(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88-00798R000100130007-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 51
• Document Creation Date: January 12, 2017
• Document Release Date: September 1, 2010
• Sequence Number: 7
• Publication Date: June 21, 1985
• Content Type: REPORT

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Intelligence 25X1
Weekly
International
Economic & Energy
DI JEEW 85-025
21 June 1985
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International
Economic & Energy Weekly
iii Synopsis
1 Perspective-Brazil: Adjustment Progress in Jeopardy
ALA
3 Brazil: Sarney's Difficult Economic Task
ALA
7 Nigeria: Surviving Without the IMF
ALA
13 Kuwait: Coping With Recession
NESA
19 Caribbean Windward Islands: Intractable Economic Problems
ALA
Energy
International Finance
Global and Regional Developments
National Developments
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Comments and queries regarding this publication are welcome. They may be
directed to Directorate of Intelligence,
Secret
DI IEEW 85-025
21 June 1985
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International
Economic & Energy Weekly
Synopsis
1 Perspective-Brazil: Adjustment Progress in Jeopardy
Brazil's transition from military to civilian rule is occurring at a crucial time
for the country's economy. Brazil's responses to its economic challenges will
also have major implications for financial prospects for the other Latin
American countries struggling with debt problems.
3 Brazil: Sarney's Difficult Economic Task
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President Jose Sarney's attempts to consolidate his position as Brazil's new
national leader portend a more gradual economic stabilization effort than
might have been expected under the highly popular Tancredo Neves~25X1
7 Nigeria: Surviving Without the IMF
Nigeria stands out among major LDC debtors for its refusal to accept an
IMF-sponsored adjustment program. Instead, Lagos has adopted a unilateral
program of economic survival. Nevertheless, the pressures of economic
stagnation likely will compel whoever rules in Lagos to seek an agreement
before the end of 1986
13 Kuwait: Coping With Recession
Kuwait's economy is reeling from the sharp drop in oil revenues, the effect of
the 1982 stock market crash and the disruptive effects of the Iran-Iraq war.
Although the recession has not seriously hurt most Kuwaitis, the public and
the new National Assembly are increasingly critical of government efforts to
deal with the situation.
19 Caribbean Windward Islands: Intractable Economic Problems
The economies of Dominica, St. Lucia, and St. Vincent and The Grenadines
have yet to fully recover from natural disasters in 1979-80 and the global
recession. We believe they will require generous infusions of aid indefinately.
Secret
DI /EEW 85-025
21 June 1985
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International
Economic & Energy Weekly
Perspective Brazil: Adjustment Progress in Jeopardy
Brazil's transition from military to civilian rule is occurring at a crucial time
for the country's economy. The new government's hopes for easing its huge
debt burden suffered several setbacks early this year. In February, the IMF
suspended support for Brazil because of the previous military government's
failure to comply with monetary targets. Consequently, foreign banks post-
poned completion of a multiyear rescheduling of $45 billion in debts maturing
over the next six years.
We believe the recent deterioration in Brazil's economic performance has
dimmed prospects for a quick reconciliation with international creditors.
Brazil's large trade surplus has dwindled this year largely because of shrinking25X1
US demand. Meanwhile, inflation surged to a record high of 280 percent at an
annual rate in the first quarter. Lower inflation in April and May stems
Although we judge that
economic performance is not of crisis proportions it does hi hli ht the
continuing vulnerabilities' in Brazil's economy.
Implementing the thoroughgoing reforms needed to stabilize the economy is
proving difficult for the new civilian administration of President Sarney. Since
the government was installed in March, it has had to contend with rising
demands by Brazilian interest groups and the general population for better
living conditions. Labor sees opportunities to recoup some of the large real
wage losses incurred in recent years. Unions have staged many strikes and
work stoppages to demand major wage increases and shorter hours. Also,
many left-of-center politicians in the new ruling coalition find themselves in
position to influence policy for the first time in 21 years and are pushing an ar-
ray of new publicly funded social programs.0
Largely because Sarney is a relatively little known and inexperienced national
leader with a small political base, it is difficult to predict the direction and con-
tent of the administration's future policies. We believe it is most likely that
Brasilia will adopt additional adjustment measures to lessen domestic and
external imbalances and gradually succeed in strengthening both its interna-
tional financial position and its long-term prospects for sustained growth. On
the downside, we believe there is some risk that the new government will
succumb to the lure of populist policies aimed at rapid increases in economic
growth and consumption. That option probably would lead to an acceleration
of inflation, a renewed foreign exchange crisis, and a sharp economic downturn
later in the 1980s. Brazil's responses to its economic challenges also will have
major implications for financial prospects for the other Latin American
countries struggling with debt problems.F____1
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Brazil: Sarney's Difficult
Economic Task
President Jose Sarney's attempts to consolidate his
position as Brazil's new national leader portend a
more gradual economic stabilization effort than
might have been expected under the highly popular
Tancredo Neves. While publicly embracing
Neves's commitment to slow Brazil's inflation,
strengthen its external accounts, and reschedule its
debts, Sarney is moving cautiously in the face of
the often conflicting pressures from ideologically
disparate groups within his administration and the
Congress. With his as-yet-small independent politi-
cal base, Sarney will not easily be able to deflect
pressures to ease austerity-particularly. if progress
on inflation or dealings with foreign creditors lag.
Sarney's Constraints
Sarney's room for maneuver in pushing stabiliza-
tion is constrained by his tenuous political position.
He is mistrusted by Neves's Brazilian Democratic
Movement Party (PMDB)-the senior partner of
the alliance that elected the Neves-Sarney ticket-
because of his previous affiliation with military-
backed political parties. Sarney's highest priority,
is to consoli-
ate his standing with Neves's alliance.
He has substantially
increased the influence of Planning Minister
Sayad, a favorite of the PMDB left of center, to
rival that of the monetarist Finance Minister Dor-
nelles, Neves's intended economic czar. In,addition,
Sarney has indicated he will seek approval for
major decisions from the Brazilian Congress, in
which the PMDB has the largest representation.
Moreover, the relatively unknown President has
little popular backing on which to draw for support
of tough adjustment measures. According to the
US Embassy, he is widely viewed as an accidental
president. It is unlikely he will be able to fashion
the sort of social pact among business, labor, and
government that figured prominently in Neves's
strategy to defuse inflation.
An Early Cautious Approach
Sarney made few major economic policy pro-
nouncements during his initial months in office,
preferring to concentrate on political issues such as
direct presidential elections and party reforms. As
a result, the economic initiatives taken to date have
not provided a clear statement of the administra-
tion's strategy or commitment to stabilization. Al- 25X1
though the President supported the tough austerity
measures announced by Dornelles in March-in-
cluding a 10-percent cut in Treasury spending, a
two-month halt in new federal lending, a freeze in
government hiring, and a reinstitution of wide-
spread price controls-his administration an-
nounced in May a $2.6 billion emergency social
program, which had been proposed by Sayad.
The new government also took a conciliatory posi-
tion in its approach to labor relations. Last month,
Sarney doubled the minimum salary that, although 25X1
far less than what labor wanted, the US Embassy 2 DA I
reports will provide a 6-percent real wage increase 25X1
for lower pay scale Brazilian workers, the first in
several years. Furthermore, Sarney reacted to a
wave of strikes during April and May with prom-
ises to respect the right to strike and not to
intervene in labor affairs so long as excessive
violence is averted. Many workers won more fre-
quent wage adjustments and shorter workweeks.
Contributing to the tentativeness that so far has
characterized the new government's economic poli-
cies have been the conflicting views of Sarney's two
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principal economic advisers, now struggling for
preeminence in policymaking. Dornelles attaches
top priority to a vigorous anti-inflation campaign
while Sayad believes that social programs to help
the poor are more urgent. For now, both wield
considerable influence. The new emergency spend-
ing program is testimony to Sayad's important role
in policy formulation. Dornelles,
has lately impressed the
new President with his competence and particularly
his success in lowering Brazil's monthly inflation
from 12.7 percent in March to less than 8 percent
in April and May through price controls and
monetary restraint.
Prospect for Gradual Stabilization
In the face of the difficult economic decisions he
will face in the coming months, we believe Sarney
will uphold Neves's commitment to stabilization
but probably will stretch it out over several years.
The press has reported Sarney's personal conserva-
tive views and his appreciation of the potentially
dangerous effects of inflation. We believe, never-
theless, he will be willing to compromise with the
PMDB leadership over various social spending
proposals and growth-oriented programs in order to
maintain its political cooperation.
Sarney is convinced it is
better to take social measures now, even at the cost
of blunting the stabilization drive, to prevent great-
er leftist influence later.
The vigor of the new administration's economic
stabilization campaign this year probably will de-
Dornelles will look increasingly to
fiscal and monetary restraints to slow inflation and
will attempt to use the results to persuade the IMF
to renew its support and creditor banks to complete
a multiyear debt rescheduling. In that regard, we
believe a major task for Dornelles will be to
marshal support for austerity from an increasingly
assertive Congress. Because of pressures from the
PMDB left, Dornelles probably will have to show
some early success in controlling inflation and in
negotiating favorable pacts with international cred-
itors in order to maintain his key policy role.
We believe Dornelles' policies stand a good chance
of holding down 1985 inflation close to last year's
224-percent level without jeopardizing economic
growth. Although the much smaller price increases
of the past two months will probably not continue
after price controls are eased in July, they may
have some effect on inflationary expectations and
will reduce the large inflation-indexed debt compo-
nent of the public deficit. Also in our view:
? The administration should find enough support in
Congress for further cuts in the nonindexed ele-
ments of the deficit.
? Private industry employers will resist labor de-
mands for major real wage increases.
? A smaller trade surplus this year than last should
make it easier for monetary authorities to contain
money growth.
At the same time, we believe that the current
recovery will be sustained sufficiently this year to
permit 3- to 4-percent GDP growth. Although
exports will not serve as a major engine of growth
as they did in 1984, we expect a rise in domestic
demand for manufactured goods and a good agri-
cultural year.
After a slow start in the first quarter, the trade
balance has been improving steadily as a result of
the government's aggressive devaluations and in-
creased export credit. Moreover, the subsiding val-
ue of the US dollar-to which the cruziero is tied-
has enhanced Brazilian competitiveness in Europe-
an and Japanese markets. Nevertheless, the eco-
nomic slowdown in the United States, Brazil's
largest market, will limit Brazil's trade prospects.
On balance, we estimate that a $1 billion drop in
industrial exports to $26 billion together with an
equivalent rise in imports will net Brazil an $11
billion trade surplus in 1985. Although some $2
billion less than last year's total, it probably will
cover the country's scheduled net interest pay-
ments.
The Sarney administration,
will insist on small additional concessions
roernational creditors to distinguish its poli-
cies from those of the military regime and probably
will conclude new agreements, in our view, only
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after long and tedious negotiations. The task before
Brazil and the IMF of bridging their differences on
inflation and public. deficit targets will be especially
difficult. While Dornelles insists that the IMF will
have to accept more realistic targets if its relations
with Brazil are to be restored, the Fund expects a
more determined effort to complete tough adjust-
ment measures than Brasilia has previously shown.
