
e Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab
Emirates.
r Trade shifts from 1983 to 1984.
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28 February 1986
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Global and Regional Developments
EC Bid To Boost The EC Commission has adopted a new scheme for promoting dairy exports
Dairy Exports that permits larger and unpublished export subsidies. The Commission may
now consider export sales individually and approve them at any price it deems
reasonable. The new mechanism would probably be used only for large sales of
products such as butter in certain markets-probably the Soviet Union, India,
and Pakistan. Dairy traders are now expecting the Commission to approve a
sale of 100,000 metric tons of butter to the Soviet Union with a subsidy
equivalent to 75 percent of the price the EC originally paid the farmers. This
scheme was almost certainly aimed at reducing the EC's current butter
stockpile of over 1 million tons. Should it prove successful, the Commission
will probably consider using it for grain and beef as well. The new mechanism
is likely to drive world dairy prices down and anger other dairy exporters-
New Zealand is already protesting to the Commission and member states.
Japan Increases
Sugar Purchases
From Cuba
Recent sugar deals between Japan and Cuba contain significant advantages
for both sides that may boost bilateral trade sharply this year.
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Secret
28 February 1986
five-year grace period
800,000 metric tons of Cuban sugar in 1986, about double the amount
purchased in 1985. Cuba received a one-third advanced payment, which
should help ease its financial crisis. In exchange, buyers obtained guaranteed
on-time delivery for the prepaid sugar and space in Cuban ships to send
Japanese manufactures to Cuba. Japanese importers, moreover, expect to
profit when world prices rise later this year because of weather damage to har-
vests in Cuba and Brazil. The additional hard currency earnings will probably
help Havana maintain its reputation as a reliable debtor in Japanese govern-
ment and business circles. Tokyo last November agreed to reschedule $62.5
million of official government loans to Cuba on favorable terms including a
Japanese companies have agreed to buy 600,000 to
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Secret
Grasshopper Plague The UN Food and Agriculture Organization (FAO) is warning of a potential
Unlikely, Despite grasshopper infestation that could cover several African countries. FAO
UN Fears projects that the infestation could be as serious as the 1978 plague-in which
the desert locust destroyed crops from West Africa across to the Arabian
Peninsula. It would begin when 1986 spring rains lead to the hatching of eggs
laid during an outbreak of grasshoppers in Mali last year. FAO has called for
donor nations to fund a comprehensive program-including survey of egg sites,
purchase of pesticides and equipment, and aircraft support. Although the
United States is currently supporting egg survey operations, the full array of
aid requested seems unnecessary. The grasshoppers involved are distinctly
different from the desert locust and should only pose a regional problem in and
around Mali. In addition, the pesticides sought by FAO raise serious
environmental concerns-some of them have been banned in the United
States.
National Developments
Developed Countries
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28 February 1986
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Secret
Italy To Supply Fiat SpA of Italy will provide almost all of the aluminum cylinder heads for a
Aluminum Cylinder major US automaker because of the inability of US companies to manufacture
Heads to US Firm sufficient quantities of this high-quality engine part. US auto manufacturers
have limited experience producing aluminum cylinder heads, but nearly all
foreign auto builders use aluminum heads. We believe the use of aluminum
cylinder heads will accelerate after 1987 as manufacturers continue to apply
lightweight metals to reduce vehicle weight-aluminum heads save about 30
pounds (nearly 15 kilograms) on a six-cylinder engine. Foreign suppliers will
dominate until US casting companies design and build machinery to produce
this engine component.
Madrid Reveals Austerity and moderation-with major emphasis on private-sector investment
Medium-Term and employment-will continue to characterize Spanish economic policy
Economic Program through 1989. Under its new economic program, the government is committed
to budgetary austerity and monetary control to promote private saving, reduce
inflation, lower interest rates, and curb labor costs. Madrid probably will have
little trouble staying on course next year. Nevertheless, Madrid expects an
upswing in domestic demand to boost the rate of economic growth from the av-
erage annual rate of 2.2 percent in 1983-85 to 3.2 percent in 1986-89.
