INTERNATIONAL ECONOMIC & ENERGY WEEKLY 16 SEPTEMBER 1983

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84-00898R000300100009-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 34
• Document Creation Date: December 22, 2016
• Document Release Date: February 9, 2011
• Sequence Number: 9
• Publication Date: September 16, 1983
• Content Type: REPORT

Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
International
Economic & Energy
Weekly
DI IEEW 83-037
16 September 1983
9cR
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
acUrUt
International
Economic & Energy
Weekly
16 September 1983
iii Synopsis
1 Perspective-Oil Market: Threatening Clouds on the Horizon
3 Briefs Energy
International Finance
Global and Regional Developments
National Developments
13 World Grain Market: Preliminary Assessment
19 The World Sugar Market: Opportunities for Soviet Influence
25 South Korea: Managing a Large Foreign Debt
31 Qatar: Reacting to the Soft Oil Market
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
25X1
Comments and queries regarding this publication are welcome. They may be
directed tq~~ Directorate of Intelligence 25X1
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4 25X1
Secret
International
Economic & Energy
Weekly
Synopsis
Perspective-Oil Market: Threatening Clouds on the Horizon 25X1
The oil market has continued to firm in recent months. In addition, the
widespread inventory drawdowns that contributed heavily to downward price
pressures have now subsided. The calm market outlook could change virtually
overnight, however, if Iran and Iraq carry out recent threats to escalate attacks
against oil targets.
World Grain Market: Preliminary Assessment 25X1
World grain production during the marketing year ending 30 June 1984 (MY
1984) is expected to fall by 5 percent-the first decline in five years. Even if
continuing drought leads to additional crop losses, as seems likely, record
stocks will ensure adequate supplies.
The World Sugar Market: Opportunities for Soviet Influence) I 25X1
Poor sugar harvests in the USSR during the past few years have made
Moscow the world's largest sugar importer. Soviet officials know that the
prospect of Soviet purchases looms large to prospective sellers in a glutted
market, particularly for financially strapped LDCs
South Korea: Managing a Large Foreign Debt
South Korea-with the fourth-largest debt among LDCs-is unlikely to face
financing problems over the near term. Over the next two or three years,
however, South Korea will need to borrow about $4 billion per year in new
funds and to maintain its short-term credit lines if it is to avoid a financing
Qatar: Reacting to the Soft Oil Market
The soft oil market has prompted Qatar to cut government spending, postpone
major development projects, and attempt to slow aid outflows. Although most
Qataris are little affected by the retrenchment, cutbacks could aggravate
resentment of the greed, corruption, and privilege of the ruling Thani clan
Secret
DI IEEW 83-037
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
International
Economic & Energy
Weekly
16 September 1983
Perspective Oil Market: Threatening Clouds
on the Horizon
The oil market has continued to firm in recent months. Although oil sales
remain weak in Western Europe, economic recovery in the United States has
boosted August oil sales 5 percent above 1982 levels. In addition, the
widespread inventory drawdowns that contributed heavily to downward price
pressures have now subsided.
Encouraged by the strengthened market, a number of OPEC countries are
producing above their individual quotas. Although output rose above 18
million b/d in July and August, in general enough restraint has been applied to
keep prices in the spot market near or slightly above official levels. Rising
demand for OPEC crude oil-which could exceed 19 million b/d in the fourth
quarter, according to many industry estimates-has spurred several OPEC
members to call for a revision in quotas to enable OPEC to capture demand
generated by higher consumption.
The calm market outlook could change virtually overnight, however, if Iran
and Iraq carry out recent threats to escalate attacks against oil targets. We be-
lieve that the risks of a major disruption will be increased significantly by
Iraq's acquisition of five super Etendard aircraft from France. These aircraft
will give Baghdad a much improved capability to attack oil tankers calling at
Khark Island. Tehran recently has renewed public threats to attack Iraq's
pipeline through Turkey-Baghdad's sole remaining export outlet-and has
threatened to close the Gulf to all oil exports if its own flow is disrupted. Ac-
cording to our analysis, closure of the Strait of Hormuz-either by mining or
attacks against shipping-and shutting down the Iraq-Turkey pipeline could
remove some 13 million b/d of Free World productive capacity.
Despite the Strategic Petroleum Reserve and considerable supplies of oil 25X1
outside the Persian Gulf, the United States would not be insulated from a
sizable interruption in Persian Gulf oil. Heavy Western dependence on Gulf oil
would disrupt US supply patterns and drive up prices worldwide. If oil exports
through the Strait of Hormuz were cut off, presently operating pipelines in
Saudi Arabia and Iraq could still export about 3 million b/d. Remaining
capacity from the Gulf-about 12 million b/d-would be lost, and, even with
the addition of 3 million b/d in surplus capacity outside the region, oil supply
Secret
DI IEEW 83-037
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
would fall far short of demand, possibly leading to a doubling or tripling of
prices. Judicious use of stocks could slow price escalation, especially if
consumers anticipated a fairly quick reopening of the Strait, but the cost of
such a disruption to the world economic and financial system would neverthe-
less be substantial.
Secret 2
16 September 1983
25X1
25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
,ecret
Energy
OPEC Production OPEC production in August averaged 18.4 million b/d, nearly 1 million b/d
Update above the cartel's self-imposed ceiling established in March. Saudi Arabia's
production continued to rise, boosted by direct marketing of Saudi crude by
the Swiss trading company Norbec and Riyadh's continued war assistance to
Baghdad in the form of crude sales to Iraq's customers. Iraq was able to
maintain its production at about 1 million b/d by using chemicals to enhance
the oil flow through its export pipeline through Turkey. We believe Iran
exceeded its OPEC-mandated quota in August as a result of increased
Japanese liftings.
Nigeria-under ire or
OPEC: Crude Oil Production, 1983 Million b/d
Total
17.5 15.9
16.8
18.2
18.4
Algeria
0.725 0.7
0.6
0.6
0.6
Ecuador
0.2 0.2
0.2
0.2
0.2
Gabon
0.15 0.2
0.2
0.2
0.2
Indonesia
1.3 1.1
1.4
1.4
1.4
2.4 2.6
2.3
2.4
2.5
Iraq
1.2 0.8
0.9
1.0
1.0
Kuwait
1.05 0.8
0.7
0.9
0.9
Libya
1.1 1.3
1.1
1.1
1.1
Neutral Zone
b 0.2
0.4
0.5
0.5
1.3 0.8
1.4
1.7
1.3
Qatar
0.3 0.2
0.3
0.3
0.3
Saudi Arabia
5.0, 3.9
4.4
5.1
5.5
United Arab Emirates
1.1 1.2
1.2
1.2
1.2
Venezuela
1.675 2.0
1.7
1.7
1.7
a Preliminary.
b Neutral Zone production is shared equally between Saudi Arabia
and Kuwait and is included in each country's production quota.
c Saudi Arabia has no formal quota; it will act as swing producer to
meet market requirements.
7FX1
25X1
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Spot Market Price Most spot crude oil prices firmed in August. North Sea and North African
Trends prices have now risen by about $1 per barrel to about $31 per barrel since late
July and are now $1 above official prices. Spot prices of Persian Gulf crudes
with the exception of Arab Light are now at or above official levels. Higher
prices in part reflect a rebound in US oil consumption, a near end to
destocking, and general compliance with the OPEC quota system. According
to preliminary data, US oil consumption in the four weeks ending 26 August
averaged about 5 percent above year-earlier levels. Firming spot prices caused
Egypt to raise official crude oil prices between 25 cents and $1 per barrel ef-
fective 1 September. The move followed an earlier announcement by the
marketing crude and dampen pressure for oil price increases.