The constructive meeting held in May between
Dornelles and IMF Managing Director DeLaro-
siere and the personal bond that may have been
established between the two
Meanwhile,
ay face itate an eventua
Dornelles is satisfied with the basic multiyear debt
rescheduling worked out by the military govern-
ment with foreign banks, but will demand some
additional small advantage for Brazil so that it can
be packaged as a new and better Sarney adminis-
tration agreement. The most contentious issues to
be resolved probably will be the establishment of an
acceptable monitoring mechanism for economic
adjustment progress during the rescheduling peri-
od Foreign bankers
have agreed to negotiate rescheduling terms con-
currently with the IMF talks, but with the under-
standing that a signed IMF accord will be a
prerequisite
Risk of Losing Control
We believe there is a small but potentially serious
possibility that Sarney might stray from this bal-
anced economic and social stabilization approach.
Sarney may yield to the pressures of the left
wit m the alliance in order to enhance his own
political standing. Influential members of this
group advocate relax-
ation of restraints on monetary growth and public
spending and a more confrontational stand against
creditor banks. These policies could contribute to a
leap in inflation to the 300- to 500-percent range,
severe balance-of-payments deterioration, and a
new international financial crisis. Alternatively, an
effort by the new President to push a rigorous
austerity program without regard to the social costs
might antagonize both his- PMDB backers and the
public at large. This could precipitate a strong
popular movement for early direct elections, ren-
dering Sarney a lameduck president and an ineffec-
tual national leader.
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Nigeria: Surviving Without
the IMF
Nigeria stands out among major LDC debtors for
its refusal to accept an IMF-sponsored adjustment
program. Although an agreement would substan-
tially ease its cash-flow problems-servicing Ni-
geria's $23 billion external debt requires more than
40 percent of export earnings-the 18-month-old
military government, led by Major General Buhari,
has rejected certain IMF preconditions, including a
devaluation. Instead, Lagos has adopted a unilater-
al program of economic survival that requires sharp
reductions in government expenditures and im-
ports. If the present regime is not overthrown, it
probably can avoid coming to terms with the IMF
for another 12 months if the oil market stabilizes.
Nevertheless, the pressures of economic stagnation
are likely to compel whoever rules in Lagos to seek
an agreement before the end of 1986.
Negotiations With the IMF
Nigeria has faced a critical foreign payments prob-
lem for over four years. Since 1981, imports have
been cut 50 percent, foreign exchange reserves have
declined by more than 80 percent, and trade debt
arrears have risen to about $9 billion. Nigeria's
current cash-flow bind arises from three
developments:
? Oil exports-more than 95 percent of foreign
exchange earnings-fell from $25 billion in 1980
to about $11 billion in 1984.
? A repayment bulge on medium- and long-term
debt incurred in the late 1970s is pushing amorti-
zation on this debt from less than $500 million in
1982 to a projected $3.5 billion in 1987.
With Nigeria's debt service ratio projected to rise
from 40 percent in 1985 to more than 60 percent in
1987, an agreement with the IMF could provide
timely relief by:
? Enabling Nigeria to borrow about $3 billion from
the IMF and World Bank over a three-year
period.
? Facilitating the rescheduling of Nigeria's
medium- and long-term debt to commercial
banks, for which an IMF agreement is generally
a prerequisite.
? Allowing the rescheduling of guaranteed trade
debt. Western export credit agencies-organized
under the Paris Club-formally have refused to
reschedule without an IMF agreement.
Negotiations between the Buhari government and
the Fund have been deadlocked over Nigeria's
rejection of the IMF's recommendation of a major
devaluation of the naira, elimination of petroleum
subsidies, and trade liberalization. The devaluation
issue presents the greatest obstacle. With the black-
market rate at about one-fourth the official rate of
$1.11, the IMF has suggested a 60-percent devalu-
ation to restore export competitiveness and induce
import substitution.
Lagos argues that a large devaluation would do
little to improve its foreign payments position be-
cause its major export-oil-is priced in dollars.
Furthermore, development of new exports might
take several years, while Nigeria's situation de-
mands short-term assistance. Lagos also notes that
its demand for imports, including food, is highly
inelastic: Nigeria still would have to import about
the same volume of goods even at much higher
prices. Food consumption already is inadequate,
and domestic production could not be increased
? Fulfillment of an April 1984 agreement with
commercial creditors to reschedule about $6 bil-
lion in arrears on uninsured trade debt will
impose heavy short-term foreign exchange
requirements
rapidly.
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Nigeria's Financial Deterioration, 1980-84
t
the current account balance
deteriorated .. .
I
and accumulating trade
arrears ".
These objections, however, are secondary to Bu-
hari's fear of the destabilizing political effects of a
major devaluation. Government spokesmen have
consistently denounced the IMF program as a
prescription for upheaval because it would sharply
increase prices for food and other basic commod-
ities. Buhari has stated, "We don't want to have ...
the riots that seem to signify the arrival of the IMF
in most developing countries."
Buhari's Economic Program
Contrary to the expectations of many Western
bankers and economists, Nigeria has managed to
survive since 1983 without an IMF program
through a combination of economic austerity,
gamesmanship with creditors, increased oil produc-
tion, and, most recently, countertrade. The strate-
gy, however, offers no prospect of renewed growth
and merely places the economy in a holding pattern
until the debt service peak in 1987, after which,
Buhari claims, "the pressures will ease." The gov-
ernment's unspoken assumption is that key interest
groups-such as the military, trade unions, and
students-can endure economic stagnation more
easily than the sharp and immediate price hikes
that an IMF accord would require.
The draconian austerity program implemented in
1984 reduced Nigeria's current account and budget
deficits significantly, but at the cost of diminished
economic activity. Through a stringent foreign
exchange allocation system, Nigeria cut its import
bill in half between 1981 and 1984. The import
squeeze helped lower the current account deficit by
90 percent to less than $1 billion. This year the
government replaced foreign exchange controls
with an even stricter universal import licensing
scheme, but we believe Nigeria will import about
the same amount of goods as last year.
Lagos has privately budgeted
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Nigeria: Economic Indicators, 1980-84
for supplementary imports after concluding that
further reductions were not feasible. Nigeria's im-
port strategy heavily favors basic commodities and
agricultural inputs. Although the trade restrictions
fueled overall inflation-consumer prices rose 40
percent in 1984-US Embassy reporting indicates
that politically sensitive food prices have stabilized
over the last 12 months
Despite a stagnation in revenues, Lagos halved its
1984 budget deficit to less than 5 percent of GDP
through cuts in payroll costs, capital expenditures,
and transfers to state governments. Although bud-
get and trade policies have significantly slowed
Nigeria's financial deterioration, they have also
brought about a third straight year of negative
economic growth. The IMF estimates that nonagri-
cultural industries are operating at less than 40-
percent capacity due to shortages in imported
inputs and reduced demand. As a result, unemploy-
receiving lowest priority.
ment climbed steadily in 1984.
Buhari's go-it-alone strategy does not allow Nigeria
to meet its debt obligations. Although Lagos thus
far has honored its medium- and long-term debt on
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schedule, it has not serviced the short-term debt.
10 According to'the US Embassy, budgeting for 1985
debt service was based solely on projections of what
0 1980 81
1 82N 83 84 Nigeria could afford, with arrears on trade debt
Nigeria has slipped far behind on its April 1984
pledge to reschedule $6 billion in uninsured trade
arrears. Lagos has rescheduled only $329 million of
these debts and regularly fails to meet its public
commitments to trade creditors. Earlier this year
the Central Bank promised to reschedule $2.2
billion in arrears by the end of June, but 25X1
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covered and do not expect rescheduling to be
completed before 1986.F] 25X1
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In the near term, therefore, Nigeria will continue to
lag on all trade debt rescheduling to ease its cash-
flow position because the cost of such intransi-
gence-reduced levels of credit-is moderated by
the desire of both official and commercial creditors
to retain their market share in Nigeria. Although
effectively barred from new medium- and long-
term loans, Lagos still can meet its short-term
borrowing requirements. In the absence of a credi-
ble threat to cut off short-term credit, we believe
Nigeria has little incentive to alter its current
policy on trade arrears.
Boosting Oil Exports
Buhari has sought desperately to boost oil exports.
Nigeria's ability to produce above its official OPEC
quota of 1.3 million b/d is crucial-each additional
100,000 b/d is worth about $1 billion over 12
months. Nigeria began its export drive last year,
when it secured OPEC's acquiescence to "tempor-
arily" increase its quota to 1.45 million b/d.
Nigerian production remained below this ceiling,
however, until Lagos cut its official price $2 per
barrel last October. Since then, Nigerian produc-
tion has averaged about 1.6 million b/d. Even
assuming the 300,000 b/d in overproduction car-
ried some discounts from official prices, we esti-
mate Nigeria has reaped an additional $2 billion by
ignoring OPEC price and production guidelines.
has accommodated Nigerian overproduction.
Buhari's oil policy has succeeded because OPEC
has not established measures that would effectively
penalize Nigerian transgressions. Last year's cre-
ation of an OPEC Ministerial Executive Council
charged with monitoring members' production
failed to deter overproduction. Nigeria, in fact, sits
on the five-member council and issues periodic
statements lamenting OPEC's lack of discipline.
Beyond the absence of effective sanctions, Saudi
Arabia's past willingness to reduce output actually
Recent developments in the oil market, however,
threaten Nigeria's efforts to boost export earnings.
Overproduction by most other OPEC members,
rising non-OPEC production, and flat worldwide
demand have helped drive spot prices for Nigerian
crude $2 per barrel below the official price of
$28.65/bbl. At 1.6 million b/d, a change of $1 per
barrel is worth about $600 million annually. More-
over, the British National Oil Corporation an-
nounced earlier this month that it would pay
suppliers only $26.65/bbl for Brent North Sea
crude-which competes directly with Nigerian
crude. When Nigeria matched the British price cut
of October 1984, Lagos announced its intention not
to be undersold. Although Nigeria responded to the
latest British price cut announcement by vowing to
support OPEC's official price structure, in our
judgment, Lagos will not honor this commitment if
it results in a significant decline in sales.
Flourishing Countertrade
The scramble for customers in a weak oil market
has spurred Nigeria's pursuit of countertrade
agreements-bartering oil for food, raw materials,
and other basic imports. The US Embassy reports
that Lagos already has concluded $1.6 billion in
countertrade deals covering 160,000 b/d in output,
and is negotiating at least $2 billion in additional
agreements. According to US Embassy reporting,
Buhari sees countertrade as an important tool for
securing long-term sales agreements despite its
drawbacks of inefficiency, product limitation, and
vulnerability to overpricing by suppliers. Lagos
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probably believes that countertrade also protects
Nigeria from potential threats by creditors to cut
off trade financing. At a minimum, unresolved
trade arrears have not prevented official credi-
tors-such as France, Italy, and Austria-from
concluding countertrade agreements with Nigeria.
Fulfillment of countertrade goals could secure mar-
kets for about 400,000 b/d of oil if market condi-
tions improve. To be beneficial, however, such deals
must create new customers rather than merely
displace existing sales. In our judgment, counter-
trade probably has helped Lagos maintain its
above-quota production, but has not effected an
overall increase in output. Moreover, a continued
decline in spot oil prices could undermine existing
agreements, which were struck at fixed prices.
Although Nigeria's countertrade partners probably
create an implicit discount by overpricing their
products, a widening gap between contract and spot
prices would make such deals uneconomic.
