INTERNATIONAL ECONOMIC & ENERGY WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000500170007-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 47
• Document Creation Date: December 22, 2016
• Document Release Date: September 27, 2011
• Sequence Number: 7
• Publication Date: February 27, 1987
• Content Type: REPORT

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Ditectorat of See. et--
Intelligence
International
Economic & Energy
Weekly
27 February 1987
Seer at
DI /EEW 87-009
27 February 1987
COPY.
693
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International
Economic & Energy Weekly
iii Synopsis
1 Perspective-Brazil's Debt Moratorium
3 LDC Debt: The Role of Debt/Equity Swaps
11 Iran: Weak Economy Complicates Way{
15 Iraq: Financial Problems Despite Higher Oil Revenue
19 Japan: Sluggish Import Response to Yen Appreciation
23 Turkey: Ozal's Economic Program Showing Result
Energy
International Finance
International Trade
Global and Regional Developments
National Developments
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Comments and queries regarding this publication are welcome. Th
y may be
e
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DI IEEW 87-009
27 February 1987
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International
Economic & Energy Weekly 25X1
Synopsis
continuing expressions of solidarity with Brazil's actions.
We believe Brasilia's announcement last week of a debt moratorium was designed
to send a message to creditors, whom Brazil views as having become unsympathet-
ic to its plight. Other debtor governments probably will not follow suit, especially if
new financial packages from commercial bankers appear likely, but we expect
3 LDC Debt: The Role of Debt/Equity Swaps
Schemes for converting bank loans into equity are being touted as an important
new way to cope with the LDC debt burden, but we believe they will play only a
marginal role.
Iran's recent military successes near Al Basrah have strengthened the leadership's
will to bring down the Iraqi regime and eased growing popular frustration over the
dismal state of the economy. In contrast, Iraq-despite its weakened military
position and morale-probably faces somewhat better economic prospects than
Iran in the coming year.
11 Iran: Weak Economy Complicates War
The foreign exchange crunch that dominated Iran's economy in 1986 will show
little sign of easing in 1987. Iran's economy faces substantial threats from a
renewed oil price war or an intensified Iraqi air campaign against economic
targets.
15 Iraq: Financial Problems Despite Higher Oil Revenues
Although the Iraqi economy is likely to improve slightly over the coming year
because of higher oil revenues, Baghdad's huge foreign debt and continuing
military expenditures remain drags on economic performance. Iraq's military
performance and the level of casualties, however, will be the regime's chief
vulnerabilities.
19 Japan: Sluggish Import Response to Yen Appreciation
The 65-percent appreciation of the yen relative to the US dollar over the past two
years is generating only a modest increase in Japanese imports. We believe that a
more significant increase would require an upturn in Japan's economic growth.
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DI IEEW 87-009
27 February 1987
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Prime Minister Ozal's market-oriented economic program has cut the budget
deficit and reduced government intervention while boosting real GNP growth to
almost 8 percent last year. Ankara's overriding needs are to achieve more balanced
growth, to reduce the reliance on foreign borrowing, and to cut monetary growth.
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International
Economic & Energy Weekly 25X1
Perspective Brazil's Debt Moratorium d
We believe Brasilia's announcement last week of a moratorium on its $65 billion
medium- and long-term commercial debt was designed to send a message to
creditors, whom Brazil views as having become unsympathetic to its plight. Other
debtor governments are closely watching the situation, but probably will not follow
suit, especially if new financial packages from commercial bankers appear likely.
Nevertheless, we expect continuing expressions of solidarity with Brazil's actions.
They probably believe the Brazilian developments have strengthened their own
bargaining positions. Moreover, leaders of other debtor nations will note that
support for President Sarney's government increased following his announcement.
Whether other debtors initiate Brazil's actions will depend on the scope for growth
allowed under new money packages
Brasilia has indicated interest in beginning negotiations with commercial banks
around mid-March. Nonetheless, we believe that, given the reluctance of creditors
to make concessions and Brazil's actions and statements this past week indicating
it will no longer give in to creditor demands, the risks that an agreement will not be
reached in these negotiations has increased:
? Financially, Brazil believes it can do little else but reduce its debt service
outflows. Cash reserves have been drawn down rapidly in recent months and are
currently estimated at only about $2 billion-less than two months of imports.
The economy also is in bad shape, with interest rates and inflation both heading
toward quadruple digits.
? Politically, Sarney has gained time to rebuild a consensus behind his leadership
and to consider additional measures to shore up the economy. Moreover, Brasilia
almost certainly believes it has gained the upper hand in coming negotiations
with banks by announcing a suspension of payments.
International bankers are uncertain about what steps Brazil will propose in future
negotiations. They are especially concerned about Brazil's lack of a credible
domestic economic program and Brasilia's apparent refusal to agree to IMF
supervision. A few banks withdrew a portion of Brazil's $15.5 billion short-term
trade and interbank lines. In response, Brasilia on Tuesday sent instructions to
Brazilian banks overseas directing them to not repay international banks that seek
to withdraw these credit lines, but instead deposit the money in an account with
Brazil's Central Bank, according to the US Embassy.
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DI /EEW 87-009
27 February 1987
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for full creditor approval of its new money package.
Other key debtors have not imitated Brazil's action:
? Buenos Aires calmed fears of an Argentine debt moratorium by implementing
stopgap measures to halt inflation and spur growth. Nonetheless, if the program
unravels or if international bankers fail to provide sufficient money quickly to
generate growth, political pressure for a moratorium will almost certainly mount.
? In our view, Mexico does not plan to follow Brazil's lead, but seemingly has tried
to take advantage of Brasilia's announcement by imposing a 20 March deadline
We believe Third World debt negotiations have entered a critical new phase. The
resolve of debtor governments to hang tough has strengthened; in particular, they
are more willing to act in the face of perceived creditor inflexibility. At the same
time, creditor banks feel compelled to draw the line. They are moving quickly to
settle outstanding issues with other debtors in order to isolate Brazil and to deter
other countries from following suit. Over the long run, however, Brazil's actions
could harden attitudes toward future concessions and new money for all debtors.
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Debt/Equity Swap
Schemes for converting bank loans into equity are
being touted as an important new way to cope with
the LDC debt burden, but we believe they will play
only a marginal role. Debt/equity swaps appear at-
tractive because they reduce LDCs' foreign debt,
encourage badly needed new investment in LDCs, and
ensure that creditors get something back from their
poorly performing loans. At the same time, debtor
country restrictions on foreign investment, bank reluc-
tance to absorb the losses resulting from discounted
loan sales, and the shortage of profitable investment
opportunities in countries with attractive swap pro-
grams limit the potential of these schemes in LDC
debt management.
What Are Debt/Equity Swaps?
amounts of their LDC debt.
In a debt/equity swap, a creditor sells debt at a
discount to a multinational corporation or individual
investor who in turn redeems it in the debtor country
at near or full face value in local currency. The
proceeds are then used to purchase equity in local
businesses. In these swaps, European and US regional
banks are the primary suppliers of LDC debt; they see
selling off some of their exposure as a way to limit
risks, to clean up their loan portfolio, and to avoid the
pressures of debt reschedulings and new money pack-
ages. Money-center banks-who hold the majority of
LDC debt paper-and investment banks typically act
as brokers. Although some major US banks have
swapped small portions of their debt, and in certain
cases have retained shares in foreign businesses, US
accounting rules discourage them from selling large
Latin debtors have taken the lead in debt/equity swap
programs, and we estimate that these programs have
reduced Latin America's total $219 billion commer-
cial debt by about $4.5 billion. Chile's $1.2 billion
program, launched in June 1985, is the most success-
ful because of Santiago's open investment climate and
the clarity of the rules governing the program. Mexi-
co's program amounted to $650 million at yearend
1986, while Ecuador is currently creating the legal
framework for a debt/ equity mechanism and expects
to convert $200-300 million this year. In contrast, the
Governments of Argentina and Brazil show little
commitment to implementing programs more accept-
able to foreign investors.
Swapping debt for equity has been slower to catch on
outside Latin America. Most countries entertain swap
proposals on a case-by-case basis, but only the Philip-
pines has a formal program in place. Debt burdens in
Indonesia, Malaysia, and Thailand and many African
LDCs are high enough to warrant swap programs, but
investor interest has yet to develop.
Swap Programs-How Attractive Are They?
LDCs' restrictive foreign investment climate and the
regulations attached to swap programs are discourag-
ing foreign companies from making significant new
investments through the debt/equity mechanism.
Multinational corporations particularly dislike LDC
rules requiring local control of their subsidiaries.
Moreover, foreign exchange controls, cumbersome
and lengthy approval procedures, the limited avail-
ability of profitable opportunities for equity invest-
ments in many LDCs, and limited protection for
intellectual property rights-copyrights, patents, and
trademarks-also deter investors
Other key problems that are restricting investor inter-
est in swaps include:
? Government Fees. Most LDCs charge conversion 25X1
fees; the Philippines, for example, charges a 5-
percent fee for export-revenue-earning projects and
10 percent for low-priority industries. Mexico
charges an application fee regardless of whether the
swap is approved.
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DI IEEW 87-009
27 February 1987
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How a Debt/Equity Swap Works: A Mexican Example
1. MNC wants to expand its operations in Mexico
...will pay IB fee to purchase debt for swap.
Multinational
Corporation
(MNC)
4. As agent of the Mexican Government, CB
officially retires the debt.