Unemployment forecasts, however, remain vague, probably to avoid focusing
attention on the failure to carry out an election-year promise of creating
800,000 new jobs. Although factions of the Socialist Party have called for
greater government efforts to create jobs, discontent is likely to remain low as
long as the economy continues to show signs of improvement.
Lower Gas Revenues The steep fall in oil and gas prices will cut sharply into the Hague's revenues in
Squeeze Dutch Budget 1987, forcing some hard choices to keep the deficit from increasing. Natural
gas revenues-which accounted for 15 percent of government income in
1985-are now projected to fall by at least $4 billion in 1987 as a result of low-
er oil prices and the anticipated further decline of the dollar. (The 1986 budget
will not be affected because of the one-year lag between export transactions
and government receipt of revenues.) If no action is taken, the budget deficit
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Secret
would increase from 6.5 percent of GNP in 1985 to about 8.5 percent in 1987.
To avoid this, Prime Minister Lubbers-who faces national elections in
May-has called for cuts in investment incentives and subsidies for large gas
consumers, as well as possible increases in taxes on energy consumption.
Finance Ministry officials, however, told US Embassy officers that they prefer
to rely entirely on expenditure cuts.
Greece Plans Athens finally is moving to introduce a value-added tax (VAT), as called for
Value-Added Tax under Greece's EC accession treaty, but many important details still remain to
be worked out. For example, the bill to implement the VAT in January 1987
calls for three brackets, but the actual tax rates will not be decided until the
end of this year. The new tax will replace 10 indirect taxes, including the busi-
ness turnover tax, stamp duties, and a tobacco tax, which raised a combined
$2.3 billion in 1985. Since joining the EC in 1981, Greece has requested three
delays on the VAT, but finally committed itself to the new tax as part of a deal
last November for a $1.5 billion EC balance-of-payments loan. Greek officials
believe that the VAT, coupled with recently enacted tax enforcement mea-
sures, will aid government efforts to reduce widespread tax evasion. Athens
may not raise all the revenue it expects, however, since farmers will be exempt
and small businesses will receive graduated exemptions based on their annual
turnover.
Greece Reducing National Economy Minister Simitis last month announced plans to reduce the
Public-Sector public enterprises' deficit by 75 percent in 1986; last year the more than 50
Losses state-owned transport, industrial, and utility companies had record losses of
approximately $970 million. The measures include setting up a special
management group at Simitis's ministry to monitor the ailing companies,
strictly applying the tight incomes policy for 1986-87, devising five-year plans
for each of the firms, limiting hiring, and improving productivity. While this
program should help, we believe Athens is unlikely to meet its target without
an actual reduction in the bloated work forces. With unemployment approach-
ing 9 percent, this is probably politically impossible. Although prices for a
number of goods and services-including oil products, electricity, postal
services, transportation, and pharmaceuticals-were raised substantially last
December, Prime Minister Papandreou will probably find it difficult to
institute the additional price increases needed to make the firms profitable.
Libyan Hard Line lin early February the 25X1
With US Companies chairman of the Libyan National Oil Company (LNOC), Abdullah Al-Badrik
advised the US oil companies in Libya that they were in default of contractual
obligations for failure to pay for crude oil liftings in December 1985. The US
companies were further advised on 13 February that Libya would not
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Libyan Financial
Maneuvering
have no other choice but to leave Libya
negotiate until the payments were made or the US sanctions revised. Badri
reportedly had given a briefing on the progress of negotiations to Libyan leader
Qadhafi, who ordered Badri immediately to begin taking a harder line. All
Libyan officials were reportedly ordered to communicate with the US firms
only via telex-perhaps a legal maneuver. the
Libyans had been hoping to retain the presence of US oil companies by a mod-
ification of the US executive orders brought about by oil company pressure.