Buhari's strategy of austerity, debt rescheduling
delays, higher oil production, and countertrade
requires, in our view, a firming of the oil market to
enable Nigeria to survive another 12 months with-
out the IMF. A decline in oil revenues below the
1984 level probably would create unsustainable
foreign payments pressures requiring either a de
facto default on some debt obligations or further
reductions in imports. Faced with such options,
whoever rules in Nigeria probably would be forced
to seek an IMF agreement.
Even with a favorable oil market, however, Bu-
hari's program makes no provisions for economic
growth. Implementation of the structural adjust-
ments necessary to restore growth would require
new loans, and Nigeria's ability to reenter the long-
term credit market hinges on an IMF agreement.
The regime has endured the short-term costs of
rejecting the IMF, but eventually must reverse
Nigeria's decline in income, employment, and man-
ufacturing. As the pressures of economic stagnation
mount, we believe Nigeria will have little alterna-
tive to reaching accommodation with the Fund.
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Kuwait:
Coping With Recession
Kuwait's economy is reeling from the sharp drop in
oil revenues, the effect of the 1982 stock market
crash, and the disruptive effects of the Iran-Iraq
war. Although the recession has not seriously hurt
most Kuwaitis, the public and the new National
Assembly are increasingly critical of government
efforts to deal with the situation. While some
austerity has been undertaken, there is little public
support for the hard-hitting measures needed to
revitalize the economy. The attempt to assassinate
the Amir on 25 May, however, is likely to increase
public support for the ruling family and temporar-
ily deflect attention from the economy. Barring a
sharp drop in oil prices, Kuwait's leaders probably
will muddle through and avoid serious threats to
the regime by using the country's huge financial
reserves to bail out failing companies and shield the
population from the brunt of the economic prob-
lems.
Anatomy of a Recession
Since 1982, real nonoil GDP has stagnated com-
pared with a 9 percent annual growth rate during
the period 1975-80. Oil revenues-which account
for roughly 80 percent of total export earnings-
have fallen by half since 1979. Crude exports
dropped last year to about 1 million b/d, compared
with 2.4 million b/d in 1979. Several major cus-
tomers-including Japan, Taiwan, and South Ko-
rea-who in the past purchased about two-thirds of
Kuwait's crude oil exports, are now reluctant to
The Iran-Iraq war is also cutting into foreign
revenues. Prior to the war, reexports and shipping
from Kuwait to Iran and Iraq brought more than
$900 million annually into the Kuwaiti economy.
Virtually all such shipments to Iran have stopped,
and Iraq's financial troubles have resulted in an 85-
percent drop in reexports to that market. In addi-
tion, attacks on Persian Gulf shipping have raised
costs and inhibited maritime traffic in the region.
Moreover, since 1980, Kuwait has contributed at
least $8 billion in oil and cash to Iraq's war effort.
The economy still suffers from the effects of the
1982 collapse of the unofficial stock market (souk
al-manakh). When the speculative bubble burst,
nearly 6,000 investors saw their financial positions
crumble. Banks were faced with huge writeoffs
because of the liquidity crunch suffered by many
borrowers and the plummeting value of collateral-
mainly securities and land. Real estate firms were
hard hit by the drop in property values and the
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Many firms were unable to meet their financial
obligations, and, as opportunities for domestic in-
vestment dried up, capital flight increased.
The government responded to the drop in its reve-
nues with a series of austerity measures. Overall
expenditures leveled off after several years of rapid
growth; development and construction spending
dropped sharply, and foreign aid was slashed.
Under fire from the National Assembly for a vast
welfare system viewed as promoting wasteful con-
sumption, the government doubled fuel prices,
abandoned free school meals, and began assessing
fees for some health services. The government,
however, maintained defense spending at about 25X1
$1 billion annually because of the threat posed by
the Iran-Iraq war.
The government also attempted to prop up the
value of shares on the official stock market and
intervened to rescue failing companies. The govern-
ment soon became the majority shareholder in
more than half of the firms on the official stock
market, prompting protests over what was seen as
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Kuwait: Current Account, 1980-85
Trade balance
13.4
9.0
2.6
4.7
4.9
4.5
Exports (f.o.b.)
20.2
15.7
10.4
11.6
12.4
12.0
Oil
18.7
13.7
8.2
9.2
10.0
10.0
a Estimated.
b Projected.
wholesale nationalization. In April 1984 Kuwaiti
officials announced a comprehensive package that
included injecting $1.7 billion into the economy
through investment companies to help liquidate
traders' debts. Protectionist measures were also
introduced-such as giving priority to local firms in
contract awards-to revive the local economy.
These policies, however, were inadequate. Bank-
ruptcies continued because the government could
not afford to bail everyone out. The protectionist
policies were ineffectual because Kuwait's indus-
tries were not capable of replacing needed imports.
The international financial community became in-
creasingly alarmed about the situation and cut
lending to nonbank institutions.
Under growing domestic criticism, the government
last fall created the Committee to Reactivate the
Economy-a group of prominent public- and
private-sector economic leaders-to devise reme-
dies for the ailing economy. In March the Commit-
tee recommended creation of a duty-free zone,
further protectionist measures, and establishment
of a small business administration. To deal with the
continuing effects of the stock market crash, it
suggested the formation of a company to take over
doubtful loans from commercial banks. These rec-
ommendations failed to gain public support, howev-
er, because most Kuwaitis do not accept the fact
that such measures are necessary and blame gov-
ernment ineptitude for the country's economic
problems.
In April the government drafted a conservative
budget for fiscal year 1985 (July-June) in which
government spending is projected to decline 3.1
percent. Salaries for government workers are to be
cut, and officials are attempting to justify a 15-
percent drop in development spending by citing the
near completion of many construction projects.
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Oil
10,231
9,612
9,708
9,592
Other
824
860
1,048
1,034
Expenditure
12,133
12,792
13,355
12,944
General
10,924
11,642
12,180
11,781
Recurrent
3,552
4,266
4,133
4,040
Development
2,252
2,416
2,966
2,773
Other
5,120
4,960
5,080
4,969
RFFG d
1,106
1,047
1,075
1,064
Increase in KFAED
capital e
103
103
100
99
a Fiscal year beginning 1 July of stated year.
b Budgeted.
c Proposed.
d Reserved Fund for Future Generations.
e Kuwaiti Fund for Arab Economic Development.
accept cabinet ministries, presumably because of
their reluctance to be associated with the troubled
government. Jassim Mohammed al-Khorafi, the
new Minister of Finance and Economy, is expected
to have a significant impact on economic policy.
Khorafi-a sharp critic in the previous National
Assembly of government economic policies-advo-
cates subsidy cuts and curbs on luxury goods.
Khorafi also wants to reexamine Kuwait's invest-
ment program, the impact of the 950,000 expatri-
ate laborers on the economy, the burgeoning public
sector, and the budget deficit.
Muddling Through
Kuwaitis continue to see the gloomy economic
picture as a temporary phenomenon and refuse to
acknowledge the need for long-term adjustment.
Although Kuwait probably is better able to cope
with the recession than any other Persian Gulf
country-including Saudi Arabia-rising expecta-
tions may eventually clash with the reality of an
f The deficits are covered by withdrawal from the State General economy that shows few signs of improvement.
Reserve Fund. Budget deficits are misleading, however, because Although the government estimates that oil reve-
transfers to the reserve funds are included in expenditures, but
investment income is not included in revenues. In fact, Kuwait has nues will increase more than 5 percent annually
enjoyed budget surpluses during the years cited above. during the next five years, we believe this is overly
The Economy and the Elections
optimistic. Prospects for other revenue sources-
industry, finance, and trade-are no brighter. Lo-
cal investment is lagging, and we do not believe
that the economy will improve until the war ends or
the oil market firms up.
The government's handling of the economy was a
major issue in the election for the National Assem-
bly earlier this year. Candidates attacked the gov-
ernment for failing to respond to the slowdown in
economic activity. During the campaign, prominent
merchant families-who have been the ruling al-
Sabah family's traditional base of support-
charged that the government had not protected
their interests. The Embassy reports that the Prime
Minister and even the Amir himself were-at least
privately-accused of poor judgment.
The election brought into office representatives
who are more vocal and less cooperative than those
in the previous National Assembly. According to
Embassy and press reports, the Prime Minister had
difficulty persuading several Assembly members to
Bankruptcies of small, private businesses harmed
directly or indirectly by the stock market crash
probably will continue. The government is under
considerable pressure to bail out these firms, but a
decision has been put off. Kuwaiti officials are
concerned about the cost-an estimated $2-5 bil-
lion, according to Embassy reporting-and are
reluctant to acquire ownership of additional private
companies. Nonetheless, the belief that the govern-
ment will help is impeding settlement of the souk
crisis. If the economy begins to deteriorate rapidly,
however, the government probably will bail out
many companies, maintaining ownership until the
economy is back on its feet.
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Kuwait's small population and huge foreign re-
serves-over $70 billion-give the government
room to maneuver. Officials, therefore, are unlikely
to make cuts that would seriously hurt the popula-
tion. Instead, the government probably will imple-
ment further protectionist measures and cut addi-
tional subsidies. For example, under the cover of
the regional move toward uniform utility charges,
Kuwait is considering trimming electricity and
water subsidies. Khorafi also intends to transfer
more public-sector facilities to the private sector to
stimulate the market. Complaints about the size of
the expatriate community-now 60 percent of the
total Kuwaiti population-will increase; plans to
cut their numbers have already been included in
the new 1986-90 Five-Year Plan. Nevertheless,
foreign aid, defense expenditures, and the General
Reserve Fund ` probably will be maintained at
current levels.
We do not believe that the economic problems
facing Kuwait are regime threatening. Still, the
' Kuwait maintains two reserve funds: the General Reserve Fund
(GRF) and the Reserve Fund for Future Generations (RFFG). The
GRF receives income from loan repayments and investment income
from assets held in this account. The RFFG was set up in 1976. By
law the government must set aside at least 10 percent of public
revenues for this fund, of which capital and investment income
cannot be drawn upon until 2001
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Secret
public perception that the government mismanaged
the souk crisis and the economy in general has hurt
the ruling family. The new National Assembly has
become bolder, forcing the resignation in May of
Minister of Justice Shaikh Salman-a member of
the ruling family-for corrupt handling of souk
settlements. It also has called for the resignation of
Oil Minister Shaikh Ali Khalifa. We expect the
National Assembly to continue to test its powers,
signaling a period of difficulty for the government
and the royal family. The government probably will
not attempt to suspend the Assembly, as it did in
1976, unless a serious confrontation develops, and
even then it probably would promise new elections.
Kuwait probably could absorb small price declines
without seriously straining the economy, but if the
price of oil were to plummet, the government would
find it difficult to avoid making politically unpleas-
ant budget cuts. The National Assembly probably
would demand greater power sharing. If it feels
that its power is threatened, the al-Sabah family
may be forced into further accommodation with the
National Assembly, broadening Kuwait's political
base.
The recent assassination attempt on the Amir will
give the government a respite-if only a temporary
one-from rising public criticism of the economy.
Internal security will be the dominant issue before
both the National Assembly and the ruling family
in the near term. Meanwhile, Kuwait's economic
problems will get short shrift and the troubles will
continue to fester
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Caribbean Windward Islands:
Intractable Economic Problems'
The economies of Dominica, St. Lucia, and St.