Chinese Gas Discovery Atlantic Richfield's recently confirmed discovery of natural gas in the
in August and limited production to its 1.3-million-b/d ceiling.
flagrantly violating its quota in June and July-cut back output dramatically
Soviet Union that raised crude prices by $0.50 per barrel effective 15 August.
Weakness in Arab Light spot crude prices-prices fell to $28.70 per barrel-
reflect growing volumes of Saudi spot sales. Press reports indicate Saudi
Arabia established Norbec, Ltd., a Swiss-based trading company, to market
some oil on the spot market. Some analysts believe increased Saudi spot crude
sales in recent weeks were intended to give Riyadh more flexibility in
25X1
25X1
25X1
25X1
25X1
25X1
Yinggehai Basin, south of Hainan Island, may be a substantial find.
cou
feedstock for a petrochemical or fertilizer industry.
Because of high offshore development costs, however, most Western firms have
expressed little interest in the expected gas-bearing potential of the Yinggehai
Basin. ARCO's contract, in fact, was not specific with regard to gas
development, thus difficult negotiations on the allocation of the gas would have
to precede development. The company hopes that a Chinese market for the gas
might be developed on Hainan Island or in southern China, possibly as a
f developed, such a discovery
as much as 40 percent to China's currently meager output of natural
Italian Government The Italian Government and ENEL, the state-owned electric utility, are
Promotes Solar collaborating to promote the use of solar energy for domestic hot water. Under
Energy Use a trial program, the government will pay 30 percent of the cost of the home in-
stallation of a solar-heated hot water unit and ENEL will finance the
remainder of the cost. Homeowners are expected to repay these costs over a
seven-year period out of savings on their electric bills. Although the success of
Secret 4
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
the program is uncertain, we believe ENEL and the government are trying to
generate increased use of solar energy in an effort to hold down growth in elec-
tricity demand. ENEL has run into numerous problems in siting, constructing,
and financing new electric power plants, and increased use of solar energy for
hot water heating could help avoid electricity shortages in the late 1980s or
early 1990s.
Indonesian Oil Pertamina-the national oil company-has not yet reached agreement with
Contract Problems Caltex, the country's largest crude oil producer, on terms of a production-
sharing agreement to replace the existing contract arrangement that expires on
28 November. Caltex has already agreed to a government share of 86.5
percent, as compared with the 85-percent share applicable to all other existing
contracts, but Pertamina continues to demand a higher percentage. F_
25X1
the government probably will dictate the 25X1
final terms, but Jakarta's insistence on a larger share will weaken Caltex's
ability to secure capital for exploration, development, and enhanced recovery
operations and could discourage other oil companies from investment spend-
ing. 25X1
Yugoslavia Requests Yugoslavia has requested $341 million in credit quarantees from the US
CCC Financing Commodity Credit Corporation (CCC) for the purchase of US agricultural
commodities in FY 1984. The CCC-backed loans are normally for a three-
year period with interest rates set by US banks at a fraction above the US
prime rate or LIBOR. With Western banks having cut back sharply on lending
to Yugoslavia, Belgrade needs the credits to assure adequate market supplies
(vegetable oils, soybean/meal products) and to assist the export sector, which
depends heavily on imported raw materials (cotton, hides, and skins). In FY
1983 Yugoslavia received roughly $240 million in CCC export guarantees,
much of which went toward financing US sales of wheat to Yugoslavia.
Because of this year's excellent wheat crop, Belgrade does not intend to use
any CCC credits for wheat purchases in FY 1984.
Growing Financial
Strains in the
Philippines
Manila's financial position
has deteriorated since the assassination of Benigno Aquino. Although large US
banks are continuing to renew short-term credits as they mature,
several banks suspended negotiations for new loans when Aquino was shot.
Several large private Philippine firms reportedly are rapidly falling behind in
their payments on government-guaranteed foreign loans. Last week the IMF
determined that Manila is out of compliance with the terms of its $375 million
standby loan and intends to suspend further disbursements until Manila makes
major changes in economic policy.
Secret
16 September 1983
25X1
25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Manila's trouble with the IMF and the failure of private borrowers to make
payments on government-backed loans increase the likelihood that the govern-
ment will become critically short of liquid funds in the next few months.
Manila may try to accommodate the requirements of the IMF, but the latter
probably will not resume disbursements until mid-November at the earliest. In
the meantime, the government's economic policy offices appear in disarray, as
Manila remains preoccupied dealing with the repercussions of Aquino's
assassination
Mexico Extends Export Mexican and Cuban financial officials last week signed two export credit
Credits to Cuba agreements totaling $55 million. According to US Embassy reporting, about
half of the proposed trade financing is an extension of a previous Mexican
credit line and does not represent new commitments. The credits will be
managed by Mexico's foreign trade bank, which will pay exporters in pesos,
while Havana incurs a dollar liability to the Mexican Government. To try to
keep its trade account balanced, press sources report Havana has begun
negotiations to extend similar export credits to Mexico City. The US Embassy
reports Cuban officials plan to visit Mexico later this month to discuss the pro-
posed credit and pricing issues. Mexico City will wait for Cuba to adjust its
high export prices before agreeing to any trade package, according to Embassy
sources. We believe the trade credits will have little commercial impact, but
they serve as important adjuncts to Mexico's diplomatic and political support
of Cuba.
Hanoi Seeks Debt The US Embassy in Paris recently was informed by the Paris Club that
Relief From Paris Club Vietnam has made a second plea for help in rescheduling debts. The Paris
Club turned down Hanoi's first request in June 1982 pending an agreement
between Vietnam and the IMF that calls for a reduction in budgetary
deficits-19.7 percent of GDP last year-and a devaluation of the dong.
Hanoi says that such an agreement is still not possible because of a poor
balance-of-payments situation but cites recent gains in production and export
performance as justification for renewing the application.
According to the IMF, Vietnam's hard currency debt at the end of 1982 was
$1.4 billion, including $335 million owed Paris Club members and $718
million owed Middle East and African countries for oil bought during
1976-81. Vietnam's hard currency arrears currently total $247.4 million.
Because Hanoi's debts are small by current international standards, creditors
probably will continue to allow arrears to accumulate without declaring
default, and we expect the Paris Club again to turn down Hanoi's request.
Secret
16 September 1983
25X1
\25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
France Calling for The French Government is disappointed about the lack of progress on
International Monetary international monetary reform-an issue discussed at the Williamsburg
Reform Summit-and will raise the topic at the industrial nation group, or G-10,
meeting in Washington on 24 September. French Finance Minister Delors,
who will chair the G-10 meeting, will seek to use his influence to get
agreement for some concerted action on the part of the 10 members. Although
the French want to keep the issue of international monetary reform within the
G-10, it is also an issue supported by the LDCs who might for their own rea-
sons seek a broader forum for debate. According to French Treasury Director
Michel Camdessus, France's primary areas of concern are:
? Developing a formal procedure for coordinated discussions within the
G-10.
? Instituting surveillance techniques for monitoring exchange market
instability.
? Diversifying international exchange reserves and reassessing the role of the
. IMF's special drawing rights.
? Studying medium-term financing mechanisms for the IMF, which according
to Camdessus, face a financial crunch during 1985-86. 25X1
Global and Regional Developments
25X1
Progress on Japanese- The Japanese are prepared to extend voluntary restraints on auto shipments to
US Trade Issues the United States for one year and are prepared to enlarge but not eliminate
their beef and citrus import quotas over the next four year
the Japanese auto industry is pleased with its profits under the current export
restraints but wants an expanded quota for 1984. MITI realizes that refusal to
agree to continued auto restraints could lead to increased trade friction with
the United States. 25X1 25X1
The Ministry of Agriculture, Forestry, and Fisheries hopes to persuade the
United States to soften its demand that Japan end restrictions on farm imports
and accept a compromise.