Qadhafi probably now realizes that the US companies lack such leverage and
Qadhafi may put the bite on Saudi Arabia and other Gulf states for financial
25X1
25X1
assistance if Libya experiences cash flow difficulties because of the US assets
While some token aid may be forthcoming,
sufficient to secure GCC cooperation.
large-scale assistance or movement of assets is unlikely-Saudi Arabia and
other Gulf states have repeatedly refused Libyan aid requests and diversion of
US investments would be too costly. Moreover, Libyan agitation for reductions
in Gulf states' oil production probably rankles GCC members. The threat of
Libyan retaliation if Tripoli's requests are rebuffed probably will not be
Libyan Military The extended alert in response to US military maneuvers is sapping morale
Alert Costs Mount and taxing already diminished resources. soldiers
on alert status in late January received only one meal per day, often only
macaroni and squash, and virtually no meat. Many soldiers are soliciting food
from family members . Poor treatment of soldiers is
uncharacteristic of Qadhafi's longtime policy of ensuring military loyalty by
providing a high standard of living. Libya's unprecedented economic problems
since 1981, however, have caused food imports to drop over 50 percent and
probably foreshadow further cuts in military rations. Continued military alert,
accompanied by worsened living conditions, may provoke dissatisfied elements
in the armed services to move against the Libyan leader.
More Financial
Problems Ahead
for Malaysia
Secret
28 February 1986
Malaysia's banking system, including well-
managed banks, is facing serious financial difficulties. Attention is now
focusing on Finance Minister Daim Zainuddin, a major investor in several
large Malaysian banks. Daim is in precarious financial straits because he
apparently misjudged the impact of Malaysia's economic slowdown on his
investments. Depressed prices for petroleum, palm oil, tin, and rubber and a
marked slowdown in the important semiconductor and construction industries
have sharply cut economic growth. Daim's present financial difficulties and
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Secret
involvement in questionable financial activities-possibly including the Bank
Bumiputra scandal-are intensifying political problems for Prime Minister
Mahathir, who is widely expected to call early elections this spring. Daim is a
business associate of Tan Koon Swan, head of the second-largest political
party in Mahathir's coalition. Tan is under indictment in Singapore for his role
in the collapse of the Malaysian conglomerate, Pan Electric, in which he is the
leading stockholder.
Soviet Industrial The USSR's industrial performance for January was strong, according to
Growth in January official Soviet statistics. Total production-as inferred by the Intelligence
Community-was about 6 percent higher than in January 1985, and most
basic materials registered larger increases than they have for years. Steel,
plastics, chemical fibers, cement, concrete, timber, and paper registered major
gains. The increases this January seem impressive because they are measured
from January 1985, when the harshest winter in two decades disrupted
industry and transportation. Even so, the Soviets seem to be off to a fast start
this year. Industrial performance had some less-than-satisfactory aspects,
however. Many of the ministries achieving large gains in output are being
criticized in the Soviet press for failure to deliver to customers as scheduled.
Soviet Winter Warm weather in late January reduced protective snow cover and exposed
Grains Damaged Soviet crops to killing temperatures in important winter grain regions. Severe
winterkill apparently occurred in parts of the North Caucasus and Crimea
where crops had broken dormancy. Moderate winterkill in Rostov Oblast and
the southeastern Ukraine-areas currently without snow cover and experienc-
ing normal temperatures-could worsen if temperatures drop. Other areas
devoted to winter grains have not been harmed. Winterkill to date appears
somewhat greater than usual and may slightly reduce the winter grain crop-
which averages 60 million metric tons, or roughly one-third of total annual
grain production. Good growth is likely in unaffected winter grain areas,
however, because of high soil moisture levels, and may compensate for losses.
Damaged areas, moreover, are often replanted with lower yielding spring
grain.
Secret
28 February 1986
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Secret
Secret
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Directorate of
Intelligence
Economic & Energy
? Indicators
28 February 1986
DI EE! 86-005
28 February 1986
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This publication is prepared for the use of US Government
officials, and the format, coverage, and content are designed to
meet their specific requirements. US Government officials may
obtain additional copies of this document directly or through
liaison channels from the Central Intelligence Agency.