Vincent and The Grenadines have yet to fully
recover from natural disasters in 1979-80 and the
global recession. We believe they will require gen-
erous infusions of aid indefinitely. We project that
these economies, at best, will grow only 1 to 2
percent on average over the next few years, but
only if the preferential UK market for bananas
remains intact. Even then, their financial binds are
likely to persist, unemployment pressures to mount,
and public restiveness to grow. The United King-
dom, however-the island's major benefactor-
appears to be weakening in its economic commit-
ment to these ministates. Consequently, we expect
pleas for stepped-up aid from the United States and
increased pressure on Washington to prod other
bilateral and multilateral donors to be more forth-
coming.
The Windward economies-dependent on bananas
for as much as 70 percent of their foreign exchange
earnings as well as nearly 25,000 jobs in a total
population of only 330,000-have relied heavily on
British largess for their economic viability. Without
the protected British market, these islands could
not sell their bananas. Moreover, British budgetary
support and other Western aid have been vital;
receipts from other foreign exchange earners-
sugar, citrus, spices, and manufactures-have been
erratic due to fluctuating international demand,
stiff foreign competition, and domestic production
difficulties. Even tourism-a major foreign ex-
change earner in much of the Caribbean-has
provided sizable receipts only to St. Luci
'The Windward Islands include Dominica, Grenada, St. Lucia, and
St. Vincent and The Grenadines. This article excludes coverage of
Grenada, however, because of its different economic and political
The Windward Islands: Banana Exports
and International Prices, 1979-84
Banana Exports
Thousand metric tons
? Dominica
International Banana Prices
US cents per pound
I I I I I I
0 1979 80 81 82 83 84
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The Windward Islands: Western Aid
Share of GDP, 1979-838
The Windward economies suffered severe disrup-
tions during 1979-82 as a result of natural disasters
and the worldwide recession:
? Dominica was battered by a 1979 hurricane that
destroyed port facilities, industrial plants, roads,
and crops. Real GDP fell 17 percent.
? St. Lucia, which had witnessed economic growth
averaging 7 percent annually during the late
1970s, experienced a 2-percent drop in real GDP
in 1980 after a hurricane destroyed much of the
country's crops and tourist infrastructure.
? St. Vincent, hit by back-to-back disasters (a
volcanic eruption in 1979 and a hurricane in
1980), saw agricultural output fall nearly 16
percent in 1979 and nearly 20 percent in 1980.
Nevertheless, a spurt in foreign investment in
light industry helped to prevent an overall eco-
nomic decline.
The Windward Islands: Real GDP
Growth, 1979-84
Dominica ? St. Vincent
? St. Lucia
Despite an influx of Western emergency and other
aid, economic recovery in the three islands slowed
during 1981-82 as the global recession depressed
receipts from tropical products and tourism.
The worldwide economic recovery since 1982 has
rekindled some economic growth, but serious for-
eign and domestic financial problems persist. De-
spite an overall increase in banana output, the
weakness of the British pound-in which banana
earnings are denominated-has reduced the is-
lands' ability to import dollar-denominated goods.
Other sectors have recovered even more slowly
from recent setbacks. Moreover, high unemploy-
ment has made area governments especially reluc-
tant to reduce their topheavy bureaucracies.
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Western Bilateral and Multilateral
Official Development Assistance,
1978-83 a
Million US $ The Windward Banana Industry
Total
24.6
40.9
37.6
40.8
32.8
26.7
Dominica
16.1
15.5
15.0
20.9
19.5
14.5
Bilateral
13.6
6.9
6.0
6.6
9.0
10.1
United
Kingdom
5.3
6.4
2.2
1.7
1.0
1.0
Multilateral
2.5
8.6
9.0
14.3
10.5
4.4
St. Lucia
2.8
11.7
11.5
10.4
8.0
6.5
Bilateral
0.9
11.3
1.7
3.4
3.8
1.9
United
Kingdom
0.8
2.4
1.6
3.4
1.6
1.5
Multilateral
1.9
0.4
9.8
7.0
4.2
4.6
St. Vincent
5.7
13.7
1.1
9.5
5.3
5.7
Bilateral
3.8
13.3
1.3
2.5
1.1
1.1
United
Kingdom
3.8
6.1
1.3
2.3
0.9
0.8
a Excluding $30-45 million annual banana subsidy from the United
Kingdom.
Performance in 1984
We believe the economy of Dominica experienced
little growth in 1984. Even with Prime Minister
Eugenia Charles's determined effort to rebuild the
banana industry, the island's rugged terrain, rudi-
mentary transport network, small-size farms, and
inefficient management hindered full recovery.
Banana output rose 10 percent, but production
remained well below prehurricane levels. Domini-
ca's citrus industry also remained troubled by poor
production techniques and inadequate use of fertil-
izer and other inputs. Coconut output, however,
regained pre-1979 levels and provided inputs need-
ed to bolster the island's small oil and soap in-
dustry. Worsening Caribbean Common Market
(CARICOM) trade difficulties, nonetheless, limited
overall sales from the 50 or so firms operating on
the island.
Geest Industries-currently the largest produce
wholesaler in the United Kingdom and sole buyer
of Caribbean fresh fruit for the British market-in
1953 pledged to buy every banana of export quality
in the Windward Islands. The company also of-
fered to market the Windwards'fruit and provide
regular shipping. These countries later signed ex-
clusive production contracts with Geest and shifted
most of their agricultural exportsfrom sugar and
spices to bananas. By the mid-1960s, the Wind-
ward Islands supplied nearly 60 percent of the
bananas sold in the UK market displacing Jamai-
ca, Cameroon, and the Canary Islands as the main
suppliers.
Under the Geest arrangement, the United Kingdom
provides substantial financial assistance-as much
as $45 million annually-to the islands by guaran-
teeing a cash market throughout the year. in
addition, during hard times-hurricanes and
droughts-the United Kingdom supports prices
and lowers shipping and distribution costs through
Geest. Recent low production from the islands,
however, has prompted the British to purchase
increasing amounts of "dollar market " bananas
primarily from South and Central America.,,
These countries face hefty duties in the UK mar-
ket, but lower wages, higher productivity, and
better quality allow them to compete effectively
with protected suppliers
The Eastern Caribbean's preferential market, how-
ever, may be in jeopardy. US Embassy reporting
from Bridgetown indicates that Geest's monopoly
is being challenged by a small British importer in
the UK courts and the European Court of Justice.
We believe the elimination of the Geest monopoly
would virtually destroy the Windward banana
industry.
a In 1978 the Windward Islands held a 60-percent share of the
British banana market, with 200,000 metric tons of exports.
Although there has been some recovery from the natural disasters
of 1979-80, the Islands'share of the British market last year still
was only 30 percent with exports of only 130,000 tons]
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Unlike the other Windward Islands, Dominica
made some headway in alleviating foreign pay-
ments problems last year. Despite a doubling of the
trade deficit due to reduced intraregional trade and
low banana receipts, the combination of IMF lend-
ing and US aid helped to push the country's foreign
payments position into the black for the first time
since the late 1970s. The influx of funds-designed
to rebuild roads, electrify rural villages, improve
airport facilities, and upgrade the banana indus-
try-created some jobs. Unemployment still ex-
~~
ceeded 20 percent.
St. Lucia's economy rebounded in 1984-real GDP
increased 5 percent,
as banana production in-
creased 20 percent to a record level and tourism
rivaled the heyday of the late 1970s. An improved
political climate under Prime Minister John Comp-
ton and better promotional efforts by the govern-
ment enabled St. Lucia to increase tourism by 15
percent over 1983. Output gains in the 70 or so
manufacturing companies operating on the island
also buoyed economic growth.
St. Lucia nonetheless faced worsening unemploy-
ment, rampant poverty-especially in the capital
city, Castries-and severe domestic payments diffi-
culties. According to the US Embassy in Bridge-
town, reduced emigration opportunities elsewhere
in the Caribbean helped to push the island's unem-
ployment rate to nearly 30 percent
We believe St. Vincent experienced only a 2 to 3
percent increase in real GDP last year. The weak
British pound limited revenue gains from the 20-
percent increase in banana output at a time when
other foreign exchange earners encountered diffi-
culties. Most of the arrowroot crop, for example,
went unsold because of increased competition from
lower cost, starch sources elsewhere. Production of
sugar, coconut, and nutmeg also languished. Tour-
ism, viable only in The Grenadines, grew only
slightly because of the island's remote location,
poor air links, and negligible advertising. Stymied
by periodic electricity blackouts and other infras-
tructural weaknesses, as well as a small local
market, light industrial growth slowed considera-
bly.
St. Vincent also faced especially severe financial
deficits and unemployment pressures. Prime Minis-
ter James Mitchell, elected in July 1984, inherited
large domestic and foreign financial shortfalls that
he blamed on the previous Cato government's
heavy subsidies to the sugar, shipping, and tourist
industries. Publicly rejecting pursuit of an IMF
program, Mitchell appointed a commission to as-
sess the country's economic situation but otherwise
moved slowly in implementing new economic poli-
cies. Meanwhile, Embassy Bridgetown reports un-
employment reached a record 40 to 50 percent
We believe these countries' ability to help them-
selves through economic diversification will be.
sharply limited over the foreseeable future. Their
small market size, inefficient regional and extra-
regional transport, paucity of skilled labor and
managerial talent, and lack of infrastructure need-
ed to attract investment-even under the Carib-
bean Basin Initiative (CBI)-will remain con-
straints not easily overcome. Moreover, rising
protectionist sentiments in the Caribbean and some
new US regulations will complicate external fixes.
For example, a number of East Asian producers-
bumping against US quotas on textile imports-
have considered opening finishing operations in the
Windward Islands to circumvent quotas. We be-
lieve new US rules-of-origin regulations, however,
will discourage these potential investors.
We judge that these economies will, at best, record
only 1 to 2 percent economic growth on average
over the next few years. As long as the British
pound remains weak, banana earnings in dollar
terms will not expand proportionately. Weak world
demand for the islands' other major tropical prod-
ucts will preclude much, if any, increase in receipts
from this source. Intractable problems in the manu-
facturing sector also will limit sales of finished
products. The tourist sector can be expected to hold
promise only in St. Lucia
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Island standards of living, therefore, are likely to
further deteriorate and to trigger sporadic unrest.
St. Vin-
cent's Mitchell has expressed concern that bur-
geoning unemployment and deteriorating economic
conditions could eventually trigger political unrest
that leftist elements would try to exploit. In Domi-
nica, Charles is favored to win the 1 July elections
but is unlikely to repeat her 1980 landslide because
the left-leaning opposition already is capitalizing on
the country's stalled recovery
Consequently, we believe these governments will
increasingly look to the United States for direct
and indirect support to help make financial ends
meet and ensure political stability, particularly if
London's financial commitment weakens. Govern-
ment leaders in St. Lucia and St. Vincent have
publicly advocated joint ventures with large US
firms to overcome their countries' financial strains.
Moreover, Charles recently called on the IMF to
set up a trust fund to help Caribbean ministates
overcome long-term structural difficulties.
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Energy
OPEC Production OPEC crude oil output in May averaged 15.1 million b/d, 900,000 b/d below
Update the organization's production ceiling. A steep falloff in liftings by the former
Aramco partners caused output in Saudi Arabia to fall to an 18-year low. Oil
market expectations of a possible cut in OPEC's official prices deterred
buyers.