Retired
Debt
L
Investment
Bank (IB)
Mexican
Central
Bank (CB)
MNC
Subsidiary
in Mexico
2. Working on behalf of the MNC, IB buys
Mexican Government debt from creditors at
a discount. For example, IB might pay US
$70 million for debt with a $100 million
principal face value.
3. Acting on behalf of MNC, IB presents the
$100 million in debt certificates to CB for
redemption and receives, for example, the
equivalent of $90 million in pesos. MNC
obtains less than face value, but an extra
$20 million in pesos, because it would have
received only $70 million in pesos on the
foreign exchange market.
? New Money Requirements. In Argentina, foreign
investors must put up $1 in new money for each
dollar swapped, while, in Brazil, investors may be
required to invest new money equal to the discount
they receive through the swap.
? Limits on Profit Repatriation. Profits may not be
repatriated before the scheduled amortization of
principal on the swapped debt; Brazil, for example,
warned investors that profits resulting from swaps
could not be repatriated for 12 years.
? Foreign Exchange Risks. Investors must consider
that the value of their LDC assets probably will be
reduced over time because of currency devaluations.
Moreover, domestic opposition may pressure LDC
governments to revise their swap programs-foreign
investors may be reticent to participate if they feel the
rules will change at some future date
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Discounted Date Program Key Elements
Loan Prices a Implemented
Delays in Argen- Debt is converted at official exchange rate (usually more
tina's debt negotia- expensive for foreign investors).
tions will delay full " Local currency must be invested in export-oriented
implementation industries.
Investor must match converted debt with equal amount
of new money, also converted at official rate.
Case-by-case pro- Conversions authorized only when investor is original
gram since early creditor.
1983 Swaps down to $400 million in 1986 from $746 million
in 1984.
In November, Finance Ministry rejected Central Bank
recommendations to liberalize swap program.
Least restrictive, most straightforward swap program.
About $1.2 billion, or 4 to 5 percent of total outstanding
debt converted so far.
Two methods of conversion; one for foreign investors, one
for Chilean nationals.
Total value of swaps limited to $1.2 billion.
Both foreign and domestic investors permitted to swap
debt.
Local company must use full amount provided by inves-
tor to pay off debts owed to Central Bank.
Maximum target of $100 million in swaps per month.
A total of $3-4 billion in debts expected to be converted.
More than half of swaps involve international auto firms.
Largest Mexican exporters soon will be able to partici-
pate in swap program.
Bankers estimate $200-500 million may be converted by
end of 1987.
Central Bank charges 5- or 10-percent conversion fee.
Government unwilling to allow foreign investors equity
holdings greater than 40 percent.
a Cents per dollar of face value. Prices on the secondary market do
reflect creditor confidence in a country's economy, but only the
attitudes of those creditors who are actively trading-and might in
fact be particularly anxious to "unload" the debt. Most money-
center banks are not selling large portions of their debt.
"New money" requirement and conversion at official as
opposed to free market exchange rate probably will
continue to discourage investors.
Nationalistic sentiments and concerns over monetary
expansion will limit government commitment to
program.
Business community's success in recent elections proba-
bly will lead to more severe restrictions on foreign
investment.
Brazil's worsening economy will deter potential
investors.
Chilean program may be constrained by unattractive
political climate.
Majority of Chile's debt locked in portfolios of large US
banks; only limited amount available to market from US
regional and smaller European banks.
No real productive asset is created if local industries use
investment to pay off existing debts.
For the most part, only investors established in Mexico
are using swap mechanism; many had plans to invest
anyway. Swap program will become gradually more
restrictive, eventually eliminated, according to Mexican
officials.
Limits on type of debt paper accepted for conversion,
and Central Bank fees deter investors.
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discount will reduce the government's credit rating
and make it more difficult to raise new money from
creditors.
Many money-center banks say their interest in pre-
serving business relationships with LDCs prevents
them from selling their own LDC loans at deep
discounts, but we believe these banks are deterred
more by US bank regulations and accounting rules.
For example, a bank must realize a loss when it
decides to sell a portion of its loans on the secondary
market. Contrary to press reporting, however, the
bank does not have to write down its entire portfolio of
loans to that country, nor does it necessarily have to
take a loss if it swaps debt for equity and retains the
new asset in its portfolio. When a major US bank
acquired a pension fund in Chile, for example, ac-
countants recognized the investment at the full face
value of the deb
There are still major disagreements, however, .be-
tween accounting firms on how to value the new
asset-should it be recognized at the full face value of
the traded debt, should the accountant make an
estimate of the LDC industry's worth, or should
valuation be based on the value of the local currency
received from the debtor government? Until the ac-
counting profession clears up the ambiguity surround-
ing US bank participation in swaps, major banks
probably will remain reluctant to swap loans in the
amounts necessary to have an impact on their large
Latin exposures.
On the other side of the ledger, LDC governments are
holding back because of the monetary and political
consequences of implementing swap programs. On the
monetary side, LDC governments must either create
local currency or borrow on the domestic market to
buy back loans originally made in dollars. Large-scale
use of swaps could result in excessive money creation
and send already high inflation soaring out of control,
while borrowing on the domestic market could in-
crease the budget deficits of LDC governments. Chile,
for example, has attempted to control the monetary
impact by imposing a cap on the monthly total of debt
conversions. Moreover, LDC governments fear that
active trading of a country's debt at a substantial
Secret
Politically, liberalizing foreign investment regulations
is often interpreted domestically as a capitulation to
foreign interests under the pressure of the debt prob-
lem. Political opposition and labor groups in Ecuador,
for example, have accused the government of "selling
out the country to foreigners," while Mexican busi-
nessmen complain that swaps give foreign corpora-
tions a steep discount in a local currency that is
already substantially undervalued. LDC governments
also fear the political fallout if debt/equity swaps
result in "round tripping," a practice by which the
foreign investor makes a profit on the debt conversion
and then pulls his money out of the country-leaving
the central bank with a loss and the country without
the investment. We believe there is a high potential
for such abuse.
The potential for "undesirable" buyers using debt/
equity swaps also has forced debtor governments to
take a closer look at the players involved, and to
tighten program restrictions. In Guatemala, for exam-
ple, international narcotics dealers used laundered
profits to strengthen their position in the country by
converting debt into equity investments. Latin Ameri-
can and Caribbean bank regulators--concerned
about the incident-called a meeting to discuss how
to curb such activity. Furthermore, Ivory Coast's
President Houphouet, afraid that Libyan leader Qa-
dhafi planned to oust him by secretly purchasing a
majority of Abidjan's debt on the secondary market,
pressured commercial banks to insert a clause in the
country's rescheduling agreement that limits credi-
tors' ability to sell Ivorian debt.
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Following the flurry of activity last year, in recent
months the swap market for Latin American debt
weakened because most small banks and European
banks have already sold off unwanted holdings or
switched portfolios to their regional or country prefer-
ences,
it is much more difficult now to find debt paper that
the Mexican Government will accept for use in its
swap program; all LDC governments generally have
restrictions on the type of debt paper acceptable.
Debtors have been guarded about the future of swap
programs-Ecuador has put a $1.2 billion cap on its
nascent progam, while Mexican officials have publicly
stated that the swap program is a temporary mecha-
nism that will gradually become more restrictive and
eventually eliminated.
Debt/equity swaps will make at best a modest contri-
bution to alleviating the LDC debt problem. In our
judgment, any recovery of the swap market in 1987
and greater participation by the major banks-which
continue to hold huge amounts of debt paper-is
contingent on an LDC liberalization of foreign invest-
ment regulations that we do not expect in the near
term. If LDCs were to undertake the reforms neces-
sary to attract investment, demand for LDC debt
paper might grow, pushing up loan prices on the
-secondary market. Money-center banks probably
would be more willing to swap if the resale price of
loans were closer to face value, thus reducing the loss
they have to take. Without some indication that losses
will be marginal, whether it be through substantially
higher loan prices on the secondary market or changes
in US bank regulations and accounting rules, money-
center banks probably will remain hesitant about
selling LDC loans.
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Overview Iran-Iraq: Wartime Economics
This overview, and the two subsequent articles, examine the impact of the Iran-
Iraq war on the respective countries' economies.
Iran's recent military successes near Al Basrah have strengthened the leadership's
will to bring down the Iraqi regime and eased growing popular frustration over the
dismal state of the economy. Nevertheless, Tehran almost certainly remains
concerned that chronic economic weakness will undermine its long-term ability to
maintain political stability and sustain strong military pressure. In contrast,
Iraq-despite its weakened military position and morale-probably faces some-
what better economic prospects than Iran in the coming year as a result of
increased Iraqi oil exports.
The Iranian ground attacks near Al Basrah represent a victory for those in Tehran
who are pressing for strong execution of the war. Iran's success will strengthen the
position of Majles Speaker Rafsanjani who has taken a prominent role in directing
the aggressive war strategy. Near the end of 1986, various reports of discontent
and unrest indicate that the capacity of the Iranian people to endure economic
hardships is beginning to be strained. Nonetheless, the severe economic problems
of the past several months and fear of military failure had prompted some in Iran's
leadership to counsel against taking the risks of further major offensives in favor of
redirecting resources to the civilian economy
Balancing civilian economic needs and military priorities will be an increasingly
complex task. In our view, Tehran will be hard pressed to sustain lengthly attacks
such as the recent Al Basrah offensive. Tehran has already been forced to impose
gasoline rationing on some of its military units and to trim military perquisites.
