INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97-00771R000807770001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 34
• Document Creation Date: December 22, 2016
• Document Release Date: August 19, 2010
• Sequence Number: 1
• Publication Date: November 8, 1985
• Content Type: REPORT

Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Directorate of Secret
Intelligence
International
Economic Eat rg
weedy
8 Ne" 198S
DI IEEW 8S-045
8 November 1985
cvy 6 8 6
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
iii Synopsis
1 / Perspective-South Africa: Political Leverage From Regional Trade
International
Economic & Energy Weekly
25X1
25X1
25X1
25X1
11 The airbus Consortium: Growing Product Line Spurs Sales
15
Gr nada: Struggling To Steer a N
ew Economic Course
Zambia: Struggling With Auste
rity
Energy
International Finance
Global and Regional Developments
National Developments
directed to Directorate of Intelligence,
Comments and queries regarding this publication are welcome. They may be
Secret
DI IEEW 85-045
8 November 1985
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
International
Economic & Energy Weekly
Synopsis
1 Perspective-South Africa: Political Leverage From Regional Trade I I 25X1
South 4frica's dominant influence over the economies of its neighbors limits,
in certain respects, Western flexibility in dealing with Pretoria. Effective
economic sanctions almost certainly would damage these already weak
economies and increase their need for Western economic assistance.
Numerous attempts to increase regional trade ar.d cooperation among Sub-
Saharan African countries have had little impact to date, and this situation is
not likely to change soon. In our judgment, the lack of trade integration has
hindered economic growth as well as efforts to develop closer political linkages.
11 The Airbus Consortium: Growing Product Line Spurs Sales
25X1
25X1
25X1
Airbus Industrie, Western Europe's four-nation consortium, is having a strong
sales year as a result of an expanding product line incorporating advanced
aerospace technologies, a new, more international management team, and
innovative marketing techniques such as discounts and low interest rates. Over
the next few years, Airbus is likely to gain 40 percent of the world large jet air-
craft market by 2000. 25X1
15 Grenada: Struggling To Steer a New Economic Course
Two years after the US-led military intervention, Grenada is grappling with a
35 to 40 percent unemployment rate as the Blaize administration attempts to
reorient the economy toward the private sector. The disappointing pace of new
foreign investment and lengthy process of infraitr;ctural development point to
slow progress in reducing unemployment. 25X1
Secret
DI IEEW 85-045
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
19 Zambia: Struggling With Austerity
Declining copper production and falling world copper prices have slashed
Zambia's exports by almost half since 1980, causing goods shortages, inflation,
and three consecutive years of economic contraction. Although opposition to
belt-tightening has been muted so far, massive foreign debt problems will force
continued austerity through 1986 and beyond, resulting in rising political
pressures on President Kaunda's long-dominant position.
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
International
Economic & Energy Weekly
Perspective South Africa: Political Leverage from Regional Trade
South Africa's dominant influence over the economies of its neighbors limits,
in certain respects, Western flexibility in dealing with Pretoria. Effective
economic sanctions almost certainly would send shockwaves through neighbor-
ing black states. In particular, we believe South Africa would make good its
threats to conserve resources in the face of effective sanctions by reducing the
flow of oil and other goods to its neighbors. Such retaliation would further
damage these already weak economies and increase their need for Western
South Africa dominates a regional network of economic ties that provides
Pretoria with significant economic leverage over its Southern African neigh-
bors. Six of the 10 countries ' in the region are landlocked and depend on the
regional rail network-75 percent of which is under South African control-to
reach overseas markets. Alternative rail lines running through Tanzania and
Mozambique are unreliable because of insurgent operations and poor mainte-
nance, and ports in these countries are already used to capacity, ensuring that
South Africa's transport system handles a large proportion of foreign trade for
25X1
Beyond the transport links, the smaller southern African countries import
substantial amounts of South African chemicals, machinery, manufactures,
grain, and other foodstuffs. While we believe these countries would have little
difficulty finding alternative sources should South Africa cut off exports,
transportation problems and higher import costs would compound their
existing foreign currency shortages and limit supplies of food and manufac-
tures. 25X1
We believe South Africa will continue to enjoy a considerable degree of
economic leverage in the region. The smaller southern African countries are
likely to remain strongly dependent on South Africa in the areas of trade and
transportation, given the vast difference in size and level of economic
development between the South African economy and those of neighboring
countries, and the failure of institutional efforts, such as the Southern African
Development Coordination Conference, to reduce dependence on South Afri-
ca. Lack of funds for construction and maintenance of alternative rail and
water lines will ensure that South Africa maintains its stranglehold on regional
Secret
DI IEEW 85-045
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Pretoria, for its part, almost certainly is wary of establishing even more
extensive economic ties that might increase its neighbors' potential counterle-
verage. South Africa's neighbors publicly have justified their economic
relations with the country on the grounds of necessity and have attempted
unsuccessfully to reduce their dependence. Despite the benefits generated by
these trade links, political tensions and growing mutual distrust are likely to
prevent a major expansion of economic relations.
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Sub-Saharan African Trade:
Frustration and Failure
Numerous attempts to increase intraregional trade
and cooperation among Sub-Saharan African
countries have had little impact to date, and this
situation is not likely to change soon. Regional
trade has actually declined over the past 15 years in
relative terms and what little intra-African trade
exists is dominated by five of the more-developed
countries-Ivory Coast, Kenya, Nigeria, Senegal,
and South Africa. In our judgment, the lack of
trade integration has hindered economic growth as
well as efforts to develop closer political linkages.
Trade Linkages-Small and Declining
Regional trade, as a percentage of total trade for
the Sub-Saharan African countries, has declined
over the past 15 years. Last year regional trade
accounted for just under 6 percent of total trade,
compared to 7 percent in 1981 and over 11 percent
in 1970. Several larger countries, including South
Africa and Kenya, have seen the percentage decline
over the past decade. Others, such as Ivory Coast,
Nigeria, and Senegal, have seen little change in the
percentage of regional trade. For the smaller Afri-
can countries as a group, the trade share also has
fallen over the past decade.
Since 1981 intraregional trade has been declining
absolutely as well as relatively, reflecting the finan-
cial difficulties and resulting economic austerity
experienced by many Sub-Saharan African coun-
tries. In real (inflation-adjusted) terms, regional
trade fell 21 percent between 1981 and 1984,
dropping below levels achieved during the mid-
1970s. Measured in dollars trade fell from $6.6
billion in 1981 to an estimated $4.6 billion last year
although much of this was due to the appreciation
of the dollar.
The more developed African countries generally
suffered the sharpest intraregional trade declines.
In dollar terms, South African regional trade
Intra Sub-Saharan African Trade,
1970-84
Share of Total Trade
Percent
Valuea
Billion US S
- Nominal
7
4 1970 75 80 84 0 1970 75 80 84
dropped by 45 percent between 1980 and 1984,
largely due to a sharp fall in regional exports.
Cameroon also suffered a loss of 45 percent, while
Nigerian regional trade declined by 40 percent.