Iran has nearly 20 million barrels of un- 25X1
sold crude in storage near Sirri sand and that the sluggish market is
responsible for the dropoff in Iranian production in May.
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OPEC: Crude Oil Production, 1985
Quota First
Quarter
April
May
Total
16.00 16.5
16.5
15.1
Algeria
0.66 0.7
0.7
0.7
Ecuador
0.18 0.3
0.3
0.3
Gabon
0.14 0.2
0.2
0.2
Indonesia
1.19 1.3
1.3
1.3
Kuwait a
0.90 1.2
1.0
1.0
Less share of Neutral Zo
ne
0.9
0.8
0.8
Libya
0.99 1.0
1.0
1.0
Nigeria
1.30 1.6
1.6
1.4
Qatar
0.28 0.3
0.3
0.3
Saudi Arabia a
4.35 3.8
3.6
2.7
Less share of Neutral Zo
ne
3.6
3.4
2.5
UAE
0.95 1.2
1.2
1.2
Venezuela
1.56 1.6
1.5
1.5
a Neutral Zone has no production quota; output is divided between
Saudi Arabia and Kuwait and included in their country quotas.
25 Secret
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Oil Consumption Oil consumption in the major industrialized countries is trending down. First-
Decline quarter oil sales were 1 to 2 percent below year-earlier levels. Even before UK
consumption fell in response to an end to the coal strike, consumption was
slipping faster than most market analysts had expected. Partial data for the
second quarter indicate the decline is accelerating. April consumption in the
United States, Japan, West Germany, France, Italy, and the United Kingdom
was about 4 percent below year-earlier levels. Preliminary figures indicate US
consumption fell by 4 to 5 percent in May. Heavy fuel oil demand is bearing
the brunt of the decline-consumption in the major markets, excluding the
United Kingdom, in the first quarter was 15 to 20 percent below year-earlier
levels. Substitution of natural gas, coal, and nuclear energy was largely
responsible. OPEC will have difficulty holding the line on prices if oil
consumption continues falling.
Oil Inventory Levels Weak oil consumption has caused an inadvertent inventory build in recent
months. We estimate non-Communist primary oil stocks at the end of March
stood at 3.9 billion barrels, almost 90 days of consumption. Government-owned
stocks account for about 600 million barrels or 14 days supply. Preliminary
second-quarter consumption and production data suggest oil inventories may
climb faster than expected-perhaps by I million b/d or more-and leave
inventories at midyear about 100-200 million barrels above planned levels.
Expectations of lower oil prices will encourage oil companies to pare excess in-
ventories in the coming months. This inventory adjustment process will hold
down demand for OPEC oil this summer and further exacerbate downward
price pressures.
Mexican Oil Plummeting oil export volume prompted Mexico this week to reduce the price
Price Cut of its heavy Maya crude $1.50 a barrel retroactive to 1 June. The state oil
company also said it will postpone action on its lighter Isthmus crude until af-
ter the next OPEC meeting in early July. Mexico probably acted because oil
revenues have dropped an estimated $1 billion from the corresponding 1984
period. Losses were particularly heavy in June when customers, anticipating
another round of OPEC price cuts in July, reduced their planned liftings by al-
most 50 percent to 800,000 b/d, according to the US Embassy. With its
serious budget and external payments problems, Mexico was unwilling to
sustain such losses for long. Given the weak world oil market, Mexico may not
be able to fully restore lost oil export volume, even with the announced price
cut.
Thai-Japanese A new Thai-Japanese joint venture has been formed to promote a liquefied
Natural Gas Project natural gas (LNG) marketing and export project in Thailand. The Thai LNG
Company and a Japanese consortium of Mitsui, Mitsubishi, Sumitomo, and
Marubeni have created the Thai International LNG Company to determine
the feasibility of exporting about 4.3 billion cubic meters of LNG annually to
Japan for 15 to 20 years beginning in 1989 or 1990, according to the Japanese
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press. This amount would cover about 7.5 percent of Japanese LNG demand in
the 1990s. Tokyo already has sufficient supplies tentatively lined up to meet
about three-fourths of its natural gas requirements through 2000. The future
of the project will depend on sufficient gas discoveries to justify the capital
costs, resolution of a dispute over legal title to the gas, Thai Government
support in the face of budget austerity, and commitments from Japanese
utilities, many of whom have little expected need for the gas.
India Revises Major New Delhi reportedly plans to invite new foreign bids early next month for a
Gas Pipeline Project 1,730 kilometer pipeline system to bring gas from offshore fields to fertilizer
plants that will be constructed in western and central India. The decision to re-
structure this project-superseding bids received a year ago for various parts
of the project-has prompted severe criticism from opposition political parties
and Indian industrial analysts. The delay probably will raise total costs well
above the original estimate of $1.7 billion. Indian suppliers of equipment and
public-sector consultants'fear that they will now lose out to a consortium
headed by Snamprogetti,' an Italian firm whose aggressive local representative
is said to be close to Prime Minister Gandhi's Italian-born wife. New Delhi
probably hopes to obtain substantial additional financing from the successful
bidder. In addition, contracting for a complete system will ease the managerial
task for India's inexperienced government agencies.
Iraqi-Saudi Ithe Saudi 25X1
Pipeline Construction portion of the Iraqi pipeline that will connect with Saudi Arabia's Petroline is
being built on schedule and could be commissioned by early October. 25X1
several problems, primarily involving e rage 25X1
section, could e ay t e line s opening. 25X1
construction on Phase II of the project-to increase the line's export capacity
to 1.5 million barrels per day-could begin before the end of the year.
Baghdad hopes to sell crude from the pipeline to Japanese firms, but 25X1
the Japanese are hesitant to buy without significant price incentives. 25X1
e pipeline probably will not be able to operate at its designed capacity of
500,000 b/d before December, but Iraq, beset by financial troubles, is pushing
hard to complete work on schedule. Baghdad has been pricing its oil
competitively and probably will sell oil from the new pipeline at discounted
prices.) 25X1
Nicaraguan Debt Some 100 commercial banks-including 60 US institutions-signed an agree-
Deferral ment this week to postpone about $300 million in Nicaraguan debt payments
for one year. About half of this is owed to the US banks. 25X1
Nicaragua's economic performance is so poor that creditors did not 25X1
even try to devise a multiyear rescheduling. The agreement includes approxi-
mately $200 million in arrears and another $100 million coming due during
the next 12 months. Bankers agreed to token repayments of about $24 million
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by next June, when the balance will fall due. Managua will be hard pressed to
meet even the token payments because its export earnings are down sharply,
and the US embargo is increasing financial pressures. Nonetheless, banks had
little alternative but to agree to Nicaragua's terms. Many apparently have
already written off their Nicaraguan loans but probably hope to cut their
losses. The agreement technically eliminates arrearages and will help Mana-
gua negotiate with the IMF and the World Bank.
Peruvian Linkage of Peruvian President-elect Garcia is considering linking narcotics and debt
Narcotics and issues in coming talks with US officials,
Debt Issues Garcia would ask the United States to be flexible on Peru's foreign
debt in return for Lima's best effort to stem trafficking from Peru to the
United States. Garcia also views current US assistance for coca eradication
and crop substitution as insufficient. Garcia probably will ask for a grace
period, extended terms, special interest rates, and an absence of IMF control
on repayment of the debt. He is also likely to ask for increased US assistance
for narcotics control programs. Garcia believes his commitment on narcotics
should create political support in the United States for a flexible arrangement
on the debt.
Moroccan-IMF Morocco and the IMF resolved the impasse on subsidy reduction's last week
Compromise removing the primary obstacle to Fund approval of a new standby package.
The IMF accepted Rabat's argument that significant cuts in food subsidies
would cause national unrest. In return, the government agreed to hold subsidy
costs to $210 million this year and compensate for the expected $70 million in
above-budget spending by delaying the 5-percent pay raise for civil servants
scheduled for July. Moroccan officials also hope to sign the long delayed 1983-
84 commercial debt rescheduling agreement by 25 June-the final obstacle to
the IMF package-which would pave the way for a rescheduling next month
of Morocco's official debt for 1985. The new IMF money will provide badly
needed funds and vote of confidence for Morocco's economic stabilization
package. Nevertheless, the IMF program could come unravelled quickly if, as
is likely, Rabat does not sign the commercial rescheduling agreement or
cannot accommodate spending limits specified by the Fund.
Zairian Problems in Zaire must bring its budget in line with IMF performance targets by next
Meeting IMF Targets week or risk jeopardizing its current standby arrangement, recent debt
rescheduling with Western governments, and improved image in the interna-
tional financial community, according to the US Embassy. Excessive borrow-
ing-primarily because of lower-than-expected oil and custom receipts-
caused Kinshasa to fail its last IMF review in March. President Mobutu has
shown unusual perseverance since 1983 in implementing IMF-supported
austerity measures but appears increasingly frustrated with the severity of the
IMF stabilization program. Moreover, opposition to the austerity measures
recently surfaced at a Central Committee meeting and popular discontent with
the economic stabilization program appears to be growing. Fifty percent of the
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budget goes to debt servicing, leaving little for deteriorating transportation,
communications, health, and education sectors. The government has made
little headway in boosting agricultural production or in restructuring money-
losing state enterprises. Mobutu will find it increasingly difficult to meet IMF
targets during the remainder of 1985, particularly as he comes under
increasing pressure to implement promised development programs. Mobutu is
likely to mount an aggressive campaign to convince the IMF and Western
donors of the political necessity for a more expansionary budget and increased
levels of assistance.
Global and Regional Developments
Indian-Bangladesh The latest round of talks between India and Bangladesh on water sharing has
Water Problems Persist concluded without agreement. Dhaka asserts that India's increased offtake of
the Ganges River has decreased the river's flow into Bangladesh during the
spring dry season and that Bangladesh should be guaranteed a minimum water
supply. New Delhi has linked water sharing with the construction of a canal
that would augment the Ganges with water from the Brahmaputra River.
Dhaka has rejected this proposal because the canal would displace about
200,000 people in northwest Bangladesh. Dhaka was particularly disappointed
with the outcome of the recent talks because it believed that Prime Minister
Ganges -Brahmaputra Drainage Basin
Proposed link canal
Q Drainage basin
Canal
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 on the rivers entering from India.