Requesters outside the US Government may obtain subscriptions to
CIA publications similar to this one by addressing inquiries to:
Document Expediting (DOCEX) Project
Exchange and Gift Division
Library of Congress
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or: National Technical Information Service
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Requesters outside the US Government not interested in subscription
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(To expedite service call the
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Comments and queries on this paper may be directed to the DOCEX
Project at the above address or by phone [phone]), or the
NTIS Office of Customer Services at the above address or by phone
(703-487-4660). Publications are not available to the public from the
Central Intelligence Agency.
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Economic & Energy
Indicators
Industrial Production
Gross National Product
Consumer Prices
Money Supply
Unemployment Rate
Foreign Trade
Current Account Balance
Industrial Materials Prices
Money Market Rates
Agricultural Prices
Export Prices in US $
Import Prices in US $
Exchange Rate Trends
Energy World Crude Oil Production, Excluding Natural Gas Liquids 8
Big Seven: Inland Oil Consumption 9
Big Seven: Crude Oil Imports 9
OPEC: Crude Oil Official Sales Price 10
OPEC: Average Crude Oil Official Sales Price (Chart) 11
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
Industrial Production
Percent change from previous period
seasonally adjusted at an annual rate
1981
1982
1983
1984
1985
Ist Qtr
2d Qtr
3d Qtr 4th Qtr _ Nov
Dec
1
2
1_3
2.1 1.8 ----7.0---.- -9.0
United States
2_6
=-7_2
.
-2.6
11.2
-0.4 -2.9_ -11.1
---7.1
- ------
2
-3
0
3
West Germany
2.3
.
.
0 30.4
2 1
6
36.0
2
6
1
5
1.1
2.3
-3.0
4.1
.
.
--
0
4
France
-
.
.
7
6
15.2
7 2.
0
.
-2
United Kingdom
-3.9
2.1
3.9
1.3
11.5
7
4
.
1
1
.
-2.6 -2.7 31.8
-39.3
6
1
3
3.2
3.1
.
.
-
Italy
Canada
-6
-
0.5
.
-10.0
5.3
8.8
0.7
4.5
10.4 10.1
Gross National Product,
Percent change front previous period
seasonally adjusted at an annual rate
1981
1982
1983
1984
1st Qtr
2d Qtr 3d--Qtr---- 4th Qtr
_
United States
2 .5
-2.1
3.4
3
6.6
5.0
3.7
1.7
1.1 3.0 1.2
5.8
Japan
7
2
-4
6
5.6 9.2 1.4
2
0
1.0
1.6
.
.
0
2
West Germany
.
1
6
6
-0
.
3.7 2.1
2
0
1.8
0.7
.
.
France
-
.
3
2
3.4
4.5 -1.1
----
d Kingdom
it
U
-1.4
1.9
3.3
.
8
0
e
n
2
0
-0.5
-0.4
2.6
.
3.3
__.
Italy
.
3.9 6.7
Canada
3.3
-4.4
3.3
5.0
Percent change from previous period
Consumer Prices
seasonally adjusted at an annual rate
Year
3d Qtr 4th Qtr Jan
2.4
4.1
4.5
United States
--------
10.3 ---- 6.2
----
3.2
1
8
2.3
2.0
2.1
--2.2- -
1.9
Japan
-4.9 2.6
.
2
2
0.1
1.0
0.6
t Germany
W
6.0
5.3
3.3
2.4
.
4
_
1
3
1.4
es
France
13.3
---
12.0
9.5
7.7
0
5
5.8
1
6
4.
3.1
.
3.1
6.1
9
11
8.6
4.6
.
.
-
-
9
.
United Kingdom - -
- -
-
6
10
6
8
7.3
6.9
2.
-- -
19.3
16.4
14.9
.
.
4
4
6.1
Italy
Canada
12.5
10.8
5.8
4.0
3.2
.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
Money Supply, M-1
Percent change from prei'iou,s period
sea.sonallr adjusted at an mutual rate
1981 1982
1983
1984
1985
Year
I
United States e
7.1 6
6
st Qtr
2d Qtr
3d Qtr
4th Qtr Dec
.
Japan
3
7
11.2
6.9
8.9
10.5
10.9
15.3
11
0 13
1
.
