INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97-00771R000706970001-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 37
• Document Creation Date: December 22, 2016
• Document Release Date: September 22, 2010
• Sequence Number: 1
• Publication Date: April 27, 1984
• Content Type: REPORT

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Directorate of
Intelligence
International
Economic & Energy
Weekly
D/ /EEW 84-0/7
27 Apri! 1984 '
ropy 6 8 5
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r iii Synopsis 25X1
1 perspective-Food Problems in Sub-Saharan Africa: 1984 and Beyond
This Perspective was prepared by analysts in ALA and the N/~
3 Briefs Energy
International Finance
Summit Issues
Global and Regional Developments
National Developments
11 fib-Saharan Africa: Food and Drought
17 world Grain Outlook: Spotlight on the LDCs
International
Economic & Energy
Weekly n
27 April 1984
21 Summit Issues: EC Protectionism Against LDCs
27 /Brazil's Armed Forces: The Impact of Austerity
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directed to Directorate of'Intelligence,
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Comments and queries regarding this publication are welcome. They may be
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17 Apri! 1984
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International .
Economic & Energy
Weekly n
Synopsis
1 Perspective-Food Problems. in Sub-Saharan Alrica: 1984 and Beyond
More than 150 million Africans iri 26 countries will depend on some form of
food relief this year. Drought and other extreme weather conditions are
widespread, afflicting not only the Sahel region, but also most countries south
of the Sahel.~~
11 Sub-Saharan Africa: Food and Drought
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Although food crises have occurred in Africa several times during the last 15
years, the pervasiveness of current food problems makes the present situation
more serious.~~ 25X1
17 World Grain Outlook: Spotlight on the LDCs
The world market continues to be glutted with wheat, while coarse grain
supplies will remain tight until the US corn harvest.in late summer. LDC
foreign exchange shortages could force grain exporters to cut prices-either
directly or through concessionary terms-in an effort to curtail stocks. ~
21 Summit Issues: EC Protectionism Against LDCs
The increasing competitiveness of LDC exports and chronically high unem-
ployment throughout the European Community are causing the EC to raise
trade barriers against LDC products.
25 Summit Issues: A New GATT Round
Summit participants remain split over endorsing a new round of GATT trade
talks.
27 Brazil's Armed Forces: The Impact of Austerity
Brazil's economic problems have taken a toll on the military. Combat
readiness has deteriorated, and the armed forces have had to emphasize
improvements with minimal foreign exchange outlays.
iii Secret
DI lEEW 84-017
27 April 1984
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International
Economic & Energy
Weekly
27 April 1984
Perspective ~ Food Problems in Sub-Saharan Arica: 1984 and Beyond '
Food has again become one of Sub-Saharan Africa's most pressing problems.
More than 150 million Africans in 26 countries will depend on some form of
food relief this year,
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Although food crises have occurred in Africa several times during the last 15
years,. the pervasiveness of current food problems makes the present situation
more serious:
? Drought and other. extreme weather conditions are widespread, afflicting not
only the Sahel region, but also most countries south of the Sahel.
? Political turmoil resulting from guerrilla insurgencies has disrupted crop
production and distribution, creating millions of displaced persons and
complicating existing food problems in Angola, Chad, Ethiopia, Mozam-
bique, Somalia, Sudan, Uganda, and Zimbabwe.
Underlying. these phenomena are more profound, chronic problems that have
made Africa the only continent where per capita food production has declined
over the past 20 years:
? Rapid population growth has disrupted traditional methods of shifting
cultivation, causing soil exhaustion and stagnant crop yields.
? Some food problems are due to basic and longstanding constraints of water
resources, climate, soil conditions, crop disease, and pestilence.
? Other food problems are the direct result of government mismanagement,
corruption, and pricing and marketing policies that have favored urban
consumers over farmers.) ~ 25X1
Most African governments have turned to imports to close the widening gap
between domestic food production and food demand. Paying for steadily rising
food imports-even for those offered on a concessional basis-has proved
difficult. The burden of rising food imports has threatened the ability of a
number of countries to comply with existing IMF-supported economic adjust-
ment programs and may make it difficult for other countries to negotiate IMF
arrangements.
Even if the drought abates, prospects for improved food production and
distribution in the immediate future are not good because the necessary policy
changes are seen as too risky:
? Governments are afraid to boost farm prices because this would mean either
increases in food subsidies or food price hikes unacceptable to politically 25X1
important city dwellers.
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27 April /984
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? Governments are reluctant to dismantle the parastatal organizations that
control food purchasing and distribution because they provide an important
source of employment and patronage.
Pursuit of such policy options could cost many governments critical political
support and spark civil disorders.)
Although food-related civil unrest could provide opportunities for exploitation
by Moscow and its allies, pro-Soviet regimes are plagued by food problems at
least as serious as those experienced by governments friendly to the West.
Moreover, the Soviets are unlikely to provide Sub-Saharan 'African countries
with food aid.)
Over the long term, hopes for increasing the productivity of African agricul-
ture rest not only on changes in pricing, marketing, and distribution policies,
but also on the application of known agricultural technologies and the
development and use of new ones to overcome basic deficiencies. Most African
governments, however, have not yet established the kinds of agricultural
extension services necessary to bring innovations to farmers.)
Many governments have used food aid both to meet immediate needs and to
postpone the hard political decisions required if policy changes are to occur.
Unless these governments can be pursuaded to make politically risky policy .
changes soon-and can be convinced that failure to make such changes could
entail even greater risks-requests for substantial amounts of Western food
aid will come with increasing frequency from countries throughout Sub-
Saharan Africa.)
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27 Apri! 1984
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Vie amese Ol1shore
etroleum
Developments
Energy
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Hanoi-with Soviet help-is accelerating its oil exploration activities in the 25X1
South China Sea. Viet-Sov-Petro, the joint Soviet-Vietnamese petroleum
exploration company, plans to drill 12 exploration and 20 development wells by
1985. Drilling from a fixed platform should begin late this year,
A Soviet exploration ship, which began opera-
tions early this year southeast of Vung Tau, may have already struck oil.
ietnam may
Australian Tax on Oil
ndustry
make additional small finds over the next few years. Two US companies
discovered oil in the area in the early 1970s but did not carry out development
Canberra has proposed taxes on oil discoveries after 1975 that previously
escaped taxation. Offshore petroleum ventures not yet in the development
stage will be subject to either a 45-percent "resource rent" tax on profits after
exploration and development costs are deducted or a sliding 40- to 60-percent
rate if government subsidies for. exploration are provided. Other "new oil"
projects will be taxed on a lower scale. Treasurer Keating expects the new
taxes to provide revenues of $275 million a year beginning in fiscal year
1984/85, and Canberra is pressing to have the new tax structure in place by
1 July. the proposed taxes are less of a burden
than they had anticipated, and there remain adequate incentives for explora-
tion.) I
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27 Apri! 1984
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Status of Polish
Debt Talks
on~ebt Renegotiations
estern commercial banks may soon sign
a tentative agreement to reschedule Polish debt. The agreement would defer
for 10 years 95 percent of principal payments due to banks during the 1984-87
period. The bank negotiators also offered to refinance $365 million due next
year under the rescheduling agreement for 1982 and to extend $350 million in
new loans. Meanwhile, progress in debt negotiations with Western govern-
ments has been slowed by Warsaw's ambiguous response to an offer by the
Paris Club to reschedule principal and interest payments due during the
1982-84 period, if Poland pays arrears under the agreement negotiated in
meeting terms set by Western governments.