Low oil revenues will also hamper replenishment of its military arsenal after major
ground offensives
Battlefield losses, not the economy, present the greatest threat to Saddam
Husayn's rule. Until this past year, Baghdad has been able to largely insulate the
living standards of the relatively small population from the impact of the war.
Saddam's continued rule, however, would face substantial challenges should Al
Basrah fall. Assuming the Iranians are contained, Baghdad should see some minor
improvement in its economy over the next year, even though large foreign debts
will hinder economic performance. Arab financial aid should provide enough for
Baghdad to meet its military requirements and essential consumer imports
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The opposing oil policies of the combatants-Iraq's drive to increase oil exports
and Iran's desire to hold down OPEC production-are likely to increase tension
among Persian Gulf oil producers. Iran, with almost no military capability to
interdict Iraqi oil exports, will intensify pressure on other states in the Persian Gulf
to halt financial support for Iraq. Iran could step up attacks on Kuwaiti tankers or
sponsor further sabotage against Kuwaiti oil facilities. Increased Iraqi attacks on
Iranian economic and civilian targets raise the likelihood that Tehran would use
subversion or military attacks on Gulf Arab states
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Iran: Weak Economy
Complicates War
The foreign exchange crunch that dominated Iran's
economy in 1986 shows little sign of easing in 1987.
Even under optimistic oil price assumptions, Iran's
foreign exchange situation would allow little or no
increase in imports. Iran's economy faces substantial
threats from a renewed oil price war or an intensified
Iraqi air campaign against economic targets. Political
deadlock over the proper role of government in an
Islamic economy will continue to hamper Tehran's
ability to cope with its problems. The shrinking
economic pie also intensifies factional maneuvering in
anticipation of Ayatollah Khomeini's death.
million b/d. We expect Iran to maintain the deep
import cuts begun in mid-1986, making total imports
for 1987 about 20 percent lower than last year.
Although Iraq has the military capacity to halt almost
all Iranian oil exports, we believe Baghdad will most
likely maintain only moderate pressure. Even under
more optimistic assumptions that oil prices average
$18 per barrel and export volumes are not affected by
Iraqi attacks, we expect that Iran will relax import
restraints only a little. A worst case scenario of very
low oil prices-$10 or less-and/or strong Iraqi
pressure on oil exports would probably force Tehran
to make substantial cuts in imports of food, fuels, and
medicine. Only under these conditions would Iran be
likely to seek substantial foreign loans, though we
doubt foreign governments or banks would be willing
Iran's economy, particularly the industrial sector, was
hit hard by lower oil prices, Iraqi attacks on economic
targets, and the fall of the dollar-oil prices are dollar
denominated. The purchasing power of Iran's oil
receipts fell by about two-thirds in 1986 compared
with 1985, forcing Tehran to slash imports and
government spending. The import-dependent industri-
al sector bore the brunt as war spending was un-
touched. The regime was also hard pressed to main-
tain politically sensitive welfare programs to the
urban poor. Iraqi attacks on oil export and production
facilities, refineries, power stations, and other indus-
trial targets seriously compounded Iran's economic
difficulties. Demonstrations, open grumbling, and dis-
regard for authority increased throughout the country
in response to deteriorating conditions. Unrest did not,
however, reach a level that threatened continued
conduct of the war
Little Improvement in 1987 Finances
We estimate Tehran's oil revenues will be only slight-
ly higher in 1987 than last year, forcing continued
austerity. We assume an average price of $15 per
barrel for Iranian crude and a moderate level of Iraqi
military pressure that holds export volumes to 1.4
to make large loans under such circumstances.
Iran's nonoil export promotion campaign is likely to
have only minor near-term benefits for Tehran's
financial position. This year we estimate nonoil ex-
ports will rise by about 30 percent, but still account
for less than 15 percent of total export revenues.
Incentives for exporters remain weak because of the
overvalued official exchange rate and government
confiscation of earnings. Maintaining Syrian political
support and war-imposed transportation costs will be
additional drains on Iran's revenues. We estimate free
oil to Syria will continue at 1986 levels of some
35,000 b/d, worth about $170 million. The cos of
Iran's oil shuttle is at least $200 million a year
The severe foreign exchange crisis following the revo-
lution has made Iran extremely cautious regarding its
foreign payments and assets. For example, despite
domestic pressures to maintain imports in the face of
serious economic difficulties in 1985, Tehran cut
imports by more than was necessary to balance its
accounts in order to add to its emergency reserves of
foreign exchange. As a result, we believe Tehran will
avoid substantial borrowing or further depletion of its
Secret
DI IEEW 87-009
27 February 1987
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Iran: Current Account, 1984-87
Trade balance
-0.9
2.3
-2.2
-2.1
0.9
1.6
Exports (f.o.b.)
17.1
15.6
7.8
4.7
8.7
11.6
Oil
16.8
15.1
7.0
3.6
7.7
10.5
a Low assumption: Oil exports are I million b/d at $10 per barrel.
b Medium assumption: Oil exports are 1.4 million b/d at $15 per
barrel.
High assumption: Oil exports are 1.6 million b/d at $18 per
barrel.
against foreign borrowing.
reserves. We estimate Iran began 1987 with $1.5-2.0
billion in readily accessible official cash reserves;
$2.3-2.5 billion in gold, silver, and jewels; and about
$6 billion in less liquid assets, including assets frozen
in escrow accounts and uncollectible loans to less
developed nations. Islamic ideology also militates
Iran will find it increasingly difficult to divert re-
sources from the civilian sector to maintain its war
effort. We estimate Iran spends about $4 billion
annually in foreign exchange for military equipment
and supplies. Iran made some cuts in food imports last
year, but pressure to maintain supplies to the lower
class and slack domestic production will probably
require that Tehran import $2.5-3.0 billion in food,
medicines, and agricultural inputs. Iran imported
about $500 million in refined petroleum products in
1986, and this amount could double in 1987 if Iraqi
attacks on refineries continue. Under what we believe
are the most realistic assumptions, oil revenues would
barely cover reauirements for food, fuel, and military
supplies
Living standards in Iran this year will continue the
downward trend of the past four years. Using middle-
range estimates of oil production and prices, we
estimate real per capita GNP will decline about 7.8
percent in 1987 following an estimated 16.4 percent
decline in 1986. The fall in per capita GNP under-
states the impact on the average citizen because an
increased proportion of domestic production was di-
verted to the military.
Lower imports, declining domestic production, and
competition by the military for scarce resources will
cause further inflation. We estimate inflation on the
black market will be 20 to 25 percent in 1987,
following a jump of at least 40 percent in 1986.
Strong economic pressures will probably force the
government to allow official prices to rise by about 15
percent following increases of only about 10 percent
last year, but these efforts to regulate prices will
worsen shortages. The increasing gap between official
and black-market prices will raise incentives to divert
goods from official channels and inhibit productive
investment. High unemployment will persist although
government handouts will moderate the impact on
those laid o
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Secret
25X1
Iran: Estimated Real Per Capita
GNP, 1979-87
I I I I I I I I
1.5 1979 80 81 82 83 84 85 86 87 a
a Projected.
Iraqi air attacks against economic targets have the
potential to seriously erode Iranian living standards.
Even limited Iraqi damage to critical economic tar-
gets could further weaken the civilian economy as well
as hamper Iran's warmaking ability. Supplies of
refined oil and electric power will remain tight
through 1987 even without further Iraqi attacks, and
both industries are more vulnerable to disruption as a
result of last year's bombings. Transportation net-
works, basic manufacturing, and military industries
are probable future targets of Iraqi raids.
in response to increasing iraq
attacks some foreign firms are curtailing operations in
Iran. This will affect Iran's ability to repair damaged
industries. A far more intensive Iraqi campaign would
likely have devastating effects on Iran's economy.
In addition to external factors, a political deadlock
over economic policies is handicapping Iran's ability
to cope with its problems. Neither the radicals who
favor government domination of the economy nor
conservatives favoring more traditional private-sector
control have the power to impose their will through-
out the government. The lack of a coordinated policy
to reduce Iran's dependence on oil revenues has
resulted in various parts of the government working
at cross purposes. Conservatives, backed by Western-
trained economists, want the regime to promote non-
oil exports through incentives to the private sector.
Radicals, on the other hand, worry that export
promotion encourages dependence on foreign trade
and hurts the poor by allowing the growth of private
sources of wealth and power. Building domestic
industries-albeit inefficient ones-to take over pro-
duction of imported goods is linked by the radicals to
Islamic notions of independence.
Political influence and corruption protect a policy of
fixed exchange rates that vastly overvalues the rial
robbing the economy of productive capital investment
and causing gross inefficiencies. The policy encour-
ages imports, discourages exports, and channels capi-
tal into trading rather than domestic production. The
influence of the Bazaar-the merchant class-and
the existence of widespread official corruption proba-
bly preclude any major change in exchange rate
policies
Political deadlock and unwise policies also play
havoc with agriculture and industry. Food subsidies
and inaction on land reform discourage greater agri-
cultural production. The conservative Council of
Guardians has consistently vetoed efforts by the more
radical Majles-Consultative Assembly-to enact
comprehensive land ownership legislation. Tehran
must also sort out the government's role in industry.
A maze of overlapping ministries and quasi-govern-
mental organizations operate the extremely ineffi-
cient economic system with little chance of working
itself out, given the current political impasse.
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Secret
Austerity and Political Maneuvering
the populace is
losing faith in clerical management of the rationing
and distribution systems. Late last year, Iranian
newspapers became far more strident in their criti-
cism of economic management, which they charged is
overcentralized and corrupt. In the budget for 1987,
the regime pledged to maintain food subsidies and
other welfare programs, but this ssible
given likely tax and oil revenues.
