ECONOMIC INTELLIGENCE WEEKLY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001500140045-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 21, 2016
• Document Release Date: November 13, 2008
• Sequence Number: 45
• Publication Date: December 20, 1973
• Content Type: REPORT

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Secret
25X1
Economic Intelligence Weekly
.i ;
r.
Secret
State Dept. review completed CIA No. 7833/73
20 December 1973
Copy N2 185
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SIi,CIZE '
jTC
North Vietnam: Food Deficit Continues
The United States Begins to Import Polish Coal
China-USSR Air Service
The Dollar Continues Strong
US-Indian Rupee Settlement
Large Chinese Imports of US Scrap
India: Good News and Bad News Record agricultural production
helps the economy, but inflation, industrial recession, and
government bungling cloud the picture.
25X1 X6
Venezuela: Perez' Oil Policy Despite nationalistic statements, the
president-elect will seek to maintain good economic relations with
the United States.
Cuba Tinkers with Economic Management Under Soviet pressure, 7
Cuba is strengthening incentives and bringing prices more in line with
costs.
Soviet Economic Blueprint for 1974 The new plan suggests that
the economy will continue essentially on its present tack.
Comparative Indicators
Recent Data Concerning Dontc stic and External
Economic Activity
i
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ECONOMIC INTELLIGENCE WEEKLY
Notes
North Vietnam : Food Deficit Continues
North 'Vietnam's recently harvested rice crop was disappointing. Hanoi
reported that this year's autumn crop ranked fifth among those of the past
15 years. On this basis, food production this year will probably cover only
about three fourths of consumption requirements. Food imports f,om the
USSR and China, already running at record levels, will almost certainly
exceed the previous peak of 800,000 tons in 1968.
The United States Begins to Import Polish Coal
The first shipment of low-sulfur coal from Poland under an agreement
concluded last spring has arrived in the United States. Two powerplants
in New England will use the coal. The value of shipments is expected to
reach about $ 15 million in 1974 and presumably will be far greater in
the future because of a scarcity of domestic low-sulfur coal on the East
Coast. Polish coal output will be increased to meet both added domestic
needs and the large boost in exports planned for the next few years.
China is expected to begin direct air service to Moscow in February.
CIS AC, China's national airline, and Aeroflot, the Soviet national carrier,
each will be allowed one weekly non-stop flight each way between the
two capitals. The only international routes now flown by CAAC are to
Hanoi, Pyongyang, Rangoon, and Irkutsk. Aeroflot already operates service
'rom Moscow to Peking, with stops at Omsk and Irkutsk. CAAC can use
either its Il-62s or its recently acquired 707s on this new service.
The Dollar Continues Strong
The dollar's strength and sterling's weakness have continued to
dominate the international money markets in December. With the
deterioration in UK domestic economic conditions, rterling has set new
record lows almost daily. Traders have judged that London's new austeri`y
budget and energy consumption plans will prove inadequate to deal with
continued labor problems ai,d shortages. The mark and French franc are
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at their lowest levels against the dollar since the spring as the market
continues to focus on the economic implications of anticipated oil shortages
in Europe. Although Tokyo has maintained the yen at the rate reached
in mid-November, the government has been forced to change banking
regulations and restrict Japanese tourists' spending abroad to slow its reserve
US-Indian Rupee Settlement
On 13 December the United States and India initialed an agreement
disposing of US-owned rupee holdings, which will grant to India rupees
worth approximately $2.2 billion and retain rupees worth $1.1 billion for
US uses. Under previo1ss agreements, these rupees could be neither converted
to dollars nor spent in India without New Delhi's approval, except to cover
US Embassy expenses in India. The amount granted to India nominally
will be used to finance development projects under India's Fifth Five-Year
Plan (1974/75-1978/79), mainly for agriculture, power, housing, and family
planning. Transfer of these holdings, however, does not provide India with
new resources. Of the amount retained by the United States, $64 million
will be converted ;o dollars and the rest will be used to finance US Embassy
expenses in India, US aid to Nepal, and additional Indian exports to the
United States. Before implementation, the agreement must be ratified by
the US Congress and the Indian Parliament.