7.1
West Germany
1
3.0
2.9
4.6
10.3
-0.3
.
.
2.9
0
3 13
3
3.6
France
12.2 13.9
10.3
10
0
3.3
7
4.3
1.4
-0.4
.
.
8.1
14.6 43.8
- - --
-
United Ki
d
.
.7
12.4
7
2
10
ng
om NA NA
Italy
13.0
14.7
16.7
1.2
.
32.4
.1
15.4
11.2 11 6
Canada
38
0.7
15.1
10.2
12.3
--
3
2
4
18.0
0.3
11.5
Based
.
.2
4.0
3.5
13
2
on amounts in national currency units.
Including MI-A and MI-B.
.
Unemployment Rate
Percent .seasonally adjusted
1981 1982
1983
1984
1985
United States 7.5
9.6
4
7
4
Year
2d Qtr
3d Qtr
4th Qtr
Dec Jan
-
-
Japan
2.2
2
A
2
7
.
7.1
7.2
7.0
6.9 6.8 6.6
-
West Germany
5
.
2.7
2.6
-
2.5
2.6
2.8
29
.6 7.7
-
9.2
9
1
9
3
-
France
6 8
4
8
.
-
.
9.4
9.4
9.2
9.1 9.0
.
United Kingdom
10
0 1 1
6
.6
9.6
10.2
9.9
10.2
10.5
10.5 10
5
.
.
Italy
8
4 9
12.4
1 2 6
1 3 . 1
13.1
13.2
.
13.2
13.2 13
2
.
.I
C
9.9
10A
10
2
10
.
anada 7.5 11
1
11
9
.
.6
.
U
.
11.3
10.5
10.5
10.3
nemployment rates for France are estimated.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
Foreign Trade a
1982
1983
1984 1985
1st Qtr 2d Qtr
3d Qtr
4th Qtr
Dec
United States b
6
52
52
4
17.0
Exports 233.5
212.3
200.7
217.6 55.7 52.6
.
84
5
.
8
90
32.9
Imports 261.0
244.0
258.2
325.6 84.4 86.4
.
9
31
.
4
-38
15.9
Balance -27.5
-31.6
-57.5
-108.0 _ -28.7 -----
-
2
.
Japan
6
43
47
3
15.8
Exports 149.6
138.2
145.5
168.1 40.5 42.6
.
29
2
.
30
3
9.9
9
5
119
6
114
0
124.1 28.9 29.5
.
.
.
Imports 12
Balance 20.1
.
18.6
.
31.4
44.0 11.6 13.1
14.4
17.0
5.9
West Germany
48
8
0
51
17.4
Exports 175.4
176.4
169.5
171.9
41.1 43.3
.
7
41
.
6
43
14.6
Imports 163.4
155.3
152.9
153.1
36.4 37.2
.
7
1
.
4
7
2.8
Balance 11.9
21.1
16.6
18.8
4.6 --- 6.2-
.
.
France
4
24
26
1
28
8
9.6
106.3
Exports
96.4
95.1
97.5
.
22.5
7
24
.
8
26
.
2
29
1(1.(1
115.6
Imports
110.5
101.0
100.3
.
23.6
4
.
7
-0
.
4
0
0.4
Balance -9.3
-14.0
-5.9
-2.8
-1.1 -0.
.
.
United Kingdom
5
25
27
3
9.3
102.5
Exports
97.1
92.1
93.7
22.7 25.4
7
.
2
26
.
27
3
9.1
94.6
Imports
93.1
93.7
99.1
24.1 25.
0
3
.
7
-0
.
0
().2
Balance 7.9
4.0
-1.6
-5.3
.
-1.4 _
.
Italy
18
3
4
20
22.5
8.5
75.4
Exports
73.9
72.8
73.5
.
17.7
9
21
.
2
21
21
26.1
9.6
91.2
Imports
86.7
80.6
84.3
.
21.5
3
6
.-
.
8
-0
6
--3
1.1
Balance -15.9
-12.8
-7.9
-10.9
.
-3.8 -
.
.
Canada
8
9 21
21
8
22.5
7.3
70
5
68.5
73.7
86.5
.