Competition for dominance over economic policy will
be an important issue between regime factions as they
maneuver for power in anticipation of Ayatollah
Khomeini's death. Both radicals and conservatives are
blaming each other for the current economic difficul-
ties. Declining living standards also intensify rivalries
over perquisites that go with political influence.
Speaker Rafsanjani is de vot-
ing considerable effort to gaining control of the
Iranian economy as part of his campaign to consoli-
date power. Such machinations raise the risk of
miscalculation by competitors and heighten the poten-
tial for open fi htin when Khomeini dies.
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Iraq: Financial Problems Despite
Higher Oil Revenues
Although the Iraqi economy is likely to improve
slightly over the coming year because of higher oil
revenues, Baghdad's huge foreign debt and continuing
military expenditures remain drags on economic per-
formance. We expect economic development efforts to
remain stagnant while the regime directs any addi-
tional resources toward improving the availability of
consumer items. Economic austerity is unlikely to
provoke unrest that could threaten President Saddam
Husayn. Iraq's military performance and the level of
casualties will be the regime's chief vulnerabilities.
Plunging oil revenues in 1986 severely strained Iraq's
finances. Iraqi oil revenues dropped about 40 percent
to $7.0 billion in 1986 from $11.4 billion in 1985,
despite a 300,000-b/d increase in oil exports. More-
over, Arab financial aid-almost entirely from Saudi
Arabia and Kuwait-declined slightly. As a result,
Baghdad failed to keep up with payments on its
roughly $17 billion in non-Arab foreign debts. Iraq
was forced to reschedule nearly $6 billion in debt
payments last year. Import credits became scarcer
and more expensive as official export agencies and
suppliers lost confidence in Iraq.
The large fall in oil prices and increased fighting
forced Baghdad to abandon its "guns and butter"
policy and slash nonmilitary spending. The Iraqi
people felt the sting of new austerity measures as
government subsidies on consumer goods were re-
duced, taxes increased, development expenditures
slashed, and some benefits to military personnel and
families of war dead were eliminated. The prices of
many goods, particularly food, increased rapidly.
Since late last year, essential foodstuffs, selected
equipment for the petroleum industry equipment, and
fabrics are the only civilian imports assured of receiv-
We estimate that higher oil export volumes and prices
will raise oil revenues in 1987 to about $9.5 billion, an
increase of 35 percent. We assume exports averaging
about 1.7 million b/d at $15 per barrel. The boost in
oil exports-from about 1.5 million b/d in 1986-will
come from a 500,000-b/d expansion of the second
Iraqi-Turkish pipeline that should be completed this
summer.
Despite higher export revenues and continued Arab
aid at 1986 levels, Baghdad still faces a roughly $3.5
billion shortfall in foreign exchange in 1987. To
finance this deficit, the regime probably will continue
to limit civilian expenditures while seeking additional
debt reschedulings and new foreign credits. We be-
lieve creditors ultimately will reschedule a large part
of the at least $3-4 billion in debt payments that we
estimate are due this year.
a consortium of commercial banks recent y
agreed in principle to defer some, civilian debt pay-
ments due in 1987 for two years.
The amount of foreign credits Iraq receives this year
will be a major determinant of Baghdad's ability to
hold the line on austerity. Although Iraq's creditors
probably are encouraged by Baghdad's more orderly
approach to debt management, we believe they re-
main cautious about new lending. According to the
US Embassy, Iraq has had some problems lining up
financing for a second oil pipeline across Saudi Ara-
bia. Nonetheless, Baghdad is likely to obtain suffi-
cient trade financing to ensure essential consumer
imports such as food and medicines
ing foreign exchange allocations
Secret
DI /EEW 87-009
27 February 1987
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Secret
Iraq: Current Account, 1984-87
Net services and -2.9 -3.4
private transfers
Estimated.
b Projected.
Oil revenues in 1987 are based on average exports of 1.7 million
b/d at $15 per barrel.
Impact on Industry, Development Projects, and Labor
Iraqi industry and development plans are heavily
dependent on imports. As a result, the large cuts being
made in imports of materials and machinery will force
more factories to curtail production or shutdown,
reducing supplies of some consumer items and hurting
domestic construction. Baghdad will probably concen-
trate its development efforts on a few selected petro-
leum, petrochemical, agricultural, and power plant
projects. Despite recent public statements by First
Deputy Ramadan that the large-scale development
effort will be revived, we believe the program will be
largely hindered by Iraq's inability to convince foreign
contractors-already stung by missed payments-to
cut costs and offer more attractive financing. Basic
infrastructure probably will deteriorate as develop-
ment projects take a back seat to more immediate
needs. One exception, however, is the second oil
export pipeline across Saudi Arabia-construction is
scheduled to begin this spring and Baghdad will pay
higher financing costs if necessary
The continuing manpower drain of the war will
further aggravate Iraq's labor shortage. In addition,
restrictions on foreign remittances and cutbacks in
development spending probably will reduce the
number of foreign workers in Iraq to about 900,000
from about 1.2 million at the end of 1985. This loss
will hinder efforts to improve agricultural production,
disrupt some retail services, and contribute to factory
closures. Saddam's insis-
tence that all Iraqis participate directly in the war
effort has caused a shortage of skilled technicians in
the petroleum and banking industries
The Iraqi people will see little improvement in living
standards during 1987. Although the 1987 civilian
import plan gives top priority to the provision of
essential consumer items, the availability of many
goods will fluctuate. Difficulties in the distribution of
goods, including food-along with the growing diver-
sion of many items into the black market-are likely
to add to the uncertain supply situation. As a result,
shortages are likely to drive inflation to about 25
percent during 1987, from about 15 percent in 1986.
The regime may be encouraged to relax spending
restrictions toward the end of the year, but this will
depend on the amount of debt reschedulings and new
loans from foreign creditors.
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Secret
Iraq: Rapidly Rising Debt Burden
The oil price collapse and Iraq's extensive use of
foreign loans since 1983 have thrust Baghdad into the
league of problem debtors. We estimate that Iraq's
military and civilian debt totals roughly $17 billion,
up from about $5 billion in 1979. This amount does
not include about $30 billion in "soft" loans from
25X1 Baghdad's, Arab allies, which will not be repaid any
time soon.
Damascus of Iraq's pipeline through Syria.
Persian Gulf export terminals and the closip2 by
Iraq's debt buildup stems from the regime's decision
early in the war to substantially increase economic
development expenditures despite the cost of the war
and reduced oil revenues. Imports in 1981 and 1982
were $20 billion and $25 billion, respectively, up from
about $12 billion in both 1979 and 1980. Meanwhile,
oil revenues plunged from $25 billion in 1980 to $9.5
billion in 1982 because of war damage to Iraq's two
To finance this gap, Baghdad ran down its foreign
reserves and borrowed from trading partners and its
Arab allies. According to statistics from the Bank for
Iraq: Foreign Payments, 1987 Billion US $
Principal payments due on foreign debt
3.5
Interest payments due on foreign debt
1.5
9.5
0.6
Arab financial aid
2.3
Financial Gap
3.5
International Settlements (BIS), Iraq's assets in
Western banks plunged from $25 billion in 1980 to
about $1 billion in 1982. In 1983, when assets ran
out, Baghdad slashed imports by 50 percent and
began borrowing heavily from commercial banks to
finance civilian imports. Baghdad's debt to Western
banks has increased to $5.6 billion from about $450
million at the end of 1982.
Iraq's use of foreign loans came back to haunt
Baghdad last spring when the oil price collapse and a
bulge in payments caused a cash flow crisis and
confusion among Iraq's financial managers. Subse-
quent poor financial management by Iraqi officials
worsened already strained relations with foreign
bankers. Beginning in the latter part of 1986, Bagh-
dad improved control of its finances by sorting out its
foreign debt priorities and making some repayments
to selected creditors. Even without new borrowing, we
estimate that Baghdad will face nearly $15 billion in
principal and interest payments during the next three
years.
Despite consumer discomforts, economic austerity
this year is unlikely to provoke unrest that could
threaten the regime's hold on power. We believe that
the potential for unrest hinges more on Iraq's military
performance-especially the level of Iraqi casual-
ties-than on economic conditions. Moreover, Iraqi
security forces remain ruthless in attacking any anti-
regime elements that may attempt to exploit economic
issues. Late last year Iraq's ruling Bath Party issued
notice of severe penalties for criticism of the govern-
ment, including the death penalty for public insult of
the President, the National Assembly, or the Revolu-
tionary Command Council
j Nonetheless, continuing high casualties an
the Iraqis' extreme weariness of the war will make the
regime wary of pushing austerity too far.
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Secret
Japan: Sluggish Import
Response to Yen Appreciation
The 65-percent appreciation of the yen relative to the
US dollar over the past two years is generating only a
modest increase in Japanese imports. We believe that
a more significant increase would require an upturn in
Japan's economic growth. Even if the economy re-
bounds later this year-and without further yen
appreciation, we believe it will-the outlook for US
exporters is not bright. Rather, the changing econom-
ic relationship between Japan and other East Asian
countries will probably make them the primbene-
ficiaries of any increase in Japanese imports
The Import Response to Date
We believe that Japanese import performance last
year-imports fell 2.4 percent or $3 billion-is not an
accurate indicator of the response to the yen apprecia-
tion. Two factors clouded the picture. We estimate
that Japanese oil imports plummeted by $17 billion
last year because of falling prices. On the other hand,
the import total reflects an $8 billion purchase of
gold-$6 billion higher than usual-that was used to
mint commemorative coins for the 60th anniversary of
the Emperor's reign. Excluding fuels and gold, the
dollar value of imports increased 13 percent during
the first 10 months of 1986-a slightly brisker pace
than the concurrent rise in import volume.