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Large Chinese Imports of US Scrap
China imported more than 600,000 tons of scrap iron in the first 10
months of 1973, more than 350,000 tons from the United States. US
exports for the whole year may exceed 600,000 tons. In 19%2, China
imported only 360,000 tons, none from the United States. China's needs
for imported scrap are rising at a time when worldwide demand has also
increased sharply. Because of the impending US policy of limiting annual
scrap exports to the average of the three years ending in June 1973, China --
which has bought US scrap only in 1973 - will be especially hard hit.
Ambassador Bruce has asked for a review of Peking's case.
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An inventory of India's economic position reveals some short-term
economic strengths which, hohever, are overmatched by continuing
fundamental weaknesses. On the bright side, the favorable monsoon will
mean record foodgrain and commercial chops for the fiscal year ending
31 March 1974. India's short-term international financial situation also is
encouraging.
? International reserves are $1.2 billion, the equ;-ialent of
about five months' imports.
? Additional available IMF fluids stand at $1.1 billion.
? Unused non-project foreign aid is about $450 million.
? Both the USSR and the Western Aid Consortium appear
willing to increase their support.
But one good monsoon and the ability to run up a higher foreign
debt will not turn the economy around.
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SECRE'T'
? Prices in October were 21%10 higt,er than a year ea.lier, and
the supply of goods on almost all fronts continues to lag
behind growing demand; the government, faced c.!ith sh?trply
increased outlays on food subsidies, drought relief, and the
salaries of government workers, remains reluctant to increase
taxes on agricultural income, the only remaining large tax
source.
? Industrial production has grown less than No this year,
compared with 71o in 1972; India has its own energy crisis
with the construction of electric power stations far behind
schedule, coal production lagging, and pet;olcum imports
curbed by skyrocketing prices and Arab cutbacks in
production.
? Imports recently have been growing at a 341; c,ip, compared
with 12% for exports; the jump in imports unfortunately
reflects, not higher purchases of industrial raw materials and
components, but rather increased imports of foodgrains and
higher prices for oil and fertilizers.
As for economic policy, the government has succeeded in combining
the worst features of both a planned and a market economy. Private
investment in industry, trade, and agriculture continues to be hobbled by
an incredibly indecisive bureaucracy and the expansion of the maze cf
regulatory requirements.
Critics from the press, the universities, and the business sector advocate
greater use of the market mechanism on all fronts -- for example,
elimination of price controls, liberalization of licensing requirements, and
reduction in the government bureaucracy. Critics of the proposed Fifth
Five-Year Plan (to begin on 1 April 1974) claim that it ignores economic
realities. A leading economist in the Ministry of Planning has resigned in
protest against the plan's unrealistic trade and production goals, and a key
member of the prestigious National Council of Applied Economic Research
has recommended that the plan be delayed a year. Nonetheless, the
government continues to slowly push ahead with the much criticized plan.
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CUBA TINKERS WITH ECONOMIC MANAGEMENT
Pressed by the Soviets - who pick up an annual half billion dollar tab
for the Cuban economy - the Castro government is taking steps to
strengthen incentives and bring prices more in line with costs.
? Certain workers are to begin receiving pay for overtime work.
? Larger quantities of ration-free luxury consumer goods are
to be mad available, albeit at high prices.
0 Prices for public utility services are to be raised to reduce
the need for subsidies.
These measures violate basic tenets of Castro's utopian revolutionary code.
Castro acknowledged last month at the National Labor Congress that the
backtracking was necessary because he had gone too far and too fast in
bringing Communism to Cuba.
These steps will complement other reform measures being taken under
Soviet prodding.
Immediate control of the economic bureaucracy is being
shifted to some extent from unqualified political appointees
to technicians.
Impulsive decisionmaking at top administration levels is
giving way to more disciplined, long-term planning.
New emphasis
accounting.
is being placed on quality control and cost
To help carry out the measures, the USSR has provided Cuba with 5,000
technical advisers - double the number of the late 1960s. Soviet emphasis
on reform recently caused Castro to complain that the USSR was obsessed
with efficiency.
Poor management is a major factor in Cuba's depressing economic
performance and in the Soviets' growing dissatisfaction. Even Cuba's last
conspicuous success - the intensive sugar production campaign that brought
a record output of 8-1/2 million tons in 1969/70 - appears to have been
a mistake. Only now is the economy fully recovering from the disruptions
caused in other sectors. Even though Soviet economic assistance has
permitted fixed investment to reach about 18% of GNP, total output has
stagnated in recent years, and per capita output has declined. The new
measures are a small beginning in righting the direction of the economy.