Although Warsaw and the banks apparently have moved closer on terms, a
final agreement could take several months because there still is strong
resistance by many banks to provide new credits. Poland's continued foot-
dragging with the Paris Club probably reflects divisions in the regime about
Cuba Hardens Stance In a recent press interview to discuss Havana's request to reschedule $365
million of debt falling due this year, the president of Cuba's National Bank
stated that the terms of last year's rescheduling agreement would be unaccept-
able. He blamed Cuba's debt problems solely on external factors: low world
sugar prices, inflation in Western industrial countries, the withdrawal by
Western bankers of $500 million of short-term deposits in Cuban banks, and
high world interest rates. He further alleged that Havana's economic policies
were sound and that Cuba exceeded the economic performance targets set in
its 1983 rescheduling agreement.~~
principle falling due in 1985. ~~
Havana probably will push for a lower interest spread and longer grace and re-
payment periods. Last year's agreement provided for an 8.5-year repayment
period, including .a 3.5-year grace period, with an interest rate set at 2.25
percentage points above the LIBOR. Cuba also may attempt to reschedule
LDC Reaction to IMF The failure of the IMF's policymaking Interim Committee to take action on a
Isterim Committees request from developing countries for an additional allocation of Special
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27 April /984
developing nations in the IMF-and has gained support from some industrial-
ized nations including France, Italy, Netherlands, and Sweden. In public
statements after the 12 April meeting, the Finance Ministers of Brazil and
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EC Consumer
Co ode ce Rising
on a new allocation.
India blamed the United Kingdom, the United States, Japan, and West
Germany for blocking the allocation proposal and for failing to recognize the
urgent need to rebuild developing country reserves. The G-24 is expected to
press the issue more vehemently at the September annual meeting of the IMF.
By that time, several Fund observers believe resistance from the four
industrialized nations may soften sufficiently to allow the Fund to move ahead
Consumer.confidence in the European Community is rising,' according to the
January 1984 EC consumer survey. Confidence is climbing in all of the EC
countries except France and Greece, where public dissatisfaction with econom-
ic policies is increasing. The upturn in sentiment is strongest in the United 25X1
Kingdom, which started recovery from the recession in late 1982; in West
Germany, where GNP growth has exceeded most forecasts; and in Denmark.
Although consumer expectations for improved economic performance in the
Community have moved up smartly over the past year, most households
foresee little improvement in their own financial situation this year; the
willingness to buy big-ticket items and reduce savings has barely budged since
1982. According to the survey, consumers believe that most of the improve-
ment in economic growth will show up in lower unemployment, not higher
wages. If, as we expect, the EC economies fail to make progress on the job
front, confidence in the durability of the recovery in Western Europe could be
Global and Regional Developments
New Zealand To Phase The Muldoon government finally has hammered out an agreement with
Out Import Licensing
5 Secret
27 April /984
free access to the New Zealand market by 1995.
manufacturers to replace New Zealand's import-licensing system with tariff-
based protection over the next five years. Although the percentage of imports
subject to licensing has fallen from 75 percent in the 1960s to only 23 percent,
the government believes the controls are partly responsible for New Zealand's
poor economic performance. Wellington .hopes the switch to tariffs-which
lowers the overall rate of protection-will force manufacturing firms to
become more competitive and will complement the New Zealand-Australia
Closer Economic Relations (CER) Agreement, which guarantees Australia
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National Developments
Less Developed Countries
Southern Lebanon's Israeli restrictions on traffic across the Awwali River are making the already
De ~iorating Economy bad economic situation in southern Lebanon even worse. The US Embassy
reports that agricultural roduction which accounts for 60 c t f th
er en o e
p
Le anew Oil Problems.
percent.
p
income of the south, has declined by almost 50 percent. Farmers are letting
their citrus and banana crops remain unpicked because of. the difficulty of
moving the fruit to markets in Beirut and the Gulf states. Farmers reportedly
are now having to pay transportation costs that are six times higher than a few
months ago. Industry in southern Lebanon is operating at about 20 percent of
1981- levels, and unemployment in some occupations reportedly has reached 90
Israeli restrictions on transportation stem largely from security concerns.
Israeli officials also are trying to convince the Shias in southern Lebanon that
the cost of resistance to Israeli occupation is high. We believe, however, that
few Shias will accommodate the Israelis because of the strong opposition to
Israeli occupation by most religious leaders. ~~
Repairs to storage facilities at the Tripoli refinery will allow tankers to unload
petroleum products and will help ease Lebanon's energy problems. Refining at
Tripoli is scheduled to resume by early June. The refinery-which provided
products to Beirut and northern Lebanon-suffered $500 million in damage
during heavy fighting between Palestinian groups last November, and this has
caused gasoline and fuel oil shortages over the past few months. The US
Embassy reports that the Medreco refinery-located near Sidon in territory
occupied by Israel-is not o erating, but is importing products for distribution
in southern Lebanon.
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Jordanian Labor Force The ranks of skilled workers in Jordan are .swelling- at a time when slower eco-
Problems nomic growth is limiting the availability of jobs. An estimated 10,000
Secret
27 April 1984
social unrest.
Jordanians have recently lost jobs in the Gulf states, and the Minister of Labor
estimates that 12,500 new graduates are added to the labor force each year. In
contrast, out of .15,000 new jobs each year, only 5,000 are for skilled workers.
Government officials are concerned that dashed expectations will result in
Concern about rising unemployment is generating public pressure to restrict
foreign labor in Jordan. Several candidates in the recent parliamentary by-
elections campaigned on this issue. An estimated 130,000 to 180,000 unskilled
foreign workers-mostly Egyptians-are employed in agriculture, construc-
tion, and services. The US Embassy reports, however, that skilled Jordanians
currently are unwilling to take the low-paying jobs held by foreign workers,
and this limits the extent to which restrictions on foreign labor will provide a
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Sudanese Islamic Laws President Nimeiri recently signed two laws that introduce Islamic concepts
Create Uncertainty into the Sudanese economy. A new law on commercial companies abolishes
Moroccan Agricultural
Outlook Dims
Jordanian officials have taken some stopgap measures to deal with the
situation. The Labor Ministry is searching for jobs for Jordanians in places
like Somalia, Djibouti, and North Yemen. The government also is planning to
establish more vocational schools and to discourage study in professional fields.
limited liability corporations .and most interest payments. The Alms and Tax
Act changes taxes on income, wealth, and internal trade beginning in 25X1
September 1984. Failure to comply with the Islamic taxer corruption in
collecting it-will be punishable by lashing and imprisonment for up to three
years: Regional governments will be responsible for collecting the new taxes
and will be allowed to keep the_funds; they may, however, lose funds now
transferred from the central government. This could cause special problems for
the southern regions, which have small tax bases and predominantly non-
Muslim populations who may resist the Islamic taxes. The business community
throughout Sudan is concerned about Nimeiri's failure to consult his economic
ministers before adopting the new policies, and, according to US' Embassy
officials, there are reports that capital flight is picking up.0 25X1
shortfall occurs.
Poor rainfall has reduced Morocco's important winter grain crop to 3.5 million.
metric tons-80 percent of normal-based on preliminary field assessments.
This could require as much as $140 million in additional cereal imports this
year. Morocco's financial difficulties and its economic austerity program will
make it difficult for the government to deal with this agricultural shortfall.
Moreover, the lack of significant snowpack in the Atlas mountains has reduced
the average operating capacity of water systems throughout the country to
below 20 percent of normal. Harvests of irrigation-dependent crops such as 25X1
citrus and fresh vegetables-one-fourth of export receipts-are vulnerable.