Japanese import demand has varied widely by product
type. In contrast to the lackluster increase in industri-
al raw materials, consumer imports-such as fish,
fruit, leather goods, knitted goods, and furniture-
rose sharply. Moreover, according to a variety of press
reports, Japanese consumers are responding to the
advantages of a strong yen by purchasing imports by
mail order from overseas manufacturers, a small but
promising trend.
The strong showing of consumer products probably
accounts for most of the huge increase in imports
from the Asian NICs-particularly Hong Kong, Tai-
wan, and South Korea-as well as from the European
Community. During the first 10 months of 1986,
imports from these countries increased an average of
n: Imports, 1980-86
Nonfuel
and nongold
imports
45 percent. Besides being the source of inexpensive
consumer products, the NICs have benefited because
their currencies are tied to the US dollar and thus
have weakened against the yen. In contrast, nonfuel,
nongold Japanese imports from the United States-
long concentrated in raw materials and capital
goods-were virtually unchanged durin the first 10
months of 1986
Imports have not been more responsive to the yen
appreciation, partially because the stronger yen has
not automatically translated into lower retail prices
for foreign goods. Prices paid by Japanese importers
Secret
DI JEEW 87-009
27 February 1987
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Secret
Japan: Yen Import Pricesa 1985-86
100
11111111111111111
Jun Jan
1985 86
a Prices paid by Japanese importers.
exchange-rate-related savings.
have fallen by about 25 percent over the last year, but
a recent study by the Economic Planning Agency
concluded that only one-half of the price decline had
been passed to consumers by the end of 1986. Other
surveys, including two by the Japanese Government,
show a similar reluctance by wholesalers to pass on
We believe that much of the blame for the slowness of
retail prices to adjust to the drop in import prices rests
with Japan's highly inefficient distribution system.
Although there are differences among individual
products, the Japanese distribution system for import-
ed consumer goods is essentially a five-tiered arrange-
ment: a product must pass through an importer, major
distributor, regional distributor, wholesaler, and re-
tailer before it reaches the customer. This suggests
that several decisions to reduce prices must be made
before consumers see the positive effects of the high
yen. In addition, each level of the distribution chain-
which ordinarily marks up foreign products by 2 to 5
percent-probably saw the yen appreciation as an
Japan: Import Volumea 1986
a Growth from the same period in 1985.
Includes gold and fuels.
opportunity to raise profits; thus the final price cut to
the consumer was much less than the original appreci-
ation.
Sluggish Growth as the Main Culprit
Despite the effects of the distribution system, we
believe that slow economic growth in Japan is primar-
ily responsible for holding down the increase in im-
ports-a judgment that we think is made clear by
comparing the current yen appreciation with the last
one in 1977-78.' Japanese Government statistics indi-
cate that import volume increased approximately the
same amount in the two periods. But this result is
surprising because the yen has appreciated 63 percent
since mid-1985, compared with only a 40-percent
appreciation during the 1977-78 period.
' The length of the periods of yen appreciation is nearly identical-
five quarters
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The contrast is even more striking because of struc-
tural changes in the Japanese economy that should
have made import demand more responsive to appre-
ciation-induced changes in prices. Among Japanese
imports, the share accounted for by raw materials and
fuels-commodities that are basically insensitive to
changes in price-has declined, while the share of
intermediate goods-items that are more price sensi-
tive-has increased. A 1984 Bank of Japan (BOJ)
study also asserted that manufactured imports have
become increasingly responsive to changes in price in
recent years. We have not been able to verify the
BOJ's claim, but it is plausible in light of the
numerous trade packages negotiated with other gov-
ernments over the last several years that have opened
the Japanese market somewhat-a circumstance that,
in theory, should lead to additional price competition.
As such, we believe differences in economic growth
between the two periods is the only factor to explain
the dissimilar response of imports to the two apprecia-
tions. Real GNP growth during the recent apprecia-
tion is nearly 2.5 percentage points slower than during
the 1977-78 round of yen strengthening, which in turn
has held down imports. In our judgment, this diver-
gence in growth rates can be traced to two factors:
? Tokyo's tight fiscal policy. Government spending is
contributing virtually nothing to Japan's growth
this year. This contrasts with the stimulative fiscal
policy pursued by Prime Minister Fukuda's govern-
ment during the 1977-78 appreciation.
? A more export-dependent economy. Exports account
for nearly 20 percent of Japan's GNP, compared
with only 14 percent in 1977. As a result, the recent
yen appreciation-by reducing exports-has had a
stronger negative effect on economic growth.
To gauge the impact of slow growth on imports, we
ran several econometric simulations using our model
of the Japanese economy. We assumed that economic
growth during the recent appreciation followed the
same pattern as in the 1977-78 period-when growth
continued at 5 percent a year-rather than the sharp
decline that has occurred over the past several quar-
ters. We raised GNP growth by alternately increasing
the components of domestic demand-government
spending, private consumption, government
investment, or private investment. Our simulations
show that import volume would now be 5 to 10
percent higher-$6-14 billion in value-if growth had
not slowed, with the trade impact greatest when
private investment provided the stimulus
Looking Ahead
The importance of growth suggests that nonfuel im-
ports will increase further if the economy rebounds
later this year-a likely prospect unless the yen
continues to appreciate. We estimate that with an
expanding economy total imports this year could be
$15-20 billion higher than in 1986, leading to a
significant reduction in last year's record $86 billion
current account surplus. US exporters, however, prob-
ably will be able to garner only about $2 billion of this
increase. If we are correct in assuming that economic
growth will be led by consumer spending, then the
NICs will continue to be the major beneficiaries of
Japan's increased imports. This suggests that Japan's
overall trade surplus will shrink much faster than the
bilateral surplus with the United States.'
Moreover, changes occurring in the economic rela-
tionship between Japan and other East Asian coun-
tries will probably make it even more difficult for US
manufacturing firms to compete in the Japanese
market. We expect that Japanese firms will increas-
ingly invest in production facilities in the Asian NICs
as well as other East Asian countries, including
China. In contrast to Japanese production in the
United States-which is geared almost entirely to
sales in the US market-production in other East
Asian countries will increasingly come back to Japan
as imports for either sale in the Japanese domestic
market or assembly prior to export. Thus, US manu-
facturing firms will be competing against Japanese
firms that are producing less expensive goods in low-
wage Asian countries and that presumably have the
skills and business connections to market products
successfully in Japan.
2 The dollar value of Japanese exports will probably decline slowly
this year, with the fall most likely spread fairly evenly over Japan's
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Turkey: Ozal's
Economic Program
Showing Results
Prime Minister Ozal's market-oriented economic pro-
gram has cut the budget deficit and reduced govern-
ment intervention while boosting real GNP growth to
almost 8 percent last year. Unemployment has edged
higher, however, and rapid monetary growth has kept
-inflation above 30 percent. Most troubling, though,
are the jump in the current account deficit last year
and the sharp rise in Turkey's foreign debt since 1983.
Ankara's overriding needs are to achieve more bal-
anced growth, to reduce the reliance on foreign
borrowing, and to cut monetary growth. We think
recent policy actions-including higher taxes and lira
depreciation-will help achieve these objectives.
Ozal was elected in November 1983 on a platform
calling for the reinvigoration of the 1980 economic
stabilization program. Crafted by Ozal under the
conservative Demirel government, that program be-
gan Turkey's dramatic transition from an inward-
looking, state-dominated economy to one modeled
more along open and free market lines. Ozal's numer-
ous. economic policy actions since 1983 include:
? Maintaining a competitive exchange rate and allow-
ing exporters to keep a greater share of foreign
exchange earnings.
? Implementing a major tax reform and introducing a
value-added tax (VAT).
? Reducing many import restrictions, eliminating
most foreign exchange controls, and liberalizing
foreign investment rules to attract capital.
? Raising interest rates above the inflation rate.
? Taking the first steps toward privatizing at least
part of Turkey's huge public sector.
? Beginning the development of a domestic capital
Ozal's main achievements have been in reviving eco-
nomic growth, reducing the budget deficit, and laying
the groundwork for privatization. His most visible
failures have been his inability to reduce high unem-
ployment, control inflation, and boost the inflow of
foreign investment. The balance of payments also
deteriorated in 1986 following two years of improve-
ment.
Led by industrial output, real GNP growth averaged
5.5 percent in 1984-85 and reached almost 8 percent
last year. Investment is booming, recording 13-per-
cent real increases in both 1985 and 1986, and private
consumption is also strong. Loose monetary policy has
helped fuel the surge in domestic demand but has also
kept consumer price inflation above 30 percent. Mon-
etary growth (M2) approached 60 percent (December
over December) in both 1984 and 1985 and was about
40 percent last year. VAT revenue, however, has
surpassed the government's targets, helping to cut the
budget deficit from 5.2 percent of GNP in 1984 to 2.5
percent in 1985, and perhaps a bit lower last year.