Gandhi had promised that an agreement would be concluded. Bangladesh will
probably press for further negotiations because its agricultural sector depends
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Reaction to US
Export PIK
The three-year, $2 billion payment in kind subsidy program to increase US ag-
ricultural exports--known as export PIK--has prompted critical but cautious
responses from other exporters. EC reaction remains guarded. According to
Embassy reports, no retaliation is planned as yet, although 25X1
options being discussed by the Commission include restructions on imports of
US grain, expanded EC wheat exports, and a call for an emergency meeting in
the GATT. The Australians fear US/EC confrontation could stimulate more
aggressive EC sales in Australia's traditional markets..New Zealand press 25X1
reports reveal concern about the vulnerability of its Middle Eastern dairy
Ottawa is prepared to match the US export initiative
25X1
with price cuts, credits, giveaways, and at least $250 million in new subsidies
Brazil sees its poultry and soy markets threatened,
25X1
markets to potential subsidized US dairy sales.
and will lobby for exemption of soy products from the export PIK program. Al-
though the impact of export PIK on foreign country agricultural programs is
uncertain, any sizable drop in world grain prices could seriously harm debtor
LDCs such as Argentina and Brazil who depend heavily on agricultural
exports. Lower grain prices could also boost the EC's own export subsidy
outlays. Moreover, any EC sales lost to the United States as a result of export
PIK are likely to be offset by sales in the markets of the other exporter
countries. Foreign reaction to export PIK is also likely to divert attention from
planning for a new GATT round and to polarize agricultural subsidy
discussions in GATT. 25X1
National Developments
Developed Countries
Japanese GNP Release of first quarter GNP statistics-revealing that quarterly growth hit a
Growth Slows seven-year low of 0.1 percent-may spark renewed calls for Tokyo to adopt
stimulative economic policies. Officials at the Economic Planning Agency,
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Finance's budget bureau would accept a cut in the discount rate,
however, insist the latest data reflect the unsustainability of the rapid growth
recorded in October-December 1984 rather than stagnant economic condi- 25X1
tions. Moreover, they point out Japan achieved 5.7-percent growth for the
fiscal year ending in March, the best performance in 12 years. If, despite these
reassurances, calls for stimulus increase during the summer, the Ministry of
other finance 25X1
officials onnose such a move because it probably would weaken the yen.
25X1
Decline in UK
Arms Sales
effectiveness of British forces.
The United Kingdom exported 825 million pounds ($990 million) worth of
arms in 1984, according to attache reporting. The 1984 sales were down about
10 percent from 1983 levels, largely because exports to the Middle East-
Britain's most important market-were down 38 percent. Although arms sales
typically vary from year to year, we believe that the 1984 total reflects a long-
term decline for British sales. Worldwide arms demand is declining, and
competition to make sales has sharpened. Financial competition has become
particularly rough, because sales to Third World clients frequently go to those
offering the best financial package. Britain's economic troubles and outmoded
arms-financing system, however, have left it ill equipped to compete in this
environment. Moreover, Britain's lack of a high-quality sales leader-such as
France's Mirage 2000-has hurt its competitiveness. Over the long term,
declining overseas sales will increase the unit costs of systems purchased by
UK forces, thus reducing the numbers that are affordable and decreasing the
UK-Italian The major helicopter companies of Britain and Italy, Westland and Agusta,
Attack Helicopter are planning to jointly develop a new attack helicopter for the 1990s. The
for the 1990s United Kingdom will buy at least 125 of these helicopters; Italy will buy a
minimum of 60. We believe the combined purchase will be worth about $1 bil-
lion. In the export market, this new design will compete with the Franco-
German Eurocopter, a joint program of Aerospatiale and Messerschmitt-
Boelkow-Blohm, as well as the US Bell AH-1 Cobra and the new Hughes
AH-64 Apache.
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Belgian Stress Over Belgian Foreign Minister Tindemans is concerned that another dispute with
COCOM Restrictions Washington over technology transfer will hurt his political standing and help
the Socialist opposition before the general election in December. According to
the US Ambassador, Tindemans fears that if Washington refuses to allow a
Belgian firm to supply controlled communications equipment to China the
firm will lose a valuable contract and that broader economic relations with the
Chinese will be damaged. Tindemans says the Belgians believe that French
and other suppliers will fill the vacuum despite their promises to refrain.
Belgium has been forced to pull back on a number of deals involving sensitive
technology over the past year, including a nuclear cooperation agreement with
Libya. The Belgian firm involved is located in Tindemans's home district, and,
if it were to lose the Chinese contract, several thousand people might lose their
jobs. Belgium unemployment is more than 13 percent. Tindemans's opponents
have scored his support for US constraints on technology transfer, and he
apparently expects Washington to do what it can to help him domestically.
Spanish Export Madrid has introduced controls on exports of dual-use technology to prevent
Controls diversion to Communist countries. High-technology products manufactured
under foreign licenses or with foreign investment in Spain are covered, but
imports worth less than 1 million pesetas-about $5,700-imports by public-
sector enterprises, and goods transiting free trade zones are exempt. Prime
Minister Gonzalez has publicly indicated that he favors eventually joining
COCOM rather than negotiating bilateral agreements to bring Spain's export
control program into alignment with EC policy, but the Cabinet remains
divided. The Spanish are establishing their own controls in the hope that the
United States will grant pending export licenses for products that are
important to Madrid's electronics development plan. The exempt categories
are likely to create problems, but Spain probably will agree to meet exporting
countries' requirements rather than risk denials.
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Less Developed Countries
Venezuela's Industry problems in Jamaica and Suriname-excess capacity, losses, and
Aluminum Expansion closures-have not deterred Caracas from expanding its aluminum-export
capacity. Cheap hydroelectric power and the recent discovery and exploitation
of high-grade bauxite reserves give Venezuela a strong competitive edge.
Venezuelan state aluminum companies will spend 25X1
billion to increase capacity from 340,000 to over 800,000 metric tons per
year by 1988, and will produce bauxite, alumina, ingots, and finished products.
Japan's recent multiyear contract to buy 160,000 tons per year strengthens
Venezuela's role as an aluminum exporter and will reduce Caracas's depen-
dence on oil sales.~ 25X1
Setbacks for Jamaica's The manager of the financially troubled ALPART alumina refinery, the
Alumina Industry largest US investment in Jamaica, has told the US Embassy that the company
may close the plant this month. The manager of the Canadian-owned ALCAN
refinery has indicated that his company will close one of its two plants soon un-
less Kingston provides substantial tax relief. ALCOA's refinery was shut down
in February, but it is to reopen in July under a lease arrangement with the gov-
ernment that will earn Jamaica little foreign exchange. These closures would
further depress the Jamaican economy. The IMF is already projecting bauxite
earnings at $140-230 million less than last year and that the loss would
contribute to a 4-percent decline in the economy this year. The latest
developments could slow ratification of the $60 million Fund standby program,
slated for approval in mid-July, and subsequent debt reschedulings. The
closure of ALPART alone would cost 1,200 jobs, adding to the 30-percent
unemployment rate.
Libyan Water IQadhafi has pulled out all stops to complete 25X1
Project Prioritized the water-supply system for the Marsa al Burayqah pipe plant-a key element
of the Great Manmade River Project-in time for the 1 September anniversa-
ry of his military coup. Qadhafi plans to inaugurate this system personally to
emphasize the feasibility of the huge water-relocation project. Overall, the
scheme is running up to six months behind schedule because of management
problems and minefields that date from World War II. Financial outlays are
below budget because of the construction delays. 25X1
Qadhafi almost certainly will use the inauguration of the pipeline segment to
tout the participation of US firms in the project and to demonstrate that US
economic sanctions have not hindered the regime's ability to pursue large-scale
development. 25X1
Tunisian Subsidies Cut Tunis raised retail fuel prices by 10 percent and producer sugar prices by 24
percent last week and linked future price adjustments to wage hikes. The US
Embassy says that the newest round of price hikes-the first since January-
have elicited little more than grumbling from consumers. The full impact,
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however, will not be realized for several months. Should the government give
way to labor demands for higher wages, it is prepared to implement equivalent
across-the-board price increases to neutralize the impact on the budget. This
newest cost-containing measure underscores the difficult task the regime faces
in balancing its policies on wages and consumer subsidies without further
alienating the poor who rioted over food prices in January 1984.
Malawi Bumper Crop Malawi faces a serious economic crisis unless it can find new customers for
Face Export Problems this year's bumper crop of corn, tobacco, and cotton. The large yields reflect
the response of small farmers to price incentives under a World Bank reform
program. The state-owned purchasing and marketing board, however, has been
unable to market the large harvest because of a lack of grain export
contracts-Zambia has canceled grain purchases-heavy financing require-
ments for carryover corn stocks, and complete exhaustion of all commercial
borrowing facilities. The Reserve Bank of Malawi is reluctant to extend
emergency loans that would violate Malawi's credit agreements with the IMF.
Although Malawi has served as a regional granary for drought-stricken
neighbors for the past two years, those countries either do not need, or cannot
afford, substantial amounts and Malawi's only alternative may be to rely on
purchases by international relief agencies.
Pakistani Assembly Pakistan's National Assembly approved the proposed budget for fiscal year
Approves Budget 1985, which begins 1 July, with only minor changes. Expenditures are
projected to grow by about 14 percent and revenues by about 15 percent. The
government hopes to cover its growing resource gap by attracting more than $1
billion into small savers schemes. We believe this budget will follow the
pattern of previous years. Expenditures will exceed budgeted levels and
revenues will fail to reach projected levels, requiring additional government
borrowing. The budget-the first major issue on the new assembly's agenda-
does not include any major new taxes or other contentious reforms. Assembly
members scored their first victory-which expedited approval-when the
government agreed to withdraw a surcharge on diesel fuel and reduce the
proposed increased in railway fares. The powerful agricultural lobby was
appeased with additional benefits and subsidies. These concessions came at the
expense of planned development expenditures.
Sri Lanka Seeking Finance Minister De Mel, on his way to meet with Western aid donors this
More Western Aid week, is likely to paint a bleak picture of the Sri Lankan economy. The
unfavorable economic outlook puts added pressure on the Jayewardene
administration to negotiate an end to the ethnic violence. In a speech to civil
servants in Colombo, De Mel noted that, unless the insurgency is halted, the
country will face economic disaster within six months. Tourism and foreign
investment continue to decline, and economic activity in the north and east
have been severely disrupted. Since the beginning of the year, tea prices have
dropped .30 percent from record highs-tea accounted for over 40 percent of
export earnings in 1984. Meanwhile, defense costs have more than tripled
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since 1982 and continue to rise, adding to budget deficits and slowing
development efforts. Nonetheless, De Mel probably will exaggerate the
economic problems in his effort to sustain high aid commitments.
Nauru Faces The government of the South Pacific ministate has borrowed heavily abroad
Economic Decline rather than impose taxes or restrict imports, and 25X1
debt service has risen to 50 percent of export earnings. Phosphate sales-the
sole source of government revenue-are stagnant, and despite its deteriorating
credit rating, the government is not taking measures to reverse the economic
slide, such as developing a fishing industry-the only other significant
resource. At the same time, the government's investment ventures-an airline,
a trade corporation, overseas investments, fishing vessels, and hotels-have
lost money. Although divestiture would temporarily ease the problem, the
island's decline is likely to, continue to worry Australia and New Zealand,
which are trying to turn back Soviet initiaties among economically depressed
ministates in the region. 25X1
Soviet Consumer Although Moscow reportedly intends to take "effective measures to increase
Goods Production production and imports of,consumer goods," resource constraints will make
this difficult to accomplish. A Soviet economist has told the US Embassy that
pay incentives for the introduction of new technology-a key element in
General Secretary Gorbachev's industrial modernization strategy-would be
ineffective without a similar increase in the supply of high-quality consumer
goods. Moscow has announced an almost $8 billion program to increase shoe
production, and action to increase supplies of consumer durables and building
materials should soon follow. To implement these projects, the source said,
both domestic resources and imports will be used. Because of poor quality,
imports of CEMA products will be cut and hard currency purchases from the
West increased.