Apportioning water among human, agricultural, and hydroelectric generators
is a growing problem that could stimulate new unrest later this summer when
.water shortages peak and the full impact of the agricultural production
Libyan Spending Cuts Spending will be squeezed again this year as Tripoli attempts to reconcile
domestic needs with oil revenues of $11 billion-mown from the peak of $23
billion in 1980. The General Peoples' Congress cut the overall budget by 9.5
percent compared with 1983 allocations, according to press reporting. The 25X1
7-percent drop in the administrative budget-the first under the Qadhafi
regime-is in addition to an 11-percent cut.in development spending. Budget-
ed imports~xcluding priority military purchases of about $1.6 billion-will
remain constant at $5.6 billion. Qadhafi probably will have to draw on the re-
maining $4:7 billion in foreign reserves;.not including gold, to make ends meet
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this year: Achieving budget spending goals will require continued austerity
with the concurrent risk to the regime of increasing discontent over ongoing
Malaysia Encourages Reversing two decades of family planning efforts, Kuala Lumpur this month
Population Growth announced a policy aimed at increasing the current population of 15 million to
70 million by early in the next century. The government is encouraging
families to have up to five children, and plans to extend maternity leave and
other benefits (including tax relief) to working mothers. Population growth
rates have declined steadily from an annual average of over 3.0 percent during
the 1960s to the present rate of 2.3 percent as the country has become more
educated and urbanized. Although Prime Minister Mahathir publicly main-
tains that Malaysia needs a much larger population to provide economies of
scale for heavy industry, his new population policy may instead be intended to
strengthen the position of the politically dominant Malays, who now account
for only slightly more than half of the population. The Malay birth rate '
already is substantially higher than that of the wealthier Chinese community,
and the new policies may further increase the difference between the growth
rates.
China's Expanding Air The Civil Aviation Administration of China (CAAC) continues to expand
S rvice service largely with US-built passenger jets. CAAC's 21 international routes
now cover 150,000 kilometers-nearly double the 1979 figure-reaching 22
cities in Asia, the Middle East, North Africa; Europe, and the United States.
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27 April 1984
This September, CAAC will open direct air service between China and
Australia. The need fora `long-range, wide-body transport on this new route
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probably is behind China's interest in additional 747s.
Since 1980, CAAC has purchased five Boeing 747s, which
now fly European, Middle Eastern, and US routes
craft.
CAAC has told the Chinese press that about 100 long- to medium-haul
aircraft are needed for expanding domestic service between 1983 and 1990.
CAAC took delivery of five Boeing 737s in 1983 and two McDonnell Douglas
MD-80s this year. Another five Boeing 737s are to be delivered by March
1986. Since the last British Trident was delivered in the mid-1970s, the United
States has been the sole supplier for foreign passenger jets, and we believe
CAAC will continue to look to US firms as its major supplier of passenger air-
Lao conomy Moves The Lao GDP increased by at most 1 percent in 1983, according to
4 wlv ~ preliminary statistics. This performance was roughly comparable to the
ecovering
previous year but contrasts sharply with the 8-percent annual growth recorded
between 1979-81, when agricultural production was boosted by the reclama-
tion of land abandoned during the Indochina war. Two years of unfavorable
weather have caused food grain production to stagnate. Industrial output
slowed last year as well, while food shortages and a rapid increase in the
money supply generated an inflation rate of 70 percent-up from 40 percent in
1982. Although better weather in 1984 should increase agricultural produc-
tion, slow growth probably will continue until the government is able to
increase agricultural productivity.)
Eft German Economy East Germany earlier this month reported higher growth in the first quarter,
suggesting that the economy is recovering well from the slump induced by East
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national income grew at an annual rate of 5 percent in the first quarter
after accelerating late in 1983 to reach 4.4 percent for the year, up from 2.5 25X1
percent in 1982. Part of the recovery stems from higher imports of industrial
goods, which have reduced shortage-induced disruptions of production. The
regime also has made a number of administrative and policy changes that we
believe have improved efficiency.0 25X1
Berlin's efforts to avoid a foreign liquidity crisis in 1982-83.
Domestic economic recovery in 1983 was accompanied by improvements in
foreign trade performance. The foreign trade bank in early April announced a
$1.3 billion hard currency trade surplus for 1983 generated by a 12.8-percent
boost in exports to the West. At the same time, East Germany reduced its
trade deficit with the USSR to 202 million rubles, compared with 643 million
rubles in 1982. East Berlin apparently intends to run another hard currency
trade surplus this year even as it boosts imports; a
resurgence of buying at the Leipzig Fair in March. ~~
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African Drought and Countries Requiring Food Aid
Country affected by drought
Country on UN/FA08 emergency
food aid list
eo~~eery rePra entouoo ie
not oats erily eulhoritalive.
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Sub-Saharan Africa:
Food and Drought
At least 26 Sub-Saharan African countries are
experiencing emergency food needs this year. In
most of these countries, drought has created the
immediate crisis. Other longstanding problems-
rapid population growth, poor resources, pests,
government mismanagement and corruption, and
inappropriate agricultural pricing policies-are re-
sponsible for the long-term decline of per capita
food production and chronic food shortfalls.
Thirteen countries on the United Nations Food and
Agriculture Organization emergency food list are
in West Africa and the Sahel, where the food crisis
worsened sharply in the early 1980s as drought
pushed the Sahara Desert another 150 to 200
kilometers farther south, destroying vegetation in
its path.)
Few parts of the Sahel had adequate rainfall in
1983 or so far this year. Intensifying drought
created conditions reminiscent of the famine that
struck the region a decade earlier. Grain produc-
tion per capita has continued along-term decline,
cattle herds in some countries are dying from lack
of pasture, irrigation capacities are seriously dimin-
ished, and seven of the eight Sahelian countries are
experiencing severe food shortages. None of the
Sahelian countries can afford to make up these
shortfalls with commercial purchases. n
' The Sahel is a geographic belt that extends along the southern
edge of the Sahara from Chad to the Atlantic Ocean, consisting of
Cape Verde, Chad, The Gambia, Mali, Mauritania, Niger, Sene-
gal, and Upper Volta.n
The Sahel's desperate economic condition has
made it one of the largest per capita recipients of
foreign assistance. Since the drought of the 1970s,
roughly $7.5 billion has gone to the region. The
economic and budgetary problems of France, the
region's principal benefactor and former colonizer,
limit Paris's ability to bail out Sahelian govern-
ments. Sahelian leaders are likely to turn increas-
ingly to the United States with requests for addi-
tional financial and food assistance.)
In addition to the drought, efforts to boost. Sahelian
food production have been hampered by poor soils,
primitive agricultural methods, inadequate exten-
sion and marketing services, high transportation
costs, and government policies that traditionally
have encouraged farmers to grow export crops such
as cotton and peanuts. Governments that have
shown the political will to tackle agricultural and
other economic problems have often found their
efforts frustrated by local resistance to change. For
example, government-imposed rotational grazing
schemes that could increase forage are resisted by
fiercely independent nomads.0 25X1
Even when food is available, political turmoil often
disrupts its distribution. Deliveries of food to Chad.
through Nigeria have been delayed by the stricter
enforcement of border controls since the New
Year's coup in Lagos. In addition, the fighting in
Chad is disrupting the distribution of food aid to
some areas.0
Ghana's food production-already in decline for
several years-has been devastated by the current
drought, and the Rawlings government has de-
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Glared a food emergency. The drought is most
severe in' the northern agricultural regions, an area
that had to absorb more than 1 million Ghanaian
workers expelled by Nigeria early last year.' Re-
ports from a private voluntary relief organization
indicate that more than half of the 250,000 Ghana-
ian children it regularly surveys are undernour-
ished. Because of foreign exchange shortages, Gha=
na will find it difficult to meet its food shortfall
with commercial imports. The food situation will
become critical during June when the' early harvest
begins, and civil unrest over food shortages could
add to popular dissatisfaction over economic de-
cline and. threaten the regime.
In hopes of obtaining greater Western food and
financial aid, Ghana's leaders have quieted their
anti-Western rhetoric. The regime is responding to
Western economic counsel and has embarked on an
ambitious economic reform program that has quali-
fied Ghana for an IMF standby agreement. None=
theless, a turnaround in Ghana's food situation is
unlikely any time soon.