21.
.
4
6
.
Exports
4
64
54.1
59.3
70.6
17.9 18.6
19.6
19.6
.
9
0
.
Imports
Balance 6.1
14.4
14.4
15.9
4.0 3.2
2.2
2.9
.
11
Seasonally adjusted.
n Imports are customs values.
Imports are c.i.f.
Current Account Balance a
1981
1982 1983 1984
1985
United States 6.3
-8.1 -46.0 -107.4
------------ -
1st Qtr 2d Qtr 3d Qtr
-24.2 =27.7 -30.5
4th Qtr
1
16
Nov Dec
8
5 6
4
Japan 4.8
6.9 20.8
35.0
6.8 13.3 13.1
.
.
.
8
9 2
West Germany -6.8
3.3 4.2
6.0
1.6 3.1 2.0
7.0
.
1.
-12.1 -4.9
-0.8
-0.7 0.6 U
15.3
8.5 4.5
1.6
-0.5 1.8- -- 1.6
2.0-
--8.6
-5.7 0.6
-3.2
-2.9
Seasonally adjusted; converted to US dollars at current market
rates of exchange.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
Export Prices in US $
Percent change from previous period
at an annual rate
1981
1982
1983
1984
1985
1st Qtr
2d Qtr
3d Qtr
4th
United States
9.2
1.5
1.0
1.4
0.1
2
2
9
-2
Qtr
2
1
Nov
_
Dec
Japan
5
5
-6
4
2
4
.
-
.
-- -
-
.
-
----
0
-
7.1
-
.
.
-
.
0.2
-11.9
14.1
5
9
39
1
West Germany
14.9
2.8
-3.2
-7.1
-18.8
26.8
.
37
5
.
6 6
44
28.0
23
5
-10.0
France
-12.0
-5.5
-4.8
9
14.3
28
3
.
35
7
.
.
50.9
I i.,;,oa v:-_a__
.
.
10.9
-4.4
-5.2
-13.8
21.4
20
0
Canada
3.9
-2.0
-1.3
-3.7
0.2
-7.2
.
8.0
-4.9
-1.5
-2.6
Import Prices in US $
Percent change from previous period
at an annual rate
1981 1982 1983 1984 1985
Ist Qtr 2d Qtr 3d Qtr 4th Qtr N
D
ov
United States 5.3 -2.0 -3.7 1.7 -9.5 -0.4 -0
1 3
1
ec
.
.
11.2
Ja
an
2.7
p
3.6 -7.4 -5.0 -2.8 -10.9 3.1 2
6 3
0
9
.
.
-
.1
West German
24.9
y -8.6 -4.7 -5.2 -4.8 -13.2 19.5 I99
4 27
4
6 1
.
.
.
5.9
France -7.8 -7.2 -7.0 -3.8 -12.5 15.1 18.6 31
2
31.3
.
..
United Kingdom NA NA -5.7 -4.6 -15.4 46.1 16
4 8
1 0
.
.
.3
Italy 1.0 -5.3 -6.6 -3.7 -9.4 22.6 6
6
12.1
.
Canada 8.7 -1.1 -3.3 -0.1 -4.3 -2.4 9.3 -4.2 1.0
-1.7
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
Exchange Rate Trends
Money Market Rates
so
United States
90-day certificates of
deposit, secondary market
Japan
loans and discounts
(2 months)
West Germany
interbank loans
(3 months)
France
interbank money market
(3 months)
United Kingdom
sterling interbank loans
(3 months)
Italy
Milan interbank loans
(3 months)
Canada
finance paper (3 months)
Eurodollars
3-month deposits
Percent change from previous period
at an annual rate
1981 1982 1983 1984 1985
1st Qtr 2d Qtr 3d Qtr 4th Qtr Dec
-13.3 -11.9 -28.6 59.9
13.85 12.24 10.12 9.91
12.21 12.61 11.67 11.60 12.05
14.95 15.12 14.37 14.52 14.79
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798ROO0300050006-0
Agricultural Prices
1981
1982
1983
1984
1985
1986
Bananas
214
0
217
0
23
-
Qt 4th Qu .ian
Fresh imported,
.