Intraregional trade, moreover, is dominated by five
countries-Ivory Coast, Kenya, Nigeria, Senegal,
and South Africa-which accounted for over 50
percent of the total in 1984. This percentage is only
slightly lower than in 1974, and is actually higher
than the 1970 figure. South Africa alone accounts
for more than 20 percent of total Sub-Saharan
regional trade, although its importance has slipped
in recent years due to the slowdown in economic
25X1
Secret
DI IEEW 85-045
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Sub-Saharan African Trade:
Top Five Countries Dominate
Million US $
Total Sub-Saharan
trade
15,642 34,674
98,471
78,920
Total Intra Sub-Sahara
1,746 3,200
6,329
4,590
Top Five
823 1,831
3,606
2,338
Ivory Coast
46 183
473
427
Kenya
171 256
439
330
total intra-Sub-Sahara
(percent)
- Estimated.
activity in major regional trading partners such as
Zimbabwe and Zambia. The five countries particu-
larly dominate intraregional exports, accounting
for two-thirds of the total. They all have relatively
well-developed industrial sectors and export consid-
erable manufactured goods :o the less-developed
Africa:- countries, but import 'little in return.
Efforts to boost intra-African trade have centered
on formal regional cooperation schemes. Most of
these attempts, however, have failed. The most
important reason for these failures has been the
wide disparity in the level of development and
industrialization that has led to domination of trade
by a few of the more-developed members. As a
result, the poorer countries have tended to leave the
group after a short time.
Other factors also have contributed to the lack of
regional trade growth:
? Most African leaders see regional cooperation as
a way to boost exports rather than imports. The
result has been economic policies-such as over-
valued exchange rates, high tariffs, and high
subsidies-that protect inefficient domestic in-
dustries and discourage trade growth.
? Lack of transport, communications, and finan-
cial infrastructure has hindered the movement of
goods between countries.
? The lack of export diversity among Sub-Saharan
African countries.
? Differences in political orientation and mistrust
among the countries involved in a regional unit
have limited trade expansion.
Implications and Outlook
The failure to develop intraregional trade has
hindered economic development for most Sub-Sa-
haran African countries who are constrained by the
small size of their domestic markets. For the
poorer, landlocked countries in the region, the lack
of regional trade has been especially harmful. In
the absence of regional trade linkages, many coun-
tries have also wasted scarce resources on a similar
range of industries (largely import-substituting),
while neglecting agriculture and export-oriented
industries. Finally, in our judgment, the absence of
strong trade ties has hindered the development of
political linkages between African countries, in-
creasing the degree of rivalry and mistrust among
nations in the region.
We believe that there is little hope for any signifi-
cant increase in the level of intra-African trade in
the medium term, given the towering political and
economic obstacles to trade expansion. Economic
austerity almost certainly will continue in the
medium term, holding down import growth. Prob-
lems with the lack of export diversity and poor
internal transport systems will persist, as financial
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Intra Sub-Saharan African Trade as a
Share of Total Sub-Saharan Trade
1970
1974
1980
1984 a
1970
1974
1980
1984a
Exports
11
8
6
4
Exports
1
1
2
1
Imports
5
5
2
2
Imports
1
3
2
1
Exports
3
20
30
26
Exports
1
2
5
5
Imports
6
4
4
4
Imports
8
7
4
4
Exports
1
2
2
2
Exports
17
18
14
7
Imports
1
1
1
2
Imports
15
8
3
11
Exports
40
34
26
23
Exports
10
10
12
14
Imports
11
5
3
1
Imports
3
3
4
8
Exports
7
8
7
5
Exports
3
5
2
1
Imports
9
9
10
4
Imports
9
12
11
4
Exports
7
4
3
2
Exports
NA
NA
13
18
Imports
2
7
5
5
Imports
NA
NA
22
14
difficulties leave little funding available for devel-
opment projects. The larger, more-developed Afri-
can countries, such as South Africa, Ivory Coast,
and Nigeria also are likely to continue to account
for most regional trade.
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Efforts at Regional Integration
The South African Customs Union (SACU)-made
up of Botswana, Lesotho, South Africa, and Swazi-
land-has been in existence for nearly 75 years.
The gains in regional trade stem largely from the
geographic dependence of the smaller members on
South African transport links. The customs union
has strengthened trade ties among these countries,
with the smaller members substituting South Afri-
can imports-such as foodstuffs and capital
goods for imports originating outside SACU.
The West African Economic Community
(CEAO) -Benin, Burkina, Ivory Coast, Mali,
Mauritania, Niger, and Senegal-has achieved a
marked increase in regional trade, in part because
some non-CEAO imports have been replaced with
imports from the community. In contrast to other
regional groupings, poorer countries such as Bur-
kina, Mauritania, and Mali have shown strong
gains in regional exports.
The East African Common Market-made up of
Kenya, Uganda, and Tanzania-was set up in 1967
to promote trade and cooperation among these
former British colonies. During its 10 years of
existence, regional trade declined as a percentage
of total trade.
The Economic Community of West African States
(ECOWAS), an ambitious attempt at regional inte-
gration, includes some of the poorest countries of
the Sahel region and relatively developed nations,
such as Nigeria and Ivory Coast. Intraregional
trade has not increased since the formation of
ECOWAS in the mid-1970s, and accounts for only
3 percent of total trade of the countries in the
group.
The South African Development Coordination
Conference (SADCC) was formed in 1980 as an
attempt by black Southern African countries (An-
gola, Botswana, Lesotho, Malawi, Mozambique,
Swaziland, Tanzania, Zambia, and Zimbabwe) to
forge regional trade ties and reduce economic
dependence on South Africa. Intra-SADCC trade
accounts for only 4 to 8 percent of total SADCC
trade, and all member countries still have close
trade ties to South Africa.
The Customs and Economic Union of Central
Africa (UDEAC) -consisting of Cameroon, Congo,
Gabon, Equatorial Guinea, and the Central Afri-
can Republic-is an effort to promote trade among
Equatorial African states. Intra-UDEAC trade has
not increased substantially, and, if Cameroon is
excluded, intraregional trade has actually fallen.
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
25X1
25X1
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Iq
Next 2 Page(s) In Document Denied
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
The Airbus Consortium:
Growing Product Line
Spurs Sales
Airbus Industrie, Western Europe's four-nation
consortium, is having a strong sales year as a result
of an expanding product line, advanced aerospace
technologies, a new, more international manage-
ment team, and innovative marketing techniques
such as discounts and low interest rates. For the
first nine months of this year, Airbus has captured
slightly over 35 percent of the unit sales in the large
jet commercial market, including over 50 percent
of the widebody market and several large orders for
its all-new, 150-seat, narrowbody A320. We believe
a growing product line, combined with a major
marketing campaign, will bring additional sales
success over the next few years, and Airbus is likely
to gain 40 percent of the world large jet aircraft
market by 2000
Growing Order Book
After a slow start in the 1970s, the French-led
Airbus consortium now has firm orders for some
500 aircraft from 57 airlines. Airbus captured over
one-third of the widebody market between 1979-85
and is achieving good success with the all-new, 150-
seat A320 design scheduled to enter service in
1988. Sales to date for the narrowbody A320 total
109, with options for 125 more.