Northern Nigeria-the country's most productive
agricultural region-is suffering from serious
drought conditions that have resulted in shortages
of water for both human and livestock consumption
and have greatly reduced irrigation. Northern
grain output is down 30 percent from the unusually
good performance of 1982, with all of the key
25X1 staples-sorghum, yams, and cassava-seriously
affected.)
Some 20 million northerners will be directly affect-
ed by the shortages, including several million city
dwellers. Stocks of grain are low, and Nigeria's
overall food import bill will be boosted significantly
by the additional 2-2.5 million tons of foodgrains
required. Moreover, distribution problems, along
with black-marketeering of food, will likely hamper
the allocation of imported food this year.
Nigeria's food shortfall, however, is also the result
of years of neglect. Successive Nigerian govern-
ments-including the recently deposed Shagari ad-
Secret
27 April 1984
ministration-have paid lipseivice to initiating a
"Green Revolution" in Nigeria, but have taken few
actions to stimulate output. Farmers have found
investment credit hard to.obtain, and the distribu-
tion of fertilizers and other inputs has been poor
because of internal transportation problems)
The new Buhari government is unlikely to make
effective investments in the agricultural sector, and
Nigeria's severe financial crisis will limit any gov-
ernment development efforts "over the next few
years. According to the US Embassy, the Buhari
regime is aware that adequate food supplies, espe-
cially in urban areas; could be crucial to maintain-
. ing political stability and will try to prevent critical
shortages. Lagos can be expected to look to the
West-particularly the United States=for credits
to fund food imports. ~~
Six countries from eastern and central Africa are
on the FAO list of food emergency countries. The
Central African Republic, Sao Tome and Principe,
and Ethiopia are afflicted seriously by drought-
while the rest suffer from production problems
caused by government policies that create disincen-
tives to production and obstacles to distribution.
Ethiopia
Ethiopia is one of the countries worst hit by
drought. In addition, shipment of food donations to
inland distribution centers often are delayed be-
cause official agencies responsible for disbursing
food aid lack the trucks, funds, spare parts, tires,
mechanics, managerial expertise, and-some do-
nors suspect-a strong commitment to transport
food effectively. Addis Ababa estimated the
1983/84 harvest at roughly the same level of recent
years, which is well below domestic demand. In the
strife-torn northern provinces of Eritrea and Tigre,
and parts of Welo and Gondar, harvests were again.
hit by drought and civil war. In other areas,
.,
25X1
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overgrazing of pastoral lands by nomads has limit-
ed food production. Moreover, prospects for the
1984/85 harvest are deteriorating rapidly because
continued scant rains in the central Ethiopian
highlands-the country's breadbasket-probably
will hinder planting of the main grain crop to be
harvested in late 1984.1
Some 3-5 million people-roughly 10-15 percent of
Ethiopia's population-face food shortages, accord-
ing to the Ethiopian Government. Perhaps ~two-
thirds of these are inaccessible because of insurgen=
Gies and poor transportation. The food situation is
further complicated by sizable refugee movements,
both within country and cross-border.)
Even if drought abates, food production is likely to
remain depressed by government efforts to collec-
tivize agriculture. Farmers have resisted the estab-
lishment of state farms and peasant collectives,
which, despite being lavished with machinery, fer-.
tilizer, seed, and technology, are badly managed by
government-appointed administrators and general-
ly have lower productivity than the average peasant
holding. Extensive soil erosion has impaired the
prospects for recovery.~~
Ethiopia probably will continue to import food,
even in years of favorable weather. Western gov-
ernments, private voluntary organizations; and
multilateral institutions will continue to be the
most important donors because the Soviets and
their allies are not likely to furnish substantial
amounts of food assistance,~~
Most countries in southern Africa are suffering
from a third consecutive year of drought, probably
the worst in a century. Moreover, the drought has
turned South Africa and Zimbabwe, normally
grain exporters to the~region, into net grain import-
ers. Only Malawi and Angola have been unaffected
by drought. ~~
Secret 13
27 Apri! / 984
Mozambique
Typhoon Domoina and subsequent torrential rains
struck southern Mozambique in late January/early
February; adding to the crop losses resulting from
two years of severe drought. The drought,- which
caused an almost complete failure of the March
1983 crop, had already affected about 4 million 25X1
people, mostly in the south, and domestic food
stocks had become depleted by last November.
.Flooding from the typhoon further devastated cat-
tle herds and destroyed what would have been the
first harvest in three years of corn, rice, and
sorghum-the main food crops-in the south. The
typhoon destroyed dams and pumping stations vital
to the limited irrigation system and washed out
roads and bridges. Moreover, the winds did exten-
sive damage to citrus, coconut, and cashew crops.
The recovery of such tree crops will take years.
Typhoon losses probably have boosted Mozam-
bique's food aid requirement through April 1985 to
as much as 700,000 tons. Chronic shortages of
foreign exchange preclude commercial purchases~of
seeds and foodgrains and underscore Maputo's
dependence on aid. There is a critical need for seed
corn and fertilizer by October, and vegetable seeds
by November. Domestic seed stocks have been
depleted as a result of multiple replantings over the
past two years. 25X1
The Machel regime's resources for famine relief
are almost nonexistent, according to the US Em-
bassy,-thereby limiting the effectiveness of interna-
tional aid efforts. Moiambican ports will be unable
to handle an influx of food shipments unless arriv-
als are scheduled carefully. Although Mozambique
for the first time has allowed the participation of 25X1
private international relief organizations, few vehi-
cles are available to bring food to rural areas. n
Despite the recent nonaggression accord signed by
Mozambique and South Africa, food supply con-
voys remain susceptible to confiscation by insur-
gents of the South African-backed National
Resistance of Mozambique (RENAMO). The
RENAMO insurgency operates in nine of the
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country's 10 provinces, and guerrilla attacks have
disrupted the country's rail and road transport,
agricultural production and marketing, and its
economic .links with neighboring Zimbabwe. The
attacks have transformed the once food-abundant
central provinces-a traditional insurgent strong-
hold-into deficit regions. n .
Mozambique also suffers from the effects of eight -
years of government mismanagement and policy
failure. Large, state farms, created by the regime
as its most important agricultural objective, have
been a failure. Communal villages and cooperative
farms have taken a backseat to state farms in the
allocation of what few government resources have
been. available. Even before the onset of sustained
drought, Mozambique was importing over 30 per-
cent of its. foodgrain requirements. Although the
ruling party,last year supported a shift toward more
private enterprise, the US Embassy reports that
efforts to revitalize the private commercial and
agricultural sectors have made little progress. Bet-
ter weather for the 1984/85 growing season would
improve the food. situation, but not enough to
eliminate Mozambique's dependence on interna-
tional food aid.n
South Africa has been hit by three- years of failing
rains and declining agricultural. output since the
record corn harvest in 1981 of 14.6 million tons.
This year's: output of corn is estimated at no more
than 4 million tons for the second successive year,
well below the roughly 7.5 million tons usually
needed for annual domestic consumption. Corn
imports may reach 4 million tons because South
Africa enters the current harvest without carry-
over stocks. South Africa has sufficient foreign
exchange for commercial imports, however, to en-
sure that no aggregate food shortage occurs. Im-
ports at. this level, however, will clog South African
ports: and inhibit its ability to transship food des-
tined for other countries in the region, such as
Zambia, Zaire,. and Zimbabwe. Crop failure this
year also means a continued- suspension of South
African corn exports. to states. in the region that
have traditionally been customers. n
Secret
27 April 1984
Conditions in South Africa's black homelands are
deteriorating- further from. drought. According to
the US Embassy, crops failed last year, and live-
stock losses were massive-probably over 700,000 .
head. In addition to.the immediate consequences of
drought, the long-term effects may be even more
serious because cattle in the homelands are used
not only for food but are a source of farm power.
