ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500140016-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 21, 2016
• Document Release Date: April 1, 2009
• Sequence Number: 16
• Publication Date: May 31, 1973
• Content Type: REPORT

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A RDP85TOO875RO01 50014
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 Approved For Release 2009/04/01: CIA-RDP85T00875RO01500140016-0
Secret
Economic Intelligence Weekly
Secret
CIA No. 7463/73
31 May 1973
Copy No. -1. PI
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Iran Seeks Expanded Credits for US Arms
Japan Buys into Iraqi Oil
Japan Outbids US Companies for Ecuadorean Oil
International Implications of China's Economic Problems Lagging
farm output is forcing Peking to turn to American and other
granaries for relief
South African Gold Production Recedes Gold production drops off
as high world price shifts processing to lower grade ores.
Postmortem on the Recent Monetary Pressures The predominance
of floating exchange rates clearly helped the international monetary
system.
Mexico Tightens Controls on Foreign Investment President
Echeverria's new rules probably will cut US direct investment outlays
over the short term.
Note: Comments and queries on the contents of this ublication are welcomed.
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31 May 1973
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ECONOMIC INTELLIGENCE WEEKLY
Iran Seeks Expanded Credits For US Arms
General Toufanian, Iran's Vice Minister of War, will come to
Washington early in June to seek a doubling to $700 million of the current
annual arms credits from the US Export-Import Bank in FY 1974. The
higher level of credits would help the Shah meet his estimated $1 billion
payments due. US military suppliers in FY 1974. The United States is the
major supplier for Iran's expanding arms procurement program, having
agreed to deliver about $2.6 billion in arms during the next several years.
Japan Buys into Iraqi Oil
Japan's recent purchase of an 18% share in an Iraqi-French concession
in southern Iraq paves the way for delivery of up to 110,000 barrels of
oil per day, beginning in 1975. The deal comes on the heels of several
other arrangements made to help assure long-term oil supplies. Initial output
of the Iraqi field is expected to be 180,000 b/d
Production from the concession area is contingent upon
completion, with Japanese help, of a dee water terminal at Fao.
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Japan Outbids US Companies for Ecuadorean Oil
Sumitomo Shoji Kaisha has outbid 23 companies, many of them US,
for purchase rights to all Ecuadorean government oil received as royalties
from Texaco-Gulf during the next two years. Quito previously received its
16% royalty in cash, based on a reference price of $3.20 a barrel, but
it now insists on taking 35,000 barrels a day instead. The Japanese firm
bid $3.61 per barrel for this low-sulfur crude.
2
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Articles
International Implications of China's Economic Problems
Difiicultics in agriculture and efforts to build up industry arc causing
Peking to turn increasingly to world markets for help.
To compensate for inadequate
harvests in 1971 and 1972, the PRC ran
up a near-record import bill of $500
million for grain, cotton, and other farm
products last year and will spend more
than twice as much this year. Because of
world shortages, the United States almost
overnight has become China's principal
upplier of agricultural products and is
now one of its three top trading partners.
? In 197"1 i;ie United States will sell to China about $500 million
worth of agricultural commodities.
? American firms also are participating indirectly in the sale to China
of complete industrial facilities, contracts have been signed for four
huge chemical fertilizer complexes and four nman-ncide fiber facilities
that will cost a total of about $300 million.
The need to expand and modernize the steel, electric power, and other
basic industries is a less pressing problem, although here too Peking will need
imports. West German and Japanese firms are competing to sell China a $300
million steel complex, which would increase China's finished steel capacity
by 3 million to 4 million tons from the present 17 million tons. The Chinese
continue to negotiate with both Communist and non-Commuist countries
for conventional and nuclear generating equipment, :which might total as
much as $500 million. Other negotiations are under way to upgrade the
transportation and communications systems.
Peking is clearly giving first priority to maintaini ig personal
consumption and increasing agricultural production. The problem is,
however, that imported fertilizer and fiber plants will not come into
operation until after 1975. Thus per capita output of key farm products
such as grain and cotton is not likely to be much above the 1971 level for
3
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the next several years. Under these circumstances, China should be in the
market for substantial amounts of farm products into the late 1970s, even in
good years, and the United States should remain one of China's major
suppliers.
China is taking new measures to finance its escalating import bill:
by raising prices for exports in strong demand;
by encouraging greater contributions from overseas Chinese;
by developing markets in new areas such as the United States and for
new products such as petroleum; and,
in a sharp break with past practice, by purchasing complete industrial
plants on credit.
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South African Gold Production Recedes
The climb in the London gold price to more than $100 an ounce
since mid-May will tend to reinforce the recent downward trend in South
African gold output.
? High gold prices allow producers to exploit previously
unprofitable low-grade ores.
? Because processing capacity is fixed in the short run, this
results in a decline in gold output.