This year alone Airbus has sold 92 aircraft valued
at some $3.2 billion-58 A320s and 34 widebody
A300s and A310s-compared with total sales of 35
aircraft in 1984. More important is the growing list
of first-time customers. The sale to Pan Am, which
industry experts call the "deal of the century,"
involved a firm order for $1.1 billion in aircraft and
included the first US purchase of the A320. More
recently, Lufthansa, traditionally a US buyer, pur-
chased up to 50 aircraft valued at $2 billion.
With the big inflow of new orders, industry experts
expect Airbus to increase production from the
present three per month to at least four per month,
starting in early 1986. Moreover, we believe exist-
ing tooling, jigs, and available workforce at all sites
would permit a further increase in production in
1987 if sales warrant.
Airbus Advanced Technology
Many Western aerospace experts believe a key
ingredient in Airbus sales success has been the
consortium's willingness to apply advanced technol-
ogies to new aircraft designs. We believe Airbus 25X1
Industrie intends not only to meet US competition,
but also surpass it by building aircraft containing
the latest engineering know-how. To accomplish
this goal, the consortium is investing heavily in
advanced cockpit technologies for the A320 and
research and development work for the entire prod-
uct line in advanced materials such as composites
and aluminum-lithium alloys, and computer-aided
design (CAD). 25X1
The Airbus R&D efforts are already paying divi-
dends. The derivative A310-300 design has an all-
composite fin that gives a 20-percent weight sav- 25X1
ings over the conventional aluminum fin and is the
first airliner to enter series production with a major
composite element. We estimate Airbus' use of
such composites will give Europe a three- to five-
year lead over the United States in commercial
applications of composite materials to large passen-
ger jets. F__-] 25X1
Airbus engineers are presently setting up a trans-
European CAD system that links the four members
Secret
DI IEEW 85-045
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
of the consortium. Aerospatiale has developed a
software system that allows transmission of draw-
ings and machine tool programing information
among the companies. In the past, incompatible
CAD systems made this integrated design effort
impossible. The new system eliminates the ex-
change of microfilmed drawings and, in some cases,
the transfer of actual full-scale models of parts.
The "Family" of Aircraft
The A320's success has laid the groundwork for the
next phase in the development of the Airbus "fami-
ly" of aircraft. The two new designs most talked
about are the very long-range, medium capacity,
four-engined TAI 1 and the long-range, large ca-
pacity, twin-engined TA9. Airbus is also planning
additional versions of the A320. The TA11 would
carry about 250 passengers some 6,000 miles (near-
ly 10,000 kilometers) and is targeted at replacing
aging DC8s and 707s. This design is strongly
backed by Lufthansa. The TA11 has been referred
to as the A330 by some Airbus officials, a signal
they may be close to a program start. Airbus'
President Pierson has stated the order base would
need to be similar to that of the A320, approxi-
mately 50 to 60 aircraft from three to four airlines.
The TA9, a stretched version of the A310, would
carry about 330 passengers over distances of about
4,000 miles (roughly 6,000 kilometers). It would
also effectively replace many existing trijets like
the Lockheed Tristars and McDonnell Douglas
DC 10s on short- to medium-range routes, and
introduce twin-engine economy to this sector of the
market. The TA9 is a logical extension of the
Airbus product line. Although no airline has
stepped forward, we believe a market exists in the
late 1990s for a plane to satisfy the routes that do
not require the seating capacity of the 747. Airlines
in South Asia, the Far East, and Latin America are
potential customers.
A320: Advanced Technologies in the Cockpit
An important ingredient in the recent sales success
of the A320 has been the advances in automated
cockpit technology. These improvements facilitate
aircraft operation, save weight, and reduce mainte-
nance costs. The A320 will be the first airliner to
be equipped with the following innovations:
? Digital flight controls combined with side-stick
controllers. The digital flight controls is an
electrically signaled system, also known as fly-
by-wire. The concept is based on two independent
computer systems and simplifies aircraft opera-
tion. The use of side-stick controllers allows
elimination of the traditional yoke and gives the
pilot an unobstructed view of the instrument
panel.
? Integrated flight-control and flight-management
systems. The result is the Flight Management
Guidance Computer, which makes possible the
elimination of several avionics systems. The
guidance computer continuously supplies com-
mand signals through the fly-by-wire computers
to handle most of the actual flying of the
aircraft.
? Color cathode ray tubes (CRT) in place of elec-
25X1
tro-mechanical instruments. The CRTs provide a
clear, uncluttered presentation of data
25X1
A good part of the sales success stems from a more
aggressive management team-once dominated al-
most exclusively by the French-which came into
office early this year. The new Franco-German
leadership has created several new management
divisions in an effort to increase efficiency and to
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
improve financial accountability to its partners.
Pierson has stated that Airbus is planning more
aggressive marketing of aircraft in the United
States, including the sale of secondhand airplanes
taken in trade to the small airlines in the United
States. With a British national leading a division
wholly responsible for all financial matters, Lon-
don---notoriously slow in appropriating money for
new projects-will have a direct voice in Airbus's
Aggressive Marketing
The sales success of the Airbus also is closely tied
to aggressive marketing techniques, innovative fi-
nancing, and government support. Many Western
aerospace experts report that present aircraft deals
are increasingly being determined on financing
rather than on product comparisons.
affairs.
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
The recent Pan Am purchase is an example of
innovative arrangements. Because of Pan Am's
financial problem, the deal was structured as a
lease instead of an outright sale. Pan Am will pay
for the aircraft over a predetermined period of time
and then return them for newer planes and all-new
financing. As a result, Airbus was able to cut its
inventory of unsold aircraft and will sell the re-
turned airplanes on the used market.
Similar innovative moves were taken when Lufth-
ansa in mid-1985 was balking at purchasing the
A320.
The conditions included a
right to cancel for any reason until mid-1988 and to
cancel within two years after the delivery of the
first A320 if a superior alternative such as the
Boeing propfan becomes available.
Direct French Government support apparently was
a key factor in the recent sale to Indian Airlines.
We believe that Airbus probably will gain 40
percent of the world large jet aircraft market by
2000. Airbus Industrie's growing sales success,
coupled with plans for further expansion of the
consortium's product line, will make it more diffi-
cult for new US programs to be profitable. Indeed,
the A320 is having success in the 150-seat category
that will not have an all-new US competitor until
1992-95.
For the longer term, we believe the current market-
ing success will accelerate Airbus plans to expand
its product line-most likely the TAI l-and be-
come more competitive across the board with US
manufacturers. The A320 itself is likely to evolve
into a series of derivatives with various capacities
and ranges. A wider selection of aircraft will
further enhance Airbus's image with airlines
around the world.
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Grenada: Struggling to Steer a
New Economic Course--
Two years after the US-led military intervention,
Grenada is grappling with a 35- to 40-percent
unemployment rate as the Blaize administration
attempts to reorient the economy toward the pri-
vate sector. The government's effort to stimulate
development of agriculture, tourism, and light
manufacturing is hampered by the island's weak
infrastructure, which has discouraged any signifi-
cant inflow of foreign investment. Sizable aid from
Western donors, particularly the United States,
probably will enable Grenada to achieve moderate
economic growth over the near term. Still, the
disappointing pace of new foreign investment and
the lengthy process of infrastructural development
point to slow progress in reducing unemployment.