Recovery of livestock herds. and grazing land will
take years. ~~ .
A recovery of production and export capacity faces
obstacles even when the weather improves:
? Following the disastrous harvest in 1983, South
Africa's white commercial farmers were left
deeply in debt,. which has required the provision
of government assistance. Many farms have gone
out of business, and continuing drought is adding
to debt and prompting official concern about the
long-term impact on white farming in the main
growing areas.
? Drought has reduced surface and ground water
levels so severely that irrigation capacity is likely
to take at least another season to recover, assum-
ing more normal rainfall.
? Even South Africa. has barely been able to ex-
pand.production to keep pace with rapid popula-
tion growth. Per capita food production increased
by only .2 percent in the 1970s, according to the
Although normally self-sufficient in food, three
successive years of drought have sharply reduced
Zimbabwe's output of corn, depleted stocks, killed
over 300,000 cattle, destroyed grazing land, and
lowered surface and ground water levels. Drought
conditions have been most prolonged and severe in
the normally low rainfall, livestock raising areas in
the south and west, including all of dissident- .
plagued Matabeleland.~~
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Food shortages emerged in several areas last year,
forcing the government to begin an emergency food
and drought relief program using domestic grain
stocks. Demands for relief became so great that
rationing of corn was introduced in October 1983.
The number of those dependent on relief now
approaches 3 million. Mounting relief costs have
contributed to Harare's recent failure to meet
targets in its IMF-supported adjustment program.
Meanwhile, as many as 180,000 Mozambicans
seeking refuge from the insurgency and drought in
their own country have, since late last year, placed
additional strains on Zimbabwean food supplies.
Despite record plantings last November in response
to the government's guaranteed minimum preplant-
ing producer prices, prospects for the harvest now
under way are extremely poor. The most optimistic
of recent official projections calls for a wheat crop
about half its normal level and a total corn crop-
including subsistence production-of 1 million
tons. No more than 600,000 tons of corn are
expected to be marketed with the rest retained on
farm. We estimate Zimbabwe will need 700,000
tons of imported corn between now and the next
harvest in April 1985.1
Until last year, Zimbabwe had large surpluses of
corn available for export. This had enabled it to sell
corn to 12 black African countries, with substantial,
amounts going to Zambia and Zaire. For the next
year at least, Zimbabwe will be critically depend-
ent on commercial imports and Western and multi-
lateral food aid. The greatest need will begin to be
felt by October as domestic stocks from this year's
expected poor harvest are exhausted. Harare is
likely to look to the United States as a principal
donor of food assistance. 0
Even if adequate rains occur for the next planting
season beginning in November 1984, other. factors
will affect the extent of recovery in food production
and export capacity. Zimbabwe's large commercial
farms are capable of a rapid recovery but will
require relief from their credit squeeze and debt
burden. In addition, shortages of foreign exchange
will inhibit the purchase of imported inputs such as
fertilizer and machinery; Harare probably will
want to rebuild food reserves before exporting to.
neighboring countries.)
Secret
27 April 1984
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Secret
World Grain Outlook: Spotlight
on the LDCs
The world market continues to be glutted with
wheat, while coarse grain supplies will remain tight
until the US corn harvest in late summer. Looking
ahead to the 1985 marketing year (July 1984-June
1985), anear-record global grain crop is expected.
In 1985 and beyond, a key uncertainty in the
market will be the ability of LDCs to purchase
grain. LDC foreign exchange shortages could force
grain exporters to cut prices-either directly or
through concessionary terms-to curtail stocks.
The 1984 Crop in Retrospect
the United States and the Soviet Union
With over 90 percent of the crop now harvested,
USDA expects global grain output in MY 1984 to
total 1.2 billion metric tons-about 7 percent below
the previous year's record harvest. MY 1984 has
been marked by sharp contrasts. World coarse
grain production is about 12 percent lower than the
previous year largely because of the impact of the
US payment-in-kind program and drought-reduced
corn yields in the United States and South Africa.
The US corn crop fell by 50 percent-slightly more
than 100 million tons. Global wheat output, on the
other hand, will reach a record 488 million tons.
Record harvests in China, Australia, and India
more than compensated for reduced wheat crops in
Global grain consumption in MY 1984 is expected
to hit a record 1.2 billion tons, according to USDA
estimates. Consumption of wheat, although rising,
will fall short of production, pushing world stocks
higher for the third consecutive year. Most of the
increase in wheat consumption has been in China,
India, the EC, and the United States, where other
bumper crops have encouraged usage or where
wheat is being used for feed grains. Since wheat is
priced only about $25 per ton higher than corn,
wheat will remain an attractive alternative for feed
World Grain Supplies, 1974-848
950 1974 75
? Data from USDA.
purposes at least until the Northern Hemisphere
crops are harvested late this summer. Despite a 30-
percent rise in prices since last fall, record global
coarse grain consumption is expected, largely be-
cause of better-than-average harvests in the Soviet
Union and China; coarse grain supplies are e, xpect_
ed to be tight through the summer months
World grain trade in MY 1984 will show the first
increase in three years by inching up 2 percent-
3 million tons-according to USDA estimates. The
Secret
DI IEEW 84-017
27 April 1984
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~7CCfCl
Competitors of the United States
Although the United States still accounts for
about half'of world grain exports, its share of the
market continues to erode. The US market share
in MY 1984 will fall by 1 percentage point while
Canada, Argentina, and Australia will increase
their collective share from 32 to 3S percent. The
strength~of the competition is reflected in the
generous offers of the major exporters:
? Canada's exports this year will remain at last
year s record level 0128.5 million tons. A recent
sale of 625,000 tons of wheat to Egypt was priced
$30 per ton below world levels. A similar price
discount was given to Sri Lanka. Canada has
also given Brazil favorable credit terms for 1.5
million tons of grain this year.
? Argentina will have record exports this year of
21.3 million tons. The Argentines have consist-
ently discounted their wheat by $25 to $30 per
ton. Buenos Aires recently closed wheat export
registrations, suggesting its surplus is now com-
mitted, including wheat sales of 3.5 million tons
to the USSR and 1 million tons to Iran.
? Australia's exports will increase by 6 million
tons in MY 1984, 40 percent greater than last
year
rise in trade is about evenly divided between wheat
and coarse grain. Wheat continues to be marketed
aggressively by major US competitors who will
have a 9-percent increase in exports. In contrast,
US exports are expected to be lower for the second
Secret
27 April 1984
Net Grain Imports, by Primary
Regions, 1970-909
I~~~~I~~~~I
80 85 90
a Includes wheat and coarse grain. Source: Michigan Slate University,
Department of Agricultural Economics, Long-Tenn Forecast q/' US and Wor/d
Agriculture, Fall /983.
302674 (A04553) 484
successive year. For coarse grain exporters, the one
remaining question will be the size of South Afri-
can corn imports. Drought-stricken South Africa,
normally an exporter of about 4 million tons of
corn, may have to import as much as 4 million tons.
For the three largest grain buyers-the USSR,
China, and Japan, who account for one-third of the
market-the import picture varies considerably:
? To date, the USSR has bought about 29 million
tons of grain from all sources out of expected
imports of 30-32 million tons. Soviet purchases
from the United States already total 10 million
tons. An additional 1 million tons may be bought
from the United States if Argentina continues to
25X1
25X1
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Secret
have problems in shipping corn already purchased
by the USSR.
? For China, estimated imports of 11.5 million tons
in MY 1984 will be their lowest in five years-
some 5 million tons below last year's record
imports. A record harvest in China and higher
foreign corn prices have limited purchases.
? Japan's grain imports have remained stable at
about 25 million tons. Wheat purchases have
. ~ been declining slightly, reflecting the govern-
25X1 ment's policy of diverting rice land to wheat
production.0
percent.