? As a result South African output has dropped from 900
tons in 1972 - about 60% of world output -- to an annual
rate of about 850 tons so far in 1973. Production in the
first four months of 1972 and 1973 follow, in tons:
1972 1973
Jan 78 72
Feb 72 71
Mar 75 72
Apr 76 70
In the last half of 1972, South Africa's balance of payments had
improved `o such a degree that Pretoria needed to market less than
three-fourths of its gold production. Since March 1973, sales of gold have
more nearly matched output because of a rise in imports of machinery
,.id consumer goods. If a price of $100 or more for gold is maintained,
however, South Africa can cover its trade deficit with only a fraction of
it
s gold output. Gold and hard currency reserves are at an all-time high
of nearly $2 billi
on
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Postmortem on the Recent Monetary Pressures
The predominance of floating exchange rates clearly helped the
international monetary system weather the latest storm.
0 Only minor central bank interventions were required to
maintain the joint European float, and there were none
of the massive central bank dollar c "sport operations seen
in the earlier currency crises.
trade has been less affected
by adjustments in the floating currencies than had
previously been anticipated.
Although the present system performed well, there was one new
element that could intensify future currency pressures. It appears that in
the absence of central bank intervention the velocity of currency turnover
in the foreign exchange markets increased substantially, permitting a large
increase in the volume of currency transactions with only a small increase
in currency holdings. There was little movement in the Eurodollar rate,
indicating that banks had adequate funds to meet trader demand for dollars
to buy gold or other currencies. By contrast, when the dollar came under
heavy pressures earlier this year, speculative demand for bank funds
temporarily pushed the one-month Eurodollar interest rate from about
6.25% to 10.5%. By holding down the cost of speculative dollar borrowing,
increased currency velocity could in the future contribute to large variations
in exchange rates.
Trader confidence in the dollar has yet to be restored. In market
developments in the last week the dollar has been mixed and the gold price
has run to about $115 an ounce. Although the dollar strengthened last
week following the announcement of a dramatic improvement in the April
US trade balance and the accompanying rally on the New York Stock
Exchange, it subsequently fell back to new low points relative to the joint
float currencies in light trading.
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Mexico Tightens Controls on Foreign Investment
President Echeverria's new foreign investment policy probably will
substantially reduce US direct investment spending in Mexico this year. The
longer term impact will depend largely on how the policy is administered.
Restrictions adopted in February and early May require new companies
to have majority Mexican ownership and management control, block foreign
takeovers of established firms, and aim at reducing royalty payments for
product designs and production processes. According to government
spokesmen, exceptions might be made in the natioiial interest for new
investments that bring in advanced technology, create jobs in depressed
areas, or are export-oriented. Also exempted arc new border industry firms
that assemble US-made components for re-export to the United States --
the most dynamic area of US investment activity since the late 1960s.
Thus far, US businessmen in Mexico generally are waiting to see how
the laws are enforced, although some with long-established ties are going
ahead with planned investments. Chances are good that net US direct
investment outlays will drop sharply from last year's $200 million. If
enforcement is vigorous, as seams especially likely in the case of the
technology laws, US investment inflows may be slow to recover. In any
case, new foreign investments may be focused increasingly on export
activities that in time could adversely affect the US trade balance with
Mexico.
Mexico traditionally has led the way in Latin America in regulating
foreign capital. So far, however, restrictions have been outweighed by