(Tokyo's inability to
establish a time for elimination of beef and citrus quotas, despite strong US
pressure, reflects the powerful influence that farm interest groups have in the
bureaucracy and the ruling Liberal Democratic Party. Only a political
25X1
decision by the Prime Minister to defy these groups could make such a
schedule possible.
25X1
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Chinese Trade Beijing last week announced that it was lifting prohibitions against purchases
Restrictions Against the of US cotton, synthetic fibers, and soybeans and restrictions on imports of
United States Lifted other US agricultural products. These measures had been in effect since
January, when Beijing retaliated against US quotas on textile imports. A new
bilateral textile trade agreement was signed last month, allowing the Chinese,
who have reduced their excess: inventories of fiber, to begin buying US
polyester and nylon. Purchases will not, however, reach the level of last year,
when they bought nearly $100 million worth. China reentered the US market
for small quantities of wheat two weeks ago, the first purchases since late
1982. Good domestic harvests, however, have reduced China's need for US
cotton and soybeans.
EC Consumer Midyear surveys conducted by the EC Commission show that consumers are
Confidence Improving less pessimistic about economic conditions in the Community than they were
at the end of last year but still are wary about making major purchases. West
German and Danish consumers led the improvement from the low point in
confidence reached at the end of 1982; British, Italian, Belgian, and Dutch
consumer sentiment also posted clear gains. In contrast to the rest of the
Community, the austerity measures adopted by Paris and Dublin last spring
further weakened economic confidence in their respective countries.
Consumers' attitudes should continue to improve during the rest of this year
because most West European economies have already passed the trough of the
recession. Together with the robust economic performance in the United
States, recently announced second-quarter gains in real GNP in West
Germany, France, and the United Kingdom should brighten confidence in
those countries. Nonetheless, growth of private consumption, which accounts
for about 70 percent of EC GNP, probably will remain sluggish compared with
past recoveries until fears of continuing layoffs recede.
Canadian-East German Canada and East Germany last week signed a long-term grain agreement that
Long-Term Grain calls for East German purchases of 1 million tons of grain per year for three
Agreement years beginning in 1984. The agreement, involving two-year commercial
credits guaranteed by the Canadian Government, will enable Canada to make
further inroads into the East German grain market, largely at the expense of
US sales. East Berlin has not been able to obtain two-year financing from US
bankers and recently has made new efforts to diversify its grain sources. The
agreement will satisfy roughly one-third of East Germany's annual grain
import requirements.
At the same time, both countries agreed to confer most-favored-nation status
on each other's goods. East Berlin probably took advantage of Canada's
interest in penetrating East European markets to press for more favorable
treatment of its own exports. East Berlin hopes to use MFN to help market its
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
manufactured goods in an effort to help ease its hard currency trade problems.
It may also be seeking to influence other countries, including the United
States, to give its exports more favorable treatment.
China Seeking Beijing reportedly will request $1.5 billion from Japan's Export-Import Bank
Additional Japanese to develop coal mines in China. The Chinese probably will ask for an interest
Funds rate of about 7 percent and up to 15 years to repay the loan, preferably in coal
although Japanese officials have stated a willingness to conclude the agree-
ment on a cash basis. If extended the loans would bring Japan's commitments
to China since 1979 to $15.billion, nearly half the Western credits committed
to China
China: Credit Extensions From Japan
Total
15,400
Commercial
8,000
May 1979
Eximbank
1,700
May 1979
Overseas Economic Cooperation Fund
(OECF)
1,500
December 1979
Eximbank
400
September 1980
Commercial
300
September 1980
OECF
2,000
August 1983
Eximbank
1,500
Pending
National Developments
Developed Countries
New Greek Finance Prime Minister Papandreou last week indicated that he envisaged no major
Minister policy changes following the resignation of Finance Minister Koulourianos.
Although Koulourianos cited personal reasons for his move, he may have
wanted to dissociate himself from policies that have contributed to the
country's economic problems, including a 20-percent rate of inflation and
10-percent unemployment. The new Finance Minister, Alternate National
Economy Minister Pottakis, is a longtime supporter of state planning and
controls and is expected to maintain the current import and credit restraints
and price controls. He also is likely to stick with the government's restrictive
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
incomes policy. The business and financial communities have been quite
discouraged by Papandreou's economic policies, and private investment is
likely to remain depressed.
Less Developed Countries
Zimbabwe-Institutes In an effort to conform to IMF guidelines, Harare recently announced price
Further Economic increases, ranging up to 50 percent, for maize meal, milk, bread, beef, and oils.
Adjustment Measures The government's goal is to reduce and eventually eliminate food subsidies,
which ar now costing nearly $200 million annually
In a related move, Harare earlier had announced higher minimum
producer, prices for crops to be delivered in 1984-85. This effort to stimulate
production in the face of a severe drought also will push up food prices. To
compensate, the government granted small pay raises for workers earning
$300 or less per month in both the public and private sectors. In addition, the
government announced a freeze on government hiring.
The actions follow Finance Minister Chidzero's presentation in July of a tough
budget for 1983-84 that cut public programs and increased taxes. The limited
wage increase appears to be a compromise that grew out of intense debate in
the Cabinet and demonstrates the continued moderating influence of
Chidzero. Several ministers had argued forcefully for an immediate across-
the-board 10-percent increase in the minimum wage, but this apparently will
now be delayed until at least January 1984.
Rampant Smuggling The recent implementation of austerity measures designed to conserve chroni-
Sustains Syrian cally scarce foreign exchange has given added impetus to already large-scale
Economy smuggling in Syria.. While. a significant amount of smuggling is carried on by
individuals-through purchases abroad or by use of willing taxi drivers-most
is conducted, or at least facilitated, by the Syrian military. Organizations such
as the Military Housing Establishment and the Military Construction Estab-
lishment-exempt from customs duties, letters of credit, and inspection
formalities-are importing goods for private-sector businessmen or for resale
to less influential public-sector organizations.
additional Syrian military units stationed in Lebanon as well as rien y
Lebanese political groups are probably involved.
Even though such large-scale smuggling-imports outside regular channels
are believed to total between $750 million and $1 billion annually, according to
US Embassy sources-is depriving Damascus of substantial customs revenues,
it provides the Assad government with an important cushion against potential
sources of discontent. Private-sector importers are using their overseas ac-
counts to pay for needed manufactures and desired luxury goods, while income
from lucrative smuggling activities is helping to keep the military in line.
Secret
16 September 1983
;25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Zaire Seeking To Zaire's decision last week to devalue its currency by 80 percent is the latest in
Eliminate Parallel a series of steps it has taken to comply with IMF conditions for a $350 million
Exchange Market standby loan. The new exchange rate, which equals the parallel market rate on
which the bulk of the economy has operated, aims to eliminate unofficial
exchange transactions that have deprived the government of at least $100
million annually in foreign exchange.
The US Embassy in Kinshasa believes the devaluation will have little impact
on the country's already financially pressed urban population, but we are less
sanguine. Government efforts to mitigate the inflationary impact through
tariff reductions on imported foodstuffs, subsidized diesel fuel prices, and a
45-percent wage increase for government employees risks pushing the govern-
ment's budgetary deficit beyond limits acceptable to the Fund. At some point,
we expect Kinshasa will have to rescind or substantially modify these
measures. Moreover, we anticipate that the devaluation will do little toward
eliminating the black market that has dominated Zaire's economy for almost a
decade and will, in fact, provide a pretext for merchants and other commodity
speculators to charge higher prices. Finally, the government will be restricted
in it foreign exchange allocations and unable to compete with the parallel
market's ability to provide merchants with easy access to foreign exchange.