Although it is too early to confidently predict the
MY 1985 grain crop, a sharp rebound in produc-
tion usually follows a poor crop year. Since 1960
there have not been two successive years of decline
in the global harvest. Preliminary reports indicate
that global grain production in MY 1985 could
approach the record set in MY 1983. A USDA
report indicates that prospective wheat plantings in
the United States will be up 7.5 percent and that
farmers elan to increase corn plantings by about 35
Most crop forecasts for other producing areas point
to increases. The US agricultural attache in Paris
forecasts MY 1985 grain production for France at
nearly 50 million tons, up 7 percent from last year's
harvest and 2 percent above the previous record.
According to Coceral, a European grain trade
organization, next year's EC wheat crop could
increase by as much as 13 million tons-about 25
percent higher than this year's harvest. The US
Embassy reports that China is well on its way to
another record wheat harvest if favorable weather
continues. In the Soviet Union, weather has been
better this year than last for winter wheat with
adequate soil moisture in the Ukraine, one of the
main growing regions. Furthermore, sown area has
25X1 recovered to more recent averages, and winterkill is
below average.
The LDCs have become major buyers in the global
grain market. These countries currently account for
about 90 million tons or 45 percent of total grain
imports. In MY 1984, LDC wheat imports are
expected to be up 10 percent, while coarse grain
purchases will rise by nearly 4 percent, according to
USDA estimates. Although the world grain trade
has fallen from a peak of 202 million tons in MY
1981 to 193 million tons in MY 1984, LDCs have
increased their imports by 13 million tons. African
countries, especially, have increased their grain
imports. Imports comprised 12 percent of total
coarse grain consumption during MY 1980-84,
compared with 5 percent in the previous five years.
Imports of wheat rose from 56 percent to 65
percent of total consumption. Reasons for the
shortfall in domestic grain production and the
growing reliance on imports by LDCs include a
lack of sufficient, incentives for farmers, a change
from growing foodcrops to cash crops, population
pressures, drought conditions in Sub-Saharan Afri-
ca, and shortages of inputs such as fertilizer.
Our analysis of the increase in LDC imports since
MY 1981 shows that debt problems appear to have
had a significant impact on many of these coun-
tries' ability to buy grain. LDCs that have restruc-
ted their debts reduced their imports by 2 percent
during MY 1982-84 despite an overall decline in
their grain production. In contrast, LDCs that have
not had to restructure their debts increased grain
imports by 26 percent during the same period.
We believe the LDC debt problem will limit the
growth in demand for grain through the rest of the
decade. Nonetheless, most of the growth in world
grain import demand still will come from the
LDCs. Grain imports. by the Communist countries
are expected to increase only slightly. Grain im-:
ports by the developed countries have fallen 56
percent since 1976 and will decline even further. At
the same time, production expansion programs by
the major exporters will be well under way in the
Secret
27 April 1984
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~7CCfCl
LDC Grain Imports, 1981, 1984 Thousand metric tons
Grain Imports
Percent
Change
MY 1981 MY 1984
Toter LDC grain imports
73,832
86,750
17.5
I.DCs with debt restructuring
1982-83 a
22,886
22,455
-1:9
Brazil
5,593
5,000
-10.6
Chile
1,322
1,265
-4.3
Central African Republic
0
13
WA
Costa Rica
161
135
-16.1
Dominican Republic
333
450
35.1
Ecuador
373
464
24.4
Guyana..,
69
65
-5.8
Liberia .:
23
10
- 56.5
Madagascar
76
100
31.6
Malawi
107
10
-90.7
Mexico
8,315
6,700
-19.4
Morocco
2,220
2,450
10.4
Nicaragua
98
50
-49.0
Niger
25
25
0
Nigeria
1,701
1,710
0.5
Peru .
1,290
1,540
19.4
Senegal
191
203
6.2
Sudan
..392
450
14.8
Togo
0
0
0
Turkey
0
800
NA
Uganda .. ,
100
150
50.0
Uruguay .:
56
.155
176.8
Zaire
342 ..
.275
-19.6
Zambia
99
435
339.4
Other LDCs
50,946
64,295
26.2
late 1980s. With LDC debt problems almost cer-
tain to persist, grain sellers will be under continuing
pressure to offer concessionary terms and other
inducements to market their grain.
Secret
27 April 1984
25X1
25X1
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secret
Summit Issues:
EC Protectionism
Against LDCs
job opportunities.
The increasing competitiveness of LDC exports and
chronically high unemployment throughout the Eu-
ropean Community are causing the EC to raise
trade barriers against LDC products. Most of the
protectionist measures have been directed against
the newly industrializing countries (NICs) because
these countries have made major inroads into a
number of EC markets, such as steel and textiles.
Additional trade restrictions against LDCs are
likely, particularly as these countries move into
higher technology industries-the same industries
the Community members hope will generate new
The EC's most stringent LDC trade restrictions are
against steel and textiles. The Community already
restricts imports of South Korean steel and Brazil-
ian pig iron. Under the European Coal and Steel
Community Treaty, the EC Commission has the
authority to control iron and steel imports by
negotiating voluntary restraint agreements (VRAs)
with foreign steel producers. This year, Brussels is
seeking to limit steel imports from outside the EC
to 87.5 percent of the 19801eve1 of 11.5 million
metric tons-the same restrictions as in 1982 and
1983. Until recently, imports from other developed
countries and Eastern Europe had been the major
target of the restrictions, but LDC steel increasing-
ly is viewed as a threat by the EC. Following the
initiation of several antidumping investigations last
year, the EC is now seeking VRAs on steel with
Brazil, Argentina, and Venezuela.
The EC limits imports of textiles from LDCs
through the Multifiber Arrangement (MFA), a
multilateral agreement governing trade in textiles
between industrialized importers and LDC export-
ers. The MFA, first signed in 1974 and subsequent-
ly renewed in 1977 and 1982, provides the legal
21
European Community: LDC Share of
Selected Manufactures Imports, 1970
and 1980
framework for determining when imports are suffi-
ciently disruptive to justify restraints and sets the
minimum terms for bilateral restraint agreements
or unilateral actions. Under the MFA, the growth
of EC textile imports from LDCs is limited by
quotas to between 1 and 6 percent annually over
the four-year duration of the agreement. The size
of the quotas depends on the product category and
the country of origin, with tighter restrictions
applied to the dominant suppliers-mostly NICs.
Furthermore, the EC quickly responds to import
surges by tightening quotas. For example, last fall
the EC reduced quotas on underwear and knitted
outer garments from Thailand, Macao, and Peru
following a rapid increase in imports during the
summer.
Secret
DI IEEW 84-017
27 April 1984
1970 80 70 80 70 80 70 80 70 80
Radios Watches Clothing Toys Televisions
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.~cu c~
European Community: Selected Industrial and Import Indexes, 1975-82
-Production
-Imports
200
150
50 1975 80 50 1975 80 50 1975 80 50 1975 80
The EC footwear industry is now pressing for an
MFA-type agreement to control imports from
L:DCs. The shoemakers argue this form of arrange-
ment would simply institutionalize, on an EC-wide
basis, quota restrictions that already exist in some
EC countries; Britain and France have VRAs with
Taiwan and South Korea. Imports from Taiwan,
South Korea, Brazil, Hong Kong, and several other
LDCs have been closely monitored by the EC since
1978 in response to industry pressure.