favorable investment returns, and foreign investment in Mexico has mounted
to about 10.2 billion, of which some 80% represents US holdings. During
1961-71, the book value of US investor?nts more than doubled, mostly
,4s -a result of outla s for import-replacing manufacturing plants.
7 ,
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DOMESTIC ECONOMIC ACTIVITY
COMPARATIVE INDICATORS
Percent Change it Annul!
Rate From Pried
GNP(At Constant Market Prices)'
Y4nth
12 Months 3&V 1Ewl!,r
Latest Data Index Eviler tua,r
pusher
United States
73 I
Japan
73 I
West Germany
72 IV
France
72 III
United Kingdom
73 I
Italy
72 IV
Canada
72 IV
INDUSTRIAL PRODUCTION'
United States
Mar 73
Japan
Mar 73
West Germany
Feb 73
France
Feb 73
United Kingdom
Feb 73
Italy
Jan 73
Canada
Dec 72
RETAIL SALES'
United States
Mar 73
Japan
Jan 73
West Germany
an 73
France
Feb 73
United Kingdom
Feb 73
Italy
Dec 72
Canada
Dec 72
WHOLESALE PRICES
United States ar 73
Japan
%pr 73
West Germany
ar 73
Fiance
ar 73
United Kingdom pr 73
Italy ec 72
Canada eb 73
CONSUMER PRICES
United States F11r 73
Japan pr 73
West Germany pr 73
France Mar 73
United Kingdom Apr 73
1107
Jan 73
anada
Mar 73
MONEY SUPPLY
United States
Mar 73
Japan
Feb 73
West Germany
Mar 73
France
Feb 73
United Kingdom
Apr 73
Italy
Nov 72
Canaria
IDec 72
3us$iseib ad}gtad
1910-109
114.6
127.9
107.1
111.0
107.7
107.5
114.1
115,11
125.9
114.4
121.3
108.2
100.7
115.8
1910-IDO
139.5
131.3
128.5
114.0
112.3
131.5
124.4
1910-100
111.5
110.2
112.8
116.4
117.1
107.4
119.8
191D-100
111.6
120.7
117.2
116.4
126.0
116.3
112.3
1910-100
.1?.:
156.5
139.5
137.3
1:'8.5
153.7
141,9
7.9
16.0
4.7
4.4
7.1
2.7
5.9
13.3
17.6
10.4
10.9
19.0
-0.6
8.3
16.0
18.4
9.0
7.0
9.7
17.3
9.7
5.0
11.4
5.6
11.0
4.8
5.3
13.8
4.7
9.4
6.7
6.4
9.2
8.1
6.0
6.3
26.4
15.5
12.2
13.1
18.6
15.8
(Previous
Quarter)
7.9
21 .4
7.4
7.7
6.2
0.6
10.7
8.7
7.6
23.e
34.9
22.7
4U.6
11.3
0
9.8
19.6
-16.4
-41.5
17.2
5.1
33.0
85.5
35.9
57.8
23.1
75.6
18.8
67.6
12.3
25,4
! 9.7
56.2
I !'.9 -6.5
11.5
13.9
17.2
6.6
11.4
6.6
16.2
16.8
-2.1
-15.4
7.8
11.9
28.1
26.2
7.9
11.4
23.4
25.3
5.6
0.7
3.2
6.4
13.2
25.4
9.5
13.3
6.7
3.3
2.0
1 . o
30.6
so.o
31.0
15.8
-4.0
-3.4
19.3
29.0
21.9
29.2
8.3
3.4
EXTERNAL ECONOMCI. ACTIVITY
Percent Chap
lades 12 arleAer aEvilerr Months IEmenth
Latest Data or Amount
IMPORT PRICES(RIOensl Currency) 1910-100
United States
Feb 73
119.9
10.0
11.0
7.3
Japan
Mar 73
106.5
13.1
22.2
-17.2
West Germany
Apr 73
111.8
13.8
11.4
23.6
France
Dec 72
112.0
0.2
17.0
151.7
United Kingdom
Jan 73
121.0
14.1
36.3
10.5
Italy
Dec 72
114.0
4.9
11.5
11.2
Canada
Dec 72
106.8
4.4
6.6
15.8
EXPORT PRIG: S1Rntionat Currency) 1970-100
United States
Feb 73
114.4
8.0
13.2
34.6
Japan
Mar 73
99.9
2.8
6.2
6.2
West Germany
Apr 73
113.5
7.0
11.0
9.5
France
Dec 72
110.9
0.5
18.5
74.0
United Kingdom
Jan 73
121.0
7.1
10.6
10.5
Italy
Dec 72
108.0
1.7
7.8
11.8
Canada
!Dec 72
106.1
5.1
10.4
13.3
OFFICIAL RESERVES
United States
Mar 73
14.4
-2.8
-6.6
0.5
Japan
Mar 73
1ii.1
-2.1
-37.8
-47.8
West Germany
Mar 73
31.0
41.1
1U:.6
76.5
France
Mar 73
11.2
18.8
2.0
81.5
United Kingdom
Mar 73
6.0
-23.2
-14.2
26.5
Italy
Mar 73
6.2
28.9
-27.0
-26.7
Canada
Mar 73
6.2
-6.0
-29.8
-15.3
TRADE BALANCE Million US S Cumulative aIaanc3MdlionU5$) 72
1
1
United States (lab./Inb.)
Mar 73
-60
Jan-Mar
-840
,665
-1
Japan (Inb./Inb.)
Apr 73
440
Jan-Apr
1,513
2,412
West Germany
Apr 73
906
Jan-Apr
2,875
1,8:8
France (lab./!.ob.)
Apr 73
254
Jan-Apr
379
134
United Kingdom (!.ob./fob l
Apr 73
-111
Jan-Apr -987
-434
Italy unbici.f.)
Feb 73
-462
Jan-Febl -844
-174
Canada Bnb./I.ob.)
t,pr 73
152
Jan-Apr 487
190
Per it Change r?om
14 Dec 19 Mar 18 May
1971
1973
1973
Japan (Yen)
0.00379
16.38
-0.60
-0.18
West Germany (Deutsche Mark)
0.3623
16.75
2.32
0.47
France (Franc)
As of
0.2259
14.72
2.49
0.35
United Kingdom (Pound Sterling
25 May
2.54
-2.52
3.2
-0.Y3
Italy (the)
1.73
0.00170
-1.22
-4.01
0.17
Canada (Do14r)
1 .0021
0.4
0.44
0.34
Pecent Change From
14 Dec 19 Mar 18 May
1966 1971 1973 1973
United States
-14.50
-6.48
-0.58
-0.29
Japan
30.67
13.64
-1.06
-0.36
West Germany
26.20
7.14
1.91
-0.06
France
As of
-8.06
4.46
1.80
-0.10
United Kingdom
25 May
-21.69
-10.40
2.50
-1.17
Italy
1973
-12.07
-11.6
-5.6
-0.2
Canada
5.97
-1.11
-0.58
0.31
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