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President-elect Carlos Andres Perez has made a number of strongly
nationalistic statements that foreshadow changes in Venezuela's economic
relationships with the United States. He has pledged to:
? Accelerate nationalization of foreign oil concessions, which,
under the Hydrocarbons Reversion Law of 1971, are
scheduled to revert to the state, beginning in 1983;
? Use oil to compel industrialized countries to (a) remove
trade barriers on Venezuela's non-petroleum exports and
(b) assure Venezuela of needed supplies of raw materials;
e Give Venezuela's interests precedence over the needs of
importing countries - e.g., development of the Orinoco Tar
Belt wil', be carefully controlled by the state.
Despite these statments, Perez is likely to manage Venezuela's external
economic relations pragmatically. He recognizes the need for good relations
with the United States - Venezuela's largest trading partner - and probably
will seek expanded US t:ade and investment on terms more favorable to
Venezuela. His call for accelerated nationalization reflects an effort to
prevent further damage from the Reversion Law. The law has discouraged
investment and exploration for additional reserves and probably would result
in the decline of the industry if the government waits until 1983 to take
over. Although Perez has been vague about the future role of the
international oil companies, he acknowledges the need for their technical,
financial, and marketing resources.
Perez is not likely to succumb to the pressure of conservationists, who
argue that rapidly rising revenues now permit a cutback in oil production.
Venezuela's current consumption and planned development needs require
growing oil revenues, and Perez will continue to be under considerable
pressure to maximize Venezuela's benefits from 'is oil. His party's strong
position in the new Congress enhances the prospects for a petroleum policy
mutually beneficial to the United States and Venezuela.
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The USSR's economic guidelines for 1974, presented at last week's
Supreme Soviet session, show that the economy will continue essentially
on its present tack. The main features of the plan are:
? Substantial growth in GNP and industry;
? Continued large injections of capital and materials into
agriculture;
? A concentration of investment resources on completing
projects already begun; and
e Continued gradual growth in defense spending.
Soviet 1974 Plan in Perspective
Average Annual Percentage Rates of Growths
Preliminary
1971-72 1973
M
Five-Year Plan
1971-75
Major aggregates
(Western concepts)
GNP 3 7
Industrial production 5'k 6
Agricultural production -3'h 12
Investment
Total boss fixed in-
vestment 7 3'k
Energy
Total primary energy
(excluding electric power) 4 5'h
Coal 2%z 2
Oil 6'h 7
Gas 5'/ 6'h
Electric power 7y 6'h
Resources for agriculture
Delivery of machinery 10'/ 13
Delivery of mineral
fertilizer 9'1 8'f
Consumer welfare
(per capita)
Consumption 3 4
Housing space 2 2
I
6
8
3'h
7'/
10
7'/
4
2'h
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Soviet, pla;tning czar Nikolay Baybakov pointedly coN;nmentcd that
t,le plan "ensures a normal and uninterrupted supply of fuel and electricity."
Growth rata for crude oil and natural gas, which account for about
three-fifths of total elicrgy consumption, are targeted to be the same as
or higher than in 1973.
Although the explicit defense allocation in the state budget shows a
2'%, decline compared with 1973, other indicators suggest an increase in
military and space expenditures. For example, outlays for science -- a
category that includes most space and defense R&D activities -- are
scheduled to rise L, nearly 611o in 1974.
Farm output is slated to increase by 6-1/2% over 1973, a record
agricultural year. Despite another major boost in the scheduled a61ocation
of machinery, fertilizer, and "titer farm inputs, prospects for a substantial
gain in agricultural output are dim unless the above-average weather
conditions of this year are matched in 1974.
Foreign trade with the "developed capitalist nations" figured
prominently in the plan presentation. Baybalov underscored the in portancc
of importing advanced types of machinery and equipment and reiterated
the leadership's preference for self-liquidating credits that are repaid in goods
rather than currency.