If hopes for continued economic improvement fade,
discredited political elements-both the right and
the radical left-could capitalize on the public's
disillusionment.
Restructuring After the Bishop Years
During its four years in power, the People's Revolu-
tionary Government of Maurice Bishop implement-
ed economic and political policies that weakened
the Grenadian economy-real GDP grew at an
average annual rate of only 1.8 percent in 1979-83,
compared to a yearly average of 7 percent during
1975-78. Despite expansion of the army and feath-
erbedding in the public sector, unemployment was
estimated to have been as high as 27 percent during
the early 1980s. Moreover, the population-
officially listed in the 111,000 to 118,000 range-
may well have fallen to 85,000 as many skilled
Grenadians fled the adverse economic and political
environment.
Following the US-led intervention in October 1983,
the interim government began to reorient Grena-
da's economy toward the private sector. It revised
the country's investment code to open virtually all
sectors to private investors and introduced invest-
ment incentives comparable to those of other Ca-
ribbean countries. In addition, by late 1984, the
government had:
? Relinquished control of the nutmeg, banana, and
cocoa associations and returned a number of
agricultural estates to private hands.
? Laid off hundreds of state employees.
? Lowered the stamp duty on imports by 25 percent
in an attempt to ease the island's cost of living,
stimulate consumer demand, and encourage pri-
vate investment.
? Raised ceilings on interest rates to encourage
private saving.
? Relaxed foreign exchange controls in an effort to
improve business confidence in the new, free-
market economy.) 25X1
With the end of Soviet Bloc funding-as well as the 25X1
termination of a three-year, $14 million IMF pro-
gram arranged just before Bishop's downfall-the
interim government looked to Western countries
for financial support. According to World Bank
and IMF data, a record $25 million in external
grants was disbursed to the Grenadian Government
during 1984. Aid from the United States-by far
the largest donor-and Canada enabled construc-
tion of the Point Salines airport to be largely
completed by late 1984. F__~ 25X1
Challenges Facing the Blaize Government
Despite this promising start, formidable economic
problems have persisted since Prime Minister
Herbert Blaize was elected in December 1984.
Foremost is unemployment-now 35 to 40 per- 25X1
cent-concentrated among the country's youth.
Secret
DI IEEW 85-045
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Grenada: Economic Indicators, 1981-85
Central Government Deficit
as a Share of GDPa
2 1981 82 83 84 85
I c!ude+ external grunts.
h Projected.
The government is especially worried about jobless-
ness among students who have returned from Cuba
and former soldiers of the disbanded People's Revo-
lutionary Army.
To ease unemployment, the Blaize administration
is targeting agriculture, tourism, and light manu-
facturing for rapid development:
? Substantial funds have been directed toward up-
grading agricultural productivity and expanding
support services. The island's cocoa and banana
cooperatives have received funds to cover finan-
cial shortfalls due to slumping world prices. The
government also is selling farmland on conces-
sional terms to small-scale farmers.
? Tax holidays of up to 10 years are being offered
to investors in tourism. The government is sched-
uled in December to start its own airline-
Grenada Airways-to facilitate the flow of tour-
ists to the island. Grenada Airways also plans to
eventually build a 300- to 350-room hotel near
the Point Salines airport.
? New investment in light manufacturing is also
eligible for lengthy tax holidays. In 1985, the
corporate income tax was reduced slightly, and
an Industrial Development Corporation was es-
tablished to promote and coordinate new invest-
ment projects.
Still, Grenada's weak infrastructure, which the US
Embassy compares unfavorably even with Haiti
and such ministates as Antigua, St. Kitts, and St.
Lucia, seriously restrains the inflow of investment
needed to spur growth in these sectors. Electric
power is inadequate even for current needs, and
frequent blackouts interrupt other services, such as
telex and telephone communications as well as the
provision of water and cooking gas. The telephone
system also is severely strained; there are more
than 2,700 service applications on a growing wait-
ing list and only 15 long-distance lines to the island.
The development of tourism on the southwest coast
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Grenada: Western Economic Aid Million US $
Commitments, 1984-85 a
strained public finances. In August, the Cabinet
cut operating expenditures by 10 percent in an
attempt to trim the fiscal deficit.
Caribbean Development Bank
2.7
2.9
United Kingdom
1.5
2.6
Other
0.6
1.7
Airport construction
6.1
3.3
European Development Fund
0.7
1.4
United Kingdom
1.4
0.4
United States
30.7
27.2
Airport construction
18.0
12.1
is hampered by insufficient water distribution and
sewage disposal. In addition, the number of rooms
available to accommodate tourists has dropped to
397. Meanwhile, years of neglect have caused
serious deterioration of the island's road network.
Agriculture, which employs one-third of the work
force and is Grenada's largest foreign exchange
earner, suffers substantial losses of perishable pro-
duce because of the poor condition of farm roads.
25X1
Other disincentives to foreign private investment
include memories of the island's political instability
and long bureaucratic delays in approving invest-
ment proposals. Moreover, Grenada's inadequately
trained work force has partly offset the compara-
tive advantage of relatively low-cost labor.
To cope with severe cash-flow problems, the Blaize
administration resorted to heavy domestic borrow-
ing this summer to meet payroll needs. With
Grenada's external debt doubling to more than $50
million since 1980, the country's debt service bur-
den has increased dramatically and further
Near-Term Prospects
Sizable aid inflows, particularly for the construc-
tion sector, probably will allow Grenada to contin-
ue moderate growth, but lagging foreign invest-
ment and the slow process of infrastructural
development suggest that little progress will be
made against unemployment over the next year or
two. Tourism is likely to receive a boost as Grenada
Airways and a large, new, privately-managed hotel
begin operations soon. Still, the government will
continue to face tight fiscal constraints. Until aid-
financed infrastructural projects are in place-
probably well into 1987-the island will remain
heavily dependent on US and other foreign budget-
ary support.0 25X1 25X1
Continued high unemployment will increase the
potential for popular disillusionment with Grena-
da's new economic and political course. If hopes for
prosperity fade, opposition groups on both the right
and the radical left would try to capitalize on
growing public discontent. 25X1
the socialist Maurice Bishop
Patriotic Movement already is working to regain 25X1
social and political acceptance through youth and
trade union groups. Eric Gairy, the autocratic
former Prime Minister toppled by Bishop, tried in
September to bolster his political fortunes by lead-
ing agricultural workers in a wage strike. Although
shortlived and unsuccessful, the strike demonstrat-
ed that at least some segments of the population
remain susceptible to political manipulation. F_
25X1
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Zambia: Struggling With
Austerity
Declining copper production and falling world cop-
per prices have slashed Zambia's exports by more
than one third since 1980, causing goods shortages,
inflation, and three consecutive years of economic
contraction. President Kaunda-with IMF back-
ing-has imposed a series of tough reforms in an
effort to reduce consumer demand for imports and
reverse balance-of-payments deficits. Currency de-
valuations totaling almost 90 percent since 1980
have been the centerpiece of the reform program.
Although opposition to this belt-tightening has
been muted so far, massive foreign debt problems
will enforce continued austerity through 1986 and
beyond, resulting in rising political pressures on
Kaunda's long-dominant position.