President Mobutu will be quick to blame Western creditors .for any failure in
the latest IMF-dictated reforms. 25X1
Yugoslav Electricity Belgrade is growing increasingly alarmed about shortfalls in electric power
Problems production and the potential for serious power outages, especially as consump-
tion picks up with the onset of colder weather. Production of hydroelectricity-
normally about 40 percent of total electricity output-has dropped because of
a severe drought that has lowered reservoirs to their lowest levels in 40 years.
Attempts to offset this shortfall by boosting output at thermal power plants are
being hindered by shortages of, railcars to transport coal, reduced oil imports
because of the hard currency crunch, and shutdowns of some power plants for
maintenance. Several republics have handled their electricity shortfalls by
scheduling regular power outages for households, lasting from four to eight
hours every other day. 25X1
11 Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Secret Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
- Production
- Consumption
C Surplus
0 Deficit
World Grain Production and Consumption
I I I I I I I I I I I 1 I J
1970/71 71/72 72/73 73/74 74/75 75/76 76/77 77/78 78/79 79/80 80/81 81/82 82/83 83/84
a. January 1972, Soviet purchased record amounts of grain.
b. 1973/74, US corn output decreases by 17.1 percent (36 million tons).
c. 1975, Soviet output fell by 50 million tons, imports rose 26 million tons.
d. 1975/76, Soviet grain production increased by 80 million tons-65 percent of the total increase
that year.
e. 1977/78, China and the USSR accounted fo 55 percent of the increased production.
f. January 1980, US partial embargo on grain to the USSR.
g. 1981, grain production increased 42 million tons, US up 62 million, others down by 20 million tons.
h. 1983/84, set-aside programs and drought conditions in the US decreases corn output by 44 percent
(96 million tons).
million tons. The harvest, already about three-
fourths complete, has been progressing well, and
the grain appears to be of good quality.
The major trouble spot this year is the United
States. Extended drought in the Midwest corn belt
and a one-third reduction in sown area will result in
a sharply reduced crop-down more than 110
million tons, according to USDA. Virtually all of
the decline will be in coarse grain production. If the
drought continues, the US corn crop could fall an
additional 10 million tons, according to some pri-
vate forecasts.
While coarse grain crops outside the United States
generally are doing well-we expect them to in-
crease about 45 million tons-others facing diffi-
culties because of bad weather include the EC and
Secret
16 September 1983
Eastern Europe. Dry conditions in key producing
countries in the EC have reduced corn and barley
crop prospects. In Eastern Europe, overall grain
production is expected to be down some 7 million
tons-more than one-half of which will be in coarse
grains. Also South Africa, traditionally a major
corn exporter, will need to continue importing corn
well into 1984.
The global outlook for wheat production calls for a
near-record crop of about 485 million tons. Howev-
er, setbacks can still occur because wheat crops in
the Northern Hemisphere have not been fully
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
US Grain Export Pricesa
Vj~v nM J -I A I _^P~
/V11 TV~A f/,~ _W
_s
1970 71 72 73 74 75 76 77 78 79 80 81 82 83 84
harvested while those in the Southern Hemisphere
are still being planted:
? Canada-Hot, dry weather in August has caused
greater losses than earlier predicted, putting the
expected 30-million-ton crop out of reach. None-
theless, wheat production should reach last year's
record 28-million-ton crop.
? Australia-The wheat crop is forecast at a near-
record 17 million tons, almost double the size of
last year's drought-stricken crop.
? China-Because of improved yields, China's
wheat crop may have increased nearly 10 million
tons to a record 78 million tons, the third consec-
utive year that production has increased.
? Argentina-Recent timely rains have greatly im-
proved Argentina's wheat crop prospects. While
much could happen before the harvest in January
and February, a wheat crop of 11.5 million tons is
in the making, according to USDA estimates.F_
According to USDA estimates, global grain con-
sumption in MY 1984 is expected to reach about
1.2 billion tons, up 2 percent over last year's level.
Most of the increase will be in coarse grain con-
sumption in the LDCs and Communist countries.
Some expansion in feedgrain use is expected in
South Korea, Indonesia, and some Middle Eastern
countries.
Even 2-percent growth may be optimistic. Because
of higher corn prices, livestock raisers in the United
States are starting to plan for smaller herds and
reduced feed usage. Moreover, financially strapped
LDCs, particularly in drought-stricken Africa, may
find themselves priced out of the feedgrain market.
Corn prices have increased nearly $50 per ton since
January. If farmers continue to withhold their 25X1
grain from the market in anticipation of yet higher I
prices, corn prices could reach the record level of
$172/ton set in December 1980.
Wheat
Corn
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Total 33.1 25-30
Canada 9.3 7.5-8.0
Argentina 9.4
Australia 1.0
European Community 4.3
Other 2.9
a Based on US-USSR grain agreement minimum of 9 million tons
which must be bought during October/September.
Purchases Additional
To Date Commitments
Although USDA expects global grain consumption
this year to exceed output by 50-55 million tons,
large carryover stocks from last year's record har-
vests will assure the world of adequate grain sup-
plies. Global wheat stocks, for example, should
total about 110 million tons, the second highest in
history, and overall world grain stocks, while drop-
ping by 50 million tons, would still be the third
largest in the past 15 years.
World grain trade will increase by a scant 2
percent or 3 million tons more than last year's
depressed levels, according to USDA's estimate.
This estimate assumes, however, that the Soviets
and Chinese cut back only slightly from last year's
import levels. The continuing bullish prospects for
their crops may cause them to cut imports more
than expected. In any case high grain prices may
cause them to postpone some grain purchases.
Problems with farm-to-city grain distribution will
probably force China to import about 15 million
tons of grain from all sources. Whether or not
Beijing fulfills its LTA commitment to purchase
and take delivery of a total of 6 million tons of US
Secret
16 September 1983
grain by 1 January 1984 is still uncertain. Earlier
the Chinese had indicated that once difficulties
over the bilateral textile agreement, signed last
month, were resolved they would resume purchases
of US grain to fulfill their remaining 3.0-million-
ton commitment.
high prices may dissuade them from
reentering the US market until later in 1983 when
they believe grain prices will be lower.
Likewise, prospects for a much improved crop will
enable Moscow to reduce imports. So far, the
Soviets have bought about 8.5 million tons of grain
from all sources. They have additional commit-
ments for up to 14.0 million tons, including up to
6.6 million tons from the United States under the
terms of the new US-USSR long-term agreement
signed in late August, and may not purchase much,
if any, more.
The impact of the new US-Soviet grain agreement
will fall on all the major non-US exporters in years
of good Soviet grain harvests such as this one. Prior
to the new accord, strained trade relations between
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
25X1
25X1
0
25X1
25x1
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
A Comparison of the New US-USSR Long-Term Grain Agreement
With the Previous Accord
The USSR is authorized to purchase from private
commercial firms a minimum of 6 million metric
tons and a maximum of 8 million tons of grain
without additional approval:
The agreement was signed for five years begin-
ning 1 October 1976. It was extended by two,
one-year agreements, the second ending 30 Sep-
tember 1983.
Shipping arrangements The agreement required that shipments meet the
provisions of the US-USSR Maritime Agreement
which called for one-third of the grain to be
shipped in US bottoms, one-third in Soviet bot-
toms, and the remainder in third-country vessels.
The agreement allowed the United States to
suspend the guaranteed minimum if US grain
supplies fell below 225 million tons.
Type of grain The LTA called for a minimum of 3 million tons
each of corn and wheat to be purchased.