Ozal has made some initial moves toward privatiza-
tion by selling revenue participation shares in state-
owned facilities such as the Bosphorus Bridge and the
Keban and Oynapinar hydroelectric dams. Last year
he pushed through parliament a bill authorizing the
sale of state economic enterprises (SEEs) and abolish-
ing the government's tobacco monopoly. According to
press reports, Ozal is enthusiastic about a privatiza-
tion study done by a US bank and plans to begin
privatizing the SEEs by selling the banking operations
of the Sumerbank conglomerate. Ozal also has revi-
talized the SEEs' financial health: their combined
market.
Secret
DI /EEW 87-009
27 February 1987
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Turkey: Selected Economic Activity, 1981-86
Real Effective Exchange Rate Real GNP Growth
Index: 1980=100 Percent
Consumer Price Inflationa
Percent
Money Supply Growth
Percent
Current Account Balance
Billion US $
Budget Deficit as a Share of GDP
Percent
i i i I i i i I i i i I i i i I i i i I i i i I -
0 1981 82 83 84 85 86 87 -5
a Change from the previous 12-month period.
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Turkey: Current Account Balance, 1980-87
-1,898
-1,407
-1,013
-1,900
-1,300
-4,603
-3,864
-2,628
-2,990
-2,942
-2,975
-3,600
-3,300
2,910
4,703
5,890
5,905
7,389
8,255
7,600
8,300
7,513
8,567
8,518
8,895
10,331
11,230
11,200
11,600
a CIA estimate.
b Before debt relief.
operating losses of $150 million in 1983 have turned
into an estimated $1.9 billion profit last year.
Government and OECD estimates put unemployment
close to 17 percent last year-up about 1 percentage
point since Ozal took office. Job creation of about 1.5
percent annually has not kept up with the increase in
the labor force. Belt-tightening at the SEEs adds to
the problem, as does the return of some of the 200,000
Turkish workers from the Middle East.
Ozal has actively promoted foreign investment, in-
cluding reducing some bureaucratic obstacles and
eliminating many barriers to repatriating foreign cap-
ital. Nonetheless, the actual inflow of foreign direct
investment has been low-only about $100 million in
both 1984 and 1985, and perhaps somewhat more last
year. The issuance of foreign investment authoriza-
tions has risen steadily, however, from $103 million in
1983 to $364 million last year, suggesting that Ozal is
gradually allaying foreign businessmen's doubts about
the Turkish economy
The current account deficit fell from $1.9 billion in
1983 to $1 billion in 1985 largely because of soaring
exports-up 25 percent in 1984 and 12 percent in
1985 in dollar terms. Industrial exports-largely tex-
tiles-accounted for much of the increase and made
up about 79 percent of total exports compared with 35
percent in 1979. Worker remittances also picked up;
net tourism earnings almost tripled in 1985 to $770
million. Last year, however, the current account
deficit jumped, perhaps as high as $1.9 billion, as
soaring domestic output boosted demand for im-
ports-especially machinery. Fear of terrorism and
ill-advised hotel price increases also hurt tourism
earnings. Meanwhile, declining sales to OPEC coun-
tries offset two-thirds of the gain from lower oil
prices, according to the Embassy.
The rise in total foreign debt-from $18 billion in
1983 to $29 billion at the end of 1986-is somewhat
less alarming than it appears. Almost $4 billion of the
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Secret
increase is owed to Turkish citizens abroad-mainly
Turkish workers in West Germany. Another $2 bil-
lion or so is due to dollar depreciation, which has
boosted the dollar value of debts denominated in
European currencies or Japanese yen.
Ankara has taken steps to achieve better economic
balance in 1987. Since November it has raised the
VAT rate to 12 percent, cut the 1987 budget by 8
percent, introduced additional incentives for exports,
boosted import surcharges slightly, and announced
incentives for privately held firms to sell shares to the
public. Most important, it accelerated the rate of lira
depreciation last year: as of January we calculate that
the real effective exchange rate of the lira was 20
percent below its year-earlier level.
Reflecting tighter fiscal policy, GNP growth probably
will slow this year to about 5 percent. Investment and
private consumption-the pillars of last year's expan-
sion-should slow by almost half, more than offset-
ting an improved contribution from the foreign trade
sector. Foreign direct investment should finally begin
to rise because of the many projects already approved.
Ozal has no chance, however, of meeting his 20-
percent inflation target for 1987; because of past
monetary growth, a rate close to 30 percent is more
likely.
We expect the current account deficit to drop below
$1.5 billion in 1987 despite higher oil prices. Exports,
tourism earnings, and worker remittances should all
benefit from the lira's huge real depreciation last
year. Tourism should also get a boost from reduced
fear of terrorism, new hotel construction, and more
realistic room rates. In addition, Ankara finally set-
tled its oil price dispute with Iran, leading to a new
trade agreement, and also agreed to reschedule some
Iraqi debts and provide a new line of credit to
Baghdad. Increased exports to these and other OPEC
countries thus will offset most of the rise in the oil bill.
The biggest challenge facing Ankara continues to be
the hump in debt service obligations that will continue
into 1989. Principal and interest payments were about
$4.1 billion last year and will rise further in 1987. In
addition to pressing the EC, bilateral donors, and the
banks, Ankara increasingly will look to the World
Bank for project loans to fund the foreign exchange
requirements of domestic infrastructure projects.
With the current account improving, we think enough
funds will be forthcoming to avoid the need to seek
another IMF standby agreement
Despite its somewhat improved economic situation,
Ankara will maintain its pressure on the United
States to increase aid and alleviate its Foreign Mili-
tary Sales (FMS) debt burden. The Turks have been
pushing for early rescheduling or refinancing of past
FMS debts and are asking that future funds be given
on a grant basis. Ankara views FMS rescheduling as a
quid pro quo for its initialing of a new Defense and
Economic Cooperation Agreement in December. US
failure to act on this issue-or to ratify last year's
bilateral investment treaty with Turkey-would be a
major political embarrassment for Ozal.
Turkey also is likely to push hard for concessions from
the EC, including release of $600 million in aid under
the Fourth Financial Protocol and the free movement
of Turkish workers between EC countries. Although
the EC recently has made attempts to improve rela-
tions with the Turks on the political level-the hold-
ing of the EC-Turkish association council meeting last
September was a significant step forward-Brussels is
unlikely to be very cooperative in meeting Turkish
demands for economic concessions. Release of the aid
is obstructed by the threat of a Greek veto, and the
Community is unwilling to allow in more Turkish
workers while it is dealing with high unemployment
and the accession of Spain and Portugal. A frustrated
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Ankara may respond by applying for full EC mem-
bership this year in an effort to force Brussels to be
more accommodating
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Briefs
Venezuela Opposes Venezuela is strongly lobbying against the adoption of a US tax on oil imports,
Possible US Oil which it warns could seriously hamper Caracas's ability to service its $35 billion
Import Tax foreign debt. According to US Embassy reporting, a paper endorsed by the
Venezuelan Government and major political parties will be presented to US
officials this week, outlining the broad damage the tax would do to the Venezuelan
economy and underscoring Caracas's reliability as a major US oil supplier. The
750,000 b/d that Venezuela supplies represents approximately 13 percent of total
US oil imports and nearly 50 percent of total Venezuelan oil exports. Government
officials argue that an import tax of $10 per barrel could lower Venezuela's export
revenues by $500 million to as much as $2 billion, depending on its export product
mix. In addition, they claim that the tax will require Venezuela to lower its oil
prices to compete in the highly competitive world market.
South Africa The South African Government has authorized the final design phase of a $2.75
To Develop billion project to develop an offshore gasfield and a gas-to-diesel-fuel conversion
Offshore Gas plant at Mossel Bay in Cape Province. The project is expected to yield 20,000 to
25,000 b/d and to help compensate for insufficient diesel fuel in the product mix of
South Africa's existing coal-to-oil plants. The Mossel Bay output will only
modestly reduce South Africa's current dependence on imported oil-which we
estimate at about 200,000 b/d or 15 percent of total energy needs-and further in-
sulate the country from the effects of any potential cutoff of oil imports. However,
Pretoria also expects that the government-financed project, which it estimates will
have an import component of only 30 percent, will provide a significant boost to
the depressed economy of the eastern Cape. Pending final Cabinet approval,
contracts will be let this year by the parastatal Southern Oil Exploration
Corporation, but Pretoria envisions eventual privatization of the project. Gas
production is scheduled to begin in 1991 and have an expected life of 29 years.
Additional Offshore Brazil's deepwater drilling efforts continue to yield positive results. According to
Oil Found press reporting, the Brazilian oil company, Petrobras, has discovered its third
in Brazil deepwater oilfield in the prolific Campos Basin. Preliminary testing indicates that
the field may contain 300-400 million barrels of reserves. Petrobras is currently
drilling in depths reaching 1,680 meters-the deepest waters drilled so far-to
determine the extent of this field, and is developing the technology to produce oil
at such water depths. In addition, new oil deposits have been discovered near
Brazil's largest deepwater oilfield, Marlin. Early indications are that oil reserves in
this field exceed 2 billion barrels.
29 Secret
DI IEEW 87-009
27 February 1987
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Secret
Burmese Resisting Despite some Western hopes of a softening Burmese attitude toward foreign
Foreign Oil investment because of a poorly performing economy,
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less, we believe that Rangoon apparently does not yet view its economic problems
as serious enough to relax the prohibition against foreign oil firms, even though
crude oil output from its aging fields is down 25 percent in the past two years and
foreign exchange reserves equal less than two weeks of imports.