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 United States
Japan
West Germany
Franco
United Kingdom
Italy
Canada
GNP*
Constant Martini llr:ces
United States
Japan
West Germany
France
United Kingdom
Italy
Canada
RETAIL SALES'
Current Prices
United States
Japan
West Germany
France
United Kingdom
Italy
Canada
United States
Japan
West Germany
France
United Kingdom
Canada
Euro-Dollars
20-Dec 73
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Nov 73
Oct 73
Sep 73
Sep 73
Oct 73
Oct 73
Sep 73
Jun 73
Sep 73
Aug 73
Aug 73
May 73
Oct 73
0.2
1.2
1.1
-4.5
0.1
-2.4
1.8
2.1
0
-4.3
0.7
2.3
Avorngn Annual
Growth (torn Since
rnrront Chnngri --_--
la.esl Irout 14evinns I Year Previous q .:
(tuarter (luarter 191(1 Inrlint Quarter
73 111 0.9 6.0 5.7 3.7
73 III 0.5 8.5 10.0 2.0
7311 -2.3 3.0 0.2 -8,0
73 11 0.7 0.2 0.7 2.0
73 111 10 4.11 11.4 4.2
731 0.0 3.1 5.2 3.4
1 73 111 0.4 I 5.7 0.9 1.7
I'erceiir Change
Intent Irom Previous
Month Month
19711
5.8
9.3
4.3
0.0
3,7
4.1
0.0
Percent Change
Latest from Previous
Month Month 1970
Nov 73 1 0.1 I 11.0
1 2.5
8.0
3.1
11.1
11.3
Representative Raw
Prime finance paper
Call money
Interbank loans (3 Months)
Call money
local authority deposits
Finance paper
Three-month deposits
Average Annual
Growth Rote Since
I Year
Earlier
0.4
17.0
9.7
4.9
5.8
10.5
8.3
Average Annual
Growth Rate Since
1 Year
Earlier
11.4
22.0
4.8
1.8
12.1
20.4
10.1
3 Months
Earlier" I
2.0
10.2
- 3.7
7.7
2.7
18.2
-3.4
3 Months
Earlier"
8.5
14.3
Latest Date
14 Dec 8.25
30 Nov 9.25
14 Dec 13.00
7 Dec 11.50
Dec 15.38
14 Dec 9.25
14 Dec 10.44
United States
Japan
West Germany
France
i Italy
Canada
1Yor
cattier
5.13
4.25
0.75
7.00
5.59
5.13
8.06
United Slates
Japan
West Germany
France
United Kingdom
Italy
Canada
WHOLESALE PRICES
Induclrull
United States
Japan
West Germany
Franca
United Kingdom
Italy
Canada
14.25
9.56
14.06
8.63
11.44
Avnrnga Annual
Grawlh Hole !;ntrr
Verrenl Chaney -'---
Lrinsl ham I'revmus I Year 3 Months
Month Month 1910 Inrhxr Inrher
Nov 73 3.2 0.0 12.3 21.3 i
Nov 73 3.2 7.0 22.3 31.9
Oct 73 0.0 4.9 7.3 5.2
Sop 73 0.' 7.0 14.9 14,0
Nov 73 1.3 8.0 9.5 19.3
tact 73 2.0 0.8 20.1 16.0
Sap 73 -0.7 10.0 24.6 45.0
Vxicrni Chang;
latest ham Previous
Month Month
Oct 73
Oct 73
Oct 73
Oct 73
Nov 73
Oct 73
Oct 73
Percent Change
I elect from Previous
Month Month
Nov 73 I 0.9 I
Aug 73
Sep 73
Sep 73
Oct 73
Apr 73
Oct 73
1910
5.0
8.1
5.9
6.6
8.9
7.3
5,4
1970
7.2
17.0
8.7
12.3
10.3
20.4
13.4
Average Annual
Growth Rate Since
I Year
Ear her
7.9
14.2
0.6
8.1
10,4
11.0
8.7
Average Annual
Growth Role Since
I Year
Earlier
5.5
28.3
0.4
8.1
6.9
19.1
13.8
'Seasenelty adlvit.d
"Avrr0O1 for leleet 3 vidrtthe compinrd.
ivhh evtiriee tar pradue 3 elefithe:..
3 Months
Earlier
12.3
17.9
3.8
11.1
15.7
8.3
9.0
3 Month.: !;.
Cartier
1.2
5.7
-12.3
-3.8
1.4
13.7
10.9
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