The USSR is authorized to purchase from private
commercial firms a minimum of 9 million metric
tons and a maximum of 12 million tons of grain
without additional approval. Up to 1 million tons
of the minimum purchase requirement can be
satisfied by Soviet imports of up to 500,000 tons
of US soybeans or soybean meal.
The agreement will be in effect for five years
beginning 1 October 1983.
No shipping arrangements are specified at this
time. Negotiation of a new US-USSR maritime
agreement could affect this provision.
The agreement does not allow the United States
to suspend sales because of crop shortages.
The agreement requires a minimum purchase
level of 8 million tons-split equally between
wheat and corn-if the Soviets exercise their
option to purchase 0.5 million tons of soy prod-
ucts. If Moscow does not exercise this option,
then they must purchase a minimum of 9 million
tons of grain, at least 4 million tons each of corn
and wheat.
The agreement also requires semiannual consul-
tations between the two countries.
Moscow and Washington since the 1980 US grain
embargo meant that any reduction in Soviet import
needs fell primarily on the United States. Last
year, when Soviet grain imports fell by 12 million
tons, Soviet purchases of US grain dropped 9
million tons to the 6-million-ton minimum LTA
commitment. Imports from other suppliers fell
much less sharply, and most retained or increased
The agreement required that the United States
and the Soviet Uniorr hold semiannual consulta-
tions to discuss the status of bilateral grain trade.
their market shares.
This year we expect Soviet grain imports to de-
crease 3-8 million tons to 25-30 million tons. US
competitors could have supplied most, if not all, of
Moscow's imports. Without the new agreement,
US sales might have fallen substantially below 6
million tons rather than the 8-9 million guaranteed
in the new pact.
Argentina probably stands to be hurt most by the
new US-Soviet agreement, particularly in corn
where the United States is its main competitor.
With limited storage capacity, Argentina had a
ready outlet in the USSR for its exportable grain
surpluses, shipping the Soviets 50 to 75 percent of
its total grain exports during the past three years.
While Moscow will probably continue to purchase
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
large amounts of Argentine grain to maintain a
diversity of supply and to score political points, the
Soviets are now in a stronger position to press
Buenos Aires on issues such as their unfavorable
balance of trade.
Implications for the United States
While the US-USSR LTA helps shore up the US
position, the decline of the United States as a force
in world grain markets is likely to continue. Ac-
cording to USDA, the United States will again
account for slightly over half of world grain ex-
ports, but its share of the export market has slipped
since 1980 when it hit nearly 60 percent. Moreover,
US dominance of the world export market for
grains is likely to be eroded by this year's crop
situation because:
? US corn exporters will be hit hard by sharply
higher prices. Livestock feed importers are likely
to turn to increased purchases of wheat, grain
sorghum, and barley-grains in abundant supply
in other exporting countries this year.
? The United States can expect no cooperation to
cut back production from other exporters, who
are under intense pressure to expand exports.
While enough latent demand exists in major
importing nations to significantly increase grain
exports if economic conditions improve and de-
mand for meat picks up, this will not happen
rapidly; indeed, higher feedgrain prices will sup-
press the recovery in meat consumption in the
near term.
? This year's expected tighter corn supplies and
higher prices will provide only temporary relief
from an otherwise glutted market; beyond the
current crop year, US and foreign corn growers
alike will probably boost corn acreage sharply in
response to current market conditions.
Secret
16 September 1983
The continued willingness of non-US exporters to
sell grain on credit will also work against the
United States. With the exception of Argentina,
most of the major exporters offer government-
guaranteed loans to encourage grain sales. Canada
and France have provided East Germany with such
credit guarantees despite its troubled financial situ-
ation. Canada has reportedly made available a
$1 billion line of credit to the USSR for grain
purchases in the 1984 marketing year. Grain trad-
ers believe that such moves will become increasing-
ly important in determining exporters' market
shares.
25X1
^
25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
secret
The World Sugar Market:
Opportunities for Soviet Influence
Poor sugar harvests in the USSR during the past
few years have made Moscow the world's largest
sugar importer. In 1982, the USSR imported more
than 7 million tons of raw and refined sugar, about
30 percent of total world sugar trade. Soviet offi-
cials know that the prospect of Soviet purchases
looms large to prospective sellers in a glutted
market, particularly for financially strapped LDCs.
World Sugar Outlook: Chronic Overproduction
With the exception of a handful of years when
major crop failures have occurred, world sugar
World Sugar Statistics
Production and Consumption
Million metric tons
Stocks
Million metric tons
as it has to shortages and high prices.
production has consistently outpaced consumption
since World War II. Over the past 10 years
consumption has exceeded production only twice-
in 1979 and 1980. The gap has been widened by
production subsidies, designed to bolster farmers'
incomes and minimize sugar imports, as well as by
exporter attempts to maintain sugar earnings in the
face of falling prices. As a result, output has failed
to respond as effectively to surpluses and low prices
This year's production/consumption picture is like-
ly to show little change. The USDA estimates
world sugar production in 1982/83 at nearly 99
100 Production
30
on
Pricesa
US cents per pound
I
1973/74 75/76 77/78 79/80 81/82
i I i I 1 111111111111
73/74 75/76 77/78 79/80 81/82 1972 74 76 78 80 82 84
Secret
DI IEEW 83-037
16 September 1983
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
million tons. Although heavy spring flooding has
cut the Cuban crop by a million tons or more, a
record Brazilian crop and near-record production in
India have largely offset these losses. World sugar
consumption in 1982/83 is expected to grow again
by only 2 percent, not enough to bring the market
into balance. Consumption gains in the LDCs are
being offset by stagnating consumption in the key
markets-the United States, Western Europe,
Canada, and Japan.
The large imbalance between production and con-
sumption during the last two years has led to record
world sugar stocks. According to USDA estimates,
sugar stocks rose by an additional 5 million tons by
season's end (31 August), reaching 37.0 million tons
or some 40 percent of annual global consumption.
According to sugar traders, a 25-percent stock level
is adequate and anything above 35 percent is
burdensome.
World sugar prices, until recently, were limping
along at roughly 6 cents per pound, the lowest level
in 10 years and only 15 percent of their October
1980 high. Although prices were buoyed by news of
poor Cuban and EC crop prospects, the large stock
overhang effectively capped the price rebound.
After reaching nearly 13 cents per pound in late
May, sugar prices have settled back to the 10- to
11-cent range.
The USSR's Role in the World Sugar Market
Import Trends. While Free World sugar demand
has flattened, sugar imports by the USSR have
been rising rapidly as a result of four consecutive
poor sugar beet harvests. In 1982, Soviet purchases
of raw and refined sugar reached a record 7.4
million tons, 40 percent higher than in 1981 and
about double the 1976 level. Havana continues to
be the USSR's chief supplier, although its share of
the Soviet import market has fallen from more than
80 percent in 1976 to less than 60 percent in 1982.
The increase in Soviet sugar import needs has
translated into a dramatic rise in Soviet purchases
in the free market, from an annual average of
450,000 tons in 1975-79, to nearly 2.4 million tons
in 1980-82. Six countries-Thailand, Brazil, the
Philippines, the Dominican Republic, Australia,
and Argentina-and the EC accounted for about
95 percent of these imports. The EC alone provided
more than 40 percent.
Current purchasing behavior suggests that the
USSR has remained a major sugar importer in
1983. Total deliveries from Cuba are expected to
reach roughly 3.5 million tons, a reduction of
700,000 tons from last year. Purchases from re-
maining suppliers are likely to total 2.5 million
tons. he USSR is
likely to purchase 1 million tons from the EC again
this year. This level of trade coupled with a
400,000-ton increase in purchases from Brazil sug-
gests that imports from other suppliers could de-
cline considerably.