Gorbachev has personally identified himself with an increased commitment to
consumer goods. Increased investment, however, is necessary, but funds
already committed to other sectors will leave little for the consumer. A high-
ranking planning official recently acknowledged that problems will continue in
the consumer sector and few additional resources will be made available to
overcome them. Large-scale imports of Western grain and an expected
increase in plant and machinery imports will also squeeze the availability of
hard currency for consumer goods
Soviets Seek US The Minister of the Timber, Pulp and Paper, and Wood Processing Industry
Plywood Processing indicated in late April that the USSR wants to buy a complete plywood
Plant processing plant from the United States. He will visit US firms this summer to
discuss the turnkey project. The plant is connected with negotiations for the
purchase of plywood processing machinery for existing plywood mills. This
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equipment and the completion of the proposed plant would do much to
modernize the forest products industry. In addition to this latest project, the
Soviets are planning to buy a US pulp and paper plant for corrugated box
production, a pulp-dissolving plant from US and Italian firms, and an Italian
hardwood pulp and cellulose plant. The total value of these projects exceeds
$1 billion.
New Vietnamese Hanoi over the past year has begun implementing a program of disincentives
Measures To Slow to slow population growth-2.4 percent, one of the highest in Southeast Asia.
Population Growth Penalties for violating the new limits of two children for government employees
and urban workers and three children for rural residents include reduced
housing and food subsidies, reduced maternity benefits, loss of government
jobs, and possible loss of Communist party membership
Hanoi is moving slowly, however, apparently introducing t e
program on a province-by-province basis. We believe the disincentives will
have to be strengthened and applied to major cities if Vietnam is to succeed in
slowing population growth sufficiently to keep pace with food supply.
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Secret
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Directorate of
Intelligence
Economic & Energy
indicators.
DI EE/ 85-013
21 June 1985
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Economic & Energy
Indicators
Page
Energy
Gross National Product
Consumer Prices
Money Supply
Unemployment Rate
Foreign Trade
Current Account Balance
Export Prices in US $
Import Prices in US $
Exchange Rate Trends
Money Market Rates
Agricultural Prices
Industrial Materials Prices
World Crude Oil Production, Excluding Natural Gas Liquids 8
Big Seven: Inland Oil Consumption 9
Big Seven: Crude Oil Imports 9
OPEC: Crude Oil Official Sales Price 10
OPEC: Average Crude Oil Official Sales Price (Chart) 1 1
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Percent change from previous period
seasonally adjusted at an annual rate
United states
2.6
-8.1
6.4
10.7
2.0
2.2
2.2 3.7 -2.9 -1.4
Japan
1.0
0.4
3.5
11.1
-2.6
3.0
-1.0 -15.7 41.8
West Germany'
-2.3
-3.2
0.3
2.4
-5.6
-1.2
-1.2 10.2
France
-2.6
-1.5
1.1
2.6
-2.0
-17.1
58.9 19.8 -23.8
United Kingdom
-3.9
2.1
3.9
1.0
7.8
5.9
4.7 29.9 7.0
Italy
-1.6
-3.1
-3.2
3.1
3.1
-37.9
125.7 7.6 -16.9
Canada
0.5
-10.0
5.7
8.7
-0.9
-7.2
-4.1 -7.3
Gross National Product
Percent change from previous period
seasonally adjusted at an annual rate
United States
2.5
-2.1
3.7
6.8
7.1
1.6
4.2
0.7
Japan
4.1
3.4
3.1
5.7
7.6
2.6
9.6
0.7
West Germany
-0.2
-1.0
1.3
2.6
-7.4
9.8
5.8
France
0.2
2.0
0.7
1.6
-1.7
4.7
-0.2
United Kingdom
-0.9
1.5
3.4
1.6
-5.6
-1.4
13.2
Italy
0.2
-0.5
-0.4
2.6
2.6
4.4
-2.3
Canada
3.3
-4.4
3.3
5.0
3.0
6.7
3.4
3.7
Consumer Prices
United States
10.3
6.2
3.2
4.3
Japan
4.9
2.6
1.8
2.3
West Germany
6.0
5.3
3.6
2.4
France
13.3
12.0
9.5
7.7
United Kingdom
11.9
8.6
4.6
5.0
Italy
19.3
16.4
14.9
10.6
Canada
12.5
10.8
5.8
4.3
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr
Jan
Feb
Mar
Apr
May
3.3
2.3
4.2
5.8
4.6
2.3
4.9
-4.3
-0.3
2.2
-4.9
3.7
4.3
5.2
5.6
2.2
1.9
5.7
5.3
5.9
6.6
5.7
7.1
7.1
7.4
9.9
2.7
12.4
6.3
10.2
10.0
10.6
1.1
11.9
9.2
5.4
6.0
5.2
2.0
6.4
2.0
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Money Supply, M-1 8
Percent change from previous period
seasonally adjusted at an annual rate
1st Qtr
Jan
Feb
Mar
Apr
May
United States b
7.1
6.6
11.2-
6.9
10.9
9.4
15.3
5.8
6.3
14.4
Japan
3.7
7.1
3.0
2.9
11.5
-8.4
10.0
69.9
-50.4
West Germany
1.1
3.6
10.3
3.3
1.4
-20.8
-3.7
13.2
-9.0
France
12.2
:13.9
10.0
7.5
United Kingdom
NA
NA
13.0
14.6
0.7
-22.6
-2.4
27.8
46.1
31.5
Italy
11.2
11.6
15.3
-30.3
-24.2
Canada
3.8
0.6
10.2
2.3
-7.2
-33.0
-34.2
21.8
-5.7
38.9
a Based on amounts in national currency units.
b Including M1-A and M1-B.
Unemployment Rate a
1981
1982,
1983
1984
1985
1st Qtr
Jan
Feb
Mar
Apr
May
United States
7.5
9.6
9.5 -
7.4
7.2
7.3
7.2
7.2
7.2
7.2
Japan
2.2
2.4
2.7
2.7
2.5
2.4
2.6
2.6
2.4
West Germany
5.6
7.7
9.2.
9.1
10.4
- 10.6
10.5
10.0
9.3
8.8
France
7.6
8.6
8.5,
9.6
9.9
9.9
9.9
10.0
10.2
10.3
United Kingdom
10.0
11.6
12.4
12.6
13.0
12.9
13.0. .,
13.0
13.1
13.1
Italy
8.4
9.1
9.9
10.4
Canada
7.5
11.1
11.8
11.3
11.1
11.2
11.0
11.2
10.9
10.5
a Unemployment rates for France are estimated.
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United States b
Exports
233.5
212.3
200.7
217.6
55.7
17.9
18.4
17.8
Imports
261.0
244.0
258.2
325.6
84.4
28.0
28.1
28.3
Balance
-27.5
-31.6
-57.5
-107.9
-28.7,
;=10.1
-9.7
-10.5
Japan
Exports
149.6
138.3
145.5
168.2
40.2
13.3
12.8
14.2
Imports
129.5
119.7
114.1
124.1
28.8
9.7.
9.5
10.3
Balance
20.1
18.6
31.5
44.1
11.4
3.5
3.2
3.9
West Germany
Exports
175.4
176.4
169.4
172.0
40.8
13.6
13.0
14.5
Imports c
163.4
155.3
152.9
153.1
36.4
12.0
11.6
12.3
Balance
11.9
21.1
16.6
18.8
4.4
1.6
1.4
2.2
France
Exports
106.3
96.4
95.1
97.5
22.5
7.6
7.9
8.2
8.0
Imports
115.6
110.5
101.0
100.3
23.6
8.2
8.0
8.7
8.1
Balance
-9.3
-14.0
-5.9
-2.8
-1.1
-0.6
-0.1
-0.4
-0.1
United Kingdom
Exports
102.5
97.1
92.1
93.7
22.7
7.6
7.7
8.5
Imports
94.6
93.0
93.8
99.2
24.2
7.9
8.8
8.9
Balance
7.9
4.1
-1.8
-5.5
-1.5
-0.3
-1.1
-0.3
Italy
Exports
75.4 '
74.0
72.8
73.6
17.6
6.1
5.9
5.5
Imports
91.2
86.7
80.6
84.3
21.4
7.3
7.2
7.0
Balance
-15.9
-12.8
-7.8
-10.7
-3.8
-1.2
-1.3
-1.6
Canada
,
Exports
70.5
68.5
73.7
86.8
21.9
7:1
7.5
7.4
Imports
64.4
54.1
59.3
70.8
17.9
5.9
5.9
5.8
Balance
6.1
14.4
14.4
16.1 .
4.0
1.3
1.6
1.6
a Seasonally adjusted.
b Imports are customs values.
c Imports are c.i.f.
United States
6.3
-9.2
-41.6
-101.7
Japan
4.8
6.9
20.8
35.0
West Germany
-6.8
3.5
4.1
5.9
France
-4.7
-12.1
-4.6
-0.5
United Kingdom
15.3
9.6
3.7
0.1
1st Qtr
Jan
Feb
Mar
Apr
-30.0
6.8
0.8
2.5
3.5
4.1
1.2
-0.3
0.7
0.8
1.2
0.7
0.1 -
0.5
0.2
-0.5
0.2
a Seasonally adjusted; converted to US dollars at current market
rates of exchange.
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Percent change from previous period
at an annual rate
United States
9.2
1.5
1.0
1.4
0.2
-1.2
5.1 7.3 -6.8
Japan
5.5
-6.4
-2.4
0.2
-11.9
-14.8
-8.2 -11.2 93.0
West Germany
-14.9
-2.8
-3.2
-7?1
-18.9
-17.8 :
'-33.9 4.1 120.0
France
-12.0
-5.5
-5.0
2.7
-25.7
-34.3
United Kingdom .
NA
-5.9
-4.8
-17.1
-34.0
-11.2 68.6 181.4
Percent change from previous period
at an annual rate
Annual
4th Qtr
1st Qtr
Jan
Feb .