Copper Drags Down the Economy
The Zambian copper industry, which provides 90
percent of the country's exports, is suffering from a
variety of domestic and international problems.
Costs are high because of the depletion of some of
the richer and more accessible ore deposits and
because of gross overstaffing-output per worker is
barely one-tenth the US level. Based on incomplete
data published by the US Bureau of Mines, we
estimate that average production costs at Zambian
copper mines are currently about $1 per pound of
copper-about 50 percent above the current world
copper price. In addition, the government has
sought to conserve foreign exchange in the short
run by cutting foreign exchange allocations to the
mining sector. This has caused shortages of fuel
and other supplies while forcing mines to continue
operating aged equipment at reduced rates of utili-
zation and to cannibalize machinery for spare
parts
On the international level several factors have
caused world copper prices to drop by about one-
third since 1980. Industrial demand for copper
continues to decline, and major low-cost producers
such as Chile are increasing output and exports. As
a result, even the strong economic growth since
1982 in the United States and other developed
markets has not resulted in an upsurge in copper
prices. 25X1
Copper production in Zambia has fallen from
610,000 metric tons in 1980 to about 500,000 tons
this year, according to our estimates. Coupled with
the fall in international copper prices, this has cut
the value of total Zambian exports by more than
one-third since 1980 to about $900 million this
year, with disastrous consequences for the
economy:
? Real GDP has been zero or has contracted in
every year since 1981.
? Foreign debt has doubled since 1980, and the
debt service ratio has risen to an unmanageable
70 percent in 1985, despite three debt reschedul-
ing agreements in 1983 and 1984.
? Imports have been cut by 50 percent, causing
severe shortages of consumer goods, fuel, and raw
materials.
? Manufacturing and processing industries are op-
erating at only about 30 percent-of capacity,
according to estimates quoted by President
Kaunda in a recent speech.
? Inflation has risen steadily to about 20 percent in
1985
Lusaka has taken major strides in cooperation with
the IMF to adjust to the decline in foreign ex-
change earnings. The effort has included successive
currency devaluations, cuts in government spend-
ing, higher producer prices to boost output of 12 25X1
major farm commodities , and elimination of con-
trols on the prices of cornmeal and many consumer
goods. In January of this year, however, following
Secret
DI IEEW 85-045
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
-69
-56
271
304
400
996
948
982
916
900
Imports
1,114
1,065
1,004
711
612
500
Net services
-970
-757
-560
-440
-419
-400
two successive standby agreements totaling nearly
$460 million, the IMF ended disbursements of
standby funds because of Zambia's inability to
meet interest payments on debt owed to the IMF
and its refusal to follow IMF recommendations for
a devaluation of more than 50 percent. This fall,
the continued decline in copper production and the
intractable growth of debt service obligations in-
duced Kaunda to push through two key new IMF-
recommended reform measures: a sharp reduction
of corn subsidies in September and a weekly for-
eign exchange auction system in October. The
auction, which now has functioned for five weeks,
has resulted in a two-thirds devaluation of Zam-
bia's currency since September. These measures
have brought about dramatic price increases-40
percent for cornmeal and over 100 percent for
major imported commodities, such as petroleum
products.
Popular reaction to Kaunda's tough economic re-
form program so far has been limited largely to
short-lived strikes, such as those by mineworkers in
mid-1985 and by Lusaka's taxi drivers in October.
More ominously, the Zambian Congress of Trade
Unions-which includes all 18 of Zambia's labor
unions-plans to ask the government for a 100-
percent pay hike and to threaten a general strike if
turned down. The general public, including the
lower ranks of the military and the nation's farm-
ers-upset over a profit squeeze-have confined
themselves to grumbling. The generally muted
response in light of practically universal opposition
to the austerity measures partially reflects the care
taken by Kaunda to provide offsetting economic
perks to key groups, such as significant military
pay increases in October just prior to the introduc-
tion of the foreign exchange auction. Wage and
salary increases also were announced for civil ser-
vants and are planned for unionized industries,
according to Embassy reporting.
Although no increase in real GDP is likely this year
or next, the three-year slide in output appears to
have ended, at least temporarily:
? A return to normal weather this year after two
years of drought has resulted in a sharp improve-
ment in farm production.
? The completion of a $300 million mine rehabilita-
tion program in 1986 will bring a temporary end
to the decline in copper production although no
significant increase in foreign exchange earnings
is expected.
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Zambia: Economic Indicators, 1980-85
Real GDP Growth Exchange Rateb
Percent US $ per kwacha
In our view, prospects are dim for developing major
sources of foreign exchange outside the copper
industry. Government policies-including price in-
centives and efforts to streamline the cumbersome,
government-run marketing system-so far have
focused on efforts to stimulate agriculture both to
produce commodities for export and to reduce
requirements for imports of raw materials for food-
processing factories. Despite its considerable poten-
tial, however, agriculture will not easily offset the
employment and foreign exchange losses from the
copper decline even under the best of circumstances
because of the country's limited cultivable acreage
and the likely reluctance of mine and industrial
Copper Production
Thousand metric tons
External Public Debt
Billion US $
Copper Prices
US cents per pound
Estimated.
Average exchange rate for each period.
Deep cuts in imports because of devaluation and
reduced imports of farm commodities, plus the
prospective leveling off in copper production, will
produce a small current account surplus next year
for the first time since 1979, according to our
estimates. Zambia's foreign debt, however, now
totals about $4.7 billion, according to press reports,
almost double the country's GDP. Even limited
attempts by Lusaka to service the massive foreign
debt would virtually wipe out any economic relief
from the prospective current account surplus. Like-
ly attempts by Lusaka to catch up at least partially
with overdue payments just to the IMF would
require up to 40 percent of export receipts, accord-
ing to press reports. F__~ 25X1
Toughing it Out
Despite dismal prospects for the economy, Kaunda
appears to be firmly committed to economic re-
form, and, in the short run, a number of factors
may run in his favor. His efforts to alleviate the
impact of economic austerity on key groups such as
the military appear to be working, at least for now.
The leadership of major nonunion institutions such
as the military, is closely allied with Kaunda's
political party, and we believe that Kaunda can
continue to count on at least grudging acquiescence
by most major public figures in his efforts to
achieve economic reform.
Debt Service Ratio
Percent
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Kaunda, moreover, may be able to capitalize politi-
cally on the short-run economic impact of better
crops and the temporary end to the decline in
copper production in 1986, despite the lack of any
significant benefit to hard-hit Zambian consumers.
Further large auction-related currency devalua-
tions anytime soon are unlikely, according to Em-
bassy reporting. The introduction of the foreign
exchange auction, moreover, and possible efforts to
reduce overdue interest payments to the IMF may
pave the way for another IMF standby agreement.