Import Projections. Beyond 1983, Soviet imports
from countries other than Cuba will be determined
by Moscow's plans for slow increases in sugar
consumption and the size and quality of its domes-
tic sugar beet crops. Long-range Soviet plans call
for annual growth in per capita consumption of less
than 0.5 percent. Based on consumption trends,
however, we believe that per capita consumption
will rise by about 1 percent per year.
We estimate that Soviet sugar production will fall
consistently short of plan through the 1980s, result-
ing in a continuing demand for imports from both
Cuba and the international market. Judging from
past export trends and current production goals for
the 1980s, we believe Cuba is likely to be able to
provide the USSR with an average of 3.5-4 million
tons annually through 1990. Imports from non-
Cuban sources could be as high as 2.5 million tons. 25X1
25X1
25X1
M
25X1
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Total
3,237
3,760
4,776
3,993
4,080
4,981
5,204
7,363
Cuba
2,964
3,067
3,652
3,797
3,707
2,647
3,090
4,224
271
644
1,082
147
315
2,220
2,107
2,916
0
0
0
12
0
13
150
127
51
0
0
0
0
0
0
157
Brazil
95
0
24
83
69
466
347
362
Canada
0
0
0
0
0
0
14
22
Colombia
0
0
0
0
0
11
12
36
Dominican Republic
0
0
0
0
0
33
14
194
European Community
0
298
249
40
235
856
873
1,263
El Salvador
0
0
0
0
0
0
0
0
Gabon
0
0
0
0
0
0
5
0
Guatemala
0
0
0
12
0
15
0
64
Guyana
20
0
0
0
0
0
0
0
Mozambique
0
0
0
0
0
0
0
25
Nicaragua
0
0
0
13
0
5
Peru
0
0
0
24
0
0
Philippines
0
224
635
0
0
333
281
216
Swaziland
0
0
0
0
0
10
0
0
Thailand
0
0
0
0
11
140
266
429
United States
0
0
0
0
0
0
40
0
Zimbabwe
0
0
0
0
0
15
0
0
The Sugar Lever-A Political Perspective
Moscow's ability to move among suppliers in the
sugar market carries with it a potential for creating
political gains from commercial transactions borne
of necessity. The fact that it can buy sugar and
political good will simultaneously apparently has
not escaped Moscow's attention. Nevertheless, So-
viet exercise of economic leverage for political
purposes has always been cautious-restrained by a
realistic assessment of the limits of such leverage
and by the desire not to put at risk assets already in
hand.
The extent to which the USSR plans to use sugar
as a policy lever in the future is not known. For the
LDCs, the prospect of large Soviet sugar purchases
takes on increased importance in a glutted market.
Even relatively small Soviet purchases are helpful
at the margin for financially strapped LDCs. I
In the case of new leftist-leaning regimes such as 25X1
Nicaragua, the ability of the United States to hurt
the Nicaraguan economy by reducing its sugar
import quota in 1983 from 53,000 tons to only
5,400 tons has been defused by a standing offer
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Sugar Exports as a Share of Total Exports,
Average 1978-81
Cuba
Mauritius
Fiji
Swaziland
Dominican Republic
Guyana
Barbados
Malawi
Panama
Philippines
Jamaica
Guatemala
Thailand
Costa Rica
Brazil
Share of Sugar Exports to the USSR, 1982
Cuba
Argentina
EC
Canada
Dominican Republic
Thailand
Philippines
Brazil
Colombia
Australia
Nicaragua
from Moscow to purchase any unsold sugar result-
ing from this sanction,
25X1
25X1
To the extent that leftist-leaning
25X1
countries believe that a trade weapon is being used
by Washington or its allies, Moscow can play on
that fear. In most cases the Soviets can provide, if
they desire, a guaranteed market, underwriting a
portion of a country's economy as they have in
Mozambique.
In dealing with sugar-surplus countries that also
have serious economic problems, Moscow, by pro-
viding a market for their sugar, could buy some
political good will. Such transactions would be
unlikely to change the basic position of a regime,
but they could influence it. In a country like
Guyana, whose economic prospects are deteriorat-
ing rapidly, a Soviet offer to take a large quantity
of sugar could help improve a relationship that has
been lukewarm. Moscow would likely play up the
100 fact that the United States, in contrast, reduced its
Secret
16 September 1983
Guyanese sugar purchases by some 35,000 tons
when it imposed a sugar import quota system in
May of last year. The quota system reduced total
US imports from an average of 4 million tons to 2.8
million.
Moscow could also use sugar purchases to influence
US allies. In the case of Thailand, the US import
quota system has come at a time when Bangkok has
undertaken a spectacularly successful export diver-
sification program. Thailand's sugar exports nearly
doubled in 1982, making sugar the third-leading
export earner after rice and tapioca. While the US
sugar quota reduced purchases from Thailand by
nearly 200,000 tons, the USSR boosted its Thai
sugar purchases by more than 160,000 tons. A mid-
1982 trade agreement between Bangkok and Mos-
cow, which calls for an expansion of bilateral trade
and the setting of trade targets, could provide the
basis for long-term Soviet sugar purchases.
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Although the majority of Soviet sugar deals are
transacted in normal commercial fashion, reflect-
ing primarily supply and demand factors of the
sugar market, some seem to exhibit astute politi-
cal timing or a convergence of political and eco-
nomic interests. Over the past eight years, Soviet
sugar purchases from Peru, for example, occurred
in only two years-1975 and 1980. In both of those
years, there was a change in government. Although
there is no evidence as to Moscow's motivation, it
seems unlikely that the timing of the sugar pur-
chases was coincidental with these major political
events. They may have been linked with earlier
Zimbabwe is another case in point. The only recent
Soviet sugar purchase occurred in 1980, the first
year of independence. Moscow, which had backed
the losing faction in the civil war, apparently felt
the need to make a goodwill gesture toward the
Mugabe regime by trying to improve trade rela-
tions. Certainly the small amount of sugar it
purchased-15,000 tons-could have been ac-
quired more conveniently from another supplier.
Moscow's gesture apparently had little impact,
however, as Mugabe did not establish diplomatic
relations with the USSR until March 1982, and
political ties remain generally cool.
As for other examples, the only Soviet sugar
purchase from Guyana occurred in 1975, the same
year that Moscow's first resident diplomatic mis-
sion arrived in that country. The Soviets first
purchased Nicaraguan sugar in 1980, just after the
current leftist regime came to power.
Finally, Moscow's opportunism may also be re-
fected in the Soviet response to the imposition of 25X1
smaller sugar import quotas by the United States
in May of 1982. A country-by-country comparison
of decreases in US sugar imports during 1981/82
with increases in Soviet sugar imports by country
in the same period shows that in some cases-
particularly in Thailand, Nicaragua, the Domini-
can Republic, and Guatemala-virtually identical
offsets occurred. This suggests that politics may
have played a r 'n Soviet purchasing decisions.
F
Changes in US and Soviet Sugar
Imports: Selected Countries, 1982
Changes in Changes in
US Purchases a Soviet Purchases b
Changes in
US Purchases a
Changes in
Soviet Purchases b
Total
-2,008
545
Guyana
-35
0
Argentina
-284
-23
Honduras
-57
0
Australia
-567
157
Malawi
-48
0
Belize
-13
0
Mozambique
-10
25
Brazil
-564
15
Nicaragua
-4
5
Colombia
-128
24
Panama
-25
0
Costa Rica
-15
0
Peru
115
0
Dominican Republic
-185
180
Philippines
147
-65
Ecuador
-7
0
South Africa
64
0
El Salvador
47
0
Swaziland
-107
0
Guatemala
-58
64
Thailand
-190
163
Zimbabwe
-84
0
a Maximum imports allowed by 1982 quota compared with actual
1981 imports.
b 1982 imports compared with 1981 imports.