.
2.0
243.0
110.3
110.4
111.6
110.9 108
1
NA
(Total world, $ per metric ton)
.
Beef to per pound)
Australia
(Boneless beef,
f.o.b. US Ports)
United States
(Wholesale steer beef,
midwest markets)
Cocoa (c per pound)
Coffee (S per pound)
112.1
100.0
89 8
1
28
108.4
101.4
74.3
110.7
97.6
92 1
101.1
100.9
106.2-
96.6
90.7
98.7
100.2
96.6
99.2
93.3
81.0
96.4
93.6
80.4
98.4
993
96.1
100.8
98.5
92.3
1.60
Corn
.
1.40
1.32
1.44
1.43
1.44
1.42
1.33
1.52
2
04
(US #3 yellow,
150
123
148
150
125
133
133
118
117
.
119
c.i.f. Rotterdam, $ per metric ton)
Cotton
W
72.69
74.48
85.71
63
91
57
87
(
orld Cotton Prices, "A"
.
.
62.27
63.78
56.76
48.68
52.13
index, c.i.fOsaka, US 0/lb.)
1 - .1wgw11 is OUIK,
501
610
606
417
-- 369
342
c.i.f., $ per metric ton)
Rice ($ per metric ton)
US (No. 2, milled,
4% c.i.f. Rotterdam)
Th ' SWR
al
(100% grade B
632
573
481
362
514
339
514
310
484
249
496
254
496
243
236
263
238
-c.i.f. Rotterdam)
Soybeans
288
244
282
283
(US #2 yellow,
225
240
236
213
208
218
c.i.f. Rotterdam, $ per metric ton)
Soybean Oil
507
447
527
727
5
(Dutch, f.o.b. ex-mill,
71
654
658
518
454
457
$ per metric ton)
Soybean Meal
252
219
238
197
15
(US, c.i.f. Rotterdam
7
157
146
152
174
186
$ per metric ton)
-----------
----------
Sugar - -
(World raw cane, f.o.b. 16.93
8.42
8.49
5.18
4.04
3.69
2.96
4.21
5.30
4.87
Caribbean Ports, spot prices ? per pound)
Tea
91.0
---
89.9
--
105
2
156
6
Average Auction (London)
(C per pound)
.
.
90.0
126.9
82.8
72.3
78.1
82.1
( US #2. DNS
210
187
183
------
182 169-
178
169
154
175-
175
c.i.f. Rotterdam, $ per metric ton)
Food Index (1980=100) 88 78
86 92 81 83 79 76 84 95
The food index is compiled by The Economist for 14 food commodities which enter international trade. Commodities are weighted by 3-
year moving averages of imports into industrialized countries.
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 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
Year
1st Qtr
2d Qtr
3d Qtr
4th Qtr Jan
AM muuu'
Major US producer
77.3
76.0
77.7
81.0
81.0
81.0
81.0
81.0
81.0 81.0
.n o
,4 c
Ad A Gfl /,
40.0
Chrome Ore
(South Africa chemical
$ per metric ton)
grade
,
Copper , (bar, C per pound)
79.0
67.1
72.0
62.4
64.2
62.1
67.6
64.5
62.6 64.2
Gold ($ per troy ounce)
460.0
375.5
424.4
360.0
317.2
300.0
319.8
323.2
326.0 343.1
Lead' (c per pound)
32.9
24.7
19.3
20.0
17.7
17.3
17.3
18.3
17.8 16.7
Manganese Ore
82.1
79.9
73.3
69.8
68.4
69.7
68.4
68.4
67.2 67.2
S per long ton)
(48% Mn
,
Nickel ($ per pound)
Cathode major producer 3.5
3.2
3.2
3.2
3.2
3.2
3.2
3.2
3.2 3.2
LME Cash 2.7
2.2
2.1
2.2
2.2
2.2
2.5
2.2
1.9 1.8
Platinum ($ per troy ounce)
475.0
475.0 475.0
Metals week,
New York dealers' price
Rubber (c per pound)
-
Synthetic b 47.5
45.7
44.0
44.4
44.1
46.6
45.7
42.4
41.7- 40_7
Natural, 56.8
45.4
56.2
49.6
42.0
42.0
41.5
42.4
41.8 40.0
Silver ($ per troy ounce) 10.5
7.9
11.4
8.1
6.1
5.9
6.3
6.1
6.1 6.0
Steel Scrap a ($ per long ton) 92.0
63.1
73.2
86.4
Tin A (? per pound) 641.4
581.6
590.9
556.6
Tungsten Ore 18,097
13,426
10,177
10,243
10,656
11,515
10,974
10,648
9,488 8,588
(contained metal,
per metric ton)
$
-
US Steel 543.5
567.3
590.2
611.6
617.8
617.8
617.8
617.8
617.8 617.8
(finished steel, composite,
S per long ton)
Lumber Index 95
84
114
105
(1980= 100)
(I 980= 100)
Approximates world market price frequently used by major world
producers and traders, although only small quantities of these
metals are actually traded on the LME.