Kaunda, nonetheless, is bound to lose some popular
support over the longer term as austerity drags on
and economic recovery proves elusive. Per capita
GDP already has fallen by more than one-fifth
since 1980, and we believe prospects for wildcat
strikes, consumer riots, or other spontaneous out-
breaks of violence will increase as living standards
continue to erode. The potential for organized
opposition is greatest from Zambia's powerful labor
unions, whose membership numbers over 200,000
and includes most workers in mining, industry, and
construction. The country's history of labor turbu-
lence and growing rank-and-file pressures on labor
leaders for wage adjustments almost certainly will
lead to more serious strikes or work stonoaees I
Although we expect the
military to continue to back the regime, this sup-
port could erode if Kaunda is forced repeatedly to
call on troops to help put down civil disturbances.
Political pressures will be increased by likely recur-
rent shortages of foreign credit needed for imports
of petroleum products and other critical commod-
ities because of the size of the overdue debt and
debt servicing requirements.
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
secret
Energy
/ OPEC Oil Pricing Recent statements by OPEC members reflect the growing disarray over
Policy in Disarray
pricing policy and indicate the increasing irrelevance of OPEC's official prices.
UAE Oil Minister 'Utayba publicly claims that OPEC members will no longer
be subject to official price guidelines. Indonesia's Oil Minister, however, 25X1
denied that the OPEC price structure has been abandoned. Saudi Oil Minister
Yamani recently asserted that future oil prices would be determined both by
prices to make them more in line with market conditions. Low oil inventories
and rising winter consumption appear likely to prevent a major price break
before OPEC ministers meet in December. This reprieve probably will be only
short lived, however, especially if OPEC members attempt to increase revenue
further through additional price cuts.
Iran's New
Ail Minister
Favors Increased
Countertrade
Iran's new Oil Minister, Qolam Reza Aqazadeh, told the parliament (Majles)
he favors linking purchases of foreign goods to oil sales, according to the
Iranian press. Although Aqazadeh also said he wants to maintain OPEC's
cohesion, he is closely connected with radicals who favor increasing Iran's oil
production-Iran has excess production capacity of about 1 million b/d. His
predecessor, Mohammad Qarazi, had been criticized for his inability to
maintain oil revenues. A former head of the committee that organizes Iran's 25X1
oil barter deals, the new oil minister will probably push aggressively for
increasing oil sales through countertrade arrangements, but will be reined in
by Majles's concern that boosting oil exports sharply could collapse the oil
market. 25X1
25X1
Secret
DI IEEW 85-045
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
/Canadian
Natural Gas Policy
Soviet-Japanese
Natural Gas
Discussions
prices if US gas price levels drop sharply.
Ottawa's decision last week to partially deregulate the natural gas industry
may add to strains among the energy- producing and-consuming regions and
impede efforts to promote freer trade with the United States. The new policy is
designed to allow Canadian producers to increase their natural gas exports to
the United States by basing export floor prices on regional prices rather than a
single national price. The major consuming provinces, left out of the final
negotiations between Ottawa and the producing provinces, were outraged at
the decision to freeze domestic wholesale energy prices at a rate higher than
the level likely in a free market. Leaders of consuming provinces fear their in-
dustries would lose competitiveness vis-a-vis US firms if US natural gas
prices-now higher than Canadian prices-fall below the now-frozen Canadi-
an level. In this event, Ottawa's ability to negotiate a freer-trade pact will be
hampered. Ottawa, however, would likely be quick to adjust domestic energy
ments.
Soviet Deputy Foreign Trade Minister Sushkov will visit Tokyo this month to
try to break the deadlock on terms for jointly developing the 4.3 billion-cubic-
meter-per-year gas project on Sakhalin Island. Japanese utilities have not yet
committed themselves to buy any gas, nor have the terms of Japanese loans for
the project been set. According to the Japanese press, Sushkov is threatening
not to place a $3 billion order for a petrochemical plant with Japanese firms
unless Tokyo guarantees the amount of its gas purchase and the loan terms. A
final decision on the Sakhalin project-which has been under consideration for
nearly 20 years-may come as soon as early 1986. Although Japanese gas
supplies are set well into the 1990s, the Japanese decision on whether to take
some Soviet gas in the late 1990s may be determined as much by a desire to
win some project contracts for Japanese firms as by anticipated gas require-
Japan Revises Gasoline Japan will begin to import gasoline sooner than previously expected, but only
Import Plans on a small scale, according to the US Embassy. Embassy reporting indicates
the startup date for imports was moved from April to January in response to
strong US pressure. MITI will introduce legislation later this month allowing
it to control the quantity of gasoline imports despite Tokyo's earlier claims that
volumes would be determined only by market forces. MITI faces strong
opposition from domestic refiners, and press sources believe the
Ministry will strongly resist foreign pressure to increase imports beyond 2
million kiloliters in 1986-about 5 percent of Japanese demand and well below
the import levels envisioned by US and European policymakers. In addition,
Tokyo-ever mindful of the oil shocks of the 1970s-continues to be wary of
dependence on foreign refiners.
Secret 24
8 November 1985
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
SSR Expanding
Energy Cooperation
\/WithV'm
Moscow will quadruple oil exploration and development assistance to Vietnam
in the coming five years under the plan for the Soviet-Vietnamese joint
venture, Vietsovpetro. The venture is planning to step up operations in the
offshore Bach Ho field-where it first discovered oil in 1984, but has not yet
completed delineation drilling. Two production platforms are nearing comple-
tion and another is being erected. Hanoi hopes to reduce its dependence on the
USSR for its oil imports, which amounted to nearly 35,000 b/d in 1984.
Montenegro in announcing energy conservation measures. The new regulations
restrict the use of street lighting, forbid neon and other electrical signs, and
ban late-night television and the use of supplementary heaters in offices and
public areas. A continuing drought has reduced reservoir levels at hydroelec-
tric plants to 20 percent below normal. Power cuts in 1984 curtailed industrial
output and visibly soured the public mood. The energy situation is potentially
more serious this year, especially in Croatia. Officials there have already
expressed concern that imported fuel oil, dependent on limited foreign
exchange, may be in short supply this winter. Up to one-third of Croatia's
generating capacity relies on fuel oil. Unless rains come soon, these first-phase
reductions could escalate into more widespread power cuts this winter.
goslav Energy Cuts Croatia and Slovenia have joined the republics of Bosnia-Hercegovina and
ew Delay in
Philippine IMF
Program
Manila's burgeoning budget deficit will delay until December at the earliest
the third disbursement of $106 million from the IMF's $615 million balance-
of-payments loan. According to US Embassy reporting, unexpectedly low tax
receipts and massive subsidies to shaky government financial institutions are
pushing this year's budget deficit to over $1 billion-nearly triple the Fund's
target. Even if agreement can be reached on the new taxes and expenditure
25 Secret
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Peru's Increasing
Financial Isolation
cuts required to trim the deficit, disbursements will be delayed if the Fund de-
termines that Manila concealed information on various tax exemptions-as
some observers charge. Until the IMF program is back on track, Manila's
commercial creditors will postpone new loans-undercutting Manila's efforts
to portray uninterrupted progress with the financial rescue package. Although
a one month delay will not erode Manila's foreign exchange reserves-now
equal to three months of imports-a lengthy interruption in the Fund program
would threaten the fragile economic recovery, which seems to be on the
horizon.
President Garcia's refusal to back away from his hard line on debt is
increasingly isolating Peru from international lenders. Meanwhile, Garcia is
bracing against reprisals.
external debt outright.