The Community moved last week to limit imports
of digital quartz watches from LDCs. Last sum-
mer, the Commission initiated an antidumping
investigation against a number of LDCs at the
request of France-whose import quotas on digital
quartz watches from Hong Kong had been con-
demned by the GATT. France, with production of
8 million watches last year, represents about 70
percent of total EC production. On 19 April the
Commission authorized France to restrict its im-
ports of digital quartz watches from Hong Kong,
Secret
27 April /984
Macao, South Korea, and Taiwan for the next
three years. ~~
The increasing competitiveness of LDC goods cou-
pled with double-digit EC unemployment have
been the main driving forces behind EC protection-
ist efforts. Between 1975 and 1982, EC imports of
LDC manufactures rose at an average annual rate
of 10 percent in volume terms. At the same time,
EC production of manufactured goods increased
only 1.6 percent annually. Imports of LDC steel
grew the most rapidly, rising at an annual rate of
23 percent; EC steel production, on the other hand,
declined 1.8 percent annua11y.0
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European Community: Preferential Trade Agreements With LDCs
Lome Convention II 64 African, Caribbean, and Pacific Nonreciprocal duty-free access to EC markets for all raw
(ACP) countries materials and industrial goods and 96 percent of agricultural
goods. (Rice, corn, and oranges are excluded.) An expansion
of the Yaounde Convention originally signed in 1963 with
18 African countries. Negotiations for renewing the Lome
Convention-which expires in 1985-began last September.
Maghreb Algeria, Morocco, and Tunisia Duty-free access for raw materials and industrial products
except textiles. For agricultural goods tariff concessions of
20 to 100 percent excluding products covered by the CAP.
Signed in 1976, unlimited duration.
Mashreq Egypt, Jordan, Syria, and Lebanon Duty-free access for most industrial goods with the EC
reserving the right to introduce import ceilings on certain
products if necessary. Tariff, concessions of 40 to 80 percent
on most agricultural goods. MFA applied to Egypt. Signed
in 1977, unlimited duration.
Generalized System of
Preferences (GSP)
free access for industrial and agricultural goods; however,
150 products are subject to quotas. Renewed in 1981 for
another 10-year period.
European Community: Nonenergy
Imports From LDCs, 1970-82
-ACPe
i i i i i ~ i Maghreb/Mashreq
75 80
a African, Caribbean, Pacific. Primarily
former colonies of EC countries.
The NICs are viewed as a special problem by EC
manufacturers. Although the, NICs receive the
least preferential trade access to EC markets of any
LDCs, they have been able to garner a growing
share of the EC's total nonenergy imports from
LDCs; between 1970 and 1982, the NICs' share
expanded from 17 percent to 36 percent. NIC
inroads into EC markets have been the greatest for
radios, toys, televisions, watches, and clothing.
As LDC exports to the EC expanded in the 1970s,
Community-wide unemployment grew substantial-
ly, particularly in those sectors facing LDC import
competition. This has intensified EC protectionist
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27 Aprr[ 1984
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pressures. Over the past decade the Community has
lost almost 300,000 jobs in the steel industry and
more than 1 million jobs in the textile industry. The
EC-wide unemployment rate now stands at 11
percent-up from 2 percent in 1970. ~~
Prospects
The number of EC trade restrictions against LDCs
is likely to grow, and the NICs will bear the brunt
of new protectionist measures against the LDCs.
Restrictions against traditional NIC exports such
as textiles and steel, along with the growing num-
ber of other LDCs emerging as low-cost producers
of the same products, are encouraging the NICs to
restructure their industrial sector toward higher
technology industries.~Key industries targeted by
the NICs include machine tools, microelectronics,
and telecommunications equipment. Because these
are the same industries that the EC members hope
will help to solve their unemployment problems, we
.expect EC-LDC trade frictions to persist.
Secret 24
17 April 1984
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Summit Issues:
A New GATT Round
The London Summit participants remain split over
endorsing a new round of trade talks under the
GATT. Canada and West Germany have agreed to
the proposal made last year by Japan and the
United States. Other West European partici-
pants-particularly the French and the EC Com-
mission-are reluctant to commit themselves while
West European economic recovery remains slug-
gish. Nevertheless, we believe the Summit is likely
to be another step in the consensus-building process
that eventually will lead to new trade negotiations.
GATT Preparation
The agenda for the GATT negotiations is unlikely
to be determined for at least a year. Much of the
current GATT and OECD work on services, agri-
culture, textiles, safeguards, tropical products, and
high-technology goods-is intended to be in prepa-
ration for future trade talks. Moreover, the next
GATT negotiations may address tariff and nontar-
iff barriers between developed and developing
countries.)
Country Positions
Officials of most Summit countries accept-either
publicly or privately-the inevitability of a new
round. Views differ widely on what should be done
this year. West Germany-the most supportive
West European participant-will officially an-
nounce endorsement for new GATT negotiations at
the London Summit, according to press reports of
Economics Minister Lambsdorff's comments in
Tokyo this month. The United Kingdom is also
supportive but has little enthusiasm for rapid pro-
gress. Italy, according to the US Embassy, con-
cedes the benefits and appropriateness of the talks,
but, prob-
ably will push for finishing the OECD's current
trade liberalization program and for careful plan-
ning before moving on to a new round of trade
talks.~~
French officials probably hope to satisfy the United
States and Japan by cautiously making a commit-
ment to new round preparatory work.
According to Embassy reporting
the French are likely to try to link trade talks with
their proposals for changing the international
monetary system.
The EC Commission, like the French, hope to
mollify the United States and Japan while delaying
future trade talks. According .to diplomatic and
press reports, the EC points to slow growth, the US
elections in November, the need to assure LDC
participation in a new round, and concern for
finishing the GATT Ministerial and OECD work
programs as grounds for delaying the trade talks.
Japan's enthusiastic promotion of the talks has
been closely identified with Prime Minister Naka-
sone and he is likely to be the most outspoken
proponent. Some Japanese politicians probably also
hope that the prospect of new trade negotiations
under the GATT can be used to defer aspects of
bilateral trade disputes with the United States and
the EC. ~~
Canada, according to the US Embassy, will empha-
size the need for a broadening of consultations
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among GATT participants to develop a consensus
for new trade talks within a year or so. ~~
Disputes are likely to develop over whatever is
agreed upon at.the London meeting. According to
US trade officials, shortly after the Williamsburg
Summit an EC Commission official admonished
the GATT Secretariat not to take seriously the
language in the Williamsburg text, claiming it was
agreed upon hastily and differed from what Sum-
mit planners had drafted. Use of similar tactics
after the London Summit would be consistent with
the strategy of delay that is being followed by key
European countries and that we expect they will
pursue at least through this year. ~~
Secret 26
27 Apri! 1984
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Brazil's Armed Forces:
The Impact of Austerity
Brazil's four-year recession has taken its toll on the
military. Budget cuts and reduced foreign ex-
change allocations have meant:
? Dwindling stocks of fuel and ammunition.
? Inadequate training.
? Reduced equipment purchases, especially from
foreign sources.
As a result, combat readiness has deteriorated, and
Brazil's armed forces have had to emphasize im-
provements-such as the expansion of troop
strength-that do not involve significant hard cur-
rency costs. In addition; Brazil's need to boost
exports has caused local defense industries to look
to foreign markets, particularly in the Middle East.
to civilian politicians.
Adverse economic conditions have strengthened the
armed forces' commitment to return power to
civilians by 1985. The military hopes to avoid
further damage to its prestige by ceding responsi-
bility for resolving the country's economic woes. In
addition, the high command seems eager to concen-
trate on professional matters and leave government
The Military's Mission
Historically, the Brazilian armed forces have
served as the guarantor of internal security and the
arbiter of politics. External security has received
less emphasis because of the country's relatively
safe geographic position. Although it shares bor-
ders with every nation in South America except
Ecuador and Chile, Brazil is largely protected on
its frontiers by jungles, mountains, and swamps.
The few modern roads near the borders usually are
on the Brazilian side. Only the southern borders
with Uruguay, Argentina, and Paraguay provide
relatively suitable terrain for military operations,
and it is here that Brazil's strongest forces are
concentrated.)