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Other targets of opportunity may include non-
aligned states such as India, Argentina, and Peru.
While the sugar lever is not powerful enough by
itself to pry any country off the fence, Moscow
could nevertheless use it together with other incen-
tives to nudge a regime in its direction. Moscow
may find India a particularly attractive target.
With high production the last two years, India
finds itself with rapidly mounting supplies of unsold
sugar.
How the USSR will play its hand with the LDCs is
uncertain. Moscow does not hold all the cards,
however. In the longer term it is constrained to
some degree by a shortage of hard currency. More-
over, its course of action will continue to be influ-
enced by the size of future Cuban sugar crops as
well as its own. Nevertheless, the recent shift in
Soviet sugar import needs, while creating addition-
al foreign exchange pressures, presents Moscow
with a new set of possible opportunities for in-
creased influence.
Secret
16 September 1983
25X1
M
25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
South Korea:
Managing a Large Foreign Debt
South Korea-with the fourth-largest debt among
LDCs-is unlikely to face financing problems over
the near term. Despite closer scrutiny by the
international financial community, Seoul has re-
tained a good credit rating because of bankers'
confidence in the country's economic management
capabilities. International bankers readily provided
funds for South Korea's most recent Eurodollar
loan at favorable terms, and the IMF has endorsed
the country's economic performance and policy.
Over the next two or three years, however, South
Korea will need to borrow about $4 billion per year
in new funds and to maintain its short-term credit
lines if it is to avoid a financing crunch. If, as seems
likely, the international financial community is
willing to provide these funds, Seoul will be in a
good position to achieve its growth and industrial-
ization goals. If, on the other hand, bankers clamp
down on lending to Korea, growth would slow
dramatically, the possibility of political unrest
would increase, and Seoul would undoubtedly look
to the United States for assistance.
Accumulating a Large Foreign Debt
South Korea's foreign debt amounted to $37.3
billion at the end of 1982, up from less than $4
billion a decade earlier. The debt rose from 35
percent of GNP in 1972 to 56 percent in 1982.
Among developing countries, South Korea's debt is
the fourth largest-behind Brazil, Mexico, and
Argentina. According to IMF data, almost two-
fifths of South Korea's total debt has a maturity of
less than one year.
South Korea: Composition of Foreign Million US $
Debt, Yearend 1982
22,609
9,440
Commercial loans
6,195
Bank loans
5,352
Bond issue
362
IMF credit
1,259
Medium-term debt b
488
Short-term debt c
14,215
Trade credits
3,339
Borrowing for oil imports
447
Refinancing
5,038
Deposits
245
Fore
acco
ign bank branches, interoffice
unts
3,908
a Maturity of more than three years.
b Maturity of one to three years.
c Maturity of less than one year.
Much of the growth in South Korean indebtedness
can be traced to the government's decision in the
early 1970s to use foreign borrowings to speed
economic development. Even with a strong increase
in domestic savings, Korean officials realized the
need for foreign capital to help finance economic
growth and industrialization. Most studies of Kore-
an development identify foreign capital inflows as
an important factor in the country's rapid economic
growth.
25X1
25X1
Secret
DI IEEW 83-037
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
a Estimated.
b Projected.
5.7
5.9
6.1
7.1
2.0
2.1
2.5
3.0
3.7
3.8
3.6
4.1
1.9
1.5
1.5
1.4
1.8
2.3
2.1
2.7
South Korean debt also accumulated in response to
the increases in oil prices over the past decade.
Dependent on imported oil for more than 60 per-
cent of its energy needs, Seoul was forced to borrow
heavily from abroad to pay higher oil bills in 1974-
75 and again in 1979-81.
Keeping the Payments Burden Manageable
In contrast to many of the other large LDC
borrowers, South Korea has maintained a manage-
able financing burden. South Korea's debt service
ratio was 15 percent last year compared with about
80 percent for Brazil and 63 percent for Mexico.
Including interest payments on short-term debt,
South Korea's debt service ratio was 21 percent last
year.
Relatively strong export growth and a government
austerity program in effect since mid-1979 are
largely responsible for keeping the financing bur-
den in line. Despite the global recession, export
volume increased 40 percent during 1980-82. The
expansion in foreign sales reflected South Korea's
Secret
16 September 1983
progress in diversifying its export base. A doubling
in ship exports last year, for example, bolstered
foreign exchange earnings at a time when sales of
textiles, electronics, and other consumer goods de-
and Libya in recent years are cases in point.
dined. South Korean exporters have proved adept
at finding new markets for their products-China
Seoul's austerity program contributed to keeping
debt servicing costs manageable by damping import
demand and improving export competitiveness.
During the past three years, the growth in govern-
ment spending, the money stock, and wages have
all slowed dramatically. The Chun government was
willing to accept slow growth-real GNP grew by
only 1.7 percent per year during 1980-82-and
declining real wages to pave the way for more rapid
long-term growth. The strategy has paid off in
reducing Korean inflation from 30 percent to less
than 5 percent, cutting the current account deficit
in half, and restoring rapid economic growth-real
GNP advanced 9 percent in first-half 1983.
25X1
25X1
25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Near-Term Prospects
South Korea has already lined up loans for most of
its 1983 foreign financing needs of $6.3 billion. At
the same time, the current account deficit should
narrow to about $2.3 billion this year. Exports,
after a sluggish start, have strengthened in recent
months. The won, which had been overvalued,
depreciated 6.5 percent during the November
1982-March 1983 period on a trade-weighted,
price-adjusted basis, restoring Korean export com-
petitiveness. Nonoil imports have grown rapidly
because of strong domestic demand, but the overall
import bill is being moderated by lower oil prices.
We expect the services deficit to remain near last
year's level as lower interest rates offset the reduc-
tion in revenues from overseas construction work.
HK
Growth in Government
Spending
South Korea has maintained a good credit rating
among international bankers, who cite South Ko-
rea's record of sound economic and financial man-
agement and the country's diversified export base
as reasons for their confidence. The banks, howev-
er, are watching South Korea more closely in light
of their experience in Latin America. Korea's large
debt, particularly the short-term debt, is a source of
concern to many bankers, especially the smaller US
banks. Many banks-already with heavy exposures
in South Korea-have been reluctant to lend more
to Seoul.
Nonetheless, South Korea is still able to tap inter-
national capital markets fairly easily as demon-
strated by the recent success of a $300 million
Eurodollar loan for the Korean Export-Import
Bank. The success in obtaining this loan supports
the view of Korean officials and the US Embassy in
Seoul that South Korea will be able to obtain the
foreign capital it needs as long as it pays interest
rates that reflect market conditions. A $500 million
loan earlier this year for the Korea Exchange Bank
ran into substantial resistance because the Koreans
insisted on a narrow interest rate spread. For the
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
19,100
-195
4,826
5,021
Receipts
14,491
224
4,450
4,226
Current account -1,085
Net long-term capital 2,166
Net short-term capital -1,171
-4,152
2,663
844
21,598
24,299
23,361
25,300
-1,386
-1,518
-619
-500
5,363
6,598
7,449
8,000
6,749
8,116
8,068
8,500
-5,321
-4,645
-2,546
-2,300
1,856
2,842
1,352
1,200
1,945
-82
-98
100
Eximbank loan, Seoul paid a higher interest premi-
um and found banks willing to participate in the
A recent IMF review team gave South Korean
economic performance and policies high marks,
and a $600 million standby agreement was signed
in mid-July. Seoul agreed to IMF recommenda-
tions to reduce the short-term debt, curtail credit
expansion, and maintain a flexible exchange rate to
retain export competitiveness. The IMF agreement
should further bolster South Korean creditworthi-
ness among international bankers.