b S-type styrene, US export price.
Quoted on New York market.
a Average of No. I heavy melting steel scrap and No. 2 bundles
delivered to consumers at Pittsburgh, Philadelphia, and Chicago.
e This index is compiled by using the average of I I types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
rThe industrial materials index is compiled by The Economist for
18 raw materials which enter international trade. Commodities are
weighted by 3-year moving averages of imports into industrialized
countries.
Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
 Declassified in Part - Sanitized Copy Approved for Release 2012/01/03: CIA-RDP88-00798R000300050006-0
World Crude Oil Production
Excluding Natural Gas Liquids
1981
1982
1983
1984
1985a
1st Qtr
2d Qtr 3d Qtr 4th Qtr Nov Dec
World
55,837
53 092
52,633
_
53,685
53,462
52,380 52,356
Non-Communist countries
41.602
iR stun
IQ I,a
umtea mates
8,572
8,658
8,680
8,735
8,871
8,972
8
954 8
933 8
901 8
936
uanaaa
1,285
1,270
1,356
1,411
1,463
-
,
,
,
,
1.445 1
444 1
450
nu,guum
I,iS11
2,094
2,299
2,535
2,660
,
,
2,471
Norway
501
518
614
700
719
728 881
Other
717
736
915
. 921
991
1,001 1
023
6,036
6,633
6,823
-7,515
7,733
,
7,802 7,922
2,321
2,746
2,666
2,746
2,711
2,724 2,738 2,721 2
679 2
733
Egypt
598
665
689
827
877
,
,
875 860 - - -
3,117
3,222
3,468
3,942
4,145
4,203 4,294
8U3
701
699
638
660
634 616
660 680 650
211
211
236
253
274
_ _
271 282 287 290 290
Gabon
151
---
Indonesia
1,604
1,324
1,385
1,466
1,152
..... '-vv UV
1,167 1
203 1
286 1
200 1
100
Iran
1,381
2,282
2,492
2,187
2,097
,
,
,
,
_ 2,299 2,335 2,301 2
200 2
400
Iraq
993
972
922
1,203
1,255
,
,
1,340 1
482 1
666 1
700 1
650
Kuwait b
947
663
881
912
914
,
,
,
,
800 800 89
950 900
Libya
1,137
1,183
-
1,076
1,073
1,051
-
1,057 933 1,234 1
200 1
300
Neutral Zone
Zen
1 ,1
,
,
--_
405
32
------------ ---
8
295
399
297 312 312 300 335
9,625
6,327
4,867
4,444
3,659
2,731 2
564 4
067 4
000 4
500
,
,
,
,
1,...- ,
185 16
Venezuela
2,108
1,893
1,781
1,813
1
538
,
5
1
641 1
630 1
67
Commu
i
t
i
,
,
,
,
0 1,555 1555
_
_
_
n
s
countr
es
14,235
14,282
14,405
14,428
14,790
14,770
____
14
7
68
14
283 14
266 14
266
,
,
,
,