Despite extensive frontiers and a continuing rivalry
with Argentina for regional dominance, Brazil has
not had a border conflict in more than 80 years,
and its military planners regard the threat of
external attack as remote. Instability in neighbor-
ing Suriname, however, has motivated the armed
forces to take an uncharacteristically visible role in
promoting military cooperation as a means of dis-
placing Cuban influence. 0 25X1
Brazil is set apart from its Latin American neigh-
bors not only by a different language, culture, and
history, but also by the ambition to become a world
power in the 21st century. This aspiration influ-
ences the country's approach to force moderniza-
tion. Unlike the other regional military powers-
Argentina and Peru-which have sought to in-
crease their military strength by importing ad-
vanced weapons, Brazil has emphasized investment
in defense industries and acquisition of modern
technology. Although, as a short-term cost of this
policy, Brazil currently has fewer advanced weap-
ons-such as supersonic fighter aircraft-than its
neighbors, the high command prefers to build a
substantial arms capacity for the future.~~
Economic and Political Dynamics
After presiding over more than a decade of extraor-
dinary economic growth (1968-79), the Brazilian
armed forces are preparing to leave government
with the country's most severe economic crisis
unresolved. Since 1980, recession and inflation
have reversed Brazil's historic rapid rise in living
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G_EOROETOWN
~~ PARAMARIBD
North
Atlantic
Ocean
South
Pacific
Ocean
Bia
Branca
BiO11Vla
South
Atlantic
Ocean
Boundary representation is
nat necessarily authoritative.
0 250 500 Kilometers
0 250 500 Miles
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standards. Last year, prices tripled, GDP fell
5 percent, and industrial output dropped 8 percent.
Private business failures have accelerated, and
Brazil's middle and lower classes have been hard
hit by high unemployment and real wage declines.
An austerity program imposed to stabilize prices
and reduce foreign indebtedness has put a premium
on production for export while requiring sharp cuts
in imports and government spending
Although a minority of military officers caution
against returning the country to civilian rule while
the economic crisis persists, the US Embassy re-
ports that most continue to favor a return to the
barracks. The prevailing view within the military
holds that the armed forces can only suffer a
further loss of prestige the longer they are responsi-
ble for running the government.~~
Argentina (0.5 percent) or Peru (0.7 percent). More-
over, despite rapid population growth, Brazil's
armed forces have not expanded in the last 10
years. Current plans to boost Army strength. from
183,000 to 296,000 by 1993, for example, have
been deferred for at least two years because of
funding constraints.0
Even when the proposed troop increase begins to
take effect in 1986, it will be undercut by continu-
ing financial stringency. With 1984 inflation pro-
jected to be about 150 percent, the recently an-
nounced doubling of the Army's annual budget will
mean a decline in the Army's real purchasing
power.
The 20-year period of military rule did not greatly
benefit the armed forces from a purely professional
standpoint. In terms of equipment, they were rela-
tively better off in 1964 than they are today. Even
during the boom years of the "Brazilian miracle,"
military regimes interpreted national security more
in terms of promoting economic growth and inter-
nal order than in terms of acquiring the latest
military hardware or undertaking a thoroughgoing
modernization of the nation's armed forces. The
Anglo-Argentine conflict over the Falklands in
1982 alerted the Brazilian military to the inadequa-
cy of its materiel, doctrine, and training, but severe
foreign exchange shortages have hindered any
modernization plans requiring significant expendi-
tures of hard currency.~~
Impact of Austerity on the Military
Manpower
Although large by regional standards, the Brazilian
armed forces are moderate in size, considering the
country's population and size. A military force of
280,000 for a country of some 134 million repre-
sents some two-tenths of 1 percent of the popula-
tion, a significantly smaller share than in either
Training
complain that the lack of funds is resulting
in inadequate basic and weapons training, serious
restrictions on field exercises, and improper equip-
ment maintenance.
training for tank
and truck drivers and artillerymen is hampered by
fuel constraints and severe shortages of artillery
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shells. indicate that proficiency in 25.25X1
crew-serve weapons m one airborne infantry bat-
talion is now so severely limited by ammunition
shortages that the unit may soon revert to a
battalion of riflemen with no sustained combat
capability. Although Brazilian unit commanders
have learned to cope with minimal budgets-using
such practices as sending troops home early to save
food, selling food to buy gasoline, and parking
vehicles for half the year to save fuel for maneu-
vers-the situation is serious enough to strain even
the Brazilians' talents for improvisation.
Training on advanced weapons has been particular-
ly affected. The Air Force reportedly has never
fired either of its two types of air-to-air missiles.
The few test firings of the Navy's Exocet antiship
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secret
missiles have revealed serious training deficiencies,'
25X1 ones that cannot be remedied any time soon be- Brazil's Projected Foreign Military
Acquisitions, 1986-90
cause funds are not available.)
Weapons Purchases
Austerity has meant a reduction in foreign weapons
acquisitions. Only two classes of weapons have been
exempted:
? Those that have no domestically produced coun-
terpart, such as submarines, torpedoes, A-4 carri-
er-based aircraft, antisubmarine and medium
transport helicopters, and Maverick air-to-sur-
face missiles.
? Those that are cheaper to buy abroad than to
produce domestically, such as used 105-mm and
155-mm howitzers.)
Even in these cases, the decision to buy depends Brazil's Projected Domestic
largely on the vendor's willingness to transfer tech- Military Production (Major Systems),
nology-a requirement that Brazil attaches to most 1986-90
foreign defense acquisitions.
Final selection of an antiship missile for Brazil's
domestically produced frigates likewise revolves
around technology transfer. 0
EET-1 Osorio 35-ton tanks
50
Air Force
AM-X subsonic ground attack fighters
48
T-27 Tucano turboprop trainers
100
Brasilia medium transport aircraft
25
Navy
Brazil plans to rely on its expanding defense indus-
tries for most of its needs. According to US
Embassy reporting, the Army will buy small arms
and ammunition, armored personnel carriers, and
at least 50 newly designed 35-ton tanks from
domestic producers in the next few years. Brazil's
aviation industry will supply the Air Force with 168
new Tucano light trainers, about 80 AM-X subson-
ic ground attack fighters, and at least 25 medium
transports over the next decade, according to press
and attache reports. Navy plans are less certain
because of inadequate funding; the projected run of
12 Niteroi frigates appears to have been halted at
Secret
27 April 1984
seven, including one training ship, and plans for 12
corvettes appear to have been cut back.
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~ecrei
hanced its independence from foreign suppliers and
expanded the range of Brazilian exports, earning
25X1 vital foreign exchange.
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Brazil's economic difficulties will hinder the armed
forces from undertaking any thorough moderniza-
tion over the near term. Nonetheless, they will be
able to replace some outdated equipment, and they
probably will push for a greater share of the budget
once out of office. A civilian president might
support a higher military budget; according to the
US Embassy, both to strengthen national security
and to keep the high command content and on the
political sidelines.~~
Keeping the military focused on professional pur-
suits and modernization, however, will require po-
litical stability. If social tensions generate wide-
spread unrest, the military will be drawn back into
the political process. Likewise, the potential elec-
tion of an ideologically unacceptable candidate to
the presidency, or the threat of an investigation into
military corruption or human-rights abuses, proba-
bly would provoke direct intervention. ~~
Implications for the United States
Brazil's economic crisis and the armed forces' post-
Falklands emphasis on professionalism have con-
tributed to a gradual improvement in bilateral
military relations.
A minority within the military advocates a more
nationalistic economic policy, a confrontational at-
titude toward multinational firms, and repudiation
of the country's debt, according to the US Embas-
sy. These views are voiced primarily by retirees,
however, and probably carry little weight with
active-duty officers.
at the middle-grade level, older
officers tend to be well disposed to the United
States, while their younger colleagues are generally
neutral.
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