To mitigate the loss of
trade credits, Lima has built its foreign exchange reserves to about $2 billion,
according to the Central Bank, and has extended the current freeze on dollar
accounts for six months. Under Garcia's repayment scheme-limiting debt
service to 10 percent of exports-commercial banks will probably receive no
debt payments for at least another nine months. He is apparently preparing to
use his replenished reserves and trade surplus to purchase essential imports,
and he may try to strengthen commercial ties to the Soviets. Garcia will
probably increase his rhetoric against "financial imperialism" to retain
support at home and to coerce bankers into accepting longer repayment
periods, debt service payments in kind, or payments tied to the prices of Peru's
exports. Should creditors balk, Garcia might go so far as to repudiate the
Sudan's Prospects for An IMF negotiating team has left Khartoum again with no agreement in sight
IMF Agreement Fade on Sudan's arrearage problem. According to the US Embassy, the Fund is
beginning to doubt that international donors will provide the large cash grants
necessary to cover Sudan's IMF arrears, which currently total about $200
million. The United States and Saudi Arabia together have pledged $70
million toward meeting IMF arrearages, but other donors remain noncommit-
tal. Following a recent conference in Riyadh, Kuwait, Saudi Arabia, and the
UAE agreed to extend bridge loans to cover $145 million in Sudanese arrears
to the Arab Fund but did not provide any additional financial assistance. The
IMF reportedly sees little value in reaching agreement on a reform package
without resolution of the arrearages and may, in a last minute move designed
to loosen up donors, threaten to declare Sudan ineligible for further IMF
financing.
London Warming Up
to EUREKA
e~ cret
Global and Regional Developments
London apparently is showing more interest in EUREKA, France's proposal
for European cooperation in high technology, hoping to reap economic and
political benefits and remind Washington that alternatives exist to SDI
research. According to the financial press, the Department of Trade and
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Problems For European
Semiconductor Project
EC should US funding of SDI research not meet British expectations.
Industry is seeking Treasury approval for a special contingency fund to help fi-
nance EUREKA-related research, as well as to better coordinate spending on
civilian R&D. Until now, the government was planning to fund EUREKA out
of existing technology support programs. London remains adamant, however,
that the primary initiative for EUREKA participation come from private
industry. Greater support for EUREKA reflects the Thatcher government's
general concern over insufficient private investment in civilian R&D programs.
While the government probably plans to spend only a marginal sum to spur
technological development, it wants to take credit for any business profits or
new jobs that result if EUREKA takes off. In any case, this attention to
EUREKA would increase London's options for greater cooperation with the
advantage of its recent cooperative agreement with Toshiba.
Megaproject-the joint program between Siemens of West Germany and
Philips of the Netherlands to develop advanced random-access memory
chips-almost certainly will be hampered by Siemens' inability to take full
Siemens officials believe progress on Megaproject is being delayed 25X1
far behind-threaten to spill over into its research on four-megabit chips.
difficulties with one-megabit chips-where the West Europeans already are
megabit processing and its heavyhanded attempt to replace Siemens' US
suppliers with Japanese firms. In addition, Philips is diluting its effort by
conducting a similar research program of its own. Megaproject's present
by Toshiba's reluctance to share detailed technical information on its one-
25X1
revising the relationship.
its existing mainframe revenues because Fujitsu may consider ending or
reinstituted its R&D program for a mainframe computer system. Siemens 25X1
previously designed and built their own systems, but over the past decade has
become increasingly dependent on Fujitsu for mainframe computers. Current-
ly, Siemens does little or no basic R&D in general purpose mainframe 25X1
technology. This is the first attempt by any of Japan's mainframe partners to
reduce their technological dependence. We do not believe, however, that
Siemens will be able to produce a system that will have a significant impact on
US market share in Western Europe. Siemens's mainframe-technology gap
vis-a-vis US and Japanese competitors may be too large to close regardless of
the financial commitment from Siemens. Siemens's effort may also threaten
Siemens Seeks To
Reduce Dependence
on Japan
Siemens of West Germany has
N
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
National Developments
Developed Countries
25X1
Dutch Unions Propose The Dutch socialist trade union federation, FNV, recently announced its
Reduced Workweek intention to press employers for a 36-hour workweek as part of a drive to
reduce the 13.1-percent unemployment rate. The federation proposes that the
two-hour cut in weekly hours be implemented over a four-year period for
large- and medium-sized firms; small firms, however, would be given a longer
phase-in period. While a shorter week might preserve present jobs, it probably
would have little impact on the unemployment rate. A study by a Dutch union
claims employers would probably force workers to increase their production
rather than hire more employees. Reduced working hours are not likely to be
adopted soon. The government last year abandoned its efforts to shorten the
workweek. The main Dutch employers' organization argues the plan will add
to labor costs but do little to create new jobs. Pressure on the employers will in-
crease next spring, however, if, as expected, the Labor Party comes to power in
the May 1986 elections.
Secret
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Possible Haitian
Petroleum Cutoff
Less Developed Countries
strengthen the economy and forestall outbreaks of violence.
Haiti's failure to pay some $15 million in arrears to its petroleum suppliers
may lead to curtailed shipments in coming weeks. US Embassy sources report
that extrabudgetary expenditures by the Duvalier regime are blocking negotia-
tions with the IMF and depleting Haiti's foreign exchange reserves. The US
Embassy says that public discontent over economic problems is growing. The
fragile economy would quickly feel a reduction in oil shipments. Electric power
shortages would disrupt communications, transportation, and production at a
variety of assembly plants-adding to the unemployment problem. Without a
workable program with the IMF, Duvalier probably will look to Washington to
Trinidad and Tobago The Trinidadian Government's recent plan to trim operations of its sugar
Streamlining Sugar producer, CARONI, reflects belated efforts to ease the growing burden of
Enterprise extensive state ownership. The government controls about 80 percent of the
economy through 64 jointly or wholly owned companies, only seven of which
were profitable in 1984. Although the government fears substantial job losses,
the sharp decline in oil revenues has made it increasingly difficult to subsidize
these inefficient corporations. CARONI-the largest employer among the
state enterprises-received government subsidies of more than $120 million in
1984 alone. According to press reports, the reorganization plan includes the
elimination of 4,500 jobs over three years. The CARONI plan probably will
enable the opposition National Alliance for Reconstruction, which already
enjoys a substantial lead over the ruling People's National Movement in
opinion polls, to further capitalize on growing labor concerns that sizable
layoffs may be in the offing in other public enterprises.
finisian Crackdown The Tunisian Government is moving against dissident union officials to force
on Labor them to accept the Prime Minister's wage and austerity measures and to
forestall opposition activity. Security forces have arrested more than 400
officials and occupied trade union offices. Senior union leaders are calling for
nationwide strikes. The press reports that authorities also discovered and
confiscated weapons and copies of Libyan leader Qadhafi's Green Book. Wage
negotiations have dragged on for months; the government had already closed
the union newspaper and stopped the withholding of union dues. Union boss
Habib Achour is a longtime opponent of government policies and recently
refused to support Tunis's firm stand against Libyan threats. Labor unrest will
play into the hands of the Libyans in their efforts to mount subversive
operations including possible attacks against US facilities and personnel.