Mar
Apr
United States
5.3
-2.0
-3.7
1.7
-2.9
-10.9
-19.6
0.9'
-9.1
0
Japan
3.6
-7.3
-5.0
-2.8
-8.4
-10.9
-28.9
4.9
19.2
-7.2
West Germany
-8.6
-4.7
-5.2
-4.8
-11.3
-12.9
-12.3
-24.6
21.2
81.6
France
-7.8
-7.2
-7.0
-3.8
-3.7
-26.2
-27.4
United Kingdom
NA
-5.2
-4.0
-13.0
-15.7
-36.4
-0.6
57:5
148.7
Italy
1.0
Canada
8.7
-1.1
-3.4
-0.1
-2.8
-4.8
21.5
-41.4
-11.4
18.0
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Exchange Rate Trends
Japan
West Germany'
France
United Kingdom
Italy
Canada
United States
90-day certificates of
deposit, secondary market
Japan
loans and discounts
(2 months)
West Germany
interbank loans
(3 months)
France
interbank money market
(3 months)
United Kingdom
sterling interbank loans
(3 months)
Italy
Milan interbank loans
(3 months)
Canada
finance paper (3 months)
3-month deposits
Eurodollars
Percent change
from previo
at an an
us period
nual rate
-9.2
-5.1
-1.6
-3.1
-10.6
0.3
0.2
2.3
-2.3
-13.4
2.7
-12.8
4.5
-19.6 '
-32.5
9.6
25.5
0.5
-24.6
-7.2
-5.2
-11.5
-28.0
-58.7
-0.8
54.2
-4.3
-28.7
-20.8
-15.9
-14.7
-26.7
-54.7
-1.0
55.4
-5.5
-13.2
-13.4
-13.3
-11.9
-28.6
-28.9
41.1
212.0
10.5
-32.8
-18.8
-12.3
-15.6
-30.3
-66.8
-29.4
46.4
-2.9
-2.5
-2.9
0.1
-5.1
-10.5
-28.2
-31.5
14.7
-9.3
16.24
12.49
9.23
10.56
8.76
8.84
9.13
8.61
7.79
7.23
NA
6.66
6.55
6.55
6.54
NA
12.19
8.82
5.78
5.96
5.84
6.17
6.35
5.98
13.85
12.24
10.12
9.91
12.98
13.56
13.63
12.67
18.46
14.48
9.53
11.30
10.59
10.59
11.35
NA
16.87
13.25
9.69
10.86
9.04
9.19
9.43
8.86
8.61
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Australia
(Boneless beef,
f.o.b., US Ports)
125.2
112.1
108.4
110.7
101.1
100.2
100.0
94.6
93.1
United States
(Wholesale steer beef,
midwest markets)
104.3
100.0
101.4
97.6
100.9
96.6
92.4
89.2
89.0
Cocoa
(? per pound)
113.5
89.8
74.3 '
92.1
106.2
99.2
98.9
101.6
75.2
Coffee
($ per pound)
Corn
(US #3 yellow,
c.i.f. Rotterdam
$ per metric ton)
Cotton
(World Cotton Prices, "B"
index, c.i.f. Europe, US 0/lb.)
Palm Oil
(United Kingdom 5% bulk,
c.i.f., $ per metric ton)
514 496 496 496 496
US
(No. 2, milled,
4% c.i.f. Rotterdam)
Thai SWR
(100% grade B
c.i.f. Rotterdam)
Soybeans
(US #2 yellow,
c.i.f. Rotterdam
$ per metric ton)
Soybean Oil
(Dutch, f.o.b. ex-mil.
$ per metric ton)
Soybean Meal
(US, c.i.f. Rotterdam
$ per metric ton)
Sugar
(World raw cane, f.o.b.
Caribbean Ports, spot
prices 4/lb.)
Tea '
Average Auction (London)
(US ? per pound)
Wheat
(US #2. DNS
Rotterdam c.i.f.
$ per metric ton)
Food Index a
(1975 = 100)
197 157 152 155 145
101.4 91.0 89.9 105.2 156.6 126.9 110.4 98.6 96.1
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Major US producer
71.6
77.3
76.0
77.7
81.0
81.0
81.0
81.0
81.0
LME cash
80.8
57.4
44.9
65.1
56.8
49.2
49.5
49.8
50.4
Chrome Ore
(South Africa chemical
grade, $ per metric ton)
55.0
53.0
50.9
50.0
50.0
49.9
50.0
50.0
43.2
Copper a (bar, 0 per pound)
98.7
79.0
67.1
72.0
62.4
62.1
62.2
67.2
70.0
Gold ($ per troy ounce)
612.1
460.0
375.5
424.4
360.0
300.0
295.3
326.7
317.5
Manganese Ore
(48% Mn, $ per long ton)
Nickel ($ per pound)
Metals week,
New York dealers' price
677.0
446.0
326.7
Synthetic b
40.6
47.5
45.7
44.0
44.4
46.6
45.0
46.2
NA
Natural c
73.8
56.8
45.4
56.2
49.6
42.0
42.0
42.0
41.0
Silver ($ per troy ounce)
20.7
10.5
7.9
11.4
8.1
5.9
5.7
6.4
6.3
Steel Scrap d ($ per long ton)
91.2
92.0
63.1
73.2
86.4
82.0
86.8
NA
Tina (0 per pound)
761.3
641.4
581.6
590.9
556.6
501.1
499.7
533.3
536.0
Tungsten Ore
(contained metal,
$ per metric ton)
18,219
18,097
13,426
10,177
10,243
11,515
12,025
11,895
10,832
US Steel
(finished steel, composite,
$ per long ton)
Zinc a (? per pound)
34.4
38.4
33.7
34.7
41.5
40.0
41.1
41.3
40.3
Lumber Index a
(1975 =100)
167
159
140
190
176
177
182
180
201
Industrial Materials Index r
184
166
142
(1975 =100)
a Approximates world market price frequently used by major world
producers and traders, although only small quantities of these
metals are actually traded on the LME.
b S-type styrene, US export price.
c Quoted on New York market.
d Average of No. 1 heavy melting steel scrap and No. 2 bundles
delivered to consumers at Pittsburgh, Philadelphia, and Chicago.
This index is compiled by using the average of 11 types of lumber
whose prices are regarded as bellwethers of US lumber construction
costs.
rThe industrial materials index is compiled by The Economist for
18 raw materials which enter international trade. Commodities are
weighted by 3-year moving averages of imports into industrialized
countries.
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 Sanitized Copy Approved for Release 2011/07/01: CIA-RDP88-00798R000100130007-2
World Crude Oil Production
Excluding Natural Gas Liquids
1980
1981
1982
1983
1984
1985
World
59,463
55,827
53,014
52,588
53,827
50,642
Non-Communist countries
45,243
41,602
38,810
38,228
39,257
36,432
Developed countries
12,859
12,886
13,276
13,864
14,302
14,407
,? ..
United States
8,597
8,572
8,658
8,680
8,735
8,871
8,737
8,911
8,968
Canada
1,424
1,285
1,270
1,356
1,411
1,146
United Kingdom
1,619
1,811
2,094
2,299
2,535
2,815
Norway
528
501
518
614
700
695
Other
691
717
736
915
921
1,014
Non-OPEC LDCs
5,443
6,036
6,633
6,823
7,515
7,179
Mexico
1,936
2,321
2,746
2,666
2,746
2,715
2,644
2,687
2,810
Egypt
595
598
665
689
827
890
Other
2,912
3,117
3,222
3,468
3,942
3,645
-
OPEC
26,941
22,680
18,901
17,541
17,440
16,094
14,846
16,391
16,300
Algeria
1,020
803
701
699
638
617
600
600
650
Ecuador
204
211
211
236
253
270
260
270
280
Gabon
175
151
154
157
152
150
150
150
150
Indonesia
1,576
1,604
1,324
1,385
1,466
1,316
1,160
1,190
1,150
Iran
1,662
1,381
2,282
2,492
2,187
1,893
1,400
2,100
2,200
2,514
993
972
922
1,203
1,233
1,250
1,250
1,200
1,389
947
663
881
912
883
900
900
850
1,830
1,137
1,183
1,076
1,073
1,000
1,000
1,000
1,000
544
370
317
390
410
447
420
450
470
Nigeria
2,058
1,445
1,298
1,241
1,393
1,597
1,400
1,700
1,700
Qatar
471
405
328
295
399
316
345
290
310?'
Saudi Arabia b
9,631
9,625
6,327
4,867
4,444
3,559
3,300
3,800
3,600
UAE
1,702
1,500
1,248
1,119
1,097
1,123
1,106
1,106.
1,155
Venezuela
2,165
2,108
1,893
1,781
1,813
1,690
1,555
1,585
1,585
Communist countries
14,220
14,225
14,204
14,360
14,570
14,219
USSR
11,700
11,790
11,750
11,820
11,870
11,407
China
2,113
2,024
2,044
2,120
2,280
2,390
Other
407
411
410
420
420
420
a Preliminary.
b Excluding Neutral Zone production, which is shown separately.
c Production is shared equally between Saudi Arabia and Kuwait.
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Big Seven: Inland Oil Consumption
Thousand b/d
United States a
17,006 16,058 15,296
15,184
15,708
15,602
15,353
16,142
15,975
15,321
15,200
Japan
4,674 4,444 4,204
4,193
4,349
4,373
5,029
4,666
5,059
West Germany
2,356 2,120 2,024
2,009
2,012
2,076
1,856
2,162
2,003
France
1,965 1,744 1,632
1,594
1,531
1,530
1,577
2,023
1,713
1,481
1,364
United Kingdom
1,422 1,325 1,345
1,290
1,624
1,996
1,870
1,909
2,108
Italy b
1,602 1,705 1,618
1,594
1,513
1,560
1,558
1,763
1,809
1,573
Canada
1,730 1,617 1,454
1,354
1,348
1,423
1,311
1,387
1,371
1,235
a Including bunkers, refinery fuel, and losses.
b Principal products only prior to 1981.
Big Seven: Crude Oil Imports
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Algeria
42? API 0.10% sulfur
Ecuador
28? API 0.93% sulfur
22.41
34.42
34.50
32.96
27.59
27.50
26.82
26.50
26.50
26.50
Gabon
29? API 1.26 % sulfur
18.20
31.09
34.83
34.00
29.82
29.00
28.35
28.00
28.00
28.00
Indonesia
35? API 0.09% sulfur
18.35
30.55
35.00
34.92
29.95
29.53
28.88
28.53
28.53
28.53
Light
34? API 1.35% sulfur
19.45
34.54
36.60
31.05
28.61
28.00
28.38
28.05
28.05
28.05
Heavy
311 API 1.60% sulfur
18.49
33.60
35.57
29.15
27.44
27.10
27.41
27.35
27.35
27.35
Iraq c
35? API 1.95% sulfur
18.56
30.30
36.66
34.86
30.32
29.43
28.78
28.43
28.43
28.43
Kuwait
311 API 2.50% sulfur
18.48
29.84
35.08
32.30
27.68
27.30
27.30
27.30
27.30
27.30
Libya
40? API 0.22% sulfur
21.16
36.07
40.08
35.69
30.91
30.40
30.40
30.40
30.40
30.40
Nigeria
34? API 0.16% sulfur
Qatar
40? API 1.17% sulfur
19.72
31.76
37.12
34.56
29.95.
29.49.
28.48.
28.10
28.10
28.10
Saudi Arabia
Berri
39? API 1.16% sulfur
Light
34? API 1.70% sulfur
17.26
28.67
32.50
34.00
29.46
29.00
28.32
28.00
28.00
28.00
Medium
310 API 2.40% sulfur
16.79
28.12
31.84
32.40
27.86
27.40
27.48
27.40
27.40
27.40
Heavy
27? API 2.85% sulfur
16.41
27.67
31.13
31.00
26.46.
26.00
26.50
26.50
26.50
26.50
UAE
39? API 0.75% sulfur
19.81
31.57
36.42
34.74
30.38
29.56
28.52
28.15
28.15
28.15
Venezuela
26? API 1.52% sulfur
17.22
28.44
32.88
32.88
28.69
27.88
27.69
27.60
27.60
27.60
a F.o.b. prices set by the government for direct sales and, in most
cases, for the producing company buy-back oil.
b Weighted by the volume of production.
? Beginning in 1981 the price of Kirkuk (Mediterranean) is used in
calculating the OPEC average official sales price.
Sanitized Copy Approved for Release 2011/07/01: CIA-RDP88-00798ROO0100130007-2
 Sanitized Copy Approved for Release 2011/07/01: CIA-RDP88-00798R000100130007-2
OPEC: Average Crude Oil Sales Price
Sanitized Copy Approved for Release 2011/07/01: CIA-RDP88-00798R000100130007-2