Enhanced Natural Norway has announced a new gas storage program designed to enhance reliability
Gas Security in of its natural gas deliveries. In the wake of Norway's decision to sell gas from the
Western Europe Troll and Sleipner fields to continental buyers, Statoil, the Norwegian state oil
company, has signed a preliminary agreement with a private West German
company to rent natural gas storage capacity near Emden, West Germany, and is
considering the Netherlands as another potential storage site. Additional storage
capacity by 1992 was a precondition in the Troll contract, which calls for deliveries
beginning in 1993. The storage in West Germany will hold approximately 14 days'
supply or about 825 million cubic meters-as required by buyers of Troll gas-and
will be available in case of Norwegian labor disputes or other short-term supply re-
ductions. view these steps as limiting future seasonal spot
purchases of Soviet gas and thereby contributing to increased energy security in
Western Europ
Proposals for Energy ministers of Sweden, Finland, Denmark, and Norway have commissioned
Nordic Gas a study on the integration and expansion of the regional natural gas pipeline
Network network, according to US Embassy reporting. Sweden may advance its target date
to phase out nuclear power from 2010 to 1995 in response to the Chernobyl'
accident, and considers natural gas an attractive alternative. Elements of the
pipeline proposals include extension of the existing pipeline in southern Sweden,
extension of the Finnish pipeline to Sweden, a link between the Danish and
Norwegian pipelines in the North Sea, and a direct link from Norway to Sweden.
If Sweden moves to replace one-half of its nuclear power with domestic gas-fired
electricity, as proposed by the government, industry sources estimate gas demand
could increase by up to 7 billion cubic meters annually, and spur intense
competition among Soviet, Norwegian, and Danish suppliers. Sweden is already
buying Danish gas, and, if existing lines in the North Sea were linked, Sweden
could gain access to Norwegian gas. Soviet gas via Finland is iscussion, but
is more costly than gas from Denmark or Norway.
Secret
27 February 1987
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Secret
Increase in Nuclear power generation in the OECD countries increased almost 9 percent in
OECD Nuclear 1986 compared with 1985. Nuclear electricity generation now accounts for about 8
Power Output percent of total primary energy. Twelve new reactors, with a capacity of 13,400
megawatts-electric (MWe), entered commercial operation last year, and two
reactors (about 300 MWe) were retired. Nuclear power capacity in Western
Europe alone grew by 9,300 MWe, with France accounting for nearly 80 percent
of the increase. Despite increasing political opposition, nuclear capacity will
continue to grow in coming years. Of the 65 reactors under construction in the
OECD, more than one-third are in the United States. Of the 27 units being built in
Europe, those in Italy and West Germany are facing the toughest opposition-
largely as a result of the Chernobyl' accident.
OECD: Nuclear Electric Generating
Capacity and Output, 1985-86
Installed Capacity
(thousand MWe, net)
Gross Electricity Generation
(terawatt-hours) a
1985
1986
1985
1986
OECD
216.4
230.8
1,201.4
1,303.9
United States
83.6
87.2
404.0
433.6
Japan
24.7
24.7
152.0
164.8
Canada
10.3
11.8
62.9
74.5
2.4
2.4
18.8
18.8
39.9
47.2
224.0
254.2
1.3
1.3
7.0
8.7
Sweden
9.9
9.9
58.6
70.0
Switzerland
3.1
3.1
22.4
22.5
United Kingdom
12.3
12.9
59.6
59.1
West Germany
16.9
18.3
125.7
117.4
Moratorium Easing Brazilian President Sarney has temporarily regained the political initiative at
Pressure on Sarney home following the suspension of interest payments on Brasilia's debt, but he
appears to be on a collision course with foreign creditors. Polls taken over the
weekend show most Brazilians support Sarney's decision, according to press
reports, and the moratorium has quieted leftist criticism. Meanwhile, Brasilia is
sending conflicting signals to its creditors. In an official statement Monday, a key
presidential adviser said Brazil will not demand debt solutions that involve losses
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Secret
for creditors. At the same time, however, Finance Minister Funaro told reporters
Brazil will not negotiate away its growth targets and will impose unspecified
measures against foreign banks should they withdraw short-term credits. The
Central Bank President told US officials that he believes it will be impossible to
reach an agreement with the banks within 90 days and that a rescheduling of in-
terest arrears will be necessary. Brasilia apparently is still formulating the specific
debt proposals it will present to creditors next month. It probably will announce
further measures to deal with the deteriorating domestic economy but is not likely
to agree to a formal IMF program. Given the confusion and uncertainty on the
part of foreign bankers, some could begin to withdraw short-term credits soon.
Ecuador Remains Debt rescheduling negotiation s between Ecuador and commercial banks have
At Impasse With reached a standstill. uito has returned to its
Foreign Creditors hardline stance in the negotiations, requesting a retiming of interest payments and
lower interest rates. The Bank Advisory Committee met last week without
Ecuador's economic team, but failed to come up with a new proposal, insisting that
a new agreement is contingent on Quito supplying previously requested cash-flow
data. In the interim, Ecuador has failed to make January and February interest
payments totaling $80 million. Central Bank officials argue that a drawdown of
foreign exchange reserves-currently $131 million, their lowest level in recent
years-is politically unacceptable. In response to Ecuador's payments halt, several
US banks have cut short-term credit lines. Although President Febres-Cordero has
publicly discounted the possibility of a debt moratorium, growing economic and
political pressure may prompt Ecuador to take unilateral action.
Egyptian/IMF Implementation of an IMF-endorsed standby program for Egypt is now unlikely
Negotiations in for at least several more months. Negotiations between the Fund and Cairo
Holding Pattern reportedly have produced a signed letter of intent that will not be presented to the
IMF executive board until early May. A number of unresolved questions remain,
including details of exchange rate unification and a specific date for energy price
increases. President Mubarak's recent decision to call an election in April for the
People's Assembly has reduced the government's willingness to proceed with the
politically sensitive program. Moreover, Egypt's improved foreign exchange
earnings, resulting from higher oil prices, and renewed financial assistance from
the Arab Persian Gulf states probably have convinced Mubarak that he now has
more breathing space. Without agreement on a program, however, a formal debt
rescheduling cannot take place and Egypt's economic outlook will remain precari-
ous.
Japan Gives At the January meeting of the OECD Export Credit Group, most members agreed
Final Position on in principle to substantially increase discipline over tied aid credits-a major US
Export Credit Issue goal. The minimum grant element will rise to 30 percent for LDCs-50 percent
for LLDCs-in July 1987 and to 35 percent in July 1988. The proposal also
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27 February 1987
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Secret
includes a differentiated discount rate (DDR) system to better reflect the actual
cost of providing aid. The formula used calls for a 50-50 weighted average between
the market rate and the 10-percent discount rate for July 1987; in July 1988, the
formula will change to a 75-percent weight for the market rate. Japan and
Switzerland did not agree but are considering the proposal.
span is willing to raise the minimum grant element and to use a DDR sys-
tem, including the formula, for 1987 but disagrees on the 1988 formula, preferring
a two-thirds/one-third weighted average.
Meanwhile, the Swiss
are willing to agree to the proposal, provided that members will commit to
reviewing the issue of export credit interest rates in the near future.
China Proposing China's top official in Hong Kong, Xu Jiatun, has proposed that a Western
Development Study consulting firm coordinate a series of studies designed to keep Hong Kong's
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for Hong Kong economy competitive with others in the region. 25X1
u wants the studies to set guidelines for industrial modernization and 25X1
integration of new technologies, examine the curriculum at Hong Kong's universi-
ties, and plan the creation of more high-tech jobs. China is anxious to involve
British officials and local businessmen in the studies to help calm investor fears
that Hong Kong's economy is deteriorating in anticipation of the 1997 reversion to
Chinese control. In recent years, Hong Kong's electronics, textile, and other light
industries have lost business to South Korea, Taiwan, and Southeast Asia because
Hong Kong has higher production costs and has lagged technologically. 25X1
Jordanian-PLO The Jordanian-PLO committee that met last week to distribute a $9.5 million
Joint Fund Meeting Saudi contribution agreed to fund some projects on the West Bank, but the two
parties made no progress toward increased cooperation on the Middle East peace
process. PLO Chairman Arafat believes Saudi
Arabia will provide a total o about million directly to the joint fund but will
not contribute to King Hussein's separate West Bank development initiatives.
According to the Embassy, Prime Minister Rifai worries that such Saudi
donations will complicate Jordan's efforts to limit contact with the PLO. Hussein
does not want the committee to take a political role that would jeopardize his own
efforts to win Palestinian support on the West Bank. He is determined to avoid a
dialogue with Arafat until Arafat accepts UN Security Council Resolutions 242
and 338. Renewed Saudi efforts to secure a PLO-Jordanian reconciliation through
donations to the font fund, however, are likely to inflate the importance of future
meetings.
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Secret
ASEAN Reaction to The Soviet Union's increasing economic overtures to the ASEAN countries over
Soviet Economic the past year-part of Moscow's larger effort to expand its influence in the
Overtures region-so far have yielded few tangible results. Indonesia, for example, like other
ASEAN members, continues to resist agreements on economic projects, especially
ones that would involve any Soviet presence. In late 1986, for example, the Soviets
proposed a joint project for the construction of toll roads in Indonesia-a priority
project for Jakarta-but Indonesia declined the offer.
the Soviet initiatives are designed to divide member
countries. While we are not certain this perception reflects Moscow's primary
intent, we believe it is indicative of the distrust ASEAN members have of the Sovi-
ets. If other ASEAN officials believe they are being manipulated, Moscow's
initiatives may backfire
Brazilian Despite official denials to the US Embassy, the Brazilian firm ABC XTAL is
Firm To Sell about to complete a sale of indigenously produced optical fiber to the Soviet
Fiber Optics to Union. Brazilian press accounts peg the deal at $17 million and claim that it
Soviet Union results from ABC's participation in a 1985 Brazilian trade exposition in Moscow.