Secret
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Jordan Waiting for
Saudi Aid x
The US Embassy reports that Jordan has not made any oil payments to Saudi
Arabia since midsummer in anticipation that Riyadh will come through with a
grant for the oil. The overdue bill will climb to $88 million by mid-November,
excluding interest charges on the arrears. Riyadh recently honored its
Baghdad pledge to Jordan worth $119 million, but its current budget squeeze
may reduce the chances that it will forgive entirely Jordan's oil debt. The
overdue oil bill adds to the uncertainties surrounding Jordan's foreign
exchange situation. Amman's official foreign exchange reserves began to climb
in early summer because of Omani aid and a successful loan syndication, but
they fell sharply in August to $435 million-equal to a little more than two
month's imports.
igerian Pay Cuts
Burma Announces 1`
Surprise Currency
Recall
President Babangida has announced pay cuts for the armed forces, police, and
civil service in what may be a crucial test for the new regime. The US
Embassy reports that the military pay cuts begun 1 November are on a sliding
scale, from 2 percent for the lowest ranks to 20 percent for members of the
Armed Forces Military Council, including the President. The government also
announced that salaries of all civil servants, as well as those of the staffs of uni-
versities and semiofficial organizations, will be cut by up to 15 percent.
Civilians will probably applaud the military's pay cuts as a sign of its
willingness to share the country's hard times, but they will resent cuts in their
own salaries, which have been frozen for nearly two years. By extending
austerity to the armed forces, Babangida risks encouraging coup plotting
among junior officers-already chronic-and losing essential military support.
Rangoon this week recalled 100, 50, and 20 kyat notes-the first such action
since 1964-probably in an attempt to curb illegal economic activities. Old
notes will be redeemable from 11 November through the end of the year and
apparently will be exchanged one for one up to the income tax threshhold
only-hurting blackmarketeers, speculators, and drug dealers who have
amassed large sums of illegal cash. The US Embassy reports that the
government's action is severely disrupting legal commercial dealings, however,
because vendors are no longer accepting the old notes or are discounting them.
Moreover, the long-term impact on the black market probably will be limited
because Rangoon is unlikely to take steps to liberalize the economy and reduce
incentives for these activities.
'Soviet-East German
Trade, 1986-90
The USSR and East Germany last week signed a protocol calling for some in-
crease in East German deliveries in 1986-90 but flat Soviet oil shipments,
implying growth of overall trade will be much slower than in recent years. The
agreement coordinating economic plans calls for a 28-percent growth in trade
Secret
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
USSR Steps Up ~ The Soviet Union recently publicized Maincosmos, its new space organization
Commercial Space for promoting international space efforts. Maincosmos plans to offer satellite
E orts launch services in competition with the West European Ariane and the US 25X1
space shuttle, Soviet press reports indicate the
organization will also examine proposals for space exploration, research on
space technology and equipment, and dissemination of space information. The
USSR has launched satellites for Bloc countries, India, and France under the 25X1
Intercosmos program. In 1984, Moscow offered launch services to the
International Maritime Organization for its next-generation navigation satel-
lites, but the bid was rejected. F_~ 25X1
compared to the previous five-year period, according to the East German news
agency, indicating trade will grow about 3 percent annually over the projected
1985 level. East German exports of consumer goods are to rise 40 percent;
chemicals, 50 percent. Moscow promised to supply 17.1 million metric tons of
oil yearly, the same as in 1985, and slightly higher quantities of natural gas,
coal, and iron ore. The indicated growth rate is a sharp reduction from the
double-digit rates of recent years, reflecting in part the leveling off of Soviet
natural resource deliveries and a slowdown in price increases. The higher level
of East German shipments of consumer goods and high-technology items stems
from Moscow's demands that its allies support domestic Soviet economic
priorities. The announcements by both sides leave key questions unanswered
about trade balance, the growth of total East German exports, and the level of
East German investments in Soviet natural resource projects
I / currency trade prospects and spelling more belt-tightening for consumers. 25X1
1East European Harvest A prolonged drought following a harsh winter has seriously damaged crops in
Prospects Worsen Bulgaria and Romania and to a lesser degree in Yugoslavia, dimming hard
Embassy reporting suggest Bulgarian grain output
this year probably will be no more than 7 million tons, more than 20 percent 25X1
below last year and the worst showing since 1974. A Romanian grain crop of
around 16.6 million tons is expected, the smallest crop since 1975. Yugosla-
via's grain harvest will probably fare better at 16.2 million tons, near its
average. Nonetheless, Belgrade has reported that all crops have suffered this
year and expects total agricultural output to fall some 11 percent below last
year's production. Agriculture's poor performance will further depress eco-
nomic growth in these countries-already beset with shortfalls in energy and
industry. Supplies of most staples in Yugoslavia, and to a lesser extent in
Bulgaria, should be adequate, but spot shortages and higher prices are likely to
lead to increased consumer grumbling. In Romania an already poor food
supply will get worse. 25X1
___
o
5 to
ain outp
s
198 G a
n
i
_- r-_ r ____ _
p
.. ..--- dr
g
11 u
i
na s
,V_rl
/Production Falls of 407 million metric tons because of bad weather and reduced production
incentives. Stockpiles will make up the shortfall, however, and a significant
increase in grain imports is unlikely. The net grain reduction will slow China's
Secret
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
'/
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
ambitious plans to export grain and to expand the livestock industry. Beijing,
concerned that declining grain production will hinder Chinese modernization
plans, is adjusting its rural policies to assure that next year's grain output will
increase. This year, peasants shifted too much of their labor and resources
from grain production to more profitable crops and rural industry. Press
reports indicate that policymakers will raise grain procurement prices next
year to encourage grain production, stabilize the rural economic sector, and
mollify party conservatives who are using falling grain figures to criticize
Chinese Funding for China is establishing "national science foundations," modeled on the US
/// Basic Research National Science Foundation, to sponsor basic research in selected areas. A
Geological Sciences Foundation is already operating, while a much larger
National Natural Science Foundation (NNSF) reportedly will be established
in January 1986. Between $35-40 million will be allocated to the NNSF; the
geological foundation budget will be $1.7 million in 1986. The science
foundations, part of the S&T reforms Beijing announced last March, are
intended to improve the quality of basic research in China through peer review
and competitive funding
Because foreign exchange reserves are insufficient to pay for large-scale rice
Hjfmanitarian Aid imports, Hanoi is appealing for international aid following a series of typhoons
since August that killed over 800 people and extensively damaged rice fields.
Vietnamese officials claim over 1 million metric tons of paddy have been
damaged or destroyed, compared to less than 800,000 tons last year. The
Ministry of Agriculture is projecting 1985 foodgrain output at 17.3 million
tons or less, down from 17.9 million tons in 1984. Vietnam had achieved near
self-sufficiency in rice in 1983 after boosting output at a 6-percent average
annual rate from 1976 to 1983. 1985 rice
import requirements at 500,000 tons-more than 50 percent above 1984 levels.
Secret
8 November 1985
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
 Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3
Secret
Secret
Sanitized Copy Approved for Release 2011/03/07: CIA-RDP97-00771 R000807770001-3