The global LDC debt problem has prompted the
Chun government to alter its economic policies for
Secret
16 September 1983
1984-86 in order to reduce its foreign financing
needs. Seoul has lowered its projection for the size
of the debt to $49 billion for 1986-$15 billion less
than earlier projections. Government authorities
now hope to achieve a current account balance by
1985, rather than the $3.8 billion deficit originally
forecast. Increased priority has been focused on
expanding exports, and several industrial projects
have been delayed or canceled to slow imports and
cut foreign capital needs. Planned completion dates
for nuclear power plants, subways, and railroad
lines, for example, have been pushed back.
In our judgment, two very different scenarios are
possible for South Korea over the next two or three
years. The more likely is that international bankers
will provide the roughly $4 billion per year in new
funds that South Korea will seek and that they will
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
continue to maintain short-term credit lines. Cur-
rently, Seoul is one of the few LDCs to which
bankers are willing to provide new money, largely
because of their confidence in the country's long-
term economic health and Seoul's ability to finance
additional debt. A less likely possibility is that the
banking community will not provide Seoul with the
long-term funds it seeks or that they will refuse to
roll over short-term credits. Such a development
could be sparked by:
? A significant shortfall in Korean exports, which
could result if South Korea's rapid push into skill-
intensive industries fails.
? A debt crisis in the Philippines, which could lead
bankers to shy away from other Asian countries
such as South Korea and Indonesia.
? Political instability, which is always a possibility
although Chun appears firmly in control now.
Under such difficult economic conditions, the possi-
bility of political unrest would increase; the South
Korean people are less tolerant of restraints on
political freedoms when the economy is not doing
well. In 1979, for example, the recession and rise in
unemployment coincided with riots in Pusan and
Masan. Seoul would almost certainly look to Wash-
ington for official assistance in dealing with a
financing crunch and would probably point to US
25X1
I
25X1
security interests in asking for help.
Inability of South Korea to attract sufficient for-
eign capital would force Seoul to make rapid
adjustments in economic policy, which would have
an extremely adverse impact on the outward-ori-
ented Korean economy. Seoul would be forced
initially to draw down foreign exchange reserves;
such reserves at midyear amounted to $6 billion,
equal to about three months' imports. After draw-
ing down its reserves, Seoul would have to curtail
imports substantially. Because a large share of its
foreign purchases are raw material inputs for its
export products (20 percent) and capital equipment
(26 percent), cutting imports would be difficult.
Unlike many other LDCs, Seoul has little leeway to
cut imports without immediately and substantially
reducing economic growth. Only 6 percent of Ko-
rea's foreign purchases are consumer goods. Be-
cause the labor force is growing rapidly-3 percent
per year-unemployment would certainly increase.
Inflation would also accelerate as higher cost do-
mestic products were substituted for imports.
Secret
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Secret
Qatar: Reacting to the Soft Oil Market
The soft oil market has prompted Qatar to cut
government spending, postpone major development
projects, and attempt to slow aid outflows. Al-
though most Qataris are little affected by the
retrenchment, cutbacks could aggravate resent-
ment of the greed, corruption, and privilege of the
ruling Thani clan.
Oil and the Economy
Oil dominates Qatar's economy, accounting for
almost all export earnings and about 90 percent of
government revenues. In response to slack world
demand, Qatar reduced its crude output in early
1983 to just over 200,000 b/d, down 40 percent
from 1982 levels. Production currently is running
about 300,000 b/d, in line with the quota fixed by
OPEC in March. Prices are $5 per barrel less than
in 1982, however, and we expect that 1983 oil
revenues will be about $2.9 billion-roughly 70
percent of what was earned last year.
duced oil revenues during February-May forced the
government to draw on foreign exchange reserves
at a rate of about $30 million per month. We
estimate that reserves were tapped for another $25
million in June. Qatar's reserve position remains
strong, however, as total reserves stood at about
$15 billion at the end of December 1982.
Spending Cuts
Falling oil revenues have prompted the government
to seek areas where spending can be reduced. With
planned expenditures of about $3.9 billion, the
government faces the prospect of a nearly $1 billion
deficit for the 1983/84 fiscal year. Even though the
Secret
DI IEEW 83-037
16 September 1983
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
Qatar: Oil Production and Revenues
Crude Oil Production Government Oil Revenues
Thousand b/d Billion US $ 25X1
5
~I~I I~I~I ICI
1973 75 77 79 81 83a 1973 75 77 79 81 83a
budget is typically underspent by as much as 30
percent, the Amir has instructed all ministries and
departments to cut administrative spending by 20
percent. According to open sources, public-sector
salaries-already low by Gulf standards-will be
frozen. We believe Qatar is unlikely to sharply
reduce imports-estimated at about $1.5 billion in
1982. Imports consist largely of materials for devel-
opment projects already in progress and consumer
goods-categories that the government is reluctant
to cut.
25X1
25X1
25X1
25X1
25X1
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
According to the US Embassy, no new major
development projects have been funded and some
previously approved projects have been scaled back
or eliminated. On the list of deleted projects is the
Wasail power/desalination plant, which was widely
thought to have had an assured place in spending
plans because of the government's projections of
severe power shortages by the middle of this dec-
ade. Moreover, gasoline and other fuel prices have
been raised as much as 260 percent. The new
prices, however, still are among the lowest in the
world. In addition, the government is considering
introducing charges for health services, electricity,
and water.
Qatari officials are also attempting to slow the flow
of aid. Qatar has disbursed about $1.6 billion to
Iraq since its war with Iran began in 1980. Under
terms of the 1979 Baghdad agreement, Doha gives
$122 million annually to Syria, $82 million to
Jordan, $16 million to the PLO, and $10 million to
the Jordanian-PLO Joint Committee for the Occu-
pied Territories. The government will probably
delay making Baghdad subsidy payments as long as
possible. According to the US Embassies in Jordan
and Syria,.Qatar also may follow other Gulf states
and try to sell its oil on Iraq's behalf instead of
providing direct monetary assistance.
According to the US Embassy, Qatar is experienc-
ing cash flow problems and has been slow to pay
contractors on its development projects. Some ex-
patriate laborers report that they have not been
paid for months. The government reportedly is
working out barter agreements with three foreign
contractors doing work for the state electricity
department that would allow payments to be made
with oil.
In an effort to further reduce outflows the Amir
has largely forbidden the hiring of non-Qatari staff,
and many government contractors have begun to
reduce expatriate staff. During April and May,
Qatari contracting and construction firms termi-
nated over 1,000 expatriate workers, mostly un-
skilled Asians.
Secret
16 September 1983
Some members of the Doha business community
believe the government has overreacted to the
economic downturn and that cutbacks could dam-
age important sectors of the economy.
expatriate Pakistani labor-
ers, unhappy with their working conditions, have
demonstrated against the regime. Labor unrest,
however, appears to be manageable in the near
term. Moreover, the initial wave of concern among
Qataris over spending cuts and reductions in the
new budget has largely subsided.
Even though Qataris have not yet blamed the Amir
for the downturn in the economy, spending cuts are
likely to increase frustrations over the uneven
distribution of wealth and reveal mismanagement
and corruption that more prosperous times con-
cealed. The Amir's autocratic style of rule may also
make him the focus of criticism in the longer term.
Most Qataris regard the ruling Thani family with a
mixture of resentment and bemusement,
They reject the family's aristo-
cratic pretensions and criticize it for being greedy,
corrupt, and overprivileged.
25X1
25X1
25X1
25X1
25X1
25X1
25X1
I
25X1
25X1
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
 Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4
secret
Secret
Sanitized Copy Approved for Release 2011/02/09: CIA-RDP84-00898R000300100009-4