The deal may require approval under US export regulations because ABC XTAL
uses US-origin production equipment. The Soviets may well propose a counter-
trade arrangement, but the Brazilians may insist on payment in hard currency. In
any case, the Soviets are likely to follow through with the deal because the
Brazilian firm probably is offering a better price than the Soviets would receive
from US, Japanese, or European manufacturers. Additionally, Moscow would
benefit from closer economic relations with a non-COCOM member as a source of
high technology
Cuban-Nigerian Cuba reportedly is seeking to increase bilateral trade with Nigeria
Trade Initiatives he Cuban Ministry of Foreign Trade is making arrangements
to extend the tour of duty of the Cuban trade official based in Lagos by at least six
months. The extension suggests that Havana sees special merit in increasing trade
with Nigeria at a time when the Foreign Trade Ministry is substantially curtailing
its overseas operations and recalling trade officials because of budgetary con-
straints. Trade between Cuba and Nigeria has been negligible despite a 1981
bilateral economic cooperation accord and a 1984 agreement on fishing, sugar, and
livestock development. Cuba plans to
build a new pesticide plant, a prefabricated ousing plant, and a fertilizer plant in
Nigeria. Diplomatic relations between the two countries have been proper but not
close, and Nigeria has not considered Cuba an important ally because of its limited
ability to help with Nigeria's economic problems. In our judgment, Havana sees an
opportunity to improve trade with Nigeria at a time when the low hard currency
reserves of both countries make barter or countertrade agreements more attrac-
tive.
Secret
27 February 1987
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Setback in Japanese
Supercomputer
Marketing
lack of currently available applications software for the NEC machine.
availability of software compatible with their machines.
the problems facing Japanese supercomputer suppliers. Now that the Japanese can
produce competitive hardware, they must bolster their own software offerings, as
well as attract the attention of independent supercomputer software developers.
NEC may turn to foreign suppliers of supercomputer software to increase the
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27 February 1987
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Secret
Australia's
Current Account
Gap Widens
the election that must be held by April 1988.
Australia's $860 million January current account deficit-more than double the
shortfall registered in December-resulted largely from an 18-percent drop in
export earnings, according to the US Embassy. This performance reverses two
consecutive monthly improvements and indicates that Australia's two-year eco-
nomic slide has not bottomed out. The latest trade figures will probably increase
pressure on Prime Minister Hawke-especially from the hard-pressed business
and farming communities-to take stronger actions to make Australia's high-cost
exports more competitive, including holding down labor costs. In our judgment,
Hawke will face considerable resistance from trade unions and from within his
own Labor Party to any measures aimed at capping wages, especially with the
annual inflation rate now on the order of 10 percent. Hawke may temporarily
dodge the political fallout from the latest current account figures as the opposition
coalition remains divided over leadership and tax issues, but, in the absence of any
improvement, the dismal economy will be the toughest issue he has to address in
New Zealand's Prime Minister Lange's party will probably face elections this September with a
Election Year troubled economy. Interest rates climbed above 25 percent in February and
Economy Bleak inflation-which reached 18 percent in 1986-was the second highest among
industrialized nations. In addition, the New Zealand dollar has fallen against the
Japanese yen-increasing the cost of machinery and automotive products from
New Zealand's largest supplier-while rising against both the US and Australian
dollars, depressing exports to its largest foreign markets. The US Embassy reports
that the number of unemployed-already the highest in nearly 50 years-will
almost certainly continue to increase, and, in our judgment, cost Lange votes.
Government plans to privatize several public agencies in April will affect one-third
of all public employees, many from key rural electorates. Lange has ruled out any
last-minute pump priming because of Wellington's $3.4 billion budget deficit in
1986-up 16 percent from the previous year-and a more than $16 billion foreign
debt equal to more than 60 percent of national output
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Colombian Trade Bogota is beginning to adjust its trade policies for fear that declining world coffee
Policy Changes prices may bring a sudden halt to its current economic boom-possibly before the
end of 1987. The government hopes to stimulate new exports by offering incentive
payments through its Export Promotion Fund to exporters of nontraditional goods.
At the same time, the Barco administration has decided to hold imports at current
levels-$345 million per month-rather than allow them to rise to $380 million as
previously contemplated. Further adjustments may be necessary. The Finance
Minister recently told the local press he now expects coffee prices to drop to as low
as $1.16 per pound, instead of the $1.30 rate previously projected. He predicted,
however, that this decline will be partially offset by increased exports of petroleum,
coal, and nontraditional products.
Zimbabwe Facing Zimbabwean bank and university studies forecast that foreign exchange shortages
Economic Contraction will cut economic growth from 1.3 percent in 1986 to a negative 3 percent in 1987,
in 1987 according to the US Embassy. Reacting to an increase in the debt service ratio, the
government reduced foreign exchange allocations to private businesses by 38
percent at the beginning of 1987. Debt service will consume about one-third of ex-
port earnings during 1987 and 1988, according to Finance Minister Chidzero.
Foreign exchange shortages also stem from rising transport costs for imports, an
increase in outflows of profits and dividends in 1986, and growing costs of
maintaining more than 5,000 troops in neighboring Mozambique to battle the
insurgency there.
New Rupiah President Soeharto is consider- 25X1
Devaluation by ing e valuing the rupiah by up to 30 percent soon after the parliamentary elections
Indonesia Possible in April because of government forecasts that budget revenues will be only half of
the target level. This would be the second major currency realignment in eight
months and, in our judgment, would underscore the depth of Indonesia's economic
crisis. Last September Jakarta devalued by 31 percent against the US dollar. 25X1
Soeharto apparently is concerned that deficit spending would 25X1
unsettle oreign creditors and believes that another devaluation is the only way to
generate additional revenues needed to avoid more budget cuts. In our view,
however, without a sharp and sustained rise in oil prices, Jakarta's domestic and
external financing needs can only be eased through additional budget cuts or a for-
_ -
eign debt rescheduling. On the latter score,F
1 25X1
rade Minister Saleh believes that some limited form of 25X1
commercial debt rescheduling will be necessary this year because recent large
infusions of bilateral and multilateral aid are not sufficient to meet Indonesia's
budgetary requirements. 25X1
37 Secret
27 February 1987
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500170007-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500170007-4
Secret
Indonesian Economic 1 Ithe sharp decline in
Policy Infighting government oil revenues is exacerbating the longstanding feud between the
economic reformist "technocrats" and the group of younger engineers and
scientists-the so-called protectionists-aligned with State Minister for Research
and Technology B. J. Habibe. The technocrats, whose policies have been
responsible for much of Indonesia's economic growth over the past two decades,
are concerned that the protectionists will succeed in diverting scarce government
resources away from regional development projects toward expensive, high-tech
endeavors ill suited for Indonesia's depressed economy. a
recent presidential ruling, exempting high-tech ventures from various import
controls, seems to indicate that the protectionist's influence in economic policy-
making is increasing. In the absence of a sustained recovery in world oil markets, a
diminution of the technocrats' role in economic policymaking could jeopardize
Jakarta's reputation with foreign creditors who have been hoping that the
technocrats will succeed in promoting additional trade liberalization policies.
Bulgaria's Limited Bulgaria has reported a sharp economic recovery in 1986 and says that it met or
Economic Recovery exceeded most plan targets. Senior leaders secretly berated economic officials
during the year, nd a number of economic
officials, including the entire senior management o t e chemical industry, were
fired for mismanagement. While we estimate 2-percent Bulgarian economic
growth, following a nearly 1-percent decline in 1985, the rebound was due largely
to good weather that boosted agricultural output. Industrial growth showed only
slight improvement and hard currency trade registered a $900 million deficit after
several years of surplus. Trade problems and shortfalls in investment are
hampering the critical economic modernization drive. Sofia probably put the best
face on 1986 statistics, hoping to stave off renewed Soviet criticism and gain time
to experiment with its own brand of limited economic reform. The Bulgarians are
also eager to impress the West in an effort to attract joint ventures and enhance
Bulgaria's bid for GATT membership.
Expulsions Cripple The 1986 expulsion of seven key North Korean diplomats from West Berlin has se-
North Korean Illegal riously impaired the North's ability to conduct illegal trade with Western Europe,
Trade Channels in and could adversely affect legal trade there as well,
Western Europe The diplomats, from P'yongyang's East Berlin Embassy, were expelled from West
Berlin by order of the Allied Command for illicit arms transactions-diverting
Hughes helicopters and spare parts to North Korea. Until the expulsions, West
Berlin has been, the hub of North Korea's illicit trade
with Western firms. Since then, the combination of a reported December 1986
P'yongyang directive prohibiting their diplomats from entering West Berlin, the
hesitation of Western businessmen to travel to East Berlin, and the heightened
scrutiny by the Allied Command has, at least for the near term, left the North few
options for continued illegal trade with Western Europe. P'yongyang is considering
using Vienna as an alternative, probably for arms transfers and acquisitions of
Western technology
Secret
27 February 1987
25X1
25X1
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500170007-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500170007-4
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500170007-4
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500170007-4
Secret
Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/03/07: CIA-RDP88-00798R000500170007-4